personal finance

Opening Quote: Thomas Cook suffers as Britons fry 


Thomas Cook profit warning

If you are a tour operator that makes money shipping pallid Brits to the Med, the last thing you need is a heatwave that makes Skegness resemble the Costa del Sol or Cleethorpes the Cote d’Azur. But that has been the problem for Thomas Cook this summer, and why it has rushed out a profit warning earlier than its scheduled trading statement later this week. As it put it, with no sense of irony, discounting in the “lates” holiday market forced the bad news out early.

And it is bad. Full-year profit will be £30m lower than previously guided, after underlying earnings fell by £58m to £250m. It was the tour operator business that suffered in the heat, with profit down £88m as a need to discount overseas holidays hit planned margins in the last quarter. In the UK, this was made worse by levels of promotional activity around Spanish package holidays in what was an already competitive market. Thomas Cook reported a “larger-than-anticipated decline in gross margin following the prolonged period of hot weather in our key summer trading period.”

Airline profit did grow by £35m despite higher disruption costs, but the group also incurred £28m of legacy and non-recurring charges to underlying earnings before interest and tax. 

For 2019, Thomas Cook said this measure will have to be “a primary focus going forward, together with free cash generation”. 

Key numbers:

  • Underlying ebit down £58m year-on-year on a like-for-like basis, to £250m 
  • Tour operator performance down £88m, impacted by discounting in ‘lates’ market;
  • Legacy and non-recurring charges of £28m
  • Full-year profit £30m lower than previously guided

What was said: Chief executive Peter Fankhauser said “After a good start to the year, we experienced a larger-than-anticipated decline in gross margin following the prolonged period of hot weather in our key summer trading period. Our final result is expected to be around £30 million lower than previously guided, due to a number of legacy and non-recurring charges to underlying ebit.”

As the City expected? No. A lot worse — hence the unscheduled profit warning. 

OQ verdict: This profit warning seems to be about more than a few sunburned Brits holidaying in their back gardens. Thomas Cook says the lessons from 2018 are that it must “make a difference to customers in our core holiday offering”. That sounds fundamental. 

In fact, its priorities for 2019 suggest the after-sun needs to be applied in a number of places: performance in the UK tour operator business; better capacity management and improved operational flexibility; a focus on cash and cost discipline across group; selling more higher-margin own-brand hotels and differentiated holidays. A need to “streamline our cost base and manage our capacity to give us greater operational flexibility and financial discipline,” is a worry. Expect the shares to do what Britons would not: fly south. 

Shaftesbury full-year results

London shop and restaurant landlord Shaftesbury owns around 15 acres of central London, including in Chinatown, Covent Garden, Fitzrovia, Carnaby Street and Soho. That gives it two things that no other retail property group has: thousands of office workers to provide passing trade, and thousands of tourists getting in their way by standing motionless in the middle of the pavement staring at Google Maps, trying to work out what, or where, Garfunkels is. Or why. 

And that really helps to make Shaftesbury, and its slightly more upmarket tenants, immune from the consumer and casual dining downturns.

This morning’s full-year results show that the value of its holdings rose 3.8 per cent to £3.95bn in the year to September, proving that its property portfolio really is insulated from the downturn affecting the broader retail and restaurant sectors. That was because it was able to raise the net income from its properties by 6.2 per cent to £93.8m from a year earlier.

However, net profit was down 41.8 per cent to £175.5m, as the increase in Shaftesbury’s property values was smaller than the previous year.

Still, it was able to increase its final dividend by 4.9 per cent to 8.5p, bringing total dividends for the year up to 16.8p, a 5 per cent increase on a year earlier.

And the balance sheet remains strong, with net debt down slightly to £841m and loan-to-property value ratio only 22.8 per cent.

Key numbers:

  • Net property income up 6 per cent to £93.8m
  • Profit after tax down 41 per cent to £175.5m
  • Adjusted EPRA earnings of £52m.
  • EPRA net asset value per share 991p 

As the City expected? Yes. Peel Hunt had forecast net asset value at 986p per share, adjusted pre-tax profit of £52.5m and a dividend of 16.8p per share 

What was said: Chief executive Brian Bickell said: “Footfall and spending in our locations continues to be largely unaffected by the widely-reported headwinds affecting the national economy and consumer confidence.”

OQ verdict: Shaftesbury may be in a better location, and therefore a better position, than most retail landlords. But investors will still be worried by its warning on Brexit. Today it cautioned that a “disorderly Brexit” could adversely affect its business, as tenants could suffer staff shortages, increased import prices, and difficulties sourcing stock. In a market already concerned about the risk of slowing growth on asset valuations, that is troubling.

Today’s Lombard column focuses on DNO’s £600m hostile bid for Faroe Petroleum:

There are roughly the same number of commonly used words in Norwegian as there are in English, even though Lombard’s partly-Nordic spouse always disputes this. Dictionaries of both languages list about 300,000. So DNO of Norway cannot claim that its announcement of a £600m hostile bid for Britain’s Faroe Petroleum was lost in translation. It really did mean to say: “Faroe’s assets, the substantial part of which are Norwegian, are better placed in the bosom of DNO.” 

Read the rest of today’s Lombard column here

FT Opening Quote, with commentary by Matthew Vincent, is your early Square Mile briefing. You can receive it by email at 8am every morning by signing up here.



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