TUI AG (TUIFF) Q4 2022 Earnings Call Transcript

TUI AG (OTCPK:TUIFF) Q4 2022 Results Conference Call December 14, 2022 4:30 AM ET

Company Participants

Sebastian Ebel – Chief Executive Officer, TUI Group

Mathias Kiep – Chief Financial Officer

Peter Ulwahn – Chief Executive Officer, TUI Musement

Conference Call Participants

Jamie Rollo – Morgan Stanley

Cristian Nedelcu – UPS

Leo Carrington – Citi

Richard Stuber – Numis

James Rowland-Clarke – Barclays

Kate Xiao – Bernstein

Sebastian Ebel

So, good morning, everyone, and also good morning to the ones who are on the web, I’ve heard about 100 or even more. So I’m really very happy that you made the effort to come here. And to be with us and to be on the web and I’ve seen Nicola, you’re really popular here with everyone. And first, thank you to you and your team for all the work it’s, we quite often underestimate how much work that is.

So, we want to give you an overview about the Q4 of TUI, the year-end results and also how we do see the market moving and how do we see TUI moving. We have — now, I have to see this is too far away after looking at the screen is not working. This is the agenda for today I would start with the highlights. Mathias will go into the details of the 12-month and especially of the fourth quarter.

Then we will talk about the expectations for ’23 or other short-term trends for winter we do see? What is the year-over-year expectations we have? Then I will give up, we’ll give an update on the strategy where it’s too big to be heading to in the next years. And then we have a special guest, Peter Ulwahn, he’s the CEO, and Mathias is known. Therefore, I didn’t introduce him, he has been my successor, first of October, and I’m very happy about that we worked for 10 years together.

Peter is also new in the role and he has been with TUI, also almost 30 years and he’s the CEO of Musement. And, as Musement is extremely exciting for us to see, we thought it is interesting for you to hear a little bit more in detail. It’s the microphone. It’s working more details about what we do with Musement how we do see the future of Musement.

So, we are very pleased about the year end result, especially the fourth quarter after a very, very difficult start, six months of pandemic third quarter ramping up. And now the fourth quarter, where we had seen that we are almost back to normality. We are very happy and Mathias will give you some more details about the agreement we were able to get with a WSF, that will be a major step forward for the TUI and making TUI a very normal on one hand, but also very successful company in the future again, and you will hear more details in the past.

So having said, the restarts third quarter was a challenge. I mean, it’s always amazing. If you come from almost zero to normality, a lot of things means, challenges and also a lot of work load for people. And we were able to deliver a very strong fourth quarter, asset back almost back to normality, customer levels at 93% and airline load factor 92%. This shows that we are almost there where we have been pre-pandemic and if we wouldn’t have had the order to substance at the airport then we would have been above 100%. We could see when the airport disruption started, especially in the UK. There was less momentum when it came to last minute bookings.

So the fourth quarter above 1 billion, if we take not — if you take into account the disruption cost and these are only the direct disruption costs, they have been also indirect disruption costs, then we would have been above 1.1 billion. Hotel doing very well, 300 million almost the fifth consecutive profitable quarter and above 19 levels, this is amazing how resilient and good the business is cruises, returned to profitability 100 million. That went pretty quick. I will give you later on some details. And if you now see where they stand today, we are also almost back or we are back to normality.

TUI Musement, of course, they’ve benefited very much from the strong increase of passengers from the market and airlines. But they’re also the new business part where they sell direct to customers has developed very well. So the traditional part is doing well and the new part is accelerating well. And market and airlines for the first time after 2 years, 2.5 years are back into positive territories, 600 million, it’s a good result for fourth quarter was a lot of ramp up still. So that led to a group results after minorities of 800 million which underpins the strong summer.

Operating cash flow 1.7 billion of course very much supported by the working capital buildup, customers’ payments, but also less payments to hotel years. And therefore, net debt decreased significantly and the liquidity position was very strong and is even in the typical seasonal swing, very strong. If we go into the details, which I almost did, hotels almost €300 million, load factor or occupancy 92%, this is one of the best load factors we had, and really shows how the model works well. Average rate, €80, 10% up, which covers all the cost increases we have seen. Cruise €100 million profitable, occupancy 80%. You know historically we had been 100% to 102%. We are now not only on the way, it’s amazing, yes, very short-term business, but that we come close to the historical levels.

TUI Musement, €3 million experience sold, €11 million transfers, €40 million profit. So two sources of profitability, the customers which came from the markets and also the business, the generic business they have built up to sell their excursions, also to new customers, which is very important. Market and airlines €600 million, in total €344 million from the UK, Ireland and the Nordic states, a real big change to the year before, load factor 91% also getting closer. I think in summer, we had sometimes 95%, but it’s getting close to that. Central Region doing very well, load factor, 95%, A lot of the things we present in our growth strategy we had started three, four years ago in Central Europe and Central Europe was always weak on profits. What you do see is that, there is a change, quite considerable change there.

And the Western Region, €130 million load factor, below 90%, 89% that is probably at the moment, especially in Belgium, the most difficult market or the more challenging market, while you know all the limitations. On Amsterdam, therefore Holland is doing well. But the overcapacity went from Amsterdam to Brussels and therefore it’s more competitive than we were used to see there.

We did very strong progress on our digital platforms. And I think we now also introduced the view on our app bookings. The share of online bookings is now above 50%, UK 70%, Nordic is even 80% to 90% and Germany is 30%. And two things are important. One, it’s not or strategy we have between retail and online. It’s a strategy, because we do see the value of strong and good retail partners.

And through retail, the customer, we get a high margin and early booking customers. So it’s always important for us to say, it’s and strategy. When it comes to online, the focus in future will be app centric because we do see a lot of benefits, if we are with the customer with our app. TUI communication, bringing all the offers to the customer and using all the directional things we can do through the app. And therefore the focus is to really become app centric. And what it means, we will give you later on some more information.

We doubled the sales through the app, which sounds terrific. But if you look at 3.4%, as if compared with best of breed, you know what big potential we still have. And therefore, the focus for the coming years is to really become app centric. The customer is using — almost three quarter of the customers are using the app for its service to get the booking confirm — to get the booking confirmation, to do the check-in to get information when they are traveling also to book Musement excursion.

So, it’s good people are getting more and more using the TUI app, and now it’s the task to make it also as a sales app. And if you look at markets are different. Some markets the UK are better than other markets, but if we compare with the best of breed, there is a way to go. And we want to close this gap in the next 12 month. And with the app, the customer satisfaction index is also good. There’s always room for improvements, the best of probably around 8.5, but to have 8 or 8.1 is a good starting point.

So for us, yes, retail is important online, but the focus is on becoming an app-centric company like Booking is or others are in other sectors. If we look at the full-year results, 12 billion more revenue to 16, still a way to go till we are at pre COVID level. On the other hand, I think that makes it quite clear, and most of it came through the end of the third quarter and the fourth quarter, the ramp up for a company like TUI in the value chain has been a horrendous effort.

And yes, some things didn’t work as we would’ve loved to work them, but I think it’s amazing achievement, which is especially we can be very grateful with our employees who worked sometimes double as much as they had because the reps from the UK couldn’t go due to Brexit to Spain, and so on. If you look into the EBIT, holiday experience did do very well 1 billion improvement market airlines now at a breakeven level with 1.4 billion. There you can see where the benefits, the improvements will come from in the future. Yes, we also want to increase the holiday experience, apart crews still has a way to go be until they are at the historical level.

And in market airlines, there’s the biggest potential now for getting into strong profitability, ending up with 400 million profit and which is maybe even we fulfilled therefore the target to be significant positive. But what is even more important is that we are well positioned for growth into this year. And we are, I think, which is even more important that what we do now and we were able to down now should lead us to a I shouldn’t say different because we’re still building on the strength to we have, but it will be to a very advanced, more advanced TUI in the coming years.

And before I talk about and I love to talk a lot about the strategy. Mathias will go into the numbers and give you some details there also about the measures which are planned. And so you are doing the number parts I will do later at the fun part.

Mathias Kiep

And also, good morning also from my side again, Sebastian, as you just said, I’ll cover the results ’22. And I will cover also what we did on the intended capital raise and in particular the repayment of the government funding.

Now, before I go into the details, thank you very much for your understanding and also compliments when we were in the media calls and the breaks, I scanned through some of the reports already. A lot of you already covered and captured what we announced yesterday night. I and we fully appreciate all the hard work that went into all of this. And I mean, it’s probably the same for us given that we have a year end. And then on top, we do this agreement with the government. But of course, it’s really tough for all of you, so highly appreciated that you are here, that you are on the call, and that you cover us with these agreements.

