TUI AG (TUI)
TUI GROUP Interim report Q1 2022 1 October 2021 - 31 DECEMBER 2021
Content Report on changes in expected development Structure and strategy of TUI Group Financial position and net assets Comments on the consolidated income statement Alternative performance measures Unaudited condensed Consolidated Interim Financial Statements Group of consolidated companies Notes to the unaudited condensed consolidated Income Statement Notes to the unaudited condensed consolidated Statement of Financial Position Cautionary statement regarding forward-looking statements
Interim Management Report
Q1 2022 Summary
1 Available liquidity defined as unrestricted cash plus committed lines including financing packages
Differences may occur due to rounding. This Quarterly Report of the TUI Group was prepared for the reporting period Q1 2022 from 1 October 2021 to 31 December 2021. 1 We define the EBIT in underlying EBIT as earnings before interest, income taxes and result of the measurement of the Group's interest hedges. For further details please see page 15. 2 EBITDA is defined as earnings before interest, income taxes, goodwill impairment and amortisation and write-ups of other intangible assets, depreciation and write-ups of property, plant and equipment, investments and current assets. 3 Equity divided by balance sheet total in %, variance is given in percentage points. All change figures refer to the same period of the previous year, unless otherwise stated.
Trading update
1 Bookings up to 30 January 2022 compared to 2019 programmes (undistorted by COVID-19) and relate to all customers whether risk or non-risk
Global Realignment Programme - Targeted savings ~?400m p.a. by financial year 2023 In May 2020, we announced our Global Realignment Programme to address group-wide costs, with a target of permanently saving more than ?400m per annum by financial year 2023.
In the financial year ending September 2021, ~60% (?240m) of our announced targeted savings were delivered. Savings have been most significantly delivered across the Markets & Airlines division (~85% of savings to date).
The programme is on track to deliver a further 25% of our targeted savings in financial year 2022 and remains on track to deliver the full programme benefits by end of financial year 2023.
Net debt Q1 2022 net debt position of ?5.1bn is in line with 2021 year-end position. The Q1 position includes proceeds from our capital increase of ?1.1bn and reflects our improved operating result combined with the expected lower seasonal Q1 working capital outflow of ?937m, demonstrating our continuous focus on cost and cash discipline.
Completion of capital increase of ?1.1bn We successfully completed a second capital increase in November 2021. The gross issue proceeds totalled around ?1.1bn. The Group's share capital increased nominally by ?523.5m to ?1.623bn.
Strategic priorities Ongoing priorities - we will continue with our disciplined cash management, drive operating effectiveness, whilst maximising opportunities to de-lever and continue our debt reduction in order to return to a solid and healthy balance sheet.
Our growth opportunities will be driven by the expansion of our tours & activities segment, accelerated digitalisation, our increased offer of dynamic packaging, growth through asset-right financing structures and execution of our Global Realignment Programme. The combination of these drivers should enable us to emerge stronger, leaner, more digitalised and more agile, and ready to exploit market recovery and growth opportunities.
TUI is strategically well positioned and will benefit from the strong rebound in the leisure industry.
Mid-term ambitions - we expect underlying EBIT to significantly build on financial year 2019, driven by both top-line growth and benefits from our Global Realignment Programme, with a target to return to gross leverage ratio of less than 3.0x.
Report on changes in expected development It remains difficult to forecast the further course of the pandemic and its impact on customer behavior. In view of these considerable uncertainties, the Executive Board continues to believe that it is not in a position to issue a specific, quantified forecast for the financial year 2022.
We continue to consider the asumptions for the financial year 2022 made in the Annual Report 2021 to be valid.
Structure and strategy of TUI Group Reporting structure The present Interim Report for Q1 2022 is based on TUI Group's reporting structure set out in the Consolidated Financial Statements of TUI AG as at 30 September 2021.
Group strategy The TUI Group's strategy outlined in the Annual Report 2021 will be continued in the current financial year.
Consolidated earnings
Segmental performance
We operated 8.6m available bednights (capacity2) in the quarter, an increase of 3.4m available bednights versus the prior year (Q1 2021: 5.2m), and back to almost normalised levels (Q1 2019: 9.1m). The 8.6m available bednights reflect the improved travel environment versus the prior year, as well as the usual winter seasonality. Good operational performances were delivered across our diversified destinations, returning the segment to a second quarterly positive underlying EBIT since the start of the pandemic.
In an environment of changing travel restrictions across many different destinations, our diversified portfolio enabled us to optimise demand from non-source market countries. Customers from the US for example were able to travel more openly to the Caribbean and in destinations such as Mexico, we were able to benefit from domestic customers vacationing. This in combination with our ability to direct our Market & Airlines customers to our own capacity first, demonstrates more than ever the advantage of our integrated and diversified business model.
