Shares in Thomas Cook (TCG) surged ahead by almost 14% to 164.8p today on news the tour operator has launched a £1.6 billion refinancing programme. Besides positive steps to improve the balance sheet, the market also liked the look of better-than-expected half-year results.


The £1.3 billion cap's capital refinancing plan comprises of three interdependent elements which will, in the words of chief executive officer (CEO) Harriet Green, 'reduce the very significant debt that we inherited, lengthen its repayment profile and consequently help us deliver the full benefits of the strategic plan we set out in March.'


Thomas Cook hopes to raise £425 million from a £120 million placing priced at 137p and £305 million via a 2 for 5 rights issue. The refinancing also includes the issuance of a €525 million (£441 million) bond which matures in 2020, while new lending facilities of £691 million tie the whole plan together.


The refinancing is expected to significantly reduce balance sheet debt, which stood at £1.2 billion at the end of March. While debt reduction is certainly a priority after the vicissitudes suffered by the group over the past 18 months, the capital reorganisation should also facilitate the ongoing implementation of Thomas Cook's business transformation strategy and the proceeds will be used to improve its credit perception with suppliers.


News of the refinancing accompanied half-year figures to March which confirmed Thomas Cook's voyage along the road to recovery hasn't yet been sidetracked. First half losses were reduced by £58.7 million year-on-year to £197.5 million, benefiting from strong underlying trading and better-than-expected cost savings. Underlying gross margins meanwhile improved by 110 basis points to 20.7%.


Self-help and simplification have been the order of the day since Green's appointment in July 2012. But while Thomas Cook might be out of intensive care, the travel company is not quite off the critical list just yet. In terms of targets and Key Performance Indicators (KPIs), Thomas Cook may yet struggle to hit 2015 full-year targets, at least on current rates of improvement. Web penetration for example stood at 34% for the full year 2012, yet only inched its way up to 35% during the first half, leaving Thomas Cook with work to do to achieve web penetration of 50% plus by the end of 2015.


That said, there is evidence of increasing digital innovation at the tour operator which offered its first excursion back in 1841. Its announcement of a new partnership with Triporati will see the virtual travel agent featured on the Thomas Cook website from 28 June. However, Thomas Cook isn't the only travel firm struggling to deliver on ambitious online strategies; last week (10 May) rival Tui Travel (TT.) said online sales for the first half spoke for 42% of its UK business, representing a year-on-year increase of just 1%.

Issue Date: 16 May 2013