Now looking back and Sebastian, you mentioned it already, how was ’22, and I think for us, in particular important the fourth quarter. 12 months ago, we were not really sure. No one could really be sure whether the Company would be there with these numbers €16.5 billion of revenues, €4 million of operational EBIT, a cash flow north of €1 billion and a Q4 result close to historical levels. I think 12 months ago, we still talked about Omicron. We were unclear when it would really happen. Easter business is unclear. And then only in the third quarter, the last one we reported, we had the ramp-up and we actually came to something where we felt, okay, operational, we are back.

Then, operationally, you could see that our customers were traveling, but now these numbers, they show we are financially also where we wanted to be. And I think this morning we said, Sebastian, when we looked at these numbers pre summer what we expected, what we wanted to achieve, like carve out the disruptions, but these numbers are actually within what we wanted to achieve so the really good. Also good to see that the balance sheet followed that, and with the leverage of 3.4 net debt and the resulting covenant test of 3.2, I think this is all in good order. And I think this is a very good basis to think about now what is the next step. How can we grow the Company? And Sebastian will elaborate on that further later. Peter will also show what we’ve developed over the last years in that Musement, but I think this is the sound — it’s the sound foundation.

And very importantly, now to have the agreement with the WSF, of course, opens a lot of opportunity for the balance sheet as well. And I’ll talk about that in a second. Now just quickly on P&L, cash flow and balance sheet. I think on the P&L, just to highlight Q4, if you take the disruptions out you would be at something around €1.1 million really close to what we were historically, what the kind of full potential of the Company is. Please remember, for instance, cruise still in the ramp up. I think Peter, your activities Musement also in the ramp up. So there, but not yet fully there because just of the timing. So I think this is something that shows foundation is there, but our ambition goes beyond that.

In terms of the details to the P&L adjustments, net interest, they all within what we thought and what were our modeling assumptions also tax because we then of course in the fourth quarter started to pay tax where we do have profits. Overall, on that interest quite a high number, there’s a lot of one-offs included there, something like 50 million, 75 million which comes from the handbags that we had with the state in ’22. But however, I think the number overall is still elevated due to COVID and due to COVID debt.

In terms of the cash flow, I think, the elements are also something that you probably have expected and which are in line with what we reported already. The strong flow back of working capital, a strong management of working capital is a key driver. EBITDA of 1.2 billion that’s in line with what we actually wanted to achieve in order to meet also the stability on the covenant side. So I think, this is all also in good order. In terms of what you see, what you don’t see is, of course, dividends. So I think from the joint venture, they’ll need the same time like we to recover fully financially so that we get this dividends for instance from TUI Cruises, which prior to the crisis was a substantial contribution to cash flow in the past.

So as a result, the balance sheet, as I said, looks solid. I’m quite happy with that 3.4 is a good number. Also, the gross financial debt has significantly improved. What you don’t see here, because it was accounted for its equity as the silent participation tool that we also repaid over the summer, so that’s 0.7 billion. If you look about, on this reduction of net debt compared to the year before, this is something that I also take into account myself. So we talk about something north of 2 billion that we actually have improved over the last 12 months. I think that’s really significant and as I said, I think this is a good basis to grow the Company now and in particular to do these next steps on the capital structure.

Just as a note, the RCF was drawn something like 69 million KfW was not drawn as balance sheet date, but of course this is prior to the seasonality and we’ll come to that in a second. How much we will draw then KfW over the winter is something we’ll have to look at. We monitor of course very carefully and on that basis, I think that’s also an ingredient for the then following capital raise. I think I’ll skip my priorities because that’s very clear discipline, financial discipline. I was also happy to see that Sebastian also mentioned cash flow discipline and you’ll mention that later in your slides as well. So I think please be ensured this will be a top priority going forward.

Now, coming to the agreement with the WSF and then I’ll hand over to Sebastian on the current trading. I think I’m really, really pleased with this agreement. I’m really happy. It addresses two things. When I look back at our, in our meetings over the last12 to 24 months, there were always two questions. One, when is the state going to convert? What are you doing with the situation? What will actually happen? How long will they stay in the shares? This is addressed.

And the second question, that is always, what about the balance sheet? Do you think the leverage is a good one? Can you not aim for a lower leverage? This is also addressed with this one. So there are two components and one component is of course this very clear payback of the state. To remind you, the state always had the right to convert the 420 million of silent participation and the 59 million of bond with warrants at €1 anytime. So they could have gone in for €1 and half the share price of 170 currently it was yesterday as a result.

Now with this agreement, what we did, what we did not do is, we will not take away this benefit that the state has as a pack as a result of the package for supporting the Company during COVID. What we do have, however, is one that we do it at the current share price level, lesser discount. So, it is 9.3% less compared to the current share price level. And secondly, we can do it now. And I think that’s a really great benefit because the state could have done it later, could have done it at the wrong moment, could have done it not related to anything else that we wanted to do.

And I think now we have clarity. We can do it in a structured and ordered process, and we have 12 months in order to implement all the necessary steps. So I think this is a really good thing when I look at this agreement; one, the current share price level minus a discount; second, we can do it at the current share price level. We can do it in a controlled manner. And also we hand it back to shareholders because through the rights issue and protected by subscription rights. They can do the funding rather the shares go to the market. And there’s this kind of outside or shell device. So I think that’s one component to that.

So it’s a bit replacing what would have happened anyway, which is the conversion by the state, by rights issue from our side. The second component of the rights issue will be to address the balance sheet. And we’ve received a lot of comments on that over the past, I think we’ve done our own analysis, I think the — if you look at our balance sheet, 13th of September, this looks solid. It’s in line with what we have it historically, albeit the mix is a different one. But what we said is the second component should be similar size to what we pay to the WSF.

Now, what could that mean and apologies, it’s a bit early now to really go on numbers, because we’ve just found the agreement, we need to go to an AGM, and then we can do the rights issue. And there are a lot of determinants to say, what could be the right volume? But how would I look at it? We pay back the state for something like 0.7 plus interest. So we could say, it’s opened 8 billion. Similar size could be 0.8, it could be a bit more, it could be in the one or the other direction. But I’m not sure the mic is still on? Can you just check? Thank you.

And so this gives you a bit of feeling what you want to do. How’s the second component going to be determined? As I said, KfW is not drawn per September, but will be drawn over winter. And we want to have a look, how much do we want KfW to be there. We want to redeem it over time, completely. I mean, this is a clear target. So, we need to right size it that this issue is the final one that this issue is the one, which creates the clear pathway to the full exit from the government.

One is very clear. It’s the WSF. And as concurrently, the price is 730. And I come to some details in the second. The second part is then how much do we raise in order to redeem replace KfW facilities? Now, what are certain details, the price of the government can go up, if our share price develops in the right direction government will participate. There’s a cap of €2 that could result in a maximum of 1 billion that we pay to the government so that they don’t convert.

Second, we have time 12 months, as I said until the end of next year to accomplish this. And third, how do we accomplish it. We will go to our shareholders in the AGM to vote for a share consolidation. This is very technical is very leading commercially. This is not effectively relevant for the issue, but it gives us much more flexibility going forward. So, this is something we want shareholders to vote on.

And secondly, you will need to provide comfort that this early repayment is in line. And I think these are the most important ingredients to the agreement that are relevant. There’s a lot of technicality also in here, but I think commercially is what we want to do use the opportunity to repay the WSF in a controlled and structured manner together with our shareholders rather than having them convert maybe at the wrong moment, and to give these shares into the market, maybe at the wrong moment.

And at the same time finally addressed the balance sheet, and Sebastian will elaborate on that in a second. I think there are a lot of growth opportunities and I think we want to have the right balance sheet at the right time rather than to wait too long and then forego opportunities that are out there.

In terms of the details I just mentioned we need to go to our AGM in February. So we will incorporate all of this in the invitation which will go out early January to shareholders. A question where naturally is, can sanction shareholders participate, what will happen. Our understanding is sanctions are very clear, we cannot communicate to sanctioned persons sanctioned individuals and our sanctions individuals or shareholders are not permitted to participate in such capital raise.

I think overall, as I said, I think this is a very clear opportunity to do the right step at the right time to address the balance sheet and to solve the situation that we have is a WSF. And I’m really, really pleased that we could find such a good terms with the government, because in the end, a lot of changes against the original agreement are not incorporated in this negotiation. So, I think, if we managed to do that, we can do all the things that are summarized on this page, which is growing the Company with the right balance sheet and taking part in all the opportunities which are out there.

