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TUI AG (TUI) TUI AG: Half year financial report 2018 09-May-2018 / 07:00 CET/CEST Dissemination of a Regulatory Announcement, transmitted by EQS Group. The issuer is solely responsible for the content of this announcement. H1 2018 TUI Group - financial highlights
INTERIM MANAGEMENT REPORT On track to deliver our growth targets We have delivered a good H1 performance, with a further improvement in the seasonal result. Turnover increased by 7.2 % to EUR 6,813.5 m and underlying EBITA improved by 26.0 % to EUR - 158.6 m. Growth in earnings was delivered as a result of continued strong demand for our Holiday Experiences - including additional hotel and cruise ship capacity as we continue to deploy the proceeds of disposals into higher returning assets - and a good portfolio performance by Sales & Marketing. The key drivers of the year on year improvement in underlying EBITA are shown in the table below.
Please see pages 7 to 11 for further commentary on segmental performance. During H1 we announced the following strategic developments: We will become the world's leading provider of destination experiences, with the acquisition of Destination Management from Hotelbeds Group. The acquisition is expected to complete in H2 FY2018, funded from the remaining proceeds of business disposals. Due to the continued strong demand for TUI Cruises, Mein Schiff Herz (previously Mein Schiff 2) will remain within the TUI Cruises fleet. Marella Cruises will instead acquire SkySea Golden Era from Royal Caribbean. The ship will be renamed Marella Explorer 2, launching Summer 2019. In addition, approval has been given for a third new build expedition cruise ship for Hapag-Lloyd Cruises. Planning and negotiation will shortly launch for a scheduled delivery of the further Hanseatic class ship in 2021.
Current trading Holiday Experiences Our portfolio of over 380 hotels continue to perform very well, thanks to the strength of our portfolio of destinations, new hotel openings and integrated model. Following a very strong performance in the past few years in Spain and more subdued demand for Turkey and North Africa, we are seeing a continued rebalancing towards the latter destinations, as well as strong demand for Greece (where we have over 40 Group and own concept hotels). Other destinations such as the Caribbean and Cape Verde also continue to see good demand. Our hotel and club brands will continue to expand their offering with five openings in Summer 2018 plus further openings in FY2019. We also continue to streamline the existing portfolio, having disposed of three Riu hotels in Q1 and with repositionings under the TUI Blue and TUI Magic Life brands in FY2018. The renovation of the Robinson Jandia Playa in Fuerteventura is also underway, with the closure of this popular club for most of FY2018. In Cruises new launches are scheduled for TUI Cruises, Marella Cruises and Hapag-Lloyd Cruises in 2018, 2019, 2021 and 2023. Demand for our cruises remains strong, with higher yields year on year for the periods currently on sale in all three brands. In Marella, Majesty exited the fleet in November 2017 and Spirit will exit in November 2018, and from Summer 2019 the entire fleet will be fully all-inclusive. Volumes in Destination Experiences (formerly Destination Services) are expected to develop in line with our Sales & Marketing business. The acquisition of the Destination Management business of Hotelbeds Group is expected to complete in H2 FY2018, adding a further 25 countries to our global destination presence. Sales & Marketing As expected, Winter 2017 / 18 closed out well, with revenues up 5 % on prior year and bookings up 3 %. Growth was driven by North Africa, Cape Verde, Thailand and Turkey, with stable demand for Spain. Summer 2018 is also progressing well, with 59 % of the programme sold, in line with prior year. Following a couple of very strong years, Spain remains the number one destination by customer volume for Sales & Marketing, but with year on year growth driven by destinations such as Turkey, North Africa and Greece. We also see good growth in bookings for other smaller destinations such as Bulgaria, Cyprus and Croatia. Sales & Marketing - Current trading Summer 2018 *
* These statistics are up to 29 April 2018, shown on a constant currency basis and relate to all customers whether risk or non-risk In Northern Region, Nordics continue to deliver a strong, earlier booking performance (+ 8 % currently, although the prior year comparatives will strengthen in the coming months). Margins are ahead of prior year, reflecting an increase in demand for Turkey and Greece, the introduction of our proprietary Cyrus yield management system and actions taken by management to improve the efficiency of the business. UK demand is resilient, with bookings up 1 % on prior year, and margin performance continues to normalise in line with our expectations, reflecting the impact on the cost base of the weaker Pound Sterling. As expected, the UK is seeing a growth in demand for non-Euro destinations such as Turkey, North Africa, Bulgaria and Croatia, as well as a shortening of the average duration of holidays. Within Central Region, bookings from Germany are up 4 %. This reflects a significant increase in bookings to Turkey, North Africa and Greece, as well as the continued popularity of Spain. Strong mainstream holiday bookings are partly offset by lower bookings at this stage for some of our specialist brands, however, we expect this to improve as we trade through the Summer. Despite an increase in capacity (following the bankruptcy of Air Berlin / Niki and subsequent changes to the TUI airline fleet), load factor is ahead of prior year, helping to limit exposure to the lates market. The Central Region bookings and revenue performance also reflects our strategy to grow market share significantly in Poland. In Western Region, bookings in Belgium and Netherlands are ahead of prior year (+ 6 % overall), with growth destinations in general similar to the other source markets. This is partly offset by trading in France, where bookings are currently down on prior year, mainly due to lower sales of tours. These were previously traded under the Transat brand and have now switched to TUI, with some disruption to sales by third party distributors. We remain focussed on the continued integration of the Transat business and delivering an improved result in France this year. Outlook We reiterate our guidance of our Annual Report 2017. We are continuing to deliver our growth strategy as set out in December 2017, based on market demand, digitalisation and investments, including the announcements in H1 of further actions to enhance our destination experiences business and accelerate growth in cruise. Based on a good H1 performance and strong current trading we are on track to deliver at least 10 % underlying EBITA growth in FY2018. We are delivering our ambition - strong strategic positioning, strong earnings growth and strong cash generation, with underlying EBITA doubling between FY2014 and FY2020.
