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Edited Transcript of TUI1.DE earnings conference call or presentation 11-Dec-19 2:30pm GMT

Full Year 2019 Tui AG Earnings Call

Hanover Dec 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Tui AG earnings conference call or presentation Wednesday, December 11, 2019 at 2:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Birgit Conix

* Friedrich Joussen

TUI AG - Chairman of Executive Board & CEO

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Conference Call Participants

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* Adrian Pehl

Commerzbank AG, Research Division - Head of TMT and Consumer

* Cristian Nedelcu

UBS Investment Bank, Research Division - Associate Director and Aerospace & Defence Analyst

* Jaafar Mestari

Exane BNP Paribas, Research Division - Analyst

* Jamie David William Rollo

Morgan Stanley, Research Division - MD

* Stuart John Gordon

Joh. Berenberg, Gossler & Co. KG, Research Division - Senior Analyst and Head of Business Services, Leisure & Transport,

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen. Welcome to the TUI AG conference call regarding the full year results of 2019. (Operator Instructions) Let me now turn the floor over to your host, Mr. Friedrich Joussen; and Ms. Birgit Conix.

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Friedrich Joussen, TUI AG - Chairman of Executive Board & CEO [2]

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Good afternoon. Thank you for being on the call, and sorry for the slight delay. The whole day is a little bit hectic on our side. But when we arranged the date we couldn't know that actually, elections would be in the U.K. tomorrow. So we thought it would be good to pull in our announcement. And if one thing is more important than it, it maybe the elections in the U.K.

So therefore, sorry for being late. But anyhow, Birgit and I, we will try to be concise. And hopefully, we can answer all your questions.

So if you turn now to last year. I can say that in light of 737 MAX and the market conditions, I think we had a very successful year. Because we could improve our turnover to 3%, so more customers -- or 2.7%, more customers traveling with us. Of course, no Thomas Cook effect in there. Also, I can tell you for trading now into the future, it looks good.

Underlying EBITDA would have been flat if we had -- and if you didn't have -- not had the MAX effect. Otherwise, this stayed in line with our guidance, which we gave -- a revised guidance, which we gave out in April, which is also good development initiative. But today we will also focus a little bit on the cash front, which is I think, more important.

And then EPS was 89% and dividend per share is 54% according to our existing dividend policy, and we have actually launched a new dividend policies this morning. Birgit will also take you in more detail through the dividend policy, which we think is the right one. If you look at our growth profile, which we expect to have, we are just in front of a huge transformation of the company. We have transformed the company from a trading company, fortunately, into a digital -- into a vertically integrated business. Now we are thinking about the full digital transformation for this becoming a digital platform business. That is, of course, has huge upside, and we believe it's very attractive for us in our staffing position that we are today. And then now I see very healthy numbers there, but the major cost of capital. And I think that's also pretty good.

Now that said, Holiday Experiences is the backbone of the business today. We start with Hotels & Resorts, you see very healthy numbers, a growth of underlying EBITDA of 8%, mainly driven by the average revenue per debt, which has actually come up from 63% to 66%. Now over the year, you had question marks on could be sustained profitability in the hotels and there's a huge migration from people who are actually now do less indication in Spain as more in Turkey, again, but we have a lot of hotels in Spain. But at the end of the day, you'll see that the diversification of our portfolio often times is a pretty good brand. So it's a very solid and very robust business.

Now for Cruises, in Italy, it's a very nice story because all Cruise companies are contributing to our growth. And when you look on the left side, you see that provision has been 13% EBIT. And on the left side, you see that different companies and this all is very healthy and nothing to add.

Maybe 3 Cruises, you could argue, why there is the average daily rate going backward from EUR 178 million to EUR 174 million. Is that a weakening of demand? And I can assure you, it's not. Quite to the contrary, the demand of future, and we wish to have more capacity. But you see the growth of almost 20% in capacity. That is, of course, aligned while coincidentally this actually, of course, replanning is, of course, each additional who should do is actually a less a little bit profitable route than the route before. So we had 1 ship more in the mediterranean over the summer, that is actually causing lower yields. But at the end of the day, a very, very healthy business contributing in the growth, as you see on the right, the lower box, just turning a bit.

So this is a very healthy and very good positioned and a good growing business. And then the newest star on our horizon is the Destination Experiences. You know we doubled the volume -- more than double the volume and the underlying profitability is up 44%. I mean, of course, then we had integration cost but even if you include the integration costs, you are up 22%. Now here, we say, particularly to the future, when we come to talk about strategy, here we will sacrifice profitability into the future a little bit because we want to be the #1 consolidator in the world for our experiences and too much profitability is dangerous. We could get it to profitability like we do here, but we will actually put a little bit more gas and this will consolidate faster. So you should see stronger growth and a little bit less profitability, and even stronger growth than this. And I think that's what the stocking of this thing will be in the future.

We want to be absolutely certain that we are leading consolidation in the longer run.

So then we come to the markets. And here, you have actually in the bridge 2 brown or beige or whatever blocks, 1 is the MAX, EUR 293 million, as I said. And then the other is the EUR 113 million, and that is the headwinds for over capacities, which we talked about. And now, I always said, consolidation will happen at a certain point in time. And now I can say, consolidation is happening, at least in some of the countries. I mean, in U.K., it's very clear. I mean, this is a very, very different business than it has been in the past. For the winter -- for the summer, it's very early days, it's not easy to say. But for the winter, it's different. And unfortunately, in Germany it's not that visible because the condo is still flying this state money. So the combination has not happened, and we will see Nordics, as you know, the business -- our wing business was bought by -- is it a Norwegian or Swedish billionaire, I don't know, but it is somebody who was actually obviously interested.

And the business is competing like it was in the past, so no change. Where, actually, we see a little bit in the U.K., we will observe additional demand with additional aircraft. There we see also growth, but the difference is actually [Bene]. Bene is actually -- Benelux cluster is actually -- we are taking the same number of aircraft -- as you know, we have an airline which is oversized to our -- to operator activities. So we are requalifying [recliner] seats through package, which have higher margin. And -- so we will see -- Benelux will see growth without additional investment, which for the Benelux cluster is the right thing to do because many of the airports which are [interesting] (inaudible). So we are -- we think it's a better strategy to increase margins and not volume. And it's a little bit different to the U.K.

That said, I would like to hand over to Bruyninckx (sic) [Birgit Conix], to guide you a little bit through the numbers. And the things below EBIT as well as our proposal, which we have offered for dividend's policy.

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Birgit Conix, [3]

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Thank you, Chris. 2019 was a challenging year for the whole travel industry. And in addition, TUI was impacted by the Boeing MAX grounding, costing us close to EUR 300 million. However, I'm pleased to report that we were able to maintain our revised EBITDA guidance of March. And on all other parameters, we ended within our original guidance.

So on this slide, the underlying EBITDA bridge. And as Chris already covered, Holiday Experiences business continue with very strong performance, and that is what you see here. So what we do here is actually simplify the message, and you see the EUR 72 million increase. And this result was offset by a weaker first half year performance in our Tour operating business for which we issued an [Ff] statement earlier in the year. And we saw continued Brexit uncertainty and airline overcapacities as well as latest customer booking profile, resulting in a lower margin performance in the year.

And then the positive in all other segments is driven by one-off cost savings and all other larger events of a onetime nature, almost net each other out, as you can see from this graph.

So this leaves us with an operational EBITDA performance, which remained broadly flat versus last year and due to the robustness of our business. And as you can see, we separated the onetime effect of the EUR 293 million Boeing 737 MAX costs. And these costs are slipped in around EUR 240 million direct operational costs, and the remainder being the commercial impact on our operations in line with our communication in March this year.

