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TUI AG (FRA:DE000TUA) TUI AG: Annual Financial Report - Part 2

Directive transparence : information réglementée

11/12/2019 12:10

TUI AG (TUI)
TUI AG: Annual Financial Report - Part 2
11-Dec-2019 / 12:10 CET/CEST
Dissemination of a Regulatory Announcement, transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.


FINANCIAL HIGHLIGHTS

€ million

2019

2018
adjusted

Var. %

Var. % at ­constant ­currency

Turnover

18,928.1

18,468.7

+ 2.5

+ 2.7

 

 

 

 

 

Underlying EBITA1

 

 

 

 

Hotels & Resorts

451.5

420.0

+ 7.5

- 4.9

Cruises

366.0

323.9

+ 13.0

+ 13.2

Destination Experiences

55.7

45.6

+ 22.1

+ 20.4

Holiday Experiences

873.2

789.5

+ 10.6

+ 3.6

Northern Region

56.8

278.2

- 79.6

- 77.1

Central Region

102.0

94.9

+ 7.5

+ 7.0

Western Region

- 27.0

124.2

n. a.

n. a.

Markets & Airlines

131.8

497.3

- 73.5

- 72.2

All other segments

- 111.7

- 144.0

+ 22.4

+ 18.5

TUI Group

893.3

1,142.8

- 21.8

- 25.6

 

 

 

 

 

EBITA2, 3

768.4

1,054.5

- 27.1

 

Underlying EBITDA3, 4

1,359.5

1,554.8

- 12.6

 

EBITDA3, 4

1,277.4

1,494.3

- 14.5

 

EBITDAR3, 4, 5

1,990.4

2,215.8

- 10.2

 

 

 

 

 

 

Net profit for the period

531.9

774.9

- 31.4

 

Earnings per share3in €

0.71

1.17

- 39.3

 

Equity ratio (30 Sept.)6%

25.6

27.4

- 1.8

 

Net capex and investments (30 Sept.)

1,118.5

827.0

+ 35.2

 

Net debt / net cash (30 Sept.)

- 909.6

123.6

n. a.

 

Employees (30 Sept.)

71,473

69,546

+ 2.8

 

Differences may occur due to rounding.

This Annual Report 2019 of the TUI Group was prepared for the reporting period from 1 October 2018 to 30 September 2019.

The TUI Group applied IFRS 15 and IFRS 9 retrospectively from 1 October 2018. In contrast to IFRS 15, IFRS 9 was introduced without restating the previ-ous year's figures.

For details on reclassifications please refer to page 32.

1 In order to explain and evaluate the operating performance by the segments, EBITA adjusted for one-off effects (underlying EBITA) is presented. Underlying EBITA has been adjusted for gains / losses on disposal of investments, restructuring costs according to IAS 37, ancillary acquisition costs and conditional purchase price payments under purchase price allocations and other expenses for and income from one-off items. Please also refer from page 67 for further details.

2 EBITA comprises earnings before interest, income taxes and goodwill impairment. EBITA includes amortisation of other ­intangible assets. EBITA does not include measurement effects from interest hedges.

3 Continuing operations.

4 EBITDA is defined as earnings before interest, income taxes, goodwill impairment and amortisation and write-ups of other intangible assets, depreciation and write-ups of property, plant and equipment, investments and current assets. The amounts of amortisation and depreciation represent the net balance including write-backs. Underlying EBITDA has been ­adjusted for gains / losses on disposal of investments, restructuring costs according to IAS 37, ancillary acquisition costs and conditional purchase price payments under purchase price allocations and other expenses for and income from one-off items.

5 For the reconciliation from EBITDA to the indicator EBITDAR, long-term leasing and rental expenses are eliminated.

6 Equity divided by balance sheet total in %, variance is given in percentage points.

»TUI's strategy change launched more than five years ago marked the successful
shift to an integrated tourism provider.
The ­transformation of the Group is ­consistently advancing, as today's business model will not guarantee tomorrow's ­success. For TUI, the future is digital.«

Friedrich Joussen, CEO of TUI AG

LETTER TO OUR
SHAREHOLDERS

Dear shareholders,

Actively shaping change and successfully tackling external factors and market challenges are two of TUI's strengths. We delivered double-digit growth for four consecutive years. In 2019, our planned growth was impossible to achieve. Nevertheless, we held up well in a very challenging market environment for tourism and aviation. The traditional tour operating business in Europe is still changing, the aviation sector is feeling the impact of overcapacity, in particular on short- and medium-haul routes, and our results for the completed financial year were affected in particular by the grounding of the Boeing 737 Max. This led us to update our guidance early on. Without the grounding of the 737 Max, we would have delivered earnings within the prior year's record levels. Taking account of all external factors, the performance we delivered this year reflects our updated guidance, but it is down 25.6 % year-on-year. A year like the one we have just witnessed demonstrates, in particular, that we adopted the right approach with our new strategic alignment in 2014, and that it has ensured TUI's financial and economic resilience.

Let me thank our many customers who again chose TUI and our brands, and you, our shareholders, for your loyalty to TUI. I would also like to thank all our employees who catered to the needs of our guests and made their holidays a unique experience last year. The Executive Board and the Supervisory Board will propose payment of a dividend of € 0.54 per share to this year's Annual General Meeting.

TUI's strategy change launched more than five years ago marked the shift from a traditional tour operator, a trader in holiday tours, to an integrated tourism provider - with its own hotels, cruise ships and rapidly growing destination activities segment. Our Holiday Experiences business, consisting of our hotel, cruise and destination activities, again delivered a very positive performance. In 2019, we opened a record number of new hotels, increasing TUI's portfolio of own hotels to 411. Thanks to two newbuilds our cruise ship fleet now comprises 18 vessels. TUI Cruises maintains one of the world's youngest and most state-of-the-art fleets. With Hotels & Resorts and Cruises, we already operate two strong growth and earnings pillars. Both segments now form the backbone of our Group. Apart from successful joint ventures such as Riu and Atlantica, we are looking in our hotel business at a strong expansion of the TUI Blue brand, facilitating asset-light growth. In the next few years, TUI Blue will become the world's leading holiday hotel brand. It is setting standards and enables hoteliers outside our existing joint ventures to grow with us under the TUI umbrella.

For TUI, the future is digital. The transformation of the Group is consistently advancing, as today's business model will not guarantee tomorrow's success. We have launched the second stage of TUI's transformation. The way ahead will change TUI at least as much as the successful transformation pursued since 2014. We have done our homework, invested in people, teams and technology: TUI is becoming a digital company. Our 28 million customers and our global footprint in more than 100 countries around the world form the basis for the next chapter in TUI's history. We are developing digital solutions for ourselves and our companies, but also for other hoteliers and industry partners. This is what we call TUI's 'eco-system', and it will be accessible for all those focusing - as we do - on unique holiday experiences, quality, service and innovation in tourism. The prerequisite was and remains a comprehensive digitalisation of our businesses. We are developing new markets and customers: our 'TUI 2022' programme is progressing well. We have created a pure-play online presence in six attractive markets and are tapping countries such as India, Malaysia and Brazil through one single global platform. We are currently winning around 250,000 new customers a year, increasing the occupancy and profitability of our own hotels. Moreover, our destination activities business is becoming one of our strategic growth pillars. In autumn 2018, we acquired the Italian technology start-up Musement and can now offer around 150,000 activities. Since then we have more than doubled the volume of excursions sold through our platform. This business already contributes more than 50 million euros to our earnings. Our partnership with the leading Chinese company Ctrip demonstrates the potential for this segment in international growth markets. The TUI brand, the technology provided by Musement and our 28 million customers are the components that will enable us to build the largest digital marketplace for activities.

In tourism, growth and sustainability are not contradictory, but two sides to the same coin. Social, environmental and economic sustainability are inextricably linked. In many parts of the world, the tourism sector plays a crucial role in economic and social progress. Tourism goes hand in hand with investments in environmental standards, social standards, education and training. It also creates substantially better health care standards compared with places not visited by tourists. In today's highly complex world, travel creates better understanding of people and cultures: 'The most dangerous worldviews are the worldviews of those who have never viewed the world,' said Alexander von Humboldt. We need more rather than less exchange and dialogue - not least in order to effectively address global challenges such as the carbon issue and to develop solutions that can be globally implemented. Companies have to invest in state-of-the-art technologies, and this is what TUI has done over the past few years with our investments in cutting-edge aircraft and ships. Our 2015 - 2020 Sustainability Strategy was ambitious and we have already delivered many of our goals. We are in the middle of our preparations for the 2020 - 2030 Strategy, which we will present next year. We refer to the enclosed magazine 'moments', where you can read more about the many initiatives we have launched to embrace our responsibility for global challenges effectively.

As you can see, dear shareholders, TUI is evolving and pressing vigorously ahead with its transformation as a digital group. I hope that we can continue to inspire you to support our Company and strategy. We will do our utmost to work towards that goal in 2020 in partnership with our Group Executive Committee, the global management team and around 70,000 employees with us around the world. I thank you, dear shareholders, for your loyalty, support and the trust you place in us.

Best regards,

 

Friedrich Joussen

CEO TUI AG

Guidance

Key
Figures

Guidance FY 20191

 

Guidance FY 2019, updated

 

 

Guidance
achievement

Actual FY 2019

 

 

 


Guidance

FY 2020

Turnover in € bn

 

 

 

 

 

 

 

 

 

approximately

3 %2

 

 

 

 

18.9 + 2.7 %2

 

 

 

mid to high single-digit % growth2

EBITA (underlying) in € m

 

 

 

 

 

 

 

 

 

At least

+ 10 % 2

 

- 26 %4

 

 

893 - 25.6 %2

 

 

 

€ ~ 950 - 1,050 m3

Adjustments in € m

 

 

 

 

 

 

 

 

 

~ 125 costs

 

 

 

 

125 costs

 

 

 

€ ~ 70 - 90 m costs

Net capex and
investments in € bn

 

 

 

 

 

 

 

 

 

1.0 - 1.25

 

 

 

 

1.15

 

 

 

€ ~ 750 - 900 m5

Net debt in € bn

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.9

 

 

 

€ ~ 1.8 - 2.1 bn

 

 

 

 

 

 

 

 

 

 

1 As published on 13 December 2018, unless otherwise stated

2 Variance year-on-year assuming constant foreign exchange rates are applied to the result in the current and prior period and based on the current group structure and pre IFRS 16.

3 Underlying EBIT. Range includes approximately € 130 m cost impact from Boeing 737 Max grounding, assuming return to service by end of April 2020. Should the Boeing 737 Max grounding continue to the end of FY 2020, additional cost impact of € ~ 220 - 270 m expected. The above guidance does not ­include any potential grounding compensation from Boeing in any form; and includes a mid to high double-digit millions investment in digital platform growth.

4 The outlook has been updated due to a weaker earnings expectation for Markets & Airlines and the subsequent grounding of Boeing 737 Max aircraft in February and March 2019.

5 Including PDPs, excluding aircraft assets financed by debt or finance leases

REPORT OF THE
SUPERVISORY BOARD

Ladies and Gentlemen,

Following four very successful financial years with double-digit growth rates, TUI started into the completed financial year with great confidence. However, the year brought a number of unexpected challenges.

On the one hand, bookings slowed down unexpectedly at the beginning of 2019 following the hottest summer in a century recorded in 2018. In combination with a weak pound sterling as a result of the Brexit announcement as well as shifts in demand for destinations, this led to a first update in our earnings guidance. Shortly afterwards, at the end of March, we had to update our guidance once again when the Boeing 737 Max was grounded following the tragic accidents.

However, these events have also shown that TUI had taken the right strategic decisions and consistently implemented these decisions with the first strategy realignment since the merger between TUI AG and TUI Travel PLC. The transformation from a pure tour operator to an integrated tourism group that invests in, develops and operates hotels, cruises and holiday experiences secured the resilience of our business model. This year in particular, against the backdrop of recent events, we realised just how much stability we had gained as a result of this first transformation.

In the completed financial year, we continued to expand our operations in excursions and activities with the Musement platform, consistently developed our hotel portfolio and expanded our cruise ship fleet. In parallel, we supported the Executive Board throughout the sale of the French airline Corsair and the specialist tour operators Berge & Meer and Boomerang, approving the Group's strategy of focusing on our core activities. The Supervisory Board will now continue to support the Executive Board in actively shaping the second phase of our transformation towards a digital and platform company. We will continue to provide constructive support but remain critical and challenge our executives. We will definitely not rest on our past achievements. The permanent change we have undergone in recent years, in particular, has confirmed our view that this change is a crucial basis for our success.

After all, it is already emerging that the new financial year will bring challenges of its own. We cannot yet draw any firm conclusions about the return to service of Boeing 737 Max jets, and it is not clear, either, what will happen around a potential Brexit. On the other hand, we can also see opportunities arising from the market exit of our competitor Thomas Cook, and we are planning to seize these opportunities.

In terms of governance, the Supervisory Board will address the implementation of the second Shareholder Rights Directive (SRD II) and the amendments to the German Corporate Governance Code as well as the new UK Corporate Governance Code in the new financial year. We will continue to comply with the latter as far as practically possible. We had already considered these developments and forthcoming changes in the completed financial year and believe we are already well positioned to tackle the matter.

We also look back on changes in the composition of our Supervisory Board in FY 2019.

At the Annual General Meeting held in February 2019, Carmen Riu Güell's son Juan Trían Riu was elected to the Supervisory Board after she stepped down from this body as announced. We are delighted that Juan Trían Riu, a finance expert familiar with the structure and functioning of the hotel business, has joined the Supervisory Board. Although we already bid farewell to Carmen Riu Güell at the Annual General Meeting, I would like to use this opportunity to thank her very warmly once again for her committed work on the Supervisory Board over fourteen years.

In May 2019, my predecessor, Prof. Klaus Mangold, also stepped down from the Supervisory Board after nineteen years as a member, including eight years as its Chairman. To the end, Prof. Mangold energetically maintained his unwavering commitment and support, initially for the merger and subsequently for TUI's transformation as an integrated tourism group. As a convinced European, he played a crucial role in uniting the different cultures within TUI and forging them into a single, global player, alongside his commitment to securing TUI's economic success. TUI will drive the transformation process further on the basis of these foundations. We would like to thank him very warmly and wish him all the best for his future.

After Prof. Mangold stepped down in May, and with the support of the Supervisory Board, the Executive Board filed an application for the appointment of Vladimir Lukin by court order. Mr Lukin was subsequently appointed as a Supervisory Board member by court order on 5 June 2019. Mr Lukin had already been a member of our Supervisory Board from February 2014 until the completion of the merger between TUI AG and TUI Travel PLC in December 2014. He is a valuable member of our Board, above all thanks to his financial expertise and operational insights.

Cooperation between the Supervisory Board
and the Executive Board

In a stock corporation under German law, there is a mandatory strict separation of the Executive Board and the Supervisory Board. While the management of the company is the exclusive task of the Executive Board, the Supervisory Board is in charge of advising and overseeing the Executive Board. As the oversight body, the Supervisory Board provided on-going advice and supervision for the Executive Board in managing the Company in FY 2019, as required by the law, the Articles of Association and its own Terms of Reference.