Structure and strategy of TUI Group Reporting structure The present Half Year Financial Report 2018 is essentially based on TUI Group's reporting structure set out in the Annual Report for 2017. From Q1 FY2018 on, our segment reporting to reflect the growing strategic importance of the services delivered in our destinations. Since the beginning of financial year 2018, Destination Experiences (formerly Destination Services), a crucial element of our customers' holiday experience, has been reported as a separate segment alongside Hotels & Resorts and Cruises within Holiday Experiences. The key figures of the new segment were carried under Other Tourism in the completed financial year 2017. The other companies previously reported as part of the Other Tourism segment are now carried under All other segments; the Group totals have remained unchanged. The prior year comparatives have been restated. See Annual Report 2017 from page 24
Group targets and strategy TUI Group's strategy set out in the Annual Report 2017 remains unchanged. Details see Annual Report 2017 from page 20
Consolidated earnings
Segmental performance Holiday Experiences
Sales & Marketing
Financial position and net assets Cash Flow / Net capex and investments / Net debt The cash outflow from operating activities increased by EUR 165.0 m to EUR 443.5 m. This was due in particular to higher advance payments to hotels, payments for the integration of Transat in France and the deconsolidation of the Travelopia Group. From this interim report, we have adjusted the definition of our net debt. While net debt has so far been calculated as the balance between current and non-current financial debt and cash and cash equivalents, we will also consider future short-term interest-bearing investments as a deduction item. The majority of these investments becomes due between three and six months. In accordance with IFRS regulations, these investments are not shown as cash and cash equivalents in the consolidated balance sheet but within current trade receivables and other assets. This adjustment had no effect on the previous year.
The net debt position of the continuing operations improved by EUR 828.1 m to EUR 576.0 m. The year-on-year improvement was attributable mainly to the receipt of disposal proceeds not yet fully reinvested.
The decline in net capex and investments was mainly driven by the acquisition of a cruise ship for Marella Cruises and of Transat last year as well as the sale of three Riu hotels in Q1 2018. Assets and liabilities
As at 31 March 2018, TUI Group's balance sheet total amounted to EUR 14.0 bn, a decrease of 1.1 % compared to financial year end 30 September 2017. The equity ratio stood at 21.3 %, falling below its level of 24.9 % as at 30 September 2017. Details see Notes from page 30 Fuel / Foreign exchange Our strategy of hedging the majority of our jet fuel and currency requirements for future seasons, as detailed below, remains unchanged. This gives us certainty of costs when planning capacity and pricing. The following table shows the percentage of our forecast requirement that is currently hedged for Euros, US Dollars and jet fuel for our Sales & Marketing, which account for over 90 % of our Group currency and fuel exposure.
Comments on the consolidated income statement The consolidated income statement reflects the seasonality of the tourism business, with negative results generated in the period from October to March due to the seasonal nature of the business. In the first half of 2018, turnover totalled EUR 6.8 bn, up 7.2 % year-on-year. At constant currency rates, turnover grew by 8.5 % year-on-year in H1 2018. Apart from the 5.5 % increase in customer volumes in Sales & Marketing, the year-on-year turnover growth was driven by additional capacity in the Cruises segment, higher average selling prices in the Hotels & Resorts segment and higher pricing in the UK. The year-on-year improvement in the result from continuing operations was attributable to the operating performance as well as the proceeds of disposals of two hotel companies, a hotel and an aircraft.
Alternative performance measures Key indicators used to manage the TUI Group are EBITA and underlying EBITA. We define EBITA as earnings before interest, income taxes and goodwill impairment. EBITA includes amortisation of other intangible assets. EBITA does not include measurement effects from interest hedges and in the prior year also earnings effects from container shipping. We consider underlying EBITA to be the most suitable performance indicator for explaining the development of the TUI Group's operating performance. Underlying EBITA has been adjusted for gains on disposal of financial investments, expenses in connection with restructuring measures according to IAS 37, all effects of purchase price allocations, ancillary acquisition cost and conditional purchase price payments and other expenses for and income from one-off items. The table below shows a reconciliation of earnings before taxes from continuing operations to underlying earnings. In H1 FY2018, adjustments (including one-off items and purchase price allocations for continuing operations) amounted to EUR 33.7 m, a decline of EUR 3.9 m year-on-year.