Our hotels across the Caribbean were able to deliver average occupancy rates of 76% as a result, with Mexico in particular achieving 85% average occupancy in the first quarter. Our hotels in the Canaries remained the most popular destination for our European customers during this winter period, achieving average occupancy of 79%. Other popular destinations in the quarter were Turkey, Egypt and Cape Verde.
Overall occupancy rate increased 21%pts to 64% for the segment, reflecting the reasons above, driven in particular by the Caribbean and Spanish destinations. Average daily rate increased by 20% to ?72.
Underlying EBIT profit of ?61.1m is up ?156.7m versus prior year, reflecting the more open travel environment across our multiple destinations with Riu delivering strong performances in their core Caribbean and Spanish markets.
Our Cruises segment consisting of TUI Cruises, Hapag-Lloyd Cruises and Marella Cruises operated 14 ships out of 16 ships in the first quarter, in line with their winter plans (Q1 2021: five ships operated).
TUI Cruises operated six ships out of its seven-ship fleet in Q1 2022. Average daily rate of ?155, up 32% versus prior year (Q1 2021: ?118 and three ships operated), reflecting the resumption of cruises in the Canaries, the Caribbean and United Arab Emirates versus the shorter average duration "Blue Cruises" operated in the prior year. Occupancy of the operated fleet was 53%, increasing 18%pts on the prior year (Q1 2021: 35%) with the latter end of the quarter impacted by both short-term Omicron-related amendments and the early curtailment of Mein Schiff 6 due to rising incidence rates.
Hapag-Lloyd Cruises average daily rate across its full fleet of five ships was ?624, up 44% versus prior year (Q1 2021: ?434 and two ships operated) reflecting the resumption of Around The World itineraries as well as trips to Antarctica and the United Arab Emirates. Occupancy of the full fleet was 50% increasing 13%pts on prior year (Q1 2021: 37%), with the latter end of the quarter impacted by both short-term Omicron-related amendments and the early curtailment of two ships due to rising incidence rates.
Marella Cruises operated three ships out of its four-ship fleet in Q1, delivering average daily rate of £142 and occupancy of 48% versus a previous Q1 which saw operations suspended in line with UK government travel advice. Similar to TUI Cruises and Hapag-Lloyd Cruises, Marella also saw short-term amendments for November and December 2021 departures.
TUI Cruises and Hapag-Lloyd Cruises delivered a ?66.7m improvement in underlying EBIT versus the prior year. The improvement reflects the wider resumption of operations compared to limited 'Blue Cruises' itineraries in Q1 2021, as well as a government grant of ?20m recognised in Q1 2022, with the prior year including a ?20m impairment charge. Marella delivered an underlying EBIT in line with Q1 2021, due to a more subdued environment in UK, which was further limited by disruption costs arising from a Spanish labour strike, delaying the return of Explorer from dry dock in December 2021.
1.1m excursions, activities and tours sold in the quarter, an increase of 1m from 109k in Q1 2021 reflecting the more open travel environment across our destinations versus the prior year, with sales delivered through our Markets & Airlines division and direct through our Musement platform.
This resumption in activities reflects the first steps in resuming our growth plans for the segment, which remains highly fragmented and largely offline. Underpinning our growth plans, we will continue to accelerate and enhance our digital transformation, combining self-service digital capabilities with physical presence in core markets to ensure we remain guest centric throughout all channels.
Underlying EBIT improved by ?19.9myear-on-year as a result, up from the ?32.6m underlying loss in the prior year.
Online distribution was 34% (Q1 2021: 40%) reflecting the return of destination staff in resort versus the prior year, in line with our hybrid in-person and online self-service model.
As already covered, Q1 2022 saw a more open travel environment versus the prior year, with October 2021 in particular benefiting from the Summer momentum. The latter end of the quarter however saw a level of Omicron-related amendments. A total of 2.3m customers departed in the quarter, an increase of 1.7m customers versus Q1 2021, which has been enabled by the successful roll-out of vaccinations across both our markets and destinations. Average load factor of 79% was achieved for the quarter (Q1 2021: 70%).
Underlying EBIT loss for the segment improved by ?164.1m to ?259.0m loss (Q1 2021: ?423.1m loss) reflecting the 67% capacity (compared to Q1 2019) operated over the period, a vast improvement on the previous year which saw our operations largely suspended due to travel restrictions. The result includes ?34m net cost impact from hedging ineffectiveness, as well as savings delivered by our Global Realignment Programme across all markets.