Its actions were guided by the principles of good and responsible corporate governance. Our monitoring activities essentially served to ensure that the management of business operations and the management of the Group were lawful, orderly, fit for purpose and commercially robust. The individual advisory and oversight tasks of the Supervisory Board are set out in Terms of Reference. Accordingly, the Supervisory Board is, for instance, closely involved in entrepreneurial planning processes and the discussion of strategic projects and issues. Moreover, there is a defined list of specific Executive Board decisions requiring the consent of the Supervisory Board, some of which call for detailed review in advance and require the analysis of complex facts and circumstances from a supervisory and consultant perspective (own business judgement).

TUI AG falls within the scope of the German Industrial Co-Determination Act (MitbestG). Its Supervisory Board is therefore composed of an equal number of shareholder representatives and employee representatives. Employee representatives within the meaning of the Act include a senior manager (section 5 (3) of the German Works Constitution Act) and three trade union representatives. All Supervisory Board members have the same rights and obligations and they all have one vote in voting processes. In the event of a tie, a second round of voting can take place according to the Terms of Reference for the Supervisory Board, in which case I as Chairman of the Supervisory Board have the casting vote.

In written and verbal reports, the Executive Board provided us with regular, timely and comprehensive information at our meetings and outside our meetings. The reports encompassed all relevant facts about strategic development, planning, business performance and the position of the Group in the course of the year, the risk situation, risk management and compliance, but also reports from the capital markets (e. g. from analysts), media reports and reports on current events (e. g. crises). The Executive Board discussed with us all key transactions of relevance to the Company and the further development of the Group. Any deviations in business performance from the approved plans were explained in detail. The Supervisory Board was involved in all decisions of fundamental relevance to the Company in good time. We fully discussed and adopted all resolutions in accordance with the law, the Articles of Association and our Terms of Reference. We regularly prepared for these decisions based on documents provided in advance by the Executive Board to the Supervisory Board and its committees. We were also swiftly informed about any urgent topics arising in between the regular meetings. As Chairman of the Supervisory Board, I was also regularly informed by the Executive Board about current business developments and key transactions in the Company between Supervisory Board meetings.

Deliberations in the Supervisory Board
and its Committees

Prior to Supervisory Board meetings, the shareholder representatives and the employees' representatives met in separate meetings, which were regularly also attended by Executive Board members.

Apart from the full Supervisory Board, a total of four committees were in place in the completed financial year: the Presiding Committee, Audit Committee, Strategy Committee and Nomination Committee. The Mediation Committee formed pursuant to section 27 (3) of the Co-Determination Act did not have to meet. The chair of each committee provides regular and comprehensive reports about the work performed by the committee at the ordinary Supervisory Board meetings.

In FY 2019, as in prior years, we again recorded a consistently high meeting attendance despite a large number of meetings. Average attendance was 93.5 % (previous year 92.8 %) at plenary meetings and 97.3 % (previous year 85.3 %) at committee meetings. All Supervisory Board members attended significantly more than half the Supervisory Board meetings and meetings of the committees on which they sat in FY 2019. Members unable to attend a meeting usually participated in the voting through proxies. Preparation of all Supervisory Board members was greatly facilitated by the practice of distributing documents in advance in the run-up to the meetings and largely dispensing with handouts at meetings.

Attendance at meetings of Supervisory Board 2019

Attendance at meetings of Supervisory Board 2019

Name

Supervisory Board ­meetings

Presiding ­committee

Audit
committee

Nomination committee

Strategy ­Committee

Dr Dieter Zetsche (Chairman since 23 May 2019)

9 (10)

3 (3)1

3 (3)

 

2 (2)

Frank Jakobi (Deputy Chairman)

9 (10)

7 (7)

 

 

8 (8)

Peter Long (Deputy Chairman)

9 (10)

7 (7)

 

2 (2)

8 (8)1

Andreas Barczewski

10 (10)

 

7 (7)

 

 

Peter Bremme

9 (10)

7 (7)

 

 

 

Prof. Edgar Ernst

9 (10)

 

7 (7)1

 

5 (5)

Wolfgang Flintermann

10 (10)

 

 

 

 

Angelika Gifford

10 (10)

1 (1)

 

 

8 (8)

Valerie Frances Gooding

10 (10)

 

 

 

6 (8)

Dr Dierk Hirschel

10 (10)

 

7 (7)

 

 

Janis Carol Kong

8 (10)

 

7 (7)

 

 

Vladimir Lukin

3 (3)

 

 

 

 

Coline Lucille McConville

10 (10)

 

7 (7)

 

 

Prof. Klaus Mangold (Chairman until 23 May 2019)

7 (7)

6 (6)

3 (4)

2 (2)2

6 (6)

Alexey Mordashov

6 (10)

6 (7)

 

2 (2)

8 (8)

Michael Pönipp

10 (10)

 

7 (7)

 

 

Carmen Riu Güell

3 (3)

2 (4)

 

1 (1)

 

Carola Schwirn

10 (10)

 

 

 

 

Anette Strempel

10 (10)

7 (7)

 

 

 

Ortwin Strubelt

9 (10)

7 (7)

7 (7)

 

 

Joan Trían Riu

7 (7)

 

 

 

 

Stefan Weinhofer

10 (10)

 

 

 

 

 

 

 

 

 

 

Attendance at meetings in %

93.5

94.6

98.2

100.0

96.2

Attendance at Committee meetings in %

97.3

 

 

 

 

(In brackets: number of meetings held)

1 Chairman of Committee

2 Chairman until his resignation on 23 May 2019.

Key topics discussed by the Supervisory Board

The Supervisory Board held ten meetings. In addition, a resolution was adopted by circular decision. The meetings focused on the following issues:

1. At its meeting on 10 October 2018, the Supervisory Board considered current business performance. The discussions also focused on Brexit. In this context, we talked in detail about any measures to be adopted by the Group in the event of a hard Brexit. Our deliberations also focused on the development of the UK Corporate Governance and its impact on TUI as well as the divestment of the French Corsair airline. We also discussed the appropriateness of Executive Board remuneration and pensions. The Supervisory Board furthermore approved the budget for FY 2019.

2. At its meeting on 12 December 2018, the Supervisory Board discussed the annual financial statements of TUI Group and TUI AG, each having received an unqualified audit opinion from the auditors, the combined Management Report for TUI Group and TUI AG, the Report by the Supervisory Board, the Corporate Governance Report and the Remuneration Report. The discussions were attended by representatives of the auditors. The Audit Committee had already comprehensively considered these reports the previous day. Following its own review, the Supervisory Board endorsed the findings of the auditors. 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 2018 were thereby adopted. Moreover, the Supervisory Board approved the Report by the Supervisory Board, the Corporate Governance Report and the Remuneration Report. It also adopted the invitation to the ordinary AGM 2019 and the proposals for resolutions to be submitted to the AGM, including the proposal to elect Joan Trían Riu as successor to Carmen Riu Güell after she stepped down from her mandate as shareholder representative on the Supervisory Board. Alongside the HR and Social Report, we received a number of other reports, including on the results of the TUIgether Pulse 2018 employee survey and on the progress of the divestment of Corsair. In the framework of Executive Board matters, we adopted the individual performance factor for each Executive Board member for the annual bonus for FY 2018. We also discussed the results of the efficiency review of the work performed by the Supervisory Board in order to identify any specific measures to be taken.

3. On 11 February 2019, the Supervisory Board comprehensively discussed the update of the earnings guidance published by the Executive Board on 6 February 2019 as well as its impact. The deliberations also focused on TUI AG's interim statements and financial report for the quarter ending 31 December 2018 and the organisation and preparation of the 2019 Annual General Meeting. We were furthermore given a report on the sales process for Corsair. Apart from an outside-in analysis of the TUI share, we turned our deliberations to the implications of Brexit for TUI.

4. At its extraordinary meeting on 15 March 2019, held in the form of a conference call, the Supervisory Board discussed the current development and the impact of the grounding of Boeing 737 Max 8 jets, officially ordered by public authorities, on TUI Group.

5. At a second extraordinary meeting held on 29 March 2019 to discuss the grounding of Boeing 737 Max 8 jets, the Supervisory Board deliberated on the implications resulting from the ongoing grounding. The discussions also focused on the impact of the ad hoc announcement relating to the updated earnings guidance for FY 2019, published by the Executive Board in the early morning of 29 March 2019 in connection with the grounding of the Boeing jets.

6. On 14 May, we debated the interim report for the second quarter and the half-year financial report for the period ending 31 March 2019. We also approved the change in the business allocation plan, adjusting some areas of responsibility so as to reflect changes within the organisation. Apart from reports on the development of senior executives, the recruitment of digital talent and the development of TUI's brand image, we discussed our business performance in TUI Destination Experiences and in Hotels & Resorts. We then heard a report on the results of the efficiency review carried out in the spring and the resulting measures already implemented or scheduled for implementation.

7. At its extraordinary meeting on 23 May 2019, the Supervisory Board discussed the Group's own airlines and the latest developments regarding Brexit. Moreover, we nominated Mr Lukin as a candidate to be proposed to the Annual General Meeting for election as a new Supervisory Board member representing shareholders to succeed Prof. Mangold. We asked the Executive Board to file an application with the relevant district court for his appointment by court order until the close of the 2020 Annual General Meeting. Furthermore, we appointed the new members for the vacancies on Supervisory Board committees that had arisen now that Prof. Mangold was stepping down, and elected Dr Zetsche as the new Chairman of the Supervisory Board.

8. At its extraordinary meeting on 7 August 2019, the Supervisory Board discussed the planned sale of specialist tour operators Berge & Meer Touristik GmbH and Boomerang-Reisen Vermögensgesellschaft GmbH, which had already been extensively discussed by the Strategy Committee, and approved the divestments based on the Executive Board's strategic considerations.

9. On 22 August 2019, by written circulation, the Supervisory Board approved the increase in TUI AG's capital stock for the issue of employee shares under the oneShare employee share programme for 2019 and resolved a corresponding amendment to Article 4 of the Articles of Association.

10. On Strategy Day, 11 September 2019, during a two-day meeting, the Supervisory Board discussed the key topics relating to future-proofing and securing the competitiveness of TUI's business model. Specifically, we scrutinised the key trends in the global tourism market and TUI's positioning in this context as well as new approaches to customer segmentation. The Supervisory Board also discussed the effects of the key current challenges faced by aviation and the source markets, including the continued grounding of Boeing 737 Max jets and the political and economic uncertainty around Brexit. The meeting also examined the transformation of the TUI Destination Experiences business into a platform and with it a new, scalable business model. The Supervisory Board was able to see from the detailed analysis that this would bring an expanded offering with the associated future growth potential. We also heard a progress report on the development of the Global Distribution Network. Together with the senior managers in charge of the relevant topics, the Executive Board and Supervisory Board engaged in very constructive and open dialogue about tackling these challenges and further steps that would be required in this regard. Following the strategic topics, we deliberated on the key elements of the strategic 3-year plan. On 12 September 2019, the Supervisory Board discussed Executive Board issues and specific operational and financial scenarios and simulations relating to the grounding of the Boeing 737 Max jets. We were also updated on the status of Brexit negotiations and the impact on TUI Group's business operations. The meeting also considered the growth potential and the plans for enhancing the fleets of TUI Cruises and Marella Cruises.

11. After the Supervisory Board had been briefed about the direct repercussions of the insolvency of Thomas Cook in an informal conference call, we held an extraordinary Supervisory Board meeting on 27 September 2019 to engage once again in detailed discussions of the operational and strategic questions, in particular relating to our own business.

Apart from the ordinary and extraordinary meetings, the Supervisory Board held a number of informal conference calls, convened at short notice, in particular on 6 February 2019 immediately after the update of the earnings guidance due to the decline in bookings and on 29 March 2019 after the grounding of Boeing 737 Max 8 jets to learn about the state of play and discuss the next steps. Moreover, the Chairman of the Supervisory Board and the CEO engaged in regular dialogue about material current issues.

Presiding Committee

The Presiding Committee takes the lead on various Executive Board issues (including succession planning, new appointments, terms and conditions of service contracts, remuneration, proposals for the remuneration system). It also prepares the meetings of the Supervisory Board. In the period under review, the Presiding Committee held eight meetings.

Members of the Presiding Committee:

  • Dr Dieter Zetsche (member since 12 February 2019, Chairman since
    23 May 2019)
  • Peter Bremme
  • Angelika Gifford
    (since 23 May 2019)
  • Carmen Riu Güell
    (until 12 February 2019)
  • Frank Jakobi
  •  
  • Peter Long
  • Prof. Klaus Mangold (until the close of the Supervisory Board meeting on 23 May 2019; until then, also Chairman of the ­Presiding Committee)
  • Alexey Mordashov
  • Anette Strempel
  • Ortwin Strubelt

1. At its meeting on 10 October 2018, the Presiding Committee discussed Executive Board issues, including deliberations on various topics related to Executive Board remuneration for the completed financial year and the current financial year. The Committee also discussed the preliminary findings from the 2018 TUIgether Pulse employee survey and follow-up measures.

2. At its extraordinary meeting on 26 November 2018, the Presiding Committee further discussed the individual performance factors for the annual bonus of the Executive Board members for FY 2018 and drew up a recommendation on the determination of these factors for the Supervisory Board. We also discussed the definition of individual whole Board and stakeholder targets for the Executive Board members in relation to the annual performance bonus for FY 2019.

3. On 11 December 2018, the Presiding Committee discussed Executive Board matters. In that context, it adopted the final definition of the individual whole Board and stakeholder targets for the Executive Board members for FY 2019, which were then submitted to the Supervisory Board in the form of a recommendation for a resolution.

4. At its meeting on 11 February 2019, the Presiding Committee discussed the divestment of Corsair. It also deliberated on the future composition of the Supervisory Board and its committees against the backdrop of Ms Riu stepping down from the Supervisory Board and on a potential extension of the appointment and service contract of Mr Rosenberger.

5. At its meeting on 14 May 2019, the Presiding Committee adopted resolutions for a recommendation to the Supervisory Board on candidates to fill the vacancies on the Supervisory Board and its committees resulting from Prof. Mangold's departure from the Supervisory Board.

6. At its extraordinary meeting on 23 May 2019, the Presiding Committee primarily focused on the future composition of the Supervisory Board committees.

7. On 10 September 2019, the Presiding Committee first prepared the subsequent Strategy Meeting of the Supervisory Board. The Presiding Committee then decided to recommend to the Supervisory Board that the appointment of Mr Rosenberger be extended and that a corresponding supplemental agreement be concluded. After this the Committee discussed an initial proposal for changes to the current remuneration system for Executive Board members, caused by the current Executive Board remuneration forecast. The Committee also discussed amendments to the business allocation plan for the Executive Board driven by internal shifts in responsibilities.

