TUI AG (TUI)
This Annual Report 2021 of the TUI Group was prepared for the reporting period from 1 October 2020 to 30 September 2021.
1 We define the EBIT in underlying EBIT as earnings before interest, income taxes and result of the measurement of the Group's interest hedges. For further details please see page 58
2 EBITDA is defined as earnings before interest, income taxes, goodwill impairment and amortisation and write-downs of other intangible assets, depreciation and write-downs of property, plant and equipment, investments and current assets.
3 Equity divided by balance sheet total in %, variance is given in percentage points.
Interview with Friedrich Joussen
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Last year was marked by transition:
How does TUI rate the 2021 season in tourism?
The reboot after Easter and the summer season were successful for TUI. This shows also in the results. Of course, 2021 was a transition year. The late restart, some European source markets lifting restrictions in our fourth financial quarter only, not all destinations being permanently open - this required a lot of flexibility. Like no one else, TUI delivers this flexibility, because we have all steps of the value chain inhouse and can take fast and coordinated decisions. When we open hotels in a destination, we set up the flightplan, we have the aircraft to operate the destination and the teams on site to look after our guests. Everything meshes together. This is important for the guest and our service, and it is economically efficient. The good news for 2021 is: the market is intact, the COVID-19 pandemic has not changed that. Holidays are extremely important for people. Bookings in the fourth quarter were, as expected, around 50 % of a normal booking year. Despite the challenging environment, Hotels & Resorts and the Central and West regions were able to achieve positive results for the first time since the beginning of the pandemic. This once again demonstrates the benefits of our integrated business model. Our hotel partners and all the companies operating in tourism have enabled people to enjoy a safe, relaxing holiday. We want to say thank you - to our guests for their loyalty, to our colleagues for their great commitment and to our hoteliers and local partners for being so professional and hospitable.
What are TUI's expectations for the 2022 season?
Looking ahead to the 2022 summer season, we are positive. The indicators and trends are intact, summer 2022 is well booked and currently in line with capacity expectations. Presently, at the end of 2021, we are seeing the fourth wave, among others in our home market Germany. At the same time, many countries in southern Europe are very stable, with low incidences and high vaccination rates. These are destinations that were also well booked and very safe last winter. However, it is crucial to look ahead to spring and summer 2022. It is still too early to make a real forecast for the 2022 summer season. But we are optimistic that tourism will be able to recover to 2019 levels next summer. At the same time, we also know from 2021 that bookings will be made much later and at shorter notice. Bookings for summer 2022 from all TUI markets are already very encouraging.
What new trends in travel behaviour have you been seeing since the pandemic?
One major, lasting trend is customer demand for higher-value travel and more add-on services. Holidaymakers are willing to spend more money on, for example, room upgrades, a higher quality hotel or individual, authentic experiences. There has also been a slight increase in the average length of stay. At the moment we are seeing a strong shift towards the Mediterranean countries. We expect recovery in the long-haul business to follow a little later. But the long-haul destinations are on the way back, including North Africa and the Cape Verde Islands.
What hasn't changed, in your view?
Tourism is and will remain a strong growth market. It benefits from overarching social trends that are already very evident today and will intensify in the long term: People are getting older, they are healthier and live more consciously. Many have the financial means and make a conscious decision to travel. For many people, experiences and encounters are more important than property and possessions. You could say that experiences are the new luxury. People want to experience special moments. That is the holiday, the hotel or the cruise segment. Travel benefits from this. The pandemic has merely hit a pause button, but the trends are unbroken and continue.
What plans does TUI Group have for investment? Has the pandemic changed those plans in any way?
We will press ahead with our asset-right strategy, which we launched back in 2019 before the pandemic crisis began. That means more hotels to be operated by us, fewer hotels under our ownership. We are a hotel company, not a real estate company. The growth of the Group and its hotels will no longer be linked to investment. We are separating hotel management and the holiday experience from the ownership of real estate. The merits of the business case have been demonstrated globally by city hotels. With over 400 hotels, TUI is the global leader in the holiday hotel sector. For the customer experience, it's the brand and the quality of hotel that matter, not whether the property belongs to us. We will carry on creating a personalised hotel experience for our guests, and that can be done just as well through management contracts. We are on the look-out above all, for long-term strategic partnerships and we also give consideration to working with institutional investors. Basically, our growth plans include holiday hotels in Europe, East Asia, Africa and the Caribbean.
But you are also looking to transformation and digitalisation. Where does TUI stand there?
We began early to transform TUI from a vertically integrated tourism group into a digital platform company. That was already important before the crisis and was pushed forward massively. An extremely important building block is our business segment Activities and Experiences. We see great potential for the future there. As I said before, experience is the new luxury. We are active in more than 100 countries around the world, we connect the experiences of the world and the demands of the customers. For our own businesses and as a partner for third parties. Through the acquisition and integration of Musement, we have developed a strategic business area. The integration of Musement is complete and is delivering excellent results. The experiences platform is now so scalable and robust that other major travel portals are also using it for their customers.
Lots of destinations are looking to sustainability and quality, but that puts the price up. Does that fit in with your plans or does it reduce the number of people taking holidays?
Sustainability and quality are an important component in our strategy. We have invested in new aircraft, commissioned new cruise liners, and over 80 per cent of our hotels have been certified as sustainable. In 2019 we already cut out more than 250 million plastic items across all operations. The important thing is to protect the environment at the destination while enabling local people and local businesses to derive economic and social benefits from that. The way I see it, social and environmental sustainability belong together. I liked the motto they chose for the G20 summit: 'People, Planet, Prosperity'. Our sustainability agenda is called 'People, Planet, Progress'. Progress stands for moving forwards and the measurable advances that we want to achieve year by year. I look at greater sustainability and further transformation as entrepreneurial opportunities, not as a consequence of political regulation. We at TUI aren't starting out from scratch, but building on our programmes and successes of the last few years. TUI has always attached great importance to sustainability. Not only the company, but in particular our employees. At the same time, it is important to me that we do not outdo ourselves with promises, but set measurable targets, make conscious decisions and then make real progress. The decisions of recent years to invest in a modern, CO2-efficient aircraft fleet have been made in this way, and the reduction of plastic parts has followed the same logic.
How are you organising the disposal of interests to the Riu Group? What impact will it have on customers?
None at all. TUI still holds a 50 % stake in Riu. The core is and remains the successful 50:50 joint venture held by the Riu family and TUI, the hotel company. The operation and marketing of all Riu hotels, 100 of them around the world, all take place under that roof. Nothing changes for our guests, and Riu - just like in the past - makes a substantial contribution to earnings in the TUI hotel segment. The changes have affected a second branch, essentially a company engaged purely in owning real estate, which managed 21 properties. TUI held a 49 % minority stake in that real estate company. The Riu family have now taken those properties over completely. The sale has already been concluded several months ago and it has no impact on operations. Those 21 properties are still being operated and marketed by our joint hotel venture. For a hotel operator, owning the property is not the decisive factor. In fact, it tends to be the exception with big hotel brands. What counts is the management, the marketing, the design of the hotel and holiday experiences, and the hotel brands. Nothing has changed there at Riu and TUI.
No doubt, 2020 and 2021 are bound to enter history as pandemic years. What about 2022?
Following the transformation and restructuring of our business segments, and the reboot in tourism over the last few months, our focus is now on refinancing and reducing the drawdown of public loans. We want to, we can and we will find our way back to economic strength. We are working on this relentlessly. The new TUI will be leaner, more digital and more efficient. But it will continue to set standards in tourism in terms of quality, innovation, and sustainability. What makes us unique is our enthusiasm for what we do: creating holiday experiences for our customers. The desire for this will be greater than ever after two years of pandemic. This also makes all of us at TUI optimistic for 2022.
Thank you for your time.
Report of the Supervisory Board
Dear Ladies and Gentlemen,
The past financial year was marked by the effects of the COVID-19 pandemic. This brought many challenges. There were also bright spots, among other things. After the decline in the number of infections and initial relaxations, which also made travel to selected destinations possible again, had made us cautiously optimistic at the beginning of the financial year, the pandemic had us firmly in its grip again by November at the latest. The lockdown, which has been in effect since mid-December 2020, has significantly restricted public life and also brought travel to and from our key source markets and destinations to a virtual standstill once again. Large parts of Europe were declared risk areas again in autumn 2020, so that passenger traffic was severely restricted and strict testing and quarantine rules were implemented. The emergence of new virus variants as well as the bottleneck in the procurement of vaccines and the resulting delay in the start of the Europe-wide vaccination campaign has significantly dampened our expectations and hopes for the financial year at the beginning of 2021.
Even in this environment, our customers' desire to travel remained unbroken. As soon as destinations were able to reopen, bookings increased by leaps and bounds, despite testing obligations and strict hygiene measures. The best example of this was Mallorca over the Easter holidays. Our safety and hygiene concepts on the road and in the local hotels are effective and are regularly reviewed and revised. We have also revised and expanded our products and services to meet new customer needs: Flexible cancellation and rebooking options are now much more important than Last-Minute bargain prices. New offers such as workation and alternative accommodation are proving very popular. The TUI brand continues to stand for unforgettable holiday experiences, quality and safety and thus enjoys the trust of our customers. With the summer season, we were fortunately able to devote our full attention to the reopening of our hotels and the provision of flight capacity in most destinations and our ships were ready to set sail again.
However, the crisis is not over, the pandemic is not yet over and so we will closely monitor further developments in order to be able to react as flexibly as possible.
However, not only COVID-19, but also political events have shaped the past business year. Brexit went almost unnoticed by the public. The concrete challenges that this will bring for the operating business and our customers in our largest source market, the United Kingdom, will presumably only become fully apparent when the market environment returns to normal.
You, dear shareholders, have repeatedly demonstrated your confidence in our inherently intact and competitive business model in the past financial year. At the Extraordinary General Meeting in January 2021, you approved a substantial capital increase, thereby signalling to us that you believe in TUI's continued existence, recovery and competitiveness in a post-COVID-19 market environment and have confidence in the management. On behalf of the entire Supervisory Board, I would like to take this opportunity to express my sincere thanks to you!
The 2021 business year, however, presented not only challenges but also opportunities. We have used the pandemic-related operational standstill to drive forward the transformation into a digital platform company. The first functions are already available and the roll-out to the various source markets is progressing rapidly. For more than a year, most employees have been working almost entirely from home without any loss of efficiency or major technical difficulties. We all miss the personal exchange, of course, and that should return as soon as the situation allows. However, our working world has changed permanently and we want to take the positive effects and experiences with us into the time after the pandemic. In future, employees will be free to choose where they want to work from, TUI will merge office buildings and set up flexible workplaces through so-called desk sharing. This will make us more attractive to our employees, more flexible, more efficient and, last but not least, save us considerable costs.
We as the Supervisory Board have also adapted and got used to the new circumstances. All meetings were held digitally. Of course, we also hope that it will be possible to meet in person again. But we are now more flexible and know that the Supervisory Board has also successfully taken the path into the digital world.
Cooperation between the Supervisory Board and the Executive Board
The Executive Board and the Supervisory Board are closely guided by the principles of responsible and good corporate governance and work together in a spirit of trust in accordance with the principles set out in the Corporate Governance Report (page 109). In doing so, the Supervisory Board has primarily monitored the legality and regularity, expediency and efficiency of the actions of the management and the Executive Board, naturally with a significant focus on managing the impacts of the COVID-19 pandemic. Further details can be found in the report below.
The Executive Board kept us regularly, promptly and comprehensively informed through written and verbal reports at and outside meetings. These reports contained all relevant information on the development and implementation of strategic goals, liquidity development, planning, business development during the year and the situation of the Group, the risk situation and risk management, compliance, but also reports from the capital markets (e. g. from analysts) and the press. In financial year 2021, the focus was primarily on overcoming the challenges in connection with the COVID-19 pandemic and thus both the structural and financial consequences of the operational standstill and the resumption of business operations. The impact of Brexit, which took place at the beginning of 2021, and the corresponding consequences, especially for the UK source market, were also the subject of discussion. The Supervisory Board was involved in all decisions of fundamental importance for the company in good time. We passed the resolutions required by law, the Articles of Association or the Rules of Procedure after thorough consultation. For this purpose, we regularly prepared ourselves on the basis of documents that the Executive Board made available to the Supervisory Board and the committees in advance. The Executive Board also informed the Supervisory Board immediately about urgent issues in writing and at extraordinary meetings convened at short notice. As Chairman of the Supervisory Board, I was also regularly informed by the Executive Board about the current business situation and important business transactions in the company outside of the Supervisory Board meetings.
Deliberations in the Supervisory Board and its Committees
Prior to the Supervisory Board meetings, the shareholder and employee representatives met in separate preparatory meetings. Members of the Executive Board also regularly participated in these meetings. Discussions of Executive Board and Supervisory Board matters take place without the members of the Executive Board, unless otherwise requested by the members of the Supervisory Board. All members of the Supervisory Board may also submit to the Chairman of the Supervisory Board the need to discuss an item on the agenda without the presence of the Executive Board. In addition, the agenda of each meeting of the Supervisory Board provides for a separate agenda item, irrespective of the topic, for which the members of the Executive Board are not present. Members of the Supervisory Board may raise all topics to be discussed without the Executive Board within the scope of this agenda item.
In addition to the plenum, a total of four committees were established in the past financial year: the Presiding Committee, the Audit Committee, the Strategy Committee and the Nomination Committee. The Mediation Committee, to be formed in accordance with section 27, paragraph 3 of the German Co-determination Act, did not have to meet. The chairpersons of the committees report regularly and in detail on the work of the committees at the regular meetings of the Supervisory Board. In connection with the application for further stabilisation measures and the use of financing instruments, Transaction Committees set up by the Supervisory Board and consisting of Dr Zetsche, Mr Jakobi and Prof. Dr Ernst met. This made it possible to pass resolutions at very short notice within the framework granted by the Supervisory Board, insofar as this was necessary. All documents and the minutes of the Transaction Committees were always accessible to all members of the Supervisory Board. In addition, the meetings were reported on at the respective subsequent Supervisory Board meeting. No additional remuneration or attendance fees were paid for the meetings of the Transaction Committees.
Despite the high number of meetings, we were able to record a consistently high attendance rate at our consultations in financial year 2021, as in previous years. Attendance at the plenary meetings averaged 95.0 % (previous year 97.1 %) and at the committees 98.6 % (previous year 98.8 %). The vast majority of the members of the Supervisory Board participated in all meetings of the Supervisory Board and in its committees in accordance with their respective membership in financial year 2021. Members who were unable to attend the meetings generally participated in the resolutions by sending written votes. The timely distribution of documents by the Executive Board in advance of the meetings and the almost universal avoidance of table papers made the preparation of the meetings much easier for the members of the Supervisory Board. All Supervisory Board and committee meetings in the reporting period were held as video conferences against the background of the COVID-19 pandemic.
Attendance at meetings of Supervisory Board financial year 2021
(In brackets: number of meetings held)
Main topics of the Supervisory Board's work
There were 15 meetings of the Supervisory Board. In addition, four resolutions were passed by circular decision. Furthermore, the respective Transaction Committees of the Supervisory Board met four times and another resolution was passed by circular resolution. The following focal points were the subject of the individual meetings:
1. At its meeting on 6 October 2020, the Supervisory Board first reviewed the past financial year and approved the budget for financial year 2021. Furthermore, the Supervisory Board dealt with the prerequisites of a possible capital increase with subscription rights, taking into account the existing regulations in the United Kingdom, and gave its approval to the establishment of a corresponding Transaction Committee to ensure a short-term resolution. Furthermore, a report was given on the current state of negotiations between the EU and the United Kingdom regarding the upcoming Brexit and possible consequences for free air traffic. The Supervisory Board also explored the possibility of holding the 2021 Annual General Meeting in virtual form. Among the Executive Board matters, the Supervisory Board decided to terminate the appointment of Ms Conix by mutual agreement at the end of the year and to give Mr Ebel responsibility for the finance department. In addition, Mr Krueger was appointed as a new member of the Executive Board for the business area 'Group Strategy, M&A, Airline and JV's' with effect from the beginning of 2021. In addition to approving the organizational chart of the Executive Board, the Supervisory Board decided, among other things, to waive the determination of the individual performance factor for the Executive Board's annual performance-related remuneration (STI) in view of the current circumstances and determined the appropriateness of the Executive Board's pension remuneration for the past financial year.
