TUI reported record full-year revenue, up 25.8% to €20.7bn ignoring exchange rate impacts. This was driven by higher prices and a 13% rise in customer numbers to 19mn.
Underlying operating profit more than doubled to €977mn, boosted by a strong fourth-quarter performance. All business divisions saw improved profitability, helped by the higher prices and occupancy rates.
Net debt fell by €1.3bn to €2.1bn, largely as a result of the €1.8bn rights issue earlier in the year. Free cash flow fell from €1.4bn to €0.7bn.
In the current financial year, TUI expects revenue to increase by at least 10%, and underlying operating profits to rise by at least 25%.
The group is considering delisting from the London Stock Exchange, in favour of a single listing in Germany.
The shares rose 8.0% following the announcement.
View the latest TUI share price and how to deal
Our view
TUI's full-year results showed that although consumer budgets may be getting tight, holidays aren't something they're willing to give up, yet. Customer numbers continued to climb despite price hikes across the board. And, while it's the airline side of things that tends to grab a lot of attention, TUI doesn't just run flights.
It has a much wider package holiday business. In some ways that makes it more defensive - there's more to offer and plenty of cross-selling opportunities. But the drains on cash when you have planes, huge hotels and even cruise ships to fill are enormous, so returning to pre-pandemic capacity levels is key.
Positive booking momentum has continued into the new financial year, with the group already 56% sold for this winter, marking double-digit growth. That shows just how important travel is to customers, as well as the strength of TUI's brand. This resilient demand has led to some impressive profit guidance for 2024, ahead of market expectations.
Helped by the rights issue earlier in the year which raised around €1.8bn of cash, the group's debt levels have come down. And thanks to significantly improved profitability, net debt now sits at 1.2 times cash profits, which is much better than the worrying 2.8 times of the prior year. Continued movement on this front will be key to any potential return of dividends, which are never guaranteed.
We can't knock progress, but remain wary on some wider risks.
A cost-of-living crisis means it's almost impossible to map demand accurately too. We're the first to admit that recent booking momentum has been better than feared, but the question is how long that will continue. A lot of this will be outside TUI's control, but the powers-that-be will certainly be hoping for a soft economic landing.
TUI was concerned about over-capacity in the wider industry before the pandemic. This is an ongoing concern in our opinion, despite the challenges faced by the sector in the last couple of years. TUI doesn't appear to be trimming its own capacity in readiness for an economic contraction and instead relies on a hybrid approach of own and third-party operated flights, which reduces, but doesn't eliminate, the risk caused by an over-supplied and overly competitive industry.
There's potential for TUI to do well in the future thanks to its more diverse offering, and investors could be rewarded for their patience. But without a dividend to sugar-coat the extra risk involved, we struggle to get too excited as things stand.
TUI key facts
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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