Harriet Green arrived at Thomas Cook with the business in turmoil and suggestions it might go bust. She tells Andrew Cave how she is turning the firm around.
‘I’m a little hyper,” confesses Harriet Green, which is probably not a bad quality for the chief executive of the troubled travel group, Thomas Cook.
The world’s oldest travel brand was in deep trouble when the former head of electrical distribution group Premier Farnell took the helm last July.
It had fired its chief executive, Manny Fontenla-Novoa, after three profit warnings and had to be bailed out by its banks.
After Green energetically outlined her new strategy last week, however, the storm clouds seemed to lift. The shares jumped 52pc, pushing the company’s market capitalisation beyond £1bn. When we meet at her home in Oxford, she’s been for a run and is pumping with energy.
“Thomas Cook is back,” she declares. “When I took the role, pretty much everyone said ‘You’re crazy’. But one lovely person said to me: ‘You have to go some to destroy such an amazing brand’.
“This is an unbelievably strong brand. Even in the year people were a little bit worried it might go bust, there were not fewer travellers with Thomas Cook.”
Investors and staff were more than slightly concerned. Thomas Cook, which dates back to 1841, lost £485m last year and was haemorrhaging cash. The medicine has been painful, with 2,500 job losses and the closure of 195 travel agency branches announced this month.
The new strategy sees another £50m of cost savings identified, on top of £160m already mapped out, a reduction of travel brands from 27 to nine and sale plans for brands reported to include ski tour operator Neilson. The market is also awaiting news of a placing or rights issue to reduce Thomas Cook’s £788m of debt.
Green believes the company is off the danger list. “It’s been quite pacy,” she says of her first 32 weeks in the job.
“Thomas Cook was pretty poorly. The company had acquired many businesses and got to a very significant scale but the gross margins and revenues were not translating into operating earnings. The UK business had 18 different locations and was very complicated for customers. Thomas Cook is an amazing iconic brand, a superbrand, but the people were very shocked, the banks were troubled and we had to generate very quickly a plan to generate belief in the company.”
Green has kept notes in black pocket books of her first 100 days and every subsequent week.
Last August was about identifying the 15 big decisions the company needed to take. September involved creating a team of 250 managers to execute the turnaround and transformation, while October saw the recruitment of McKinsey & Co and Green’s “strategic buddy”, Christian Riis-Hansen, the management consultant’s global head of travel and leisure.
“We’ve done a lot in 32 weeks,” she says. “We had to. Thomas Cook was in need of a turnaround and usually turnarounds are driven top-down and are about costs and cash. Then we moved into transformation.”
The strategy aims to raise £150m from disposals, targeting annual sales growth of at least 3.5pc and an operating margin of more than 5pc by 2015.
There will be a greater emphasis on selling holidays online and Green is promising “flexible new products and services”. Is Thomas Cook off the critical list? “I think we are much, much healthier,” she replies. “This isn’t a hugely complicated business intellectually, but Thomas Cook had not delivered.
“It said it would do lots of things and it didn’t. In 32 weeks, we’ve embedded 70 major changes throughout the organisation – things we’ve fixed and done at pace.
“We’re not done but the business is certainly stronger.
I think we’re out of the danger zone. But it’s not just about taking out costs and cash. It’s about building a business that can grow profitably.”
Green cites market research showing that while Thomas Cook’s core sun and beach travel market was growing, customers also want more city breaks and touring holidays.
New products will be created to fill that demand, while Green plans an overhaul of the company’s websites, where she wants the proportion of holidays booked online to increase from 34pc to 50pc within three years.
She also plans to expand Thomas Cook’s concept hotel holidays, winter sun and European budget hotels offerings.
Thomas Cook still claims 23m customers, while its £9.5bn revenues put it in the top 50 of UK companies by sales. It still has 874 travel agency stores, a similar number to before the merger with the Co-operative Group’s travel arm that many say now looks ill-conceived.
“We didn’t need as many retail stores,” Green says, pointing to the 48pc of stores in the closure announcement that are 1km away from another Thomas Cook outlet and the 23pc which are within the same postcode and street.
Will she shut any more? “We’ve got flexible leases so we’ll continue to reshape it but I don’t think they’ll be any more radical restructuring,” she says, adding that she also doesn’t see the need for any more major moves on the size of the 31,000 workforce.
The main work, she says, has been in reducing complexity. Eight levels of management between the chief executive and the customer have been cut to six and will come down further.
Three boards have been merged into one, while senior non-board directors have been reduced from 22 to 10.
“We’ve cut our top leadership cost by 55pc,” says Green. “It was unbelievably bureaucratic, confusing and overhead-heavy.”
Now she wants top-line growth. “In the UK, there’s such an opportunity,” she states. “Some 310m customers start their travel journey on [our] websites. We don’t convert all those to bookings.” Debt remains a pressing concern but Green says the group is now in a far better position to reduce it, having improved average working capital by £150m.
Only 11pc of the group’s operating profits are currently converted to cash, with the company’s 22pc gross margins being eroded to a profit margin of 1.6pc before interest and tax.
Are rumours of a £400m share placing accurate? “Thomas Cook is on a journey,” is how Green chooses to reply.
“Thirty-two weeks ago, our share price was 14.5p and our market capitalisation was £240m. People were worried that the company would go to the wall.
“We’ve strengthened and improved the business, started to take out costs, significantly improved our working capital and identified the businesses that we want to sell, and you can see that reflected in our stock price.
“Now we’ve released the strategy, we’re in a position to consider the best options to reduce indebtedness. Thomas Cook could trade its way out of a good portion of that debt but we have bonds that come due and so we will need to reduce our indebtedness.
“As we get stronger, we’ll be able to show the markets that Thomas Cook is doing a great deal to help itself as well as asking others to help us with the level of indebtedness we have inherited. We will need to address that issue.”
Does she want to resolve it this year? “Yes,” she declares.
Green has a track record in turnarounds, having taken on Premier Farnell after previously working in China for America’s Arrows Electronics.
Known and sometimes gently ribbed for her “consultant-speak”, she has an interesting leadership philosophy based on biology. “Businesses are like human organisms,” she says. “You start with the psychology. The psychology of Thomas Cook was kind of a burning platform and that’s great for change.
“If you’ve got a burning platform and the right leadership and team in place, then you need to look at the physiology. What are the nerve endings and blood flows?
“At Thomas Cook, they weren’t working together effectively. It wasn’t circulating well, so we got everyone working together on that physiology.
“And when you do that, you can do anatomy. What sort of shape will this business be? What’s our skeleton? What’s our structure? What’s our construct?”
This type of creative talk also finds expression in her home, which has rooms themed around the four continents – Europe, Asia, America and Africa – where she has lived.
In the “China room”, there’s a huge painting of a phrase in Mandarin. Green bought it, having been told that it translates as “ode to a woman” but later found it actually means “ode to a man”.
She laughs off the confusion. As long as the same problem isn’t apparent at the company she now runs, Thomas Cook shareholders will remain happier than they were this time last year.