CNG Travel issues warning of earnings hit

CNG Travel, the online hotel booking agent chaired by Dr Michael Smurfit, yesterday warned that poor performances in two of its businesses would dent earnings this year.

The group announced that it plans to sell its leisure business, Places To Stay, a US firm which it bought last August for €10 million, because the company is losing money. CNG bought the company last year from US group, World Res. At the time, it said it expected the acquisition to boost earnings in its first year of operation. It paid cash for the business.

A statement said that CNG's technology, Travel Lodging Connector (TLC), is also a loss maker. However, the group said that it expected this to break even by the end of the year.

It said that its third division, US operator, Tzell, is continuing to trade profitably and in line with expectations.

"These factors, when coupled with continued losses in the leisure division, will mean that results for the year to 31st December 2005 will be below expectations," a CNG statement said. CNG is based in Co Kerry and quoted on London's alternative investment market (AIM). Menolly Homes, the house builder controlled by developer, Séamus Ross, owns 29.9 per cent of the group. His son, Séamus Ross junior, is a director. Chief executive, Finbarr Power, owns just over 12 per cent of the company. It locates and books hotels for business travellers and tourists, through both its own website and by acting as the accommodation agent on sites operated by airlines and tour operators.

It also licenses TLC for use to other businesses in the travel sector. It recently switched to charging on a transaction-by-transaction basis for this. The company believes that this move will boost sales.

Chief financial officer, PJ King, told The Irish Times yesterday that Places To Stay had underperformed because it did not have the necessary scale to compete with other players in the same business. "We decided that generally in the European market, you need a certain scale to really make it work," he said.

Mr King added that there had been a number of mergers and acquisitions in the market, including the purchase of Lastminute.com and E-bookers.

A US and UK player separately approached CNG yesterday expressing interest in buying Places To Stay. The business sold $25 million (€20.3 million) worth of hotel rooms in the last year, and generated a gross profit of $2 million for CNG. However, its costs were considerably higher than this.