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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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Missing Belarus activist found hanged in Kyiv park

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Belarus updates

A Belarusian opposition activist has been found hanged from a tree in a park near his home in Ukraine, a day after he was reported missing. Local police said his death could have been made to look like suicide.

Vitaly Shishov, who led the Kyiv-based organisation Belarusian House, which helps Belarusians fleeing persecution find their feet in Ukraine, had been reported missing by his partner on Monday after not returning from a run.

Shishov’s death follows weeks of increased pressure in Belarus by authorities against civil society activists and independent media as part of what the country’s authoritarian president Alexander Lukashenko has called a “mopping-up operation” of “bandits and foreign agents”.

Many Belarusians have fled the country since Lukashenko launched a brutal crackdown last summer after nationwide protests erupted following his disputed victory in presidential elections. About 35,000 people have been arrested in Belarus and more than 150,000 are thought to have crossed into neighbouring Ukraine.

Franak Viacorka, an aide to Belarusian opposition leader Sviatlana Tsikhanouskaya who met UK prime minister Boris Johnson on Tuesday in London, said Shishov’s death was “absolutely shocking and unexpected to all of us”.

“He [Shishov] and his friends helped people who were moving to Ukraine,” Viacorka told the Financial Times. “They were very helpful, especially for those who have just arrived and didn’t know what to do.”

Viacorka said many activists living in Ukraine, such as Shishov who fled Belarus in 2020, had “complained about possibly being followed, and receiving threats”.

Kyiv park where Vitaly Shyshov’s body was found
The Kyiv park where Vitaly Shishov’s body was found after he failed to return home following a run © Gleb Garanich/Reuters

Downing Street said that after meeting Tsikhanouskaya, Johnson condemned the Lukashenko regime’s severe human rights violations. “The UK stands in solidarity of the people of Belarus and will continue to take action to support them,” a spokesperson said.

Ukrainian police have now launched a criminal case for the suspected murder of Shishov, including the possibility of “murder disguised as suicide”.

Yuriy Shchutsko, an acquaintance and fellow Belarus refugee who found Shishov’s body, ruled out suicide, pointing out that Shishov’s nose was broken.

“I suspect this was the action of the [Belarus] KGB . . . we knew they were hunting for us,” he told Ukrainian television.

Ihor Klymenko, head of the National Police of Ukraine, subsequently said Shishov’s body had what appeared to be “torn tissue” on his nose and other wounds, but stressed it would be up to medical examiners to determine if these were caused by beatings or the result of suicide.

There was no immediate comment from Lukashenko or his administration.

Belarusian House said: “There is no doubt that this is an operation planned by the Chekists [the Belarusian KGB] to eliminate someone truly dangerous for the regime.

“Vitalik was under surveillance,” it added. “We were repeatedly warned by both local sources and our people in the Republic of Belarus about all kinds of provocations up to kidnapping and liquidation.”

Adding to the swirl of attention on Belarus this week, Tokyo Olympics sprinter Krystsina Tsimanouskaya on Monday took refuge in Poland’s embassy after alleging she had been taken to the airport against her will, having criticised her Belarusian coaches.

The athlete has said she feared punishment if she went back to Belarus but has so far declined to link her problems to the country’s divisions.

Shishov’s death comes five years after Pavel Sheremet, a prominent Belarus-born opposition figure and journalist, was killed in an improvised bomb explosion in downtown Kyiv while driving to work at a local radio station. Lukashenko has ruled Belarus since 1994.

Ukrainian authorities at first suggested Belarusian or Russian security services could have been involved in the hit, as Sheremet was close to opposition movements in Russia as well.

Instead, officials charged three Ukrainian volunteers who supported war efforts against Russia-backed separatists in eastern Ukraine — although they steadfastly denied involvement and authorities were unable to provide a motive in what has been widely described as a flimsy case.

Additional reporting by Jasmine Cameron-Chileshe in London



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EU pledges aid to Lithuania to combat illegal migration from Belarus

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EU immigration updates

In the latest sign of deteriorating relations between the EU and Belarus, Brussels has promised extra financial aid and increased diplomatic heft to help Lithuania tackle a migrant crisis that it blames on neighbouring Belarus and its dictator Alexander Lukashenko.

Lithuania detained 287 illegal migrants on Sunday, more than it did in the entirety of 2018, 2019, and 2020 combined, the vast majority of them Iraqis who had flown to Belarus’s capital Minsk before heading north to cross into the EU state. Almost 4,000 migrants have been detained this year, compared with 81 for the whole of 2020. 

“What we are facing is an aggressive act from the Lukashenko regime designed to provoke,” Ylva Johansson, the EU commissioner for home affairs told reporters on Monday after talks with Lithuania’s prime minister Ingrida Simonyte. “The situation is getting worse and deteriorating . . . There is no free access to EU territory.”

