Thomas Cook Group PLC Thomas Cook Group First Quarter Trading Update (2475E)

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RNS Number : 2475E

Thomas Cook Group PLC

08 February 2018

8 February 2018

First Quarter Trading Statement for the three months ended 31 December 2017

Customer-focused strategy delivers encouraging start to the year

HIGHLIGHTS

   --   Strong first quarter revenue growth of 7% to GBP1,749 million 
   --   Seasonal underlying operating loss improved by GBP10 million to GBP42 million 
   --   Successful EUR400 million bond refinancing extends maturities at reduced interest cost 
   --   Full year outlook in line with current expectations 

Peter Fankhauser, Chief Executive of Thomas Cook commented:

"While it remains early in our sales cycle, we've got the year off to a good start. A particularly strong performance from our Group Airline, taking advantage of the disruption in the UK and German markets by providing a high quality and reliable service to customers, has helped deliver revenue growth of 7 per cent and a GBP10 million improvement in the seasonal underlying operating loss for the first quarter.

"From all that we see so far, customers' appetite for a summer holiday abroad shows no sign of slowing down. We've taken early action to meet strong demand for destinations in the Eastern Mediterranean. This has enabled us to shift capacity out of the Spanish islands where we have seen a continuation of the margin pressures we experienced last summer, particularly for the UK market.

"We've also continued our drive to innovate and invest in ways to help customers get more from their holidays, with the launch last week of our 'Choose Your Favourite Sunbed' service, which will be available in at least 30 of our own-brand hotels and resorts for Summer 18. This builds on the success of our 'Choose Your Room' feature which attracted more than 10,000 bookings during the trial phase in 60 hotels and is set to be rolled out to 300 hotels for the peak Summer 18 holiday season.

"In addition, we've made good progress in strengthening our Group Airline. This includes expanding our capacity by 10 per cent for Summer 2018 to meet the increased customer demand we have experienced in recent months, and builds on the strong recovery in our German airline, Condor.

"This remains a highly competitive - and, at times, unpredictable - market, as the disruption in the airlines sector in recent months demonstrates. However, based on current trading and the continued progress we are making on implementing our customer-focused strategy for profitable growth, we expect to deliver a performance in line with current expectations for the full year."

FIRST QUARTER PERFORMANCE

Group revenue increased by 7% to GBP1,749 million in the first quarter, with more customers and higher pricing in both our tour operating and airline businesses.

Gross profit of GBP376 million was GBP16 million higher than last year, while gross margin of 21.5% represents a decline of 50 basis points over the same period last year, due to higher Spanish hotel bed cost inflation as highlighted at our full year FY17 results announcement, and a lower mix of long haul sales in the quarter.

The Group's seasonal underlying loss from operations improved by GBP10 million to GBP42 million, reflecting a good performance by our Group Airline, against a weak comparative period for Condor in particular.

Condor's turnaround has continued in line with our expectations, leading to an underlying loss of GBP13 million for our Group Airline, an improvement of GBP9 million. Our Group Airline, including Condor, carried 3.5 million customers during the period, an increase of 8% compared to last year. Seat load factor increased by 80 basis points to 88.0%, driven by higher short and medium haul demand.

The Group Tour Operator's underlying loss improved by GBP1 million to GBP22 million, with all segments achieving a similar result to last year. Corporate costs were GBP7 million, also in line with last year.

EBIT Separately Disclosed Items increased by GBP9 million to GBP27 million, reflecting the phasing of UK retail restructuring measures (including 26 store closures in the quarter) compared to last year, as we attract more customers to our digital channels, together with higher one-off costs such as transferring our Belgian airline to Brussels Airlines and establishing the hotel investment platform in partnership with LMEY.

Financial position

Net debt at 31 December 2017 was GBP1,296 million, an increase of GBP71 million over the last 12 months. This includes non-recurring payments totalling GBP88 million to The Co-operative Group in connection with exiting our UK retail joint venture. On a like-for-like basis, excluding these payments and the effects of currency changes, net debt improved by GBP65 million.

In December 2017, Thomas Cook issued a new EUR400 million bond with a coupon of 3.875%, maturing on 15 July 2023. This coupon is significantly lower than the 6.75% EUR400 million June 2021 bond it replaced, helping us to achieve lower interest costs, while extending maturities and liquidity.

