The travel group whose founder has left is changing direction and concentrating on its US operation in a bid to lift it out of its current slump, writes Barry O'Halloran.

If you had invested in CNG Travel Group when it floated on London's Alternative Investment Market (AIM) 13 months ago, you would be around 70 cent in the euro poorer today.

Last night, the company closed at 29.75 pence sterling (45 cent), over 73 pence below its flotation price of £1.03 on May 7th last year.

It topped the £1.02 mark earlier this year, but it has never reached the high of £1.06 that it touched on the day of its flotation.

In fact, its share price graph for the last three months shows that it has been downhill all the way. The steady decline ends in a sharp drop precipitated by the bad news that flowed from the company over the last week.

A week ago, it warned the markets that earnings would be below expectations this year because two of its businesses have been losing money.

Subsequently, it emerged that it had suspended its chief executive and founder, Finbarr Power.

Then, at its annual general meeting (agm) this week, it revealed that Mr Power had decided to resign, as he was considering making a bid for the group's leisure business.

At the same time that it issued the warning, CNG announced that it intended selling this division.

It includes a US business, Places To Stay, for which it paid €10 million cash last August.

This element of the group was its genesis in 1999, and gave it its title. CNG is derived from "Click 'n' Go", the original company's name .

Places to Stay is an on-line hotel booking mechanism that secures rooms for tourists and other travellers, either through its own site or through those operated by others.

It may be at its core the business that Mr Power founded in 199 but it does not look like it has ever made money. In 2002, its operations lost €2.7 million on a turnover of €5.6 million.

The write off of an €8.9 million investment brought its pre-tax deficit to over €11 million.

The investment was a loan to subsidiaries of a US company, Around the World, which was subsequently waived in return for a $5 million (€4.1 million) promissory note from a third subsidiary.

The company admitted to shareholders this week that it was unlikely to recover any of this.

But, despite its mixed record CNG has always attracted investors.

In 2002, existing shareholder Menolly Homes guaranteed an $8 million advance from Anglo Irish Bank, in return for $3 million worth of shares.

When CNG failed to repay this, Menolly, controlled by developer Séamus Ross, received a further tranche of double that amount.

That deal lifted Menolly's holding to 25 per cent of the group. Mr Ross himself loaned it $5 million, which it repaid.

The company also secured a $4 million investment from Bacchantes, a company connected with Dr Michael Smurfit, who is a director of the group. He has 4.6 per cent of CNG.

Its second business is Travel Lodge Connector (TLC), the software the company developed to perform its online hotelroom booking transactions. CNG has been licensing this out to travel agents, but sales have not been as brisk as expected.

However, it has changed the method of selling this and chief executive, PJ King, believes that this will increase sales. The third element of CNG, US operator, Tzell, makes money. The Irish group bought a majority stake in this company in 2003, and used part of the proceeds from the flotation to buy it out completely last year.

Tzell is a successful 40-year-old travel agency that specialises in serving the corporate market.

It has 60 full-time staff and 600 self-employed commission earning agents in the US, where it is ranked at number five in its business.

The company uses the internet, but principally does business through call centres, and is much more a conventional travel agent than an on-line venture.

Group accounts for 2004 show that between them, CNG, Places To Stay and TLC had operating losses of $9 million (€7.5 million), while Tzell had operating profits of $9.23 million. CNG is going to focus its efforts on developing Tzell and TLC, and intends selling the rest of the operation.

Last week, Mr King said that the leisure side of the business did not have the scale needed to compete. CNG chairman, corporate financier Luke Mooney, reiterated this point to the press after the agm.

He then said that buying Places To Stay was part of the process of building that scale, and that after a number of other "near misses", it decided that it was time to get out of that business.

However, one shareholder argued yesterday that it is more likely that the leisure business just could not make money because the hotels whose rooms it was selling realised they could do it themselves and cut out the middleman.

Which ever, if either, of these explanations is accurate, it can't guarantee getting its €10 million back.

The issue for shareholders is whether or not they will get their 70 cent back. Mr Brian Pearse, a British investor who was at this week's agm says he believes it will deliver value in the medium term.

Another told The Irish Times yesterday that "there is a good business in there somewhere". Let's hope they find it.