Thomas Cook Sees Profit Slump in UK Division

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Its UK division saw margins drop after four years of growth.

Thomas Cook said revenue in the 12 months to the end of September rose to GBP9.00 billion from GBP7.81 billion the year before, with gross margin tightening by 130 basis points to 22.1%.

Fiona Cincotta, a senior market analyst at City Index, said while Thomas Cook's group-wide revenues were ahead of market expectations, investors were focusing on the hit to profit margins.

Underlying earnings before interest and taxes slumped from $115 million (£87 million) to $69 million (£52 million) in the unit.

Travel giant Thomas Cook has reported a 12 per cent increase in pre-tax profits for the 2017 year to September, though underlying earnings in the United Kingdom business fell 34 per cent amid rising hotel prices, the value of pound and intense competition in Spain.

The pan-European tour operator said the problem in the United Kingdom was down to a number of issues.

It also said its costs were sent surging after facing a torrent of fraudulent illness claims and after supporting 10,000 customers caught up in the devastating Hurricane Irma.

"We are also rebalancing our destination mix towards more profitable, fast-growing destinations such as Turkey and Egypt, and we are continuing to drive operating efficiencies".

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Regarding summer 2018, the company said it has seen a good start to trading, with overall holiday bookings and pricing ahead of past year.

One positive element was the performance of the group's airline business, which improved profits by 24 million pounds in the year, helped by a recovery for German carrier Condor.

Thomas Cook shares plunged 13% on opening after the holiday firm reported a series of costs had taken a toll on United Kingdom earnings.

Net debt at the end of the year stood at only GBP40.0 million, a considerable reduction from GBP129.0 million a year earlier.

"My experience tells me that (the Spanish market) is balancing out", Chief Executive Peter Fankhauser told reporters on Wednesday.

He added: "Looking to the year ahead, we can see real momentum in our group airline, and expect our Continental Europe and Northern Europe tour operator businesses to continue their good performance".

The group said it was "well positioned" to achieve current market expectations for 2018, given strong early bookings for next summer.

"While conditions are challenging in the United Kingdom, we have implemented a set of actions to improve performance", said chief executive Peter Fankhauser.