Thomas Cook: The work is far from done

Landa

Ordinarily, the CEO of a FTSE250 Company stepping down would cause little more than a ripple of interest, but then Harriet Green was no ordinary CEO. Her time at Thomas Cook is the stuff of urban legend and her sudden departure caused a tidal wave of frenzied speculation across broadsheets and tabloids alike, wiping nearly £400m off the value off The Thomas Cook Group in the process.

If there is still anyone unfamiliar with the story, Green entered the frame at the peak of Thomas Cook’s 2011/12 crisis with the group on its knees and the share price just 22p. What she achieved in the first year of her tenure was nothing short of phenomenal. Investors bought into her combination of aggressive cost cutting, non-core disposals and old-fashioned bluster,  and by early 2014, the share price had soared to 189p. Meanwhile, the press fawned over her sleep patterns, her kettle-bell workouts and her “part Lion, part Panda” management style. A cult was born.

We may never know the precise sequence of events that led the chairman Frank Meysmen and his board to organise the unanimous coup but rumours continue to circulate. Maybe the cult of Green was out of control, perhaps the remaining turnaround work needs more travel experience. It could also be true that her robust management style (described by one unnamed source as “shaking people by the throat”) became harder to bear by her fellow board members once the immediate threats of collapse had passed. Green offered only that her work was done and just 2 years into the job, the Landa had left the building.

Whatever the truth, I think we can all agree on one thing: the work is far from done.

In fact, even before last week’s plunge, the share price was already on the slide. It had dropped to 102p in October reflecting investor uneasiness that results weren’t matching the hyperbole.

Underlying profits of £323m look good on paper but ignore some £269m of “other” costs swept under the rug. The actual net profit margin the group earned was a paltry 1%.  The coming winter season also looks challenging, so adding a further 10% capacity to the UK programme looks aggressive and could backfire if discounting is needed.

Likewise debt levels remain eye-wateringly high, though some of the disposal proceeds have been used to reduce leverage.

The fact is, a corporate bloater with such deep rooted structural problems as Thomas Cook cannot be turned around in 2 years by slashing costs and selling off assets. No doubt Mr Frankhauser already has a full in-tray.

This article first appeared in TTG 4 December 2014

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