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Moody's Downgrades Thomas Cook's B1 Corporate Rating, Outlook Negative

Wed, 05th Dec 2018 07:00

LONDON (Alliance News) - Moody's Investors Service late Tuesday downgraded the corporate family rating of Thomas Cook Group PLC to B2 from B1 and changed the outlook to negative from stable.

"Our rating action reflects the deterioration of credit metrics after unfavourable earnings development in the financial 2018 and the group's weakened liquidity," said Assistant Vice President-Analyst Vitali Morgovski.

"Furthermore, the negative outlook reflects Moody's concerns regarding the company's ability to recover its profitability and cash generation in the coming fiscal year as the macroeconomic tailwind becomes less supportive whereas the outcome of Brexit negotiations and their potential impact on customer behaviour that may include a shift to late bookings exacerbates the uncertainty," added Morgovski.

On Thursday last week, the travel agency reported a swing to a loss in its recently ended financial year, hurt by a number of one-off charges and by weakness in its tour operating business.

Thomas Cook said it suffered from a prolonged period of unusually hot weather this summer, with customers delaying their holiday decisions, putting profit margins under pressure.

Moody's noted that initially the mid-cap constituent guided broadly stable earnings before interest and taxes, but on Tuesday last week, the company warned that its underlying Ebit dropped by 23% to GBP250 million year-on-year.

Thomas Cook said it is currently in the process of executing its strategy, focusing on a differentiated holiday offering to transform its business model. However, Moody's highlighted that this transformational programme resulted in a significant increase of exceptional items, totalling GBP153 million compared to GBP54 million prior year.

"High and growing amount of transformational expenses contrasts sharply with Moody's expectation of their gradual decline," the ratings agency said.

Moody's said that Thomas Cook's decision to suspend its dividend payment will not have any meaningful impact on its credit metrics. In financial 2018, Thomas Cook distributed GBP9 million to shareholders.

Looking ahead, the ratings agency said it will consider an upgrade if Thomas Cook is able to demonstrate the resilience of its business model to external shocks, including Brexit-related uncertainty.

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