The improvement in the interest result in H1 FY2018 was mainly driven by the improvement in net debt position and lower interest rates. Adjustments include one-off income and expense items impacting or distorting the assessment of the operating profitability of the segments and the Group due to their level and frequency. These items primarily include major restructuring and integration expenses not meeting the criteria of IAS 37, material expenses for litigation, gains and losses from the sale of aircraft and other material business transactions of a one-off nature. In H1 FY2018 TUI Group's operating loss adjusted for one-off effects improved by EUR 55.7 m to EUR 158.6 m. In H1 FY2018, adjustments included expenses for purchase price allocations of EUR 15.0 m and in particular for the integration of Transat in France and the restructuring of our German flight sector.
Other segment indicators
Corporate Governance Composition of the Boards In H1 2018 the composition of the Executive Board and the Supervisory Board of TUI AG changed as follows: The Annual General Meeting on 13 February 2018 elected Dr. Dieter Zetsche, CEO of Daimler AG, as a member of the Supervisory Board. At the same time, Deputy Chairman of the Supervisory Board Sir Michael Hodgkinson, stepped down at the close of the Annual General Meeting. Mr. Peter Long succeeded him in this role. Mr. Horst Baier, Chief Financial Officer, has decided not to extend his contract as Member of the Board that expires in November 2018. The TUI AG Group Supervisory Board has appointed Ms. Birgit Conix as member of the Executive Board as of 15 July 2018. On Horst Baier's departure in Autumn 2018, Birgit Conix will take over responsibilities as Chief Financial Officer. The current, complete composition of the Executive Board and Supervisory Board is listed on our website, where it has been made permanently available to the public. www.tuigroup.com/en-en/investors/corporate-governance Risk and Opportunity Report Successful management of existing and emerging risks and opportunities is critical to the long-term success of our business and to the achievement of our strategic objectives. Full details of our risk governance framework and principal risks and opportunities can be found in the Annual Report 2017. With the brand change programme successfully being implemented in all source markets, the related risk is no longer considered principal to the Group. All other principal risks and uncertainties outlined in that report continue to face the Group and are set out below: Inherent risks to the sector Destination disruption; macroeconomic risks; competition & consumer preferences; input cost volatility; seasonal cashflow profile; legal & regulatory compliance; health & safety; supply chain risk; joint venture partnerships Actively managed principal risks IT development & strategy; growth strategy; integration & restructuring opportunities; sustainable development; information security; Brexit Our main concern related to Brexit continues to be whether or not all of our airlines will continue to have access to EU airspace as now. We will continue to address the importance of there being a special deal for aviation to protect consumer choice with the relevant UK and EU ministers and officials, and are assessing options to ensure the Group is not adversely affected to any material extent in this area. Our Brexit Steering Committee continues to monitor external developments and coordinates our mitigation strategy. With the EU GDPR regulation being enforced imminently, whereby any breaches may result in a significant financial penalty, the gross impact to the Information Security principal risk has increased. Our mitigation strategy including making information security part of everyone's job continues to focus on managing the likelihood of this risk materialising. Details see Risk Report in our Annual Report 2017, from page 30
INTERIM FINANCIAL STATEMENTS
NOTES General The TUI Group, with its major subsidiaries and other shareholdings, operates in the tourism business. TUI AG based in Hanover and Berlin, Germany, is TUI Group's parent company and a listed corporation under German law. The shares in the Company are traded on the London Stock Exchange and the Hanover and Frankfurt Stock Exchanges. The condensed interim consolidated financial statements of TUI AG and its subsidiaries cover the period from 1 October 2017 to 31 March 2018. The interim consolidated financial statements are prepared in euros. Unless stated otherwise, all amounts are stated in million euros (EURm). The interim consolidated financial statements were released for publication by the Executive Board of TUI AG on 7 May 2018. Accounting principles Declaration of compliance The interim consolidated financial statements for the period ended 31 March 2018 comprise condensed interim consolidated financial statements and an interim Group management report in accordance with § 115 of the German Securities Trading Act (WpHG). The interim consolidated financial statements were prepared in conformity with the International Financial Reporting Standards (IFRS) and the relevant Interpretations of the International Accounting Standards Board (IASB) for interim financial reporting applicable in the European Union. In accordance with IAS 34, the Group's interim financial statements are published in a condensed form compared with the consolidated annual financial statements and should therefore be read in combination with TUI AG's consolidated financial statements for financial year 2017. The interim financial statements were reviewed by the Group's auditors. Going concern report according to the UK Corporate Governance Code TUI Group meets its day-to-day working capital requirements through cash in hand, bank balances and loans from financial institutions. As at 31 March 2018, TUI Group's net debt position (financial liabilities less short-term interest-bearing bank balances) totals EUR 576.0 m (as at 30 September 2017 net financial assets of EUR 583.0 m). The increase in net debt versus year-end is driven