From Turnaround to Transformation at Thomas Cook

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Thomas Cook (LSE:TCG) CEO Harriet Green “gets it” and shareholders who read this morning’s strategy update understand that she does.  TCG share price improved by 15.8% by the noon hour, up 13.75 pence to 100.75.

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Far too often, in my experience, once turnaround artists achieve their goals, they pat themselves on the back and either sit back in their office chair to relax and savor the sweet smell of success, or they move on.  Harriet Green proved this morning that she is much more than a turnaround artist.  She proved that she is not a CEO in name only.  She proved that she is the real thing by summing up her new strategy in one sentence:  “We need to move from turnaround to transformation now and create a simplified, restructured business which translates our strengths into profitable growth.”

The success of the turnaround phase is evidenced by the return of the share price to the 100.00 pence area for the first time since 11 July 2011, and the resulting increase in market capitalization sufficient to return the company to the ranks of the FTSE 250.

Ms. Green announced that the business transformation plans are “ahead of schedule and already delivering substantial performance.”  She has now identified at total of £350 million in cost reductions aim at profit improvement, and has promised more to come.  Her goal is to achieve a profit margin (EBIT) greater than 5% by FY2015.  Other goals for 2015 include adding more than £500 million in new product sales and increasing Internet penetration to more than 50%.

The thing that impresses the most is the clearly identified and specific key performance indicators (KPI) that the company was willing to put out in front of the public.  This creates an aura of confidence that tells shareholders that “We will not disappoint you.”  Those indicators include:

  • A compound annual revenue growth rate in excess of 3.5%
  • An underlying gross margin improvement in excess of 1.5%
  • The aforementioned earnings before interest and taxes in excess of 5%
  • A cash conversion of more than 60%

The company’s fundamental strategy includes creating a portfolio consisting of entirely new products and services, expanding TCG’s hotel concepts, and creating “a single, consistent, omni-channel gateway for customers” which will provide interactive access aimed at increasing customer satisfaction.

Green’s transformation strategy is based on the analysis of not only the internal operations, but also upon the results of a “comprehensive and in-depth inquiry into the preferences of nearly 18,000 travelers.”

Today’s report, in effect, said “This is where we were, this is where we are, this is where we’re going, and this is how you should measure our performance.”  Anybody can report the first three, but it takes courage and confidence to announce the standards to which shareholders should hold you accountable.  I find that unusually admirable.

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