Imperative 4: Growth & Capital Allocation
Summary
- Acquired 11 niche high-growth businesses in Specialist Sectors
- Growth plans are progressing well in Russia & CIS
- Consolidation of the Canadian market through a proposed strategic venture with Sunwing
- Underlying operating profit up 11% to £443m
- Increase in return on invested capital to 9.2%
We have identified a number of market segments where we can allocate capital to drive growth. These target market segments, primarily within our Specialist Sectors, are high-growth and high-margin, and present excellent opportunities for us to create leading positions in fragmented markets. These segments offer significant potential for further growth and we are creating market-leading positions by a combination of the acquisition of complementary businesses and organic growth in our existing businesses. We have completed 12 acquisitions this year (11 in the Specialist Sectors) and will continue to make bolt-on acquisitions in targeted Specialist businesses. The pipeline of potential acquisitions is strong at present and we envisage the level of investment in the medium term to be similar to recent years.
Further organic long term growth will be achieved through the continued introduction of some of our Specialist brands in the Specialist & Emerging Markets and Activity Sectors into new European markets utilising our distribution strength, including our pan-European retail estate of circa 3,500 branches. For example, we are launching the best of our Marine, Adventure and Polar Cruising products into Germany, followed by Russia and Ukraine. Following the successful launch of Le Boat within our German retail operation, we will position this customer offering in the Dutch and Belgian markets.
Emerging markets have experienced a strong increase in demand for leisure travel. As the leading international leisure travel group we are excellently placed to benefit from this opportunity. We have undertaken careful customer research and market analysis to understand the markets in which we can participate to add value. Our strategy within Russia & CIS has been the main area of focus and our growth plans are progressing well. We are confident that by bringing together the skills and knowledge of TUI Travel and S-Group Capital Management (our joint venture partner) we can create a leading position in the Russian & CIS leisure travel markets. We have an existing presence in Brazil, China and India and continue to build our understanding of these leisure travel markets to determine our optimal participation strategy for each market.
In the mainstream markets we have identified opportunities to allocate capital to participate in market consolidation and strengthen our competitive position, driving the turnaround of underperforming businesses in the Mainstream Sector. During the year, we have reviewed the strategic alternatives for our Canadian business and announced, in September 2009, a strategic venture with Sunwing, a leading tour operator in Canada. The strategic venture with Sunwing will strengthen our position in this market. It provides us with a share of the profitability of the venture and has a number of strategic benefits for the Group, including consolidation of the fragmented Canadian market, improved operational efficiencies and synergies and counter-cyclical profitability between summer and winter seasons.
We continue to believe that the Boeing 787 Dreamliner represents a fantastic opportunity to deliver long term growth for the Group. Not only will it be able to fly greater distances, enabling us to offer a wider range of non-stop destinations to our customers than equivalent aircraft today, but it will do so with greater fuel efficiency and additional comfort. We plan to use the customer and operational benefits to position the long haul offering as a key differentiator in Europe allowing us to develop a pre-eminent position in the long haul charter market. TUI Travel will be the first company to take delivery of the Boeing 787 in Europe. We are expecting to receive delivery of the first aircraft in early 2012.
We have an asset-right business model and typically only invest in assets such as yachts, inland waterway cruisers and expedition cruise ships that provide us with greater competitive advantage and enable us to earn premium margins. As a result of our asset-right business model, delivery against our strategic imperatives driving underlying margin enhancement and delivery of synergy benefits of £200m, we remain confident of delivering our medium term margin targets. Despite tough economic conditions we have made significant progress in realising these key objectives, improving operating margins by 30 basis points to 3.2% (2008: 2.9%) and return on invested capital to 9.2% (2008: 8.4%).