I think this is something and it’s good that you are there, Peter, because that the two of us cannot only have a discussion about where can he safe, but maybe a discussion, where can he grow. And he gets a little bit of headroom. And I think, to do the rights issue, then at the right time, will actually provide us with the right kind of tailwind that we can have in this ’23, and Sebastian will talk about it now, what is the environment, because I think the solid environment of ’23 will give us the right time to do this, to prepare and go further going forward.

Sebastian Ebel

Thank you, Matthias. Thank you very much and expectations about ’23. And I think I would like to draw a picture with two views. One, I think it would be unfair not to see that the market is challenging. I mean, if we would think everything is fine and normalized, I think that is not the effect how much impact on the economy we will see and sentiment and people we will see, I just said in one of the talks before. In Germany, and the sentiment is by far worse than the actual situation and we do see inflation will come down. I expect half of the inflation next year, then this year. So, there will be a lot of good momentum. No one knows how the economy will be.

On the other hand, that’s maybe the picture where we have to be cautious. On the other hand, we do see that the trend to travel is there a strong and the ones who have the disadvantages of the economy of the cost increase are unfortunately or fortunately, very difficult to say, it politically right are not the ones who traveled with us and so, all the burden goes to the poorer people, not to our target group.

Second, if the market is challenging, we have to be better than others, we have to be more agile. And that’s what we do see at the moment that there is strong momentum and what we do. So on one hand, we are cautious, on the other hand, we do see the opportunities of the market or to balance that out it’s really, really important and the target for ’23 is very clear to have a very solid and good profit.

You know all about the strength of TUI brand, our customer offer the business model. I will tell it a bit later more about the business model. And what really was important during the crisis that we right size the Ireland and that we reduced commitments because what we had learned is if you’re highly leveraged demand to own supply, and there is a reduction of 10% you really go into hundreds of millions of losses and to have more flexibility is really important. What did it mean? We were very off at the upper-end of the capacity, we would need for winter.

So in summer, we could fly all the aircraft. In winter, we had a lot of aircraft, which we could not use all in loss making. So we reduced the fleet to a capacity, which we can use year on. Then the question quite often is what do you do if there’s a peak in summer? There is enough capacity, especially in Central Europe. It’s a little bit more difficult in England to get the capacity that’s why the reduction has been stronger in Central Europe than in England.

Reduced hotel commitments and prepayments. So prepayments that was not so difficult because we were one of the very few one who fulfilled their commitments. And for the hoteliers, it was good to see that we can fulfill the commitments. And on the other hand, we said, we want to reduce the prepayments. Similar to the commitments, we really focus on the value-creating hotels and less on the broad range.

And what of course has been also important that we reduced our general spend by €400 million. By the way, this is work, which we do every day, it’s not stopped now because we have achieved the €400 million, because the inflationary impact is strong and therefore whatever we can reduce in cost is important. How does it look like for winter one? I think trend — it’s not a trend anymore, the situation that people book later is very, very strong. I mean, when will it normalize and will it go back to a ’19 level? It will normalize. Will it go to ’19? Maybe, maybe not, it depends on products for the branded product.

Yes, for the mainstream product, probably it’s more difficult. What is different to the past is that, prices are stable and margins are stable. So that in past when there was a short-term booking trend and normally overcapacity, low margin that is different. And if we compare where we had been in September, where we stand today, we have 84% is the cumulative booked position compared to September, 6% compared to ’19, 6% up to September. And if we look at the coming weeks and months, we are very close to where we had been before, and let’s say, March is still a lot of way to go.

Now it’s an interesting question. Is there a break in the trend? Or will it stay for the time being? We don’t have an indication that this should end this trend. And as I said, it’s very different about look now, at cruise with huge improvements also from September to now, it’s all short-term for not all, significant part short-term with goods prices. And we have also seen cruise, which had been the longest lead time that people start to book 1 year ahead, 1.5 year ahead. So with the branded product, it’s coming back.

Average price 28% compares to ’19. What is maybe — sorry, I forgot one thing. If you look at the last four weeks comparison, we are almost at 100% that shows the short-term trend. Prices compared to last year 7% up. This is slightly below the inflation trend in October and November. That has now changed again. Why? We had the strong decline of the weakness of the UK pound and we had a significant increase of fuel prices. And as we were just now, more and more in the situation to hedge, we were hit by this effect in November, that’s why, we will not be 100% covering the cost increases that will be very different in the second quarter, there we will cover the price increases very much by the 7% to 8% we will see.

So it’s good news that prices are stable. If we go into the details, hotels and resorts are booked very well on a strong winter even stronger. We’re a little bit suffering on having a little bit less capacity. For example, we are rebuilding a big Rio Hotel in Mauritius, which we teardown and we increase capacity. There is a slight increase in capacity because of renovation, but that is only a temporary effect. Also, the bed occupancy at 9% higher, 57% rates are doing very well and we are benefiting that long haul is still long haul to the east is still not really possible or easily possible. So where we are in our destinations, we benefit from there.

Cruise, a very strong increase in occupancy and the fourth quarter we were around 80%. Historically, we would be at 100% and 102%. We are getting now close to the 100% again. So, it’s amazing little bit. That was the one which surprised me more. And the ticket rates are also good, so good development. On Musement, Peter will give some more information. A very good development, which is good that Musement not only benefit from the higher number of customers, but also that is always where we look at it. How many of the customers who travel into the destination will book an excursion. And we had targets of coming close to 35%, 40% of the customers. In the beginning, we were at 20% people. Of course, people didn’t dare to go on an excursion.

Now we can see also to a lot of changes. We are coming very close to what has been, but which is maybe even more interesting, is the part where Musement. Peter’s organization has to get new customers. And there we are doing very well. And this is important for two reasons. One is important for Musement, but these are all customers, which were not in the TUI ecosystem. And when they are in the TUI ecosystem app centric we can sell all the other product.

Modeling assumptions before I do it in all habit, you should do it.

Mathias Kiep

And indeed very quickly to what does actually that translate into on the financial side. And I think if you look at the overall environment that we are in this is probably not the right time to be very precise on our guidance, but of course the ambition and revenue in EBIT the two key KPIs is to be significantly above last year. And if you think about what Sebastian showed in the beginning that not all entities were operationally there where we wanted them to be because we didn’t have a winter Omicron, we did only have the ramp in Q3. I think this should give you an idea, Q4 we did in today’s environment. And I think this should be a bit our benchmark. This is where we want to be, um, of for the full-year.

Now, the rest of the assumptions, we’ve outlined here, adjustments go down a bit. Interest is a bit higher than we probably would’ve expected 12 months ago. With the 410 to 430, we’ve seen quite some rate increases that translate into higher costs for our revolving lines with the cash, with the banks and with the KfW. At the same time, we see also on the lease side dollar has strengthened. So whenever we pay dollar interest that’s a bit higher. So this is reflected here. Net investment is more or less there is back where it is depreciation prior to IFRS-16.

So I think that’s more or less a solid number. And this also reflects effectively that we will see investments in the hotel area, and particularly from Rio going forward. And you’ve seen it also this year that they came back much quicker than hotels were already on 19 levels, already beyond 19 levels. And I think these numbers they reflect what you will see also on the investment side.

Last point I think on interest. I mean, again, this is also reason to address the balance sheet because if you think about it, if we replace the facilities with KfW more of this cash, that helps us through the winter, less interest costs, but also through the summer where we draw the cash RCF or commercial banks. So I think that’s then will have a quite good impact on that interest. Again, a bit early to talk about, but this are the things that drive us when we plan then for the eventual capital race later in the next year. So I think that’s from my side on ’23, and I think it’s now a strategy going forward Sebastian.

Sebastian Ebel

Yes, I would love to give you more numbers you have seen there, but we’re looking at Nicola. I don’t dare to do so. I think, what is important for us, all the measures we will discuss now should lead to significant growth. In this year, it should help us to achieve normality in the future years. It should — because the market is challenging and probably not as strong as we would like to have it. In the years after, we should really see incremental significant growth. So the good thing is that the mega trends are still solid, valid. Every market research shows that yes, there is a dip due to the macroeconomics due to war to this and that the fundamentals are good. And we also put the point experience into it. Why it’s it so important for us?

It’s a growing market. It’s a non-consolidated market. We are well positioned being one of the numbers one, two, three. And we can lead product consolidation. We can lead in conquering new markets. And it’s so important for the decision of the customers who wants to go on a package with a package that they decide where I can get the best dive in, where I can I get the best skiing support and so on. What are our and we should change that. It’s not the CEO priorities. It’s all our priorities in the management team. It’s one to grow market share, to grow profitable market share in what we do today.