Audit Committee

Members of the Audit Committee:

  • Prof. Edgar Ernst (­Chairman)
  • Andreas Barczewski
  • Dr Dierk Hirschel
  • Janis Kong
  • Prof. Klaus Mangold
    (until 23 May 2019)
  •  
  • Coline McConville
  • Michael Pönipp
  • Ortwin Strubelt
  • Dr Dieter Zetsche
    (since 23 May 2019)

The Audit Committee held seven ordinary meetings in the financial year under review. For the tasks of the Audit Committee and the advisory and resolution-related issues it discussed, we refer to the comprehensive Audit Committee Report on page 22.

Nomination Committee

The Nomination Committee proposes suitable shareholder candidates to the Supervisory Board for its election proposals to the Annual General Meeting or appointment by the district court.

Members of the Nomination Committee, which held two meetings:

  • Dr Dieter Zetsche
    (Chairman since
    23 May 2019)
  • Carmen Riu Güell
    (until 12 February 2019)
  • Peter Long
  •  
  • Prof. Klaus Mangold (until the close of the Supervisory Board meeting on 23 May 2019; until then Chairman of the Audit Committee)
  • Alexey Mordashov

1. At its meeting on 11 December 2018, the Nomination Committee adopted a resolution to recommend to the 2019 Annual General Meeting that Joan Trían Riu be elected to TUI AG's Supervisory Board as successor to Carmen Riu Güell. Carmen Riu Güell had stepped down from her mandate as of the close of the Annual General Meeting held on 12 February 2019.

2. At its meeting on 13 May 2019, the Nomination Committee adopted a resolution to recommend to the Supervisory Board that it nominate a (shareholder representative) member to be appointed by court to succeed Prof. Mangold.

Strategy Committee

The Strategy Committee was established on 9 February 2016 by resolution of the Supervisory Board. Its task is to advise the Executive Board in developing and implementing the corporate strategy. The Committee met eight times in the financial year under review. In the financial year under review, Prof. Ernst and Dr Zetsche were both elected as members of the Strategy Committee, with Dr Zetsche taking over after Prof. Mangold had stepped down.

The members of the Strategy Committee:

  • Peter Long (Chairman)
  • Angelika Gifford
  • Valerie Gooding
  • Frank Jakobi
  • Prof. Edgar Ernst
    (since 12 December 2018)
  •  
  • Prof. Klaus Mangold
    (until 23 May 2019)
  • Alexey Mordashov
  • Dr Dieter Zetsche
    (since 23 May 2019)

1. At its meeting on 9 October 2018, the Committee discussed the Group's M&A strategy and the opportunities of data analytics for target group-specific usage.

2. At its extraordinary meeting held on 30 November 2018, the Committee discussed future alignment in selected source markets.

3. On 11 December 2018, the Committee again deliberated on the Group's M&A strategy and the opportunities of target group-­specific usage of data analytics. The discussions also focused on the further development of the TUI brand.

4. At its meeting on 11 February 2019, the Committee continued its discussions on data analytics opportunities for target group-specific usage. Debate also centred around the further development potential for the business model and a divestment transaction for the Group.

5. At its meeting on 13 May 2019, the Strategy Committee discussed strategic and operational growth initiatives in selected source markets and the Group's own airlines as well as the impact of the grounding of Boeing 737 Max 8 jets.

6. At its extraordinary meeting on 23 May 2019, the deliberations again focused on selected source markets and the Group's own airlines.

7. At its extraordinary meeting on 8 July 2019, the Strategy Committee discussed TUI AG's capital structure, selected source markets and the Group's own airlines.

8. At its meeting on 10 September 2019, the Committee discussed the hotel business strategy based on customer segmentation and the future positioning of the brand portfolio. The Committee then debated the transformation of the business model and the required IT investments.

Corporate Governance

Due to the primary quotation of the TUI AG share on the London Stock Exchange and the constitution of TUI AG as a German stock corporation, the Supervisory Board naturally grants regular and very careful consideration to the recommendations around German and British corporate governance. Apart from the mandatory observance of the rules of the German Stock Corporation Act (AktG), the German Industrial Co-Determination Act (MitbestG), the Listing Rules and the Disclosure and Transparency Rules, TUI AG had announced in the framework of the merger that the Company was going to observe both the German Corporate Governance Code (DCGK) and - as far as practicable - the UK Corporate Governance Code (UK CGC).

For the DCGK - conceptually founded, inter alia, on the German Stock Corporation Act - we issued an unqualified declaration of compliance for 2019 pursuant to section 161 of the German Stock Corporation Act, together with the Executive Board. By contrast, there are some deviations from the UK CGC, due for the most part to the different concepts underlying a one-tier management system for a public listed company in the UK (one-tier board) and the two-tier management system comprised of Executive Board and Supervisory Board in a stock corporation based on German law (two-tier board).

More detailed information on corporate governance, the declaration of compliance for 2019 pursuant to section 161 of the German Stock Corporation Act and the declaration on the UK CGC is provided in the present Annual Report in the Corporate Governance Report jointly prepared by the Executive Board and the Supervisory Board (page 117), as well as on TUI AG's website.

Conflicts of interest

In the period under review, the Supervisory Board continuously monitored for conflicts of interest and found that no conflict of interest occurred in FY 2019.

Audit of the annual and consolidated financial ­statements of TUI AG and TUI Group

The Supervisory Board reviewed the annual and consolidated ­financial statements and the financial reporting to establish whether they were in line with applicable requirements. Deloitte GmbH Wirtschaftsprüfungsgesellschaft, Hanover, audited the annual financial statements of TUI AG prepared in accordance with the provisions of the German Commercial Code (HGB), as well as the combined management report of TUI AG and TUI Group, and the consolidated financial statements for FY 2019 prepared in accordance with the provisions of the International Financial Reporting Standards (IFRS), and issued their unqualified audit opinion. The above documents, the Executive Board's proposal for the appropriation of the net profit available for distribution and the audit reports by the auditors had been submitted in good time to all members of the Supervisory Board. They were discussed in detail at the Audit Committee meeting on 10 December 2019 and the Supervisory Board meeting on 11 December 2019, convened to discuss the annual financial statements, where the Executive Board provided comprehensive explanations of these statements. At those meetings, the Chairman of the Audit Committee and the auditors reported on the audit findings, having determined the key audit areas for the financial year under review beforehand with the Audit Committee. Neither the auditors 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 of TUI AG and TUI Group and the combined management report, we did not have any grounds for objections and therefore concur with the Executive Board's evaluation of the situation of TUI AG and TUI Group. Upon the recommendation of the Audit Committee, we approve the annual financial statements for FY 2019; the annual financial statements of TUI AG are thereby adopted. We comprehensively discussed the proposal for the appropriation of profits with the Executive Board and approved the proposal in the light of the current and expected future financial position of the Group.

Executive Board and Supervisory Board

The composition of the Executive Board and Supervisory Board as at 30 September 2019 is shown in the lists on page 114 for the ­Supervisory Board and page 116 for the Executive Board.

SUPERVISORY BOARD

Upon the close of the 2019 Annual General Meeting, Carmen Riu Güell stepped down from the Supervisory Board. At the same AGM, Joan Trían Riu was elected to serve on TUI AG's Supervisory Board for a term of five years. Moreover, Prof. Klaus Mangold stepped down from the Supervisory Board upon the close of its extraordinary meeting on 23 May 2019. By court appointment of 5 June 2019, Vladimir Lukin was appointed as a member of the Supervisory Board. As announced in the Executive Board's application for appointment by court order, the Executive Board and the Supervisory Board intend to submit a proposal to the 2020 AGM to elect Vladimir Lukin as a Supervisory Board member.

PRESIDING COMMITTEE

Carmen Riu Güell stepped down from the Supervisory Board and thus also the Presiding Committee with effect from the close of the 2019 Annual General Meeting. The Supervisory Board elected Dr Dieter Zetsche as the fourth shareholder representative on the Presiding Committee. When Prof. Mangold stepped down, Dr Zetsche was elected as Chairman of the Supervisory Board and therefore also as Chairman of the Presiding Committee. Moreover, Angelika Gifford was elected as a shareholder representative to the Presiding Committee on 23 May 2019.

NOMINATION COMMITTEE

Carmen Riu Güell likewise stepped down from the Nomination Committee upon the close of the 2019 Annual General Meeting. The Supervisory Board elected Dr Dieter Zetsche as a member of the Nomination Committee to replace Prof. Mangold after his departure. Dr Zetsche has also become Chairman of the Nomination Committee. In line with the Terms of Reference, the Supervisory Board dispensed with the appointment of a fourth member to the Committee.

EXECUTIVE BOARD

On 1 October 2018, Birgit Conix was appointed CFO, as planned, to succeed Horst Baier, who had stepped down from the Executive Board upon the close of 30 September 2018.

Word of thanks

The Supervisory Board thanks all TUI Group employees for their day-to-day dedication, which contributed substantially to TUI's successful positioning in a very challenging financial year.

Hanover, 11 December 2019

On behalf of the Supervisory Board





Dr Dieter Zetsche

Chairman of the Supervisory Board

Audit Committee report

Dear Shareholders,

As the Audit Committee, our task is to support the Supervisory Board in performing its monitoring function. In the financial year under review, we therefore dealt with issues relating in particular to TUI Group's accounting and financial reporting, as required by statutory provisions, the German Corporate Governance Code, the UK Corporate Governance Code and the rules of procedure of the Supervisory Board.

In addition to these core functions, we are responsible in particular for monitoring the effectiveness and proper functioning of internal controls, the risk management system, the internal audit department and the legal compliance system.

Furthermore, the Audit Committee is responsible for selecting the external auditors. The selected auditors are then proposed by the Supervisory Board to the Annual General Meeting for appointment. Following the appointment by the Annual General Meeting, the Supervisory Board formally commissions the external auditors to audit the annual financial statements and the consolidated financial statements and to review the half-year financial report and any additional interim financial information to comply with the requirements for the half-year financial report.

The Audit Committee was elected immediately after the 2016 Annual General Meeting from among the members of the Super­visory Board. The committee members are elected for the respective term of their Supervisory Board mandate. In the completed financial year, Dr Dieter Zetsche was elected as a new member of the Audit Committee after Prof. Klaus Mangold stepped down from the Supervisory Board of TUI AG.

The Audit Committee therefore currently consists of the following eight Supervisory Board members:

  • Prof. Edgar Ernst
    (Chairman)
  • Andreas Barczewski
  • Dr Dierk Hirschel
  • Janis Carol Kong
  •  
  • Coline Lucille McConville
  • Michael Pönipp
  • Ortwin Strubelt
  • Dr Dieter Zetsche

In the opinion of the Supervisory Board, both the Chairman of the Audit Committee and the other members of the Audit Committee meet the criterion of independence. In addition to the Chairman of the Audit Committee, at least one other member has expertise in the field of accounting and experience in the use of accounting principles and internal control systems.

The Audit Committee meets regularly six times a year, and additional meetings may be held on specific topics. These topic-related meetings include a meeting at which the Executive Board explains the key content of the Pre-Close Trading Update, published shortly before the balance sheet date, to the Audit Committee. The other meeting dates and agendas are based in particular on the Group's reporting cycle and the agendas of the Supervisory Board.

The Chairman of the Audit Committee reports on the work and proposals of the Audit Committee at the subsequent Supervisory Board meeting.

Apart from the Audit Committee members, the meetings were also attended by the CEO and CFO as well as the heads of Group Financial Accounting & Reporting, Group Audit, Group Legal, Group Compliance & Risk and Group Treasury.

The external auditors were invited to attend the meetings on relevant topics. Additional members of TUI Group's senior management, operationally responsible TUI Group executives or external consultants were asked to attend 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, senior managers or the auditors' relevant contact where it was deemed necessary for an in-depth understanding of individual topics and issues. The Chairman of the Audit Committee reported on the main results of these discussions at the following meeting.

The members attended the meetings of the Audit Committee as shown in the table on page 17.

Reliability 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 economic situation of the company. This is equivalent to the requirements of the UK Corporate Governance Code (UK CGC), which requires annual accounts and annual reports to be accurate, balanced and comprehensible. Against that background, the Executive Board is convinced - although the Audit Committee was not mandated to carry out the assessment - that the annual report submitted meets the requirements of both legal systems.

In further seeking assurance as to the reliability of both the annual financial statements and the interim reporting, we requested detailed information from the Executive Board on the Group's business performance and financial situation 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 and the auditors reported in detail on material aspects of the financial statements and on the findings of the audit and review.

In order to monitor accounting, we examined individual aspects in great detail. In addition, we considered the treatment of key balance sheet items, in particular goodwill, tourism prepayments and other provisions, in the accounts. In consultation with the auditors, we ensured that the assumptions and estimates underlying the accounting were appropriate. Moreover, the Audit Committee assessed significant legal disputes and significant aspects arising from the operating business.

In the period under review, we focused in particular on the following individual aspects:

In FY 2019, the accounting standards IFRS 15 Revenue and IFRS 9 Financial Instruments had to be applied for the first time. They had a significant impact on part of the TUI Group's accounting and reporting. Accordingly, the Audit Committee received reports on the implementation and effects of the new accounting standards as part of the quarterly reporting.

From FY 2020, a new accounting standard on leases, IFRS 16, will also need to be applied, which will lead to perceptible changes in the balance sheet and results. In view of the significance of that standard for TUI, we requested explanations of the expected effects. We also regularly obtained confirmation that the timely implementation of the project for the new lease accounting was not at risk.

In March 2019, Boeing 737 Max aircraft were grounded, which had a material impact on TUI's earnings situation in the completed financial year and triggered various announcements including an ad-hoc announcement by the Executive Board. Against the background of the publication of two ad-hoc announcements in the financial year under review, we heard explanations of the background and, in particular, the underlying process for the ad-hoc announcements.

In addition, we were informed about the status of implementation of a uniform financial system for the subsidiaries in source market Germany. Its implementation is now nearing completion. The further planned implementation of that system in other source markets was likewise the subject of this report.

In addition, the consistency of the reconciliation to the key performance parameter 'underlying earnings' and the material adjustments were discussed for each quarterly report and for the annual financial statements.

We also gathered information about the corporate transactions carried out in the financial year under review. In addition to the disposal of the French airline Corsair, they included the acquisition of the excursion platform Musement in the Destination Experiences segment. Furthermore, we examined TUI's investment activities in Airlines, Hotels & Resorts, Cruises and IT. We obtained information about the major investments within the Group segments and the profit contributions from these investments.

In addition to these and other matters, the Audit Committee discussed the Going Concern Report to verify relevant statements on the Group's ability to continue as a going concern in the half-year report and the annual report. The discussions also focused on the Viability Statement to be drawn up by the Company as part of the annual financial report pursuant to UK CGC.

Since the introduction of mandatory reporting on Corporate Social Responsibility (CSR) in the management report, the Supervisory Board has been responsible for reviewing its content. The Supervisory Board decided to seek the support of TUI's Group Audit department in reviewing the disclosures. Accordingly, we were ­provided with feedback about the audit findings obtained by Group Audit in the financial year under review and are of the opinion that the information published in the CSR report is appropriate.

