TUI AG: Q3 Interim Financial Report 1 October 2021 – 30 June 2022
TUI AG (TUI)
1 October 2021 – 30 June 2022
This Interim Financial Report of the TUI Group was prepared for the reporting period from 1 October 2021 to 30 June 2022.
Interim Management Report
Q3 2022 with underlying EBIT of €-27m first broadly break-even quarter post pandemic. Excluding flight disruption costs, underlying EBIT clearly profitable at €48m. Q3 delivering further operational and financial progress.
We remain committed to operate the Summer programme with as minimum impact to customers as possible. TUI Airline has carried 4.8m passengers3 in May and June with 96% of customers arriving without any major impact4, despite operational issues at airports. Cancellations are rare compared to other airlines, with less 200 outbound flights cancelled in May and June, representing significantly less than 1% of the Summer programme.
1 Available seat (risk) capacities
2 FDC Flight disruption costs for delays > 3 hours
3 4.8m passengers reflect outbound and return sectors
4 < 3 hours delay from arrival time
5 Available liquidity defined as available cash plus committed lines including financing packages
Tourism – A force for good: People, Planet & Progress
Differences may occur due to rounding.
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 16.
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.
Booking momentum for Summer 2022 remains encouraging, we are confident the season will be close to 2019 levels
1 Bookings up to 31 July 2022 compared to Summer 2019 and Winter 2018/19 programme (undistorted by COVID-19 effects and thus provide an appropriate benchmark) 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).
We expect to deliver a further ~20% (€80m) of our targeted savings in financial year 2022 and we remain on track to deliver the full programme benefits by end of financial year 2023.
30 June 2022 net debt position of €-3,314.1m is a year-on-year improvement of €3,034.6m (30 June 2021: €6,348.7m), driven by positive cash flow as bookings and operations recover, and net of repayments from our capital increases completed in financial year 2022 net of the repayments made to WSF in Q3 2022.
Ongoing priorities – we will continue with our disciplined cash management, drive operating effectiveness, whilst maximising opportunities to de-lever, continue the reduction of debt and German government exposure in order to return to a solid balance sheet. 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.
Our growth opportunities will be driven by the expansion of our TUI Musement tours & activities segment, which will benefit from both our integration as well as growth through third party sales, 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 will 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 continue to benefit from the strong rebound in the leisure industry.
Report on changes in expected development
The impact of the pandemic and the war in Ukraine on customer behaviour remains difficult to predict. The greatest area of uncertainty will be the impact on consumer confidence, should travel restrictions be reintroduced, should there be further cost inflation volatility and/or an escalation of the war in Ukraine. 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.
Against the backdrop of current bookings and the business performance to date, we confirm our expectation in the 2021 Annual Report of a significant improvement in TUI Group’s underlying EBIT compared with 2021 and, unchanged from our Half-Year Financial Report H1 2022, expect to return to a significantly positive underlying EBIT in the current financial year.
We continue to consider the remaining assumptions for the financial year 2022 made in the Annual Report 2021 to be valid.
Structure and strategy of TUI Group
The present Interim Report for 9M 2022 is based on TUI Group’s reporting structure set out in the Consolidated Financial Statements of TUI AG as at 30 September 2021.
The TUI Group’s strategy outlined in the Annual Report 2021 will be continued in the current financial year.
9M 2022 revenue grew to €638.8m, an improvement of €480.9m year-on-year (9M 2021: €157.9m) reflecting the more normalised pre-pandemic travel environment across our multiple destinations, versus the prior year. The segment reported a 9M underlying EBIT profit of €189.7m as a result, improving by €458.3m year-on-year (9M 2021: €-268.6m loss), with Riu delivering strong results in the Caribbean and Spanish markets in particular.
Q3 2022 revenue respectively grew to €259.5m, improving €185.5m year-on-year (Q3 2021: €74.0m), delivering an underlying EBIT profit of €104.9m, an improvement of €175.2m year-on-year (Q3 2021: €-70.3m loss), the fourth sequential quarterly positive underlying EBIT result since the start of the pandemic.
