Thomas Cook takes off as transformation exceeds expectations

28th Nov 2013 08:00

- Full year EBIT up 49 per cent, above consensus- Cost saving targets doubled and accelerated- Revenue targets increasedThomas Cook basked in the benefit of Chief Executive Harriet Green's extensive transformation programme, with annual revenues rising, costs trimmed and earnings flying.The FTSE 250 travel conglomerate also said it was increasing and accelerating its Wave 1 'cost out and profit improvement initiatives' to £440m and adding a new £440m Wave 2 of further cost reductions.Green, who was appointed in May 2012, said the first 365 days in the transformation of Thomas Cook had been "a great success". Indeed, in the year to September 30th revenue rose 1.3% to £9.3bn despite capacity reductions, costs were trimmed 2% and underlying earnings before interest and tax (EBIT) soared 49% to £263m, £10m above consensus forecasts. Underlying earnings per share leapt from 0.6p to 5p.Green said this put the business "back on a firm trajectory of profitable growth". She added: "We've taken out more cost more quickly than originally planned. The balance sheet has been strengthened; the £1.6bn recapitalisation has been completed, maturities extended and we have almost halved our net debt [to £421m]. Finally and significantly, operational cash flow is gathering momentum."So far the programme has delivered cumulative cost-out and profit-improvement benefits of £194m, £134m of which were from reduced costs, well above target.Cash conversion increased from 11% to 48%, helping free cash flow increase £156m, reversed the last year's negative number, to £53m. No dividend was paid. Yet Green said the implementation of the strategy for sustainable profitable growth "has only just begun" and increased three of her 2015 targets, including the Wave 2 cost cuts, new product revenue targets of £550m by 2015 rising to £1.2bn by 2017, and cash conversion targets increased from 60% to 70%-plus for 2015.Looking forward, winter season margins are ahead of last year's, though UK bookings are 7% lower than last year due to the ending of certain high-volume, low-value business lines. Trading in other businesses were in line with expectations with strong levels of price increases.Broker Jefferies said it expected consensus upgrades of at least 5-10% for 2015 from a combination of more cost reductions and higher revenue growth.Shares in Thomas Cook were up 9.9% to 168.4p at 08:32 on Thursday.OH