This brings us to an underlying EBITDA of EUR 880 million at constant currency or EUR 893 million at actual risk about a quarter lower versus previous year, entirely attributable to the Boeing 737 MAX impact.

So then moving to the income statement on Slide 11. And flat in last year's annual report, we have applied IFRS 16 and IFRS 9 from the first of October '18, as outlined in the appendix and also in the corresponding external downloads on our website.

So we achieved a turnover of nearly EUR 19 billion in financial year '19, which was up 3% compared to the same period of last year, partly due to an acquisition effect in Destination Experiences segment.

And our underlying EBITDA is down by 13% versus last year, which corresponds with a growth of 6%, if you would exclude the effect of the Boeing MAX 737 grounding.

And excluding the effect of acquisitions and divestitures, our administrative expenses decreased by 5.6% over the same period versus last year as we focused on operating leverage and tight cost control.

Adjustment of EUR 125 million, in line with guidance and relates to the restructuring in markets and airlines to drive market competitiveness.

And reduced interest year-on-year, primarily is due to tax related release of interest provisions. And there is also an effect of tax related increase due to a one-off depreciation on tax loss carried forward.

So the Group result after minorities is down EUR 311 million year-on-year, the grounding of the MAX being the most significant driver of this development and, to a lesser extent, the non-repeat of elements in discontinued operations in tax in 2018.

But overall, a resilient operating performance from the business in a very challenging market.

So moving over to the free cash flow slide, on Slide 12.

So here, I'm very pleased to let you know that we were able to realize an operating cash flow broadly in line with last year despite the Boeing 737 MAX impact. And the main drivers for this resilience were our EBITDA contribution from Holiday Experiences with 12% growth or EUR 120 million year-on-year. A significant working capital improvement in the fourth quarter, and this was due to the successful implementation of sustainable working capital initiatives, and also Q4 benefited from a later booking trend of this year. And also, as we said during last quarter and then a positive cash effect during the last week of a fiscal year in context of the collapse of one of our major competitors.

And then a planned non-repeat of one-off in 2018 impact and pension contribution.

Then the free cash flow for dividends means with circa minus EUR 600 million in line with expectations pre Boeing MAX grounding, that equally demonstrates our needs to take a close look at our capital allocation to secure future growth and opportunities. I will come back to this later.

Allow me to give one forward-looking statement for working capital in the first half of full year 2020. We expect a higher working capital outflow versus last year based on our announced capacity growth for accommodating Thomas Cook customers.

So then moving over to the next slide on net investments. So for the first month period, they amounted to EUR 1.1 billion and are fully in line with guidance, and are at last year of our planned reinvestment of disposal proceeds. And as you can see in the pie chart at the bottom, around 2/3 of our cash capital expenditures for the 12-month period were growth related.

In addition, we made significant investments in technology to further drive efficiencies, and we are executing upon our planned and committed aircraft's reseating mainly through financial leases. And for financial year '20, we expect our net investments to be on a more normalized level with around EUR 750 million to EUR 900 million.

And as one of my finance priorities, I want to confirm that we are and stay committed to our disciplined investment approach, and we'll continue to closely monitor our capital expenditures in order to make sure that they drive the committed incremental returns.

So moving over to Slide 14. As expected, net debt increased to around EUR 900 million due to the discussed free cash flow development and our planned asset financing.

2/3 of asset financing are related to committed aircraft re-seating and they enable to cruise ship financing. The other mainly includes FX effects and financial debt from asset acquisitions.

So despite the Boeing 737 MAX impact, our gross leverage ratio remains at the upper end of our guidance of 2.25x to 3x. And excluding the MAX impact, our gross leverage ratio would have been 2.7x, broadly in line with prior year.

So then moving to Slide 15. This shows that our gross leverage review guidance remains unchanged within the range of 2.25x to 3x. And these ratios exclude the potential impact of a Boeing MAX grounding situation beyond April 2020.

We have a credit rating of BB with Standard & Poor's and Ba2 with Moody's since 2017, both with negative outlook. We acknowledge the current challenges in the travel market and Boeing MAX grounding, specifically weighing on our performance. We are committed to keep our leverage ratio in tight control in order to demonstrate our commitment towards our rating agencies and in order to continue to have access to the debt capital markets at attractive rates when we require it.

In a very challenging year and environment, we continue to enjoy, a solid and healthy financial profile with a weighted average cost of debt of around 1.6%. And a weighted average maturity of our financial interest of 3 years at the end of September.

At the end of the fourth quarter, we had full access to EUR 1.5 billion of undrawn commitments under our revolving credit facilities, which covers the seasonal cash requirements of our business.

So then moving over to Slide 16. So let me summarize our financial performance. So despite -- as I said before, despite the previously discussed headwinds, we are proud as an executive board that we delivered an underlying EBITDA in line with our revised guidance in this challenging environment.

We gave early clarity on the expected Boeing MAX cost impact and our early calculations for the communicated scenario turned out as planned.

We ended exactly in the middle of our net investment guidance at EUR 1.1 billion. We delivered above expectations remaining in our gross leverage guidance. And the proposed dividend per share of EUR 0.54 is in line with our current dividend policy, reflecting the forecasted decline in underlying EBITDA of minus 25.6%.

So as discussed with you for a while now, we have a very strong focus on cost efficiency, operational cash flow and capital allocation in order to create funds to capture every value-creating growth opportunity going forward.

So then moving to the next slide on the future capital allocation framework. As we execute our second transformation phase, which we've explained in -- and will also explain it in more detail in the next slide, but financial strength will remain a key component to our resilience when facing external headwinds. So first we focus on organic growth through investments in owned assets and digital platforms and as Fritz will talk about, there is plenty of opportunities for us ahead in the coming years. And second, we remain committed to attractive shareholder return. And however, our current dividend policy with our free cash flow and liquidity head room, we are as truly a growth company, operating in markets with significant growth potential like, for instance, Destination Experiences, and we are entering into new markets with our GDN-OTA platform. And at the same time, we are investing in sustainable growth in our wholesale and cruises business. So we, therefore, decided for a new dividend policy, which gives us the ability to successfully execute our transformation, while offering our shareholders attractive returns at the same time.

I will go through the details of our new dividend policy on the following chart. And under the new policy, the dividends will be a result of our business model and financial structure.

So third box here, we continue to look for accretive M&A and portfolio optimization to make use of external market opportunities, which strengthen our group, and we've demonstrated this in the past as well and also will do so going forward.

And fourth, if excess cash is available, it shall be returned to shareholders. And then very importantly, it is the -- how do you call it? Banner below. It's underpinning all of the above. We will be disciplined in maintaining a solid balance sheet and keep our target gross leverage ratio comfortably within the range of 2.25x to 3x.

So then moving over to our dividend policy.

So TUI's dividend policy due for payment in 2021 will change as follows; a core dividend payout of 30% to 40% of the group's underlying earnings after tax, post minority at constant currency with a dividend floor of EUR 0.35.

So we see this new dividend policy as an attractive, balanced and sustainable element of shareholder returns, while securing future growth.

The floor guarantees shareholders a minimum payout, irrespective of the cyclical market environment of the tourism industry and subsequent impacts on underlying earnings after tax. To give an indication based on our share price at the end of financial year 2019, the dividend floor, which represents a yield of 3.3%. This updated capital allocation framework will provide TUI with increased flexibility as it balances the various components of value creation.

So let me now hand back to Fritz, who will be giving you an update on our strategy.

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Friedrich Joussen, TUI AG - Chairman of Executive Board & CEO [4]

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Brigit, thank you very much. So I think it's important now to talk about how we generate growth. And where do we want to grow, what do we want to do, how do we want to change the company. We changed it from being a trading company into a vertically integrated business. And as I said, we believe putting it right now into the field of digital platform -- become a digital platform business is actually at the core of our strategy.