by typical seasonal cash outflows, mainly within the tour operator. The Group's main financial liabilities and credit lines as at 31 March 2018 are: An external revolving credit facility worth EUR 1,535.0 m maturing in July 2022 to manage the seasonality of the Group's cash flows and liquidity, a bond 2016 / 21 with a nominal value of EUR 300.0 m issued by TUI AG, maturing in October 2021, finance lease obligations worth EUR 1,294.5 m, and liabilities to banks of EUR 358.8 m, primarily due to loan obligations from the acquisition of property, plant and equipment.The granting of the credit line requires compliance with certain financial covenants, which were fully complied with at the balance sheet date. Due to the current economic factors and the political situation in some destinations, there is some uncertainty over customer demand. TUI's Executive Board assumes that TUI's business model is sufficiently flexible to offset the challenges currently identifiable. The forecasts have shown that TUI Group will continue to have sufficient funds available from borrowings and operating cash flows in order to meet its payment obligations for the foreseeable future and guarantee its ability to continue as a going concern. In conformity with Rule C1.3 of the UK Corporate Governance Code, the Executive Board confirms that it is appropriate to adopt the going concern basis of accounting in preparing the consolidated financial statements. Accounting and measurement methods The preparation of the interim financial statements requires management to make estimates and judgements that affect the reported amounts of assets, liabilities and contingent liabilities as at the balance sheet date and the reported amounts of turnover and expenses during the reporting period. Actual results may deviate from the estimates. The accounting and measurement methods adopted in the preparation of the interim financial statements as at 31 March 2018 are materially consistent with those followed in preparing the previous consolidated financial statements for the financial year ended 30 September 2017. The income taxes were recorded based on the best estimate of the weighted average tax rate that is expected for the whole financial year. Newly applied standards Since the beginning of the financial year 2018 the following standards amended or newly issued by the IASB have been applied by TUI for the first time either mandatorily or voluntarily early:
Group of consolidated companies The consolidated financial statements include all material subsidiaries over which TUI AG has control. Control requires TUI AG to have decision-making power over the relevant activities, be exposed to variable returns and have entitlements regarding the returns, or have the ability to affect the level of those variable returns through its decision-making power. The interim financial statements as at 31 March 2018 comprised a total of 254 subsidiaries of TUI AG.
Acquisitions - Divestments Acquisitions In H1 2018, three travel agencies were acquired in the form of asset deals. Moreover, 100 % of the shares in Cruisetour AG, Zurich, Switzerland, as well as Croisimonde AG, Zug, Switzerland, were acquired on 21 December 2017. The aim of the acquisition is to increase market presence in the Cruises segment in the Swiss market. The considerations transferred for all acquisitions by TUI Group exclusively consist of purchase price payments, totalling EUR 6.9 m. The difference arising between the considerations and the remeasured acquired net assets as at the acquisition date of EUR 5.6 m was carried as provisional goodwill. This goodwill essentially constitutes part of the future earnings potential.
Based on the information available, it was not possible to finalise measurement of several components of the acquired assets and liabilities of the acquisitions, in particular in connection with the acquisition of Cruisetour AG and Croisimonde AG. Use was made of the 12-month period permitted under IFRS 3 for the completion of the purchase price allocation, which allows for a provisional purchase price allocation to the individual assets and liabilities until the end of that period. In the period from January 2018 to March 2018, Cruisetour AG and Croisimonde AG generated a turnover of in total EUR 4.0 m and an immaterial profit contribution. If the acquisition had occurred on 1 October 2017, consolidated pro-forma revenue of the TUI Group would have been EUR 6.0 m higher and profit after tax would have been EUR 0.3 m higher. No material acquisitions were made after the balance sheet date. In the reporting period, the purchase price allocations of Transat France S.A. acquired in financial year 2017 were finalised within the 12-month period stipulated by IFRS 3. Apart from an adjustment that decreased goodwill by EUR 13.7 m, the figures in the consolidated statement of financial position as at 31 March 2017 were retroactively adjusted as follows:
The adjustments made do not have an impact on the prior year's income statement. In addition, shares in German Tur Turizm Ticaret A.S. were acquired for a purchase price of EUR 8.0 m. Divestments In the first half of 2018, two Riu Group hotel companies were divested. The sale of Dominicanotel S.A., Puerto Plata, Dominican Republic, and Puerto Plata Caribe Beach S.A., Puerto Plata, Dominican Republic, generated a profit on disposal of EUR 24.3 m. This profit includes a partial disposal of Riu Group's goodwill of EUR 5.2 m. Notes to the consolidated income statement TUI Group's results reflect the significant seasonal swing in tourism between the winter and summer travel months. The Group seeks to counteract the seasonal swing through a broad range of holiday offerings in the summer and winter season and its presence in different travel markets worldwide with varying annual cycles. The consolidated income statement reflects the seasonality of the tourism business, with the consequence that the result generated in the period from October to March is negative. Due to the seasonality of the business, a comparison of the first half year's results with the full-year results is not meaningful. (1) Turnover Turnover grew by 7.2 % year-on-year. Alongside an increase in customer volumes in Sales & Marketing, the turnover growth versus H1 2017 was driven by the additional capacity in the Cruises segment, higher average selling prices in Hotels & Resorts and higher prices in the UK. (2) Cost of sales and administrative expenses Cost of sales represent the expenses incurred to deliver tourism services. In addition to the expenses for staff costs, depreciation, amortisation, rent and leasing, they include all costs incurred by the Group in connection with the procurement and delivery of airline services, hotel accommodation and cruises as well as distribution costs. Administrative expenses comprise all expenses incurred in connection with the performance of administrative functions and break down as follows:
