The world’s largest travel group TUI senses the chance of being in the black again after two loss-making years due to Corona. The high level of inflation and the impending economic downturn could dampen Europeans’ renewed desire to travel. The new CEO Sebastian Ebel still wants to start repaying the state aid in 2023, with which the federal government had saved the tourism giant from going under during the corona pandemic. The expected profits from the travel business are not sufficient for this. Now shareholders are supposed to inject fresh money in the billions.
The paper was last traded around lunchtime at a price of EUR 1.611 and was therefore around six percent cheaper than the previous evening. After the market closed, TUI surprisingly published a plan to repay the remaining state aid to the German Economic Stabilization Fund (WSF) – and announced a merger of TUI shares and capital increases.
In the past financial year up to the end of September, the group did not make it into the black. Thanks to the significantly increased number of vacationers, however, the net loss shrank by almost 90 percent to 277 million euros, as TUI announced on Wednesday in Hanover. While sales of 16.5 billion euros were around three and a half times as high as in the previous year, the group achieved an operating profit (adjusted EBIT) of 409 million euros before interest, taxes and special effects – after a loss of more than two billion euros a year earlier .
The fact that the bottom line was not enough to stay in the black was mainly due to the interest on the debts accumulated during the crisis. Financial expenses totaled more than half a billion euros in the fiscal year.
CEO Ebel, however, was confident. “The summer was strong,” summed up the manager, who took over the management of the group from long-time TUI boss Fritz Joussen at the beginning of October. In the most important travel months from July to September, TUI counted 7.6 million holidaymakers – around 93 percent of the pre-crisis level.
According to Ebel, customers spent on average almost a fifth more on their trips than before the pandemic in the summer of 2019. However, this was not due to price increases of this magnitude. On the contrary, people had booked significantly longer trips on average and had increasingly chosen higher-quality accommodation, said the manager.
For the coming years, Ebel still intends to significantly exceed the level from before the pandemic. He also wants to be measured by the number of vacationers and not just by sales, which inflation is driving up anyway. Adjusted operating profit is expected to rise to well over EUR 1.2 billion by 2025.
TUI management did not dare to make a precise forecast for the current 2022/23 financial year. The new CFO Mathias Kiep explained that sales should grow strongly and the adjusted operating profit should increase significantly.
According to Ebel, he does not expect inflation and the looming economic downturn to prevent Europeans from traveling to any great extent. The typical customer plans a certain sum for his vacation – and when booking, see what he can afford for it.
The positive trend can also be seen in the current winter season. The bookings are stable, the desire to travel is great, it said. So far, the group has sold a good half of its winter program, and customers spend an average of 28 percent more on their vacation than in winter 2018/19.
However, shareholders are currently looking at much larger sums. Because the TUI management wants to tackle the repayment of the remaining state aid from the Corona crisis. The group intends to repay the aid granted by the Economic Stabilization Fund (WSF) by the end of 2023 with fresh money from shareholders. According to the information, it is about at least 730 million euros plus interest. Overall, it could be up to 960 million euros, explained CFO Kiep.
According to his assessment, TUI needs a similar sum for the repayment of the credit lines from the state bank KfW. The group was able to reduce its net debt for the year from around 5 billion to 3.4 billion euros by the end of September. But in the winter when travel is weak, he needs more loans again. For this reason, the board of directors only wants to reduce its current credit line of 2.1 billion euros with KfW for the time being and not yet give it back completely.
In a video conference, Kiep did not want to put an exact figure on how much money TUI would have to collect from shareholders next year with capital increases. In his view, however, a figure of 1.6 to 1.8 billion euros would be realistic.
In order for the capital increase and thus the repayment of state aid to go ahead as planned, the shareholders and the EU Commission must agree. At the annual general meeting in February, the shareholders are to initially decide on a capital reduction from almost 1.8 billion to just 179 million euros. The difference remains in the group.
