11th Feb 2015 12:03
LONDON (Alliance News) - Travel operator Thomas Cook Group PLC Wednesday said it narrowed its first quarter operating loss from the year before, as it continued to cut out costs across the business, but cited pricing and competitive pressures, and tough trading in continental Europe.
Thomas Cook reported a seasonal loss before interest and taxes of GBP73 million for the three months to end-December, smaller than the GBP122 million loss it reported a year earlier.
The group's gross profit in the quarter actually fell by more than 10% to GBP327 million from GBP265 million in the first quarter of last year, but lower operating expenses, fewer restructuring costs and the absence of a goodwill impairment, which hit last year's first quarter, resulted in the group narrowing its pretax loss to GBP115 million, compared with last year's GBP161 million loss.
Revenue fell to GBP1.52 billion in the quarter from GBP1.65 billion last year, but grew by 1.6% on a like-for-like basis, supported by its concept hotels, city breaks and other new product sales, as well as a strong end to the summer season in its Airlines Germany unit, where passenger volumes rose.
Thomas Cook said its UK business and German airline business grew both revenue and operating profits during the quarter, but are facing a tough trading environment as competitive pressure heighten.
"While trading conditions continue to be tough, particularly in Continental Europe and Northern Europe, we nevertheless expect to deliver further growth in the 2015 financial year, consistent with our expectations at our recent full-year results," the company said in a statement.
The group said tough trading conditions, particularly in Continental Europe have hit average selling prices, while increased charges relation to EU legislation requiring compensation for flight delays, also have partially offset the positive effects of further cost savings and the benefits of lower fuel costs.
"Underlying gross margin of 21.6% is 30 basis points lower than the prior year comparative. This reflects pricing pressures caused by overcapacity in the airline market creating high levels of competition, especially in Continental Europe," the travel operator said.
Thomas Cook, which does not to hedge the translation impact of profits generated outside the UK, also said that if current rates for euro and Swedish krona were maintained throughout the rest of the year, there would be a negative year-on-year translation impact of around GBP19 million.
Numis analyst Wyn Ellis said he sees a "modest" reduction in consensus forecast for the travel operator as a result.
"We expect modest reductions in consensus forecasts to take account of currency movements. We believe that the consensus [earnings before interest and taxes] forecast for financial year 2015 stands at GBP375 million with a range of GBP347 million to GBP388 million. We are not changing our forecast of GBP350 million," Ellis wrote in a research note Wednesday.
Thomas Cook said that 85% of its Winter season holiday programme has been sold, but average selling prices are down 2%. It said 41% of its Summer 2015 season is currently sold, but cited stronger trading in the UK against tougher trading conditions in continental Europe and parts of northern Europe. The group did say that it has seen a "significant" improvement from those tougher European markets in recent weeks.
The group said that Turkey and the Canaries remain its most popular destinations, while volumes to Egypt are improving, and the US is growing strongly, driven by new routes added. However, it said bookings in continental Europe are lower, having discontinued unprofitable routes in France and Russia, and as well as being affected by German customers booking trips later.
"The trading environment in many of our markets continues to be tough, but we believe the measures we are taking to improve our businesses will continue to strengthen our competitive position," said Chief Executive Peter Fankhauser in the company's trading update, its first since the surprise departure of former CEO Harriet Green last November.
On Tuesday, recently merged travel rivel TUI AG said it reduced its underlying operating loss in its financial first quarter, supported by a 5.4% increase in revenue, an improved profit performance from its hotels and resorts, and a return to profit for its cruise ship division.
The enlarged group, recently formed out of a merger between UK-based TUI Travel PLC and its German parent TUI AG, said it is confident of delivering full-year underlying operating profit growth of between 10% and 15% at constant currency rates.
In a separate statement Wednesday, Thomas Cook announced a tender offer for its EUR400 million 6.75% guaranteed notes due 2015, stating the the purpose is to "manage pro-actively its upcoming debt redemption". It said it will purchase the notes at a price of 101.85 per cent.
Thomas Cook shares were down 4.8% at 126.80 pence late Wednesday morning, one of the biggest fallers in the FTSE 250.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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