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Two-tier ownership is Tui’s passport to nowhere

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Financial engineering, like life, moves pretty fast. If you don’t stop and look around once in a while you could miss it.

Few companies have had to move faster this year than Tui, whose AGM presentation in mid February mentioned coronavirus only once. “At present, we do not see any significant impact from the virus on our outlook,” chief executive Fritz Joussen told shareholders. Barely a month later, the world’s biggest tour operator was seeking a bailout from the German government, its first of three in the year to date. 

Results on Thursday speak of the urgency to save the group from extinction. A €3bn underlying loss for the year to September was larger than expected but academic to its hastily arranged, regularly replenished survival funds. Current liquidity of €2.5bn ought to see Tui through to profitability in 2022, Mr Joussen said. But with no financial targets given for 2021, and with new cost savings only able to cut monthly cash burn to between €400m and €450m, his confidence is tricky to backtest. 

Bleak figures belie the fact that Tui lives a charmed life relative to its peers. If recovery hopes prove misplaced, Germany can be relied upon to step in with another rescue package. Haste has distracted from the escalating costs, however. Each bailout pulls Tui closer to Berlin.

A €1.5bn cash injection agreed last week will give Germany’s economic stabilisation fund a hybrid convertible instrument that’s valid for as long as Tui’s debts go unpaid. It gives Germany the option of seizing 25 per cent of the group’s equity at a €1 per share conversion price, less than a quarter of the current market value. The fund also takes two seats on Tui’s supervisory board. 

The simple (though unanswerable) questions now facing Tui relate to trading. Will vaccines be rolled out fast enough to save the summer season, absorbing the credit vouchers it used this year in lieu of cash refunds? Will the cruise lines that provided 30 per cent of pre-coronavirus earnings be permanently impaired? 

More complicated questions relate to structure. How might a holiday company stay competitive versus upstart rivals when part-nationalised and lumbered with more than €10bn of gross debt? The tidying-up process that followed Tui Travel’s 2014 merger with its German parent took at least half a decade; this restructuring job looks much bigger. Yet on Jefferies’ forecasts the stock trades at 19 times 2022 earnings, a 70 per cent premium to history. 

From profitability targets to balance sheet rebuilds, not much in Tui’s immediate future is within management’s control. Optimism is no more underpinned than it was in February. Everyone involved needs to take a day off.

Get cape, Inchcape, fly

Inchcape has long ceased to be a conglomerate, writes Vanessa Houlder. But the FTSE 250 company — which likes to be thought of as a car distributor, not a retailer — still grumbles about being misunderstood. Unveiling news that full-year profits would be ahead of forecasts on Thursday, it did not miss an opportunity to stress its “highly cash-generative business model”.

That’s a reference to the distribution business, which accounted for 57 per cent of sales and 93 per cent of operating profit in 2019. It generates more cash, operates in faster-growing markets and is more profitable than the retail business, which is limited to Russia and the UK.

That said, the latest lockdowns have had a smaller-than-feared impact. Showrooms might have shut but investment in click-and-collect in the first wave of the pandemic paid off. New registrations declined just 27 per cent in November in the UK, compared with 97 per cent in April.

Not that distribution is particularly easy to explain. A picture book-style illustration of how the business works runs over several pages of its annual report. It includes sales, design and marketing, as well as importing vehicles and managing a third-party network for brands including Toyota, Daimler and BMW.

Carmakers won’t hand over responsibility for such matters in big countries. But in smaller, trickier markets — about a fifth of the whole — they rely on distributors. Inchcape prides itself on its expertise in far-flung places, drawing on a trading history that dates back more than 150 years.

Distribution is a highly fragmented business. Inchcape, which competes with small family-run businesses, has only a 1 per cent market share. There’s a lot of scope to grow, though it’s constrained by an inability to distribute rival brands. When newish boss Duncan Tait unveils his strategy in February, more acquisitions of distributors are likely to feature. He may also attempt to boost aftersales, to help balance what remains a cyclical business.

The shares jumped 6 per cent on Thursday, cementing a rise of more than a third in the past three months. They’re now hardly cheap, being priced at 20 times forward earnings. That’s two-thirds more than the 10-year average, and a premium to distribution-led companies such as Bunzl and DCC. But with Inchcape recently reclassified from specialist retail to business support services, the new registration should help keep it out of the slow lane.

Tui: bryce.elder@ft.com
Inchcape: vanessa.houlder@ft.com



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Europe

France threatens to cut power to Jersey as fishing tensions rise

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France has threatened to cut off its power supply to Jersey in the Channel Islands, as tensions rise with the UK over the post-Brexit fishing regime.

Following the UK’s full departure from the bloc in January, French fishermen have expressed concerns at difficulties in receiving the necessary licences to fish in British waters.