2. The extraordinary meeting on 19 October 2020 included an update on securing the Group's liquidity. The Executive Board reported on concrete considerations to forego the capital increase for the time being in view of the current market environment and to apply for further state aid instead.
3. At an extraordinary meeting on 20 November 2020, the Executive Board provided information on the impact of government measures to contain the COVID-19 pandemic, the current status of the application process at the WSF for further government aid and presented the updated liquidity forecast. In addition, the immunologist and scientific advisor to the Society, Prof. Dr Kaufmann, reported on the development and effectiveness of vaccines and current developments.
4. In its meeting on 2 December 2020, the Supervisory Board approved, after intensive discussion, the term sheet agreed with the WSF for a further stabilisation package, as well as the establishment of a corresponding committee consisting of Dr Zetsche, Mr Jakobi and Prof. Dr Ernst to enable a decision to be taken at short notice. The Executive Board also gave an overview of the current liquidity situation and forecasts based on it and discussed the draft of the non-financial statement. In addition, the impact of the pandemic on the workforce, such as through short-time working and the long-term changes in work design and culture, as well as internal restructuring and cost-saving programmes, were outlined.
5. At the meeting on 9 December 2020, the Executive Board informed the Supervisory Board about the current status of the process for the further granting of stabilisation measures and the associated antitrust and state aid review by the EU: The financial statements of the Group and TUI AG, each of which had been issued with an unqualified audit opinion by the auditors, and the combined management report for the Group were then discussed. The auditors were also present. A discussion was also held with the auditors in the absence of the Executive Board members. We then approved the financial statements prepared by the Executive Board and the combined management report for TUI AG and the Group. The annual financial statements for financial year 2020 were thus adopted. The Supervisory Board also approved the Report of the Supervisory Board, the Corporate Governance Report and the Remuneration Report. In addition, the declarations of compliance with the German and UK Corporate Governance Codes and the proposal to the General Assembly to engage Deloitte GmbH Wirtschaftprüfungsgesellschaft for the 2021 half-year and annual financial statements were adopted. Furthermore, the Supervisory Board decided to hold the extraordinary general meeting on 5 January 2021 virtually and agreed to disclose the voting results and voting intentions of the members of the Supervisory Board.
6. At its meeting on 28 December 2020, the Transaction Committee approved the measures required for the implementation of the third package of stabilisation measures.
7. On 3 January 2021, the Transaction Committee approved the amendment to the revolving credit facilities in connection with stabilisation measures.
8. On 7 January 2021, the Transaction Committee lifted the closed period resulting from internal requirements by means of a circular decsision in order to allow the exercise of subscription rights for TUI employees against the background of the upcoming capital increase. These employees had, for example, participated in the Company's employee share programme in previous years and were thus shareholders of the Company.
9. The meeting of 8 February 2021 included explanations on the quarterly report and quarterly financial report. The Executive Board then presented the updated liquidity planning based on different recovery scenarios regarding the summer business. In addition to planning for the Annual General Meeting, the Supervisory Board dealt with the changes to the remuneration restrictions applicable to the members of the Executive Board from the second framework agreement with WSF and approved the conclusion of corresponding addenda to the service agreements.
10. In preparation for the Annual General Meeting 2021, the Supervisory Board formally adopted the remuneration systems for the Executive Board and the Supervisory Board in its extraordinary meeting on 26 February 2021. Furthermore, a resolution was passed on the election proposals concerning Dr Doenges, Ms Kugel, Prof. Dr Ernst and Mr Mordashov. In addition to an update on the new composition of the committees, the agenda and the holding of the Annual General Meeting as a virtual event were resolved and the Executive Board reported on the current liquidity situation of the company.
11. At its constituent meeting on 25 March 2021, the Supervisory Board re-elected Mr Jakobi as Deputy Chairman of the Supervisory Board. In addition, it was decided that in future the Presiding Committee would only consist of three shareholder and three employee representatives. In addition, the Supervisory Board passed resolutions on the composition of the Presiding Committee, the Audit Committee, the Strategy Committee and the Mediation Committee as well as the respective chairmanship of the Audit Committee and the Presiding Committee. In addition, the composition of the Nomination Committee was discussed. In addition, the Executive Board gave an update on liquidity development, corresponding forecasts and possible measures.
12. In a circular desiscion on 1 April 2021, the Supervisory Board unanimously approved the divestment of all shares held by TUI in Entreprises Hotelieres et Touristiques Paladien Lena Mary AE ('Lena Mary').
13. The extraordinary meeting on 6 April 2021 dealt with the marketing of a convertible bond. The Supervisory Board approved the issue in principle and set up a Transaction Committee to enable a resolution to be passed at short notice if necessary.
14. In its first meeting on 9 April 2021, the Transaction Committee gave its approval to the marketing of a convertible bond in the early morning.
15. In its second meeting on 9 April 2021, the Transaction Committee gave its approval in the afternoon to determine the final terms of a convertible bond.
16. Following a cancellation at short notice of the transaction approved by the Supervisory Board on 1 April 2021, the Supervisory Board approved the sale of all TUI shares in Lena Mary to an alternative prospective buyer in a circular decision on 28 April 2021.
17. At the meeting on 11 May 2021, the Executive Board first reported on the liquidity development and financial recovery before presenting the report on the current financial year, the quarterly financial statements and the first half of 2021. The implications of the ownership structure in connection with the EU Ownership and Control Regulation and possible next steps in this regard were then discussed, and the measures for risk identification, safety concepts and implementation of testing and vaccination campaigns were presented. In the context of Executive Board matters, we appointed, on the recommendation of our Presiding Committee, Ms Sybille Reiss as successor to Dr Eller as member of the Executive Board and Labour Director with effect from 1 July 2021 and accordingly approved the termination of Dr Eller's appointment and the expiry of her service agreement at the contractual end. After addressing the results and derived measures of the self-assessment conducted in September 2020, we received an update on the preparations for the 2022 Annual General Meeting. In addition, the Executive Board informed us about the possibility of selling the Castelfalfi complex.
18. With the circular decision of 21 May 2021, the Supervisory Board approved the already announced sale of 100 % of the shares in Tenuta di Castelfalfi.
19. On 27 May 2021, we gave our consent to the divestment of the shares TUI has held in Riu Hotels S. A. We assured ourselves that the partnership cooperation in Riu II will not be affected by this transaction. In addition, we were provided with updated documents on the 3-year plan as well as on trading and liquidity.
20. In a so-called learning session on 2 June 2021, the Supervisory Board was informed in detail about the requirements of the UK Securities and Exchange Commission as well as the rights and obligations of Directors in connection with a possible capital increase, in particular with regard to the prospectus required for BaFin and FCA. Both our external legal advisors and representatives of the bank acting as sponsor participated in this meeting.
21. The extraordinary meeting on 25 June 2021 initially dealt with an update from the Executive Board regarding the resumption of business, the current liquidity situation and the corresponding planning. In addition, the Supervisory Board gave its approval in principle to the increase of the 2021 convertible bond and the establishment of a Transaction Committee in the usual composition in case it had to be set up. However, the Transaction Committee was not needed.
22. By circular resolution dated 26 July 2021, the Supervisory Board approved the maturity extension of the revolving credit facilities (RCF) until summer 2024.
23. At the strategy meeting on 8 September 2020, the Supervisory Board dealt with strategic issues relating to progress in the development of platform technologies and the strategic positioning of the Group's own airlines. In addition, the budget for the coming financial year and the three-year plan were discussed, which also included strategic topics due to the necessary balance sheet restructuring.
On the second day of the meeting, the Supervisory Board received an update on the liquidity as well as the financial profile of the Group during its ordinary meeting on 9 September 2021. In addition, resolutions were passed on the determination of the target total remuneration of the Executive Board members, on the determination of the target values for the annual performance-related remuneration as well as on the determination of the performance criteria for the individual performance for the following financial year 2022. These resolutions were subject to the validity of the remuneration restrictions from the Framework Agreement II. Furthermore, the Supervisory Board dealt with the review of the appropriateness of the Executive Board remuneration and pensions as well as the review of the appropriateness of the Supervisory Board remuneration. With the resolution on the Financial Market Integrity Strengthening Act (Finanzmarktintegritätsstärkungsgesetz - FISG), the Supervisory Board fulfilled its obligations arising from the statutory new provisions of the Act. In addition, the Supervisory Board approved the termination of the profit and loss transfer agreements between TUI AG and DEFAG I GmbH and between TUI AG and DEFAG III GmbH, along with other transactions requiring its consent.
24. In its extraordinary meeting on 24 September 2021, the Executive Board reported to the Supervisory Board on the process, timetable and potential volume of a capital increase. The Supervisory Board approved the capital increase in principle and established a Transaction Committee.
The Presiding Committee is responsible for Executive Board matters (including succession planning, appointments, terms of service agreements, remuneration, proposals for the remuneration system). In addition, the Presiding Committee prepares the meetings of the Supervisory Board. Five meetings were held during the reporting period.
The Presiding Committee, which is equally represented, consists of:
1. At the meeting on 6 October 2020, the Presiding Committee primarily dealt with Executive Board matters. The proposal to comply with the wish of Ms Conix and to terminate her appointment at the end of the year, to transfer the responsibility for the finance department to Mr Ebel and to appoint Mr Krueger to the Executive Board with effect from 1 January 2021 was developed. In this context, a change in the organizational chart of the Executive Board was also discussed. In addition, the Presiding Committee made the recommendation to refrain from setting the individual performance factor for financial year 2020 in view of the voluntary waiver of the members of the Executive Board.
2. On 8 February 2021, the Presiding Committee dealt with the liquidity situation, the Q1 report and the preparation of the Annual General Meeting.
3. TUI AG's Annual General Meeting was the subject of the extraordinary meeting on 26 February 2021. Apart from recommendations on proposed resolutions to the AGM concerning the remuneration systems for the Executive Board and Supervisory Board, the Presiding Committee dealt with possible election proposals, the future composition of the committees as well as the agenda and virtual format of the AGM.
4. At its meeting on 10 May 2021, the Presiding Committee prepared a recommendation for the appointment of Ms Sybille Reiss as a member of the Executive Board and as Labour Director as well as the early termination of the appointment of Dr Eller. In addition, the long-term succession planning for the Supervisory Board and especially for the Executive Board and the associated challenges against the background of the remuneration restrictions were discussed. The Presiding Committee also recommended approval of the change to the organizationl chart of the Executive Board, gave its consent to Mr Ebel taking on two further external Supervisory Board mandates. Finally, the results as well as derived measures from the self-assessment of the Supervisory Board conducted in September 2020 were discussed.
5. On 7 September 2021, the Presiding Committee dealt with the general process of succession planning in the Executive Board. In addition, the determination of the target total remuneration of the members of the Executive Board as well as the target values of the annual performance remuneration for the financial year 2022 were discussed. The performance criteria for the individual performance of the Executive Board, which is always also based on ESG criteria, was also discussed in preparation for a resolution by the Supervisory Board. In addition, the appropriateness of the remuneration of the Executive Board and the remuneration of the Supervisory Board was discussed. Furthermore, the preparation of the resolution of the Supervisory Board on the innovations from the Financial Market Integrity Strengthening Act (Finanzmarktintegritätsstärkungsgesetz - FISG) was on the agenda of the Presiding Committee.
The audit committee held six ordinary and two extraordinary meetings in financial year 2021. For the detailed report of the Audit Committee and for information on its composition, tasks, deliberations and resolutions, please see page 20.
The Nomination Committee proposes suitable shareholder candidates to the Supervisory Board for its election proposals to the Annual General Meeting or for appointment by the local court.
The members of the Nomination Committee, which met three times, were:
1. At the meeting on 1 December 2020, the Nomination Committee dealt with the future composition of the Supervisory Board, in particular against the background of the requirement associated with the granting of stabilisation measures that two persons nominated by the WSF be appointed as members of the company's Supervisory Board.
2. In another meeting on 19 January 2021, the Nomination Committee discussed possible proposals for the future composition of the Supervisory Board and its committees.
3. At its meeting on 16 February 2021, the Nomination Committee recommended that the Supervisory Board propose the re-election of Prof. Dr Ernst and Mr Mordashov at the 2021 Annual General Meeting. Furthermore, the Nomination Committee recommended to propose the election of Dr Doenges and Ms Kugel as WSF nominees at the 2021 Annual General Meeting.
The task of the Strategy Committee is to advise the Executive Board on the development and implementation of the corporate strategy. The committee held a total of six meetings during the financial year.
The members of the Strategy Committee were:
1. In its meeting on 5 October 2020, the Strategy Committee discussed the current liquidity situation, but also the financial profile and corresponding recovery scenarios. In addition, important key figures were discussed.
2. On 1 December 2020, the Strategy Committee discussed different approaches for cost-saving programmes that were developed together with an external consulting firm.
3. The Strategy Committee discussed a further update on cost savings on 12 January 2021. It also discussed which additional measures would be beneficial to the company's recovery in the longer term.
4. On 8 February 2021, the committee dealt with the concrete implementation of the cost-saving programmes. The progress of the individual projects, which are monitored in a separate project office, was presented and discussed.
5. In its meeting on 6 April 2021, the progress of the cost-saving programmes was reported again. In addition, feedback from customers was discussed, who had made their first experiences with holidays under hygiene protection measures in the slowly restarting business. The Strategy Committee also received an update on the restructuring of TUIfly and the current liquidity situation. The update also included a discussion on how to reduce the company's debt.
6. At its meeting on 10 May 2021, the Strategy Committee received a further update on the cost-saving programmes and liquidity. Different scenarios of a returning business with the respective effects on the company's earning power were also discussed. In addition, the Strategy Committee received an update on current IT projects and discussed the product strategy.
The TUI AG share has its initial listing on the London Stock Exchange in the United Kingdom. In this context, TUI AG's constitution as a stock corporation under German law naturally requires the Supervisory Board to deal regularly and in great detail with the recommendations of both German and UK corporate governance. Apart from mandatory compliance with the provisions of the German Stock Corporation Act (Aktiengesetz - AktG), the Co-Determination Act (Mitbestimmungsgesetz - MitbestG), the Listing Rules and the Disclosure and Transparency Rules, TUI AG had declared in 2014 in the framework of the merger with TUI Travel PLC that it would comply with both the German Corporate Governance Code (DCGK) and - to a practicable extent - the UK Corporate Governance Code (UK CGC).
For the DCGK, which is based on the German Stock Corporation Act (Aktiengesetz - AktG) in its basic conception, we were able to submit the Declaration of Conformity 2021 with the Executive Board in accordance with section 161 AktG. The DCGK is complied with, with the exception of some recommendations in section G. I.3. The deviations from the UK CGC are largely due to the conceptual difference between the monistic management system of a public listed company in the United Kingdom (so-called one-tier board) and the dualistic management system consisting of Executive Board and Supervisory Board in a public limited company (so-called two-tier board) under German law.
In conducting the audit of the financial statements, the auditor did not identify any facts that would indicate that the declaration on the DCGK issued by the Executive Board and the Supervisory Board was incorrect.
Further information on Corporate Governance, the Declaration of Conformity 2021 pursuant to section 161 of the German Stock Corporation Act (AktG) and the declaration on the UK CGC can be found in the Corporate Governance Report jointly prepared by the Executive Board and the Supervisory Board in this Annual Report on page 109 and on TUI AG's website.
Conflicts of interest that have arisen
The Supervisory Board has continuously monitored whether conflicts of interest could arise in the current financial year. It has determined that no conflict of interest arose in the 2021 financial year.
Audit of the annual financial statements and consolidated financial statements of TUI AG and the TUI Group
The Supervisory Board examined whether the annual financial statements and the consolidated financial statements as well as the other financial reporting complied with the applicable requirements. The annual financial statements of TUI AG prepared by the Executive Board in accordance with the rules of the German Commercial Code (Handelsgesetzbuch - HGB), the combined management report of TUI AG and the TUI Group and the consolidated financial statements for financial year 2021 prepared on the basis of the International Financial Reporting Standards (IFRS) were audited by Deloitte GmbH Wirtschaftsprüfungsgesellschaft, Hanover, and issued with an unqualified audit opinion in each case. The aforementioned documents, the Executive Board's proposal for the appropriation of the balance sheet profit and the auditor's reports were submitted to all members of the Supervisory Board in good time. We discussed them in detail at the audit committee meeting on 6 December 2021 and at our balance sheet meeting on 7 December 2021, at which the Executive Board explained the financial statements in detail. At these meetings, the chairman of the audit committee and the auditor reported on the results of their audits, the focus of which had previously been determined with the audit committee for the reporting year. Neither the auditor nor the audit committee identified any weaknesses in the early risk detection and internal control system. On the basis of our own review of the annual financial statements, the consolidated financial statements and the combined management report, we had no cause for objections and therefore concurred with the Executive Board's assessment of the situation of TUI AG and the TUI Group.