I mean, we do see markets where we do very well, and then we do see markets where we’re doing okay. And we have also markets, which are turnaround markets like Nordics, by the way it looks like at that we have achieved that, but which were a huge loss making last year and which we want to turn around. And there we have per market decided for a plan how to turn it around or to make it more agile to gain market share.

Second new products, very important if we have — I always give the example, if you go to a grocery shop and you have three sorts of milk, you buy it. If you then find oat milk or soya milk, which has not been before that you buy this incremental in the same supermarket, you don’t go to another one anymore. And it’s a little bit with TUI. And we want to get new customers which have not been part of the TUI ecosystem and therefore Musement is so important. This all based on a very strong focus on quality.

We lost — the sector lost a lot of quality during Corona. We probably have done better than many of the competitors, but we are definitely not there where we want to be. Sustainable — we do sustainability, we do see as a opportunity, not as a threat anymore. First, we think it’s — by the way, not only morally the right thing to do, it’s important for the sector to do. It’s important for TUI to do it, the front runner, to be really setting the benchmark, even if it costs some money, because we think it’s also commercially sound to do it.

And last point, it’s on people. I mean, after Corona including our self, we were quite tired. And now we have through different measure energized the team. I think it was pretty easy to achieve this energizing, the more difficult challenge is to keep the momentum, to keep the speed because we don’t want to be a authority. We want to be a really entrepreneurial and to get things done, not to analyze but to get things done. And therefore we have to work a lot and to support a lot our people.

This is something which is crowded, but for me, always very important, 20 million customers before Corona. Now 16, we are back and will be back, to the original number. We want to increase this number significantly with new customers in the different segments, which means that in the funnel model we have more customer, which we can steer into our asset, which still has opportunity, that we can optimize the one or 2% occupancy, we can optimize the yield.

What is more important, we have now a model asset light model to grow with hotels, to grow with ships. And the bigger the distribution funnel is the better we can fill this. And the clear target is to grow with hotels, asset light, asset right, and this is very much supported by the increased number of customers. And by increasing the sales funnel, it means that we increase flexibility, we reduce significantly risks, and we increase, as I said, occupancy and risk.

If we come from the assets, it’s just the other, other way around. The assets should support TUI because they are unique. A Rio Hotel you only find with TUI. The Robinson Club, you only find with TUI, Magic Life. And we are building on these TUI Blue on these strong brands, management models, franchise models, and this then supports why people should go to TUI. So it’s intwodimensions supporting the profitability.

Market and airlines. How do we want to grow the market share? One we set on the wholesale package, traditional market, we want to be more agile. We want to be a good competitor, a better competitor. The best of breed are the ones against whom we want to win. If we go into the dynamic package, which is bigger than the wholesale package, we are hardly there. And for the customer, it’s the package. He’s not so much interested is it produced A or B.

And we have a very low market share. The only market where we have a significant market share is Germany. And Germany now market share, which is really doing extremely well. If we say we have 25% is out of this dynamic packaged. You know that we are there between 5% and 10% to be a little bit imprecise and, that we have built up in recent years, recent month. And half of these 25% are new customers to TUI. And that is something which we now will roll out to the next in the next 12 months to other markets.

Recommendation only, very similar, we are Belgium, we have 5% in the other markets, we have 1% very, very low no number. And we do see it’s a very profitable risk-free business. And why shouldn’t we get at one stage a fair share in this market? And it was not planned, but I just got the method that we have start that we rolled out recommendation only in Nordics. Today, it’s working. It’s selling. It’s the first market we do. It will take another 12 months if we have profit on all the other market. But it’s great that it’s working that people find that people buy it. And it’s important element and it’s all under TUI brand and it will work well.

If flight only is maybe something which is profitable is not really so important, low margin, but people buy flights more often, it’s a way to communicate more often with the customer. So, very strong focus on growing market share profitable in the wholesale packet area by being more agile and more competitive also looking using more partners, we have agreed a very good package with the or plan with the UK management. And that is a really exciting, dynamic package, recommendation flight only car rental.

Very important, Germany very strong, but we have this product knowing any other market experiences Peter will talk about and tours. That is something which especially in the southern European market is very strong in Spain, €1 billion market Italy. And we have just that what’s the second product we brought in the market a week ago, implemented this in Belgium and Holland, so that you can book dynamic tours through Florida through Europe very interesting and this is sort of growth.

On the holiday experiences, it’s slightly different. All the growth is in a separate asset light, asset right model. And it will support the growth of the market of the TUI operators of the market and sales organizations by adding great products to it. Asset TUI Cruises will have in ’25 two ships in ’26 another ship, so three new ships, and it will be very unique, especially last two ones. And that will lead to higher profitability. They’re supported by our distribution strategy.

Hotel, very similar, we are rolling out the TUI Blue brand, hotels to other destinations doing web very well they’re built up strong distribution also recommendation only direct sales activities. And we do see that the partners are happy, we are happy. And it’s more the question of how quickly we can scale it up. And last, but not least the Musement part which Peter will express. And when we say we do an asset right?

There are different sources, the hotel fund, the GV companies, we have the one or the other, we will develop on our own the one or the other we will sell. So the number of projects, of hotels, of ships both will increase. And whatever we do, it should be scalable. That’s why so much effort on the to the TUI Blue brand. By the way, we will add to the hotel portfolio by the one or the other incremental brand, all about TUI, where we have not been strongly in TUI Seno is a new product, now really scaling up and also in the destination in the source market like Germany, not only in Spain.

This is a three star club, not club and the British sense, but in the European sense family resort product market segments where we haven’t been really and if you look at the toy market share, it’s big in the four or five star segment 30%, 40%, it’s 10% in the three star segments. So what does it mean? We have the TUI Heartland products Sun & Beach wholesale and the great hotels and cruises now we add this with dynamic package product, weekend trip or just you go somewhere to stay in a hotel, the experiences and the tickets, the ticket also for theater for museum and so on.

Something you can use every day. And you are probably not much aware of what Musement does in England or in Germany because Musement is a Milan based company. So they’re what gets your guide is in Germany, Musement has been in Southern Europe. And now we’re bringing the content, the German, the British content onto the system. And we start the marketing so that in the medium run, the position should be as strong here in Germany as it is in southern Europe.

So what does it mean, one is the product side on the other side is the focus on customers, because you can build a lot of products, if you don’t have the right customers, you will not sell as much as you want. So of course we want to keep and to build on the loyalty of the smart tenants the home away, the senior people, the ones who have a budget with families, who wants to have the all inclusive package and so on. This is important, whatever we do, it’s not an art, it’s an end. And we want to get the energized adventures the trouble is that the market is as big as the other parts. And to get these segments with our products into ecosystem and by adding the products by doing different marketing, different market channels, and it seems to start to work well. So very clear focus to keep good customers where and to get more customers and other segments by targeting a very.

What is really important is to bring whatever we have in the centric customer ecosystem of doing. That is something we haven’t had. And what do we do now and that may have should have said it before, we really prioritize what we are doing, very few projects. And these we want to deliver dynamic packaging, eco only and the customer ecosystem and all the other 100 projects we don’t want to do. It’s just about delivering that. And what does the ecosystem means? It means that the customer is in one system we had had when he has access to all the TUI products with one customer account, one payment system, one loyalty program.

I mean, if you look, you could ask why so extraordinary. Acco has it. Hilton has it. Acco probably for me is the best and gives a great standard. But in TUIoperating, it’s not yet there and has not been there with TUI. So in 12 months, we want to have this ecosystem, which is very much focused on of being app centric because with the app on the phone on the mobile phone of the customer, you can be encouraged by in contact in communication with the customer very, very often.

And this allows us to have CRM vouchers have a strong communication marketing campaign. But it also allows the customer to interact with us on a more regular basis on service on questions and bookings on new bookings, and so on. And we do see that some markets are more advanced than other markets. And this is what we do now to create one customer count, one payment system, one loyalty program. It’s clear that is not against the retail the retail will get all the products we have. But if we look forward, it’s not about web but it’s about the epic business. At the end, this is the cheapest way to the customers and the most intensive way to the customer.

So overall, there are three functional tasks. One is on quality. We have started to look every Tuesday evening on the quality scores throughout the Company. We know that, we are not there, where we had been pre-COVID, was probably 10%, 15% higher in net promoter score. And we want to get there again. We know where we have not been good, like when you talk about the disruption, there are competitors with own people who did it better than we know that on spare parts of our dear friends from the aircraft supplier was not as good as we would have wished, a lot of effort to get the right access to spare parts.