When you look at TUI today, you see it being active in the touristic markets, it has 21 million customers, which is serving in our source markets. And then when you look at the growth of the market, it's 3% above GDP. Markets and airlines are growing slower than hotels, Cruises and DX and that additional Experiences. And you see that actually these Experiences are growing 4% to 7%, and the markets are [1]. So putting our investments into these markets is definitely a very rational decision.

Now when you look on the next slide, in our integrated business model, which we are right now and -- at the start of the new digital transformation. We believe it is a very strong position because it has a very strong customer base. It has differentiated content. Yes, we have a lot of investments in hotels, and we'd like to talk about hotels and Cruises. We think it's strong returns once they're higher than peers. We believe it's beautiful businesses. But the reason this is so beautiful business is the scale we are adding in our markets and airlines.

So we have more or less 7 million customers in our Experiences, we have 21 million customers in our markets and airlines. And with that, we make sure that we have such premium returns. So this particular integration business or businesses is actually absolutely the right thing to do.

Now owning customers is very good as well because you can think about upselling, and I will talk about this in a minute. And as I said, the Experiences itself might have a little bit of mortgage, but because of the double diversification of our business many source markets and then hotels in many destinations, you have seen how robust the business is even if demand shifts from west net to east net and so on and so on.

Now being in that position, we thought very hard of what we should be doing, and we condensed our strategy, the choices we make -- the strategic choices we make, into 4 areas. And in these areas, I would like to cover now a little bit more in detail. That's the reason why I peep over that page and look on to the next page.

And here, we see in the markets and airlines fees that we have leading market positions. The top or I think -- it's still the largest intermediary segment. And by the way, many people say it's bad. But the portion of [tour] operating in the market is still growing. So it cannot be that bad.

And we have some structural and cyclical pressures. But at the same time, the consolidation, which I always talked about, is now happening. And you can see that with the bankruptcy of Thomas Cook, and the markets where the capacity is leaving, we see an enormous shift in demand. And therefore, I always said the conversations will happen. This kind of power comes unexpected. But you know now it came and to be also very clear, what we exactly did. The first thing we did was we went into Destination and actually covered -- try to acquire the hotels of Thomas Cook because that's native demand, right? So it's very easy. The customers have booked the holidays in these hotels, but they don't have anybody to bring them there. So therefore, actually, we were in destination, particularly in Turkey, but we also grew strong in Egypt as well as in Greece. We acquired the majority of properties.

We also did a new fleet planning, particularly for the U.K., we will increase capacities to serve the demand. Slot availability was secured. So that is something which is important. And here, it's very clear. We want -- and that's the title of the slide, protect and where possible extend the market leadership. So market leadership is not for sale. And therefore, we are pretty, let's say, front foot on this. And in order to do that, it's very important to have -- to be cost competitive because the only danger is really in these situations that somebody can halt price because they have lower cost structures. So this market and domain transformation, [demand] aviation project, the headcount reduction, the building want and deploy many strategies that we have all IT system [just once] and so on. So it's also serving the purpose of being cost competitive. And therefore, the transformation is on its way, we should not think that the bankruptcy of Thomas Cook will change that paradigm. So we buy a little bit of time, but at the same time, we push very, very rigidly on this transformation project. And that also facilitates -- not that our cost structures only, but also more agility. And that's the reason why we say we can do things in a more agile way. We introduced a very competitive accommodation only and dynamic packaging is structured because then once we are amongst platform, this can be done more or less once instead of 6x or 7x.

So that is the strategy on markets and airlines. It's very straightforward, very down to earth, very -- we are just fighting for market shares, and we are fighting for profitability, and we are the #1 in these markets, and we want to stay the #1 in that market is very straightforward.

Now on Holiday Experiences, it's a little bit more tricky because we have more choices. And that's the reason why we also cover them in 2 slides instead of 1 slide. Here, we -- as I said, we are on cruises as well as on hotels, very profitable. The ROIC is way above what the peers have and the distance, if it all, is growing. And the reason for that is, in particular integration. We can serve and achieve good occupancies as well as good rates because we have the 21 million customers in the market and that's very good.

At the same time, we have actually -- we have quite some brands. We consolidated, and -- but we will consolidate even more. And we will be a little bit more selective when it comes to investments, and that is what we always said, a normal or a normalized level of investment. We had done an expansion as we promised after the merger, but now a little bit more normalized. But what does normalize mean? Normalized means rigid and according to strategy. And the next slide shows that we have 2 cornerstones are 2 pillars of our strategy and our hotels. Particularly, Riu we will -- it's a very strong brand with investments demand, but at the same time, very high returns. Because they particularly build hotels that actually are [such a scarce] supply. That's their main competence, so real competence is building stuff and also being on time, and in budget, and then also the distribution power, which I get for TUI. But I mean, being in Zanzibar or being in Tanzania or being in -- it's a worldwide company specialized on building new destinations and growing new destinations. And that's the reason why you need the investment because there are no other hotels. If there were other hotels, the margins would be nowhere like they are obviously.

So we need to keep this animal alive and running. It will be a little bit limited in growth because it's not sort that many opportunities you find. But once you find these opportunities, usually, they are the jewels of our hotel strategy. So here is okay with assets. That's the reason why we say asset's right, okay? So now TUI Blue is now a little bit of a different approach. In TUI Blue, we say, we build scale. And long term, it will also -- Robinson and Magic Life will be part of, what we call, the TUI Blue family. TUI Blue is more the synonym for our hotel brand. It will be the biggest leisure hotel brand in the world, and we have actually started with an asset's right approach as well because what you do when you have a new plan, you invest, you try to make the brand shiny, you try to get good ratings, you try to get good social scores.

And that's what we did. Customer satisfaction up, Net Promoter Score up. A very, very authentic concept, good rate by customers. And now we said, okay, we had the first 10 hotels. It took us 2 years. Now it will take us 1 year to do 100, okay?

So you see the scale nature. And that's, of course, because you don't invest, right? That's the reason you do something, which is contemporary, a good modern design with good authentic experiences also with IT, which actually makes it differentiated because you can book rooms. You can -- individual rooms, you can actually make your -- you can make your experience more special, more individual, more authentic. And this is also something which is open for other hotels. So we contribute, we say we have the better marketing platforms. You can connect to this, our main footprint is Europe-Caribbean but increasingly as well now in Southeast Asia. Because we believe that will be the effective market of the future.

So we started this at 10, we will be at 100 next summer season. If this works right, and we view into the future, it will be 100s of hotels. Now, if not more. So it is fit-for-purpose to be a big leisure brand, which is important to -- in that world where, actually, we are the sole hotel -- that is very -- more niche-oriented small brands and so on. And we did something which is more sizable and more scalable.

So then [to complement] this hotel strategy, we have now GDN-OTA. And this is actually a twofold thing. The first thing we are doing, we say that it's good to have a brand, it's equally good and complementary if we have distribution power, more broadly than just in our core markets, and that's what GDN-OTA is providing more or less deploy a digital-only platform hosted in the cloud, which is state-of-the-art, I would say, very -- the most modern technology and actually, that is generating additional demand, particularly, in [sold-out] seasons for our own hotels or contracted hotels. And we had said originally, we want to do 1 million customers with EUR 1 billion of revenues in '22. That was actually when we started the post project in '17, and now we are at a run rate of 250,000 per year, we believe we should be much faster than 2022. So we are thinking now, how can we be faster? How can we actually deploy faster? And the differentiation element of this is that we don't need to necessarily -- need to earn the money in the GDN-OTA on the platform, but with -- in the additional occupancy marginal occupancy in our hotels (inaudible) .