On the recommendation of the Audit Committee, we approved the financial statements for financial year 2021; the annual financial statements of TUI AG are thus adopted.
Composition of the Executive Board and Supervisory Board
The composition of the Executive Board and the Supervisory Board as at 30 September 2021 is shown in the overviews on pages 105 and 106 for the Supervisory Board and on page 107 for the Executive Board.
In the following I will give you an overview of the personnel changes in the Supervisory Board. It should be mentioned in advance that it was agreed with the Economic Stabilisation Fund (Wirtschaftsstabilisierungsfonds - WSF) within the framework of the agreed stabilisation measures to work towards appointing two persons nominated by WSF as members of the Supervisory Board.
Ms Angelika Gifford and Mr Peter Long retired from the Supervisory Board of TUI AG as shareholder representatives at the end of the 2021 Annual General Meeting. Ms Gifford had been a member of our Board since February 2016 and had noticeably enriched us with her expertise in digital technologies and social media. She has always closely followed and scrutinised the management's digitalization strategy and has made constructive contributions to highlight potential challenges as well as solutions. Due to her other professional commitments, Ms Gifford unfortunately did not stand for re-election to the Supervisory Board at this year's Annual General Meeting. We wish her every success in her future endeavours.
Mr Long has also decided not to stand for re-election to the Supervisory Board for the benefit of the Company with regard to the WSF's right of nomination and therefore left the Supervisory Board at the end of the 2021 AGM. Mr Long was extremely closely associated with TUI for many years: He had been CEO of the former TUI Travel PLC since 2007 and, following the successful merger, co-chaired the Executive Board of TUI AG together with Mr Joussen. Since 2016, he has been a member of the Supervisory Board and also Chairman of the Strategy Committee. The company and also the Supervisory Board have benefited greatly from his many years of experience and expertise in the tourism sector. Both operationally and strategically, Mr Long has played a key role in shaping and accompanying important developments at TUI. As Chairman of the Strategy Committee, he accompanied the transformation into a digital platform company with a well-founded critical eye. We thank him for his extraordinary commitment and wish him all the best for the future.
In place of Ms Gifford and Mr Long and at the proposal of the WSF and the Supervisory Board, Dr Jutta Doenges and Ms Janina Kugel were elected to the Supervisory Board of TUI AG by the shareholders at the 2021 Annual General Meeting. For more than three years, Dr Doenges has been Managing Director of state owned Finanzagentur GmbH, which, among other things, manages WSF's involvement with TUI AG. In this capacity, Dr Doenges has been proposed by WSF for membership of our Supervisory Board. As an economist engineer with a doctorate, she looks back on an impressive career as, among other things, Executive Director of the Investment Banking Division at Goldman Sachs and Chair of the Steering Committee of the Federal Agency for Financial Market Stabilisation. Particularly in view of the challenges still ahead, we are very pleased to have gained a true expert on investment and financing topics in her.
Janina Kugel, who studied economics, has many years of experience in human resources management in various companies and sectors. She is known to the public at the latest through her Executive Board mandate at Siements AG. With her, we welcome an extremely experienced manager on board our Supervisory Board, especially with regard to transformation and restructuring, as well as the associated changes in working methods and culture, also on the international stage.
In view of the current challenges, which concern not only the purely operative business, but also our position on the financial market and our internal repositioning, both bring valuable experience and expertise and are an optimal addition to our Supervisory Board.
Upon retirement, Mr Poenipp resigned from the Supervisory Board of TUI AG as an employee representative on 28 February 2021. Mr Poenipp had been a member of the Supervisory Board since April 2013 and was a member of both the Presiding Committee and the Audit Committee. Due to his experience and in-depth understanding of the operative business, he was a highly valued contact for all of us. Moreover, TUI's employees have had a committed and extremely competent representative of their interests on the Supervisory Board in him, who most recently served as Chairman of the Works Council of the Tour Operator of TUI Deutschland GmbH and Deputy Chairman of the General Works Council of TUI Deutschland GmbH. We wish Mr Poenipp all the best in his well-deserved retirement and, above all, continued good health.
Dr Dierk Hirschel also resigned from the Supervisory Board of TUI AG as an employee representative at the end of the 2021 Annual General Meeting. Dr Hirschel, Head of Economic Policy at the Ver.di trade union, had been a member of our Supervisory Board and also of the Audit Committee for six years. With his outside view of the Company, he always had the macroeconomic context in mind and always encouraged the members of the Supervisory Board but also the management to discuss and pursue new approaches and ideas. We thank him for his commitment and wish him all the best for the future.
We were pleased to welcome Ms Tanja Viehl and Mr Mark Muratovic to the Supervisory Board as new employee representatives at the end of the 2021 Annual General Meeting. Ms Viehl has now been working for the Vereinigung Cockpit e. V. for four years as a lawyer specialising in collective bargaining policy. With her experience in labour law issues in the aviation industry, she is an competent addition to our board.
Mr Muratovic has worked for TUI Deutschland GmbH since 1999 in various sales-related positions and currently holds the position of Deputy Chairman of the General Works Council of TUI Deutschland GmbH in addition to his role as Chairman of the Works Council of the Tours Operator of TUI Deutschland GmbH. With his in-depth knowledge of the operating business, he is a valuable partner for us on the Supervisory Board of TUI AG.
Mr Michael Poenipp retired from the Presiding Committee on 28 February 2021. Due to the upcoming Annual General Meeting, there was no immediate replacement for his vacant mandate. With their resignation from the Supervisory Board, Ms Angelika Gifford and Mr Peter Long also resigned from the Presiding Committee after the Annual General Meeting on 25 March 2021.
As the size of the Presiding Committee was reduced from eight seats to six seats, there was no replacement of Mr Michael Poenipp on the side of the employee representatives. On the side of the shareholder representatives, Prof. Dr Ernst was elected as a member of the Presiding Committee.
Until the 2021 Annual General Meeting, the equally represented Audit Committee consisted of: Prof. Dr Edgar Ernst as Chairman, Mr Andreas Barczewski, Dr Dierk Hirschel, Mr Frank Jakobi, Mr Vladimir Lukin, Ms Coline McConville and Dr Dieter Zetsche. Mr Michael Poenipp retired from the Supervisory Board of TUI AG and thus also from its Audit Committee at the end of 28 February 2021.
The current Audit Committee was elected from the members of the Supervisory Board immediately after the Annual General Meeting in March 2021. The election of the committee members is valid for the respective duration of their Supervisory Board mandate. The audit committee, with equal representation, currently consists of Prof. Dr Edgar Ernst as chairman, Dr Jutta Doenges, Mr Stefan Heinemann, Mr Frank Jakobi, Mr Vladimir Lukin, Mr Mark Muratovic, Mr Stefan Weinhofer and Dr Dieter Zetsche.
Following the resignation of Mr Peter Long from the Supervisory Board and thus also from TUI AG's Nomination Committee, the vacant seat was filled by Prof. Dr Edgar Ernst.
Both Mr Peter Long as Chairman and Ms Angelika Gifford resigned from the TUI AG Supervisory Board Strategy Committee on 25 March 2021. The Committee is now chaired by Dr Dieter Zetsche. The vacant seats have been occupied by Dr Jutta Doenges and Ms Coline McConville since 25 March 2021.
In financial year 2020, Ms Conix announced that she would not be renewing her service agreement, which was goin to expire on 14 July 2021. After intensive discussion, the Supervisory Board decided to appoint Mr Sebastian Ebel as CFO with effect from 1 January 2021 and Mr Peter Krueger as a new member of the Executive Board with responsibility for Strategy, M&A, Airlines and Joint Ventures. In accordance with the wishes of Dr Elke Eller, her service agreement was also not extended. Dr Elke Eller's appointment as a member of the Executive Board was terminated at the end of 30 June 2021. She was succeeded as CHRO and Labour Director by Ms Sybille Reiss with effect from 1 July 2021.
The Supervisory Board would like to thank all employees of the TUI Group for their great commitment, which has carried TUI through a financial year with unprecedented challenges, as in the previous year. Against the backdrop of the still great uncertainties in 2021, your commitment is a remarkable achievement!
Hanover, 6 December 2021
For the Supervisory Board,
Dr Dieter Zetsche
Audit Committee Report
As the Audit Committee, we are tasked with supporting the Supervisory Board in the performance of its monitoring function. In this context, we deal with the audit of accounting, the monitoring of the accounting process, the effectiveness of the internal control system, the risk management system and the internal audit system, as well as the audit of the financial statements and compliance. The accounting process includes, in particular, the consolidated financial statements and the Group management report, including CSR reporting, financial information during the year and the separate financial statements in accordance with the German Commercial Code (HGB). In the financial year under review, we dealt in particular with issues relating to the TUI Group's accounting and financial reporting, as required by law, the German Corporate Governance Code (DCGK), the UK Corporate Governance Code (UK CGC) and the rules of procedure of the Supervisory Board.
In addition, the Audit Committee is responsible for the selection of the external auditor, whereby it also reviews the qualification as well as the independence of the auditor. The selected auditor is then proposed by the Supervisory Board to the Annual General Meeting for appointment. After the appointment by the Annual General Meeting, the Supervisory Board formally commissions the external auditor to audit the annual financial statements and the consolidated financial statements. The auditor is also commissioned to review the half-yearly financial report and any additional interim financial information that meets the requirements for the half-yearly financial report. The Audit Committee has agreed with the auditor that the latter will inform the Audit Committee without delay of all findings and events of significance for its tasks that come to its attention during the performance of the audit. Furthermore, the Audit Committee has agreed with the auditor that the auditor will inform the Committee and make a note in the audit report if, during the performance of the audit, the auditor ascertains facts that show a misstatement in the declaration on the DCGK issued by the Executive Board and the Supervisory Board. In addition, the Audit Committee regularly assesses the quality of the audit.
Until the 2021 ordinary Annual General Meeting, the Audit Committee consisted of as set out in the report of the Supervisory Board, an equal number of members of both shareholder representatives and employee representatives: Prof. Dr Edgar Ernst (Chairman), Andreas Barczewski, Dr Dierk Hirschel, Frank Jakobi, Vladimir Lukin, Coline McConville and Dr Dieter Zetsche. Michael Pönipp retired from TUI AG's Supervisory Board and thus also from its Audit Committee at the end of 28 February 2021.
The current Audit Committee was elected from the members of the Supervisory Board immediately after the Annual General Meeting in March 2021. The election of the committee members is valid for the respective term of their Supervisory Board mandate. The Audit Committee with equal representation currently consists of the following eight members of the Supervisory Board:
The Chairman of the Audit Committee has special knowledge and experience in the application of accounting principles and internal control procedures and is familiar with the auditing of financial statements. In the opinion of the Supervisory Board, he is independent of the Company and the Executive Board (for information on the independence of the other members of the Audit Committee, see page 110). At least one other member of the Audit Committee has expertise in the field of auditing. The members of the Audit Committee all have competencies relevant to the sector in which the Company operates.
The Audit Committee meets regularly six times a year. The meeting dates and agendas are based in particular on the Group's reporting cycle and the Supervisory Board's agendas. Additional meetings may be held on specific topics. These topic-related meetings generally also include a meeting at which the Executive Board explains to the Audit Committee the main content of the Pre-Close Trading Update, which is published shortly before the reporting date for the annual financial statements. Due to the market environment and the very short-term bookings, particularly at the end of financial year 2021, a Post-Close Trading Update was considered more suitable, which then already fell into the financial year following the reporting period. Moreover, the Audit Committee held two extraordinary meetings in the reporting period.
In addition to the members of the Audit Committee, the meetings were also attended by the Chairman of the Executive Board and the Chief Financial Officer, as well as the heads of Group Financial Accounting & Reporting, Group Audit, Group Legal, Compliance & Board Office, Group Treasury, Group Controlling and Group Investor Relations & Corporate Finance.
The auditors were invited to attend the meetings to discuss relevant issues. Other members of TUI Group's senior management and managers with operational responsibility or external consultants were invited as required.
In addition to the meetings of the Audit Committee, the Chairman of the Audit Committee also held individual discussions with the Executive Board, divisional managers or the responsible partners of the auditor if this appeared necessary to go into more detail on individual topics and issues. The Chairman of the Audit Committee reported on the main results of these discussions at the following meeting of the Audit Committee.
The Chairman of the Audit Committee reports on the work and proposals of the Audit Committee and on the content of individual discussions at the subsequent Supervisory Board meeting.
The members attended the meetings of the Audit Committee as shown in the table on page 13.
Informational value of financial reporting and monitoring of the accounting process
The preparation of the annual financial statements and annual report of a German stock corporation is the sole responsibility of the Executive Board. Pursuant to Section 243 (2) of the German Commercial Code (HGB), the annual financial statements must be clear and concise and provide a realistic overview of the company's economic situation. This is in line with the requirements of the UK Corporate Governance Code (UK CGC), according to which the annual financial statements and annual report must be accurate, balanced and comprehensible. Against this background, the Executive Board is satisfied - although the assessment was not delegated to the Audit Committee - that the submitted Annual Report meets the requirements of both legal systems.
In order to satisfy ourselves as well of the informative value of the annual financial statements and the interim reporting, we were informed in detail by the Executive Board about the business development and the financial situation of the Group at the four Audit Committee meetings held immediately prior to the publication of the respective financial statements. The relevant reports were discussed. At these meetings, the auditors also reported in detail on material aspects of the financial statements and on the results of the audit or the auditors' review. In principle, discussions can always take place in the absence of the Executive Board.
In order to monitor accounting, we intensively dealt with individual aspects. As in the previous year, TUI's economic development due to the COVID-19 crisis was naturally a central topic in our meetings. We received detailed reports from TUI AG's Executive Board on the measures taken to secure liquidity, in particular with regard to state-backed financing, and planned capital measures.
In addition, we examined the accounting treatment of significant balance sheet items, in particular goodwill, tangible fixed assets, touristic payments on account for hotel services and other provisions. In consultation with the auditors, we satisfied ourselves that the assumptions and estimates underlying the accounting treatment were appropriate. Furthermore, material aspects arising from operations, in particular the impairment testing of the Group's assets in the light of the COVID-19 crisis, were assessed by the Audit Committee.
In the period under review, we dealt in particular with the following individual aspects:
Even before the outbreak of the COVID-19 crisis, TUI AG's Executive Board initiated optimisation processes with regard to the structure of working capital and the associated cash flows. These measures also included the creation of a Corporate Finance structure. We were regularly informed about these projects at our meetings. Due to the outbreak of the COVID-19 crisis, these processes were greatly expanded and accompanied by measures for strict cost control. As in the previous year, we received detailed reports on the corresponding measures.
For each quarterly report and for the annual financial statements, the consistency of the reconciliation to the key figure 'adjusted earnings' and the material items eliminated here (adjustments) were also discussed.
Furthermore, an assessment of the quality of the audit was carried out in order to obtain an ex ante picture of the effectiveness of the audit as well as to deal with the effectiveness of audits already carried out. Objectively assessable indicators were evaluated. As a result, for example, the intensive exchange with the sub-area auditors before, during and after the audit was assessed as positive.
We were also informed about the corporate transactions of the financial year. This related in particular to the sale of the shares in Riu Hotels S. A. The Audit Committee already previously had the internal procedure for the control of transactions with related parties being explained to it, whereby a control of the transactions within the financial year was carried out by the Chairman of the Audit Committee in preparation, as provided for in the internal procedure.
In addition, the agenda also included reporting on the monitoring of processes for compliance with the obligations resulting from the second framework agreement concluded with WSF. In addition, the Audit Committee dealt with the legal innovations resulting from the Financial Market Integrity Strengthening Act (FISG).
In addition to these topics, the going concern report prepared by the Company was discussed in particular against the backdrop of the COVID-19 crisis in order to verify the relevant going concern statements in the half-year report and the annual financial statements. The viability statement to be issued in the annual financial statements under the UK CGC regulations was also the subject of discussion.