The cost of sales and administrative expenses include the following expenses for staff, depreciation / amortisation, rent and leasing:
Aircraft leasing expenses declined year-on-year, primarily due to foreign exchange effects. Leasing expenses for cruise ships also declined versus the prior year, in particular due to the expiry of a lease agreement at Marella Cruises. (3) Other income In H1 2018, other income mainly resulted from the sale of two hotel companies and one hotel. Additional income was generated from the sale of an aircraft. (4) Share of result of joint ventures and associates
The increase in income from joint ventures and associates in the Cruises segment mainly results from the launch of Mein Schiff 6. (5) Income taxes The tax income arising in the reporting period is mainly driven by the seasonality of the tourism business. (6) Group loss attributable to non-controlling interest The Group result attributable to non-controlling interest represents a profit, which primarily relates to the RIUSA II Group with an amount of EUR 70.7 m (previous year EUR 54.3 m). Notes to the financial position of the TUI Group (7) Property, plant and equipment Property, plant and equipment rose by EUR 147.4 m year-on-year to EUR 4,401.1 m. The increase is primarily attributable to the acquisition of aircraft assets worth EUR 286.8 m, thereof two finance leased aircraft worth EUR 149.1 m, and investments in hotels of EUR 117.6 m, with an opposite effect resulting from depreciation / amortisation for the first half of the year as well as foreign currency translation. (8) Assets held for sale As at 31 March 2018, a hotel company was classified as a disposal group. Moreover, an administrative building is held for sale. (9) Pension provisions and similar obligations Pension provisions declined by EUR 105.5 m to EUR 1,021.9 m versus the end of the completed financial year. The decline is primarily driven by a decreasing shortfall in coverage of the funded pension plans in the UK. Assets of these funds rose as a result of contributions paid by the employer as well as a good performance of the plan assets. Pension plans with an excess of plan assets over funded obligations, carried under trade receivables and other assets, are almost flat versus 30 September 2017 at EUR 56.0 m. (10) Financial liabilities Non-current financial liabilities rose by EUR 40.3 m to EUR 1,801.5 m as against 30 September 2017. This was mainly driven by the increase in liabilities from finance leases by EUR 64.6 m. An opposite trend was caused by a reduction in liabilities to banks by EUR 24.9 m. (11) Changes in equity Equity decreased by EUR 540.5 m to EUR 2,993.2 overall versus 30 September 2017. In H1 2018, TUI AG paid a dividend of EUR 0.65 per no-par value share, EUR 381.8 m in total (previous year EUR 368.6 m), to its shareholders. The Group loss in the first half of the year is attributable to the seasonality of the tourism business. Gains and losses from effective cash flow hedges worth EUR 21.3 m (pre-tax) are carried under other comprehensive income in equity outside profit and loss (previous year EUR - 50.3 m). The revaluation of pension obligations is also carried under other comprehensive income in equity outside profit and loss. (12) Financial instruments
Due to the short remaining terms of cash and cash equivalents, current trade receivables and other assets, current trade payables and other liabilities, the carrying amounts are taken as realistic estimates of the fair values. The fair values of non-current trade receivables and other assets correspond to the present values of the cash flows associated with the assets, using current interest parameters which reflect market- and counterparty-related changes in terms and expectations. There are no financial investments held to maturity. Financial instruments classified as financial assets available for sale include an amount of EUR 32.1 m (previous year EUR 43.5 m) for interests in partnerships and corporations for which no active market exists. The fair values of these non-listed interests cannot be calculated by means of a measurement model since their future cash flows cannot be reliably determined. The investments are carried at cost. In the reporting period, and also as at 30 September 2017, there were no material disposals of interests in partnerships or corporations measured at cost. TUI does not intend to sell or derecognise any significant interest in these partnerships or corporations in the near future.
Fair value measurement The following table presents the fair values of the recurring, non-recurring and other financial instruments recognised at fair value in accordance with the underlying measurement levels. The individual levels have been defined as follows in line with the input factors: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities. Level 2: input factors for the measurement are quoted market price other than those mentioned in Level 1, directly (as market price quotation) or indirectly (derivable from market price quotation) observable in the market for the asset or liability. Level 3: input factors for the measurement of the asset or liability are based on non-observable market data.