As of 30 June 2022, 99% of our 354 hotels were in operation (30 June 2021: 79%), allowing us to offer our guests our entire portfolio in Summer. In Q3 2022 we operated 10.7m available bednights (capacity) which is an increase of 4.1m available bednights versus the prior year (Q3 2021: 6.6m). Again, the popular year-round destination Caribbean achieved a high average occupancy of 90% at a high capacity level. Towards summer, the Canaries, Balearics, Greece and Turkey are our key summer destinations for both Markets & Airlines and third-party customers. Q3 occupancy rate increased 26%pts year-on-year to 74% for the segment, with Riu achieving 88% in the quarter, up 29%pts year-on-year (Q3 2021: 59%) and Blue Diamond achieving 82%, up 25%pts year-on-year (Q3 2021: 57%). This reflects the benefit of third-party sales in the Caribbean from North America and our ability to steer our base of European customers to our own hotels e.g. in the Canaries first. Robinson average occupancy increased by 13%pts to 61% year-on-year (Q3 2021: 48%), driven by mix as the prior year was significantly impacted by travel restrictions.
Q3 2022 average daily rate increased by 4% year-on-year to €73, with Riu’s average daily rate increasing 13% to €63 (Q3 2021: €56) and Blue Diamond average daily rate increasing 35% to €140 (Q3 2021: €104), driven by higher average spend in the Caribbean. Robinson delivered an average rate of €94, a decrease of -4% year-on-year (Q3 2021: €98) due to mix.
The Cruises segment comprises the joint venture TUI Cruises, which operates cruise ships under the brands Mein Schiff and Hapag-Lloyd Cruises, and Marella Cruises.
9M 2022 Cruises revenue (reflecting Marella Cruises solely; TUI Cruises consisting of Mein Schiff and Hapag-Lloyd Cruises is accounted for using the equity method), grew to €178.8m, an improvement of €176.1m year-on-year (9M 2021: €2.7m), reflecting the recovery towards a more normalised pre-pandemic travel environment with a full fleet in operation, versus the prior year where Marella gradually restarted their operations from June onwards. Resultingly, 9M 2022 underlying EBIT loss for the segment (including the equity result of TUI Cruises) was €-102.3m, an improvement of €132.3m (9M 2021: €-234.6m loss). The complete fleets of all three brands were only in operation from April 2022 due to Omicron restrictions in the Winter months, which held back the performance for the segment.
Q3 2022 revenue grew to €103.3m respectively, improving €102.2m year-on-year (Q3 2021: €1.1m), as Marella returned to operating its full fleet of four vessels in April 2022. Q3 underlying EBIT (including equity result for TUI Cruises) turned positive for the first time since the start of the pandemic and improved by €84.3m to €3.0m.
Mein Schiff – Mein Schiff operated their full fleet of seven ships since April 2022 reflecting the recovery of demand for Cruises towards more normalised pre-pandemic levels. Occupancy of the operated fleet in Q3 2022 was 70% as a result (Q3 2021: 41%), with cruises operated in Northern Europe and the Mediterranean during Q3, versus shorter average duration “Blue Cruises” operated in the prior year. At €188, the average daily rate reached pre-pandemic level (Q3 2019: 190€) and was up 51% versus prior year (Q3 2021: €125).
In Q3, TUI Cruises started the construction of two of three newbuildings that will complement the Mein Schiff fleet until 2026 and bring it to nine ships. After two pandemic years, TUI Cruises is thus continuing its growth as planned.
Hapag-Lloyd Cruises – Hapag-Lloyd Cruises operated their full fleet of five ships in Q3 2022. Q3 average daily rate of operated fleet was €616, well above pre-pandemic levels (Q3 2019: 584€) and an increase of 39% on prior year (Q3 2021: €443). Q3 occupancy of the operated fleet was 57% (Q3 2021: 42%), reflecting the increased demand for Cruises.
