Bloomberg News

Thomas Cook Plunges as Tour Operator Holds Fresh Bank Talks

November 23, 2011

(Updates with closing share price in first paragraph.)

Nov. 22 (Bloomberg) -- Thomas Cook Group Plc, Europe’s second-largest tour operator, plunged 75 percent in London trading after a collapse in bookings caused the company to hold fresh talks with banks and delay its full-year results.

Business at the 170-year-old company has deteriorated in the current quarter, while the cash and liquidity position have worsened, London-based Thomas Cook said today, a month after announcing that banks had relaxed loan conditions and agreed to provide additional funds.

Thomas Cook shares declined 30.91 pence to 10.2 pence, slashing the company’s market value to about 89.2 million pounds ($140 million). The tour operator, which had sales of 8.9 billion pounds last year and net debt of 902.5 million pounds as of June 30, has been affected by a slide in bookings to destinations in North Africa after political unrest and weak consumer demand in the U.K.

The announcement is “a terrible message to potential customers,” Wyn Ellis, an analyst at Numis Securities, said in a note. “Competitors are likely to take advantage of the opportunity to grab market share leading to a potentially dangerous further downward trend in bookings.”

Ellis cut his stock recommendation to “reduce” from “hold” and reduced his price target to 35 pence from 45 pence. Peel Hunt lowered its rating to “sell” from “hold.”

Funding Sought

Having started out organizing a central England railway journey in 1841, Thomas Cook now has more than 30,000 employees, 3,400 retail outlets and 22 million customers. Chief Executive Officer Manny Fontenla-Novoa stepped down in August after the company reduced profit guidance three times in a year.

“Given the economic backdrop and likely adverse publicity that today’s announcement will create, it looks a fair bet that things won’t be getting better anytime soon,” Peel Hunt analyst Nick Batram wrote in a note to clients.

Thomas Cook is seeking to negotiate an amount similar to the 100 million-pound bank facility it signed in October, Chief Financial Officer Paul Hollingworth said on a conference call with reporters today. “We’re trying to set things in a way to cope with a more severe economic scenario,” he said.

The tour operator aims to reach an agreement with banks in less than six weeks, executives said on the call, adding that they’re confident lenders will be supportive.

“While the company currently remains in compliance with its financing covenants, it also intends to seek agreement from its lending banks to adjustments that will improve its resilience,” Thomas Cook said in a statement.

Results Delayed

Full-year results, which had been scheduled for Nov. 24, will be delayed until after the talks. Thomas Cook said it expects so-called headline operating profit for the year ended Sept. 30 to be “broadly in line” with previous guidance.

Bookings in France are down about 20 percent, having been slow to recover from political turmoil in North Africa earlier this year, the executives said on the call. Intourist, a Russian joint venture formed in July, has started “poorly,” they said.

Lenders, led by agent Bayerische Landesbank, last month accepted amendments to financial covenants on Thomas Cook’s 850 million-pound revolving credit facility and 150 million-pound term loan, both of which are due to mature in May 2014.

The company said in August that it aims to generate as much as 200 million pounds from asset disposals, which may include hotels and office buildings, within the next 18 months.

Thomas Cook’s larger rival TUI Travel Plc fell 9.2 percent to 136.7 pence in London, valuing the company at 1.5 billion pounds.

--Editors: Sara Marley, Paul Jarvis

To contact the reporters on this story: Paul Jarvis in London at pjarvis@bloomberg.net; Armorel Kenna in Milan at akenna@bloomberg.net

To contact the editor responsible for this story: Sara Marley at smarley1@bloomberg.net


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