At the end of every reporting period, TUI Group checks whether there are any reasons for reclassification to or from one of the measurement levels. Financial assets and financial liabilities are generally transferred out of Level 1 into Level 2 if the liquidity and trading activity no longer indicate an active market. The opposite situation applies to potential transfers out of Level 2 into Level 1. In the reporting period, there were no transfers between Level 1 and Level 2. Reclassifications from Level 3 to Level 2 or Level 1 are made if observable market price quo-tations become available for the asset or liability concerned. Checks of the measurement pa-rameters showed that the stake in peakwork AG did not classify as Level 2 any longer as no observable valuation parameter were available anymore. There were no other transfers from or to Level 3. TUI records transfers from or to Level 3 at the date of the obligating event or occasion triggering the transfer. Level 1 financial instruments The fair value of financial instruments for which an active market is available is based on the market price quotation at the balance sheet date. An active market exists if price quotations are easily and regularly available from a stock exchange, traders, brokers, price service providers or regulatory authorities, and if these prices represent actual and regular market transactions between independent business partners. These financial instruments are categorised within Level 1. The fair values correspond to the nominal values multiplied by the price quotations at the balance sheet date. Level 1 financial instruments primarily comprise shares in listed companies classified as available for sale and bonds issued in the category "Financial liabilities measured at amortised cost". Level 2 financial instruments The fair values of financial instruments not traded in an active market, e.g. over the counter derivatives (OTC), are determined by means of valuation techniques. These valuation techniques maximise the use of observable market data and minimise the use of Group-specific assumptions. If all essential input factors for the determination of the fair value of an instrument are observable, the instrument is categorised within Level 2. If one or several of the essential input factors are not based on observable market data, the instrument is categorised within Level 3. The specific valuation techniques used for the measurement of financial instruments are: For over the counter bonds, liabilities to banks, promissory notes and other non-current financial liabilities, the fair value is determined as the present value of future cash flows, taking account of observable yield curves and the respective credit spread, which depends on the credit rating. For over the counter derivatives, the fair value is determined by means of appropriate calculation methods, e.g. by discounting the expected future cash flows. The forward prices of forward transactions are based on the spot or cash prices, taking account of forward premiums and discounts. The calculation of the fair values of foreign exchange options and interest derivatives is based on the Black & Scholes model and the Turnbull & Wakeman model for fuel hedge options. The fair values determined on the basis of the Group's own systems are regularly compared with fair value confirmations of the external counterparties. Other valuation techniques, e.g. discounting future cash flows, are used for the measurement of the fair values of other financial instruments.Level 3 financial instruments The following table shows the development of the values of the financial instruments measured at fair value on a recurring basis categorised within Level 3 of the measurement hierarchy.
The additions to Level 3 of the valuation hierarchy relate to the stake in peakwork AG. (13) Contingent liabilities As at 31 March 2018, contingent liabilities totalled EUR 133.9 m (previous year EUR 156.1 m). Contingent liabilities are reported at an amount representing the best estimate of the potential expenditure that would be required to meet the potential obligation as at the balance sheet date. As at 31 March 2018, contingent liabilities mainly relate to the provision of guarantees for the benefit of cruise or hotel activities. The decline of EUR 22.2 m versus 30 September 2017 is mainly driven by the return of guarantees for the Travelopia companies which had to be carried as off-balance sheet contingent liabilities following the sale of Specialist Group, and by scheduled repayments made by TUI Cruises GmbH. (14) Other financial commitments
Capital commitments decreased by EUR 179.9 m as at 31 March 2018 in comparison to 30 September 2017. This is largely driven by the delivery of new aircraft and foreign exchange effects for commitments denominated in non-functional currencies. Off-setting the reduction are higher levels of hotel construction commitments due to new projects. (15) Notes to the Group's cash flow statement Based on the after-tax Group result, the cash flow from operating activities is determined using the indirect method. In the reporting period, cash and cash equivalents declined by EUR 1,177.7 m to EUR 1,338.4 m, including an amount of EUR 0.3 m carried as assets held for sale. In the reporting period, the outflow of cash from operating activities amounted to EUR 443.5 m (previous year EUR 278.5 m). The outflow of cash from investing activities totals EUR 261.2 m (previous year EUR 695.1 m). It comprises a cash outflow for investments in property, plant and equipment and intangible assets of EUR 364.0 m. The Group also recorded an inflow of EUR 127.8 m from the sale of property, plant and equipment and intangible assets as well as EUR 53.4 m from the sale of two consolidated companies. The cash flow from investing activities also includes an outflow of EUR 24.2 m in connection with the acquisition of consolidated companies and the acquisition of a joint venture. A cash outflow of EUR 54.2 m relates to short-term interest-bearing investments. The outflow of cash from financing activities totalled EUR 470.6 m (previous year EUR 478.3 m). TUI Group companies took out financial liabilities of EUR 4.5 m. Outflows included an amount of EUR 80.5 m for the redemption of financial liabilities, including EUR 51.7 m for finance lease obligations. At the reporting date, the external revolving credit line to manage the seasonality of cash flows and the Group's liquidity was not used. An outflow of cash of EUR 45.5 m relates to interest payments, while an outflow of cash of EUR 381.8 m resulted from dividends paid to TUI AG shareholders. In October 2017, an inflow of cash of EUR 32.7 m was generated by the sale of the shares in TUI AG held by the Employee Benefit Trust of TUI Travel Ltd., effected in the previous financial year. Cash and cash equivalents also decreased by EUR 2.4 m due to changes in exchange rates (in the previous year decline by EUR 14.3 m). At 31 March 2018, cash and cash equivalents of EUR 262.7 m were subject to restrictions (previous year EUR 261.0 m). On 30 September 2016, TUI AG entered into an agreement to close the gap between the obligations and the fund assets of defined benefit pension plans in the UK in the long run. At the reporting date an amount of EUR 144.2 m is deposited as security on a bank account. Until their disposal in financial year 2017, the shares in Hapag-Lloyd AG held by TUI AG were assigned as collateral. TUI Group can only use that cash and cash equivalents if it presents alternative collateral. Further, an amount of EUR 116.5 m (previous year EUR 116.5 m) was deposited with a Belgian subsidiary without acknowledgement of debt by the Belgian tax authorities in financial year 2013 respect of long-standing litigation over VAT refunds for the years 2001 to 2011. The purpose was to suspend the accrual of interest for both parties. In order to collateralise a potential repayment, the Belgian government was granted a bank guarantee. Due to the bank guarantee, TUI's ability to dispose of the cash and cash equivalents has been restricted. The other restrictions relate to cash and cash equivalents to be deposited due to legal or regulatory requirements. (16) Segment indicators Since the first quarter of 2018, the companies providing services in the destinations have been separately reported as the Destination Experiences segment. The other companies previously included in Other Tourism, such as the French scheduled carrier Corsair and central tourism functions such as information technology, are now included in All Other Segments. The prior year's figures were restated accordingly to reflect the changes in segmentation.
