Thomas Cook To Enter Russian Tourism Market In 2010

LONDON (Dow Jones)–U.K.-based travel firm Thomas Cook Group PLC (TCG.LN) and rival TUI Travel PLC (TT.LN) are both targeting Russia and China for expansion as their markets in Western Europe stagnate during the economic downturn.

Reporting higher revenues and earnings for its latest fiscal year Monday, Thomas Cook said it expects to enter the Russian tourism market with a bolt-on acquisition by the first quarter of 2010. Chief Executive Manny Fontenla-Novoa said the company is currently undertaking due diligence on an unnamed Russian company, which also has retail operations.

“This is not a huge deal, its sort of double figures (in million pounds), rather than three figures”, he said.

Thomas Cook’s focus on Russia comes after rival TUI Travel said earlier this year it was also targeting Russia for expansion. In April, it announced a joint venture with S-Group Capital Management Ltd. to develop its Russian and Commonwealth of Independent States leisure tourism presence, and in September said it was looking for acquisitions in emerging markets with a focus on Russia and CIS.

“We are particularly encouraged by the opportunities in Russia and China, which are expected to become two of the largest travel markets within the next few years,” Thomas Cook said. The group is yet to enter the Chinese tourism market.

Thomas Cook said Monday that trading has strengthened in its major markets since September. Its main markets are currently the U.K., the Nordics, Germany, France, the Netherlands and Belgium. It also has operations in Eastern Europe, but a push into Russia and CIS would mark a significant move to the east.

U.K. travel companies have proved resilient during the downturn. They’ve experienced some weakening in demand and customers are booking later than normal, but they’ve kept up prices and protected margins by reducing the number of holidays available.

While the late booking trend is still evident, Thomas Cook said its winter trading position “continues to improve and trend towards our planned capacity.”

“It is still early in the summer booking cycle, however we are confident we can manage trading in line with demand,” the company added.

Excluding exceptional items, earnings before interest and tax–the key figure tracked by U.K. analysts–rose 13% to GBP414.9 million in the year ended Sept. 30, beating market expectations of GBP403 million. That compares with a proforma figure of GBP365.9 million a year earlier.

Net profit rose 46% to GBP15.8 million from a proforma GBP10.8 million, driven by an increase in revenue and lower finance costs.

Annual revenue rose 5.9% to GBP9.27 billion, broadly in line with expectations of GBP9.29 billion, after the company increased the price of some holidays and sterling’s weakness boosted revenues from outside the U.K. That compares with a proforma GBP8.75 billion a year ago.

Thomas Cook has restated its fiscal 2008 results because of a change to its year end.

In August, Thomas Cook said it will meet its fiscal 2009 targets despite a widened loss for the first nine months of the year. But the group warned that it won’t make the GBP480 million in EBIT it had targeted for fiscal 2010 because of the industry downturn.

Since then, market consensus has fallen to around GBP420 million for fiscal 2010, CEO Fontenla-Novoa said.

Thomas Cook’s strong results and good start to the new financial year was well received by the market. After initially rising more than 4% at the start of trade on the London Stock Exchange, the shares were up 1 pence, or 0.5% at 217 pence in a lower London market. TUI Travel, which is scheduled to report its fiscal 2009 results Tuesday, was up 6 pence, or 2.6% at 250 pence.

Thomas Cook said its financial position remains “robust” following speculation that it will have to raise capital to pay down debt. “Our bank facility of EUR1.8 billion does not expire until May 2011 and we plan to refinance this by summer 2010,” Thomas Cook said.

Its net debt more than doubled to GBP675.3 million at the end of September from GBP292 million a year earlier because of the completion of its share buy back program, acquisition payments as well as costs related to integration and restructuring initiatives.

Signalling its confidence, it declared a final dividend of 7.0 pence a share, up slightly from 6.5 pence a year earlier. That takes the total for the year to 10.75 pence, up 10% from 9.75 pence a year earlier.

-By Lilly Vitorovich, Dow Jones Newswires; 44-0-207 842 9290; lilly.vitorovich@dowjones.com