Since the introduction of mandatory reporting on corporate social responsibility (CSR) in the management report, the Supervisory Board has been responsible for reviewing the content of these disclosures. The Supervisory Board has decided to seek the support of TUI's Group Audit division in reviewing the disclosures. Accordingly, we were informed of the results of the review by Group Audit in the financial year under review and are of the opinion that the disclosures published in the CSR Report are appropriate and reasonable.
Our assessment of all aspects of accounting and financial reporting discussed is consistent with that of management and the auditor.
Effectiveness of the control and risk management system
The Audit Committee is guided in its statutory obligation to deal with the effectiveness of the internal control and risk management system by the conviction that a stable and effective internal control system is indispensable to ensure business success in the long term. In order to fulfil its monitoring task, the Audit Committee regularly obtains information on the maturity of the implemented controls and also on the further development of the internal control system.
The Group has continuously developed its internal control system based on the COSO concept. The routine review of key financial controls is performed by local management and monitored by the Executive Board. In the largest source markets, the UK and Germany, additional internal controls are also reviewed.
The compliance function in the Group is further divided into the areas of finance, legal and IT. This division plays a key role in identifying further control requirements and permanently improving the existing controls. In addition, the auditor also reports on any weaknesses in the Group's accounting-related control system that it identifies, and management follows up on their prompt elimination.
The Audit Committee receives regular reports on the effectiveness of the risk management system, as described in the Risk Report starting on page 35. The Risk Oversight Committee that has been set up plays a key role within the Group. We are convinced that an appropriate risk management system is in place.
The internal audit department ensures the independent monitoring of the implemented processes and systems as well as the material projects and reports directly to the Audit Committee at each regular meeting. In the reporting period, the Audit Committee was not informed of any audit findings that indicated material weaknesses in the internal control system or the risk management system. In addition, regular meetings are held between the Chairman of the Audit Committee and the Group Director of Internal Audit for closer coordination. The annual audit planning process is agile. The Audit Committee has received a detailed report on the methodology and has noted and approved it, together with the audits for the coming financial year that have already been defined in this context. The Audit Committee believes that regular coordination ensures the effectiveness of internal auditing.
At our meetings during the fiscal year, we were informed about the status of implementation of the provisions of the EU General Data Protection Regulation in the individual business units. Based on this report, we are convinced that both in the previous financial years and in the current reporting period the projects and measures initiated throughout the Group for this purpose are suitable for meeting the requirements of the EU GDPR.
Whistleblowing systems for employees in the event of compliance violations
A standardised whistleblowing system has been set up in the TUI Group, enabling employees to draw attention to potential breaches of compliance guidelines.
As part of the reporting on the legal compliance system, we were presented with the key findings from the whistleblower system for the current fiscal year.
Review of the independence and objectivity of the auditor
For financial year 2021, the Audit Committee recommended to the Supervisory Board that Deloitte GmbH Wirtschaftsprüfungsgesellschaft (Deloitte) be proposed to the Annual General Meeting as auditor. Following the appointment of Deloitte as auditors by the Annual General Meeting in March 2021, the Supervisory Board commissioned Deloitte with the audit of the 2021 annual financial statements.
The Audit Committee had Deloitte explain to it in advance the audit plan for the annual financial statements as of 30 September 2021. This plan includes the key audit areas and the group of companies to be audited from the Group's perspective. The Audit Committee is convinced that this plan ensures that the audit adequately takes into account the identifiable risks. It also considers the independence and objectivity of the auditor to be given.
On the basis of regular reporting by the auditor, we have satisfied ourselves of the effectiveness of the external audit and have decided to recommend to the Supervisory Board that Deloitte be proposed to the Annual General Meeting as auditor again for FY22. Deloitte was selected by us as auditor in a public tender process in the 2016 financial year and has been appointed as auditor without interruption since the first election by the Annual General Meeting in 2017.
In order to ensure the independence of the auditor, all engagements for the provision of non-audit services by the auditor must be submitted to the Audit Committee for approval before the engagement is awarded. The Audit Committee makes use of the possibility to delegate the approval to the company depending on its size. The Chairman of the Audit Committee is only involved in the decision if a specified cost limit is exceeded. Where the auditors provided services to the Group outside the scope of the audit, the nature and amount of these services were explained to the Audit Committee. This approach is in line with the Company's existing policy on the approval of non-audit services, which takes into account the requirements of the provisions of the German Audit Reform Act (Abschlussprüfungsreformgesetz - AReG) on prohibited non-audit services and on limitations on the amount of non-audit services. In financial year 2021, these regulations were complied with as in previous years. Globally, non-audit services accounted for around 35 % of Deloitte's audit fee in financial year 2021, which amounted to € 7.1 million.
I would like to thank the members of the Audit Committee, the auditors and the management for their trusting and committed cooperation in the past financial year.
Hanover, 6 December 2021
Prof. Dr Edgar Ernst
TUI Group Strategy
Growing travel market driven by strong fundamental trends
Before the COVID-19 pandemic, the global travel market was growing above global GDP levels1. The crisis has had an unprecedented impact on the world of travel over the past two years. However, following the COVID-19 pandemic, the global travel market is expected to recover strongly, returning to pre-crisis levels and growth by 2022 to 2024. Furthermore, leisure travel is expected to recover more quickly than business travel.
In particular three megatrends will continue to drive the growth of tourism in the future. Firstly, we are seeing a shift in demographics with people living healthier, longer and with more money to spend which has a positive effect on travel and tourism. Secondly, middle classes continue to grow, particularly in South East Asia and Latin America. Thirdly, people are choosing experiences over the ownership of goods with increasing frequency. Therefore, tourism will continue to be an attractive growth market in the mid-term. Short-term, tourism markets have rebounded strongly from the COVID-19 crisis. The underlying desire of people to travel has been evident throughout the COVID-19 crisis, as we have seen immediate strong booking surges for our destinations on easings of governments' travel restrictions. Following the roll-out of successful vaccination programmes and further easing of more government travel restrictions this positive market momentum is expected to continue, in particular also for long-haul destinations2.
TUI'S INTEGRATED BUSINESS MODEL YIELDS SYNERGIES
TUI is an integrated tourism group organised in two business divisions, Holiday Experiences and Markets & Airlines, offering synergies and scale. TUI serves millions of customers and operates 137 aircraft, 414 hotels3, 16 cruise ships4 and a digital platform for tours and activities with a strong portfolio of over 215 k offers4. While our Holiday Experience division benefits from our Markets & Airlines distribution capabilities, it supports our distribution division by offering own and differentiated products.
1 As per Statista data for global tourism receipts (review period 2015 - 2019)
3 As at 30 Sept. 2021, including third party hotels
4 As at 30 Sept. 2021
Holiday Experiences: Sizeable and differentiated leisure hotel, cruise and tours
Hotels & Resorts - Differentiated brands, investments and asset-right growth
TUI features a portfolio of own and differentiated leisure brands such as Robinson, TUI Magic Life, TUI Blue and TUI Suneo. This brand portfolio is complemented by JV hotel brands such as Riu, Atlantica, Blue Diamond and Grupotel. Our hotel portfolio is well-diversified in terms of destination mix and ownership models including ownership, lease, management and franchise. The earnings development of our Hotels & Resorts business unit is driven by our vertical integration with the majority of our revenue being generated by our Markets & Airlines division. We will continue the asset-right strategy that we commenced in 2019 before the crisis. The growth of the hotel portfolio will be decoupled from investments, separating hotel management and the holiday experience from property ownership. The customer experience is driven by the brand and the quality of the hotel and we will continue to create tailor-made hotel experiences for our guests. We are committed to growing our global brand and hotel portfolio with a stronger focus on management and franchise in the future as well as long-term, strategic partnerships with hoteliers and institutional investors.
Cruises - Differentiated brands, asset-light investments and growth
TUI's cruise business consists of three brands covering the full cruise sector spectrum from premium all-inclusive to luxury to expeditions. Our JV brands TUI Cruises and Hapag-Lloyd Cruises are specifically designed for the German-speaking all-inclusive (Mein Schiff fleet of TUI Cruises), luxury (Europa and Europa 2 vessels at Hapag-Lloyd Cruises) and expedition (HANSEATIC class of Hapag-Lloyd Cruises) markets. Our Marella Cruises brand represents a bespoke UK cruise product with a focus on all-inclusive fly-cruising.
Our TUI Cruises JV will continue to grow by investing into new-build ships for all market segments. Marella Cruises will continue to pursue a fleet upgrading strategy by replacing older ships with newer and larger vessels, enabling it to increase product pricing.
TUI Markets & Airlines will continue to distribute our own and differentiated cruise product offerings, driving the performance of our cruise business unit.
TUI Musement - Growth and upstream consolidation
TUI Musement, one of the largest digital providers in the online intermediary market for tours, activities and experiences5, connects our own and third party tours and activities product portfolio in the destinations with our own Markets & Airlines customers as well as third party customers through strategic partnerships such as with Booking.com or Trivago.
TUI Musement will focus on strongly growing its own and third party curated product offering and will therefore strategically focus on upstream market consolidation. Its product offering covers tours and activities globally, both in leisure and city destinations. TUI Musement will retain a strong focus on the curation and fulfilment of its experiences product offerings such as excursions & day trips, attractions & guided tours, multi-day tours, cruise shore excursions, transfers, tickets & events and other activities.
Markets & Airlines - Continued focus on customers, digitalisation and
TUI is, according to consumer surveys for unaided brand awareness and consideration, a leading tourism brand6. More than a dozen source markets7 deliver a strong and diversified customer base for our differentiated product offerings. Customers appreciate TUI's flexible, safe, differentiated and highly service-oriented holiday experience offerings, specifically designed for their needs8. Covering the whole customer journey, TUI holds multiple digital and physical touchpoints with its customers and therefore delivers a strong blend of digital and human interaction. TUI follows a customer centric approach, aiming to create long-term relationships with its customers. Personalized experiences and new product development is a strategic priority, intended to improve the value for money for our customers while driving demand for our products at the same time.
TUI continues with the development and implementation of its own IT platform TRIPS, a comprehensive software stack covering the whole value chain from inventory management, creation of products offerings and pricing to customer relationship management. This comprehensive IT platform will replace various local legacy systems and therefore drive synergies and cost reductions as TUI will use one common system across all markets in the future. At the same time this platform will form the basis for our digital mass-individualisation product initiative and will therefore support to drive revenues. One central development allows for high agility and strong development and running cost control.
To further protect its strong market positions, TUI has established a global realignment programme, with the target of delivering € 400 m of cost savings p. a. by FY23, with a large proportion of such savings targets being allocated to our Markets & Airlines business. By the end of financial year 2021 more than 60 % of this target have been delivered already.
5 According to Bernstein analysis, TUI Musement ranked 2nd for market share in the tours, activities and experiences market
6 As measured by brand consideration in TUI brand performance tracking, completed by Metrixlab
7 Germany, UK, Belgium, Netherlands, Sweden, Denmark, Norway, Finland, France, Austria, Switzerland, Poland, Canada and Russia
8 Based on TUI research [e. g. brand/customer surveys]
Tui is strongly committed to sustainability
Our responsibility as a world-renowned tourism company has never been greater. The travel and tourism industry needs to respond to global challenges such as climate change. With the next phase of our Sustainability Agenda, we will enter a decade of sustainable transformation. Our ambition is to lead the industry and to actively shape a more sustainable future for tourism. This ambition is anchored by the sigificant progress we've made to date.
Our airlines are already among the most environmentally efficient in the world, ranking first and fourth among the world's 200 largest airlines in terms of CO2 efficiency9. In financial year 2021, our airline's relative carbon emissions rose by 15 % to 78g CO2 / pkm (previous year: 67.8g CO2 / pkm). This is attributable to the grounding of our fleet due to the COVID crisis, which led to a considerable decrease in flight operations and occupancy rates of all TUI airlines. The increased freight component of various TUI airlines caused the weight of the aircrafts to increase, which in turn elevated fuel consumption.
Between 2015 and 2019, TUI's cruises business has achieved a 13.6 % reduction in relative CO2 emissions and a 60 % reduction in fresh water consumption on our cruise ships. In addition, by 2019 83.8 % of TUI Hotels & Resorts had their sustainability certification10. In total, we had removed 257 million pieces of single-use plastic11 from our operations, between 2018 and 2019, a significant achievement on our journey to create sustainable holidays for our guests.
Our next steps will be anchored in several core deliverables: Empowering communities in destinations, driving transformation by increasing and sharing knowledge through our educational initiatives12, reducing our environmental footprint13 and working with partners across the tourism industry and outside to accelerate the transformation beyond TUI.
9 According to latest atmosfair Airline Index from 2018
10 Tangible environmental improvements (10 % less CO2, 24 % less waste volume and 23 % more green energy in certified hotels vs. non-certified)
11 27 m pieces from the airline, 31 m pieces from cruises and 197 m pieces from our hotels
13 Working with science-based emissions targets, water, energy & waste
TUI will emerge stronger and leaner from the crisis
TUI has accelerated its strategic transformation during the COVID-19 crisis. It is emerging as a more digital, leaner and stronger company, which we believe posititons us well to capture further market growth potential. TUI will continue to grow its differentiated Holiday Experience product offerings whilst in our pursuit to deliver high-quality and more individualised service and products to its customer base, based on a blend of digital and human interactions.
In 2021, the COVID-19 pandemic again posed significant challenges for TUI Group, our HR Departments and our employees. It required us to build systematically on the measures already launched in 2020 to reduce staff costs. As we press ahead with our ongoing transformation and restructuring projects, TUI is moving towards its goal of future-proofing the Company and successfully counteracting the long-term effects of the COVID-19 pandemic.
In financial year 2021, key drivers were our digitalisation strategy and the transformation to a digital platform company, and these are also reflected our HR activities. In August 2021, we launched the 'TUI Way of Working', seeking to reach global agreement on a new way of working and develop a shared vision for the future of work at TUI. We have already implemented a number of initiatives and programmes, in particular in the leadership, workplace and technology modules.
In the next few months, we will focus on formulating a new People Strategy with our new Chief HR Officer and Labour Director. The strategy will create an HR view of the portfolio and also address the HR function as such. Its goal is to update the HR function and enhance its efficiency while aligning our HR activities to the changing requirements that define the world of work in our future digital platform company.
Details see page 84 onwards
TUI AG parent company
TUI AG is TUI Group's parent company headquartered in Hanover and Berlin. It holds direct or, via its affiliates, indirect interests in the principal Group companies conducting the Group's operating business in individual countries. Overall, TUI AG's group of consolidated companies comprised 272 direct and indirect subsidiaries at the balance sheet date. A further 18 affiliated companies and 27 joint ventures were included in TUI AG's consolidated financial statements on the basis of at equity measurement.
For details on principles and methods underlying the consolidated financial statements and TUI Group shareholders,
Organisation and management
TUI AG is a stock corporation under German law, whose basic principle is two-tiered management by two boards, the Executive Board and the Supervisory Board. The Executive and Supervisory Boards cooperate closely in governing and monitoring the Company. The Executive Board is responsible for the overall management of the Company.
The appointment and removal of Board members are based on Sections 84 et seq. of the German Stock Corporation Act in combination with Section 31 of the German Co-Determination Act. Amendments to the Articles of Association are effected on the basis of the provisions of Sections 179 et seq. of the German Stock Corporation Act in combination with Section 24 of TUI AG's Articles of Association if appplicable.
Executive Board and Group Executive Committee (GEC)
As at the balance sheet date, the Executive Board of TUI AG consisted of the CEO and five other Board members.
For details on Executive Board members, see page 107
The Executive Board is the Company's central decision-making body. In addition, there is the Group Executive Committee (GEC), which as of 30 September 2021 consisted of eleven members, including six Executive Board members, and is chaired by Friedrich Joussen, Chairman of the Executive Board. As a rule, the Group Executive Committee participates in all Board meetings, with the exception of items dealing with personnel matters relating to the composition of the Senior Leadership Team. The GEC was set up to enhance informed, effective decision-making and to create a flat hierarchy and strong execution environment. It reflects a culture of openness and information sharing.
For details, see: www.tuigroup.com/en-en/investors/corporate-governance
TUI Group reporting structure
TUI Group is a global integrated tourism group. Its core businesses, Holiday Experiences and Markets & Airlines, are clustered into the segments Hotels & Resorts, Cruises and TUI Musement as well as three regions: Northern, Central and Western Regions. TUI Group also comprises All other segments. The Group's reporting structure thus remained largely unchanged year-on-year in the reporting period.
