TUI AG (TUI)
10 December 2020
Full year results to 30 September 2020
2020 IN REVIEW
1 At constant currency
2 Adjusted capacity refers to capacity % planned to be operated versus 2019 programme
ANNUAL REPORT AND FY20 RESULTS INVESTOR & ANALYST AUDIO WEBCAST
Our year-end announcement and a full copy of our Annual Report can be found on our corporate website: http://www.tuigroup.com/en-en/investors. An audio webcast for investors and analysts will take place today at 08.00 GMT / 09.00 CET. Our year-end presentation alongside details of the webcast, will be made available via our website beforehand.
FY20 KEY FINANCIALS (IAS 17 basis)
3 Underlying EBIT has been adjusted for gains on disposal of investments, major gains and losses from the disposal of assets, major restructuring and integration
expenses. The indicator is also adjusted for all effects from purchase price allocations, ancillary acquisition costs and conditional purchase price payments.
4 Reported EBIT comprises earnings before net interest result, income tax and result from the measurement of interest hedges
5 For reconciliation of loss/earnings before tax to underlying EBIT, please refer to page 58 of the Annual Report
6 For calculation of underlying loss/earnings per share please refer to page 32 of the Annual Report
7 FY19 figures adjusted as a result of revised classification of certain expense items to cost of sales and revisions to PPAs, please refer to page 155 of the Annual Report for further details
GLOBAL REALIGNMENT PROGRAMME - TARGET INCREASED TO €400M P.A
In response to the C-19 pandemic we initiated a Global Realignment Programme as one of our self-help measures to address group-wide costs with a target of permanently saving more than €300m, with the first benefits to be delivered from FY20 and full benefits to be achieved by FY23. Projects announced and underway across core functions, Markets & Airlines and TUI Musement (formerly Destination Experiences) are already expected to deliver close to the €300m target savings and we have therefore increased our target to €400m per annum. In addition to restructuring charges of €303m realised in FY20, we expect restructuring costs of ~€120m in FY21 and ~€40m in FY22.
As a result of these measures, we are confident TUI Group will emerge stronger, leaner, more digitalised and more agile, in what is likely to be a much more consolidated market.
Closing financial position deteriorated from €3,850m (IAS 17 basis) as at 30 June 2020 to €4,557m net debt as at 30 September 2020. The increase in net debt in the final quarter of €707m is in line with our cash outflow expectations.
The year-end net debt position of €4,557m (IAS 17 basis) versus the prior year (FY19: net debt €910m) reflects the full draw down of our original Revolving Credit Facility of €1,535m and the first tranche of state aid amounting to €1.8bn as part of our support package agreed (second and third support package of €1.2bn and €1.8bn both finalised post balance sheet date).
In the financial year 2020 we transitioned to IFRS16. All leases are recognised as right-of-use assets and lease liabilities in our statement of financial position. According to IFRS16 our year-end net debt position amounts to €6,421m.
CASH OUTFLOW/ LIQUIDITY POSITION
Pro forma cash and available facilities as at 30 November 2020, including third support package, would amount to €2.5bn (post €300m senior notes redemption).
For FY21 Q1, we expect lower working capital from settlement of supplier payments and as a result of more extensive local restrictions across our key markets since November, which has forced us to cancel departures and affected booking momentum. Overall, we now expect monthly cash outflow to be in the range of €400m to €450m per month.
ADDITIONAL SUPPORT PACKAGE
On 2 December 2020, we announced an agreement with Unifirm Ltd, a syndicate of underwriting banks, KfW and the German Economic Support Fund (Wirtschaftsstabilisierungsfonds - WSF) on a further financing package of €1.8bn.
The package includes in summary -
The package is, inter alia, subject to the approval of the European Commission under state aid rules, the granting of the necessary merger control approvals (where there is a prohibition on implementation) and the respective resolutions at our Extraordinary General Meeting envisaged for January.
The financing package strengthens our position and provides us with sufficient liquidity reserves in this volatile market environment. It also balances out the presumed travel restrictions until the beginning of the 2021 summer season. The package became necessary due to the increasing travel restrictions caused by the rising number of infections and the associated later booking behaviour of some customers. Further details of the support package can be found in our Ad-hoc release of 2 December 2020 as well as on pages 152 to 154 of our Annual Report.
