Thomas Cook debt soars after massive winter loss

Thomas Cook Group made a pre-tax loss of £1.46 billion over the winter, £1.15 billion more than the same period of 2018, pushing its net debt up to £1.25 billion.

At the end of winter 2018, the group’s debt stood at £886 million.

The operator blamed a goodwill impairment of £1.1 billion in the UK business relating to its merger in 2007 with MyTravel for the higher loss in the six months to the end of March.

It said revenue for the first six months of its financial year was £3 billion, which was in line with the same period last year.

However, chief executive Peter Fankhauser said last summer’s prolonged heatwave and high prices in the Canaries had reduced demand for winter sun, especially in the Nordic region.

"There is now little doubt that the Brexit process has led many UK customers to delay their holiday plans for this summer," he added.

Tour operator bookings for summer are 12% down year on year, although prices are 2% up. Demand for Turkey, Egypt and Tunisia is strong, said Thomas Cook, but bookings to the Spanish islands are lower following its decision to cut capacity.

The company warned that pre-tax earnings for the second half of the year would be lower than last year’s £426 million.>

"Our current trading position reflects a slower pace of bookings against a strong first half in 2018, and our our decision to reduce capacity in order to mitigate risk in the tour operator and allow our airline to consolidate the strong growth it achieved last year," added Fankhauser.

At the same time, he revealed the group had received multiple bids for its group airline, which Thomas Cook is keen to offload, including bids for the whole or parts of the business.

Fankhauser added: "We are well advanced in our aim to build our position as one of the leading sun and beach hotel companies in Europe. In the last two months alone, we’ve opened 12 new own-brand hotels out of a pipeline of 20 for 2019, reinvigorating key destinations across the Med with four new Cook’s Clubs, and launching our first family Casa Cook in Crete.

"Outside of Europe, we have taken an important next step in the development of our China joint venture with the announcement of two new hotel projects in partnership with Fosun, including our first Casa Cook in Asia. We have also secured a leading position in the Russian market with the development of a new joint venture to buy the number one tour operator Biblio Globus.

"Taking lessons from 2018, we have put a keen focus on cash and cost discipline across the group in the first half. We have also accelerated the transformation of our UK business, including the closure of 21 UK retail stores and a review of Thomas Cook Money. A range of further cost efficiencies are planned for the second half, allowing further investment in our growth strategy."

Thomas Cook confirmed yesterday that it is planning to shed~up to 100 more jobs at its Peterborough office as part of a review of its business.

"As we look ahead to the remainder of the year, it’s clear that, notwithstanding our early decision to mitigate our exposure in the ‘lates’ market by reducing capacity, the continued competitive pressure resulting from consumer uncertainty is putting further pressure on margins," added Fankhauser.

"This, combined with higher fuel and hotel costs, is creating further headwinds to our progress over the remainder of the year."

Fiona Cincotta, a senior analyst at Citywire, described the financial results as ‘dismal’ and suggested that they might impact the sale of its airline.

"With losses mounting and a new £300 million financing packaging contingent on a successful sale, management is looking more and more like a forced seller – and that can’t be good for maximising bid prices," she said.

However, Thomas Cook denied the refinancing package was dependent on the sale of the airline, and other analysts were more positive about the results. Alex Brignall, travel and leisure analyst at Redburn, said: "Due to challenging trading conditions in the first half of the year the company has cut full-year EBIT guidance by 40%. Perhaps more significantly it has secured financing through next winter giving it time to sell the airline, for which it has received multiple bids at good levels, implying a valuation of up to £1bn which would be a very positive outcome."

Thomas Cook shares dropped 16% in early trading this morning.