Holiday Experiences comprises our hotel, cruise and destination activities.
Hotels & Resorts
The Hotels & Resorts segment comprises TUI Group's diversified portfolio of Group hotel brands and hotel companies. The segment includes hotels majority-owned by TUI, joint ventures with local partners, stakes in companies giving TUI significant influence, and hotels operated under management contracts.
In financial year 2021, Hotels & Resorts comprised a total of 359 hotels with 275,773 beds. 333 hotels, i. e. the majority, are in the four- or five-star categories. 53 % were operated under management contracts, 38 % were owned by one of the hotel companies, 8 % were leased and 1 % of the hotels were managed under franchise agreements
As at 30 September 2021
Riu is the largest hotel company in the portfolio of Hotels & Resorts in terms of the number of hotels. The Mallorca-based enterprise primarily operates four- and five-star hotels in Spain, Mexico and the Caribbean. Its three product lines Riu Clubhotels, Riu Plaza (city hotels) and Riu Palace (premium segment) target different customer groups.
In the framework of our asset-right strategy, which entails a decoupling of hotel growth and property investments, we sold our 49 % stake in the joint venture Riu Hotels S.A to a Riu Group company owned by Carmen and Luis Riu with effect from 31 July 2021. The transaction did not affect our subsidiary RIUSA II S. A., which continues to be in charge of management and distribution for all Riu hotels and resorts around the globe. The number of beds in our Group-owned hotel portfolio was not affected by this transaction as the 21 Riu hotels sold will continue to be operated under management contracts by RIUSA II S. A.
Robinson operates mainly four- and five-star club hotels and is a leading German provider of club holidays. Most of its clubs are located in Spain, Greece, Turkey, the Maldives and Austria.
Blue Diamond is a hotel chain in the Caribbean. The Hotels & Resorts segment comprises 34 resorts in the Caribbean and Mexico.
Other hotel companies include in particular the flagship brand TUI Blue and TUI Magic Life. TUI Blue is TUI Group's youngest hotel brand, targeting an international audience. Its portfolio is being expanded by combining TUI Blue's existing offerings with those of the concept brands TUI Sensimar and TUI Family Life. Including those rebranded as TUI Blue hotels, the brand has hotels in 19 countries. TUI Magic Life is an all-inclusive brand, targeting an international audience seeking club holidays with different profiles in beachfront locations.
Our hotels operated by third-party hoteliers include a total of 55 hotels belonging to our international concept brands. This brings the total number of TUI Group hotels to 414.
The Cruises segment consists of the joint venture TUI Cruises, which also operates Hapag-Lloyd Cruises since the prior year, and Marella Cruises. With their combined fleet of 16 vessels as at the reporting date, the three cruise lines offer different service concepts to serve different target groups.
As at 30 September 2021
TUI Cruises is a joint venture in which TUI AG and the US shipping company Royal Caribbean Cruises Ltd. each hold a 50 % stake. With its seven 'Mein Schiff' vessels, TUI Cruises is top-ranked in the German-speaking market for cruises. The Berlitz Cruise Guide 2020, the most important international reference guide for cruise ship ratings, ranked four ships operated by TUI Cruises among the Top 5 liners in the 'Large ships' category.
The traditional Hapag-Lloyd Cruises brand, which is also part of TUI Cruises, is a leading provider of luxury and expedition cruises in German-speaking markets. At the reporting date, the fleet comprised two luxury liners and three expedition cruise ships. As in the past, the flagships Europa and Europa 2 were the only ships to feature in the highest category of the Berlitz Cruise Guide, the 5-star-plus category.
With a fleet of four ships, Marella Cruises offers voyages in different segments, including family and city cruises, in the British market.
The TUI Musement segment delivers local services at our holiday destinations around the world. TUI Musement's business model is based on an open online platform available to suppliers and customers alike. It gives our customers the option to book tours, activities and excursions in the destinations directly and enables our partners and third-party providers to sell products and services. TUI also employs its own staff in numerous holiday destinations. In order to tap further growth potential, we entered into additional strategic B2B partnerships in the period under review.
Markets & Airlines
With our three regions - Northern, Central and Western - we have well-positioned sales and marketing structures offering our customers attractive holiday experiences. Our sales activities are based on online and offline channels. The travel agencies include Group-owned agencies as well as joint ventures and agencies operated by third parties. In order to offer our customers a wide choice of hotels, our source market organisations have access to a large portfolio of TUI hotels. They also have access to third-party hotel bed capacity, some of which has been contractually committed.
Our own flying capacity continues to play a key role in our business model. Thanks to a combination of Group-owned and third-party capacity, we offer tailored travel programmes for each individual source market region and can respond flexibly to changes in customer preferences. Balanced management of flight and hotel capacity enables us to develop destinations and optimise the margins of both service providers.
The Northern Region segment comprises tour operator activities and airlines in the UK, Ireland and the Nordics. This segment also includes the Canadian strategic venture Sunwing and the TUI Russia associate. The stake in TUI Russia was sold in the period under review.
The Central Region segment comprises the tour operators and airlines in Germany and the tour operator activities in Austria, Poland, and Switzerland. The tour operator in Italy was closed in the prior year.
The Western Region segment comprises the tour operators and airlines in Belgium and the Netherlands and the tour operator activities in France.
All other segments
'All other segments' includes our business activities for the new markets, the corporate centre functions of TUI AG and the interim holdings, the Group's real estate companies and the Group's key tourism functions.
Research and development
As a tourism service provider, the TUI Group does not engage in research and development activities comparable with manufacturing companies. This sub-report is therefore not prepared.
Value-oriented Group Management
Management system and Key Performance Indicators
A standardised management system has been created to implement value-driven management across the Group as a whole and in its individual business segments. The value-oriented management system is an integral part of consistent Group-wide controlling and planning processes.
Our key financial performance indicators for tracking our earnings position are revenue and underlying EBIT. Accordingly, underlying EBIT represents the segment indicator as defined by IFRS 8.
We define the EBIT in underlying EBIT as earnings before interest, taxes and expenses for the measurement of the Group's interest hedges. EBIT by definition includes amortisation of goodwill.
Underlying EBIT has been adjusted for income and expense items which, due to their level and frequency, impact or distort the assessment of operating profitability in the segments and the Group. These one-off items include gains on disposal of investments, major gains and losses from the disposal of assets, and major restructuring and integration expenses. The indicator is additionally adjusted for all effects from purchase price allocations, ancillary acquisition costs and conditional purchase price payments. The reconciliation to underlying EBIT also adjusts for goodwill impairments.
To track the Group's financial position in financial year 2021, we identified net capital expenditure and financial investments as well as TUI Group's net financial position as key performance indicators. In addition, we monitor the Group's leverage ratio as a further indicator of financial stability.
Key management variables used for regular value analysis are Return On Invested Capital (ROIC) and Economic Value Added. ROIC is compared with the weighted average cost of capital (WACC).
We regard specific carbon emissions (in g CO2 / pkm) from our aircraft fleet as a key non-financial performance indicator.
To track business performance in our segments in the course of the year, we also monitor other non-financial performance indicators, such as the customer numbers in tour operation, capacity or passenger days, occupancy and average prices in Hotels & Resorts and Cruises.
Information on operating performance indicators is provided in the sections on Segmental performance (page 61) and Environmental matters (page 77) and in the Report on Expected Developments (page 50).
Cost of capital
The cost of capital is calculated as the weighted average cost of equity and debt capital (WACC). While the cost of equity reflects the return expected by investors from TUI shares, the cost of debt capital is based on the average borrowing costs for TUI Group. The cost of capital always shows pre-tax costs, i. e. costs before corporate and investor taxes. The expected return determined in this way corresponds to the same tax level as the underlying EBIT included in ROIC. For fiscal year 2021, we apply a cost of capital of 7.77 % for the Hotel & Resorts segment, 9.18 % for Marella Cruises, 8.36 % for TUI Musement and 11.75 % for the Markets & Airlines division.
ROIC and Economic Value Added
ROIC is calculated as the ratio of underlying earnings before interest and taxes (underlying EBIT) to average invested interest-bearing capital (invested capital).
Given its definition, this performance indicator is not influenced by any tax or financial factors and has been adjusted for one-off effects. From a Group perspective, invested capital is derived from liabilities, comprising equity (including non-controlling interests) and the balance of interest-bearing liabilities and interest-bearing assets with an adjustment for the seasonality of the Group's net financial position. The cumulative amortisations of purchase price allocations are then added to the invested capital.
Apart from ROIC as a relative performance indicator, Economic Value Added is used as an absolute value-oriented performance indicator. Economic Value Added is calculated as the product of ROIC less associated pre-tax capital costs (WACC) multiplied by interest-bearing invested capital.
As a result of the business disruptions caused by COVID-19 and the associated negative underlying EBIT, the TUI Group's overall ROIC is negative at - 30.02 %. With a group weighted cost of capital of 10.27 %, this yielded negative Economic Value Addded of € 2.8 bn (previous year negative EVA of € 3.7 bn).
1 Adjustment to net debt to reflect a seasonal average cash balance
2 Average value based at beginning and year-end
* Average value based on balance at beginning and year-end
Group performance indicators used in the Executive Board remuneration system
From the 2020 financial year onwards, the internationally more common earnings measure 'adjusted EBIT' is used for value-oriented corporate management. In the 2020 financial year, the adjusted EBIT was also adjusted for the earnings effect of IFRS16 ('adjusted EBIT [IAS17]') as part of internal reporting to facilitate comparability with the previous year. From the 2021 financial year onwards, adjusted EBIT (IFRS 16) is the segment performance indicator within the meaning of IFRS 8, and the previous year's figures were adjusted accordingly.
JEV-relevant EBT at constant currency
Group earnings before interest and taxes (EBIT) on a constant currency basis, weighted at 75 %, are used to determine annual variable remuneration (JEV) for the Executive Board. EBIT is quantified on a constant currency basis in order to avoid any distortion caused by currency-driven translation effects when measuring actual management performance.
Group earnings before interest and taxes on a constant currency basis developed as follows in the financial year under review:
JEV-relevant cash flow before dividend
The second Group performance indicator reflected in JEV is the cash flow indicator cash flow before dividend, included in the calculation with a weighting of 25 %. For this purpose, cash flow before dividend is determined using a simplified approach, based on the management cash flow calculation. TUI Group EBIT, the indicator serving as the initial basis for calculations, is also shown on a constant currency basis for this purpose.
Cash flow before dividend for JEV purposes developed as follows in the financial year under review:
Pro-forma underlying earnings per share
The measurement of the long term incentive plan (LTIP) for the Executive Board is exclusively based on the average development of pro forma underlying earnings per share from continuing operations (LTIP-relevant EPS).
The table below shows TUI Group's pro forma underlying earnings per share. The normalized Group tax rate for the year under review was reduced in the prior year to 0 % against the background of the considerable decline in earnings caused by COVID-19; this rate was also applied for the year under review. The calculation is based on the subscribed capital as at the balance sheet date.
Pro forma underlying earnings per share from continuing operations (LTIP-relevant EPS) developed as follows in the financial year under review:
Successful management of existing and emerging risks is critical to the long-term success of our business and to the achievement of our strategic objectives. In order to seize market opportunities and leverage the potential for success, risk must be accepted to a reasonable degree. Risk management is therefore an integral component of the Group's Corporate Governance.
Executive Board - Direct & Assure
With oversight by the Supervisory Board, the Executive Board determines the strategic direction of the Group and agrees the nature and extent of the risks it is willing to take to achieve its strategic objectives.
Ultimately, accountability for the Group's risk management rests with the Executive Board and therefore it has established and maintains a risk management system to identify, assess, manage and monitor risks which could threaten the existence of the company or have a significant impact on the achievement of its strategic objectives: these are referred to as the principal risks of the Group. This risk management system includes an internally-published risk management policy which helps to reinforce the tone set from the top on risk, by instilling an appropriate risk culture in the organization whereby employees are expected to be risk aware, control minded and 'do the right thing'. The policy provides a formal structure for risk management to embed it in the fabric of the business. Each principal risk has assigned to it a member of the Executive Committee as overall risk sponsor to ensure that there is clarity of responsibility and to ensure that each of the principal risks are understood fully and managed effectively.
The Executive Board reports to the Audit Committee of the Supervisory Board on the adherence to both the UK and German listing requirements, the overall risk position of the Group, on the individual principal risks and their management, and on the performance and effectiveness of the risk management system as a whole.
Risk Oversight Committee - Review & Communicate
On behalf of the Executive Board, the Risk Oversight Committee (the 'ROC'), ensures that business risks are identified, assessed, managed and monitored across the businesses and functions of the Group. Meeting on a quarterly basis, the ROC's responsibilities include considering the principal risks to the Group's strategy and the risk appetite for each of those risks, assessing the operational effectiveness of the mitigation in place to manage those risks and any action plans to further mitigate them, as well as reviewing the bottom-up risk reporting from the businesses themselves to assess whether there are any heightened areas of concern.
Senior executives from the Group's major businesses are required to attend the ROC on a rotational basis and present on the risk and control framework in their business, so that the members of the ROC can ask questions on the processes in place, the risks present in each business and any new or evolving risks which may be on their horizon, and also to seek confirmation that an appropriate risk culture continues to be in place in each of the major businesses.
Chaired by the Chief Financial Officer, senior operational and finance management as well as all of management's second line functions are represented on the committee.
The ROC reports bi-annually to the Executive Board to ensure that it is kept abreast of changes in the risk landscape and developments in the management of principal risks, and to facilitate regular quality discussions on risk management at the Executive Board meetings.
Group Risk Department - Support & report
The Executive Board has also established a Group Risk department to ensure that the risk management system functions effectively and that the risk management policy is implemented appropriately across the Group. The department supports the risk management process by providing guidance, support and challenge to management whilst acting as the central point for coordinating, monitoring and reporting on risk across the Group. It also supports the ROC in fulfilling it's duties and the reporting to both the Executive and Supervisory Boards. Additionally, Group Risk is responsible for the operation of the risk and control software that underpins the Group's risk reporting and risk management process.
Businesses & functions - Identify & assess
Every business and function in the Group is required to adopt the Group Risk Management policy. In order to do this, each either has their own risk committee or includes risk as a regular agenda item at their Board meetings to ensure that it receives the appropriate senior management attention within their business. In addition, the businesses each appoint a Risk Champion, who promotes the risk management policy within their business and ensures its effective application. The Risk Champions are in close contact with Group Risk and are critical both in ensuring that the risk management system functions effectively, and in implementing a culture of continuous awareness and improvement in risk management and reporting.
The Executive Board and Audit Committee, in conjunction with the Risk Oversight Committee has reviewed the Group's risk appetite. The results of the review indicate the board's risk appetite across three risk types:
Operational - moderate level to all operational risks where the board seeks to manage them responsibly to create unique holidays for our customers but recognizes as a matter of course we operate in a market environment characterized by external events.
Compliance - a low risk appetite to exposure of compliance related risks including adhering to regulatory requirements, protecting information in all forms as well as avoiding harm to customers, employees and all other stakeholders.
Financial - low risk appetite with exposure to financial risks. The Group seeks to achieve financial stability and certainty in particular during the pandemic as the scrutiny of costs and cash management has been heightened.
Our principal risks are aligned to these risk types.
The Group Risk department applies a consistent risk reporting methodology across the Group. This is underpinned by risk and control software which reinforces clarity of language, visibility of risks, mitigation and actions and accountability of ownership. Although the process of risk identification, assessment and response is continuous and embedded within the day-to-day operations of the businesses and functions, it is consolidated, reported and reviewed at varying levels throughout the Group on at least a quarterly basis.
Risk Identification: Management closest to the risks identify those that are relevant to the pursuit of the strategy within their business area.
A risk owner is assigned to each risk, who has the accountability and authority for ensuring that the risk is appropriately managed.
Risk Assessment: The methodology used is to initially assess the gross (or inherent) risk. This is essentially the downside, being the product of the impact together with the likelihood of the risk materializing if there is no mitigation in place to manage or monitor the risk. The key benefit of assessing the gross risk is that it highlights the potential risk exposure if mitigation were to fail completely or not be in place at all. Both impact and likelihood are scored using the criteria shown below:
The next step in the risk reporting process is to assess and document the mitigation currently in place to reduce the likelihood of the risk materializing and / or its impact if it does. Consideration of these then enables the current (or residual) risk score to be assessed, which is essentially the reasonably foreseeable scenario. This measures the impact and likelihood of the risk with the mitigation in place and effective. The key benefit of assessing the current risk score is that it provides an understanding of the current level of risk faced today and the reliance on the mitigation in place.