Our assessment of all aspects of accounting and financial reporting discussed is consistent with that of management and the auditors.

Effectiveness of internal controls and the risk ­management system

The Audit Committee recognises that a robust and effective system of internal controls is critical to achieving reliable and consistent business performance. To fulfil its legal obligation to examine the effectiveness of internal controls and the risk management system, the Audit Committee is regularly informed about the current status and future development of the internal control system.

The Group has continuously developed its internal control system on the basis of the COSO concept. The routine review of key financial controls by management has meanwhile been established in the larger business units. The rollout of these controls for joint ventures and associated companies, in particular for start-ups, is planned as the next step in this development. Further internal controls are additionally reviewed in the largest source markets, UK and Germany.

The Group's Compliance function is split into the areas of Finance, Legal, and IT. This split plays an essential role in identifying further control needs and continuously improving existing controls. In addition, the auditors also report on any weaknesses in the Group's accounting-related control system which they have identified. Management monitors prompt remedial action in response to such weaknesses.

The Audit Committee regularly receives reports on the effectiveness of the risk management system, as described in the Risk Report starting on page 40. In this regard, the Risk Oversight Committee plays a key role within the Group. We are convinced that an appropriate risk management system is thus in place.

The Group Audit department ensures independent monitoring of the implemented processes and systems as well as core projects and reports directly to the Audit Committee at each regular meeting. In the period under review, the Audit Committee was not informed of any audit findings indicating significant weaknesses in the internal control system or the risk management system. In addition, regular discussions are held between the Chairman of the Audit Committee and the Head of Group Audit for closer coordination. The annual audit planning is agile. The Audit Committee received detailed reports on the methodology and took note of and approved them, together with the audits for the forthcoming financial year already defined in this context. The Audit Committee believes that the effectiveness of the Group Audit department is ensured through this regular consultation. In order to assure itself of the quality of the Group Audit department, an audit in accordance with Audit Standard No 3 and IdW's accounting standard PS 983 was carried out by an external consulting firm during the financial year under review. The review has shown that TUI's Internal Audit department produces excellent results, not least in comparison with other audited companies.

In the framework of our meetings, we were informed about the implementation status of the provisions of the European General Data Protection Regulation (EU GDPR) in the individual businesses during the financial year under review. On the basis of that report, we are convinced that the projects and measures initiated for that purpose throughout the Group are suitable for fulfilling the requirements of the EU GDPR.

In the period under review, TUI Group's legal compliance system was reviewed on the basis of checklists and a self-assessment by the companies. We had the results of this review presented to us and were informed about the risk analysis carried out and the measures derived from it. In addition to the core elements of the control and risk management systems, the Group's hedging policy formed part of the reporting we heard during the year.

Whistleblower systems for employees in the event
of compliance violations

TUI Group has set up a uniform whistleblower system through which employees can draw attention to possible violations of compliance guidelines.

As part of the reporting on the legal compliance system, the key findings of the current financial year from the whistleblower system were presented to us.

Examination of auditor independence and objectivity

For FY 2019, the Audit Committee recommended to the Supervisory Board that it propose Deloitte GmbH Wirtschaftsprüfungsgesellschaft (Deloitte) to the Annual General Meeting for election as auditors. Following the commissioning of Deloitte as auditor by the Annual General Meeting in February 2019, the Supervisory Board mandated Deloitte to audit the annual financial statements for 2019 and to review the half-year financial statements as at 31 March 2019.

The Audit Committee asked Deloitte for advance explanation of the audit plan for the annual financial statements as at 30 September 2019. That plan covered the key areas of audit and the main companies to be audited from the Group's point of view. On that basis, the Audit Committee firmly believes that the audit has taken the identifiable financial risks into account to an appropriate degree and is satisfied that the auditors are independent and objective in performing their work.

On the basis of the regular reporting by the auditors, we have every confidence in the effectiveness of the external audit. Therefore, we have decided to recommend that the Supervisory Board propose to the Annual General Meeting to elect Deloitte as the auditors for FY 2020 as well. We had selected Deloitte as auditors in a public tender process in FY 2016, and they have been appointed as auditors without interruption since they were first elected by the Annual General Meeting in 2017.

In order to ensure the independence of the auditors, any non-audit services to be provided by the auditors must be submitted to the Audit Committee for approval before awarding the mandate. Depending on the scope of the work, the Audit Committee makes use of the option to delegate approval to the Company. The Chairman of the Audit Committee is only involved in the decision once a specified cost limit has been exceeded. Insofar as the auditors have performed services that do not fall under the audit of the Group's annual financial statements, the nature and extent of these services were explained to the Audit Committee. This process complies with the Company's existing policy on the approval of non-audit services and it takes into account the requirements of the AReG regulations on prohibited non-audit services and on limitations to the scope of non-audit services. In FY 2019, these non-audit services, excluding audit-related services, accounted for 6 % of the total auditors' fee, which amounted to € 9.8 m.

I would like to use this opportunity to thank the Audit Committee members, the auditors and the management for their hard work and trustful cooperation in the completed financial year.

Hanover, 10 December 2019

Prof. Edgar Ernst

Chairman of the Audit Committee

TUI Group Strategy

From an integrated holiday provider to an integrated digital tourism ecosystem

Attractive Tourism Market

TUI is a globally operating tourism company serving 21 m customers1 annually within its ecosystem. The tourism sector continues to be attractive, showing constant and above GDP growth for nearly a decade, providing an excellent basis for our businesses to grow.

The macro-fundamentals for our Hotel, Cruise and Destination Experiences businesses remain particularly favourable: the global sales volume for Hotels and Cruises is growing more than 4 % on a five year outlook, for Destination Experiences growth is even at 7 %. However, our Markets & Airlines intermediary business is facing some cyclical and structural challenges.

TUI Group's Strategy

TUI's integrated business model continues to be considered a success factor and remains to be a core element of our strategy. Access to 21 m customers1 in our core Markets & Airlines source markets with strong market positions (market shares between 20 - 40 %) allows us to drive premium returns in our Holiday ­Experiences businesses and provides a large basis for digitalised product up-selling. Therefore, we are committed to growing our integrated model on both ends, investing in customers' growth and own product growth. While in recent years TUI was significantly investing into own product growth by redeploying non-core business disposal proceeds, we will re-focus future growth more towards digital customer acquisition and therefore continue to grow our integrated business model on both ends. Our digital platforms will enable us to accelerate customer growth and to create a digital ecosystem allowing us to up- and cross-sell our tourism products to an even larger TUI customer base. At the same time, we will be able to offer more individualised holidays to our customers.

1 Customers in the Markets & Airlines businesses

Four Specific Strategic Initiatives

Our Group strategy is driven by four specific strategic initiatives.

1. Markets & Airlines: Protect and where possible extend strong positions

While the performance of our Markets & Airline business in FY 2019 was characterised by a number of specific external challenges such as potential Brexit and grounding of the 737 Max aircraft, it continues to face cyclical and structural challenges in the form of over-­capacities and cost pressure. Both elements may continue to drive further market consolidation in particular in the Airline sector following a broader tour operating market consolidation triggered by the insolvency of one of our key competitor. We will continue to address the structural challenges we face by improving our cost position and flexibility and by driving speed and innovation facilitated through centralised IT and processes as the core elements of our Markets Transformation & Domaining initiative. This shall allow us to further expand our product offering beyond traditional packages into attractive growth segments like accommodation only and dynamic package offerings, while remaining com­peti­tive and maintaining our leading positions in the traditional packaging market, supported by managing our airline asset intensity.

2. Hotels & Cruises: Expansion at scale, driving ­returns by benefitting from vertical integration

With 411 hotels, TUI has built a sizable and highly profitable leisure hotel business (with a ROIC of 14 %). We are benefiting from our vertical integration, as we can leverage the distribution power in our Markets and Airlines segment to drive customers into TUI Hotels and Cruises. TUI will continue to invest in further portfolio expansion and diversification leveraging its Joint Venture structures besides own investments. However, our capital intensity will be reduced compared to our investment spending in recent years. In addition, we will accelerate the growth of our asset-light brand TUI Blue by targeting almost 100 Hotels2 by the end of FY 2020 versus currently about 10 Hotels in particular through management and franchise. Geographically, the Caribbean, South East Asia and Africa remain our key investment focus areas.

The fundamentals with strong demand and scarcity of supply remain intact for our cruise businesses and provide the basis for further growth. We will continue to invest in our cruise businesses by expanding and upgrading capacities in particular through our joint venture TUI Cruises.

3. GDN-OTA platform: Building scale based on ­competitive pricing to attract customers to join the TUI eco-system

TUI has launched a new online travel agency platform in six markets3 complementary to its existing Markets & Airline businesses, currently focusing in particular on the accommodation only market, meta-­search business and flight combined offerings based on Airline partnerships. Unlike our traditional package markets, TUI is not operating an own airline in these markets but sourcing aircraft seats flexibly. Initially, we will run our GDN-OTA platform as a customer acquisition engine by attracting customers with very competitive product pricing and are prepared to accept no platform profitability or moderate losses to build market share and to feed customers into our TUI ecosystem. However, driving as many new customers as possible into our own hotels and cross-selling our own products remains a key objective and should drive additional margins in our Holiday Experiences businesses. Our CRM systems are set to support such a digital up- and cross-selling and will focus on customer retention within the TUI eco-system. To date, we have a run-­rate of 250 k GDN-OTA customers and are confident to achieve our target of 1 m customers by 2022, now even much earlier by rolling out our platform to further markets and meta-search business opportunities globally. We see a strategic opportunity for this platform to become the leading distribution system also for independent third party hotels, in particular when combined with our brands and sophisticated property management systems, positioning TUI as a holistic digital hotel service provider.

2 Partially through repositioning existing hotels

3 Spain, Portugal, India, Brazil, China, Malaysia

4. Destination Experiences platform: Building
scale in the 'things to do'-market and attracting customers to join the TUI eco-system

The tours and activities market encompasses a sales volume of around € 150 bn and is growing approx. 7%4. In this market, TUI has built a growing plattform business with around 150 k products. Our business model is based on a two-­sided open platform, accessible for direct booking, distribution partners and 3rd party curated product suppliers along-­side serving our own customers and connecting our own destination experiences products. While we see strong profitable growth rates5, investing in an accelerated customer acquisition may initially come at the expense of margins. As with our GDN-OTA initiative, our CRM systems will be applied to up- and cross-sell our products to customers once acquired. We see product depth as the main constraint to accelerate our platform growth and are therefore committed to investing in additional product offerings both, organically and inorganically in line with our vision to offer '1 m things to do' to our customers.

Summary & Conclusion

TUI has built a profitable business, its integrated business model has proven to be successful. To grow our integrated model on both ends TUI will re-focus on accelerated customer growth in addition to further investments into Holiday Experiences. Initially, such customer growth may come at lower margins but will drive customer acquisition acceleration into the TUI ecosystem. Once acquired, TUI will up- and cross-sell its own products with the support of our sophisticated and digital CRM systems, driving margins in our Holi­day Experiences on top of the demand from our existing traditional Markets and Airline business, which will become more competitive as a result of our Transformation & Domaining initiative.

4 2018 - 2023

5 Based on underlying EBITA

Our environment

For TUI Group, economic, environmental and social sustainability is a cornerstone of our strategy for continually enhancing the value of our Company. This is the way we want to create the conditions for longterm economic success and assume responsibility for sustainable development in the tourism sector.

The goals we set ourselves in our 'Better Holidays, Better World' sustainability strategy include 'Step lightly', where we aim to reduce the environmental impact of our business operations and to fix goals for improvements in all Group areas.

Greenhouse gas emissions and the impact of these emissions on climate change pose one of the major global challenges for the tourism sector. In FY 2019, TUI Group's total emissions decreased year-on-year in absolute terms, primarily due to the sale of the airline Corsair. Relative carbon emissions across our airlines slightly increased by 0.9 % in the FY 2019 to 65.2 g / rpk (previous year 64.6 g / rpk, excluding Corsair). Main reasons for the increase are the overall reduction in load factors and the grounding of Boeing 737 Max. TUI continues to operate one of Europe's most carbon-efficient airline fleet and continually seeks to deliver further improvements.

The grounding of the Boeing 737 Max and the late deliveries have significantly impacted progress against our initial aviation carbon target to cut our carbon itensity of our operations by 10 % by 2020 (baseline year 2014: 67.56 CO2 / rpk). Compared to our baseline year 2014, we have improved airline carbon efficiency by 3.6 %.

Details see from page 83

Our employees

For the TUI Group well-qualified and engaged employees are a key factor in the long-term success. To meet the technological, cultural and organisational challenges of digital transformation effectively, we aim to empower our employees to keep abreast of the times. At the same time, we have to recruit new 'change-makers'. We want to be an attractive employer whose employees are passionate about the company and to offer them development opportunities that meet their personal needs. 'The best company to work for' is therefore the key goal of our Group-wide HR strategy. In 2019, our Engagement Index6 of 76 matched the previous year's level. Our goal is to exceed a People Engagement score of 80 by 2020 in order to feature among the Top 25 global companies in this area.

6 The Engagement Index comprises the individual commitment and the team ­commitment of our employees and describes the loyalty with the company.
The questions on commitment relate to the satisfaction of the individual
with the working conditions, a possible recommendation of the employer, pride, motivation, belief in future orientation and willingness to exceed requirements
and expectations.

corporate profile

Group structure

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 Group companies conducting the Group's operating business in individual countries. Overall, TUI AG's group of consolidated companies comprised 288 direct and indirect subsidiaries at the balance sheet date. A further 21 affiliated companies and 30 joint ventures were included in TUI AG's consolidated financial statements on the basis of at equity measurement.

For details on principles and methods of consolidation and TUI Group shareholdings see pages 170 and 275.

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.

EXECUTIVE BOARD AND Group Executive Committee

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 116.

A Group Executive Committee was set up in order to manage TUI Group strategically and operationally. As at 30 September 2019, the Committee consisted of twelve members, who meet under the chairmanship of CEO Friedrich Joussen.

For details see www.tuigroup.com/en-en/investors/corporate-governance

TUI Group structure

TUI Group is a globally operating tourism group. Its core businesses, Holiday Experiences and Markets & Airlines, are clustered into the segments Hotels & Resorts, Cruises and Destination Experiences as well as three regions: Northern, Central and Western Regions. TUI Group also comprises All other segments.

With the exception of a number of reclassifications, the Group's management structure was thus comparable year-on-year. The reclassifications related to the Italian tour operators reclassified to Central Region from All Other Segments in Q1 2019. Moreover, the Crystal Ski companies delivering services in the destinations were reclassified from Northern Region to Destination Experiences.