CURRENT TRADING AND OUTLOOK

Winter 2017/18

Winter trading for the Group is in line with our expectations, with 80% of the programme sold, a similar level to last year. Total bookings are up 8%, supported by continuing demand for the Canaries and a strong recovery in demand for Egypt. While pricing across all of our segments is higher than last year, average selling prices are 1% lower overall, reflecting a shift in the mix from long haul to short and medium haul destinations.

 
 
  Winter 2017/18          Year-on-Year Variation 
                                     % 
                        ------------------------- 
 
                          Bookings(i)     ASP(i)    % Sold(ii) 
 
  UK                          Same          +6%        84% 
  Continental 
   Europe                     Same          +2%        83% 
  Northern Europe             +3%           +9%        96% 
  Group Tour 
   Operator                   +1%           +4%        88% 
 
  Short & Medium 
   Haul                       +16%         +10%        81% 
  Long Haul                   -1%           +2%        86% 
  Group Airline(iii)          +10%         Same        83% 
 
  Total Group                 +8%           -1%        80% 
 
 
 
Based on cumulative bookings to 3 February 2018 
Notes  (i)    Risk and non-risk customers 
       (ii)   Risk customers only 
       (iii)  Group Airline figures include intercompany 
               sales to the Group Tour Operator 
 

Group Tour Operator bookings are ahead by 1% with pricing up 4%. Northern Europe continues to benefit from strong demand, particularly for the Canaries and Cape Verde. In the UK, charter risk bookings are up 4%, while bookings overall (including both risk and non-risk packages) are in line with a strong comparative period. UK pricing is up by 6% largely reflecting bed cost inflation in our biggest winter destination, the Canaries. In Continental Europe, bookings are in line with last year and pricing is up 2%, with growth in our German, French and Russian package businesses offset by a decline in hotel-only business.

For the Group Airline, overall bookings are 10% ahead, in line with capacity increases. Bookings to short and medium haul destinations are up by 16%, largely reflecting growth in demand for Egypt, while long-haul bookings are broadly in line with last year, impacted by Hurricane Irma in the Caribbean. Group Airline pricing has increased by 10% to short and medium haul destinations, and by 2% to long haul destinations. Overall airline pricing is similar to last year due to the shift in mix towards short and medium haul flying.

Summer 2018

We have made an encouraging start to trading for Summer 2018, with our holiday and flight programme now 34% sold, 3% higher than this time last year.

In terms of core destinations, Turkey, Egypt and Greece are seeing good growth across all source markets, while the very strong demand we have seen for Spain over the last two to three years appears to be normalising. We have also broadened our offering with a number of new destinations, including Montenegro, Sardinia, Dubrovnik, Olympus Riviera in Greece, Golden Sands in Bulgaria, Spain's Costa Brava and Madeira.

In our UK tour operator, which tends to have an earlier booking pattern compared to other markets, bookings are up by 3%, while average selling prices are up by 6%. We continue to see significant margin pressure in holidays to Spain, our largest destination, due to higher hotel cost inflation and increased flight capacity. We continue to take actions to help mitigate this, by rebalancing our programme towards higher margin destinations such as Turkey and Egypt, generating efficiencies, and repositioning the business through greater online distribution and an intense focus on sales of holidays to own-brand hotels.

Summer bookings for Northern Europe are well ahead of last year, driven by higher demand for our own-brand holiday offering, with positive pricing. Bookings have also increased in Germany, France and Belgium.

Our Group Airline has achieved double-digit bookings growth, as we have increased our short and medium haul capacity selectively to take advantage of good customer demand in Germany and the UK, including from third-party tour operators seeking a reliable and high-quality airline offering.

Outlook

Trading for 2018 so far is encouraging. The continuing recovery of Condor combined with the positive demand environment for Summer is supporting strong growth in our Group Airline, while our Group Tour Operator business is benefitting from higher demand for our holidays, especially in Northern Europe and Continental Europe. In the UK, we are seeing positive demand but continue to experience margin pressure in holidays to Spain. Although it is still early in our sales cycle, based on current trading we expect our operating result for FY18 to be in line with current expectations.