Northern Region saw a steady increase in customer volumes particularly in October and December with 665k guests departing overall in the quarter, versus 114k customers in Q1 2021.
Underlying EBIT improved by ?25.6m to ?171.7m loss as a result of the operational development, including savings delivered through our Global Realignment Programme. Comparatively to our other regions, the overall loss of ?172m reflects the higher operational leverage for the UK, with departure volumes, although improving, still limited and overall sentiment around testing requirements and changing restrictions holding back a wider recovery.
Central Region saw 917k customers depart, an improvement of 671k customer versus prior year (Q1 2021: 246k), the strongest increase across our markets. The region continued in a similar theme to Summer 2021 (Q4 2021) with our Continental European markets benefitting from the earlier easing of travel restrictions by the EU, resulting in a higher level of confidence in short-term departures.
Underlying EBIT improved by ?94.4m to a ?55.0m loss as a result of the positive operational development, including savings delivered through our Global Realignment Programme.
Western Region saw 673k customers depart, an improvement of half a million customers versus the prior year (Q1 2021: 166k), benefitting from the same factors as the Central Region.
Underlying EBIT improved by ?44.1m to ?32.4m loss, nearing break-even as a result of the positive operational development. The result includes savings delivered through our Global Realignment Programme.
Underlying EBIT loss of ?31.3m, broadly in line with prior year.
Financial position and net assets Cash Flow / Net capex and investments / Net debt As a result of the partial easing of global travel restrictions, TUI Group was able to increase its business volume year-on-year. Nevertheless, TUI Group's operating cash flow continued to be impacted by the COVID-19 pandemic in the period under review.
In October 2021, TUI AG carried out a capital increase. This resulted in an inflow of ?1,106.5m after deduction of borrowing costs.
At ?964.6m, the cash outflow from operating activities increased by ?228.1m compared to previous year.
The net debt as of 31 December 2021 decreased by ?2,107.4m to ?5,069.6m year-on-year and is in line with 2021 year-end position.
* Including ?3.7m for Q1 2022 (previous year: ?3.2m) cash gross capex of the aircraft leasing companies, which are allocated to Markets & Airlines as a whole, but not to the individual segments Northern Region, Central Region and Western Region.
Cash gross capex in Q1 2022 was 19.6% higher year-on-year. This increase was mainly due to dock periods at Marella Cruises and Group IT investments. Net capex and investments of ?53.4m increased by ?100.5m year-on-year. The divestments related mainly to the sale and lease back of aircraft. In addition, a subsequent reconciliation of the disposal of RIU Hotels S.A. was included, in total resulting in positive divestments. Previous year's divestments included sale and lease back of spares and aircraft as well as a part of the sales proceeds of Hapag-Lloyd Kreuzfahrten to our joint venture TUI Cruises.
Comments on the consolidated income statement As a result of the partial easing of global travel restrictions, TUI Group was able to increase its business volume compared with the prior-year quarter. Nevertheless, the development of revenue and earnings in Q1 2022 continued to be significantly impacted by the measures to contain the spread of COVID-19. TUI Group's results generally also reflect the significant seasonal swing in tourism between the winter and summer travel months, however this period the impact is less evident due to the COVID-19 pandemic.
In Q1 2022, consolidated revenue increased by ?1.9bn year-on-year to ?2.4bn.
Alternative performance measures The Group's main financial KPI is underlying EBIT. We define the EBIT in underlying EBIT as earnings before interest, income taxes and expenses for the measurement of the Group's interest hedges. EBIT by definition includes goodwill impairments.
One-off items carried here include adjustments for income and expense items that reflect amounts and frequencies of occurrence rendering an evaluation of the operating profitability of the segments and the Group more difficult or causing distortions. These items include gains on disposal of financial investments, significant gains and losses from the sale of assets as well as significant restructuring and integration expenses. Any effects from purchase price allocations, ancillary acquisition costs and conditional purchase price payments are adjusted. Also, any goodwill impairments are adjusted in the reconciliation to underlying EBIT.
The TUI Group's operating loss adjusted for special items increased by ?402.2m to ?273.6m in Q1 2022.
Other segment indicators
Corporate Governance Composition of the Boards
The composition of TUI AG's Boards has not changed in Q1 2022:
The current, complete composition of the Executive Board and Supervisory Board is published on our website, where it is permanently accessible to the public.
Risk and Opportunity Report Successful management of existing and emerging risks is critical to the long-term success of our business and to the achievement of our strategic objectives. Full details of our risk governance framework and principal risks can be found in the Annual Report 2021.