In addition, the allocation of underlying EBITA from intra-group aircraft leasing across the segments was changed in the internal reporting. The aircraft leasing companies of TUI Group (included in All other segments) hold the aircraft of TUI Group and lease these to the airlines (Northern Region, Central Region and Western Region). In the TUI Group internal reporting, the positive under-lying EBITA that the aircraft leasing companies generate from this leasing is entirely allocated to the airline that uses the corresponding aircraft. Consequently, underlying EBITA of All other segments decreases, whilst underlying EBITA for the segments Northern Region, Central Region and Western Region increases by the same amount. The prior year's figures were restated accordingly. As only the allocation of underlying EBITA was altered, the internal revenues and additional segmental figures remain unchanged. This adjustment has no effect on the Group's underlying EBITA.

The prior year's reference figures were restated accordingly.

HOLIDAY EXPERIENCES

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 a significant influence, and hotels operated under management contracts.

In FY 2019, Hotels & Resorts comprised a total of 354 hotels with 262,644 beds. 328 hotels, i. e. the majority, are in the four- or five-star category. 46 % were operated under management contracts, 41 % were owned by one of the hotel companies, 12 % were leased and 1 % of the hotels were managed under franchise agreements.

In addition, 57 hotels were operated by third-party hoteliers under TUI's international concept brands as at 30 September 2019, so that the total number including third-party hotels was 411.

Hotels & Resorts portfolio

Hotel brand

3 stars

4 stars

5 stars

Total hotels

Beds

Main sites

Riu

3

49

47

99

90,460

Spain, Mexico, Caribbean, Cape Verde, Portugal, Morocco

Robinson

0

17

6

23

13,927

Spain, Greece, Turkey, Austria

Blue Diamond

3

12

17

32

30,080

Cuba, Dom. Rep., Jamaica, Mexico, Saint Lucia

Other hotel investment

20

119

61

200

128,177

Spain, Greece, Turkey, Egypt

Total

26

197

131

354*

262,644

 

* Plus 57 international concept hotels, operated by third-parties

As at 30 September 2019

Riu is the largest hotel company in the portfolio of Hotels & Resorts. The Mallorca-based enterprise primarily operates hotels in the four- and five-star category 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.

Robinson operates four- and five-star club hotels and is a leading German provider for club holidays. Most of its clubs are located in Spain, Greece, Turkey, the Maldives and Austria.

Blue Diamond is a hotel chains in the Caribbean. The Hotels & Resorts segment comprises 32 resorts in the Caribbean and Mexico.

Other hotel companies include in particular the flagship brand TUI Blue. Its portfolio is being expanded by combining the previous TUI Blue offerings with those of the concept brand hotels of TUI Sensimar and TUI Family Life. Including rebranded existing hotels, TUI Blue will start into the new summer season 2020 with 97 hotels in 18 countries. Its new hotels will include hotels in long-haul destinations such as Vietnam and Zanzibar. TUI Blue is TUI Group's youngest hotel brand, targeting an international audience.

Among our hotels operated by third-party hoteliers, 57 facilities belong to our international concept brands. This brings the total number of hotels belonging to TUI Group to 411.

Cruises

The Cruises segment consists of the joint venture TUI Cruises as well as Marella Cruises and Hapag-Lloyd Cruises. With their combined fleet of 17 vessels as at the reporting date, the three cruise lines offer different service concepts to serve different target groups.

Cruise fleet by financing structure

 

Owned

Finance Lease

Operating Lease

Total

TUI Cruises
(Joint Venture)

7

-

-

7

Marella Cruises

4

2

-

6

Hapag-Lloyd Cruises

4

-

-

4

As at 30 September 2019

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 ships, TUI Cruises is top-ranked in the German-­speaking premium volume market for cruises. The Berlitz Cruise Guide 2020, the most important international reference guide for cruise ship ratings, rated four ships operated by TUI Cruises among the Top 5 liners in the 'Large ships' category.

With a fleet of six ships Marella Cruises offers voyages for different segments in the British market, such as family and city cruises.

Hapag-Lloyd Cruises holds a position of leadership with its fleet of four liners in the luxury and expedition cruise segments. Its flagships Europa and Europa 2 were again the only ships to be awarded the top rating - the 5-stars-plus category - by the Berlitz Cruise Guide. In the expedition segment, Hanseatic nature was awarded the top 5-star rating as the best boutique ship, with Bremen awarded 4 stars. In October 2019, Hanseatic inspiration joined the luxury expedition segment, with Hanseatic spirit to join the fleet from 2021.

Destination Experiences

The Destination Experiences segment delivers local services in the worldwide holiday destinations. TUI employs people in around 45 countries to provide tours, activities and excursions in the destinations. With the acquisition of the technology start-up Musement in FY 2019, TUI has an online platform that gives small and medium-sized companies the opportunity to offer their services in the holiday destinations following quality checks.

MARKETS & Airlines

With our three regions Northern, Central and Western we have well-positioned sales and marketing structures providing about 21 million customers a year with 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 flight capacity continues to play a key role in our business model. A combination of owned and third-party flying capacity enables us to offer tailor-made travel programmes for each individual source market region and to respond flexibly to changes in customer preferences. Thanks to the balanced management of flight and hotel capacity, we are able to develop destinations and optimise the margins of both service providers.

Northern Region

The Northern Region segment comprises tour operator activities and airlines in the UK, Ireland and the Nordics. In addition, the Canadian strategic venture Sunwing and the associated company TUI Russia have been included within this segment.

Central Region

The Central Region segment is made up of the tour operator activities and airlines in Germany and the tour operator activities in Austria, Poland, Switzerland and Italy.

Western Region

The tour operator activities and airlines in Belgium and the Netherlands and tour operator activities in France are included within the Western Region segment.

ALL OTHER SEGMENTS

All other segments include our business activities for the new markets, the corporate centre functions of TUI AG and the interim holdings, as well as central touristic 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 planning and controlling processes.

Our key financial performance indicators for the development of the earnings position are turnover and EBITA adjusted for one-off effects. We define (underlying) EBITA as earnings before interest, income taxes and expenses for the measurement of interest hedges, and amortisation of goodwill.

Underlying EBITA has been adjusted for gains on disposal of investments, restructuring expenses in accordance with IAS 37, all effects from purchase price allocations, ancillary acquisition costs and conditional purchase price payments, and other expenses for and income from one-off effects. The one-off items carried as adjustments are income and expense items impacting or distorting the assessment of the operating profitability of the segments and the Group due to their level and frequency. These one-off items include major restructuring and integration expenses not meeting the criteria of IAS 37, major expenses for litigation, profit and loss from the sale of aircraft and other material business transactions of a one-off nature.

As from FY 2020, we will be using the indicator 'Underlying EBIT', which is more common in the international sphere, for our management system. Underlying EBITA will therefore no longer be used as a KPI. We define the EBIT in underlying EBIT as earnings before interest, taxes and expenses for the measurement of the Group's interest hedges. Unlike the previous KPI EBITA, EBIT by definition includes amortisation of goodwill. Should any goodwill impairments arise in future, they would therefore be adjusted for in the reconciliation to underlying EBIT. In this respect, the amount carried for underlying EBIT will correspond to the amount previously carried for underlying EBITA.

For the development of the Group's financial position in FY 2019, we have identified net capital expenditure and financial investments and from FY 2020 onwards the Group's net debt as key performance indicator. As another financial stability ratio we monitor the Group's leverage ratio.

Key management variables used for regular value analysis are Return On Invested Capital (ROIC) and Economic Value Added. ROIC is compared with the cost of capital (WACC).

We regard specific carbon emissions (in g CO2 / rpk) 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 customer numbers and 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 69) and 'Environment' (page 86) and in the ­Report on Expected Developments (page 75).

Cost of capital

Cost of capital (WACC) FY 2019

%

Hotels

Cruises

Markets &
Airlines3

TUI Group

Risk-free interest rate

0.10

0.10

0.10

0.10

Risk adjustement

7.04

8.55

7.16

6.88

Market risk premium

7.00

7.00

7.00

7.00

Beta factor1

1.01

1.22

1.02

0.98

Cost of equity after taxes

7.14

8.65

7.26

6.98

Cost of debt capital before taxes

1.42

1.42

2.28

2.28

Tax shield

75.00

98.00

77.00

81.21

Cost of debt capital after taxes

1.06

1.39

1.76

1.85

Share of equity2

82.90

72.00

70.43

69.94

Share of debt capital2

17.10

28.00

29.57

30.06

WACC after taxes

6.10

6.62

5.64

5.44

Cost of equity before taxes

9.12

8.80

8.99

8.26

Cost of debt capital before taxes

1.42

1.42

2.28

2.28

Share of equity2

82.90

72.00

70.43

69.94

Share of debt capital2

17.10

28.00

29.57

30.06

WACC before taxes

7.80

6.73

7.01

6.46

1 Segment beta based on peer group, group beta based on Capital IQ data base.

2 Segment share based on peer group, group share based on Capital IQ data base.

3 Due to insufficient statistical significance of Thomas Cook Group plc and H. I. S. Co., Ltd. shown in the standard procedure of beta regres-sion (average of 60 monthly data points over 5 years), we have performed an alternative beta regression based on average of 104 weekly data points over two years. The alternative beta regression shows statistical significance for all peer companies.

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 EBITA included in ROIC.

ROIC and Economic Value Added

ROIC is calculated as the ratio of underlying earnings before interest, taxes and amortisation of goodwill (underlying EBITA) to average invested interest-bearing capital (invested capital). In future, we will use underlying EBIT as the key performance indicator for calculating Return on Invested Capital (ROIC).

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 capital costs multiplied by interest-bearing invested capital.

For TUI Group, ROIC was 15.46 %, down by 7.75 percentage points on the previous year. With a cost of capital of 6.46 %, this yielded positive Economic Value Added of € 520.0 m (previous year € 829.2 m).

Invested Capital

€ million

Notes

2019

2018
adjusted

Equity

 

4,165.3

4,275.6

Subscribed capital

(25)

1,505.8

1,502.9

Capital reserves

(26)

4,207.5

4,200.5

Revenue reserves

(27)

- 2,259.4

- 2,062.6

Non-controlling interest

(29)

711.4

634.8

plus interest bearing financial liability items

 

3,966.4

3,516.2

Pension provisions and similar obigations

(30)

1,068.0

994.8

Non-current financial liabilities

(32), (40)

2,457.6

2,250.7

Current financial liabilities

(32), (40)

224.6

192.2

Derivative financial instruments

(40)

216.2

78.5

less financial assets

 

1,762.8

2,765.0

Derivative financial instruments

(40)

347.7

525.0

Cash and cash equivalents

(23), (40)

1,741.5

2,548.0

Other financial assets1

 

173.6

192.0

Seasonal adjustment2

 

- 500.0

- 500.0

less overfunded pension plans

 

310.0

125.1

Invested Capital before addition of effects from purchase price allocation

 

6,058.9

4,901.7

Invested Capital excluding purchase price allocation prior year

 

4,901.7

4,285.7

Ø Invested capital before addition of effects from purchase price allocation3

 

5,480.3

4,593.7

 

 

 

 

Invested Capital before addition of effects from purchase price allocation

 

6,058.9

4,901.7

plus effects from purchase price allocation

 

250.8

343.5

Invested Capital

 

6,309.7

5,245.2

Invested Capital prior year

 

5,245.2

4,603.2

Ø Invested Capital2

 

5,777.5

4,924.2

1 Mainly comprises other financial assets and advances and loans

2 Adjustment to net debt to reflect a seasonal average cash balance

3 Average value based on balance at beginning and year-end

ROIC

€ million

Notes

2019

2018
adjusted

Underlying EBITA

 

893.3

1,142.8

Ø Invested Capital*

 

5,777.5

4,924.2

ROIC%

 

15.46

23.21

Weighted average cost of capital (WACC)%

 

6.46

6.37

Value added

 

520.0

829.2

* Average value based on balance at beginning and year-end

Group performance indicators used in the Executive Board remuneration system

JEV-relevant EBT ON A CONSTANT CURRENCY BASIS

Group earnings before taxes (EBT) on a constant currency basis, weighted at 50 %, are used to determine annual variable remuneration (JEV) for the Executive Board. The use of this performance indicator means that the net financial result is included in the calculation. EBT 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 taxes (EBT) on a constant currency basis developed as follows in the financial year under review:

Reconciliation EBT

€ million

2019

Earnings before income taxes

691.4

FX effects from translation to budget rates

0.3

EBT at budget rates

691.1

JEV-relevant Return on invested capital
(ROIC JEV)

The Group performance indicator ROIC is included in JEV with a weighting of 25 %. In order to establish TUI Group's ROIC for JEV purposes, reported Group EBITA and average invested interest-­bearing capital for the financial year are weighted against each other. TUI Group ROIC for JEV purposes developed as follows in the financial year under review:

ROIC JEV

€ million

2019

EBITA

768.4

Ø Invested capital excl. purchase price allocation*

5,480.3

ROIC JEV %

14.02

* Average value based on balance at beginning and year-end

JEV-relevant Cash Flow

The third Group performance indicator included in JEV is the cash flow component 'cash flow to the firm', which is included in the calculation with a weighting of 25 %. For this purpose, cash flow to the firm is determined using a simplified method, based on the management cash flow calculation and covering the liquidity parameters directly controlled by the Executive Board (depreciation /
amortisation, working capital, investment income and dividends, net investments) based on reported Group EBITA, which is also shown on a constant currency basis for this purpose.

The cash flow to the firm used for JEV developed as follows in the financial year under review:

Cash Flow to the firm

€ million

2019

EBITA

768.4

Effect from translation to budget rates

- 3.6

EBITA at budget rates

764.8

Amortisation (+) / write-backs (-) of other intangible ­assets and depreciation (+) / write-backs (-) of property, plant and equipment

509.0

Delta Working Capital

- 25.6

Share of result of joint ventures and assoiciates

- 297.5

Dividends from joint ventures and assoiciates

244.6

Net capex and investments

- 1,118.5

Cash Flow to the firm

76.8

 

Reconciliation of change in working capital according
to cash flow to the firm

€ million

30 Sep 2019

30 Sep 2018
adjusted

Non-current assets

4,313.5

4,939.8

less cash and cash equivalents

- 1,741.5

- 2,548.0

less non-current liabilities

- 6,857.4

- 6,540.4

plus current financial liabilities

224.6

192.2

less current other provisions

- 361.9

- 348.3

less current net tax receivables

- 73.8

- 27.9

less / plus net current derivative ­financial instruments

- 146.7

- 376.1

less interest bearing receivables

- 100.7

- 55.5

plus current accrued interest

26.2

25.6

Working capital according to
balance sheet

- 4,717.7

- 4,738.6

Change in working capital according
to balance sheet

- 20.9

-

Exchange rate differences

- 4.7

-

Change in working capital according
to cash flow to the firm

- 25.6

-

PRO FORMA UNDERLYING EARNINGS PER SHARE

In measuring the long term incentive plan (LTIP) for the Executive Board, the average development of pro forma underlying earnings per share from continuing operations (LTIP-relevant EPS) is included with a weighting of 50 %.