And so on there that we do know what we need to do, because you can have the best services. If a plane is late for 8 hour, the customer is annoyed, and whatever people do, they can maybe smooth it down, but people are annoyed. And customer satisfaction with 8.4 actually is very difficult to increase further, 8.5 normally is something where it stops. So there we are happy about the NPS. In all the different areas, is it retail, is it online app, is it service, is it airline, we measure now and we want to be best of breed. And there is one company who is on the same level, as we was the benchmark and who has also developed very nicely in the world and that’s where we want to get and hopefully to get even better.

Sustainability, very important. But to us, we believe that, we are part of the scientific-based initiative, where after a very tough process, our targets will be acknowledged and certified. Our ambition is by far stronger. Our ambition is in 10, 11, 12 years to be carbon neutral to really be the market leader of what we do. In some areas, it’s easy. Our new head office in Hanover will be a carbon-free from next summer onwards. On hotels, its more, flights of government, more question of how much work you put into it, solar panels, all the other activities to reduce it.

On airlines and on ships, it’s more difficult. We are now in the process of changing the engines that they are able to till ’26 can all with methanol, so hydrogen derivative. We have joint initiatives on the fuel, greenfield. There is a deal with step us more to come. We want to really secure the delivery of green fuel. By the way, it’s more than fuel and carbon free. It’s all about social environment, supporting the local community through local marketplace. This is supported by the Care Foundation. And it’s also supported by our co-led — but we really in the next seven, eight years, we want to bring everything in reality, which should be then in other years later.

So at the end, we think it’s a commercial scent target, because what you don’t consume, you don’t have to pay. We know that the regulation will be stronger and stronger, and we know that customers are in a limit. We have clearly to say in a limit to pay for it. I mean, the enthusiasm is getting smaller, if the increase is too big, but a portion they are happy. To do it, we want to be the market leader in sustainability.

And the last point, which is maybe, maybe the most important is, our people. There was a nice claim which was initialized by our HRDs, a better eyes let’s to it because we want to combine it, let’s do it. We have been, let’s put it positive. There’s a lot of improvement to get things quicker done than in the past. And we should — we want to do it in the right TUI with the TUI values. And this is a shift or partly a shift in the momentum of the Company and for that we need more talent to get into the Company, to get on, to promote, them has a lot to do with diversity. That’s not men and woman. It’s old, young, Chinese, Japanese, Spanish, Swedish.

So to bring the best people together and it’s about, I don’t know if there’s an English word for spleen. Everyone has his specialties and we are better as an organization if the different specialties everyone has are brought together, and leadership really to focus on execution. Just do it. And not to discuss too much, but just do it to take the risk to execute and to take decision where you haven’t been aligned with a hundred people to do it, to get higher employee engagement and give the example of the two things towards business today echo only in Nordics.

We see a significant higher momentum. It will be a change of transition this year, be until 12 months till we have everything in place. But we are very focused on the execution of the five, six, seven, and yes, this should lead us to a more attractive company for customers, for employees, and therefore also for shareholders, and I have a soccer background that’s why I love this sentence, which is proper English I wrote. We are playing to win. That’s the motto we have and that’s what we want to prove to our investors in the coming years.

And before we go to the summary in Q&A, it’s Peter to give us his view on TUI Musement. Maybe if you allow me a few words. Peter has done the whole career from the scratch, which is really amazing. Whenever I said I’ve been to TUI AG, you said, I have been there, I’ve worked there as a TUI guide. You have gone through the Nordic market from the very early to the top. And you are since ’22. The CEO of Musement, and one of the people who are very strong in execution and motivating people. What did you do? What are you doing tomorrow or today? Muse News. And these are the things where TUI can learn a lot of in the positive. Bringing people together, entertain them, making them to go the one step ahead. And that’s why we are support on your people, on what you do and what you have achieved and what you will achieve.

Peter Ulwahn

Thank you very much, Sebastian. Thank you. Hi everybody from me as well. I’m really excited to be here. To give you a bit of insights into the magic of TUIMusement, and I will give you a bit of a crash course on what we’ve been doing in the last couple of years. And hopefully, you will be as excited as I am around the potential that we have. Allow me to give you a little bit of detail, what we are? So simplistically TUI Musement is the part ofTUI without manage the in destinations things with the exception of hotels and cruises.

So we do three things. We do experiences as Sebastian has been speaking about and experiences for us, is excursions. And when I say excursions think about seeing the pyramids in Giza in Egypt with a bus and a tour guide that is excursions. We have activities, which is snorkeling in the Red Sea. That’s an activity, so more of a sporty thing. We have also tickets, so tickets into museum, but also tickets into all the major attraction parks in the world. Harry Potter in London and in U.S., but also Disney World in Paris and in U.S. as well.

So this is the experience part. We also have Shorex, so Shorex is experiences, but for cruise lines where we have a brand called Intercruises. And we are the market leader when it comes to cruise lines excursions as well. But we also do transfers, so point to point transfers, airport to hotel or airport to port. We do it with our buses, but we also do private taxis, private transport, and private transport can be a car, a taxi, but it could also be a sea plane in Maldives, we are one of the biggest players when it comes to sea planes in Maldives.

And the last part is tours. And tours, we call it multi-day tours. So that’s accommodation, transportation, and an experience put together. Used to be old-fashioned group tours, it is now moving into one of the most exciting parts when it comes to dynamic packaging of tours that also Sebastian spoke to before. When it comes to tourists and activities, it is a very exciting market because it’s growing, still growing. It is non-unconsolidated, probably Swenglish, non-consolidated, probably English. And we have a really good play in that space, because we coming from that space from an operator perspective.

We’ve been investing thanks to the support with Sebastian and Mathias during COVID into our platforms. And we are now in an excellent position to scale. With the acquisition of the Italian start-up of Musement into the platform business, we have now scaled up that business. We have in-house development, so unique own software. And in addition to that, we broke our systems open and been doing collaborations with tech start-ups in U.S. and in Switzerland.

With the numbers that you see, so I think, in 2019 we sold 10 million experiences. We had 31 million transfers. We had 300,000 tours already sold. We are now a global business, 120 countries, revenue 1.2 billion, and our EBITDA 2019 was 56. That makes us one of the leading tourism activity players in the world. We were probably the worst hit of the entire tourism sector when it comes to tourism activities. We were down 70%. Now we have a really healthy bounce back. So the market we think will come back to fully in 2024. Our ambition is to be back faster.

If you compare with the other sectors in the hospitality business, you can see that flights 83% today is booked online. Hotels are 74s from a tourist and activity perspective, it is only 26%. So that’s the point in terms of the non-consolidated market where we now have a play in. It is different compared to the other sectors. The main one is it’s a very, very, very fragmented supply, 120,000 something supply base. It’s a mix of mom and pops shops all the way to this big attraction as Disneyland and everything in between.

You still have a large part of the market booking in destination. So you have the must see that you book early the diving or snoring things or seeing the pyramids, but then you also have the boat trips that you prefer to go down to the destination, understand the weather before you book. We have a play in that with the app of course, but we also have a play because we are the only one that have a large service in sales force in destination because of our tradition.

If you read a lot of customer insights, you can see two big trends and that is that experience is starting to become almost like the entry point for the travel. So you envision yourself of what do I really would like to do on the destinations? And then you book the flight and hotels, and this is something that is of course is going into our view for sure. The other trend is the early digitalization of tourist activities was tickets because it’s easy to digitalize.

While the millennials and Gen Zs, they would much rather have a deeper kind of experience, more into the tours and excursion, kind of like, which also taps into our strengths. The last thing I would like to just to highlight is we do tons of research and we can see a clear correlation between customers satisfaction on the customers that have done an experience. You can also see loyalty, just another driver in terms of why we think the tourist activity space is really important. So in short the market is still sizeable. Our part is really increasing, grower growing faster than the rest of the verticals, four, five.

We are at seven and we aim to outperform the market. Just a bit of a deep dive into the business model because this is unique for us. We are an end to end platform when it comes to tours and activities. You see on the top pan one, you see the different experiences that I just highlighted. You see the transfers and tours. And these are the products that we’re using. We have one sourcing platform for all these components. Both from a digital perspective, but we also have a global supply team all around the world, very closely suppliers, helping them to connect to us.

They can connect to us in basically any way they choose to do. We have direct connections, API connections with the biggest players. We have connections to basically every big reservation, tech channel manager for in source activity space. We also have a supplier extranet for the small players that would like to put themselves into us. But we also do input for some of the more traditional venues most of the museums in Spain and Italy for example. So these are different ways we connect.

