What a difference a year makes. Thomas Cook was struggling with £1 billion-plus in debt and a 13p share price a year ago. The company began this week with shares priced around 160p.
“Thomas Cook on the road to recovery” and “Thomas Cook back from the brink” were just two of the national press headlines following the group’s third-quarter results last Thursday.
Go back a year further to July 2011 and Cook was in the act of going off a cliff, issuing a third profit warning in 12 months that triggered a crash in its value.
The company blamed the Arab Spring for that shortfall – though, to be fair, Tui Travel did the same when it announced a fall in profits days later.
But for Cook, and its then chief executive Manny Fontenla-Novoa, it was the final straw.
The group entered a year in purgatory, requiring a string of refinancing deals to keep it afloat before settling into a kind of stability with a share price that left it largely worthless.
Cook was a far cry from the FTSE 100 company it had been, despite running successful and profitable businesses in two of Europe’s three biggest markets – Germany and Scandinavia.
Thomas Cook was a UK name and UK-listed, and in the City of London it was seen as a basket case – the group’s demise taken to represent the death of the package holiday and, with it, the death of the traditional travel company.
When current chief executive Harriet Green presented her first set of Cook results (and a third-quarter operating loss) a year ago, she had been in the post barely a day or two.
Green would subsequently acknowledge (at a Travel Weekly Business Breakfast early last month) that her biggest challenge was to find £1.6 billion in financing off the back of a 13p share price.
By June this year she and chief financial officer Michael Healey had done it.
Last week, Green could point to “significant progress” in transforming Cook and claim: “This is just the start. We see huge potential.”
Naturally, the City analysts loved it.
In essence, there were four positive factors to the group’s third-quarter results – two of them major – one minor negative and a number of ‘don’t knows’.
First, Cook completed that £1.6 billion refinancing in June. Second, its net debt has more than halved to £452 million.
That is some achievement in the current climate of suppressed lending to business and pressure on spending by consumers.
Third, Green could point to an operating profit of £1 million for April to June. It is a token amount but the message it conveyed to the City was unmistakable.
Fourth, she could report that social unrest in Egypt and Turkey “is not having a significant impact”. The group has acquired a capacity to ride out events – precisely what it seemed incapable of two years ago.
The one tiny downside is that last year’s late fillip to the lates market is unlikely to materialise. “We recognise that the lates market last year was particularly strong,” said Green
It is too early to gauge the impact of other aspects of Green’s strategy.
The chief executive has proselytised a ‘high touch, high tech’ group message and targeted 55% of UK bookings via the web by 2015.
The latest figures show web bookings at 35% of the total this year, just one percentage point up on 2012. There is a way to go.
Similarly, Cook talked about its concept hotels and a 38% rise in bookings for these this summer. But this remains a concept in progress.
The group has 93 such properties on sale this summer and will open another 46 for next year. We must assess the impact in a year or two.
When it came to current trading, the news was nuanced. The group has sold more ‘planned capacity’ for the summer season (85%) than a year ago and has 9% less to sell.
That is an improvement, allowing optimism that “we will maintain satisfactory prices and margins” for the remainder of the summer season.
Group revenue for the first nine months was up a tad (about 0.4%) despite a 6% cut in capacity.
Trading in the UK appears broadly in line with capacity which is down 3% on last year and “bookings reduced by slightly less”. The key point is that average selling prices are up by “over 5%”.
Elsewhere, Cook reported bookings in Northern Europe and Continental Europe (excluding France) up 1% and airline sales in Germany up 3%. Only France continues to tank.
There is significant work still to do on cutting group-wide costs, with most of the savings in the UK now realised (£120 million of the £140 million identified).
Green and Healey have promised a further £230 million in savings across the group by 2015.
So a sober assessment would be that the jury remains out on key planks of Cook’s strategy: the UK web business, concept hotels and group cost reduction.
In fairness, that is inevitable at this stage. The reality is Cook’s share price is roughly where it was in early 2011 and shareholders would have killed for that year ago.
When Green took over, Healey had also just joined – from Kwik Fit. The pair’s first year together has produced a kwik fix. Now comes the fine-tuning.
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