The EU imposed sweeping sanctions against Lukashenko’s regime in June, after he fraudulently claimed victory in last year’s presidential election and then led a brutal campaign to violently suppress protesters and jail political opponents. Lukashenko has ruled Belarus since 1994.

The rising concern over the migrant crossings, which EU officials say is a campaign co-ordinated by Lukashenko’s administration, comes as one of the country’s athletes competing in the Tokyo Olympic Games sought refuge in Poland after team management attempted to fly her home against her will after she publicly criticised their actions.

Johansson said the EU would provide €10m-€12m of immediate emergency funding and would send a team of officials to the country to assess the requirements for longer-term financial assistance, including for extra border security and facilities to process those attempting to enter.

Simonyte said that Vilnuis would require “tens of millions of euros” by the end of the year if the number of people attempting to cross the border continued at the current pace.

Lithuania’s foreign minister Gabrielius Landsbergis told the Financial Times in June that Belarus was “weaponising” illegal immigration to put pressure on the Baltic country over its housing of several opposition leaders. Since then, the flow of illegal immigrants from Iraq, Syria, and several African countries has increased sharply.

Iraqi diplomats visited Vilnius at the end of last week after Lithuania’s foreign minister flew to Baghdad in mid-July. Johannson said on Monday that EU diplomats were engaged in “intensive contacts” with Iraqi officials, which she said were “more constructive than we had hoped”.

State carrier Iraqi Airways offers flights from four Iraqi airports to Minsk, according to its website. Former Estonian president Toomas Ilves suggested on Twitter that the EU could cut its aid to Iraq “immediately until they stop these flights”.

Speaking at the border with Belarus on Monday, Johansson added that the tents provided by Lithuania were unsuitable for families. Lithuania’s interior minister Agne Bilotaite said she hoped the number of illegal migrants would subside in the coming months but that Vilnius was planning to build some housing to accommodate them over the upcoming winter.



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Britain’s wrong-headed approach to refugees

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UK immigration updates

Thanks to the bravery of volunteers who run towards storms at sea to rescue ships’ crews, few British institutions command as much respect as the Royal National Lifeboat Institution. The charity, however, has recently had to negotiate a different kind of storm, over its efforts to help refugees who get into difficulties crossing the Channel from France. Nigel Farage, the former Brexit party leader, accused it of running a taxi service for illegal trafficking gangs. Last week, the RNLI said it had received hundreds of thousands of pounds of extra donations in response.

The RNLI has become embroiled in a now familiar story when the summer months allow more small boats to make the Channel crossing. Compared with the flows to other countries such as Spain, Italy and Greece, only a handful of migrants attempt the journey. That makes the UK’s inability to control the border in an effective and humane way — and shabby treatment of those who do make it across — no less of a scandal.

Britain’s strategy for stemming the flow has relied mostly on paying the French authorities to limit the number of boats crossing and return any that leave to France, while deterring would-be migrants through the unwelcoming environment that awaits them. Just as EU countries are dependent on their neighbours for keeping entrants down — whether Morocco for Spain or Belarus for Lithuania — the UK needs French co-operation to control the mutual border. Diplomatic spats, whether over Brexit or extra Covid quarantine restrictions on arrivals from France, have made that harder.

The UK approach manages to be simultaneously ineffective and cruel. Yvette Cooper, chair of the home affairs select committee, wrote last week to home secretary Priti Patel to complain of unacceptable conditions in the holding facility for migrants who make it to the Kent coast. A recent unannounced visit by MPs found most of those remaining in the overcrowded facility sitting on a thin mattress on the floor, with women and children in the same room as adult men.

Earlier this year, the High Court ruled that “squalid” conditions in the Napier Barracks, a temporary centre set up last year to house asylum seekers during the pandemic, were so bad as to be unlawful. While arrivals have declined since the peak seven years ago, cutbacks have led to a backlog in processing claims, leaving more in a legal limbo.

Since the start of the pandemic Britain has shut down other paths into the country, ending a resettlement scheme. This has ceded the ground to people traffickers. The “push factors” of the risk of violence and torture at home and “pull factors” of higher living standards mean many are still willing to resort to risky and illegal methods to try to reach the UK. Creating a harsh environment for those who make it has done little to dispel the widespread belief among migrants that Britain is a better destination than other European countries, and stem the flow.

That will not stop the government trying. Barristers have warned that a clause in draft border legislation could potentially make it a crime to help asylum seekers arrive in the UK, with a maximum penalty of life imprisonment; at present it is illegal to do so to earn a profit. The Home Office says the clause is aimed at criminal traffickers. But along with a suggestion to set up offshore processing centres, the provision has rightly earned criticism from human rights groups. If the government is unwilling to create safe and legal routes, its only option is to prevent people from coming in the first place. That, ultimately, will mean relying on France.



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