And that is something that we are very bullish that, that can be achieved. We have now the test case of 250,000 customers per year. So at the end of the day, scale is the game. And here, we believe, we should be putting much more effort into.

And then when you look at the next page, when you have the GDN-OTA, and you have as well the strong brand of TUI Blue, and you have strong native distribution of 21 million customers, you can be very [expectant] towards the year, right? Because OTAs actually seek distribution. And then when you're then on top of that, say, your IT is -- in a way fits to market individual rules instead of categories, then you have comprehensive as a suite of services and brands and distribution platforms, which we call the Amadeus for hoteliers because the Amadeus, in the airline industry, helps the -- in an aircraft that has 189 seats to market each and every seat to different price according to seasons and so on and so on. And we said through the most of the year, we help you to market each and every room instead of in categories, individually. And, therefore, yield efficiency is extremely better than it has been before, and we started that with our Blue hotels, we saw, for example, select your home feature, EUR 10 to EUR 15 per room per night, higher revenues, it's equal to higher margin. We see right now that people -- that hoteliers are starting to build their categories, dynamically. If you have a hotel with the V-shape, and they have a morning sun sea view or evening sun sea view, and of course, it's a different price. Some of the hoteliers have taken our technology and make it maybe for coverage for more of the restaurants. I mean, if you have -- if you can address each and every room, then you can build dynamically your inventory according to your needs. And the promise we make, the big promise we make to the hoteliers, we tell them, booking has taken a very differentiation from you. Booking wants -- the best, if all rooms are the same. Sea view and that's it.

We empower you. We give you the control back. We give hoteliers control and differentiation back. And that is the big promise, and we see this at Blue, that's extremely attractive towards to hoteliers, because they know the hotels better, and they know what kind of categories they would like to have.

And as I said, if you make the prices and do the prices according to customer demand and differentiation, the use efficiency is extremely better than if you don't do this, not to talk about upselling opportunities and these things, which actually the platform, of course, will also do the cost connected to our CRM systems. So reach grand -- reach as well as technology are the cornerstones of our differentiation strategy and growth strategy in GDN-OTA, in the Amadeus for hoteliers, and we believe it's [en route] for doing this.

Last not least. Destination Experiences, we want to be the world's consolidated #1 for experiences, and we always talked about EUR 150 billion and market size and 7% growth and 350,000 providers and non-digital distribution models. And we have actually said here, we want to be the first one with 1 million things to do. I mean, we have now 150,000, net consolidators in this market and that's investment to consolidation of that market. It's the third biggest domestic market, 1 of the strongest point domestic market, virtually no competition.

So we want to be the consolidator of things to do. We are also easy to distribute with white label, you'll see that at a sea trip, we could also think about -- we are active on Google. The go-to-market can be whatever it is, but we want to be the richest content in the world and results in consolidated on that front.

Overall, I think the important point is, as we have said in our digital platform businesses, we want to, in the next year, we will invest something of mid- to high double-digit million and so it's significantly more than what we have done in the past. So therefore, we believe we put our money to our mouth. And at the end of the day, I think that's important. And I think if in the foreseeable future, we could have serve 21 million customers, serve 30 million customers as part of our ecosystem, connecting at either on the hotel or on the Experiences or on the GDN-OTA, that will be a good next target. So we are a growth company from 21 million customers to 30 million customers. And that's what actually Birgit also alluded to, when we talked about or when she talked about the dividend policy. With that, I would like to turn over to Brigit, again, for financial guidance.

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Birgit Conix, [5]

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So thank you. So we are on Slide 31 now.

So -- and let me take you through the building blocks for fiscal year FY '20 and the growth expectations even beyond '20. And on this slide, you can see the timings of the expected benefits.

So in markets and airlines what we are executing upon is our historically committed aircraft fleet renewal programs, which comes with asset financing. And also following the products of 1 of our competitors, we increased our planned capacity for winter '19 and '20, and also summer 2020, as you well know. And the expected tax increases could generate approximately EUR 1 billion to EUR 1.3 billion of revenues, and assuming an average through to cycle margin of around 2% to 3%. This will deliver a nice building block of next year.

And then, whilst we expect growth from incremental capacity increases, and we will seek all opportunity possible, that is value accretive. We at the same time anticipate market headwinds like Brexit, but we'll know more tomorrow. Airline overcapacities and the general macro environments that persist still in 2020. And we also counter within MAX scenario, now until the end of April, which is about EUR 130 million in our numbers, but we also -- and I will talk to that on the next slide, give you some clarity, what if it doesn't come back in our fiscal year 2020.

So then also the market and domain transformation program, and Fritz talked a lot about that already. So there, this program will lead to selective expenditures for implementation. But overall, IT investments are expected to remain stable for that part.

And then moving to hotels and resorts and cruises. So first, for hotels. The annualization of new openings will deliver underlying EBIT growth in FY '20 and gives you another building block of growth for fiscal year of '20.

So next year, we envisage around 10 new hotel openings in either ownership or management. And we continue to build our asset-light to be Blue brand to around 100 hotels, and that is what Fritz talked about.

We will maintain discipline with respect to capital expenditures and might consider further growth opportunities for our Riu consolidated entity. And that's also what Fritz talked about just now, because they have a track record of generating high margins, cash flows and a return on investment.

And then on Cruises. 2020 will reflect an annualization benefit from 4 new ships launched in 2019 across our brands. And we will execute our fleet plan with 5 new ships from financial year 2026, with growth mainly financed through our successful joint venture model with Royal Caribbean. So here, if you look at the middle part of this successful -- our successful transformation demonstrates that this remains a really good area to invest. And then we go to the #3 and #4, with GDN-OTA and the DX platform, fritz already talked about it. And here, you see the benefits coming in, in '23 and '24 as the acceleration of growth in our platform businesses require investments during a number of years to drive more customers through our increasingly vertically integrated platform.

So for financial year '20, and Fritz talked about that, we expect it to be mid- to high double-digit OpEx investments, and we will further screen the market for smaller accretive M&A opportunities.

So then in order to achieve this last -- or these 2 initiatives -- growth initiatives for us, as I just mentioned, additional OpEx investments that are required will be at the expense of EBIT and margin in the short term.

And then moving to our guidance on the next page. So we will also guide you -- because this is still pre IFRS 16, and we will guide you through the changes on IFRS 16 in our call tomorrow, which is specifically around this topic.

So revenues are expected to grow by mid- to high single digits, and growth will be driven by our Holiday Experiences businesses as well as our markets and airlines segment. And underlying EBIT will be between approximately EUR 950 million and EUR 1.50 billion, including EUR 130 million of cost impact from Boeing MAX until the end of April 2020. However, and this is in an unlikely alternative scenario because nothing indicates that will be the case, but as we did in fiscal year 2019, we would like to give you the full picture. So if the ban on the MAX is not lifted for the remainder of financial year '20, then we assume additional costs of between EUR 220 million to EUR 270 million. And immediate scenarios include compensation from Boeing in any form, and our guidance range equally includes this what I just talked about is mid- to high double-digit million investment in our digital platform growth.

Then adjustments for the financial year '20 will be EUR 70 million to EUR 90 million. This is mainly consisting of restructuring activities and it will include around EUR 100 million of disposal gains for our German specialized business.

And then underlying EAT postminorities is expected to be between EUR 540 million and EUR 630 million. And we have introduced with new guidance as it forms the basis for our new dividend policy going forward. And beginning with financial year '20, we will base our dividend payment on our new policy.

So 30% to 40% of underlying EAT postminorities underpinned by a dividend floor of EUR 0.35.

