TUI AG will earn €700 million from selling part of its holding in shipping line Hapag-Lloyd and from a loan repayment and will move closer to becoming a pure tourism company.
The German group has long sought to sell off its remaining 38.4% stake in the container shipping business in order to focus on the tourism sector but has been thwarted by the difficult financial market conditions over the last two years.
Now, however, it has agreed to sell a 16.4% stake to the majority owners, the Albert Ballin consortium, in a complex deal in several steps. By the middle of the year TUI will receive €600 million from the sale and a further €100 million from repayment of a loan to Hapag-Lloyd. The company would then be entitled to dispose of the remaining 22% stake via an IPO from June onwards.
TUI CEO Michael Frenzel told the AGM yesterday that the Hapag sale would bring TUI “very close” to its aim of being debt-free by the end of this business year, which ends in September. CFO Horst Baier told analysts that the proceeds will be primarily used to reduce TUI’s debts and played down the possibility that TUI might also seek to fully take over TUI Travel. “At present we do not have any firm plans for a takeover of TUI Travel,” he commented.
At the AGM, Frenzel stressed that TUI wanted to grow in future through “content, online and emerging markets”. The former referred to a further product differentiation with more exclusive offers. Frenzel stressed the potential of China, Russia and even Brazil as organised travel markets.
Meanwhile, TUI has also announced its financial results for the October-December first quarter of its 2011/12 financial year, showing an expected higher seasonal loss. Operating earnings (underlying EBITA) dropped to a seasonal loss of €147 million from the previous year’s -€120 million figure. The higher loss reflects a €30 million adverse earnings impact from the events in North Africa. Group turnover rose 5% to almost €3.5 billion.
TUI Travel’s turnover grew about 5% to €3.3 billion in the first quarter while the seasonal operating loss (underlying EBITA) rose by around 16% to -€130 million, including a €28 million impact from the slump in demand for North Africa. Customer volumes in the Mainstream Business were flat at 3.7 million. In the Central Europe Division, the year-on-year decline in bookings of North African destinations was partly offset by growth in demand for the Canaries. In the Northern Region Division, TUI Travel temporarily moved aircraft from the UK to Canada and the Nordics. It thus achieved satisfactory load factors on its flight capacity despite a weak consumer environment in the UK and a decline in demand for North Africa.
TUI Hotels & Resorts developed well despite the adverse impact on the North Africa business. In the first quarter, turnover grew by 10% to €181 million, with better load factors and higher average revenues per bed. Operating earnings rose around 31% to €13 million. The leap in earnings was mainly attributable to a better business performance of RIU hotels, TUI explained. The hotel group benefited significantly from the shift in demand from Northern African countries to the western Mediterranean in the first quarter with better occupancy levels and higher average rates. The Cruises sector recorded a stable business performance in the October – December quarter with flat turnover of €40 million and a higher €8 million operating loss due to higher costs.
Looking ahead, TUI said it expects moderate turnover growth and a slight improvement in operating earnings (underlying EBITA) for the overall year along with a positive overall net result.