The next layer is the production layer, and that’s where we create our magic. So again, a difference, so we have a large portfolio of products that we make. So we use supplier components and bring this to our own. I will come to that later. And that’s where what we call a production. So we use the destination knowledge of the team that we have in combination with the customer insights that we have and then we put together the best possible portfolio for it.

Distribution is probably the area where we have invested the most in the last couple of years. We used to be in destination in-rep selling channel only. And this is completely been transformed now in the last two years. So now we have, the three buckets that I explained a little bit more. We have the existing TUI customers that we sell something to. We have B2C, so the open market where customer actually starts with an experience or a transfer or a tour.

And then we have something that we’ve been very successful with and that is rolling out to other players in the B2B business. We have OTA partners. We have hotel partners. We have airline partners. We have other tour operator partners. And they are right now also excited about this, because they want three things they want something that’s easy to connect to, we are easy to connect to. They want the products that we also manage by yourself. We manage this by ourselves.

And they want to have health and safety checked towards which we also do, because we have the themes and destinations. The last part I just wanted to highlight is also something that distinguishes us from the others is that we have our own operations team service and delivery locally in destination that we’re doing. So that also helps the whole end to end product.

I just wanted to give you a bit of a feel for how it would look like and I would like to pick the app as one of the channels that we have the one that’s been growing the fastest for us. And even though Sebastian is saying that you can buy everything thereI’m of course biased. So I prefer the app to really cater for experience booking. So like we have a look, let’s run the video.

[Audio/Video Presentation]

And travel with to where before and by any chance you would like to try it out. I recommend you to download the app. And I even have a special discount for you that Nicola have. So if you haven’t planned your holiday period yet, you can go there. And just to emphasize that we were before a Sun & Beach Company, I booked my own experience for Christmas, I did a snow scooter Safari up in Swedish mountain.

So we literally have products all around the world. So I’m personally guaranteeing wherever you are going in this holiday period, we should have a relevant offer for you. The app is good, because we now have a play before you go, because you go around and you swipe and you get engaged with the products that we have is definitely valid in destination, because before you had to go and visit somebody to buy it now you can do it from your sun been. Then of course afterwards we asked to regroup will play us to TDA to be part of the TUIecosystem. So these are the three things that is really exciting about theTUI app.

We now have of course one click pay, you have the Apple Pay and Google Pay and everything and Apple commercials. Just to highlight in terms of where we are on the market because of our unique business model there are no real one competitor. So I just wanted to do with by product categories. You have a feel for what the difference is. When it comes to experiences there is it too clear competitors they’re also partners because we use their platform to sell our own products and that is Viator and GetYourGuide.

So their play is basically to do downstream consolidation invest heavily into to the SEM, acquire customers and then get the margin out from the suppliers. We on the other hand, as you’re so we’re an upstream play, we consolidated destinations, we have our own products but in addition to that we have the same products as they are having to have a relevant offer for all different categories. And the differentiation part the destination based team, we have the operation delivery and the customer service side.

In terms of transfers, we have Suntransfers and Talixo. We have, as we said, 31 million transfers already today. We have a play in private transfers today as well with a partnership with Mozio a U.S. startup. And what we are doing here is that we basically have built half of a platform already. We have a sourcing platform that I shared before. We have a fulfillment platform that we launched last year together with another startup called Mobi.

And they are specialists in fulfillment or routing specialties to optimize routes. And we use them to make a state-of-the-art platform for fulfillment. This is also what you see in the app, if you would do a package booking with us this is what would power that one. In terms of tours, you have TourRadar and Evaneos, two different kinds of it. So TourRadar is an aggregator for group tours. Evaneos else is an intermediate between destination managing companies and us.

We now have a play with Nezasa. Nezasa is a Swiss startup. So we do our sourcing ourselves, connecting Nezasa for the production and distribute ourselves. So the front end is ours. And we launched it as an MVP to the Belgian market, to retail agents and to B2C last week, and will use next year to scale it up. This is by far the most complex product. So basically, now we are as in any digital platform balancing supply and demand that will help us scale up going forward.

And just a bit of guidance on the three different product categories and where we are from the current revenue share that we have experienced is the biggest. So 47% today is the revenue share that we have on the overall to Musement. That platform is basically done. So we have in the last two and a half years completely transformed from offline to completely online, and is now scaling that one.

The next part we’re doing from an experience perspective is to do this same thing for Cruise Lines. So Cruise Lines is probably the last part from experience perspective, still a wholesale model that we’re now doing platforming, and we’re starting with our own Cruise Lines, Marella and TUI Cruises, and we think this will be a game changer for the Cruise Line industry. So great expectations for experiences.

In terms of transfers, we have a play already today mainly for the TUI upsell and also for B2B. We think is really important to have also that business as a platform. And we are building a distribution platform the last part and MVP will be in the beginning of summer. The growth will come from the new customers that Sebastian’s were presenting in terms of the accommodation only the flight on limp and the other growth part will come from upgrading from bus transfer to private taxi.

Tours, I just explained about we launched it last week. We’re scaling it up right now in terms of adding supply and offer. And this is also a smaller part of a revenue share today but something that we think can have a really big potential going forward. The potential comes from two different ways of tours. So we have the group tours. But the other part is the individual tours in a completely new interface, if you go into tuivillas.com, you will see it where you basically can see items that we have done based on the technology we have and then you make them, adapt them to your own needs.

From a distribution perspective, the three buckets. We have the TUI upsell, we call it. So how do you maximize the existing TUI customers that we have? And I think we have made this to an art. So we are now into every single touch points that you have as a TUI customers. We have retail systems. We have contact center systems. We have rep selling sales. We have TBA systems. And the numbers that Sebastian referenced in the uptake that we have 30% to 40% is unheard of in the B2B space. So that knowledge is something we are now also using to help our partners into B2B to come out even better.

The other part I would like to highlight is to B2C open market, we are very strong into Sun & Beach. We also have three 3,000 cities because of our partnership with the different plays we have. We now want to do almost the same playbook as we have done with Sun & Beach. So we will use the demand created from the TUI — we will create our demand direct from B2C to do our own experiences also in cities. So, we have highlighted the list of destinations that we are going to grow in the next years. And this is really exciting, because we go into a new destination space or new segment cities. And we will also act as one of the entry points for new customers for TUI Group into the TUI ecosystems, for them to be sold hotels and flights, et cetera.

The last part is the B2B. We have booking and price line. We have cruise lines like, for example, Carnival. We have other tour operators like EasyJet Holidays and we have hotels like Marriott and we have an exciting plan to convert even more B2B partners going forward to increase demand for us to build our own products.

I’m coming from a digital background, so I’m really excited about all the platform development. But I’m also, as Sebastian was saying, coming from a tour guide perspective. So the products are also — I’m also very passionate about. Just two short examples on what we are doing from an upstream consolidation perspective. So we have a product line called TUI Collection. This is the best of the best in every single destinations that the teams have found out, put together in venues that we have special access to with specially-trained guides.

We have 600 of those in 55 countries. And since 2015, we have sold 5 million of those TUI Collections. This is something that we are now ramping up, because we see that it’s even more important to have a really solid offer for our customers. The other part is a new one. Just to showcase how we are also working with partnerships and upstreams consolidations and national geographic reached out to us. As we were the global player and they basically wanted to have a one day tour product, so we’ve been together with the National Geographic team setting up 55 different products around the world, high-margin, once in a life experiences that we will operate across the world. This is targeted mainly first for cruise lines.

We take that channel and that segment works good, but we will then scale up afterwards. This is just one — the example to left is Jamaica actually been on that one. Also highly recommended it works with the app as well. And the other one actually was trialing out in Barcelona just two months ago, where they took us around to the museum, the art museum Catalonia, and you go down in the archives and see things other people wouldn’t see. It was really, really engaging and we think our customers really like it.

So summer in highlight, this is my last slide, sorry for being long to Musement. Has unique position in high growth market developing on the market 7% and we will outperform that profitable player position for growth. Combining a digital platform model within destination, deliver the two parts, the end to end. We have the three things that other don’t do. The experiences, the transfers and the tours, and the cross-selling between we think is so powerful.

We have seen it works in the offline world. We definitely see in the online world as well. And as soon as we’re platforming the other two, we’ll also expose this into every single channel we have. We are using the one catalog, the product portfolio to sell into three those three buckets. And that’s how we’ll grow continue to invest into our platforms. We will also invest in reach in cities, and then see if we can find M&A opportunities to grow in faster. Our ambition is to outperform growth on the torsion activity market and maintain profitability at the same time.

That’s it.