Let me finish with asset financing and net debt. Asset financing is mainly driven by our historically committed aircraft fleet renewal program and will be within a range of approximately EUR 750 million to EUR 850 million. Net debt at the end of the financial year is expected to be between EUR 1.8 billion to EUR 2.1 billion, which continues to provide us with more sufficient headroom to our covenants. So with that, let me hand over to the operator for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Jamie Rollo of Morgan Stanley.

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Jamie David William Rollo, Morgan Stanley, Research Division - MD [2]

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Three questions, please. First, just on the MAX guidance. Thank you for that clarity. But I'm just a bit confused. It looks like the cost for the first half, EUR 130 million, around EUR 20 million a month. And the cost for the second half, if it's a worst-case is about EUR 50 million a month, and that looks like a pretty similar figure to the second half of 2019. I appreciate you have more aircraft, but of course, you shouldn't have the expensive last minute wet leases. So it'd just be helpful maybe to break down some of the costs in the bigger number for the back half of the year. I'll start with that, please.

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Friedrich Joussen, TUI AG - Chairman of Executive Board & CEO [3]

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Sure. Sure, I mean, Jamie, it's exactly as you say. I mean, but when you look at our order program, which we have right now. It is significantly -- the fleet is significantly bigger than the fleet, which we had in summer '19. And we have also significantly more customers because we -- what we said, we will actually serve the market with this which is actually Thomas Cook -- which Thomas cook actually has left. So therefore, there will be a combination of wet leases as well as dry leases. I mean, all dry leases is also not a very good thing because when you do dry, we are taking -- I give you one extra cornerstone. We are taking already dry leases right now on to -- on board. Just -- I think we have done 9 until now. It should better be extended contracts. We are doing that, when it's economically the right thing to do. But of course, right now, you see already that the dry lease market is also increasing. And also, when you have a dry lease, you usually do commitments between 4 and 6 years. So we need to be in -- very -- in that case, in this unlikely case, as we say, we need to be tactical. And that is, that we say, there will be a mix of dry and wet leases, little bit less wet leases, but there will be a mix of wet -- dry and wet leases. And this is something which we have planned bottom-up and that we make a -- week by week by week, we make decisions. So there's nothing which actually will happen as a surprise like last time. So it will be more efficient.

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Jamie David William Rollo, Morgan Stanley, Research Division - MD [4]

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Okay. And second question, just on the guidance. If you look at it before the MAX cost, EUR 1080 million to EUR 1180 million is down, we're off to 10% year-on-year. It sounds like hotel profits will be up. I'm just trying to understand where the sort of gap is, is all of that the additional digital OpEx in markets and airlines? Or could you -- could we also assume that cruise EBITA will also be lower year-on-year?

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Friedrich Joussen, TUI AG - Chairman of Executive Board & CEO [5]

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No. I mean, when you look at -- I mean, Jamie, let's take the midpoint, just for the calculation purposes. If you take the midpoint of EUR 1 billion, then you add the EUR 130 million, then you add, let's say, EUR 80 million or whatever, you have EUR 210 million or EUR 220 million or whatever. So this is -- then it would be EUR 1.2 billion something. If you added back now the MAX cost of this year, you could give the aspects, the hard cost or the soft cost or whatever, you would be at...

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Birgit Conix, [6]

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Between EUR 100 million and EUR 150 million.

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Friedrich Joussen, TUI AG - Chairman of Executive Board & CEO [7]

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EUR 100 million and -- you'll still have an increase. But it's very clear, we are now shifting gears in terms of digitalization. And actually, the volume is an important part of the equation.

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Birgit Conix, [8]

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Yes. I can add to that. So if you start from the EUR 893 million. So in detail, you add them the non-event of MAX costs. And there is a range, of course, depending on whether you take the real cost of including commercial impact system. So let's say, between EUR 90 million and EUR 160 million. And then you add the growth of Holiday Experiences to that into Hotel & Cruise. And then you also have the impact of the one of the major competitors [collapse], that we take additional capacity, you asked that as well. And then you deduct from that, the investments in digital. Then you get to the higher end of our guidance. But as we have seen, and you probably are looking at the first results of bookings, et cetera, it's very early in the year to really commit to a very high number. And we saw that also in 2000 -- I mean, last year, so it's a clear set of business is made also in summertime. So that's why I think we'll be able to provide also more clarity around February or during the Q1 results.

But for us as well, it's like looking at the upper -- I mean, in the upper end of the guidance.

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Jamie David William Rollo, Morgan Stanley, Research Division - MD [9]

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Just to clarify on that, if I may. Are you saying that cruise profits will be up this year? And that EUR 80 million, whatever the number is, mid- to high single -- double digits investment, does that reverse in 2021?

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Birgit Conix, [10]

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So that -- there will be continuous investments, say, in our platform that is logical. That's also what we've said on this previous slide, so you will see the benefit from platform business, GDN-OTA and also Destination Experiences as of '23 '24. So you really need to expect that in the first years, it is -- we are building scale, but there is so much opportunity because you need to build scale, and that requires investment. So you will see that and after Cruise, yes, we do see further growth, but the growth is decelerating as there is more capacity added, of course, and because we are making investments in environmental friendly, let's say, adjustments. So that is what you see there. And in hotels also, we still see growth, of course, these are important building blocks for us, and they generate very decent and predictable cash, as you can see also from our numbers in 2019.

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Jamie David William Rollo, Morgan Stanley, Research Division - MD [11]

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Okay. And the third question was just a quick one on leverage. You talked about the working capital. And obviously, we've seen that the low deposits and the prepayments. Does that mean this quarter will be more like last year's EUR 2 billion sort of swing from September to December? Or more like the prior year, which is EUR 1.5 billion or perhaps even bigger than EUR 2 billion. If you can give a flavor for the spike at December?

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Friedrich Joussen, TUI AG - Chairman of Executive Board & CEO [12]

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I mean, with a growing business, you should see a higher swing. So if you have a 10%, let's say, a mid- to high single-digit -- the growth -- the spring needs to be there. Otherwise, it would be surprising. Because we are adding Thomas Cook business as the cyclical business.

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Operator [13]

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The next question is from Jaafar Mestari of Exane BNP.

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Jaafar Mestari, Exane BNP Paribas, Research Division - Analyst [14]

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So just 3 quick questions, please. The first one is just following up on OpEx investments, mid- to high-double digits, I guess, is EUR 50 million to EUR 90 million. You seem to be indicating the high end of that, EUR 80 million. Also, I wanted to ask in terms of divisions. Does that mean that Destinations Experience division will effectively turn to an EBIT loss? Or will these OpEx and digital be across divisions?

And then on the strategy building blocks, for full year '20 it's fairly clear, especially the market share wins, the hotels, et cetera. But if I go back to more medium-term building blocks, 1 year ago, the same results presentation, you highlighted for example, that there could be EUR 100 million of cost savings from moving to a higher mobile mix, and then there could be another EUR 100 million of savings in inventory and purchasing. I don't think I see these areas explored further in today's presentation. So I appreciate the short-term focus was to win share. But are those still areas that are on the horizon? Or have you become less optimistic on benefits of mobile, benefits of purchasing? And lastly, just on the CapEx guidance, so EUR 750 million to EUR 900 million, if I take your revenue guidance, it looks like 3.6% to 4.5%. You were previously saying it would normalize all the way down to 3.5%. So what's happening here? Is this that full year '20 is seeing tail of ongoing investments? Is it still coming down to 3.5%? Or is the new norm closer to 4%, 4.5%.?