Risk Response: If management are comfortable that the current risk position is within the Group's appetite, the risk is accepted and no further action is required to further reduce it. The mitigation continues to be operated and management monitor the risk, the mitigation and the risk landscape to ensure that it remains at an acceptable level. If management assesses that the current risk score is too high, an action plan will be drawn up with the objective of introducing new or stronger mitigation that will further reduce the impact and / or likelihood of the risk to an acceptable level. This is known as the target risk score and is the parameter by which management can ensure the risk is being managed in line with their overall risk appetite. The risk owner will normally be the individual tasked with ensuring that this action plan is implemented within an agreed timetable.
Each business and function will continue to review their risk register on an ongoing basis through the mechanism appropriate for their business e. g. local Risk Committee.
This bottom-up risk reporting is considered by the ROC alongside the Group's principal risks. New risks are added to the Group's principal risk register if deemed to be of a significant nature so that the ongoing status and the progression of key action plans can be managed in line with the Group's targets and expectations.
Ad hoc risk reporting
Whilst there is a formal process in place for reporting on risks on a quarterly basis, the process of risk identification, assessment and response is continuous and therefore if required, risks can be reported to the Executive Board outside of the quarterly process, should events dictate that this is necessary and appropriate. Ideally such ad hoc reporting is performed by the business or function which is closest to the risk, but it can be performed by the Group Risk department if necessary.
Effectiveness of the Risk Management System
The Executive Board regularly reports to the Audit Committee of the Supervisory Board on the performance, effectiveness and adherence to listing requirements of the risk management system, supported by the ROC and the Group Risk department. Additionally, the Audit Committee receives assurance from Group Audit through its audit plan over a selection of principal risks, processes and business transformation initiatives most critical to the Group's continued success.
The pandemic has continued to affect TUI's business operations during the financial year causing a significant reduction to the companies' operations, and therefore resulting in a reduction in operational risks. Therefore financial risks in terms of liquidity management were the primary focus during the reduced operations. Unchanged to the beginning of the pandemic the Executive Board has monitored and managed the associated principal risk to ensure that the low level of appetite is being exercised. The requirements for risk reporting that is coordinated by the Group Risk department and reported to the ROC could therefore be paused. Despite this, business areas and functions continued to ensure all risks are managed effectively.
The conclusion from all of the above assurance work is that the risk management system has functioned effectively throughout the year and there have been no significant failings or weaknesses identified. Of course there is always room for improvement, and the Risk Champions and the Group Risk department continue to work together to enhance the risk management and reporting processes, particularly in the next financial year where the formal requirements for risk reporting will be re-introduced in line with business as usual.
Finally, in accordance with Section 317 (4) HGB (German Commercial Code), the auditor of TUI AG has reviewed the Group's early detection system for risks in place as required by Section 91 (2) AktG (German Stock Corporation Act) to conclude, if the system can fulfill its duties.
The principal risks to the Group are either considered to be 'Above' or 'Within' risk appetite.
Risks above the appetite are those that either require further mitigation in order to reduce them to an acceptable position or are heightened by external events beyond our control such as the COVID pandemic. We have action plans in place to increase or strengthen mitigation around each of these risks and reduce the current risk score to the target level indicated in the heat map diagram.
Risks within the appetite are those that considered to be at an acceptable level. For these, we have controls, processes and procedures in place as a matter of course that serve to mitigate each risk to either minimize the likelihood of the event occurring and / or minimize the impact if it does occur. These risks remain on our risk radar where we regularly monitor the risk, the mitigation and the risk landscape to ensure that the risk score stays stable and within our risk appetite in each case.
In the heat map diagram, the assessment criteria used are shown on page 37.
Financial year 2021 Principal Risks
Similarly to other external factors that have previously impacted our Group (e. g. the volcanic ash-cloud or grounding of the B737 Max fleet), we regard the COVID-19 pandemic as an event which has led to travel restrictions across the world, both within the Markets as well as in destination countries. This has led to several of our principal risks to materialise simultaneously, including: customer demand, input cost volatility, cashflow, destination disruption and security, health & safety. All of these principal risks continue to remain heightened throughout the pandemic.
Measures taken in order to react to this crisis have also heightened the principal risk profile. Therefore the lack of integration risk has increased, due to the volume and speed of transformation required within the Group in order to react to the impact; and the ability to attract and retain talent, due to the cost saving measures related to our employees.
The Executive Board believes that, despite the existing risks, the TUI Group currently has sufficient funds, and will continue to have sufficient funds in the future, resulting both from borrowing and from expected operating cash flows, to meet its payment obligations for the foreseeable future and to continue as a going concern. The Executive Board anticipates that, a material uncertainty that may cast significant doubt about the Group's ability to continue as a going concern no longer exists. The Executive Board no longer considers the remaining risk with regard to a further pandemic-related change in booking behaviour to be a threat to the Group's continued existence. In its assessment, the Executive Board assumes that the booking figures will gradually recover in the 2022 financial year and that the booking behaviour in the 2023 financial year will largely correspond to the pre-pandemic level. The Executive Board assumes that there will be no further long-term closures and lockdowns that could affect travel behaviour. Nevertheless, customer bookings may deteriorate due to new travel restrictions, insufficient vaccination coverage against the COVID-19 virus in individual countries, and virus variants for which there is insufficient vaccination protection, thereby affecting the Company's performance.
For further information please refer to the Viability Statement on page 47
See chapter Going Concern Reporting in accordance with UK Corporate Governance Code, page 155
If the risk detail in the subsequent tables does not suggest otherwise, the risks shown below relate to all segments of the Group. The risks listed are the principal risks to which we are exposed but are not exhaustive and will evolve over time due to the dynamic nature of our business.
Principal Risks above risk appetite
Nature of Risk
1. Lack of integration and flexibility within operations and IT systems
Our focus is on enhancing our operations and customer experience by providing engaging, intuitive, seamless and continuous customer service through delivery of digital solutions, core platform capabilities, underlying technical infrastructure and IT services required to support the Group's overall strategy for driving profitable topline growth.
Although the Group's strategy has ensured that we are more vertically integrated, which has reduced impact of disruption by pure digital players, a lack of integration and flexibility within our systems and operations, particularly in the Markets & Airline businesses could impact on our cost base. This would therefore impact on our competitiveness, our ability to provide a superior customer experience as well as on quality and operational efficiency.
The COVID-19 pandemic has heightened this risk due to the shorter timescales required to deliver the integration of our businesses and flexibility of the IT systems and therefore there are a number of transformation projects currently in place to mitigate this risk.
Nature of Risk
2. Reduction in customer demand
Spending on travel and tourism is discretionary and price sensitive as well as competitive. The economic outlook remains uncertain with different markets at different points in the economic cycle. Furthermore, in recent years there has been an emergence of successful substitute business models such as web-based travel and hotel portals which allow end users to combine the individual elements of a holiday trip on their own and book them separately.
There is the risk that these external factors within our industry will impact on the spending power as well as the desire to travel of our customers. This could impact our short-term growth rates and lead to margin erosion.
This risk has heightened due to customer demand being significantly impacted by the COVID-19 pandemic.
Nature of Risk
3. Inability to attract and retain talent
Our success depends on the ability to attract, retain, and develop our talent to ensure that we equip our employees to deliver our strategy as well as to also become our future leaders.
There is a risk that we are unable to attract and retain key talent, build future leadership capability and maintain the commitment and trust of our employees.
Challenges in managing and maintaining our talent pipeline in order to deliver against our strategy, drive competitiveness and maximize on our operating performance, may impact on our ability to future proof the Group and the associated potential for negative impact on shareholder confidence.
This risk has increased as a result of the cost saving measures related to our employees as well due to the tourism industry becoming a less attractive sector during the pandemic.
Nature of Risk
4. Insufficient cash flow
Tourism is an inherently seasonal business with the majority of profits earned in the European summer months. Cash flows are similarly seasonal with the cash high occurring in the summer as advance payments and final balances are received from customers, with the cash low occurring in the winter as liabilities have to be settled with many suppliers after the end of the summer season.
There is the risk that if we do not adequately manage cash balances through the winter low period this could impact on the Group's liquidity and ability to settle liabilities as they fall due whilst ensuring that financial covenants are maintained.
As a result of the COVID-19 pandemic the Group has experienced increasing challenges to the cashflow profile. This is due to operational activity being significantly reduced during the summer months, which is the time when the majority of cash balances are received from customers. We are also experiencing a significantly shorter booking profile whereby customers are booking very close to departure and therefore cash deposits are received later than previous booking patterns and the cash balances are subject to higher short tem movements.
Nature of Risk
5. Volatility of input costs
A significant proportion of operating expenses are in non-local currency and / or relate to aircraft and cruise fuel which therefore exposes the business to fluctuations in both exchange rates and fuel prices.
There is the risk that if we do not manage adequately the volatility of exchange rates, fuel prices and other input costs, then this could result in increased costs and lead to margin erosion, impacting on our ability to achieve profit targets. As a result of the pandemic there is also a risk that there will be no lines available to put in place hedges to manage the volatility of future seasons.
There is also the risk that if our hedging policy is too rigid. E. g. when the majority of the competitors in a source market do not hedge (a certain destination) we may find ourselves unable to respond to competitive pricing pressures during the season without it having a direct detrimental impact on our market position and / or profitability.
Furthermore, changes in macroeconomic conditions, such as those currently being experienced as a result of the pandemic can have an impact on exchange rates which, particularly for the £ / € rate has a direct impact on the translation of non-euro market results into euros, the reporting currency of our Group.
Further information on currency and fuel hedges can be found in the Notes to the consolidated financial statements in the Financial instruments section.
Nature of Risk
6. Impact of Brexit
Our main concern is whether or not all of our airlines will continue to have access to EU airspace as now. If we were unable to continue to fly intra-EU routes, such as from Germany to Spain, this would have a significant operational and financial impact on the Group.
Other areas of uncertainty include the status of our UK employees working in the EU and vice versa and the potential for customer visa requirements for holidays from the UK to the EU.
Nature of Risk
7. Disruption to IT systems (Cyber Attacks)
Our responsibility is to protect the confidentiality, integrity and availability of the data we process for our customers, employees, and businesses.
This is an evolving risk due to increasing global cyber-crime activity and regulation (e. g. EU GDPR). At the same time our consolidation under the TUI brand and increasing dependence on online sales and customer care increases our exposure and susceptibility to cyber-attacks.
If we do not ensure we have the appropriate level of security controls in place across the Group, this could have a significant negative impact on our key stakeholders, associated reputational damage and potential for financial implications.
Nature of Risk
8. Lack of sustainability improvements
For the Group, economic, environmental and social sustainability is a fundamental management principle and a cornerstone of our strategy for continually enhancing the value of our Company. This is the way we create the conditions for long-term economic success and assume responsibility for sustainable transformation in the tourism sector.
Our focus is to reduce the environmental impact of our operations and promote responsible social policies and outcomes both directly through our own business and indirectly via our influence over our supply chain partners, thereby creating positive change.
There is a risk that we are not successful in driving social and environmental improvements across our operations, that our suppliers do not uphold our corporate and social responsibility standards and we fail to influence destinations to manage tourism more sustainably.
If we do not maximize our positive impact on destinations and minimize the negative impact to the extent that our stakeholders expect, this could result in a decline in stakeholder confidence, reputational damage and reduction in demand for our products and services.
Principal Risks within appetite
Nature of Risk
A. Disruption within our destinations
Providers of holiday and travel services are exposed to the inherent risk of external events affecting destinations. This can include natural catastrophes such as hurricanes or tsunamis; outbreaks of disease such as the ongoing COVID-19 pandemic; political volatility as has been seen in Egypt, Turkey and Greece in recent years; the implications of war in countries close to our markets and destinations; and terrorist events such as the tragic incident in Tunisia in 2015.
There is the risk that if such an event occurs, impacting one or more of our destinations that we could potentially suffer significant operational disruption and costs. We may be required to repatriate our customers and / or the event could lead to a significant decline in demand for holidays to the affected destinations over an extended period of time.
This risk has heightened due to COVID-19 whereby the Group is experiencing more destination disruption due to constant changes in travel advice and corridors.
Nature of Risk
B. Security Health & Safety breach
For all providers of holiday and travel services, ensuring the security, health and safety of customers is of paramount importance.
There is the risk of accidents or incidents occurring causing illness, injury or death to customers or colleagues whilst on a TUI holiday. This could result in reputational damage to the business and / or financial liabilities through legal action being taken by the affected parties. This is particularly important during the pandemic where health & safety is under more scrutiny and requirements from are continuously changing.
Nature of Risk
C. Reliance on key suppliers
Providers of holiday and travel services are exposed to the inherent risk of failure in their key suppliers, particularly for hotels, aircraft and cruise ships. This is heightened by the industry convention of paying hoteliers in advance ('prepayments') to secure a level of room allocation for the season as well as in areas where a single supplier is used to provide a product or service.
There is the risk that we are unable to continue with our core operations in the event of a major service failure from our key suppliers.
Nature of Risk
D. Breach of regulatory requirements
Most providers of holiday and travel services operate across a number of economies and jurisdictions, which therefore exposes them to a range of legal, tax and other regulatory laws which must be complied with.
As we are operating from multiple source markets and providing holidays in more than many destinations, we are exposed to a range of laws and regulations with which we must comply or else risk incurring fines or other sanctions from regulatory bodies.
Nature of Risk
E. Management of joint venture partnerships
It is common for tourism groups to use joint venture partnerships in some of their operations in order to reduce the risk of new ventures, to gain access to their expertise of the local market as well as to strengthen the balance sheet position in line with our less capital intensive 'asset-right' strategy (e. g. the transaction completed with Riu this financial year). There are three significant joint ventures within the Group - Riu, TUI Cruises and Sunwing.
For details on our strategy refer to page 25
There is the risk that if we do not maintain good relations with our key partners that the ventures' objectives may not remain consistent with that of the Group which could lead to operational difficulties and jeopardize the achievement of financial targets.
In accordance with Rule 31 of the UK Corporate Governance Code, the Executive Board assesses the Company's future prospects for a period exceeding the twelve months required by the going concern premise. The Executive Board reviews the business development annually and on a rolling basis based on a three-year strategic plan. The current three-year plan was adopted in September 2021and covers the period until 30 September 2024. A three-year horizon is considered appropriate for a fast moving competitive environment such as tourism.
The global travel restrictions to contain COVID-19 had a strong negative impact on the Group's earnings and liquidity development from the end of March 2020 and also throughout financial year 2021. Due to the reasons described above, the TUI Group had a liquidity requirement in financial years 2020 and 2021 that was significantly higher than the cash inflows resulting from ongoing business operations and the existing credit lines not yet utilised, despite the cost-cutting measures initiated. In order to close these liquidity gaps, silent participations of € 1.1 bn and credit lines totalling € 4.8 bn were granted in addition to the cost-cutting and payment deferral measures initiated in the Group as well as regional support measures in various countries. As of 30 September 2021, silent participation I and II were fully paid in.The financing commitments available until 30 September 2021 were utilised in the amount of € 2.6 bn as at the balance sheet date. In addition, the Group carried out various financing measures in the reporting year, in particular a capital increase and the placement of a convertible bond. Further funds accrued to the Group from the sale of Riu Hotels S. A.. On 27 July 2021, TUI agreed with the bank consortium and KfW on an extension of TUI AG's revolving credit facility (RCF) and KfW credit line (both tranches) totalling € 4.7 bn to summer 2024. In this context, TUI AG's creditor banks agreed to a further suspension of the review of these covenants until the end of March 2022, so that the review will now only be resumed in September 2022. In addition, higher limits will be applied at the first two reporting dates before normalised limits have to be complied with as of September 2023.
Upon entry of the new shares in the commercial register on 28 October 2021 and final settlement with the banks involved on 2 November 2021, TUI AG successfully completed another capital increase. The gross issue proceeds amount to around € 1.1 bn.
The support and stabilisation package as well as the further financing measures are described in detail in the chapter 'Going concern reporting according to the UK Corporate Governance Code' in the notes.
