Thomas Cook shares take a dive as UK profits fall 40%

22 November 2017, 09:12

Thomas Cook shares plunged 13% on opening after the holiday firm reported a series of costs had taken a toll on UK earnings.

The FTSE 250 firm said it was taking action to restore profitability after underlying UK earnings dived 40% - or by £34m - to £52m in its financial year to 30 September, despite a 3% increase in revenue.

It had already flagged a tough second half and said it was not restricted to challenging trading in its tour operator division amid a price war for Spanish holidays.

It said the weaker pound and rising hotel prices had contributed to weaker profit margins.

Thomas Cook, like rivals, was forced to seek greater capacity in Spain this year because terrorism fears had knocked demand in its key growth markets of Egypt and Turkey.

The company also pointed to a surge in costs from fraudulent illness claims and a big bill supporting 10,000 customers caught up in Hurricane Irma, which devastated parts of the Caribbean and the US state of Florida.

Thomas Cook said: "In response, our UK tour operator has implemented a set of actions to improve profitability.

"We have taken a robust approach towards illness claims including improving our handling and assessment processes, and taking legal action against fraudsters - as a result, the claim rate has declined dramatically.

"We are also rebalancing our destination mix towards more profitable, fast-growing destinations such as Turkey and Egypt, and we are continuing to drive operating efficiencies."

It said current trading was in line with expectations - with bookings up 1% in the UK - led by a return in demand for winter breaks in Egypt and the Canaries.

The wider company had a better financial year - with profit before tax growing 12% to £46m.

Peter Fankhauser, chief executive of Thomas Cook, said: "2017 was a milestone year in the strategic development of Thomas Cook.

"By delivering what we promised on strategy, we've inspired more customers to choose our holidays for their hard-earned weeks in the sun."

He added: "Looking to the year ahead, we can see real momentum in our Group Airline, and expect our Continental Europe and Northern Europe tour operator businesses to continue their good performance."

Shares partly recovered after their initial fall but still ended 8% lower on Wednesday.