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Friedrich Joussen, TUI AG - Chairman of Executive Board & CEO [15]

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Okay. On the -- when we talk about digital, the digital acceleration investments. These are focused on our digital platform businesses. So there are additional investments and additional -- the normal course of business to transform our markets and do these things. I mean to get to that platform, market domain transformation, that's not what we mean. What we really mean is the reach in experiences and GDN-OTA. And here, the thing is a little bit difficult to say because, here, we can make decisions day by day. And we will make decisions day by day. And we stay. The question is, how much margin do we allow? When do we update? When is our conversion rate good enough? And so on. And we have built a very sophisticated engine in order to make this plan of decisions very fast. Now that said, we have actually this, whatever it is, EUR 60 million to EUR 90 million or whatever, the EUR 50 million to EUR 90 million. This year, we have actually done also something, but it was more in the order of magnitude of EUR 10 million to EUR 20 million. So let's say -- so therefore, we make these decisions and we accelerate. I think also, it's clear, my experience in the digital business, you should not overpay because then you start to become inefficient. But that said, the main obstacle here is, when you say what in the platforms is actually costing. The reach in GDN-OTA, so that is actually reach and conversion. So this is more customer oriented. And so to get to EUR 1 million earlier per year than actually we expected. And the experience is more of our consolidation on the content front. So upstream, right? So it's not reach, which is the main content proposition here. So that's more than million things to do. So we said, the [pluck-in] we have right now put to the businesses is that, but of course, we will be careful in terms of profitability versus growth. We are not like people who actually put shareholders' money into just reach. Yes. So and as Birgit said, the access is -- midterm will be a 5% to 6% margin business. And I think that's something which is pretty important as well. On the commercial cost in markets there's a lot of moving parts. I think when you look at our -- we have -- we are increasing the app distribution, we are increasing still the online distribution. At the same time, we see, as you have seen with other companies in the OTA space lately that the CPC costs, so the purchase -- the digital purchase costs are as well increasing. And the -- sometimes it's even balancing that retail is becoming effective again and so on. And therefore, what we always said, our midterm planning is something like 2% to 3% margin business. And again, if margins would be higher, we would be also thinking about are we good on reach. Because here, it's very important that we put the cost down, but at the same time, it's a scale business. We need to be #1 in the respective markets. And we have a clear experience. If you are losing ground then you can be in a difficult position pretty fast. That's also the reason why we are so front foot, for example, in the consolidation game right now in the U.K., and we have said that, particularly in the summer, but also now in the winter, but particularly in the summer, we had enough capacity and enough slots in order to get a fair market share of the Thomas Cook business, so that we are not losing to outsiders -- other competitors. That, of course, takes into account that we need to be cost competitive. If we are more cost competitive, then we can be outpriced, but we will take care of that. And the third question, I think -- and Birgit is maybe.

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Jaafar Mestari, Exane BNP Paribas, Research Division - Analyst [16]

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So just before we move to CapEx, the second part of the question on the building blocks. So EUR 100 million of mobile benefits. It doesn't sound like you're formally sticking to that. There was a second bucket, which was EUR 100 million of inventory and purchasing cost benefits. Is that still...

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Friedrich Joussen, TUI AG - Chairman of Executive Board & CEO [17]

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I think it will happen. I mean, it's not that it will not happen. I mean, prior to the contrary. I mean, both will happen. I mean, the question is how fast do we get mobile apps or mobile distribution. And we talked about the scenario there. And of course, the same thing with the purchasing benefit, we said, if there was EUR 100 million of purchasing benefit of EUR 5 billion point. I mean, we have now introduced our purchase -- first model of purchasing. And I think what we will be seeing is -- at least what I think for the next summer, I see good development of purchasing prices, yes? I don't know, do we talk about public -- about purchasing prices development, maybe not, I don't know. But...

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Birgit Conix, [18]

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We don't guide margin.

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Friedrich Joussen, TUI AG - Chairman of Executive Board & CEO [19]

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We don't guide margin. But I think the -- there is still, maybe, and that is the uncertainty, which Birgit talked about. If -- let's put it the following way. If the pound would stay at GBP 0.84 or GBP 0.85 to the euro, we would -- the margins, we would generate would be significantly better than last year. And -- but of course, you don't know. That's the reason why I say because, I mean, the price increases by [about how a notch] what actually the benefits of the currency would by far be bigger than the price increases in destination. And therefore, definitely, it's tricky to say, nobody knows where the pound will stay and nobody have been the purchasing -- if it stays at GBP 8.4 (sic) [0.84] , we might be at pretty much at the upper end of what we believe, but who knows. I mean, it will be interesting seeing the election tomorrow and what the pound will be in 2 weeks. You had 1 question about...

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Birgit Conix, [20]

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On the CapEx. So yes, in the past, there was like 3.5% of revenue kind of range, I think, also back in -- but when we discussed and also over the calls, we always said a normalized investment level would be currently around EUR 800 million, EUR 850 million, [we said.] So that would be in line with what we have here. And what it reflected what Fritz also said earlier, if there are interesting yield opportunities, which we will then actually also detail, they are a very stable cash flow reliable. These assets are very well executed, then, of course, it makes sense to move within that range. But that will obviously bring immediate upside in the year thereafter. So that is to be considered. That's why we keep this range a bit wide.

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Operator [21]

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The next question is from (inaudible) ODDO BHF.

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Unidentified Analyst, [22]

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The first and most urgent question is on your guidance. You are guiding us a doubling of your net debt. But nevertheless, you want to maintain your gross leverage target of 3. What am I missing here? Is it -- yes, what am I missing here? Why is it doubling?

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Birgit Conix, [23]

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It's because in the gross leverage ratio. So you -- so then you need to include gross debt, which also includes operation needs. It's a different building block. We can't -- we can actually send you the definition because it doesn't relate one-on-one with the net debt increase. This is all pre-IFRS 16 also. So if we will do -- if we will move in -- well, we will also report IFRS 16 already in 2020, but we do not have a comparison with '19 as we do not restate the numbers that's why we have both versions, and also our guidance is pre-IFRS 16. But once we move into '21, you will be able to correlate it better. So now there's a bit of a distinction. And as we go into finance leases with the aircraft re-fleeting. We shift actually operating leases into finance leases. And that's why you see this increase in -- actually in net debt. But post-IFRS 16, that will not be the case anymore.

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Unidentified Analyst, [24]

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Okay. So just to clarify, I'm pulling to Page 14, you show us the gross financial liabilities, discounted value of operating leases, pension obligations. And basically, what you're saying now is that some of these discounted value of operation leases will move into gross financial liabilities, and therefore, net debt will grow?

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Birgit Conix, [25]

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Yes. Yes, on the -- on the -- but we will do a -- you know what, tomorrow we will do a call on I -- actually IFRS 16, and there you will very clearly see that. And we will explain that how it works because...

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Unidentified Analyst, [26]

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But you write on Page 32 in a very big box, all numbers are pre-IFRS 16 application. So this deficit guidance is pre-IFRS 16.

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Birgit Conix, [27]

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Yes, got it. Got it. And that's why you see that effect when you then move from an operating lease into a financial lease, you only see the increase in the net debt instead of seeing the total picture which actually the finance leases are more attractive than the operating leases.

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Unidentified Analyst, [28]

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Understand. Okay. And did I understand correctly that you are overly confident that the MAX grounding will only last until end of April? Or what makes you confident? And when will you have more clarity?

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Friedrich Joussen, TUI AG - Chairman of Executive Board & CEO [29]

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I mean, [the traffic is clear]. When you look at the mean expectations of all the customers of Boeing, I would say, with end of April, we are at the end of the scale. And therefore, I think it seems to be that market sentiment is in that direction. Now that said, it's not in our control, and therefore, we have added that -- we have added a scenario, which potentially could apply if it was with us. But if it is later than April, then also additional optionalities come to mind, then it's more than a year, it starts to become more than a year. Then we also have more commercial opportunities to think about alternatives because if the delay is more than a year than the contract foresees commercial opportunities. And let's have a look. I think April is pretty realistic now. And that's the reason why that's the main obstacle.

