Tui trading update

In the golden age of travel, tour guides needed only to raise an umbrella to have packs of camera-wielding holidaymakers follow their every step. But shareholders in travel group Tui must be hoping it has not followed in Thomas Cook’s footsteps.

On Monday, Thomas Cook warned that full-year profit would be 15 per cent lower because Britain’s summer heatwave depressed demand for overseas package deals — which led to a 25 per cent fall in the company’s share price. But, thankfully, Tui is not entirely reliant on Europe’s most sunburned and inked tourists. And this morning, its trading update showed why that is no bad thing.

Tui said: “The number of customers purchasing holidays from us has grown in all major markets, even with the sustained period of hot weather in Northern Europe this Summer”. As a result, it now expects a fourth consecutive year of double-digit growth in underlying earnings

Tui’s third-quarter profits had been hit by air traffic control strikes and disruption in Turkey, which led some in the market to sell down its shares in August. However, Tui left its full-year guidance unchanged.

In its Hotels & Resorts division, a strategy of having a balanced portfolio of destinations appears to have paid off, as demand for holidays in Turkey and north Africa returned. At the same time, above average demand for Spain — as customers avoided Turkey and Africa on security concerns — normalised, which should reverse a squeeze on margins.

In Cruises, the launch of the new ships Mein Schiff 1 and Marella Explorer this summer have gone well, and “yield performance remains strong”.

Customer volumes for Winter 2018-19 are currently up 2 per cent. However, the average selling price is down 1 per cent on the prior year.

Key numbers:

  • Customer volumes up 4 per cent on prior year for Summer 2018
  • Revenue up 5 per cent for Summer 2018
  • Approximately €35m adverse currency impact

Bottom line: Tui has reiterated guidance of at least 10 per cent underlying earnings growth in FY18.

As the City expected? UBS analysts had expected Tui to reiterate its full-year guidance as it can offset weakness in UK bookings with sales in Germany.

What was said: Chief Executive of Tui Group, Friedrich Joussen, said: “Whilst at an early stage, trading for future seasons is overall in line with our expectations. Our strong positioning as a leading holiday product provider with own distribution, as well as our balanced portfolio of destinations and markets, mean that we are well positioned to continue to deliver against our growth strategy.”

OQ verdict: Tui is not following Thomas Cook. It appears to be some way ahead. Analysts had speculated that Tui’s German business would benefit from the collapse of Air Berlin earlier this year, which has reduced competition for passengers and resulted in less price-cutting. This may explain the returning demand for Turkey and north Africa holidays.

Also, Tui now makes 23 per cent of profit from its imaginatively named cruise ships, Mein Schiff 1, Mein Schiff 2, Mein Schiff 3, Mein Schiff 4, Mein Schiff 5 . . . etc. Cruises are a high growth and higher margin business. Tui’s cruise revenues can deliver profit at an earnings margin of in excess of 15 per cent, judging by assumptions in last year’s annual report.

Saga half-year results

Saga, the over 50s travel and insurance group, has Ein Neues Schiff of its own. It is due to take delivery of the (only slightly) more imaginatively named cruise liner, Spirit of Discovery, next summer. That has led analysts at UBS to focus on bookings for its first cruises — they want to see sales already up to around 58 per cent.

But it may be insurance sales that put wind in Saga’s sails. In its first-quarter update, Saga reported a sharp rise in motor and home insurance volumes, and analysts were looking for further acceleration.

Saga needs it. In December, the group’s share price plunged after it issued a profit warning saying it had been hit by the collapse of Monarch Airlines, which forced it to rebook flights for its customers, and that its travel and home insurance operations were facing a difficult market.

This morning it said that Spirit of Discovery cruise sales “continue to meet our ambitious plan” with more than 64 per cent of our sales target for the first 19 cruises already achieved at attractive rates. And, in insurance, customer numbers are back to H1 2017 levels driven by a 19 per cent increase in Motor and Home new business.

But underlying pre-tax profit fell 3.7 per cent, to £106.8m, because of the need to invest in new business, higher than expected customer acquisition costs in “a challenging insurance market” and a decline in the written to earned insurance adjustment.

Key numbers:

  • Motor and home insurance new business up 19 per cent
  • Retail broking written profits down 6.2 per cent lower at £63.4m, reflecting investment
  • Expenses down from £126m to £120m

Bottom line: Underlying pre-tax profit down 3.7 per cent to £106.8m; reported pre-tax profit up 3.2 per cent to £109.0m due to a £2.2m positive movement in the fair value of derivatives.

As the City expected? UBS analysts had expected a 5 per cent year-on-year decline in profit to £98m.

What was said: Chief executive Lance Batchelor said, “At the end of last year, we announced our intention to invest in new customer acquisition. I am pleased to report significant progress in the first half of the year. Our retail broking policy count is back to the levels seen in the first half of 2017, despite a more competitive pricing landscape.” 

OQ verdict: Saga’s shares have still not recovered from December’s profit warning, when the company said it would be hit by tough trading in its insurance business and the collapse of Monarch Airlines. In response, Saga said that it would cut prices to pull new customers in. Today’s results show the effect of this on new business — but it may take longer for the shares to respond.

IG Group CEO departure

IG Group, Europe’s largest online trading platform, has unexpectedly announced that chief executive Peter Hetherington will stand down “with immediate effect”, even though it has not found a successor. But Mr Hetherington will continue to be employed by IG until the end of its financial year to “help with the transition” to a new boss it has not even identified. 

Key numbers:

  • New European rules limiting the leverage IG’s clients can use for their trades

Bottom line: IG is worried about shareholder support after regulatory hits to revenues and its share price. 

As the City expected? Clearly not. You don’t have a CEO step down immediately with no successor in place under a normal succession plan. 

What was said: Chairman Andy Green said Mr Hetherington “had successfully steered the company through an unprecedented period of regulatory uncertainty whilst delivering strong earnings and profits growth”.

OQ verdict: Some clue as to what has gone on at IG is provided by this paragraph: “The Company has been considering . . . the leadership characteristics it needs for the next stage of its development. The Board has focused on finding a CEO with wide global experience of the broader financial sector who can develop the business using . . . product innovation as a base.”

Today’s Lombard column focuses on the AA’s 64 per cent drop in profit:

Time of arrival: some point in the latter part of the century / Well, in fairness, the coach did throw a wheel / Because the lane was rutted and the axle weak / And why is that? Because . . . none be spent on . . . mending the tracks. 

So observed William Shakespeare in 1600, on the way to Stratford. Well, in actual fact, so observed comedian David Mitchell in Shakespearean sitcom Upstart Crow at 20:30 on BBC Two. But the lines only serve to demonstrate the eternal problem of potholes — and explain why travellers in the West Midlands were still grumbling about the time of arrival of AA mechanics in 2018.

Read the rest of today’s Lombard column here

FT Opening Quote, with commentary by Matthew Vincent, is your early Square Mile briefing. You can receive it by email at 8am every morning by signing up here.

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