The dispute also comes at a time when UK and EU negotiators are in discussions over the 2021 catch quota for shared fishing stocks.

Jersey, the largest channel island and a British crown dependency, receives 95 per cent of its electricity from France through underwater cables. Its foreign policy is governed by the UK, which means it is treated as a third country by the EU.

Annick Girardin, the French maritime minister, told France’s National Assembly she was “revolted” that Jersey had granted 41 fishing licences that included conditions and specific criteria that were “decided unilaterally and without explanation”.

“It’s unacceptable,” she told lawmakers. “We’re ready to resort to retaliatory measures . . . concerning Jersey, I’ll remind you of the transport of electricity via submarine cables.” Girardin added she would “regret” any action but “we’ll do it if we have to”.

French fishermen and ministers have been complaining for two weeks about the difficulty of gaining access to British waters despite the agreement on fisheries reached at the end of last year.

The anger among French fishermen at the delays in receiving licences for fishing in UK has prompted barricades for lorries arriving in Europe with UK-landed fish.

Clement Beaune, France’s junior minister for European Affairs, last week threatened to block regulations that would allow UK financial firms to do business in the EU if Britain does not respect its Brexit commitments on fishing.

Bertrand Sorre, an MP for President Emmanuel Macron’s governing La République en Marche party, gave the example of a fisherman from Granville in Normandy who had previously fished for scallops and whelks for an average of 40 days a year off Jersey; he had been told he could fish for only 11 days this year, and only for scallops.

Ian Gorst, Jersey’s external relations minister, said it had issued the licences in accordance with the UK’s trade and co-operation agreement with the EU and the new regime would “take time for all to adjust”.

“If French fishermen or the authorities have further evidence they would like to submit, we will update the licences to reflect that evidence,” he said in a statement.

The UK’s Department for Environment, Food and Rural Affairs said: “We are clear that Jersey is responsible for its own territorial waters.”

UK business minister Nadhim Zahawi urged both sides to “iron out” issues with fishing. “We’ve got to look at this urgently and the best way to fix this is to work together,” he told Sky News.

A senior UK official said the government had been taken aback by the strength of the French reaction, which was seen as an “aggressive escalation” given that the UK had been working together on the question of licensing. “It’s a strange way to behave, from what is meant to be a friendly country,” they added.



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Hello, Berlin? Germany’s future raises foreign policy concerns for allies

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The writer is Fritz Stern chair at the Brookings Institution

President Joe Biden has made it clear that he really, really wants to work with Europe. After the four traumatic years of the Trump presidency, that seems an opportunity not to be missed. Also, Moscow and Beijing are undeterred by US and EU sanctions over the jailing of Russian dissident Alexei Navalny and the mistreatment of Uyghurs in China.

They are dialling up the pressure on Europe with countersanctions, expulsions of diplomats and thuggish-sounding threats. But in Brussels, EU Commission president Ursula von der Leyen is fighting with European Council president Charles Michel over charges of sexism and a Turkish sofa, instead of getting a grip on a double-dip recession and the pandemic.

British premier Boris Johnson is in trouble over costly wallpaper. French president Emmanuel Macron, up for re-election in 2022, is neck-and-neck in the polls with his far-right rival Marine Le Pen, while retired and current military officers are warning of civil war.

This would seem to be the moment for Germany, as a responsible neighbour, to step up and help out. But Europe’s most powerful economy is going to the polls even sooner than France: on September 26. As the 16-year tenure of Chancellor Angela Merkel comes to a close, the six parties scrambling to rule in the post-Merkel era are somewhat less than focused on goings-on beyond Germany’s borders.

The reason is the fragmentation of Germany’s colour-coded party landscape. In current polling, the Greens are fighting for first place with the CDU (black) at about 25 per cent, with the Social Democrats (red) far behind at 15 per cent, followed by the liberal Free Democrats (yellow) and the Left party (dark red) at around 11 per cent each.

The far-right Alternative for Germany is so radical that Germany’s domestic intelligence service wants to place it under observation. No other party will work with it, but it still captures about a tenth of the vote. This increases the likelihood that Germany’s next government will be a three-way coalition, with a kaleidoscope of possible combinations: black-green (or the reverse, with the CDU as junior partner); “Jamaica” (CDU-Greens-liberals); “traffic light” (Greens-SPD-liberals); and finally, “R2G” (SPD-Left-Greens).

This is why the small parties’ ideas suddenly matter. But in terms of foreign and security policy, none of the five presents a fully reassuring image to a neighbour or ally of Germany.