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Birgit Conix, [30]

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But what did as well, as you can see from the guidance, we actually also provided the scenario should it be until the end of our fiscal year, then you'd know at least once a year what the boundaries are in the range.

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Unidentified Analyst, [31]

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Okay. And do you already thought about refinancing of your outstanding high-yield bond?

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Birgit Conix, [32]

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Yes, we are constantly evaluating refinancing. It has to be the right moment. When? As you know, we have a very low cost of debt. So it needs to be interesting. But yes, indeed, that is ongoing.

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Operator [33]

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Next question is from Adrian Pehl of Commerzbank.

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Adrian Pehl, Commerzbank AG, Research Division - Head of TMT and Consumer [34]

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Just a couple of questions actually from my side. To come back on the net debt guidance that you gave us. I was just wondering, Birgit, in -- also in the presentation, you referred to the first half of 2020 in terms of higher net working capital. But I was just wondering what kind of building block in that should we assume from change in net working capital?

The second question is a bit related to the destination portfolio that you have and the booking trends that you see. So obviously, Turkey has been pretty strong, Canaries and Spain, obviously, somewhat weaker. Is there any structural element in the market, why we should think of some kind of rebalancing between western and eastern medium-term mean? Or should it stay basically, as it is more or less? And having said this, obviously, 2019 had quite some rather late booking pattern, is that also what you are baking into your guidance for 2020? And lastly, again, on MAX 8. I was just wondering given that, let's say, the worst case, which you all would not hope comes into place, is there -- can you be sure there's enough leasing capacity out there in the market?

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Friedrich Joussen, TUI AG - Chairman of Executive Board & CEO [35]

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Yes. Maybe on the leasing capacity first. I mean, each and every end of lease, we have right now with end lease. We check if we can, to attractive conditions, we can prolong the lease. And as I said, we are close to 10 or 9 leases, which we have prolonged. And the costs are attractive. I mean, today, it's not an issue. So -- and the reason for that is that it comes with a drawback, and the drawback is you need to lease it for 4 to 6 years, right? So the decisions we are making are not decisions for the season. And -- but we have an advantage because we are -- we know that they move the rest so they know us, and therefore, usually, it's something we do, and particularly enough of winter season, we are doing that. So -- but we have also turned down. If things, for example, come to EUR 350,000 -- EUR 300,000, EUR 350,000 per month lease rate, then we say, okay, you better do something else. So our conditions are attractive, and we believe it will not be the [add up]. So the aircraft will be available. But the question is, between wet lease and dry lease will be more, do you do tactical short term capacity? Or do you think you want to have an aircraft for the next 4 to 6 years? So this is the trade-off. Not -- it is not it would not be available. On the destination mix, it's a little bit tough to say. I think maybe the most recent strength was that Egypt is very strong, particularly because Sharm el-Sheikh has opened again from the U.K. So that has been strong. And I think in our portfolio, Turkey will be strong and Greece will be strong because Thomas Cook is also strong in these countries, right? So we actually collected more or less the hotels, but now they didn't have a home. We were in destination very fast. We contracted a lot of hotels. So we will have an increase in patterns in these countries. I don't know if that helps. And maybe a last point on the late booking patterns. Late bookings usually happens when you have an oversupply. And in Germany, there might be late bookings. And in the U.K., there might not be late bookings because in U.K., you have very restricted supply right now. And by the way, also in Belgium, you have a restricted supply in the northern because of the respected slot availability in the airport. So I would assume that in these 2 countries, in U.K. and Benelux you will -- regions, you will see better margins because of better booking patterns. In Germany, you might see particularly in -- in winter, we see the margins are okay. In summer, you might see that still is oversupply. And the same is true for Nordics. So it's a little bit of a mixed bag. This is -- that's one of the things, which actually also is a good thing. We will have different development also in Germany coming from carbon tax, but also the question of this kind of -- how is to operate insurance indemnification. I mean at the end of the day, it's a little bit mixed bag. The important point here is, we say 2% to 3% should be a good margin in the 2-operator business and we want to be high single digit, let's say, growth in terms of revenues of customers. So I think that's what our position is how exactly it will be panning out, it's a little bit difficult to say. Yes, but that's what we are striving to achieve. Brigit you...

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Birgit Conix, [36]

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Okay. Yes, I'm going to answer the question on the net debt. So in the first quarter, our expected free cash flow after dividends will be, again, I mean, you need to think of last year, it's roughly in that same area, so, let's say, minus -- between minus EUR 1.5 billion and EUR 2 billion. And to that, you need to add, of course, the finance leases, which I also discussed. Let's say, well, I cannot probably -- can I say anymore? No, I -- sorry. Sorry, I just wanted to, but I can't. So -- but then you need to add your finance leases to it. And of course, you have the starting net debt position so that should give you an indication of where we will land.

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Adrian Pehl, Commerzbank AG, Research Division - Head of TMT and Consumer [37]

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And on the changes in net working capital for the full year, is there also a range that you could provide for us what you have baked into your guidance for the full year?

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Birgit Conix, [38]

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So yes, we don't actually guide on working capital. You need to understand it's a component which is highly fluctuating in our business. But we target to improve, which -- let's say, even versus 2019. And as you know, we have a lot of cash flow initiatives. We constantly work on it. But we are not committing to a number here, but it's -- it will all [be] positive.

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Adrian Pehl, Commerzbank AG, Research Division - Head of TMT and Consumer [39]

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And the reason why I'm asking was basically since it looks like that the conversion cash flow wise of your profits in 2020 is pretty low or close to 0 after the dividend, I was assuming that there's obviously some negative net working capital development baked in into 2020. But we can also follow-up on that maybe later.

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Birgit Conix, [40]

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Yes, let's follow-up on that because now, it's not the case. We don't forecast a negative working capital development.

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Operator [41]

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The next question is from Cristian Nedelcu of UBS.

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Cristian Nedelcu, UBS Investment Bank, Research Division - Associate Director and Aerospace & Defence Analyst [42]

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Three questions, if I may. The first one actually on free cash flow, looking at the free cash flow bridge in 2020. I'm probably missing something, but could I ask for help? So in 2019, your free cash flow before dividend was a negative of around EUR 100 million. In 2020, your net investments will be EUR 300 million lower than in 2019, your profits are going to grow by somewhere between EUR 50 million to EUR 100 million. And earlier, you also mentioned your working capital should see an improvement.

Now despite this, if I read correctly, the Slide 32, with your FY '20 guidance, you seem to imply that post the dividend, you should see a cash burn of around EUR 250 million. So if I assume the dividend is EUR 200 million, that pretty much does mean that you expect the flattish free cash flow in 2020. And I just -- I cannot reconcile this to the math I just mentioned before. So that would be my first one, if I may. The second question, actually refers to the advanced payments received. I think you had, at least in 2018, somewhere around EUR 2.5 billion of advanced payments received. And post the bankruptcy of Thomas Cook, you've seen authorities having to pick up the bill and reimburse clients in the U.K. and in Germany. We had a few weeks ago, some of the OTAs that are claiming that they are disadvantaged because they keep their advanced payments received in a trust in contrast with the tour operators. Do you believe that these events will represent a catalyst for the regulators team for higher cash ring-fencing? Or higher requirements of collaterals on your advanced payments received?

