Thomas Cook Group PLC Thomas Cook Group Q3 2018 Trading Update (2302W)

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RNS Number : 2302W

Thomas Cook Group PLC

31 July 2018

31 July 2018

Thomas Cook Q3 Trading Statement for the three months ended 30 June 2018

HIGHLIGHTS

Our financial commentary is based on like-for-like comparisons unless otherwise stated, as Management believes this provides a clearer view of the Group's underlying year-on-year progression

   --   Q3 revenue growth of 10% to GBP2,479 million 
   --   Gross profit down 3% to GBP443 million 
   --   Underlying EBIT up 8% to GBP14 million 
   --   Summer 2018 bookings up 11% on last year with 79% of programme sold 

Peter Fankhauser, Chief Executive of Thomas Cook, commented:

"We have grown revenue strongly in the third quarter as more customers chose Thomas Cook for their holidays. I'm pleased to see that the improvements we've made to our holidays are paying off through strong growth in both new and retained customers, at 12% and 5% respectively so far this year.

"Bookings for the summer are up 11% overall, fuelled by strong growth in our Group Airline, in line with the planned increase in capacity, particularly in Germany. This has helped to offset a slowdown in package holiday bookings in recent weeks with customers across our European markets delaying decisions about their summer holidays as they enjoy the record temperatures at home.

"It's clear that we remain in a competitive environment, particularly in the UK where the growth in popularity of higher-margin destinations like Turkey and Egypt has not fully offset the continued pressure on margins to Spanish holidays. Based on our current view, we now expect growth in full year underlying operating profit to be at the lower end of market expectations.

"I am pleased by the strong strategic progress we have continued to make in the past few months, including the successful opening of our new Cook's Club brand in Greece and the launch of our Expedia alliance for customers in the UK and Scandinavia. We are confident this will lead to further profitable growth over the medium term."

THIRD QUARTER PERFORMANCE

Group revenue increased by 10% to GBP2,479 million in the third quarter, driven by strong customer demand for holidays to Turkey and North Africa. Revenues were up in all segments, with higher pricing and customer growth across our tour operating and airline businesses.

Gross profit of GBP443 million was GBP15 million lower than last year, while gross margin of 17.9% represents a decline of 240 basis points over the same period last year. This decline reflects continued margin pressure in our UK Tour Operator, particularly to the Spanish Islands where we continue to see aggressive pricing from the competition and bed cost inflation from hoteliers.

Group operating profit (pre-exceptionals) improved by GBP1 million on a like-for-like basis to GBP14 million. Group Airline operating profit grew by GBP5 million, helping to offset a GBP6 million reduction in operating profit for the Group Tour Operator. Corporate costs were GBP2 million lower, mainly due to the timing impact of head office items.

EBIT Separately Disclosed Items increased by GBP8 million to GBP21 million, reflecting the costs incurred in setting up the new AOCs and disruption across both the UK and German market following the insolvencies of Monarch and Air Berlin.

Financial position

Net debt at 30 June 2018 was GBP468 million, an increase of GBP64 million compared to the same period last year. This includes non-recurring payments totalling GBP58 million to The Co-operative Group in connection with exiting our UK retail joint venture. On a like-for-like basis, excluding non-cash items and the effects of currency changes, net debt improved by GBP73 million.

CURRENT TRADING

Summer 2018

Our Summer 2018 programme is 79% sold, a similar level to last year. Total bookings are up 11%, supported by strong customer demand for Turkey, Egypt and Greece. Pricing across all segments is higher than last year, but average selling prices are 3% lower overall, reflecting a higher mix of short/medium-haul destinations.

 
 
  Summer 2018                  Year-on-Year Variation % 
                             --------------------------- 
 
                                Bookings(i)      ASP(i)    % Sold(ii) 
 
  UK                                +1%           +7%         86% 
  Continental Europe(iii)           -1%           +3%         80% 
  Northern Europe                   +2%           +4%         90% 
  Group Tour Operator              Flat           +4%         84% 
 
  Short & Medium 
   Haul                            +18%           +8%         79% 
  Long Haul                         -1%           +2%         82% 
  Group Airline(iv)                +15%           +1%         79% 
 
  Total Group                      +11%           -3%         79% 
 
 
 
Based on cumulative bookings to 21 July 2018 
Notes  (i)    Risk and non-risk customers 
       (ii)   Risk customers only 
       (iii)  Continental Europe excluding legacy city and domestic 
               hotel-only business bookings up 1% and ASP up 3% 
       (iv)   Group Airline figures include intercompany sales to the 
               Group Tour Operator 
 

Since our last update in May, Group Tour Operator bookings have been impacted by the sustained period of hot weather across Europe during June and July. Group Tour Operator bookings are now in line with last year, while pricing up 4%, remains firm.

In the UK, bookings are up 1% with pricing up 7%, largely reflecting higher bed cost inflation to Spain. We continue to experience margin pressure due to a highly competitive market for Spanish holidays. While we have seen good growth to higher-margin destinations such as Turkey and Egypt, this has not been enough to fully offset the margin pressure which has largely impacted holidays to Spain to date.

