Thomas Cook profit warning prompts 'fundamental review' of UK business

Thomas Cook profit warning prompts 'fundamental review' of UK business

Thomas Cook has issued a profit warning saying that its third quarter profits will be £5 million below expectations.

The travel giant is launching a “fundamental strategic and operational review” of its UK business amid the squeeze on consumer spending.

Cook's full year underlying operating profit is now expected to be around £320 million – a £40 million drop on the 2010 result.

The company blamed the £5 million quarterly shortfall on the higher-than-forecast impact of political unrest in the Middle East and North Africa and the performance of the UK business in the face of “difficult” trading conditions.

The group said its underlying operating profit for the three months to June 30 is likely to be around £20 million, which is £5m lower than the comparable  period in 2010.

The announcement sent Thomas Cook shares into freefall, with the price plummeting to 91p - 32% down on the previous day's close - an hour after the London Stock Exchange opened.

“The profitability of our UK business continues to be impacted by the difficult trading conditions, mainly as a result of the continued squeeze on UK consumers’ disposable income,” a statement said. 

“As a result, it is now appropriate that we revisit the effectiveness of our UK business model.” 

The company added: “There are a number of initiatives already underway to deliver progress including the disposal of certain hotel and surplus assets.

“In the UK, we continue to keep prices competitive and generate improved load factors although margin is being adversely affected.”

Cook added that the impact of the Middle East and North Africa situation will be “substantially higher” than previously estimated, with its French business in particular seeing further reduced demand and lower margins during the peak season for key destinations of Egypt, Tunisia and Morocco.

With disruption in those regions expected to continue, City analysts contacted by Travel Weekly were doubtful of Thomas Cook making up ground in 2012. Investment bank Panmure Gordon added that the giant is facing 'company-specific issues' as well as external factors.

European businesses remain strong

Thomas Cook's Central Europe, Northern Europe and Airlines Germany businesses continue to perform well and are delivering operating results ahead of the prior year.  

“We continue to perform well on cash flow, with circa £900 million of available cash and committed facilities at July 11, and our focus remains on reducing our debt and strengthening our balance sheet,” the company said.

In addition, the giant's acquisition of a majority stake in Russian travel giant VAO Intourist is on the cusp of being finalised.

The company applied for a dual listing on the London Stock Exchange to cover the deal on July 11.

It applied for a total of 16,697,548 ordinary shares at €0.10 each in the company to be admitted to be traded on the stock exchange's main market for listed securities. 

The shares have been issued pursuant to the acquisition of a 50.1% stake in a joint venture with VAO Intourist in Russia, which was announced last November.

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