? Details see Risk Report in our Annual Report 2021, from page 35
Principal risks above risk appetite: Lack of integration & flexibility within operations and IT systems; Reduction in customer demand; Inability to attract & retain talent; Insufficient cash flow; Volatility of input costs; Impact of Brexit; Disruption to IT Systems (Cyber attack); Lack of sustainability improvements;
Principal risks within appetite: Disruption within our destinations; Security Health & Safety breach; Reliance on key suppliers; Breach of regulatory requirements; Management of joint venture partnerships
Several principal risks materialised simultaneously as a result of the COVID-19 pandemic, which has led to travel restrictions across the world, both within the markets as well as in destination countries.
Currently, TUI Group continues to be affected by the negative financial impact of the COVID 19 pandemic.
After a significant decline in the number of COVID-19 cases in summer 2021, many countries again recorded a significant increase in infections since Q1 2022, in particular due to the rapid spread of the Omicron variant. As a result, contact restriction measures have been tightened again in the affected countries. Due to the associated ongoing changes in travel restrictions, it is still not foreseeable when the TUI Group's travel programme can be fully resumed. In particular, it is not possible at this stage (7 February 2022) to reliably predict how vaccination rates against the COVID-19 virus will develop in the individual countries, whether new variants of the virus will emerge and when medication for treating COVID-19 disease will be available. However, it is now foreseeable that sufficient vaccines will be available in our key source markets and destinations to ensure a continued recovery in travel in the financial year 2022.
With the customer deposits received for the coming seasons, the funds from the financing measures taken in the financial year 2021 (capital increase in January 2021 and the convertible bond placed in April), the cash inflow from the sale of RIU Hotels S.A., the extension of the revolving credit facilities including the further suspension of the review of the financial covenants and the further capital increase in October 2021, the Executive Board believes that, despite the existing risks, TUI Group currently has sufficient funds, and will continue to have sufficient funds in the future, resulting both from the borrowing and from expected operating cash flows, to meet its payment obligations and to continue as a going concern in the foreseeable future. In this context, the Executive Board assumes that the credit lines expiring in summer 2024 will be refinanced. Therefore, as at 31 December 2021, the Executive Board has not identified any material uncertainty that may cast significant doubt on the Group's ability to continue as a going concern. The Executive Board does not consider the remaining risk with regard to a further pandemic-related change in booking behaviour to be a threat to the Group's continued existence. In its assessment, the Executive Board assumes that the booking figures will gradually recover in the financial year 2022 and that the volumes in the summer of 2022 will settle at approximately the level of the summer of 2019. For the financial year 2023, it is expected that booking behaviour in the financial 2023 year will largely correspond to the pre-pandemic level. The Executive Board assumes that there will be no further long-term closures and lockdowns that could affect travel behaviour. Nevertheless, customer bookings may deteriorate due to new travel restrictions, insufficient vaccination coverage against the COVID-19 virus in the individual countries and virus variants for which there is insufficient vaccination protection, thus affecting TUI Group's performance.
During this period of reduced travel compared to pre-pandemic levels, the Executive Board continues to monitor the key risks, particularly heightened risks such as customer demand and those that impact the financial profile (i.e. cost volatility and cashflow) of the Group.
Unaudited condensed Consolidated Interim Financial Statements
Notes
General The TUI Group and its major subsidiaries and shareholdings operate in tourism. TUI AG, based in Karl-Wiechert-Allee 4, 30625 Hanover, Germany, is the TUI Group's parent company and a listed corporation under German law. The Company is registered in the commercial registers of the district courts of Berlin-Charlottenburg (HRB 321) and Hanover (HRB 6580), Germany. The shares in TUI AG are traded on the London Stock Exchange and the Hanover and Frankfurt Stock Exchanges. In this document, the term "TUI Group" represents the consolidated group of TUI AG and its direct and indirect investments. Additionally, the unaudited condensed consolidated interim financial statements of TUI AG are referred to as "Interim Financial Statements", the unaudited condensed consolidated income statement of TUI AG is referred to as "income statement", the unaudited condensed consolidated statement of financial position of TUI AG is referred to as "statement of financial position", the unaudited condensed consolidated statement of comprehensive income of TUI AG is referred to as "statement of comprehensive income" and the unaudited condensed consolidated statement of changes in equity of TUI AG is referred to as "statement of changes in equity".
The Interim Financial Statements cover the period from 1 October 2021 to 31 December 2021. The Interim Financial Statements are prepared in euros. Unless stated otherwise, all amounts are stated in million euros (?m).
The Interim Financial Statements were approved for publication by the Executive Board of TUI AG on 7 February 2022.