The table below shows TUI Group's pro forma underlying earnings per share, based on an assumed normalised Group tax rate of 18 %. The net interest expense used for the calculation was adjusted for interest portions of the reversal of a provision of € 35.0 m recognised in the financial year under review. In the prior year the net interest expense used for the calculation was adjusted for interest portions of the reversal of a provision of € 31.2 m. In addition, an adjustment was carried for non-controlling interests to reflect the normalised tax rate used in determining underlying earnings per share in the financial year under review. In the prior year a normalised Group tax rate of 20 % was assumed for the calculation. The calculation is based on subscribed capital as at the balance sheet date.

The pro forma underlying earnings per share from continuing operations (LTIP-relevant EPS) developed as follows in the financial year under review:

Pro forma underlying earnings per shares TUI Group

€ million

2019

2018
adjusted

Underlying EBITA

893.3

1,142.8

less: Net interest expense (adjusted)

- 112.0

- 119.9

Underlying profit before tax

781.3

1,022.9

Income taxes (18 % assumed tax rate; prior year 20 %)

140.6

204.6

Underlying Group profit

640.7

818.3

Minority interest

115.7

134.8

Underlying Group profit attributable to TUI shareholders of TUI AG

525.0

683.5

Numbers of shares at FY end
(in million)

589.0

587.9

Underlying earnings per share

0.89

1.16

RISK REPORT

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.

The current financial year has seen further maturity of the risk management system with additional focus on ensuring the effectiveness of mitigation to manage key business area risks in addition to regular testing of key financial controls occurring across all of our larger businesses. Cohesion between all risk & control functions (Risk, Financial Control, Compliance, IT Security and Health & Safety) continues to be a priority to support an integrated assurance process between all of the second lines of defense departments. Our risk governance framework is set out below:

Risk 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.

To ensure that the strategic direction chosen by the business represents the best of the strategic options open to it, the Executive Board is supported by the Group Strategy function. This function exists to facilitate the Executive Board's assessment of the risk landscape and development of potential strategies by which it can drive long-term shareholder value. On an annual basis the Group Controlling function develops an in-depth fact base in a consistent format which outlines the market attractiveness, competitive position and financial performance by division and market. These are then used to facilitate debate as to the level and type of risk that the Executive Board finds appropriate in the pursuit of its strategic objectives. The strategy, once fully defined, considered and approved by the Executive Board, is then incorporated into the Group's three-year roadmap and helps to communicate the risk appetite and expectations of the organisation both internally and externally.

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 organisation 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 regularly 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''), a subset of the Executive Committee, ensures that business risks are identified, assessed, managed and monitored across the businesses and functions of the Group. Meeting on at least 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 the second lines of defense functions are represented on the committee. The director of Group Audit also attends as an independent member.

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.

Risk Reporting

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 the risks relevant to the pursuit of the strategy within their business area in the context of four risk types:

  • Longer-term strategic and emerging threats;
  • Medium-term challenges associated with business change
  • Short-term risks triggered by changes in the external and regulatory environment; and
  • Short-term risks in relation to internal operations and control.

A risk owner is assigned to each risk, who has the accountability and authority for ensuring that the risk is appropriately managed.

Risk Descriptions: The nature of the risk is articulated in line with best practice, stating the underlying concern the risk gives arise to, identifying the possible causal factors that may result in the risk materializing and outlining the potential consequences should the risk crystalise. This allows the businesses, functions and the Group to assess the interaction of risks and potential triggering events and / or aggregated impacts before developing appropriate mitigation strategies for causes and / or consequences.

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 on a rating of 1 to 5 using the criteria shown below / on the right:

Impact Assessment

minor

 

moderate

 

SIGNIFICANT

 

major

 

SERIOUS

Impact on

 

Impact on

 

Impact on

 

Impact on

 

Impact on

  • Financials
    (Sales and / or Costs)
  • Reputation
  • Technology reliability
  • Compliance
  • Health & Safety standards
  • Programme Delivery
  •  
  • Financials
    (Sales and / or Costs)
  • Reputation
  • Technology reliability
  • Compliance
  • Health & Safety standards
  • Programme Delivery
  •  
  • Financials
    (Sales and / or Costs)
  • Reputation
  • Technology reliability
  • Compliance
  • Health & Safety standards
  • Programme Delivery
  •  
  • Financials
    (Sales and / or Costs)
  • Reputation
  • Technology reliability
  • Compliance
  • Health & Safety standards
  • Programme Delivery
  •  
  • Financials
    (Sales and / or Costs)
  • Reputation
  • Technology reliability
  • Compliance
  • Health & Safety standards
  • Programme Delivery

 

Likelihood Assessment

rare

< 10 % Chance

 

unlikely

10 - < 30 % Chance

 

possible

30 - < 60 % Chance

 

likely

60 - < 80 % Chance

 

almost certain

>= 80 % Chance

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 with the current risk score, the risk is accepted and no further action is required to further reduce the risk. 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.

Entity Scoping

A robust exercise is conducted each year to determine the specific entities in the Group which need to be included within the risk and control software and therefore be subject to the full rigour of the risk reporting process. The scoping exercise starts with the entities included within the Group's consolidation system, and applies materiality thresholds to a combination of revenue, profit and asset benchmarks. From the entities in the consolidation system, this identifies the levels at which these entities are operationally managed and therefore need to be included in the risk and control software itself to facilitate completeness of bottom-up risk reporting across the Group. This ensures that the risks are able to be captured appropriately at the level at which the risks are being managed.

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 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. Broadly this concerns ensuring consistency of approach in assessing risk scores, clearer identification of mitigation currently in place as well as any action plans to introduce further mitigation, and ensuring that risk identification has considered all four risk types.

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.

Principal Risks

The principal risks to the Group are either considered to be 'Active' or 'Monitored'.

Active principal risks are those that we have to actively manage in order to bring them into line with our overall risk appetite. 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.

Monitored principal risks are those generally inherent to the tourism sector and faced by all businesses in the industry. 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 in line with our risk appetite in each case.

In the heat map diagram, the assessment criteria used are shown on page 43.

FY 2019 Principal Risks

With the UK Government formally triggering Article 50 of the Treaty on European Union ('EU') of Lisbon on 29th March 2017, Brexit continues to remain an active principal risk. Brexit has an impact both on existing principal risks (e. g. Customer Demand and Input Cost Volatility, particularly for the UK market through the uncertainty it has introduced to prospects for future growth rates in the UK economy and the depreciation of sterling since the referendum result in 2016) as well as its own class of principal risk due to the direct potential impact it could have on specific areas of our business model.

With regard to the UK's potential exit from the EU in 2020, the main concern remains whether our airlines will continue to have access to EU airspace. We are continuing to address the importance of there being a special and comprehensive agreement for aviation between the EU and the UK post Brexit to protect consumer choice with the relevant UK and EU decision maker, and are in regular exchange with relevant regulatory authorities. We continue to develop scenarios and mitigating strategies for various outcomes, including a 'hard Brexit', depending on the political negotiations, with a focus to alleviate potential impacts from Brexit for the Group.

The estimated cost impact relating to the Boeing 737 Max aircraft remaining grounded until early 2020 as well as potentially throughout the financial year has been reflected within our FY 2020 underlying EBIT guidance, however we continue to monitor the risk of the aircraft remaining grounded beyond this period. From a principal risk perspective, the assessment remains part of the Supplier Reliance monitored risk.

With the Group's continued focus on ensuring that we have the right people in order to deliver our strategy, the Executive Board agreed to include Talent & Leadership Development as a monitored principal risk in FY 2019. Further details of the risk and the mitigation in place are included in the table below.

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.

Active Principal Risks

Nature of Risk

1. IT DEVELOPMENT & STRATEGY

Our focus is on enhancing 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, an ineffective IT strategy or technology development could impact on our ability to provide leading technology solutions in our markets. This would therefore impact on our competitiveness, our ability to provide a superior customer experience as well as on quality and operational efficiency. This would ultimately impact on our customer numbers, revenue and profitability.

Mitigating Factors

  • Developed and communicated (in conjunction with Executives, Business & IT Leadership Teams) the Group's IT Strategy which is clearly aligned to our overall business objectives and considers external factors such as the pace of technological change and internal factors such as the underlying quality required throughout IT.
  • Continuing to implement our online platform, moving from retail to online to mobile in order to enhance customer experience and drive higher conversion rates.
  • Implementing a SAP-based central customer platform to collate all information on our customers across their journey to provide a single view of the customer alongside an eCRM platform which will support strategic marketing.
  • Placing increased focus on ensuring continuity plans for critical IT systems are in place and regularly tested.
  • Cascaded clear technology standards and associated delivery roadmaps which are linked to Group wide and individual market objectives.
  • Adopting API, Big Data and Cloud architecture to drive improved speed, productivity and efficiency.
  • Using Blockchain technology to manage hotel bed allocation in all markets to be ahead of the competition.

Nature of Risk

2. GROWTH STRATEGY

For FY 2020, we expect TUI Group's underlying EBIT at constant currency to total € 950 m to € 1,050 m. This includes an expected negative earnings effect of approximate € 130 m from the grounding of Boeing 737 Max jets until the end of April as well as a mid to high double-digit millions investment in our digital platform growth.

Our strategic positioning combines our own products with strong omni-channel sales capacities and is diversified across markets and destinations. In the new financial year, we will focus on enhancing our competitiveness, selec-tively expanding our holiday experiences and developing our digital platforms in new markets and destinations.

Asset utilisation of aircraft, cruise ships and hotels is critical to our financial success particularly when in a growth phase.

There is a risk that we could be unsuccessful in maximising opportunities to execute our expansion strategy. This could mean that we fail to achieve some of the initiatives we have embarked upon, which could result in us falling short against the overall growth targets we have set for the business.

Mitigating Factors

  • The Executive Board is very focussed on the strategy and mindful of the risks, so there is strong direction and commitment from the top. The remuneration scheme in place for the Executive Board is designed to create incentives for the Group's sustained growth and robust financial performance (see from page 130).
  • The Group's Markets and Commercial Boards plays an important role in coordinating, executing and monitoring the various growth initiatives.
  • There are a number of initiatives underway to achieve growth, including the focus on our GDN-OTA sectors as well as adding scale through Destination Experiences with the new tours & activities platform which reduces the risk through diversification.
  • Each of the businesses tasked with achieving an element of the growth strategy are still required to maintain sound financial discipline. The Group's investment criteria and authorization processes must still be adhered to as we are not prepared to be reckless in the pursuit of growth.
  • We continue to maintain strong relationships with the providers of aircraft finance.
  • Monitoring the overall market conditions continues to occur so that plans can be adapted or contingency plans invoked if required.

Nature of Risk

3. INTEGRATION & RESTRUCTURING OPPORTUNITIES

Our key strategic rationale for the Group is to act 'as one' wherever it makes sense to do so particularly through our Group Platforms and across the Markets businesses, whilst maintaining local differences where the benefit of that differentiation is greater than that of harmonisation.

There are a number of restructuring projects underway across the Group as a result to enable us to achieve these opportunities. Furthermore our continuous review of our own businesses and competitors means that we have an active programme of acquisitions (e. g. the destination management companies from Hotelbeds last year) and business disposals (e. g. Boomerang Reisen and Berge & Meer businesses) with associated integration projects.

There is an inherent risk with any large restructuring or integration programme that we face challenges in managing the complexities associated with further integrating our business, and reducing overlapping activities in order to develop a leaner and streamlined operating model.

If we are not successful in leveraging and optimizing the identified opportunities this could have a significant impact on our ability to deliver the identified benefits in line with expectations and enhance shareholder value.

Mitigating Factors

  • The establishment of the Markets & Domain Transformation Board to oversee the standardization of processes across the Markets businesses.
  • Strong project management structures exist for all of the major restructuring, acquisition and disposal programs, which are underway to ensure that they are managed effectively.
  • Project reporting tool ensures enhanced visibility of the progress of major projects as a matter of routine.
  • Regular reporting by the major projects to the Executive Board to ensure swift resolution of any issues or to enhance coordination across the Group where required.

Nature of Risk

4. CORPORATE SOCIAL RESPONSIBILITY

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 development in the tourism sector.

Our focus is to reduce the environmental impact of our holidays 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 for people and communities and being a pioneer of sustainable tourism across the world.

There is a risk that we are not successful in driving forecast 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, reduction in demand for our products and services and loss of competitive advantage.

Furthermore, if the Group falls short of achieving its sustainable development targets and at the same time the objectives of the UN Paris Climate Change Agreement (December 2015) are not met, this could lead to sustained long-term damage to some of the Group's current and future destinations, which could also have a material adverse effect on demand for our products and services.

Mitigating Factors

  • Developed and launched in 2015 the 'Better Holidays, Better World' 2020 sustainability strategy framework which includes specific targets for key sustainability indicators.
  • Established a dedicated sustainability department to work closely with the business and other stakeholders to implement the sustainability strategy.
  • Operating one of the most carbon efficient airlines in Europe with continued investment in new, more efficient aircraft (e. g. Boeing 787 Dreamliner & 737 Max) and cruise ships (e. g. the TUI Cruises and Hapag-Lloyd Cruises new-builds).
  • Implemented an environmental management system with all of our airlines having achieved ISO 14001 certification.
  • Increased measures to influence accommodation suppliers to achieve third party sustainability certification recognized by the Global Sustainable Tourism Council (GSTC).
  • TUI Care Foundation expanded to focus on the achievement of it's 2020 target for charitable donations and sustainability projects, with particular emphasis empowering young people, protecting the natural environment and maximizing the economic benefits of tourism in destinations.

Nature of Risk

5. INFORMATION SECURITY

Our responsibility is to protect the confidentiality, integrity and availability of the data we have to provide to our customers, employees, suppliers and service delivery teams.

This is a dynamic risk due to increased global cyber-crime activity and new regulations (e. g. EU GDPR). At the same time our consolidation under the TUI brand and our increasing dependence on online sales and customer care channels (web / mobile) increases our exposure and susceptibility to cyber-attacks and hacks.

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.

Mitigating Factors

  • Continued commitment from the Executive Board in support of key initiatives to ensure all existing and future IT systems are secure by design, that exposure to vulnerability is managed effectively, user access is sufficiently controlled and colleagues are made aware of information security risks through appropriate training.
  • Launch of a company-wide Information Security awareness campaign to promote secure behaviors amongst our colleagues. Overall goal is to make information security part of everyone's job.
  • Continuous review and testing of all external devices and ongoing monitoring of logs in order to identify any potential threats as and when they arise.
  • Continuous improvement through lessons learned from real or simulated cyber incidents.

Nature of Risk

6. 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.

Mitigating Factors

  • The Executive Board has established a Brexit Steering Committee to monitor developments as the political negotiations take place, assess any impacts on the Group's business model and coordinate suitable mitigation strategies to be taken ahead of a potential exit from the European Union in 2020.
  • In addition we continue to lobby relevant UK and EU decision makers to stress the continued importance of a liberalized and deregulated aviation market across Europe to protect consumer choice in both regions.