The Left party’s only path to government is R2G, a goal the powerful leftwings in the Greens and the SPD have been actively pursuing. But the Left too has radicalised, shedding its once influential east German pragmatists. Its new top duo opposes military engagement abroad of any kind. But it is also apparently clueless about pensions, and that may alienate its base.

The FDP has cabinet-ready experts on finance, digital issues and foreign and security policy — and a liability in Christian Lindner, their leader. The CDU and Greens are still smarting because of his petulant walkout from coalition negotiations in 2017. Last year, he faced a revolt in his own party after supporting the decision of a regional liberal politician to let himself be elected state governor with the AfD’s help.

The SPD’s Olaf Scholz is caught in a double bind. As Merkel’s finance minister, the opposition accuses him of oversight failures in a spate of financial scandals. As candidate for chancellor, he has seen the SPD leadership wrench the party to the left with anti-nuclear slogans reminiscent of the 1980s. Fritz Felgentreu, one of several seasoned legislators to resign in protest, calls his party’s security policy a “smouldering fire”.

Armin Laschet, the CDU candidate, has come under fire for sounding soft on Syria, Russia and China. Yet his real problems are corruption scandals and circling party frenemies. His party may be dealt another blow in next month’s state elections in Saxony-Anhalt, where some polls have the AfD in close pursuit.

All this does much to explain the rise of the Greens and Annalena Baerbock, their laser-focused candidate. Her criticism of China, the Kremlin and the Nord Stream 2 pipeline project is music to Washington’s ears. Yet the party’s feisty base has had ferocious fights over defence spending and nuclear deterrence. Its reliability as a partner is by no means guaranteed.

Of course, elections are generally not fought, or won, on foreign policy. But German voters would do well to remember that their country’s wealth and power depends on the stability and security of its neighbourhood. Maybe it is time to pay attention, and get a little worried. Its neighbours and allies already are.



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Denmark drops J&J Covid vaccine over blood clot concerns

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Denmark became the first country to drop the Johnson & Johnson Covid-19 shot from its vaccination programme owing to blood clot concerns, weeks after also excluding the Oxford/AstraZeneca jab.

The Danish health authority said on Monday it had concluded that the benefits of the J&J vaccine did not outweigh its risks given that the country had the pandemic “under control” and had decent supplies of other jabs.

Deputy director-general Helene Probst said that Denmark would in the coming weeks be mostly vaccinating “younger and healthy people” and that the risk of causing severe blood clots weighed heavier than what it would lose from not using the jab to fight the spread of Covid.

“In the midst of an epidemic, this has been a difficult decision to make, especially since we have also had to discontinue using the Covid-19 vaccine from AstraZeneca,” she added.

Denmark is one of the European countries that has come furthest with reopening its society after Covid thanks to its “coronapas”, a certificate that states whether somebody has been vaccinated, had a recent negative test, or recovered from coronavirus in the past six months.

Bottled of the J&J vaccine
The Danish health authority said it had concluded that the benefits of the J&J vaccine did not outweigh its risks © Jorge Guerrero/AFP/Getty

The government removed the AstraZeneca jab from its vaccine programme owing to a rare, unusual set of symptoms — including blood clots, bleeding, and low levels of platelets — identified in some people who had received the shot. The first death of somebody with such symptoms — a 60-year-old woman — was reported in Denmark in early March. US authorities have since said that some people using the J&J vaccine, which has never been used in Denmark, had similar symptoms.

Denmark has almost offered everybody aged 65-74 a first dose of a vaccine and will soon start vaccinating those younger than that. The Danish health authority said the decision to drop J&J would particularly affect those aged 20-39, who now face a delay of up to four weeks, meaning everyone would be fully vaccinated by late August.

Denmark’s prime minister Mette Frederiksen had previously hailed the J&J jab as a “potential game-changer” as the vaccine requires only one dose, whereas the jabs developed by BioNTech/Pfizer, Moderna and AstraZeneca all require two shots.

The decision underscores how EU countries are increasingly turning towards the Pfizer and Moderna shot, which are both mRNA-based vaccines. Most EU nations have restarted use of the AstraZeneca shot but many have age restrictions, such as Sweden and Finland, which are only using it for over 65s.

An expert commission in Norway will report by next Monday on how the country should use the AstraZeneca and J&J vaccines. Health authorities there recommended dropping AstraZeneca as Denmark had done, but the government was worried about its implications for J&J, which it had originally foreseen as using to vaccinate most people aged 18-45.

J&J said that two weeks ago, the EU’s medicine advisory committee had “confirmed the overall benefit-risk profile of the vaccine remains positive”. 

“We believe a single-shot, easily transportable Covid-19 vaccine with demonstrated protection against multiple variants can help protect the health and safety of people everywhere,” the company added.

Additional reporting from Nikou Asgari in New York



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