With regard to the UK's exit from the EU as of 31 January 2020, a main concern remains whether our airlines will continue to have full access to EU airspace after the transition period. We are continuing to address the importance of there being a special and comprehensive agreement for aviation between the EU and the UK post Brexit to protect consumer choice with the relevant UK and EU decision makers. We follow the political negotiations closely and continue to develop scenarios and mitigating strategies for various outcomes, including the potential exit of the UK from the EU on 31 December 2020 without a comprehensive free trade agreement, with a focus on alleviating potential Brexit impacts on the Group. As at 30th November 2020 our EU level of ownership, excluding the UK, was >50%.
There is still considerable uncertainty regarding the likelihood and nature of further lockdowns and travel restrictions over the next few months, the distribution of an effective vaccine and the shape of the economic recovery. As a result the TUI Executive Board refrains from issuing new guidance for the Financial Year 2021 under the current circumstances.
WINTER 2020/21 - we currently expect to operate an adjusted capacity8 of 20% for Winter 2020/21, a reduction of 20% since our Pre-Close trading update which reflects the more extensive local restrictions across our key markets during the first quarter. We expect our adjusted capacity8 plans to be weighted towards our financial Q2 as travel restrictions are eased, with a notable pick up in recent bookings in those markets with softening local restrictions.
Anecdotally we have observed an immediate uplift in demand when destinations reopen with long-haul destinations such as Jamaica and St Lucia reporting load factors of over 90% on reopening. Whilst many of the popular winter destinations as well as long-haul options may at present not be permitted, our integrated model means we are well positioned to resume both medium and long-haul programmes as soon as destinations are reopened again. Our Winter bookings9 are currently down 82%, in line with adjusted capacity, compared to normal levels of prior year as well as reflecting an overall later customer booking pattern in recent months as a result of the short notice changes in travel advice. ASP for Winter 20/21 is up 4%.
SUMMER 2021 - we currently plan to operate an adjusted capacity8 of 80%, in line with our last trading update. Bookings are down 10% versus this same point last year for Summer 2020 and ASP is up 14%9, made up of both new bookings and re-bookings. Compared to the same stage of the Summer 2019 programme, our current level of bookings would be 3% ahead. UK bookings9 are up 19% reflecting the typical earlier booking behaviour for the region. The absolute and relative change in overall bookings position since our Pre-Close trading update reflects a slowdown in booking momentum during November as a result of local restrictions across our key markets and particularly strong comparables in the wake of the Thomas Cook insolvency. We expect the later booking behaviour to be less pronounced as local travel restrictions ease, vaccine programmes become available and we return to a more normalised environment for leisure travel (supported by a pickup in recent bookings following positive vaccine news). The integrated nature of our business model means we have a high level of flexibility to adapt our programme as we gain more visibility. People's continuing passion for holidays is evident in external research10 which identifies holidays as being one of the most missed activities during the C-19 pandemic.
8 Adjusted capacity refers to capacity % planned to be operated versus 2019 programme
9 These statistics are up to 29 November 2020, shown on a constant currency basis and relate to all customers whether risk or non-risk
10 BCG COVID-19 consumer sentiment survey UK, US, Italy and France https://www.bcg.com/en-gb/publications/2020/covid-consumer-sentiment-survey-snapshot-5-18-20
BOEING 737 MAX
With regards to the Boeing 737 MAX, the US FAA issued an Airworthiness Directive on 18 November 2020 which allows for the resumption of commercial operations of the B-737MAX after the implementation of the specified means of compliance. EASA issued a draft Airworthiness Directive relating to the B-737MAX on the 24 November for consultation. EASA have publicly indicated its intention to issue final certification within a matter of weeks, subject to the 28-day consultation process and various other required steps. It is our view that airlines in the EASA region are likely to be permitted to return the Boeing 737 MAX to commercial service during the first quarter of 2021. We anticipate further updates as EASA completes their final steps for recertification.
RETURN TO PROFITABLE GROWTH
We expect FY21 to be a year of transition and for the Group to return to profitable growth from FY22 onwards. The additional financing package agreed strengthens our position and provides us with sufficient liquidity reserves in this volatile market environment, balancing out the presumed travel restrictions until the beginning of the 2021 Summer season. We are actively streamlining the business through targeted cost cutting, whilst prioritising growth spend on digitalisation initiatives. We will be selective in our investment strategy which will be supported by disposals and we will be focussed on asset light structures. Our trusted, leading brand with differentiated products is strongly positioned to benefit from the expected market consolidation. Our digitalisation transformation, underpinned by cost control, and balance sheet discipline will drive our return to healthy financial metrics and profitable growth.
EXTRAORDINARY GENERAL MEETING
TUI Group plans to hold an EGM and seek approval for its new support package in January 2021.
ANALYST & INVESTOR ENQUIRIES
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