The following tables show the Group performance indicators EBITA and underlying EBITA. The TUI Group defines EBITA as earnings before interest, income taxes and goodwill impairment. EBITA includes amortisation of other intangible assets. EBITA does not include measurement effects from interest hedges and in the prior year also earnings effects from container shipping, as the stake in Hapag-Lloyd AG is a financial investment and not an operating investment from TUI AG's perspective.
In the first half year 2018, EBITA includes results of EUR 121.5 m (previous year EUR 105.6 m) from joint ventures and associates, primarily generated in Holiday experiences. The underlying EBITA has been adjusted for results on disposal of financial investments, expenses in connection with restructuring measures according to IAS 37, all effects of purchase price allocations, ancillary acquisition costs and conditional purchase price payments and other expenses for and income from one-off items. The one-off items carried as adjustments are income and expense items impacting or distorting the assessment of the operating profitability of the segments and the Group due to their size or frequency.
(17) Related parties Apart from the subsidiaries included in the consolidated financial statements, TUI AG, in carrying out its ordinary business activities, maintains direct and indirect relationships with related parties. All transactions with related parties were executed on an arm's length basis, based on international comparable price methods in accordance with IAS 24, as before. The equity stake held by Riu Hotels S.A., listed in the Notes on the consolidated financial statements as at 30 September 2017, remained unchanged at the reporting date for the interim financial statements. In the first half year 2018, the Russian entrepreneur Alexey Mordashov acquired further shares. At the reporting date, 31 March 2018, he held a 23.5 % stake in TUI. More detailed information on related parties is provided under Other notes in the Notes on the consolidated financial statements for 2017. Togebi Holdings Limited (TUI Russia) is a joint venture between Oscrivia Limited (Oscrivia), a subsidiary of Unifirm Limited, and TUI Group. Unifirm Limited is the subsidiary of OOO Severgroup, owned by a large shareholder and Supervisory Board member of TUI AG. In the reporting period, TUI Russia was granted shareholder loans worth USD7.8 m by TUI Group. (18) Significant transactions after the balance sheet date On 13 April 2018, TUI UK Ltd. acquired the cruise ship Mein Schiff 1 from TUI Cruises GmbH for a purchase price of EUR 202.2 m. After successful rebuilding, Mein Schiff 1 will be operated as Marella Explorer and expand the fleet of Marella Cruises. (19) International Financial Reporting Standards (IFRS) not yet applied We refer to our annual report for the 2017 financial year regarding the effects of the new standards relating to revenue recognition (IFRS 15), financial instruments (IFRS 9) and leases (IFRS 16). In comparison to those explanations, the following additional insights have been gained: IFRS 15 The group-wide examination of the effects of IFRS 15 has not yet been completed. TUI intends to first apply IFRS 15 retrospectively and present the comparative period in accordance with IFRS 15. We intend to make use of the relief not to reevaluate contracts fulfilled before 1 October 2017 based on IFRS 15. Revenue recognition at the tour operator: Individual revenue streams, which to date have been primarily recognised at the start date of the journey, will in future be required to be recognised over time under the new requirements. This hereby results in a subsequent realisation of revenue and cost of sales corresponding to the progression of the journey. As our financial year ends each year at the end of an off-peak season, the effects from the recognition of additional revenues and touristic expenses at the beginning of a financial year, and lower revenues and touristic expenses at the end of a financial year will almost entirely offset each other. In the preliminary opening balance sheet as at 1 October 2017, equity would probably decrease by a small two-digit million amount in comparison to the reported amount. We are currently in the process of completing the data analysis and verification of results, as well as implementing accounting systems, such that we are unable to reliably quantify further transition effects at this point in time. IFRS 9 The analysis of the effects of applying IFRS 9 has not yet been completed, so that we cannot reliably quantify the expected financial effects on transition at this point in time. We will make a decision shortly about the individual classification of the equity instruments held by the Group as financial assets 'at fair value through other comprehensive income' or as financial assets 'at fair value through profit and loss'. In the second half of the financial year, we will conduct an analysis of historical default rates to derive provision matrixes for those financial assets, for which the simplified approach to determine the impairment charges is applicable. For all other financial assets measured at amortised cost (e.g. touristic loans), we will determine the impairment under the expected credit loss model in accordance with the general approach. In comparison to the current bad debt allowances we do not anticipate material effects at this point in time. As the adaption of our treasury management systems regarding the hedge accounting requirements has not been completed yet, we have not yet decided whether we will make use of the accounting choice on transition to IFRS 9 to continue to apply the hedge accounting requirements of IAS 39.At this stage TUI anticipates no material effect on the consolidated financial statement upon transition to IFRS 9. IFRS 16 TUI has tentatively decided to make use of the recognition exemptions for short-term leases and leases of low-value assets. We intend to continue in the future - consistent with the internal management approach - to present intra-group leases in the segment reporting according to IFRS 8 as if they were operating leases under IAS 17. TUI will apply IFRS 16 effective 1 October 2019 in accordance with the modified retrospective transition method. The Group has not yet taken decisions about the various accounting choices and practical expedients available on transition in view of the commenced group-wide recording and evaluation of all external lease arrangements.