Monitored Principal Risks

Nature of Risk

A. DESTINATION DISRUPTION

Providers of holiday and travel services are exposed to the inherent risk of incidents affecting some countries or destinations within their operations. This can include natural catastrophes such as hurricanes or tsunamis; outbreaks of disease such as Ebola; 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 in our businesses. We may possibly 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.

Mitigating Factors

  • Whilst we are unable to prevent such events from occurring, we have well defined crisis management procedures and emergency response plans, which are implemented when an event of this nature occurs, with the focus being on the welfare of our customers.
  • Where the appropriate course of action is to bring customers home immediately, our significant fleet of aircraft allows us to do this smoothly and efficiently.
  • Our policy is to follow foreign office advice in each of our markets with regards to non-essential travel. This serves to minimize the exposure of our customers to turbulent regions.
  • Due to our presence in all key holiday regions, when a specific destination has been impacted by an external event, we are able to offer alternative destinations to our customers and to remix our destination portfolio away from the affected area in future seasons if necessary.
  • We always assume some level of destination disruption each year when setting financial plans and targets, so that we are able to cope with a 'normal' level of disruption without it jeopardizing achievement of our targets.

Nature of Risk

B. TALENT & LEADERSHIP DEVELOPMENT

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 maximise on our operating performance, may impact on our ability to future proof the Group and the associated potential for negative impact on shareholder confidence.

Mitigating Factors

  • Driving high performance and engagement through our performance review, development plans and career planning process.
  • Building our pipeline of leadership talent including through our International Graduate Leadership Programme which attracts, develops and retains high quality graduates to become our future senior Commercial Leaders.
  • Establishing and maintaining online professional academies to provide our employees with learning offerings in specific functional areas.
  • A strategically aligned leadership academy for high performing management at all levels.

Nature of Risk

C. 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 of our customers, which could impact our short-term growth rates and lead to margin erosion.

Mitigating Factors

  • Our market position as a globally operating tourism group, our brand and our integrated business model enables us to respond robustly to competitive threats.
  • The Group is characterised by the continuous development of new holiday experiences, developing new concepts and services which match the needs and preferences of our customers. Our strong and lasting relationships with our key hotel partners further reinforces our ability to develop new concepts exclusive to the Group.
  • Many customers prioritize their spending on holidays above other discretionary items.
  • Leveraging our scale to keep costs down and prices competitive.
  • Having a range of markets so that we are not over exposed to one particular economic cycle.
  • Promoting the benefits of travelling with a globally operating tour operator to increase customer confidence and peace of mind.

Nature of Risk

D. INPUT COST VOLATILITY

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.

There is also the risk that if our hedging policy is too rigid, 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 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.

Mitigating Factors

  • Ensuring that the appropriate derivative financial instruments are used to provide hedging cover for the underlying transactions involving fuel and foreign currency.
  • Maintaining an appropriate hedging policy to ensure that this hedging cover is taken out ahead of the markets' customer booking profiles. This provides a degree of certainty over input costs when planning pricing and capacity, whilst also allowing some flexibility in prices so as to be able to respond to competitive pressures if necessary.
  • Tracking the foreign exchange and fuel markets to ensure the most up-to-date market intelligence and the ongoing appropriateness of our hedging policies.
  • Expressing our key profit growth target in constant currency terms so that short term performance can be assessed without the distortion caused by exchange rate fluctuations.


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

E. SEASONAL CASH FLOW PROFILE

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.

Mitigating Factors

  • Our focus on holiday experiences is helping to reduce the seasonality risk, as hotels, cruises and destination experiences have a more evenly distributed profit and cash profile across the year.
  • As our business is spread across a number of markets, there are some counter-cyclical features e. g. winter is a more important season for the Nordic and Canadian markets. Some brands, such as the UK ski brand Crystal Ski, have a different seasonality profile which helps to counter-balance the overall profile.
  • The business regularly produces both short term and long term cash forecasts during the year, which the Treasury department use to manage cash resources effectively.
  • We have implemented a financial policy which has led to an improvement in our credit rating and makes it easier to maintain financing facilities at suitable levels.
  • Existing financing facilities are considered to be more than sufficient for our requirements and provide ample headroom.
  • We continue to maintain high-quality relationships with the Group's key financiers and monitor compliance with the covenants contained within our financing facilities.
  • Raising additional finance from the Capital Markets, should it be required, remains an option.
  • Regularly reviewing ways we can continue to improve our Free Cash Flow position.

Nature of Risk

F. LEGAL & REGULATORY COMPLIANCE

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 115 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.

Mitigating Factors

  • Communication and strong tone from the top concerning compliance with laws and regulations.
  • Legal Compliance Committee established to ensure appropriate oversight, monitoring and action plans and to further drive the compliance culture across the Group.
  • Embedded legal and tax expertise in all major businesses responsible for maintaining high quality relationships with the relevant regulators and authorities.
  • Ongoing implementation and review of Compliance Management System conducted by the Group Integrity & Compliance department to monitor compliance with regulations and provide expert advice to local teams on specific compliance areas.

Nature of Risk

G. HEALTH & SAFETY

For all providers of holiday and travel services, ensuring the health and safety of customers is of paramount importance. This is especially so for us as we are a globally operating tourism group selling holidays to over 21 m Markets & Airlines customers per annum.

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.

Mitigating Factors

  • Health and safety functions are established in all businesses in order to ensure there is appropriate focus on health and safety processes as part of the normal course of business.
  • Ongoing monitoring is conducted by the Group Security, Health & Safety function to ensure compliance with minimum standards.
  • Appropriate insurance policies are in place for when incidents do occur.

Nature of Risk

H. SUPPLIER RELIANCE

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.

Mitigating Factors

  • Using reputable and financially stable suppliers, particularly in areas where a single supplier is used to provide a service.
  • Regular monitoring of supplier performance against agreed terms and conditions.
  • Strong working relationships with all key suppliers.
  • Owned and joint venture partner hotels form a substantial part of our program which reduces our inherent risk in this area.
  • A robust prepayment authorization process is established and embedded to both limit the level of prepayments made and ensure that they are only paid to trusted, credit-worthy counterparties.
  • Prepayments are monitored on a timely and sufficiently granular basis to manage our financial exposure to justifiable levels.

Nature of Risk

I. 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 or to gain access to additional expertise. There are three significant joint ventures within the Group - Riu, TUI Cruises and Sunwing.

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.

Mitigating Factors

  • Good working relationships exist with all of our main joint venture partners and they are fully aligned with and committed to the growth strategy of the Group.

Viability Statement

In accordance with provision C2.2 of the 2016 revision of the UK Corporate Governance Code, the Executive Board has assessed the prospect of the Company over a longer period than the twelve months required by the 'Going Concern' provision. The Executive Board considers annually and on a rolling-basis a three-year strategic plan for the business, the latest was approved in December 2019 and covers the period to 30 September 2022. A three-year horizon is considered appropriate for a fast-moving competitive environment such as tourism.

It is also noted that the Group's current € 1,535.0 m revolving credit limit, which expires in July 2022, is used to manage the seasonality of the Group's cash flows and is reviewed on a timely basis. The three-year plan considers cash flows as well as the financial covenants which the credit facility requires compliance with.

Key assumptions underpinning the three year plan and the associated cash flow forecast is that aircraft and cruise ship finance will continue to be readily available, and that the terms of the UK leaving the EU are such that all of our airlines continue to have access to EU airspace as now.

The Executive Board has conducted a robust assessment of the principal risks facing the company, including those that would threaten its business model, future performance, solvency or liquidity. Sensitivity analysis is applied to the cash flow to model the potential effects should certain principal risks actually occur, individually or in unison. This includes modelling the effects on the cash flow of significant disruption in the event of a major service failure by a key supplier.

Taking account of the company's current position, principal risks and the aforementioned sensitivity analysis, the Executive Board has a reasonable expectation that the company will be able to continue in operation and meet its liabilities as they fall due over the three-year period of the assessment.

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 in the TUI Group

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 22

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 11.1.2.4 (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 reliable (Group) Accounting

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 recognized in the financial statements secures the application of uniform and standardized evaluation criteria.

5. Disclaimer

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 recognized 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 and report on expected developments

Actual business performance 2019 compared
with our forecast

Our business performance in FY 2019 fell short of our original forecast, in particular due to a number of external factors in Markets & Airlines. As a result, we lowered our earnings guidance for our underlying EBITA twice in the course of FY 2019.

On 6 February 2019, TUI updated its earnings guidance for the financial year ending 30 September 2019 from the original guidance of at least 10 % CAGR in underlying EBITA at constant currency compared with rebased underlying EBITA in FY 2018.* TUI's new guidance was for underlying EBITA at constant currency to be largely flat versus FY 2018. At the same time, TUI withdrew its guidance of at least 10 % CAGR in underlying EBITA at constant currency for the three years to FY 2020. This update was primarily driven by external effects, resulting in a lower earnings guidance for Markets & Airlines.

* Rebased previous year's number adjusted for € 40 m in 2018, arising from the ­revaluation of Euro loan balances within Turkish hotel entities.

On 29 March 2019, TUI again adjusted its earnings guidance for the financial year ending 30 September 2019 due to the grounding of 737 Max jets. Given the uncertainty about when the grounding by the Federal Aviation Administration (FAA) and the European Aviation Safety Agency (EASA) would be lifted, TUI considered two scenarios. Assuming the resumption of flights with Boeing 737 Max jets by mid-­July at the latest, a one-off effect on underlying EBITA of around € 200 m was expected to cover replacement aircraft, higher jet fuel costs, costs in connection with business disruption and the negative impact on TUI's operating business. In the event of that one-off effect, the underlying EBITA guidance for FY 2019 was lowered to around minus 17 % (previously: 'broadly stable') compared with the rebased underlying EBITA for FY 2018. In the event that the grounding was to be lifted at a later date, as eventually turned out to be the case, an additional one-off effect of up to € 100 m was expected for the period until 30 September 2019 and the underlying EBITA guidance for FY 2019 was updated to up to minus 26 % compared with the rebased underlying EBITA for FY 2018.

In FY 2019, TUI Group's underlying EBITA declined by 21.8 % to € 893.3 m. On a constant currency basis for the reporting period and the prior year reference period, this equates to a decrease of 25.6 % compared with the rebased underlying EBITA for FY 2018 of € 1,182.8 m. Our performance thus matched our updated guidance for FY 2019; however, it fell short of our original guidance. At € 124.9 m, the one-off charges adjusted for in our underlying EBITA were in line with our expectations.

Despite a difficult market environment, our Holiday Experiences business in total developed in line with expectations albeit the shift in demand from the Western to the Eastern Mediterranean impacted our Hotels & Resorts segment stronger than expected leading to a lower underlying EBITA at constant currency versus the rebased previous year's figure. By contrast, the performance of our Markets & Airlines business fell short of our original expecations. Apart from the grounding of 737 Max jets outlined above, this was above all driven by overcapacities in certain destinations and later bookings and weaker margins due to the heatwave in Summer 2018. In addition, the sustained weakness of the British pound made it difficult to improve margins on holidays sold to UK customers.

TUI Group's turnover increased by 2.7 % year-on-year on a constant currency basis. It therefore nearly matched the expected growth of around 3 % at constant currency.

TUI Group's ROIC declined by 7.75 percentage points year-on-year to 15.46 %, whereas only a slight reduction had been expected. With the cost of capital at 6.46 %, this yielded a decrease in Economic Value Added to € 520.0 m (previous year € 829.2 m).

The Group's net capex and financial investments remained within the guided target range of €1.0 to € 1.2 bn at € 1.1 bn.

At 3.0 (x), the leverage ratio carried as at the end of FY 2019 was at the upper end of the targeted bandwidth of 3.00 (x) to 2.25 (x).

Expected changes in the economic framework

Expected development of World Output

Var. %

2020

2019

World

+ 3.4

+ 3.0

Eurozone

+ 1.4

+ 1.2

Germany

+ 1.2

+ 0.5

France

+ 1.3

+ 1.2

UK

+ 1.4

+ 1.2

US

+ 2.1

+ 2.4

Russia

+ 1.9

+ 1.1

Japan

+ 0.5

+ 0.9

China

+ 5.8

+ 6.1

India

+ 7.0

+ 6.1

Source: International Monetary Fund (IMF), World Economic Outlook, October 2019

MACROECONOMIC SITUATION

The outlook issued by the International Monetary Fund suggests moderate growth in global manufacturing despite a subdued economic climate during the forecast horizon. In some areas, there are now increasing signs of a gradual improvement in economic sentiment, albeit at a low level. In calendar year 2020, the IMF expects the global economy to grow by 3.4 per cent (source: IMF, World Economic Outlook, October 2019).

MARKET TREND IN TOURISM

UNWTO expects international tourism to continue growing globally during the current decade. The forecast for average weighted growth in the period from 2010 to 2020 is around 3.8 % per annum (UNWTO, Tourism Highlights, 2018 edition).

In the first six months of 2019, international arrivals rose by 4.4 %. UNWTO expects growth in international arrivals of 3 % to 4 % for the full calendar year 2019 (UNWTO, World Tourism Barometer, October 2019).

EFFECTS ON TUI GROUP

As a globally operating tourism provider, TUI Group depends on the development in consumer demand in the large source markets in which we operate with our hotel, cruise and tour operator brands. Our budget is based on the assumptions used as a basis by the IMF to predict the future development of the global economy.

The expected turnover growth assumed for our tour operators in our budget for FY 2020 exceeds UNWTO's long-term forecast taking account of positive effects due to the market exit of a competitor.

Expected development of Group earnings

TUI Group

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 turnover and large earnings and cash flow contributions in non-euro currencies, in particular pound sterling, US dollar and Swedish krona. Taking account of the seasonality in tourism, the value of these currencies against the euro in the course of the year therefore strongly impacts the financial indicators carried in TUI AG's consolidated financial statements.

The key financial performance indicators for our earnings position in FY 2020 are Group turnover and underlying EBIT.

Definition of underlying EBIT see Value-oriented Group management from page 35.

Key management variables used for regular value analysis are Return On Invested Capital (ROIC) and Economic Value Added. ROIC is shown against the cost of capital.

TUI Group's future development depends on demand in our source markets and customer segments, input costs and the potential impact of exogenous events beyond our control.

Below, we present TUI Group's expected development in FY 2020 at constant currency for FY 2019. The indicators shown do not comprise any effects from the initial application of the new accounting standard IFRS 16.

In our outlook, we have assumed that our Boeing 737 Max jets will resume flight from the end of April 2020. Based on the assumption that the jets will remain grounded from October 2019 to April 2020, our budget reflects a negative impact of around € 130 m on earnings. Should the grounding continue until the end of the Summer 2020 season, these costs would increase by approximately a further € 220 to 270 m.

Our budget for FY 2020 also reflects expected positive turnover and earnings effects due to the market exit of a competitor in autumn 2019. In response to that event, we have increased our planned tour operator capacity for FY 2020 by 1.7 million guests. This could result in turnover growth of € 1.0 m to € 1.3 m and a positive earnings effect based on an assumed sales margin of 2 to 3 %.