Marella Cruises – Similarly to Mein Schiff and Hapag-Lloyd Cruises, Marella operated their full fleet of four ships in Q3 2022. Q3 average daily rate totalled £160 with occupancy at 70%, versus a previous Q3 where Marella gradually restarted their operations with a first ship in June 2021.
9M 2022 revenue of €287.4m, up €249.9m year-on-year (9M 2021: €37.5m). 9M underlying EBIT loss of €-15.7m decreased by €81.0m year-on-year (9M 2021: €-96.7m), reflecting the recovery to a more normalised pre-pandemic environment.
Q3 2022 revenue of €158.6m, up €139.6m year-on-year (Q3 2021: €19.0m). Q3 underlying EBIT was the first time positive since the start of the pandemic and amounted to €13.8m, improving €48.5m year-on-year (Q3 2021: €-34.7m loss).
2.0m excursions, activities and tours sold in Q3 2022, an increase of 1.8m excursions versus the prior year (Q3 2021: 0.2m) reflecting the more normalised pre-pandemic travel environment across our global destinations. The increase reflects the breadth of our coverage in both popular cities and traditional sun & beach locations, benefitting from the advantage of our integrated model and growth of third-party sales through the Musement platform.
Q3 2022 online distribution was 36% (Q3 2021: 39%) reflecting the return of destination staff in resorts versus the prior year, in line with our hybrid in-person and online self-service model.
9M 2022 revenue of €7,782.2m, up €6,636.7m year-on-year (9M 2021: €1,145.5m). 9M underlying EBIT loss for the sector of €-657.1m decreased by €675.7m year-on-year (9M 2021: €-1,332.8m) reflecting the more normalised pre-pandemic travel environment versus the prior year, with 9,174k passengers departing in financial year 2022 so far compared to 1,560k in financial year 2021.
Q3 2022 revenue of €3,895.1m, up €3,348.3m year-on-year (Q3 2021: €546.8m). Q3 underlying EBIT loss of €-139.4m, decreased significantly due to clear pent up demand by €343.3m year-on-year (Q3 2021: €-482.7m). The result includes the impact of operational flight disruption encountered during May and June 2022 totaling €75m, as well as savings delivered by our Global Realignment Programme across all markets.
A total of 5,061k customers departed in Q3, an increase of 4,185k customers versus Q3 2021. Capacity operated was 82% of Q3 2019 levels, with an average load factor achieved of 92% for Q3 2022 (Q3 2019: 90%)
9M 2022 revenue of €3,262.9m, up €3,047.8m year-on-year (9M 2021: €215.1m). 9M underlying EBIT loss for the region of €-445.7m decreased by €262.4m year-on-year (9M 2021: €-708.1m) per the factors mentioned above.
Q3 2022 revenue of €1,762.8m, up €1,706.8m year-on-year (Q3 2021: €56.0m). Q3 2022 underlying EBIT loss for the region of €-93.1m, decreased by €196.7m year-on-year (Q3 2021: €-289.8m), driven by ability to operate a more normalised programme. The result was impacted by operational disruptions encountered during May and June 2022 as a result of airport operational issues, fleet impacts and supplier issues, in addition to resilience measures, in particular the cancellation of flying from Manchester during June to help protect the programme and reduce the impact on our customers.
Northern Region reported an increase in Q3 2022 customer volumes, with 2,095k guests departing in the quarter representing 97% of pre-pandemic Q3 2019 volumes and versus 50k customers in Q3 2021. Online distribution for the Region continues to be strong at 71%, up 5%pts versus pre-pandemic levels (Q3 2019: 66%). With 94% direct distribution stood at pre-pandemic levels (Q3 2019: 94%)
9M revenue of €3,053.8m, up €2,346.1m year-on-year (9M 2021: €707.7m). 9M underlying EBIT loss for the region of €-51.8m, decreased by €325.6m year-on-year (9M 2021: €-377.4m) per the factors already mentioned.
