FAVOURABLE BANK FINANCING OF A SOLAR POWER PLANT – WHAT WE DID AND HOW WE DID IT
6. lipnja 2024.HEDGE OR DIE
13. lipnja 2024.(Lessons we can learn from FTI Touristik’s failure – part 1)
Sales >4bn €.
15% market share in Germany.
#3 position in Europe.
Failed.
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What?!
How? Why?
It seems FTI’s business model was not that strong after all.
But if the European #3 with 4bn € in sales is not secure, who is?
Nobody, at least not in this industry.
Being the largest company in a crappy industry does not mean much. Would you like to own the #1 global manufacturer of typewriters used back in the 70s and 80s? Probably not.
While tour operators’ business is not that bad compared to typewriters, it is a high-risk industry because of these:
- high competition with practically no barriers to entry
- frequently changing customer preferences
- discretionary spending affected by the movements in GDP and market sentiment
- business sensitive to geopolitical risks with operations in some high-risk regions
- high seasonality, which means errors in the summer season are not allowed
- low gross margin due to high competition and basically being resellers (please check the recent Secret CFO’s post on cash flow sensitivity on changes in business economics)
- high fixed costs (labour, leasing of hotels…)
If you add a huge pile of debt on these foundations, a company is predestined to fail.
We have to be fair and say that the pandemic affected FTI severely. The government and banks had to step in and save the business. Still, 2022 figures were still below 2019, so they were not recovering that quickly.
But is the pandemic only cause of FTI’s failure?
To answer that, we have to go back and look how they performed BEFORE the pandemic (I know it is painful to spread the financials for 6 or 7 years, but hey, no pain – no gain).
Guess what – their results were baaaaad. The only difference is that they had less debt, so it was somehow manageable.
Their annual average EBITDA was 40m €, with a margin between 0,5% and 1,5%. Debt stood at 260m € at 2019YE (net debt at 145m €). You do the math.
Remember Thomas Cook, the once leading British tour operator that bankrupted in 2019?
They were almost 3x bigger than FTI, their EBITDA margin was at 5-6% and with much lower leverage than FTI today. And they failed in the good times, before the pandemic and all this geopolitical tensions of today.
So, why would FTI survive?
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Your company might be a market leader, but if you are a market leader in the local market or even a global leader in a risky industry, it won’t mean much if you get into trouble.
Many underestimate the ease with which the banks and investors turn away from the business, write off their investment, and continue with their lives.
Everybody is replaceable.
Adjust your financial strategy accordingly.
If you need help with it, feel free to get in touch.