Responsibility statement To the best of our knowledge, and in accordance with the applicable reporting principles for Interim financial reporting and in the accordance with (German) principles of proper accounting, the interim consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and the interim Group management report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group for the remaining months of the financial year. Hanover, 7 May 2018 The Executive Board Friedrich JoussenHorst BaierDavid BurlingSebastian EbelDr. Elke EllerFrank Rosenberger
Review Report To TUI AG, Berlin / Germany and Hannover / Germany We have reviewed the condensed interim consolidated financial statements - comprising the statement of financial position, the income statement, the condensed statement of compre-hensive income, the condensed statement of cash flows, the condensed statement of changes in equity as well as selected explanatory notes to the financial statements - and the interim Group management report for the period from 1 October 2017 until 31 March 2018 of TUI AG, which are components of the half-year financial report pursuant to § 115 WpHG (Wertpapierhandelsgesetz: German Securities Trading Act).The preparation of the condensed interim consolidated financial statements in accordance with the IFRSapplicable to interim financial reporting as adopted by the EU, and of the interim group management report which has been prepared in accordance with the requirements of the WpHG applicable to interim Group ma-nagement reports is the responsibility of the entity's Management Board. Our responsibility is to express a report on the condensed interim consolidated financial statements and on the interim Group management report based on our review. We conducted our review of the condensed interim consolidated financial statements and the interim Group management report in accordance with the German generally accepted stan-dards for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW) as well as in supplementary compliance with the International Standard on Review En-gagements "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" (ISRE 2410). Those standards require that we plan and perform the review in com-pliance with professional standards such that we can preclude through critical evaluation, with limited assurance, that the condensed interim consolidated financial statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU or that the interim Group management report has not been prepared, in all material respects, in accordance with the requirements of the WpHG applicable to interim Group management reports. A review is limited primarily to inquiries of personnel of the entity and analytical procedures and therefore does not provide the as-surance attainable in a financial statement audit. Since, in accordance with our engagement, we have not performed a financial statement audit, we cannot issue an auditor's report. Based on our review, no matters have come to our attention that cause us to presume that the condensed interim consolidated financial statements have not been prepared, in material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU, or that the interim Group management report has not been prepared, in material respects, in accordance with the requirements of the WpHG applicable to interim group management reports. Hanover / Germany, 7 May 2018 Deloitte GmbHWirtschaftsprüfungsgesellschaft Christoph B. Schenk Dr. Hendrik NardmannGerman Public Auditor German Public Auditor
Cautionary statement regarding forward-looking statements The present half year financial report contains various statements relating to TUI's future development. These statements are based on assumptions and estimates. Although we are convinced that these forward-looking statements are realistic, they are not guarantees of future performance since our assumptions involve risks and uncertainties that could cause actual results to differ materially from those anticipated. Such factors include market fluctuations, the development of world market prices for commodities and exchange rates or fundamental changes in the economic environment. TUI does not intend to and does not undertake any obligation to update any forward-looking statements in order to reflect events of developments after the date of this Report.
Analyst and investor enquiries Peter KrügerDirector of Investor Relations and M&ATel.: + 49 (0)511 566 1440 Contacts for Analysts and Investors in UK, Ireland and Americas Sarah CoomesHead of Investor Relations Tel.: + 44 (0)1293 645 827 Hazel ChungInvestor Relations ManagerTel.: + 44 (0)1293 645 823 Contacts for Analysts and Investors in Continental Europe, Middle East and Asia Nicola GehrtHead of Investor RelationsTel.: + 49 (0)511 566 1435 Ina KloseInvestor Relations ManagerTel.: + 49 (0)511 566 1318 Jessica BlinneJunior Investor Relations ManagerTel.: + 49 (0)511 566 1425 The presentation slides and the video webcast for H1 2018 are available at the following link:www.tuigroup.com/en-en/investors
Financial Calendar 9 May 2018 Half Year Financial Report 2018 Capital Markets Day 9 August 2018 Quarterly Statement Q3 2018 27 September 2018 Pre-Close Trading Update 13 DecembeR 2018 Annual Report 2018 12 February 2019 Annual General Meeting 2019
Contact and publishing details Published byTUI AGKarl-Wiechert-Allee 430625 Hanover, GermanyTel: + 49 (0)511 566-00Fax: + 49 (0)511 566-1901www.tuigroup.com Concept and Design3st kommunikation, Mainz PhotographyTitle: TUI Cruises The English and a German version of this Half year financial report are available on the web: www.tuigroup.com/en-en/investors Published on 9 May 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ISIN: | DE000TUAG000, DE000TUAG299 |
| Category Code: | IR |
| TIDM: | TUI |
| LEI Code: | 529900SL2WSPV293B552 |
| OAM Categories: | 1.2. Half yearly financial reports and audit reports/limited reviews |
| Sequence No.: | 5516 |
| EQS News ID: | 683923 |
| End of Announcement | EQS News Service |
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