16th Sep 2014 07:45
LONDON (Alliance News) - UK travel operator Thomas Cook Group PLC Tuesday said it expects to report underlying earnings before interest and tax of between GBP315 million and GBP335 million for the full year, broadly in line with market expectations for the group.
The travel group said demand for late summer holidays picked up, with a strong Summer 2014 "late bookings" market particularly in the UK, albeit with some pricing softness due to higher European short-haul market capacity. It said it has currently sold approximately 92% of its Summer 2014 programme, the same as this time last year.
"The impact of continuing price softness, largely due to higher levels of market capacity, has been offset by the acceleration of our cost out measures," the company said, referring to its cost-cutting programme.
Alongside the UK, the group's biggest market, Thomas Cook also has seen strong demand in Germany and Northern Europe, including the Nordics. However, the group said Tuesday that Germany bookings have slowed, and its German business experienced weaker margins in the fourth quarter due to a combination of reduced demand and excess market capacity.
"Bookings in Germany, which had been strong, have recently moderated reflecting a less optimistic consumer climate due to geopolitical events, as well as a more subdued economic outlook as the EU considers adopting further sanctions against Russia," the company said.
Thomas Cook said 29% of its Winter 2014/15 programme in the UK has been sold, with bookings and average selling prices higher than last year, while Summer 2015 bookings have been "encouraging".
The group said it continues to see strong demand for its concept hotels and resorts and partnership hotels, which are available exclusively through Thomas Cook.
"Consistent with our strategy of improving the proportion of exclusive hotel product we offer to UK customers, average selling prices are expected to improve over the medium term. Bookings for exclusive hotel products have continued to show strong growth for the Summer 2014 and Winter 14/15 seasons," the company said.
Thomas Cook said it expects its operational performance for the financial year to end of September to show "material improvement" on last year, despite a recent downturn in consumer confidence in Germany.
Thomas Cook Chief Executive Harriet Green said she expects to report its ninth consecutive quarter of improved profitability when the company reports its full-year results on November 26.
"The success of Wave 1 of our cost out and profit improvement programme, together with the initial benefits from our new product strategy, means that we remain confident that our UK business will achieve its EBIT [earnings before interest and taxes] margin targets of 3.5% and 5% for the 2014 financial year and the 2015 financial year respectively," the company said.
In the financial year to end of September 2013, Thomas Cook reported like-for-like EBIT growth of GBP102 million.
The group said it expects to deliver further growth in the current financial year of between GBP89 million and GBP109 million, including the impact of currency moves, to improve underlying EBIT to between GBP315 million and GBP335 million, equivalent to growth of between 39% and 48%.
The company has been going through a major restructuring programme in the past couple of years, and has been cutting costs across the business as it tries to enhance margins and operate a leaner business.
As part of the group's turnaround plan, it embarked on what it called "wave one", which was to exit low-value businesses to help shrink its huge debt pile. The group also has made savings by reducing its brands and labels to 30 from 85. The travel group unveiled its second wave of cost targets in May, when it said it expected to reach GBP460 million per year in benefits by 2015, with a "wave 2" target of over GBP400 million by the fiscal year 2018.
"We have delivered more Wave 1 and Wave 2 cost out and profit improvement benefits, a higher rate of web bookings and importantly, given the encouraging customer demand for our exclusive concept and partnership hotels, more opportunities for profitable growth," said Chief Executive Harriet Green in the company's statement Tuesday.
Thomas Cook shares are lower following the company's announcement. Numis analyst Wyn Ellis commented in a research note: "Thomas Cook's pre-close is uninspiring...We expect the shares, which have been poor relative performers over the last few months, to remain subdued and there could be some consensus downgrades. UK summer pricing has continued to be weak... bookings in Germany, which had been strong, have recently seen quite a significant reversal."
The stock was 5.8% lower at 122.44 pence Tuesday morning, the worst performer in the FTSE 250.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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