Northern Europe bookings have also softened since the last update due to the hot weather with bookings now up 2% and pricing up 4%. In Continental Europe, bookings are 1% lower than last year, with growth in our German, French, Belgium and Russian package businesses offset by a decline in our Netherlands and hotel-only business.

For the Group Airline, overall bookings are 15% ahead, in line with capacity increases. Bookings to short and medium-haul destinations are up by 18%, largely mirroring demand for Turkey, Egypt and Greece, while long-haul bookings are down 1%, reflecting a reduction in capacity. Group Airline pricing has increased by 8% to short and medium-haul destinations, and by 2% to long-haul destinations. Overall airline pricing is up 1% due to the shift in mix towards short and medium-haul flying.

Winter 2018/19

Our Group Tour Operator has made a good start to trading for Winter 2018/19, with 31% of the programme currently sold, 2% higher than this time last year. Group Tour Operator bookings are up 4%, driven by strong demand for package holidays in the UK market, with pricing up 3%. Our Airline typically has a later booking profile compared to the Tour Operator, and it is therefore too early to comment on the Airline's performance for Winter 2018/19.

OUTLOOK

Overall Group volumes remain significantly ahead of last year, supported by the good progress we are making in all areas of our strategy. However, the sustained period of hot weather in June and July has led to a delay in customer bookings in the Tour Operator, restricting our ability to drive margins in the 'lates' market. Based on our current view, we now expect growth in full year underlying operating profit to be at the lower end of market expectations.

There is no change to our outlook beyond 2018. While it is early in the booking cycle, we are encouraged by booking and pricing trends for the Winter 2018/19 and Summer 2019 seasons. We are also confident that the strategic actions we are taking to better position the business - including improving the quality of our holiday offering, investing in our online proposition, and targeting efficiencies - will lead to further profitable growth over the medium term.

ANALYST AND INVESTOR CALL

A conference call and webcast for investors and analysts will be held today at 08.30 (BST):

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

Forthcoming announcement dates

The Group intends to issue a pre-close trading update on 25 September 2018.

Enquiries

 
                          Tej Randhawa, Thomas Cook 
 Analysts & Investors:     Group                        [phone] 
                          Matthew Magee, Thomas Cook 
                           Group 
                           Chris Alfred, Thomas Cook    [phone] 
 Media:                    Group                         [phone] 
 

APPIX

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 30 June 
  2017                              2,272        468           20.6%           19 
 Impact of currency movements        13           1            (0.1)%         (1) 
 Impact of Easter adjustments       (29)         (5)             -            (5) 
 Impact of business transfer(i)       -          (6)           (0.2)%          - 
 3 months ended 30 June 
  2017 Lfl                          2,256        458           20.3%           13 
 3 months ended 30 June 
  2018                              2,479        443           17.9%           14 
 Like-for-like change 

  (GBPm)                            +223         -15          -240bps          +1 
 Like-for-like change 
  (%)                               +10%         -3%            n/a           +8% 
                                  --------  -------------  -------------  ----------- 
 

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

 
                                    Group Tour Operator       Group Airline 
-------------------------------- 
  (GBPm)                           Revenue    Underlying   Revenue   Underlying 
                                                 EBIT                   EBIT 
                                  ---------  -----------  --------  ----------- 
 3 months ended 30 June 
  2017                              1,828         34         801         4 
 Impact of currency movements         4           -           8         (1) 
 Impact of Easter adjustments        (13)        (2)        (14)        (3) 
 Impact of business transfer(i)       11          -         (32)        (3) 
 3 months ended 30 June 
  2017 Lfl                          1,830         32         763        (3) 
 3 months ended 30 June 
  2018 (ii)                         1,930         26         924         2 
 Like-for-like change 
  (GBPm)                             +100         -6        +161         +5 
 Like-for-like change 
  (%)                                +5%         -19%       +21%       +167% 
                                  ---------  -----------  --------  ----------- 
 

Note: (i) Thomas Cook Airlines Belgium transferred to Brussels Airlines in October 2017, such that it is no longer part of the Group; In addition, set up costs for Thomas Cook Money are transferred to the Group Tour Operator (previously reported under Corporate)

(ii) Intercompany revenue eliminations in the quarter were GBP375 million, and underlying EBIT for corporate/other was GBP(14) million, leading to Group revenue of GBP2,479 million and Group underlying EBIT of GBP14 million

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

 
                Summer 2018   Winter 2018/19   Summer 2019 
 Euro               98%            82%             58% 
 US Dollar          94%            82%             51% 
-------------                ---------------  ------------ 
 Jet Fuel           93%            90%             63% 
 Hedged rate       $559            $596           $685 
-------------                ---------------  ------------ 
 

As at 30 June 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 estimate that fuel costs will increase by around GBP15 million compared with last year, on a like-for-like basis.

The Group's policy is not to hedge the translation impact of profits generated outside the UK. If Q3 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 GBP16 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 news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [e-mail] or visit www.rns.com.

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July 31, 2018 02:01 ET (06:01 GMT)