See chapter Going Concern Reporting in accordance with the UK Corporate Governance Code, page 155
Currently, the TUI Group continues to be affected by the negative financial impact of the COVID-19 pandemic.
After a significant decrease in the number of COVID-19 cases in the summer of 2021, many countries are currently recording a significant increase in infections again. As a result, contact restriction measures have been tightened again in the affected countries. At the time of preparation of this report (6 December 2021) due to ongoing changes in travel restrictions, it remains impossible to predict when we will be able to fully resume our travel programme. In particular, it is not possible at this time to reliably predict how quickly vaccination against the COVID-19 virus can be completed in each country, whether new variants of the virus will emerge, and when medications will be available to treat COVID-19 disease. However, it is now foreseeable that sufficient vaccines will be available in our key source markets and destinations to ensure a further recovery in travel in the financial year 2022.
With the customer deposits received for the coming seasons, the funds from the financing measures implemented in the year under review (capital increase in January 2021 and the convertible bond placed in April), the cash inflow from the sale of Riu Hotels S. A., the extension of the revolving credit facilities including the further suspension of the review of the financial covenants as well as the further capital increase in October 2021, which took place after the balance sheet date, the Executive Board believes that, despite the existing risks, the TUI Group currently has and will continue to have sufficient funds resulting both from the borrowing and from expected operating cash flows to meet its payment obligations and to continue in the foreseeable future as a going concern. In this context, the Executive Board assumes that the credit lines expiring in summer 2024 will be refinanced. Therefore, as at 30 September 2021, the Executive Board no longer identifies a material uncertainty that may cast significant doubt about the Group's ability to continue as a going concern.
The Executive Board has conducted a sound assessment of the company's main risks, including future events that would jeopardise the business model, future results, solvency or liquidity. A sensitivity analysis is used to determine the potential impact of the main risks, whereby they may occur individually or together. The going concern scenario used for the assessment assumes that booking figures will gradually recover in the 2022 financial year and that booking behaviour in the 2023 financial year will largely correspond to the pre-pandemic level. The Executive Board assumes that the booking figures will gradually recover in the financial year 2022 and volumes in the summer of 2022 will settle at approximately the normalised level of the summer of 2019. For the 2023 financial year, it is expected that the booking behaviour in the financial year 2023 will largely correspond to the pre-pandemic level. The Executive Board assumes that there will be no further long-term closures and lockdowns that could affect travel behaviour. Nevertheless, customer bookings may deteriorate due to new travel restrictions, insufficient vaccination coverage against the COVID-19 virus in individual countries, and virus variants such as the new Omicron virus variant, for which there may not be sufficient vaccination protection, thereby affecting TUI Group's performance.
Taking into account the current situation of the Group, the main risks and the above-mentioned sensitivity analysis, the Executive Board has a reasonable expectation that the Group will be able to continue operations and meet the obligations arising within the three-year period under review.
Key features of the internal control and risk management system in relation to the (Group) accounting process (sections 289 (4) and 315 (4) of the German Commercial Code HGB)
1. Definition and elements of the internal control and risk management system
The TUI Group's internal control system comprises all the principles, processes and measures that are applied to secure effective, efficient and accurate accounting which is compliant with the necessary legal requirements.
The internationally recognised framework of COSO (Committee of Sponsoring Organizations of the Treadway Commission) forms the conceptual basis for TUI Group's internal control system, consisting of internal controls and the internal monitoring system. The Executive Board of TUI AG, in exercising its function of managing business operations, has entrusted responsibility for the internal control system in the TUI Group to specific Group functions.
The elements of the internal monitoring system in the TUI Group comprise both measures integrated into processes and measures performed independently. Besides manual process controls, e. g. the 'four-eyes principle', another key element of the process-related measures are automated IT process controls. Process-related monitoring is also secured by bodies such as the Risk Oversight Committee of TUI AG and by specific Group functions.
The Supervisory Board of TUI AG, in particular its Audit Committee, as well as the Group Auditing department at TUI AG are incorporated into the TUI Group's internal monitoring system through their audit activities performed independently from business processes. On the basis of section 107 (3) of the German Stock Corporation Act, the Audit Committee of TUI AG deals primarily with the auditing of the annual financial statements, monitoring the accounting process and the effectiveness of the internal control and risk management system. In the Audit Committee Report the reliability of the financial reporting and the monitoring of the financial accounting process as well as the effectiveness of the internal control and risk management system are described.
Audit Committee Report see from page 20
The Group's auditors have oversight of the TUI Group's control environment. The audit of the consolidated financial statements by the Group auditor and the audit of the individual financial statements of Group companies included in the consolidated financial statements, in particular, constitute a key non-process-related monitoring measure with regard to Group accounting.
In relation to Group accounting, the risk management system, introduced as an Enterprise Risk Management System (ERM System) as a component of the internal control system, also addresses the risk of misstatements in Group bookkeeping and external reporting. Apart from operational risk management, which includes the transfer of risks to insurance companies by creating cover for damage and liability risks and also hedging transactions to limit foreign currency and fuel price risks, the TUI Group's risk management system embraces the systematic early detection, management and monitoring of risks across the Group. A more detailed explanation of the risk management system is provided in the section on the Risk Governance Framework in the Risk Report.
2. Use of IT systems
Bookkeeping transactions are captured in the individual financial statements of TUI AG and of the subsidiaries of TUI AG, through local accounting systems such as SAP or Oracle. As part of the process of preparing their individual financial statements, subsidiaries complete standardized reporting packages in the Group's Oracle Hyperion Financial Management 22.214.171.124 (HFM) reporting system. HFM is used as the uniform reporting and consolidation system throughout the Group so that no additional interfaces exist for the preparation of the consolidated financial statements.
Nearly all consolidation processes used to prepare the consolidated financial statements of TUI AG, e. g. capital consolidation, assets and liabilities consolidation and expenses and income elimination including at equity measurement, are generated and fully documented in HFM. Virtually all elements of TUI AG's consolidated financial statements, including the disclosures in the Notes, are developed from and validated by the HFM consolidation system. HFM also provides various modules for evaluation purposes in order to prepare complementary information to explain TUI AG's consolidated financial statements.
The HFM reporting and consolidation system has an in-built workflow process whereby when businesses promote their data within the system, to signal that their reporting package is complete, they are then locked out from making any further changes to that data. This ensures data integrity within the system and also facilitates a strong audit trail enabling changes to a reporting package to be identified. This feature of the HFM system has been checked and validated by the TUI AG Group Audit department on several occasions since the system was introduced.
At their own discretion, TUI AG's Group auditors select certain individual financial statements from the financial statements entered in the HFM reporting and consolidation system by the Group companies, which are then reviewed for the purposes of auditing the consolidated financial statements.
3. Specific risks related to (Group) Accounting
Specific risks related to (Group) accounting may arise, for example, from unusual or complex business transactions, in particular at critical times towards the end of the financial year. Business transactions not routinely processed also entail special risks. The discretion necessarily granted to employees for the recognition and measurement of assets and liabilities may result in further (Group) accounting-related risks. The outsourcing and transfer of accounting-specific tasks to service companies may also give rise to specific risks. Accounting-related risks from derivative financial instruments are outlined in the Notes to the consolidated financial statements.
4. Key regulation and control activities to ensure proper and
The internal control measures aimed at securing proper and reliable (Group) accounting ensure that business transactions are fully recorded in a timely manner in accordance with legal requirements and the Articles of Association. This also ensures that assets and liabilities are properly recognised, measured and presented in the financial statements and the consolidated financial statements. The control operations also ensure that bookkeeping records provide reliable and comprehensive information.
Controls implemented to secure proper and reliable accounting include, for instance, analysis of facts and developments on the basis of specific indicators. Separation of administrative, execution, settlement and authorisation functions and the implementation of these functions by different persons reduces the potential for fraudulent operations. Organisational measures also aim to capture any corporate or Groupwide restructuring or changes in sector business operations rapidly and appropriately in (Group) accounting. They also ensure, for instance, that bookkeeping transactions are correctly recognised in the period in which they occur in the event of changes in the IT systems used by the accounting departments of Group companies. The internal control system likewise ensures that changes in the TUI Group's economic or legal environment are mapped and that new or amended accounting standards are correctly applied.
The TUI Group's accounting policies together with the International Financial Reporting Standards (IFRS) in compliance with EU legislation, govern the uniform accounting and measurement principles for the German and foreign companies included in TUI's consolidated financial statements. They include general accounting principles and methods, policies concerning the statement of financial position, income statement, notes, management report and cash flow statement.
The TUI Group's accounting policies also govern specific formal requirements for the consolidated financial statements. Besides defining the group of consolidated companies, they include detailed guidance on the reporting of financial information by those companies via the group reporting system HFM on a monthly, quarterly and year end basis. TUI's accounting policies also include, for instance, specific instructions on the initiating, reconciling, accounting for and settlement of transactions between group companies or determination of the fair value of certain assets, especially goodwill. At Group level, specific controls to ensure proper and reliable (Group) accounting include the analysis and, where necessary, correction of the individual financial statements submitted by the Group companies, taking account of the reports prepared by the auditors and meetings to discuss the financial statements which involve both the auditors and local management. Any further content that requires adjusting can be isolated and processed downstream. The control mechanisms already established in the HFM consolidation system minimize the risk of processing erroneous financial statements. Certain parameters are determined at Group level and have to be applied by Group companies. This includes parameters applicable to the measurement of pension provisions or other provisions and the interest rates to be applied when cash flow models are used to calculate the fair value of certain assets. The central implementation of impairment tests for goodwill recognised in the financial statements secures the application of uniform and standardized evaluation criteria.
With the organisational, control and monitoring structures established by the TUI Group, the internal control and risk management system enables company-specific facts to be captured, processed and recognised in full and properly presented in the Group's accounts.
However, it lies in the very nature of the matter that discretionary decision-making, faulty checks, criminal acts and other circumstances, in particular, cannot be ruled out and will restrict the efficiency and reliability of the internal control and risk management systems, so that even Group-wide application of the systems cannot guarantee with absolute certainty the accurate, complete and timely recording of facts in the Group's accounts.
Any statements made relate exclusively to TUI AG and to subsidiaries according to IFRS 10 included in TUI AG's consolidated financial statements.
Overall Assessment by the Executive Board
Actual business performance 2021 compared with our guidance
Due to travel restrictions in the first half of the year and in the course of Summer 2021, TUI Group's revenue at constant currency declined by 40.5 % year-on-year. After we had initially expected to deliver revenue growth, we updated our guidance to an expected year-on-year decline in revenue with the publication of our Half-Year Financial Report 2021.
As expected, TUI Group's underlying EBIT in financial year 2021 improved by € 921.5 m to an operating loss of € 2,075.5 m.
Including a gain on disposal from the sale of our 49 % stake in Riu Hotels S. A., not included in our original guidance, net adjustments for the financial year under review amounted to +€ 95.9 m. After our guidance had originally expected a net negative effect from adjustments, we modified our statement in this regard when we published our 9M results.
ROIC (IFRS 16) and Economic Value Added (IFRS 16) improved as expected in financial year 2021.
Due to lower gross capex and the sale of hotels, sales of aircraft and spare engines and in particular the 49 % stake in Riu Hotels S. A., the Group generated cash inflow from net capex and financial investments of € 699.1 m (previous year € 149.3 m). After our guidance had initially foreseen an increase in net capex and financial investments, we updated the relevant statement in our Half-Year Financial Report 2021, indicating that cash inflow from net investments in property, plant and equipment and financial investments would at least be flat year-on-year.
At € 5.0 bn, TUI Group's net debt carried at the end of financial year 2021 declined versus the prior year's figure of € 6.4 bn.
For financial year 2021, we had expected specific CO2 emissions to decrease year-on-year. Due to lower average load factors for our aircraft, this expectation was not met.
Projected development of global situation
Source: Projections of International Monetary Fund (IMF), World Economic Outlook, October 2021
Macroeconomic situation and market development in tourism
The International Monetary Fund (IMF) expects the global economy to continue recovering from the effects of the COVID-19 pandemic with growth of 4.9 % in calendar year 2022 (IMF, World Economic Outlook, October 2021). Global travel is also slowly recovering from a very low level, albeit with regional variations. In a number of destinations, in particular those with large domestic markets, recovery in the tourism sector is being driven by demand for domestic travel. We expect that package tours in the low-cost land-based and short-haul segment will be the first businesses to pick up again once the effects of COVID-19 fade away and global travel restrictions are lifted. Restoring consumer confidence and resuming travel continue to depend on the progress of vaccinations, coordinated national responses to travel restrictions, harmonised safety protocols and clear communication (UNWTO, September 2021).
Effects on TUI Group
As a global tourism provider, TUI Group depends on the political and legal framework and on consumer demand in the big source markets in which we operate with our hotel, cruise and tour operator brands. Our budget is based on the IMF's assumptions about the future development of the global economy and takes its cue from UNWTO's long-term forecast.
In the completed financial year 2021, the TUI Group's business performance again was significantly impacted by the travel restrictions triggered by the COVID-19 pandemic. At present, it can be observed that the TUI Group will continue to be affected by the negative impact of the COVID-19 pandemic. In view of the uncertain environment, the Executive board believes it would not be appropriate to issue a specific forecast for the new financial year 2022 at this time.
Expected development of Group earnings
The translation of the income statements of foreign subsidiaries in our consolidated financial statements is based on average monthly exchange rates. TUI Group generates a considerable proportion of consolidated revenue and substantial earnings and cash flow contributions in non-euro currencies, in particular the pound sterling and US dollar. Taking account of the seasonality in tourism, the value of these currencies against the euro in the course of the year therefore exerts a major impact on the financial indicators displayed in TUI AG's consolidated financial statements.
Our key financial performance indicators for our earnings position in financial year 2022 are revenue and underlying EBIT.
Definition of underlying EBIT in Value-oriented Group management on page 31.
Key performance indicators used for regular value analysis are Return On Invested Capital (ROIC) and Economic Value Added. ROIC for a given segment is shown against the segment-specific cost of capital.
Below, we present TUI Group's expected development in financial year 2022 based on the constant currency rates for financial year 2021.
For financial year 2022, we expect TUI Group's revenue to grow significantly year-on-year.
For financial year 2022, we expect TUI Group's underlying EBIT to improve significantly year-on-year.
Due to the non-repeat of the positive gain on disposal included in the results for financial year 2021, we expect a net negative effect from adjustments for financial year 2022, in contrast to the net positive adjustments carried in financial year 2021.
For details on objectives and strategies, see page 25 onwards; for details on risks, see Risk Report from page 35 onwards.
ROIC and Economic Value Added
Due to the expected improvement in our operating result, ROIC and Economic Value Added are also expected to improve significantly year-on-year, depending on how capital costs for TUI Group develop.
Expected development of financial position
To forecast the Group's financial position in financial year 2022, we have defined the Group's net capital expenditure and investments and its net financial position as key performance indicators.
Net capex and investments
Due to TUI Group's large divestments in financial year 2021, we expect a significant year-on-year increase in net capex and investments for financial year 2022.
Net financial position
For financial year 2022, we expect a significant decrease in the Group's net debt.
Climate protection and emissions
We have identified specific carbon emissions (in g CO2 / pkm) from our aircraft fleet as the key non-financial performance indicator. In financial year 2021, the lower load factors for our aircraft due to the sustained travel restrictions caused by COVID-19 resulted in an increase in specific CO2 emissions. For financial year 2022, we therefore expect specific CO2 emissions to significantly fall in comparison with financial year 2021.
Overall Executive Board assessment of TUI Group's current situation and
At the date of preparation of the Management Report (6 December 2021), TUI Group was still feeling the negative financial effects of the COVID-19 pandemic. In the light of the ongoing changes to travel restrictions, the Group still cannot foresee when we will be able to resume our travel programme in full. Despite continued uncertainty about COVID-19 vaccination rates in various countries, potential new virus variants and the arrival of drugs to treat COVID-19, we assume that suitable vaccines will be sufficiently available in our main source markets and destinations to ensure the further recovery of travel activities in financial year 2022. For financial year 2022, we therefore expect TUI Group's underlying EBIT to improve significantly year-on-year on a constant currency basis.
Outlook for TUI AG
The future business performance of TUI AG is essentially subject to the same factors as those impacting TUI Group. Due to the business ties between TUI AG and its Group companies, the outlook, opportunities and risks presented for TUI Group are largely mirrored by expectations for TUI AG. The comments made for TUI Group therefore also apply to TUI AG.
