Shares in Anglo German holiday giant TUI (TUI) dropped 1.5% to 260p after it warned that the impact from the coronavirus pandemic is the ‘greatest crisis the tourism industry and TUI has ever faced’.
Its half year results to 31 March revealed a cruel twist of fate for the tour operator, as it said the first five months of its current financial year saw an ‘exceptional start’ to its summer 2020 programme, with January being the best month in its history for bookings.
However, that all came crashing down in March as it had to suspend its full holiday programme and apply for state aid to stay afloat.
For the five months to the end of February, TUI reported group underlying earnings before interest and taxes (EBIT) losses of €343m, an improvement of €62m on the previous year. Losses are to be expected for holiday firms in the quieter winter months.
But factoring in March, TUI reported a half-year EBIT loss of €813m, a whopping €512m worse than the same period last year.
TUI COMMENT ‘NOT REASSURING’
TUI has insisted it is a ‘resilient’ business and post-coronavirus will be ‘stronger, much leaner and more flexible’.
However, a comment from the company that it has ‘sufficient funds to cover the coming months’ did not go down well with AJ Bell investment director Russ Mould, who said it ‘doesn’t seem reassuring’ and points out that many businesses outside the travel sector have said they can survive well into next year in a severe economic downturn.
Mould said, ‘There will almost certainly be pent-up demand from many people eager to get a break in the sun as soon as they are allowed. However, there will also be a lot of people nervous about flying even after restrictions are lifted.
‘TUI is doing everything it can to cut costs and adapt to the new way of life such as making sure its flights, hotels and ships can facilitate social distancing guidelines. But ultimately it is dependent on the virus being brought under control and no-one knows when that will happen.’
BALANCE SHEET ‘NOT PARTICULARLY COMFORTING’
Shore Capital analyst Greg Johnson said the focus for TUI in the current climate is ‘clearly the balance sheet and liquidity, which is not particularly comforting.’
Net debt at the end of March stood at €2.5bn with cash and available resources of €3.1bn, including a €1.8bn loan from the German state, with the suspension of covenants agreed to March 2021. But by 10 May, cash and available facilities had dropped to €2.1bn.
TUI has put in place several ‘liquidity enhancing measures’, including reducing cash operating costs to €250m to 300m a month, trimming full year capital expenditure from €750m to €900m to around €440m, applying for tax relief, and adopting a voucher/refund credit mechanism as an option instead of giving customers a cash refund.
Johnson said, ‘A resumption of the summer holiday season is crucial to a recovery in bookings and working capital reversion. This remains uncertain, especially in the UK, and long-term impact on the balance sheet the longer it continues cannot be overlooked.’
