It’s been widely reported that a warm summer discouraged Brits from seeking sunshine abroad. In fact, most UK-listed tour operators have blamed heatwave-induced staycations for subdued growth in the latter part of the year. But for Thomas Cook (TCG), the situation is so dire that it has prompted a second profit warning in the space of just two months, only days ahead of full-year results. Ultimately, the company decided to cancel its full-year dividend.
Despite a 6 per cent rise in like-for-like sales to £9.58bn, underlying operating profit fell by nearly a fifth to £250m, missing analyst expectations by 10 per cent. Most of this shortfall came from an £88m decline in tour operator profits, dented by heavily discounted late bookings after Brits were less inclined to book last-minute summer getaways. But the miss also included £28m of "legacy and non-recurring charges" to underlying operating profit, which included a write-down of historic hotel receivables, £4m-worth of flight disruption costs and £10m in “transformation” costs.
Now, Thomas Cook has set itself some "strategic priorities" for the coming year, which include addressing the poor performance in the UK tour operator business and better management of capacity and operational flexibility. Cost savings are also on the agenda, as is a focus on selling higher-margin own-brand hotels and holidays.
September’s profit warning also blamed the recent weather for discouraging holidays abroad. But this second update, released three days ahead of the group's annual results statement, is more worrying. Indeed, the £28m charge could have been classified as a one-off item if the problem was exceptional, but it made a last-minute shift into the reported figures instead. An £80m increase in net debt to £389m was also higher than some expected, which management blamed on delayed bookings. A free cash outflow of £148m wasn't ideal either, partly a result of a slow start to the winter booking season.