TUI Group's opportunity management follows the Group strategy for Tourism as our core business. Responsibility for systematically identifying and taking up opportunities rests with the operational management of the Hotels & Resorts, Cruises and TUI Musement segments as well as our source markets. Market scenarios and critical success factors for the individual sectors are analysed and assessed in the framework of the Group-wide planning and control process. The core task of the Group's Executive Board is to secure profitable growth for TUI Group again by optimising the shareholding portfolio and developing the Group structure over the long term.
Opportunities and risks arising from macro trends
The comprehensive lifting of current travel restrictions, in particular, would facilitate a significant and swift recovery of our business. Faster or stronger than expected recovery in demand in the travel market would have a positive effect on TUI Group and its segments. Moreover, changes in the competitive environment could create opportunities for TUI Group in individual markets.
Corporate strategy opportunities
Opportunities arise from the implementation of our Global Realignment Programme. We are reviewing our activities, each business unit and each Group company worldwide in order to identify synergies and be leaner, faster and more efficient. We see opportunities in the further adjustment of our structure and our presence in the markets and destinations.
Further opportunities arise from accelerating the Group's transformation into a digital platform business. We will expand hotel-only and flight-only products and broaden our dynamic packaging opportunities. We will prioritise the planned transformation of our digital platform in the Destination Experiences segment.
We intend to operate as an asset-light organisation and see opportunities in the implementation of our asset-right strategy in our Hotels & Resorts and Cruises businesses. We are reviewing unprofitable activities and will divest them as appropriate.
Macroeconomic, Industry and Market Framework
Source: International Monetary Fund (IMF), World Economic Outlook, October 2021
Following the historic slump in the global economy due to the global COVID-19 pandemic in the previous year, the International Monetary Fund projects global economic output to recover considerably with global GDP growth of 5.9 % in calendar year 2021. Recovery from the effects of the pandemic varied greatly from one region to another. Access to vaccines and early political support remain the crucial factors for overcoming the repercussions (IMF, World Economic Outlook, October 2021).
Key exchange rates and commodity prices
TUI Group companies operate on a worldwide scale. This presents financial risks for TUI Group arising from changes in exchange rates and commodity prices. The essential financial transaction risks from operations concern euros and US dollars. They mainly result from foreign exchange items in the individual Group companies, for instance jet fuel and bunker oil or ship handling, or from sourcing transactions by hotels. The parity of sterling against the euro affects the translation of results generated in the UK market in TUI's consolidated financial statements. Following the UK's exit from the European Union, the currency fluctuations continued, impacting the translation of results from our UK business. Changes in commodity prices above all affect TUI Group when procuring fuels such as aircraft fuel and bunker oil.
Financial position on page 68, Risk report on page 35 and Financial instruments in the Notes on page 214.
TUI Group is a global tourism provider. The development of the international tourism market has an impact on all business areas of the Group.
The key indicators to measure the size of the tourism sector include the number of international tourist arrivals. According to the United Nations World Tourism Organization (UNWTO), the number of international tourist arrivals grew by around 5 % year-on-year from 2009 to 2019 (UNWTO, World Tourism Barometer, January 2020).
This growth was driven by a number of factors: the relatively stable global economy, a growing middle class in the emerging economies, technological progress, low travel costs and an easing of visa requirements.
The COVID-19 pandemic has had a particularly serious impact on the travel and tourism sector. Travel restrictions were imposed in numerous markets across the globe; aircraft were grounded and hotels closed. For the first seven months of calendar year 2021, UNWTO reports a decline in international tourist arrivals of 40 % year-on-year and 80 % versus the 2019 reference period which was not impacted by COVID-19. Following a weak start to the year, international tourism saw a slight increase in tourist arrivals in the period from June to July 2021. This was attributable to the reopening of numerous destinations for global travel, above all in Europe and America. The lifting of restrictions on travel for vaccinated travellers and the progress delivered by COVID-19 vaccinations helped to boost consumer confidence and gradually restore safe mobility in Europe and other parts of the world (UNWTO, World Tourism Barometer, September 2021).
Source: UNWTO World Tourism Barometer, September 2021
Travel intermediary market
A travel intermediary operates between a provider of tourism services, such as an airline or a hotel, and final customers, typically delivering distribution or related services.
Travel intermediaries include tour operators and online travel agencies (OTAs), whose business models vary substantially. Traditional tour operators offer their customers a package product (comprising e. g. flight, hotel and transfers), usually through a combination of offline (i. e. travel agencies) and online channels. In order to secure flight and hotel capacity in advance, a tour operator usually commits to a certain share of required capacity. Tour operators thus take the risk to fill the committed capacity; in return, they can expect the supplier to offer them a favourable rate and the opportunity to secure accommodation on an exclusive basis. OTAs, by contrast, typically do not commit to taking contingents. Their offering to suppliers is a digital distribution platform with broad customer reach. Both bigger OTAs and dynamic packaging* are gaining relevance.
* dynamic packaging of travel services such as flight, transfer, hotel and catering to a package tour
The airline industry was hit particularly hard by the COVID-19 crisis, as airlines around the world had to ground their aircraft and cancel flights due to global travel bans. Recovery scenarios vary; however, the first positive signs are emerging. When key European destinations reopened for visitors in Summer 2020, flight capacity was ramped up. A similar development was observed in Summer 2021, when travel restrictions were lifted once again. The holiday trip segment is expected to recover first and grow faster than the business travel market in the next few years (skift.com, 2021).
The European airline market is characterised by fierce competition and overcapacity, resulting in pressure on yields. Despite a number of insolvencies, the market has not seen a significant reduction in flight capacity. Instead, capacity has typically been absorbed by existing players.
The COVID-19 pandemic had significant impacts on the hotel sector as travel and hotel restrictions imposed by governments in many countries resulted in the temporary closing of hotels and a significant decline in the number of bed nights. The recovery of the hotel market was initiated with the resumption of domestic travel. Following the lifting of governmental restrictions, international travel contributed to an increase in bed nights.
The hotel market comprises business and leisure hotels. Leisure hotels feature a number of characteristics distinguishing them from business hotels, including longer average lengths of stay and differences in location, room features and service offerings. From a demand perspective, the leisure hotel market in Europe comprises several smaller sub-markets catering to customers' individual needs and preferences. The sub-markets comprise premium, comfort and budget hotels as well as family / apartment hotels and club or resort hotels. Hotel companies may offer a variety of hotels for different market segments, often defined by price segment, star rating, exclusivity or available facilities.
In Europe, in particular, there are many small, often family-run hotels, which are less upscale and have fewer financial resources. Most family-owned hotels are not branded.
Given the large number of ownership and operating models for leisure hotels and the fragmented competitive landscape which, at least in Europe, is not dominated by large hotel chains, the competitive environment differs greatly between locations. Despite this strong fragmentation, a structural change can be observed in the European hotel industry, as in nearly all regions in the world. The share held by hotel chains is increasing.
From 1990 to 2019, the global ocean cruise sector recorded annual passenger growth of 6.6 %. An estimated 29.7 m passengers undertook an ocean cruise in calendar year 2019. At around 15.4 m passengers, North America remains the largest cruise market in the world, followed by Europe with around 7.7 m passengers. In terms of passenger numbers, the most frequently visited destinations are the Caribbean, Asia and Africa as well as the central and western Mediterranean (CLIA, 2021 State of the Cruise Industry Outlook).
Restrictions imposed by governments due to COVID-19 temporarily brought the cruise sector to a standstill. Due to the pandemic, numerous ships were also decommissioned earlier than planned with a view to modernising fleets and improving their environmental performance. (Cruise Market Watch)
Destination Experiences market
The market for tours and activities is a rapidly growing tourism segment. The market is highly fragmented on the supplier side and is predominantly operated offline. However, due to growing consolidation and digitalisation, the market is undergoing change.
Pre-COVID-19, the forecast market growth on a five-year outlook varied between 3 % and 7 % (Company estimate based on Phocuswright & Euromonitor), depending how the market was defined.
Our TUI Brand
Our brand with the red 'smile' - the smiling logo formed by the three letters of our brand name TUI - stands for TUI's ambition to provide a consistent customer experience, digital presence and competitive strength above and beyond the actual holiday experience. In recent years, to further leverage the appeal and strength of our core brand and tap the associated growth potential, we have created global branding and a consistent brand experience.
TUI Group is an integrated tourism group operating on a global scale. TUI is one of the best-known travel brands in our core markets in Europe. Seeking to emerge stronger from the COVID-19 crisis, we launched a freshly designed marketing campaign in October 2021. Its goal is to underpin the existing brand essence with our values reliability, credibility and quality, while also strengthening the links between TUI's brand identity and the leisure experience following the expansion of TUI Group's portfolio over the past few years to include TUI Musement. Our new brand strategy 'TUI creates the moments that make life richer' will visualise our goal of offering our guests sustainable, personally significant holidays and experiences.
Comments on the consolidated income statement
In financial year 2021, the development of TUI Group's revenue and earnings was significantly impacted by the continued suspension of most of TUI's tour operator, aviation, hotel and cruise businesses caused by the persistent global travel restrictions to curb the spread of COVID-19. In the period under review, TUI Group's operating loss (underlying EBIT) declined by € 921.5 m to a loss of € 2,075.5 m, an improvement of € 933.8 m year-on-year on a constant currency basis.
Revenue and cost of sales
In financial year 2021, TUI Group's revenue declined by 40.4 % to € 4,731.6 m due to the COVID-19 pandemic. On a constant currency basis, revenue decreased by 40.5 %. Customer numbers were 33.5 % down year-on- year. Reve-nue is presented alongside the cost of sales in the income statement, which declined by 40.0 % in the period under review.
The difference between revenue and the cost of sales declined by € 758.6 m year-on-year to a gross loss of € 1,223.8 m.
Administrative expenses decreased by € 176.8 m year-on-year to € 840.5 m.
Other income and other expenses
In financial year 2021, other income mainly resulted from the sale of our 49 % stake in the Riu Hotels S. A. joint venture (real estate portfolio) to a Riu Group company. In the prior year, other income had mainly included income from the divestment of the German specialist tour operators and of Hapag-Lloyd Kreuzfahrten.
As in the prior year, other expenses in financial year 2021 mainly included expenses incurred in connection with the disposal of Group companies and losses from the sale of aircraft assets.
The financial result declined by € 150.4 m to € - 436.8 m, primarily due to higher interest expenses driven by the use of credit facilities to cover the payments due, expenses incurred in connection with the early redemption of TUI's senior bond on 23 February 2021, and lower income from bank balances. Financial income mainly resulted from changes in exchange rates for lease liabilities in accordance with IFRS 16.
Share of result of joint ventures and associates
The share of result from joint ventures and associates of € - 232.7 m comprises the proportionate net profit for the year of these companies. The decline in the share of result is driven by adverse operational impacts caused by the COVID-19 pandemic. In the prior year, the result in Cruises had included a profit contribution from the Winter 2019 / 20 season.
Earnings before income taxes
In the period under review, earnings before income taxes totalled € - 2,461.7 m. The loss therefore declined by € 741.6 m year-on-year.
The Group loss for financial year 2021 declined by € 658.2 m to € 2,480.9 m.
Share in Group loss attributable to TUI AG shareholders
The share in Group loss attributable to TUI AG shareholders amounted to € - 2,467.2 m in financial year 2021.
In the completed financial year, non-controlling interests in the Group result totalled € - 13.8 m. They mainly related to RIUSA II Group.
Earnings per share
The interest in the Group result attributable to TUI AG shareholders resulted in basic earnings per share of € - 2.58 (previous year € - 5.34) in financial year 2021. The underlying average number of shares results from the number of shares at the beginning of the financial year and the prorated effect of the capital increase implemented in financial year 2021.
Alternative Performance indicators
The Group's main financial KPI is 'underlying EBIT'. We define the EBIT in underlying EBIT as earnings before interest, income taxes and expenses for the measurement of the Group's interest hedges. EBIT by definition includes goodwill impairments.
Underlying EBIT is adjusted by 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 include gains on disposal from investments, major gains and losses from the sale of assets and major restructuring and integration expenses. In addition, adjustments are carried for all effects from purchase price allocations, ancillary acquisition costs and conditional purchase price payments. Adjustments made in the reconciliation to underlying EBIT include goodwill impairments.
The table below provides a reconciliation to underlying EBIT:
TUI Group's EBIT declined by € 914.6 m to € - 2,012.8 m in financial year 2021.
Since financial year 2020, the Group has used the indicator 'underlying EBIT', which is more common in the international sphere, for the purposes of value-oriented management. In financial year 2020, underlying EBIT was also adjusted for the IFRS 16 earnings effect in the framework of internal reporting ('underlying EBIT [IAS 17]') in order to enhance comparability with the prior year. From financial year 2021, underlying EBIT (IFRS 16) is the segment KPI within the meaning of IFRS 8. The prior year's numbers have been restated accordingly.
In financial year 2021, net income was adjusted by € 95.9 m for one-off effects.
For details, please refer to the Notes to the segment data.
For one-off effects, please see page 171.
Cautionary note on COVID-19
The COVID-19 crisis, which broke out in our key source markets and destinations in Europe at the end of the second quarter of financial year 2020, had severe impacts on the tourism sector and TUI Group in the financial years 2020 and 2021. As our business operations were significantly restricted, the key performance indicators of financial year 2021 shown in the sections below are of limited, if any, comparability and do not allow any conclusions to be drawn about the sustained development.
Turnover measures include fully consolidated companies, all other KPIs incl. companies measured at equity.
1 Group owned or leased hotel beds multiplied by opening days
2 Occupied beds divided by capacity
3 Arrangement revenue divided by occupied beds
1 No revenue is carried for TUI Cruises and Hapag-Lloyd Cruises as the joint venture is consolidated at equity
2 Per day and passenger
3 Inclusive of transfers, flights and hotels due to the integrated nature of Marella Cruises, in £
Markets & Airlines
1 Share of sales via own channels (retail and online)
2 Share of online sales
1 Share of sales via own channels (retail and online)
2 Share of online sales
Northern Region comprises UK, Nordics and joint ventures in Canada and Russia.
1 Share of sales via own channels (retail and online)
2 Share of online sales
Central Region comprises Germany and Austria (operated as one market), Switzerland and Poland.
1 Share of sales via own channels (retail and online)
2 Share of online sales
Western Region comprises Belgium, Netherlands and France.
The Group's balance sheet total decreased by 7.7 % year-on-year to € 14.2 m.
Vertical structural indicators
Non-current financial assets accounted for 79.3 % of total assets, compared with 82.4 % in the previous year. The capitalisation ratio (ratio of fixed assets to total assets) decreased from 74.0 % to 72.8 % .
Current assets accounted for 20.7 % of total assets, compared with 17.6 % in the previous year. The Group's cash and cash equivalents increased by € 350.8 m to € 1,583.9 m. They thus accounted for 11.2 % of total assets, as against 8.0 % in the previous year.
Horizontal structural indicators
Due to the suspension of our business operations driven by COVID-19 and the resulting losses, Group equity was negative at the balance sheet date. In the prior year, the ratio of equity to non-current assets had been 1.7 %. The ratio of equity plus non-current financial liabilities to fixed assets was 25.4 %, compared with 34.5 % in the previous year.
Development of the Group's non-current assets
Due to foreign exchange translation effects, Goodwill rose by 2.7 % to € 2,993.1 m €.
For details, please refer to the section Goodwill in the Notes from page 181.
Property, plant and equipment
Property, plant and equipment totalled € 3,159.3 m at the balance sheet date, down by € 303.2 m year-on-year. This decline was driven by various factors including disposals of property, plant and equipment from the sale of spare engines. Major additions to property, plant and equipment related to the acquisition of shares in a hotel company in Croatia and investments by Riu Group in the construction and renovation of hotels. In addition, tests of the carrying amounts performed due to the travel restrictions caused by COVID-19 resulted in impairment losses, above all for hotels and aircraft.
As a lessee, TUI recognises right-of-use assets and lease liabilities in the statement of financial position in accord-ance with IFRS 16. The right-of-use assets relate to moveable assets such as aircraft, vehicles and cruise ships, as well as property such as hotel buildings and land, office buildings and travel agencies.
Companies measured at equity
Eightteen associated companies and 27 joint ventures were measured at equity. At € 640.5 m, their value decreased by 46.0 % year-on-year as at the balance sheet date.
Development of the Group's current assets