In this context, the TUI shares are to be combined at a ratio of ten to one – in other words: anyone who previously owned ten shares will only have one afterwards. This is intended to significantly increase the difference between the expected share price after the merger and the lowest issue price of one euro.
Individual and package bookings: TUI customers should be able to choose more
In the future, TUI wants to offer more individual offers and individually compiled holiday packages as an alternative to package holidays booked longer in advance. “Customers should be able to combine hotel contingents and flights that are available at short notice,” the company announced on Wednesday. The tourism industry calls this “dynamic packaging” – the idea is that consumers can choose flexible components such as airline, accommodation, round trips, rental cars or excursion programs.
CEO Sebastian Ebel sees this as “one of the big focuses” of the coming years. When presenting the TUI annual figures for 2021/2022, he said: “Germany was the first market for it, we will also roll it out in other countries.” As a rule, tour operators buy the elements for package deals in large quantities, which also brings them price stability to a certain extent. From TUI’s point of view, the package tour becomes “more flexible and individual and therefore more dynamic” through offers selected directly by the customer.
With the help of this strategy, the group says it wants to win new customers. In this way, additional offers could also arise, for example for city breaks. The total amount of available or mediated hotels is to be expanded globally. A platform called “TUI Tours” was recently launched in Belgium, on which holidaymakers can put together personal tours. From 2023, this offer will also come to Germany.
This is how the TUI share reacts
TUI shares plummeted in XETRA trading on Wednesday. Regardless of pleasing financial year figures and an optimistic outlook for 2022/23, the shares of Europe’s largest travel company fell by 7.65 to 1.59 euros at the end of trading. Because the capital increase announced the night before was not well received by investors.
As TUI announced the evening before, the aid money from the Economic Stabilization Fund (WSF) is to be repaid by the end of 2023 with the issue of new shares. With these, the federal government had saved the travel group from collapse in view of the slump in business as a result of the corona pandemic. In addition, the number of shares is to be reduced with a “reverse split” and a new one is to be issued for ten old shares, making the shares visually significantly more expensive again.
Analyst Richard Clarke from Bernstein Research spoke of a conciliatory annual report with a view to the annual report of the tourism group, but “the topic” was the announced capital increase including the share split. She had been expected for some time. After the good run of the shares, the management is probably taking advantage of the moment, according to the expert. From his point of view, it is “clearly positive” that the risk is now eliminated that the WSF itself could become a major shareholder of the group. According to an agreement, the WSF will waive the right to convert the silent participation into new TUI shares until the end of 2023.
Capital market strategist Jürgen Molnar from Robomarkets also took a close look at the repayment of state aid. He called the “reverse split” of the shares on the one hand and the subsequent capital increase at a higher share price “very sensible from a business point of view”. As a result, TUI minimizes interest costs, since borrowed capital is converted into equity.
“However, whether the capital increase will meet with great demand on the market is another question,” Molnar said. “A company that is still operating in the red and does not offer any interest in the form of dividends should probably only be considered for investors who are more willing to take risks.”
The figures presented for 2021/22 and the outlook for the new financial year were mostly well received by analysts. Analyst James Wheatcroft from Jefferies, for example, praised the key earnings figures as positive. “For the first time since the pandemic, all segments returned to profitability in the fourth quarter,” wrote Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, who also drew attention to growing uncertainties about the general economic environment.
UBS analyst Cristian Nedelcu referred to the fact that winter business was noticeably better than in the same period last year, even if it had not yet returned to the level before the pandemic. However, 54 percent of the offers have already been booked, compared to 43 percent a year earlier and 59 percent in the 2018/19 financial year.
He also highlighted the travel group’s forecast of a significant increase in operating profit (EBIT) for the new financial year 2022/23, while Wheatcroft stressed that the medium-term outlook for 2025/26 had also been confirmed.
FRANKFURT (Dow Jones) / HANNOVER (dpa-AFX)
Leverage must be between 2 and 20
No data
More news about TUI
Image sources: TUI