Sebastian Ebel

Thank you very much. Peter, you may have noticed why we are so excited about that, a lot of new customers and new lot of new products and a lot of cross-selling opportunities with these new customers. And when we see what has been achieved in two or three years, it’s really amazing.

So short summary, we want to accelerate growth, improve profitability and margin. Very strong focus on cash there, I’m as finance orientated as Mathias to strengthen the balance sheet and the midterm ambition is to grow TUI significantly on pro in profitability above what you have seen as historically high.

Now, we are for questions if you like.

Question-and-Answer Session

A – Sebastian Ebel

Michael who has the mic? That’s now a good, sorry for that. We need a microphone please. There it’s coming. There was the second on the other side. So Jamie and grab it.

Jamie Rollo

Good morning. Jamie Rollo from Morgan Stanley. Three questions please. The first is on the rather open-ended guidance — sorry, modeling assumption for a significant increase in EBIT. I think consensus is about 1 billion this year and you’re looking at 1.2 billion by 2025 ’26. So could you sort of talk about how you feel about expectations this year? And as part of that question, I think Mathias, you talked about Q1 margins being a bit soft. So should we expect profits to be sort of lower in Q1 versus Q1 ’19.

Secondly, just a sort of residual question on the balance sheet, what’s the expectations for the cruise joint venture? Where are we there with KfW and when might that business be paying a dividend to you?

And then just finally, Peter thanks for the presentation on Musement. There seems to be lots sort of JVs and partners, so it’d be quite helpful to get a feeling for maybe margins for each of those divisions roughly, and maybe some form of profit target or some ambition a few years time to give us a feeling of the magnitude there?

Mathias Kiep

Should I take the first one?

Sebastian Ebel

Yes please.

Mathias Kiep

So thanks very much for the question. I think indeed if you look at consensus, that’s probably something that we would not feel uncomfortable with in terms of where consensus is. But at the same time, it’s early in the year, and it’s something we will need to monitor very carefully over the coming months. And in terms of Q1, I think, indeed, so thanks for this as well. If you think about cruises for instance and you mentioned it’s about and ramp up will take a bit longer, and ’19 for instance was a record year for cruises 6 trip with Marella, TUI Cruises fully ramped up. So, there will be certainly a difference still to 2019.

Sebastian Ebel

Maybe I misunderstood it. The target for ’25, ’26 is not the 1.2 billion. It’s well above this number.

Peter Ulwahn

Do you want to talk about TUI Cruises joint venture?

Mathias Kiep

I mean, we have a different situation with real. We can expect that they’re returned to dividend payments earlier. That only means that the cash flow to the TUI AG higher because they’re consolidated so which has an impact on bank debt. On TUI Cruises, it’s different, they have — I think this is public known 600 million crisis related debt and they didn’t get money from TUI nor from Royal Caribbean. So I think it would not be unreasonable to expect that in ’23 and ’24 they will need the profits they will have to strengthen their balance sheet and to repay the debt.

Jamie Rollo

You’ve not checked the equity yourself. This is an expectation that surely put in equity?

Sebastian Ebel

And we didn’t do and there is no need to.

Peter Ulwahn

I think the last part was to Musement there. You said joint venture is actually not joint venture in terms of the partnerships. We’ve been creative in the ways we’ve been doing it. So from that perspective modules won’t be impacted. And because we do both distribution and product, so we have both the distribution margin and also the product margin according to the market.

Cristian Nedelcu

Excellent. Hi, this is Cristian Nedelcu from UPS, also three question from my side, please. The first one, the capital increase, this is the last measure to recapitalize the balance sheet. And can you help us visualize a bit, can you be a bit more precise on the gross debt ratio? Do you expect post this event?

The second question, you guide for flat net debt in 2023, so I read that as a zero free cash flow, roughly. Can you elaborate on the free cash flow that you think you can generate ’23, ’24 at least the range of outcomes you would expect there?

And the last one, could you help us a little bit with the free cash flow burn that you expect to see in December and in the March quarter? And I guess what I’m after here. You have this covered on the net debt cover and the 4.5 turns. How do you see at the March testing date? How do you see the net debt to EBITDA there? Is it comfortable below 4.5 or any comments that could help us? Thank you.

Mathias Kiep

Thank you. If I could start with the question on gross debt and further deleverage to the rights issue. I think if you look at our gross debt with the 5.3 plus pensions 0.4, that’s how we normally look at it. If you take a normalized EBITDA where the full year is under normal conditions, you would already be probably below three times. Um, I think prior to the crisis, we already said this can only be a first step and we were aiming to something which was more, closer below 2.5.

And I think that’s something without giving a precise number because, again we need to size the capital raise at a later stage, I think the three times would probably not be what is a good step for all the growth initiatives that we have in front of us. In terms of the free cash flow for this year, I think indeed, we’ve looked at it in a very conservative way also with regard to how is the business developing? So I think we don’t put too much focus in terms of too much stress on the system in terms of our own expectation, but let’s see how it develops.

And I think the last question in terms of what to expect for Q1 and Q2, I would say now if you look at Q4 as a reference, this is pretty much in line with the pattern that we saw in the past. And I think if you applied the same mechanics to Q1 and Q2, this should give you a very good, let’s say, structure to where we develop. Then of course, the question is how profitable will we, and in the end, that’s something we don’t know yet is how customer bookings in January, February will actually be.

Cristian Nedelcu

Sort of working capital, cash burn used to be around 2 billion roughly for September and March quarter?

Mathias Kiep

I mean the Q1 was always, you had probably something one and a half as a seasonal swing. Then you had on top what you had as the seasonal loss in the first quarter, and then in the second quarter you normally would get inflow again from working capital, but you would still have some seasonal losses.

Leo Carrington

Thank you. Good morning. It’s Leo Carrington from Citi. If I might ask, on the acceleration of online bookings, how does, how’s this tie to the retail offer and what does the gradual migration to online also mean a steady structural move to later bookings and potentially then weaker ASPs compared to retail? So how do you see that’s evolving?

Secondly, on bookings, any for the first of all, for the overall business, any change in the competitive environments, promotional activity, deposit levels that you’re seeing across the board, and also specifically in Musements in I think some of your competitors are startups. Any change in the competitive activity there given the macroeconomic environment and the financing environment?

And then lastly, you mentioned the inorganic opportunities that might present themselves, once the balance sheet is in refinance. Can you elaborate on sort of more specifically where you would like to focus that?

Sebastian Ebel

Maybe I take the question on retail versus online? At the end the customer decides, and I mean if you look at Nordics, 90% plus are online bookings, if you go to Southern Sweden, there is no retailer left anymore. And if you cross the border to Germany, you have thousands of retailers and there are there because the customer wants to book there.

By the way, a lot of veins also not come to Germany to book in a retail of an England, it’s 70% online. For us, it’s important that we accept what the customer does. And like in a country with Germany, where he books sales significantly within retail. Then we should support the retail in getting best out of it. And that was not always the strategy we took. But it’s from our point of a management point of view, the right strategy.

And it’s also commercially sound and, of course, the margins are significantly higher than online. You could argue, does it depend on the, how you book or is it more the question when customer book? And it’s probably more the question when they book and therefore, it’s, again, very sensible to work with the retailers and to support them as much as possible. At the end, the customer will decide where he books.

Then the question is online, as I tried to say is the focus should be on booking through the app, because the distribution costs are zero. And you don’t have to spend 14%, 15%, of whatever on Google more. You have the chance to be in contact with the customers by far more often. Promotion and he also had the opportunity to be more in contact with him. So yes, the customer who comes online is fine. At the end, discuss what we would prefer to have in our app.

And to competitive environment, I think we changed. I mean, there are great TUI operators out. You have a greatTUIoperator in England. We have the one our other greatTUIoperator in Germany, maybe the great ones are less than they had been before. I think it’s important that when our marketing had Finland did the presentation, and now he does it regularly, once a month. It’s important that we don’t compare ourselves with to operator A, B, C, D, E, F, but we compare with on echo only on with booking who is also an NPS, the benchmark.

On dynamic package that’s country by country different we compare with Expedia or others who does it very well. If we look at flight only we compare with Momondo or Kayak or Kiwi, and not with a specialized, smaller company. So that’s a mind shift. That doesn’t mean that we don’t look at the traditional competitors. So there’s some are doing well.

I mean, Jet2 had left less disruption than we had, because they had an own workforce that we can learn a lot from. Charleston in Germany is doing a great job. We can learn about the easiness how they do it. So it’s all about learning and the learning putting into what we do. And on prepayments or the commercial terms, I haven’t seen any changes in the markets.

Leo Carrington

Inorganic opportunities?

Sebastian Ebel

You mean M&A?