Accounting principles Declaration of compliance The consolidated interim financial report for the period ended 31 December 2021 comprise the Interim Financial Statements and the Interim Management Report in accordance with section 115 of the German Securities Trading Act (WpHG).
The Interim Financial Statements were prepared in conformity with the International Financial Reporting Standards (IFRS) of the International Accounting Standards Board (IASB) and the relevant interpretations of the IFRS Interpretation Committee (IFRS IC) for interim financial reporting applicable in the European Union.
In accordance with IAS 34, the Interim Financial Statements are published in a condensed form compared with the consolidated annual financial statements and should therefore be read in combination with TUI Group's consolidated financial statements for financial year 2021. The Interim Financial Statements were reviewed by the Group's auditor.
Going concern reporting in accordance with the UK Corporate Governance Code The TUI Group covers its day-to-day working capital requirements through cash on hand, balances and borrowings from banks. TUI Group's net debt (financial debt plus lease liabilities less cash and cash equivalents and less short-term interest-bearing cash investments) as of 31 December 2021 was ?5.1bn (as at 30 September 2021 ?5.0bn).
The global travel restrictions to contain COVID-19 have had a continuous negative impact on the Group's earnings and liquidity development since the end of March 2020. To cover the resulting liquidity needs, the Group has carried out various financing measures in the financial years 2020 and 2021, which, in addition to a capital increase, the use of the banking and capital markets and cash inflows from the sale of assets, also include financing measures from the Federal Republic of Germany in the form of a KfW credit line totalling ?2.85bn, an option bond from the Economic Stabilisation Fund (WSF) totalling ?150m and two silent participations from the WSF totalling ?1.091bn. In the IFRS consolidated financial statements, the silent participations are - with exception of ?11m accumulated interest - reported as equity due to their nature and are therefore not included in the Group's net debt. The financing measures are described in detail in the annual reports for the past two financial years.
TUI Group's current credit facilities comprise the following
On 27 July 2021, TUI agreed with the bank consortium and KfW to extend TUI AG's revolving credit facility (RCF) and KfW credit line (both tranches) to summer 2024. TUI Group's revolving credit facilities currently total ?4.8bn. For regulatory reasons due to Brexit, the credit line of a British bank (around ?80m liquid funds and ?25m guarantee line) cannot be extended beyond summer 2022 so that thereafter the credit lines total ?4.7bn. At the same time, the term of the loan facility of ?170m was also agreed to the summer of 2024.
With the extension of the KfW credit lines, it was also agreed that TUI AG would use 50% of individual cash inflows exceeding ?50m by 20 July 2022, but not exceeding ?700m, e.g. from capital measures or disposals of assets or companies, to first reduce the volume of the ?170m loan facility and subsequently the KfW credit lines and repay them if utilised. The reduction is to be made for the first time on 1 April 2022. The cash inflows from the sale of Riu Hotels S.A. in financial year 2021 are excluded from this provision. After 20 July 2022, 50% of individual cash inflows in excess of ?50m must be used; there is no maximum limit.
The credit facility of ?170m has not been used at any time. Therefore, not all requirements for using the facility have been met yet, but this would be possible in the short term.
TUI AG's RCF and KfW credit line are subject to compliance with certain financial target values (covenants) for debt coverage and interest coverage, the review of which is carried out on the basis of the last four reported quarters at the end of the financial year or the half-year of a financial year. Against the backdrop of the ongoing pressures from the COVID-19 pandemic, the review is currently suspended. Already on 9 June 2021 and again upon extension of the credit lines, TUI AG's creditor banks agreed to a further suspension of the review of these covenants until the end of March 2022, so that the review will now only be resumed in September 2022. In addition, higher limits will be applied on the first two cut-off dates before normalised limits have to be complied with from September 2023.
With the entry of the new shares in the commercial register on 28 October 2021 and final settlement with the participating banks on 2 November 2021, TUI AG successfully completed another capital increase. The gross issue proceeds totalled around ?1.1bn. The Group's share capital increased nominally by ?523.5m to ?1.623bn. As of April 1, 2022 the KfW facility of ?1.05bn will be reduced by around ?505m and the previously unused credit facility of ?0.17bn will be handed back, in particular due to the net proceeds from the capital increase.
Currently, TUI Group continues to be affected by the negative financial impact of the COVID-19 pandemic.
After a significant decline in the number of COVID-19 cases in summer 2021, many countries again recorded a significant increase in infections since Q1 2022, in particular due to the rapid spread of the Omicron variant. As a result, contact restriction measures have been tightened again in the affected countries. Due to the associated ongoing changes in travel restrictions, it is still not foreseeable when TUI Group's travel programme can be fully resumed. In particul |
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