ANALYST AND INVESTOR CALL

A conference call and webcast for investors and analysts will be held today at 09.00 (GMT):

   -      Standard International Access: [phone] 
   -      UK Toll Free: 0808 109 0700 
   -      Password: Thomas Cook 

Forthcoming announcement dates

The Group intends to issue results for the six months ended 31 March 2018 on 17 May 2018.

Enquiries

 
 Analysts &     James Sandford, Thomas    [phone] 
  Investors:     Cook Group                6433 
  Tej Randhawa, Thomas                    [phone] 
   Cook Group                              6487 
                Matthew Magee, Thomas     [phone] 
 Media:          Cook Group                7059 
 

APPENDIX

Like-for-like analysis

Certain items, such as the impact of foreign exchange translation, acquisitions, disposals and business transfers, affect the comparability of the Group's financial performance over time. To give a clearer view of underlying performance, we provide 'like-for-like' comparisons which adjust for the impact of these factors, as set out in the table below. The financial commentary in this announcement is based on 'like-for-like' comparisons unless otherwise stated.

 
 Group (GBPm)            Revenue   Gross profit   Gross margin   Underlying 
                                                                    EBIT 
 3 months ended 
  31 December 2016        1,618        357           22.1%          (49) 
 Impact of currency 
  movements                +20          +3           -10bps          -3 
 3 months ended 
  31 December 2016 
  Lfl                     1,638        360           22.0%          (52) 
 3 months ended 
  31 December 2017        1,749        376           21.5%          (42) 
 Like-for-like change 
  (GBPm)                  +111         +16           -50bps         +10 
 Like-for-like change 
  (%)                      +7%         +4%            n/a           +19% 
----------------------  --------  -------------  -------------  ----------- 
 
 
                          Group Tour Operator       Group Airline 
----------------------  ----------------------  --------------------- 
  (GBPm)                 Revenue    Underlying   Revenue   Underlying 
                                       EBIT                   EBIT 
----------------------  ---------  -----------  --------  ----------- 
 3 months ended 
  31 December 2016        1,223        (21)        658        (21) 
 Impact of currency 
  movements                 15         (1)          7         (2) 
 Impact of business 
  transfer(i)               4          (1)        (14)         1 
 3 months ended 
  31 December 2016 
  Lfl                     1,242        (23)        651        (22) 
 3 months ended 
  31 December 2017 
  (ii)                    1,305        (22)        710        (13) 
 Like-for-like change 
  (GBPm)                   +63          +1         +59         +9 
 Like-for-like change 
  (%)                      +5%         +4%         +9%        +41% 
----------------------  ---------  -----------  --------  ----------- 
 

Note: (i) Thomas Cook Airlines Belgium transferred to Brussels Airlines in October 2017, such that it is no longer part of the Group; a like-for-like adjustment has been made to show the comparable performance of the Group Airline and Group Tour Operator

(ii) Intercompany revenue eliminations in the quarter were GBP266 million, and underlying EBIT for corporate/other was GBP(7) million, leading to Group revenue of GBP1,749 million and Group underlying EBIT of GBP(42) million

Hedging of Fuel and Foreign Exchange

The proportions of our forthcoming requirements for Euros, US Dollars and Jet Fuel that have been hedged are shown in the table below.

 
                Winter   Summer   Winter 
                 17/18     18      18/19 
-------------  -------  -------  ------- 
 Euro            94%      81%      70% 
 US Dollar       91%      86%      60% 
-------------  -------  -------  ------- 
 Jet Fuel        92%      88%      75% 
 Hedged rate     $529     $547     $578 
-------------  -------  -------  ------- 
 

As at 31 January 2018

As Jet Fuel is priced in US Dollars, we buy forward the requisite amount of US Dollars from a mix of base currencies. For FY18, we are hedged at significantly below the current forward rate, and estimate that, as a result of our hedge position, our fuel costs will fall by GBP10 million compared with FY17.

The Group's policy is not to hedge the translation impact of profits generated outside the UK. If Q1 period end rates for the Euro and Swedish Krona were maintained throughout the remainder of FY18, there would be a negative year-on-year translation impact of around GBP15 million. Due to the seasonality of our business, the foreign exchange translation impact for the full year is highly dependent on the prevailing exchange rates during our final quarter between July and September.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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February 08, 2018 02:00 ET (07:00 GMT)