And the last one, maybe to end on a positive note. But I believe in the past, around 17% of your tour operator customers were also buying hotel rooms, so hotels that are owned by TUI or organized by TUI. Could you please tell us if you expect a similar hit rate for this incremental tour operator customers, this 1 million to 1.3 million incremental customers? Do you expect a similar 17% funneled into your owned hotel rooms? And what does that imply for the occupancy and pricing of Riu, Robinson and your other hotels?

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Friedrich Joussen, TUI AG - Chairman of Executive Board & CEO [43]

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Yes. Okay. I can start. The cash ring-fence is not the moving piece. I think the more moving piece is actually the change of the insurance policies and enforcement of insurance policies in Germany. Yes because that is something in the U.K., the state took actually responsibility to actually repatriate customers in Germany, that is not the case. And in Germany, the former regime only paid out something between 10% and 20% of actually -- potentially after the bill came out -- only 10% to 20% of actually the damage. And there is a discussion going on if that should be changed, and that might be the case. And by the way, we baked something into the general budget as well. Yes. So let's consider on the 17%. Here, I have a very easy calculation. Let's assume for a moment, we do 1 million or 1.5 million or whatever additional customers, more or less, not very many of them will go into our own hotels because the strategy -- when you -- the best strategy of these kind of occasions is you acquire contracts with third-party OTAs, which form a contract with -- formerly had a contract with Thomas Cook, right? So that's how you start. And this is the starting position of us. So we're in destination the first people. We have a unique position in destination because we can provide multi-source market coverage. So we go to the OTAs, will just take over the hotel and we just fill it. But we don't buy it with just a contract. And then over time, there builds a relationship, and we think about additional -- more value-accretive structures. But for the time being, we just -- the plain vanilla [type deal]. And that's a bit -- there's some committed hotels. But of course, this native customer base is because, usually when you have a hotel, a significant customer base is a loyal customer base or has already booked the vacation for the next year and so on and so on. That -- so it will be not our hotels at first instance. But of course, I mean, when we have now built the funnel on the top end. Over time, we will try to actually migrate these customers. That's clear. So -- but that's not the season. And -- maybe Birgit?

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Birgit Conix, [44]

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And so I would like to reply to the question on cash flow. So let's say, our EBIT reported is roughly our operating cash flow. So if you take that element and then you deduct from that our investments -- net investments, which are EUR 750 million to EUR 900 million. And then from that, you deduct the dividend under our old policy because into 2020, we still see a dividend on the 2019 policy, then that probably answers your question, if you do this math. But we can follow this up also after the call. Let's -- we already noted it down and we'll follow up with you.

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Cristian Nedelcu, UBS Investment Bank, Research Division - Associate Director and Aerospace & Defence Analyst [45]

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No, I understood. May I -- just one follow-up, if I may, on the working capital, there used to be a rule of thumb saying that whenever your revenues are growing by around 2.5%, you are effectively you're getting EUR 100 million cash release from working capital, is that rule still valid today? Because you do guide for mid- to high single-digit revenue growth.

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Friedrich Joussen, TUI AG - Chairman of Executive Board & CEO [46]

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It's not totally wrong. I mean, it's -- yes, how could I say, as you are -- you have a good assumption.

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Cristian Nedelcu, UBS Investment Bank, Research Division - Associate Director and Aerospace & Defence Analyst [47]

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So that would be EUR 300 million to EUR 400 million of cash inflow from working capital following the rule of thumb, is that correct?

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Friedrich Joussen, TUI AG - Chairman of Executive Board & CEO [48]

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No.

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Birgit Conix, [49]

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No, no. That's not what we have shown. But we'll follow up -- we'll follow up separately with you.

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Operator [50]

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The next question is from Stuart Gordon of Berenberg.

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Stuart John Gordon, Joh. Berenberg, Gossler & Co. KG, Research Division - Senior Analyst and Head of Business Services, Leisure & Transport, [51]

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A couple of things. Firstly, on the EUR 170 million to EUR 190 million of one-off costs. Could you just let us know how much of that will be cash in 2020? Secondly, you mentioned that you've got 1/4 of the customers that you were targeting and you're accelerating the 2022 target. Could you confirm that you're also delivering more than 1/4 of the revenue, the EUR 1 billion revenue target? And the last question, you've spoken a lot of it being a growth company. But if we sort of back out the last 3 years, and we exclude the MAX, it looks to me as if EBIT is broadly the same as it was in 2017, despite a pretty significant reallocation of capital and increased -- incremental CapEx of sort of EUR 800 million. So it doesn't look as if your growth strategy is now working in terms of driving profitability or incremental returns. So why would you not just run this business for cash and return the cash to shareholders?

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Friedrich Joussen, TUI AG - Chairman of Executive Board & CEO [52]

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Okay. So which do we [answer.]

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Birgit Conix, [53]

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I'll first talk about the adjustments. So that is -- most of it is restructuring, and that is over a period, let's say, maximum 2 years. So yes, it's cash. And I don't have a slip here of what we expect in the first year and in the second. But yes, it's cash.

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Friedrich Joussen, TUI AG - Chairman of Executive Board & CEO [54]

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Okay. The second point is, I mean, when you look at 5-year horizons, okay? And not seasonal distortion of all of these things. When you look at the 5-year horizon, I mean, we have significantly improved EBIT. I mean, now the last year was actually a dip. And this year, as we say, in some of the markets, the consolidation has not happened. We have reached a max cost of EUR 130 million. But we -- therefore, I think it's not very -- a 2-year comparison or 1-year comparison is most of the time not very meaningful. The second is -- the point is we have been -- our strategy was and is and fortunately was to be content centric, vertically integrated. Otherwise, we would have been with huge problems. And our market, which is, of course, also not very easy. I mean, that's also clear. 70% are now -- more than 70% are now from cruises and hotels. And that is part of the first transformation. And now we say we do a second transformation because the -- it's nice to have this profitability in hotels and cruises, but at the same time, it's also expensive to have it, and that's the reason why the investment profile is very heavy investment profile. So now we say, we want to grow based on our captive audience of 21 million digital businesses and that are the 2 digital businesses, which we have talked about. And here, we will divert more and more funds will be more asset light. We will develop more and more funds into the digital growth. And in my view, it's absolutely the right thing to do. And when you look in 5 years, you will see that actually the transformation from being a product centric vertically integrated business to a digital platform business will have happened, I'm absolutely certain.

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Stuart John Gordon, Joh. Berenberg, Gossler & Co. KG, Research Division - Senior Analyst and Head of Business Services, Leisure & Transport, [55]

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And just in the last question, can you confirm that you're a quarter of the way to the EUR 1 billion revenue target if you've got 1/4 of the customers?

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Friedrich Joussen, TUI AG - Chairman of Executive Board & CEO [56]

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No. Because -- in GDN-OTA you mean?

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Stuart John Gordon, Joh. Berenberg, Gossler & Co. KG, Research Division - Senior Analyst and Head of Business Services, Leisure & Transport, [57]

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Yes.

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Friedrich Joussen, TUI AG - Chairman of Executive Board & CEO [58]

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Yes. No, we cannot confirm that. And the reason for that is that contrary to our EUR 1 million target which we have been talking about, the platform itself is more efficient than hotel only. And therefore, the revenue per customer will be a little bit lower. But that said, that's the reason why we also say the conversion on the other hand is much better. So the commercial attraction is better because the conversion is higher. The revenue was a little bit lower. Yes, it's true. But the conversion is higher. And therefore, economically, we believe we should be pulling in the million faster and should grow faster. So it's more efficient, but it is a little bit less revenue per customer.

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Operator [59]

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Ladies and gentlemen, the question and answer round is currently over.

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Friedrich Joussen, TUI AG - Chairman of Executive Board & CEO [60]

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Thank you very much. Have a great day. And see you soon.