Thomas Cook Group PLC (LON:TCG) said on Tuesday that it would suspend its 2018 dividend and issued its third profit warning this year in an attempt to soften the blow ahead of its annual results in two days.
In morning trading, shares plunged 23% to 36p.
The tour operator said an unusually hot summer in the UK had hurt demand with more consumers opting to stay at home and enjoy the weather, rather than booking a holiday abroad
READ: Thomas Cook plunges as 2018 profit outlook chopped on more discounting, tougher competition after summer heatwave
Earnings were also hit by £28mln in legacy and one-off charges, including a £14mln write-down of historic hotel receivables, £4mln in-flight disruption costs and £10mln of restructuring costs.
The company will now report underlying earnings (EBIT) of £250mln for the year to September 30, down from the reduced forecast of £280mln it posted in a September trading update and £58mln lower than the prior year on a like-for-like basis.
Group revenue rose 6% on a like-for-like basis to £9.6bn for the year.
"2018 was a disappointing year for Thomas Cook, despite achieving some important milestones in our strategy for transforming the business,” said chief executive Peter Fankhauser.
“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.”
Tour operating business profits fall but airline profits grow
Profit in the tour operating business dropped £88mln as a result of more staycations, higher levels of promotional activity to draw customers in and a competitive Spanish tourism market.
Airline profit grew £35mln despite higher disruption costs on the back on increased capacity and a rise in passenger numbers.
Winter bookings lower, summer bookings mixed
Bookings for winter 2018/19 are down 3% against a strong period last year with flat pricing, largely due to the knock-on effects from the hot weather and poor demand for the Canary Islands.
For summer 2019, Thomas Cook said it was still early days but UK bookings are “positive”, demand for holidays to Turkey and Egypt is robust and there is good growth in long-haul holidays to the US. However, Continental and Northern Europe bookings are “behind a strong start to last year”, it said.
Free cash flow came to £148mln, down £294mln on last year. Net debt stood at £389mln, higher than previously forecast.
Thomas Cook takes action to address performance
"Looking ahead, we must learn the lessons from 2018 and go into the new year focused on where we can make a difference to customers in our core holiday offering,” Fankhauser said.
“We will put particular attention on addressing the performance in our UK tour operator where the challenges of transformation in a competitive environment remain significant. Across the group, we will continue to streamline our cost base and manage our capacity to give us greater operational flexibility and financial discipline, while focusing the team on delivering performance improvements and giving customers more reasons to holiday with Thomas Cook."
In 2019 the group plans to improve underlying EBIT, free cash generation and the selling of higher-margin own-brand hotels and differentiated holidays. The company will open at least 20 of its own-brand hotels, including 10 new Cook's Club hotels, its first Casa Cook in Spain and the first family Casa Cook in Greece.
"Management are doing their best to apply after-sun lotion to the situation but ultimately the business is looking very sore," said AJ Bell investment director Russ Mould.
“The big concern is the spike in net debt to £389 million which is 45% higher than the consensus analyst forecast of £267mln. Analysts had forecast for the business to move into a net cash position in 2020 and that now seems unlikely unless there is a radical improvement in trading.
"Suspending the dividend is a sensible move, even if it does deprive shareholders of a stream of cash."