Q3 2022 revenue of €1,449.1m, up €1,078.8m year-on-year (Q3 2021: €370.3m). Q3 underlying EBIT for the region was positive for the first time since the start of the pandemic and amounted to €23.9m, an improvement of €129.3m year-on-year (Q3 2021: €-105.4m loss). The result reflected the return to more normalised operating environment with 1,708k passengers departing in the quarter, which represented 76% of Q3 2019 pre-pandemic volumes. The Central Region result was impacted by disruption costs occurring in May and June 2022.
Online distribution for Central Region stood at 31%, up 7%pts versus pre-pandemic levels (Q3 2019: 24%). Direct distribution is up 5%pts to 58% versus pre-pandemic levels (Q3 2019: 53%).
9M 2022 revenue of €1,465.5m, up €1,242.9m year-on-year (9M 2021: €222.6m). 9M underlying EBIT loss for the region of €-159.5m, decreased by €87.8m year-on-year (9M 2021: €-247.3m) per the factors already mentioned.
Q3 2022 revenue of €683.2m, up €562.7m year-on-year (Q3 2021: €120.5m). Q3 2022 underlying EBIT loss for the region of €-70.2m, decreased by €17.4m year-on-year (Q3 2021: €-87.6m), driven by better departure volumes in a more normalised pre-pandemic travel environment. The costs for flight delays and cancellations caused by capacity overload in particular at Schiphol Airport impacted the result.
Western Region also saw operations ramp-up, with 1,259k customers departing in the third quarter, representing 78% of pre-pandemic Q3 2019 volumes and versus 317k customers in Q3 2021. Online distribution for region stood at 60%, up 4%pts versus pre-pandemic levels (Q3 2019: 56%). Direct distribution is up 4%pts to 80% versus pre-pandemic levels (Q3 2019: 76%).
9M 2022 underlying EBIT loss of €-45.1m, improved €0.8m year-on-year (9M 2021: €-45.9m) and Q3 underlying EBIT loss of €-9.3m, increased by €-8.5m year-on-year (Q3 2021: €-0.8m).
Financial position and net assets
Cash Flow / Net capex and investments / Net debt
As a result of the continued lifting of global travel restrictions in the course of the financial year 2022, TUI Group was able to increase its business volume year-on-year. Nevertheless, TUI Group’s operating cash inflow continued to be impacted by the COVID-19 pandemic in the period under review. At €1,970.6m, it increased by €3,060.0m compared to previous year, driven by an improved EBITDA and a significant inflow of working capital from customer bookings.
In October 2021 and in May 2022, TUI AG carried out capital increases. This resulted in an inflow of €1,522.9m after deduction of transaction costs for 9M 2022.
Net debt position as at 30 June 2022 of €3,314.1m is a year-on-year improvement of €3,034.6m (30 June 2021: €6,348.7m). The improvement is due to the positive cash flow from the recovery of business operations and the net proceeds from the capital increases carried out in Q1 and Q3 2022 less the repayments made to WSF in Q3.
* Including €59.4m for Q3 2022 (Q3 2021: €15.0m) and €62.1m for 9M 2022 (9M 2021: €20.5m) 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 9M 2022 was 68.6% higher year-on-year. This increase year-on-year was mainly due to investments in the airline sector, higher investments in Hotels & Resorts and dock periods at Marella Cruises. Net capex and investments of €288.7m increased by €411.5m year-on-year. The divestments related mainly to the sale and lease back of spares. In addition, a subsequent reduction of the disposal of RIU Hotels S.A. was included, in total resulting in neutral 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 continued easing or lifting of global travel restrictions, TUI Group was able to increase its business volume compared with the prior-year period under review. Nevertheless, the development of revenue and earnings in 9M 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 9M 2022, consolidated revenue increased by €7.6bn year-on-year to €8.9bn.
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 decreased by €1,348.1m to €-630.5m in 9M 2022.
