TUI AG has made major strides in focusing on its business areas of tourism and logistics…
TUI AG has made major strides in focusing on its business areas of tourism and logistics. In fiscal 2002, the company divested other non-core business areas and continued to reduce its debt as planned. At an early point in time, TUI AG initiated extensive cost-cutting measures and introduced a number of innovations in order to achieve a sustainable increase in the Group`s profitability.
Dr. Michael Frenzel, the CEO of TUI AG, pointed out in this context: In the rapidly changing environment, we repeatedly demonstrated our flexibility and adaptability. The Preussag tanker has been transformed into the TUI speedboat that will continue to benefit from its manoeuvrability and speed in future.
Turnover and earnings fall short of record performance in 2001
In a very difficult economic and geopolitical environment, TUI`s external sales decreased by approximately nine per cent to Euro 20.3 billion in fiscal 2002. When adjusted for the divested activities, external sales declined by two per cent relative to the previous year.
The divisions` earnings before taxes and goodwill amortisation (EBTA) decreased by 25 per cent to Euro 608 million; as expected, the EBTA thus failed to match the record performance of the previous year. This was mainly due to declining earnings in tourism and logistics, and the divestment of the Energy Division.
At Euro 41 million, the Group`s consolidated net income was much lower than the previous year`s level of Euro 411 million, due to higher tax expenditure and one-off goodwill amortization in connection with divestments. At the Annual General Meeting on 18 June 2003, the TUI management will propose that shareholders should receive a dividend of 77 cents per share, just like last year.
In an environment that was characterised by crises, the turnover of the Tourism Division decreased by nearly three per cent to Euro 12.4 billion. The Division`s earnings were 37 per cent lower than in the previous year. In Central Europe, TUI`s most important source market – i.e. Germany – was most strongly affected by the sluggish economy. While TUI`s turnover and earnings also declined in the Northern European source market, the company was more pleased with its performance in Western Europe. When adjusted for consolidation effects due to the acquisition of the French tour operator Nouvelles Frontieres, the region`s turnover increased by over 2 per cent. The region`s adjusted earnings were at the previous year`s level.
The performance of the Logistics Division, which is under the umbrella of Hapag-Lloyd AG, was adversely affected by the sluggish world economy, especially in the segment of container shipping services. The logistics turnover decreased by approximately three per cent to Euro 3.8 billion, and earnings fell by approximately 30 per cent to Euro 209 million. Nevertheless, the transport volume in container shipping increased substantially. However, overcapacity in the market led to a decline in freight rates.
In 2002, the turnover and earnings generated by the Energy Division, which has been fully divested, were lower than in the previous year, due to declining volumes and prices in the oil and gas business, and the lacking contributions of the Deminex shareholding, which was sold in 2002.
The performance of the Trading Division was better than in the previous year. While the Division`s turnover remained stable, its earnings increased by 25 per cent, which was largely due to the strong performance of the steel trading business in the United States.
TOP programme designed to improve profitability
In order to increase its profitability and improve its competitiveness, TUI AG has adopted a set of measures in response to the changes in market conditions. The TUI Optimising Performance (TOP) programme is composed of four building blocks: costs, structures, finance and innovation.
In the framework of the TOP programme, TUI has already adopted a cost-cutting programme with a volume of Euro 260 million for fiscal 2003 and another Euro 100 million for 2004. An extensive cost-cutting programme is only one step on the way towards sustainably increasing our company`s profitability, said TUI CEO Frenzel. And he added: We will only be able to defend our position as the world market leader in the long term, if we respond to new trends and the exacting expectations of our customers.
Another building block of the TOP programme deals with the optimisation of the Group`s organisational and management structures, with the objective of achieving greater productivity and efficiency within the TUI Group.
The consistent reduction of the Group`s net debt is covered by the third TOP building block. In a first step, the company`s debt will be reduced from Euro 5.4 billion at the end fiscal 2002 to below four billion euros due to the proceeds from the sale of the energy business. Additional portfolio adjustments will then lead to a further debt reduction by one billion euros to below three billion euros by the end of the year 2004. In addition, TUI AG wants to obtain a so-called investment-grade rating in 2004.
With the TOP programme`s fourth building block – innovation – TUI AG is responding to changes in its customers` travel behaviour and to new market trends. Under its recently presented new brand Discount Travel, TUI will provide attractive special offers to specific customer groups, using a common brand for these offers in the market.
Difficult start in fiscal 2003
The Iraq crisis had a strong adverse impact on the performance of the Tourism Division in the first few months of the new fiscal year. While booked sales for the winter season 2002/2003 were at the previous year`s level, the sales booked in the Group as a whole for the summer of 2003 are currently much lower than in the previous year (down by 15 per cent).
The operating profit that the Group will achieve in tourism in the first quarter and in fiscal 2003 as a whole will be adversely affected by the war in Iraq and the continuing sluggishness of the economy. Increasing bookings observed in the past two weeks are not yet sufficient as a statistical base to make any predictions.
Unless there is substantial pent-up demand, TUI AG expects that its 2003 profit in tourism will be lower than in fiscal 2002. In logistics, increasing freight rates and rising volumes in container shipping services will lead to higher earnings for this division in 2003 than in the previous year. The income generated from the divestment of TUI`s Energy Division will amount to over Euro 800 million. For this reason, TUI expects that the performance of its divisions will improve considerably in fiscal 2003 despite the difficult economic environment.
Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.
