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TUI trims dividend policy as profits dip on Boeing MAX grounding

If the MAX aircraft returns to service by the end of April, there will be an extra €130mln cost, with an extra €220-270mln if the Boeings remain grounded until the end of the financial year

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TUI AG (LON:TUI) reported lower profits for the past year but said growth would take off again in the coming year although t it plans to tighten up its dividend policy in future.

The Anglo-German tour operator posted profit before tax of €691mln for the year to 30 September, down 28.4% on the previous year, as turnover increased by 2.7% to €18.9bn.

READ: TUI tumbles as dividend risk flagged

In short, holidays were strong and the airline was weak, hit by the market-wide grounding of Boeing’s 737 MAX aeroplanes in March after two fatal crashes, as well as Brexit uncertainty and overcapacity to Spanish destinations.

A dividend of 54 euro cents is proposed for the year, for payment next February, while directors also put out a separate statement that said that this time next year the dividend policy will see a “core dividend payout” of 30-40% of group's underlying earnings after tax (EAT), with a minimum payout of €0.35 per share.

“While the new dividend policy is expected to result in lower payouts, the dividend floor guarantees shareholders a minimum payout irrespective of the market environment of the tourism industry and subsequent impacts on underlying EAT.”

This formed, the company said, part of its plan to meld organic growth with “accretive” M&A and “portfolio optimisation”, with excess cash to be returned to shareholders.

TUI said its underlying profits (EBIT) are expected to grow to €950-1.05bn for the new financial year, up 6.3%-17.5% from the €893mln in the past year, including an approximate €130mln further cost from the 737 MAX grounding.

This assumes the MAX aircraft, of which TUI has 15 and another eight on order, return to service by the end of April, though if the Boeings remain grounded until the end of the financial year there would be an additional cost of around €220-270mln.

“Neither scenarios include any potential grounding compensation from Boeing in any form,” the company concluded.

Quick facts: TUI AG

Price: 887.8 GBX

LSE:TUI
Market: LSE
Market Cap: £5.23 billion
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