Other segment indicators
Composition of the Boards
In the third quarter 2022 the composition of the Boards of TUI AG changed as follows:
On 24 June 2022 Friedrich Joussen, Chief Executive Officer of TUI AG, has announced his decision to step down as of 30 September 2022. He is exercising a right of resignation granted in connection with the conditions of the COVID stabilisation measures.
On 27 June 2022 the Supervisory Board appointed Sebastian Ebel, currently Chief Financial Officer, as Chief Executive Officer, effective 1 October 2022 and Mathias Kiep, previously Group Director Controlling, Corporate Finance and Investor Relations, as the new Chief Financial Officer. Both new appointments have a contract term of three years.
In Q2 2022 Alexey Mordashov and Vladimir Lukin resigned from their mandates on the Supervisory Board of TUI AG. To fill these two vacancies, in June 2022 the Hanover Local Court has appointed Helena Murano, Senior Advisor Arcano Partners, Palma de Mallorca, and Christian Baier, Member of the Executive Board of Metro AG, Düsseldorf, as members of the Supervisory Board of TUI AG with retroactive effect from 31 May 2022. Christian Baier also became member of the Audit Committee.
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.
We aggregate the risks into principal risks, were senior management is deciding its risk appetite upon. 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
External events, namely the COVID 19-pandemic, the impact on input cost due the Ukraine war, and supply chain disruptions impact the principal risks. The impact is higher if a combination of principal risks is affected.
Although the number of COVID 19-cases remains high, contact restriction measures and travel restrictions were gradually eased in our source markets and many of our destinations since the beginning of the calendar year and our customers are confident to travel. Our businesses have proven to adapt to changing hygiene requirements and will continue to do so, should certain measures be re-imposed.
The booking dynamics in our most important markets have so far remained largely unaffected by Russia’s war of aggression on Ukraine. However, the intensified general price increases of recent months could continue, especially due to rising energy costs, and lead to a significant reduction in the private budget available for travel services, thus lowering purchasing power and resulting in declining customer demand. In addition, the war is affecting our main input cost volatility risk, leading to an increase in fuel costs as well as other services, especially those we source in US dollars. This particularly affects the results of the Northern Region, Central Region, Western Region and Cruises segments.
Our operation is dependent on a complex chain of supply of goods and services. In some areas, suppliers cannot easily be interchanged, leading to a reliance on these key suppliers. In May and June poor services of some direct and indirect suppliers caused disruptions to our flight operations predominantly at, but not limited to UK airports. Increasing the resilience of our airline operations by adding further stand-by aircraft and by closely managing our key suppliers through continuous operational meetings mitigates this reliance risk. If disruptions happen, we seek to mitigate the impact by increased our support staff, offering flexible rebooking or providing additional compensations via vouchers. Whilst we recognise a positive impact of these measures, we believe that the situation will continue to be challenging during the main summer season.
From the Executive Board’s perspective, despite the existing risks, the TUI Group currently has and will continue to have sufficient funds, resulting from both borrowings and operating cash flows, to meet its payment obligations and to ensure the going concern of the company accordingly 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 30 June 2022, the Executive Board does not identify any material uncertainty that may cast significant doubt on the Group’s ability to continue as a going concern risk. The Executive Board does not consider the remaining risk with regard to a further pandemic/war-related change in booking behaviour as a going concern. In its assessment, the Executive Board assumes that booking figures will gradually recover in the remainder of the 2022 financial year and that volumes in the summer of 2022 will settle approximately close to the level of the summer of 2019.
For the 2023 financial year, we expect a further normalisation towards pre-pandemic levels. In this regard, the Board assumes that travel behaviour will not be affected by further long-term closures and lockdowns or by the impact of Russia’s war of aggression on Ukraine. Nevertheless, customer bookings may deteriorate due to new pandemic or war-related travel restrictions, virus variants for which there is insufficient vaccination protection and an increase in general price increases, thus affecting TUI Group’s performance. In addition, the increased costs for cerosine and bunkers could also weigh on future earnings.
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