Leo Carrington

M&A, what’s the balance sheet?

Sebastian Ebel

I think the focus is that’s why we said at the last action, we want to take measures, we want to take. I think we decided to do five or six things, we do them right. And then hopefully, we are convinced that TUI will be different also when it comes to profitability. And if I would say, we’re looking at M&A opportunities, what district what we do.

On the other hand in two years, there is a interesting thing, Musement and activity we will look at it, but it’s not something which is on our plate today. I think it’s very clear. We come to an extremely difficult situation we survived. We made a good plan forward. Our investors who supported us heavily and hopefully will support us with measures that expect returns from what we do and that’s the focus.

Richard Stuber

Richard Stuber from Numis. Two questions, please. You gave some sort of detail in terms of winter trading. Is there any early color you can give in terms of summer trading? So particularly around what took capacity expectations that you may have?

And the second question. Just really sort of clarification on Jamie’s question on margins in Musement. I guess the customer mix will change over time. As you get most of B2B and B2C customers, the product mix may change as well. So do you expect to see margins at that division to be sort of fairly constant? Or do you expect there to be any major changes?

Sebastian Ebel

On summer, markets are very different. UK is very much advanced compare that to Germany. The bookings are promising, but we’re talking about booking levels 10% to 30%. Therefore, for would say it looks great. It doesn’t mean too much because the booking levels as they are. Again, it’s quite interesting. The pattern is early bookings are stronger, but high season also. So I think it would support the expectations going back to normality, but keeping the people book later.

And on Musement margin you have seen. I mean, if you compare it with the others, where you have public information, they are all I think loss making still. We had always we wanted to balance out profitability to grow. Or put it that way, we want to grow significantly by keeping the profitability, which means that we also have very strong look on margin, what we need to invest to get more customers, we want to get out from customers, which we had. So for example, the rate, the buying rate 40%, if we achieve that and we come from 20%, which means that we can spend a lot of money on new customers.

On the other hand, the uniqueness of the model is the new customers. I mean, you could have a model where you buy new customers every year, but we want is that to make the customer as early profitable, because we bought we sell him incremental products of the same or of eco only and so on. So it’s a very clear, I mean, we could have decided for a, we put all in growth and difference loss making. We really tried to balance it out because I think we agree to it, it’s possible because otherwise you buy customers and it looks like you have to buy a new and again and again. So it’s better to create value with him and to be careful in what customers you buy.

Peter Ulwahn

My only additional uncommon would be spoke about the mix of segmentation that transformation actually already done. So 55%, 60% is to be rest this B2C and B2B and we see that going forward in the coming years as well?

James Clark

James Rowland-Clarke from Barclays. Just on the second part of the rays being you earlier, you said there might be a similar amount of the WSF payment. Can you confirm what your assumptions are for the consumer environment to meet that kind of broad guidance on the amount? So how might things deteriorate through the winter? Or how might that change your outlook on the summer?

And secondly, are expecting your rights issue to be underwritten by your banks? And finally, I guess on your comments about taking market share, getting new customers, you’re coming off a lower NPS score at the moment. So can you talk about how difficult easy marketing spend are out around reacquiring those customers and how that might look going forward?

Mathias Kiep

So maybe I’ll take the first two questions on the capital raise. Thank you very much for the question. So I think the sizing is — or let me put it differently. We started to work on the opportunity, obviously, some months ago, just because you can see from the details of the agreement that there is a lot of legal technicality included. Since then, I would say that, the environment that we are in has actually improved.

But it is to stress, this is not to kind of protect against downside. This is not the rationale for the capital raise. It’s to clean up and bring clarity to the situation with WSF. At the same time, create a clear pathway to fully exit from the government. And I think this is what’s really driving me to make this final step done. And then, the sizing will be next year, I think but it’s not in today’s environment.

I would say, this is why we also put out some expectations. I mean, we don’t have a precise agenda. But I just said, I feel comfortable with consensus and I think this is where we want to be. We also will ask banks to underwrite this, and this is I think the indication that we currently have that this will be an underwritten capital raise.

Sebastian Ebel

On marketing, we are spending a lot of marketing, more into the online channels to acquire the customer. What we want to achieve is to get more customers into the ecosystem, and not really buying them, but getting them through other marketing CRM and so campaigns. So that’s why it’s very important that we balance it out. So yes, we will spend significant amount of marketing in the future we want. Actually, if you look at our distribution costs, I don’t know if you can see them in the deck we provided. It has gone into the right direction, due to a higher retention rate we have in the business.

So I mean, if you look at the best of breed competitors, they have retention 70%, 80%. They can spend a lot more when it comes to new customers. We are now coming above 50%, when it comes to retention, which means that we also have more firepower to look into getting new customers. And it’s now quite obvious that, not always acquiring through the web, but through other marketing campaigns to get customers also important that balance out is really important.

We have no plan to pull in €200 million incremental to get more customers. We have tried to spend more intelligent. Yes, it could be, if Musement does we expect and grow, and we can fuel the growth by adding €10 million more investments. We will do it like we do it on IT, if something goes very well. But we always try to counter finance from other sources.

Kate Xiao

Kate Xiao from Bernstein. Congratulations on the great progress. And maybe a follow-up on the new customer acquisition there I think in the presentation you mentioned, in the future, TUI wants to capture two types of new customers that are adventurous or the younger, part of the younger generation. I guess, anything you could elaborate on, how do you see these segment and the Company’s aspirations there?

Sebastian Ebel

First, thank you for the question. We had a lot of discussion on how we want to achieve that in the Company. One, we need the right products. If we look at the TUI products, it’s really outstanding. It’s still just limited to the Belgium and Netherland market. But we will roll it out, and then what you’ll do see how your dynamic package, flights, hotels and the whole rest of the tour is then adapted. It’s really good. So one thing, the products, and second then is the communication, how we bring it to existing and to especially new customers.

And therefore, example what Peter presented with national geography is over with destinations with similar organization is so important that we use intermediate who help us to get access to these customer. And second thing is through social media it’s easy and difficult to reach these target groups. It’s easy because it’s doable and it’s difficult because you have to do it in the right way with the right people, with the right messages. And there we are getting more and more advanced through social media to get access to these customer segments.

And it’s exciting because the whole company shifts from, I mean, if you look at how we did traditionally marketing to get new customers to sell, it’s very different. You do — you look at the BI data, which is available from Google from to really target the customers. I mean, it’s sometimes it’s shocking what data is available about me or about EU and social media. And if you have this data, you can really target the products to this people.

Unidentified Company Representative

Do we have any other questions maybe from the call?

Peter Ulwahn

From the web, who looks into it?

Operator

[Operator Instructions]

Sebastian Ebel

If there is none there, do you to have another?

Cristian Nedelcu

Thank you very much. Just one follow-up. Both the capital increase, I think there will still be around 1.4 billion of undrawn RCF from the KfW. Is there any deadlines to sort that out by the, by the end of December 2? And if you could talk a little bit about your plans to refinance that, is it via debt or how do you think about refining that?

Mathias Kiep

Yes, so what is going to be left with KfW? I mean, there’s one point, I would need now to size the rights issue order to determine, yes, so use said 1.4, whatever the number is, but then the question is really how much buffer do we want to have over the winter? That’s something we are going to see over the coming months. We’ll also see how much buffer we need in the current environment.

I would expect that we will not need all what we currently have from KfW, but also as in the past we did not just return lines to KfW to return them, but we always looked okay when there’s a good opportunity to clean up and do the right things. So I would say, there’s probably three dimensions to that. One is we will do the race to replace. We will do less facility because we will not need all of KfW.

And then, I think we will probably take another 12 to 18 months to just look at what is going to be refinanced separately where there’s a bonding line, insurance solutions. There will be much more availabilities. We currently have that already, but the raise will of course leverage that.

Cristian Nedelcu

Thank you.

Mathias Kiep

I mean, if there are no questions further on the call, it’s been a long morning for all of you. Thanks very much for coming. I don’t know final words maybe for you, Sebastian.

Sebastian Ebel

So first, thank you for coming. Thank you for the support and for what you do. You’ve hopefully got the impression that how we want to further develop TUI that how much we do change, too good. If we get this refinancing done, we are on a very solid, not path, but fundament basement, solid base.

So we can really put even more effort in developing the business and not always for looking. We will always optimize cash and always optimize it in that. And the best thing is to do so is to improve the business because then these things come automatically. If there are any questions, Nicola and the team is there. You see us energized. And on the other end we are also looking forward to Christmas.

Thank you very much and all the very best.

Mathias Kiep

Indeed thank you very much.