Tuesday 27 November 2018 8:02 am

Thomas Cook shares plummet as it issues £30m profit warning following summer heatwave

Jess Clark is a City A.M. news reporter covering private equity and investment.

Jess Clark is a City A.M. news reporter covering private equity and investment.

Follow Jess Clark
Thomas Cook's share price crashed by 30 per cent this morning as it announced a £30m profit warning, blaming the summer heatwave for hitting the package holiday provider’s main trading period.

The warning – the business's second in two months – comes as the firm reported its tour operations arm was down £88m, impacted by discounts in the late purchase market, and it announced the increased net debt of £389m due to delayed bookings and the suspension of its dividend.

Chief executive Peter Fankhauser said that “2018 was a disappointing year for Thomas Cook, despite achieving some important milestones in our strategy for transforming the business".

"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," he added.

"Our final result is expected to be around £30m lower than previously guided, due to a number of legacy and non-recurring charges to underlying EBIT.

"Within this, profit in our tour operating business fell £88m as the sustained heatwave restricted our ability to achieve the planned margins in the last quarter.

"The UK was particularly hard hit with very high levels of promotional activity coming on top of an already competitive market for holidays to Spain.

"Despite the impact of the hot summer, our northern European tour operator achieved a near record performance, albeit lower than that expected at the end of May. Meanwhile, our Group Airline delivered strong growth in customers and profit, benefiting from increasing capacity in a turbulent European aviation sector."

CMC Markets chief market analyst Michael Hewson said: "In September Thomas Cook followed on a profits warning in July with another warning that its profits for the year would be hit by the summer heatwave as people opted to stay at home rather than brave the airport chaos.

"As a result the company had to shave margins to entice people to book and having guided profits down to £280m, from a previous £323m, this morning’s news that profits have fallen short of the revised guidance to an even lower £250m hasn’t been received well.

"The timing is particularly curious given that the company is due to announce its full year numbers, later this week…the woe continues for shareholders, in what has been an awful year for Thomas Cook. Before this morning’s announcement, the share price had already fallen 60 per cent year to date and this announcement along with the news that the company was suspending the dividend has seen the shares plunge another 30 per cent.

"The decision to cut the dividend can’t have been taken lightly however the lack of dividend is likely to be the least of shareholders problems given how badly the shares have performed this year."

Next year the brand has plans to set up at least 20 new hotels, it said in the trading update.

Thomas Cook will publish full-year financial results on 29 November.