Expected development of Group turnover and
underlying EBIT

€ million

2019

2020*

Turnover

18,928

medium to high growth in the single-digit percentage range

Underlying EBIT

893

 950 - 1,050 m

Adjustments

125

approx. € 70 - 90 m costs

* Variance year-on-year assuming constant foreign exchange rates are applied
to the result in the current and prior period and based on the current Group ­structure; guidance relates to continuing operations. The indicators shown
do not comprise any effects from the initial application of the new accounting standard IFRS 16.

TURNOVER

For FY 2020, we expect turnover to grow in the medium to high single-digit percentage range at constant currency. This includes expected turnover growth from an increase in the business volume resulting from the market exit of a competitor.

UNDERLYING EBIT

Based on our near-term strategic initiatives, we expect to deliver an underlying EBIT range of between approximately € 950 m to € 1,050 m in FY 2020, reflecting growth in Holiday Experiences and market uncertainties that continue to impact our Markets & Airlines business, and includes an approximate €130m cost impact from the Boeing 737 Max grounding, assuming a scenario whereby the Boeing Max returns to service by end of April 2020.*

* Subject to ban lift in February 2020

However, in the alternative scenario, where the ban on the Boeing 737 Max is not lifted in time for a return to service by end of April 2020 and TUI has to plan for a continued grounding for the remainder of FY 2020, the Group assumes a further cost of between approximately € 220 m to € 270 m.

Neither scenarios include any potential grounding compensation from Boeing in any form.

Our guidance range also includes a mid to high double-digit millions investment in our digitalised platform growth.

We expect an increase in underlying EBIT of around € 75 m (deviations of +/- 5 % are possible) from the initial application of IFRS 16. The expected effects of initial application on the statement of financial position are described in detail form page 272 in the Notes to the consolidated financial statements.

ADJUSTMENTS

Taking account of an expected positive gain on disposal from the divestment of our German specialist tour operators Berge & Meer and Boomerang Reisen of around € 100 m, we anticipate net adjustments totalling € 70 m to € 90 m for FY 2020. Apart from purchase price allocations, they relate in particular to the costs of efficiency enhancements and the further transformation of Markets & Airlines. If impairments of goodwill should occur, they would be adjusted in the reconciliation to underlying EBIT.

Details on Goals and Strategies from page 28;

ROIC AND ECONOMIC VALUE ADDED

For FY 2020, we expect a slight decrease in ROIC and a stable Economic Value Added before the effects of the initial application of the new accounting standard IFRS 16, depending on the development of TUI Group's capital costs.

Development in the segments in FY 2020

Hotels & Resorts

In Hotels & Resorts, we expect to deliver normalised rates and occupancies in the Spanish destinations, in particular the Canaries, due to our diversified portfolio of destinations with continued strong demand for Turkey and North Africa in FY 2020. We also expect to see continued strong demand for our year-round destinations such as Mexico, the Caribbean and Cape Verde. We will continue to diversify our investment portfolio and selectively invest in our key hotel brands such as Riu, Robinson and Blue Diamond. By 2020, we will expand our TUI Blue brand from 10 to around 100 hotels by repositioning existing hotels in the portfolio and further expanding our brand through asset light growth.

CRUISES

In FY 2020, we will benefit from the first-time full-year operation of the three ships launched in FY 2019. Following new regulations, we expect rising fuel costs and additional costs for technical upgrades and dry docks, in particular at Marella Cruises, in FY 2020.

destination experiences

In the Destination Experiences segment, we will continue to expand our customer base and augment bookings of tours and activities, in particular through both our Destination Management but also our digital platform Musement. In addition, we will expand distribution of own product and third-party distribution through partnerships such as Ctrip. In order to achieve these strategic goals, we will need to incur additional expenses to develop our digital platform in FY 2020.

markets & Airlines

In the Markets & Airlines business, the consolidation driven by the insolvency of a relevant competitor is reinforcing our market position as an integrated provider of holiday experiences. We subsequently increased our planned capacity for Winter 2019 / 20 by 2 % and for Summer 2020 by 14 %. We are likewise pushing ahead with the harmonisation of business practices, in particular in relation to processes, overheads and aviation, and the delivery of benefits from digitalisation. We expect the challenging market environment to continue.

Expected development of financial position

To develop the Group's financial position in FY 2020, we have defined the Group's net capital expenditure and investments and its net debt as key performance indicators.

Expected development of Group financial position

 

2019

2020

Net capex and investments

 1,118.5 m

around € 750 - 900 m

Net debt

 0.9 bn

around
 1.8 - 2.1 bn

net capex and investments

In the light of investment decisions already taken and projects in the pipeline, we expect TUI Group's net capex and financial investments to total around € 750 m to € 900 m in FY 2020. This includes down payments on aircraft orders, with the exception of aircraft funded by outside capital or finance leases. Moreover, this includes proceeds from the sale of assets items. Capex mainly relates to the launch of new production and booking systems for our tour operators, maintenance and expansion of our hotel portfolio. The expected range shown above does not include potential hotel investments at our fully consolidated subsidiary Riu in response to opportunities.

NET DEBT

We expect the Group's net debt to increase to around € 1.8 to 2.1 bn in FY 2020.

Sustainable development

climate protection and emissions

We have identified relative carbon emissions (in g CO2 / rpk) from our aircraft fleet as the key non-financial performance indicator. These emissions are to be reduced by 10 % by 2020 versus baseline year 2014 (in 2014: 67.56 CO2 / rpk). In the Airlines segment, we will not deliver this goal by 2020. It is mainly based on efficiency enhancements and the planned fleet renewal programme. We expect to see a negative impact on target achievement as a result of the grounding of Boeing 737 Max jets and the associated delivery delays. To date, we have delivered improvements of 3.6 % in CO2 intensity versus base-line year 2014. The continued grounding of the Boeing 737 Max aircraft makes forecasting TUI Airlines' FY 2020 carbon-­efficiency performance very challenging. With no confirmed return to service schedule, providing an accurate forecast is not possible. However, on the assumption that the Boeing 737 Max is operational in early 2020 this should have a slightly positive impact on TUI Airlines' carbon intensity due to the fuel-efficiency performance of the aircraft.

Overall Executive Board assessment of TUI Group's current situation and expected development

At the date of preparation of the Management Report (10 December 2019), we uphold our positive assessment of TUI Group's economic situation and outlook for FY 2020. With its finance profile, strong brand and services portfolio, TUI Group is well positioned in the market. In the first few weeks of the new FY 2020, our overall business performance has matched expectations.

In the completed FY 2019, there were a number of external challenges that also restricted our overall growth. Some of these ongoing external challenges continue to affect us and are expected to continue in FY 2020. TUI's development in this challenging market environment demonstrates the success of our transformation into an integrated provider of holiday experiences. Our strategic positioning combines our own products with strong omni-channel sales capacities and is diversified across markets and destinations. In the new financial year, we will focus on enhancing our competitiveness, selectively expanding our holiday experiences and developing our digital platforms in new markets and destinations.

For FY 2020, we expect TUI Group's underlying EBIT to total € 950 m to € 1,050 m at constant currency. This includes negative earnings effects worth € 130 m from the grounding of Boeing 737 Max jets until the end of April as well as a mid to high double-digit millions investment in our digital platform growth. We expect an increase in underlying EBIT of € 75 m from the initial application of IFRS 16. The expected impact of the initial application of the accounting standard is described in detail from page 272 of the Notes to the consolidated financial statements.

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.

Opportunity Report

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 Destination Experiences 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 by optimising the shareholding portfolio and developing the Group structure over the long term.

Overall, TUI Group is well positioned to benefit from opportunities resulting from the main trends in its markets.

OPPORTUNITIES ARISING FROM MACROTRENDS

Should the economy perform better than expected, TUI Group and its segments would benefit from the resulting increase in demand in the travel market. Moreover, changes in the competitive environment could create opportunities for TUI Group in individual markets. No reimbursements from third parties for the impact of the Boeing 737 Max grounding have been taken into account in our planning.

CORPORATE STRATEGY OPPORTUNITIES

We see opportunities for further organic growth in particular by selectively expanding our hotel portfolio, cruise business and the offering of our Destination Experiences segment. In the medium to long term, opportunities might arise from the expansion of our digital platforms and the associated growth in our customer base as well as the further individualisation of our holiday offerings for our customers. We also intend to benefit in the long term from demographic change and the resulting expected increase in demand for high-quality travel at an attractive price / performance ratio.

OPERATIONAL OPPORTUNITIES

We intend to further improve our competitive position by offering a differentiated product portfolio and further expanding controlled distribution in the source markets, in particular through online distribution and the TUI app. We also see operational opportunities arising from stronger integration of our Destination Experiences segment and tour operation business.

Business review

Macroeconomic, industry and market framework

Macroeconomic development

Development of World Output

Var. %

2019

2018

World

+ 3.0

+ 3.6

Eurozone

+ 1.2

+ 1.9

Germany

+ 0.5

+ 1.5

France

+ 1.2

+ 1.7

UK

+ 1.2

+ 1.4

US

+ 2.4

+ 2.9

Russia

+ 1.1

+ 2.3

Japan

+ 0.9

+ 0.8

China

+ 6.1

+ 6.6

India

+ 6.1

+ 6.8

Source: International Monetary Fund (IMF), World Economic Outlook,
October 2019

For calendar year 2019, the International Monetary Fund (IMF, World Economic Outlook, October 2018) expects economic growth of 3.0 %. Global production output thus delivered the lowest growth rate since the financial crisis, as rising geopolitical tension and growing trade conflicts increased uncertainty in international cooperation. Stabilising effects were created by monetary policy adjustments and a robust services sector, which supports growth in employment.

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 vote for Brexit, 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. The price of Brent oil stood at $ 60.78 per barrel as at 30 September 2019, down by around 28.5 % year-on-year in the course of FY 2019.

In Tourism, most risks relating to changes in exchange rates and price risks from fuel sourcing are hedged by derivatives. Information on hedging strategies and risk management as well as financial transactions and the scope of such transactions at the balance sheet date is provided in the sections Financial Position and Risk Report in the Management Report and the section Financial Instruments in the Notes to the consolidated financial statements.

Financial Position see page 76, Risk Report see page 40, and Financial instruments see Notes page 242.

Tourism remains a stable growth sector

TUI Group is a globally operating tourism provider. The trends in the international tourism market influence all fields of Group business. According to the United Nations World Tourism Organization (UNWTO), tourism comprises the activities of persons travelling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes. The key tourism indicators to measure market size are international tourism receipts and the number of international tourist arrivals. In 2018, international tourism receipts amounted to $ 1,451 bn, up by 4.4 % year-on-year, exceeding growth in global production output. International arrivals grew to 1.40 bn, an increase of 5.4 % year-on-year. Both indicators grew in 2018 and hence for the ninth conse­cutive year. (UNWTO, Tourism Highlights, 2019 edition) The growth trend continued in the first half of calendar year 2019. During that period, international tourism arrivals grew by 4 %. For 2019, growth of 3 % to 4 % year-on-year is expected (UNWTO, World Tourism Barometer, October 2019).

This growth was driven by a number of factors: the relatively stable global economy, a growing middle class in the emerging economies, technological progress, and low travel costs as well as easing of visa requirements. At 56 %, travel for holidays, recreation and other forms of leisure accounted for the majority of all international tourist arrivals. The tourism industry thus remains one of the most important sectors of the global economy: in terms of tourism exports (international tourism receipts plus passenger transport services), tourism still ranks third worldwide (UNWTO, Tourism Highlights, 2019 edition).

Change of international tourist arrivals vs. prior year in %

Var. %

2019*

2018

World

+ 4.4

+ 5.4

Europe

+ 4.2

+ 5.5

Asia and the Pacific

+ 6.2

+ 7.2

Americas

+ 1.8

+ 2.3

Afrika

+ 3.4

+ 7.0

Middle East

+ 8.1

+ 4.7

Source: UNWTO World Tourism Barometer, October 2019
* Period January till June

Refer to page 69 for the segmental performance.

Europe remained the largest and most mature tourism market in the world, accounting for 51 % of international tourist arrivals and 39 % of tourism receipts in 2018. Both indicators thus grew by 5 %. In terms of these indicators, Southern Europe and European countries bordering the Mediterranean were the world's largest tourism destinations, with some of them delivering double-digit growth rates. Five European countries - France, Spain, Italy, Germany and the United Kingdom - figured in the top ten international tourism destinations in 2018. These countries also figured in the top ten countries generating the highest international tourism receipts. The source markets display different levels of concentration in the tour operation market, with European source markets, in particular, currently undergoing a consolidation phase due to the insolvency of one of our key competitors.

HOTEL MARKET

Global hotel value sales reached € 525 bn at fixed exchange rate in 2018. Over the period 2018 - 2023, hotel value sales are expected to register a CAGR of 4 % at constant 2018 prices.

The overnight accommodation market comprises both hotels and alternative accommodation facilities such as apartments available for short-term rental. In 2019, the total market for overnight accommodation amounted to more than € 700 bn (Euromonitor International Travel, October 2019). Although the pace of growth of accommodation facilities beyond classical hotels has accelerated apace in the recent past, the hotel business continues to account for the biggest market share.

The hotel market is divided between business and leisure travel. A number of characteristics differentiate leisure travel hotels from business hotels, including longer average lengths of stay for guests in leisure hotels. Locations, amenities and service requirements also differ. From a demand perspective, the leisure hotel market in Europe is divided into several smaller sub-markets, which cater to the individual needs and preferences of tourists. These sub-markets include premium, comfort, budget, family / apartment, and club or resort-style hotels. Hotel companies may offer a variety of hotels for different sub-markets, often defined by price range, star ratings, exclusivity, or available facilities.

The upper end of the leisure hotel market is characterised by a high degree of sophistication and specialisation, with the assets managed by large international companies and investors. Luxury hotels, while only accounting for approx. 10 % of all hotels worldwide, generate nearly half of hotel revenues (Euromonitor International Travel, October 2019).

There are also many small, often family-run businesses, particularly in Europe, not quite so upscale and with fewer financial resources. Most family-owned and-operated businesses are not branded. Given the variety of models for owning and operating leisure hotels and the fragmented competition landscape which, at least in Europe, is not dominated by large hotel chains, conditions differ greatly between locations. Despite this strong fragmentation, a structural change in the hotel industry can be observed in Europe as well as in almost all regions of the world; more and more hotel companies are becoming part of a hotel chain or a cooperation.

Trends in the hotel industry include above all sustainability, digital solutions and the use of space for multiple purposes. These trends are also reflected in TUI's Hotels & Resorts segment. TUI's flagship hotel brand TUI Blue, for instance, places a big emphasis on digital features and is providing an app as digital service assistant and pioneering special booking options, such as 'Select Your Room'. TUI Hotels & Resorts is also committed to sustainability - a major proportion of the hotels in its portfolio are already certified as sustainable.

See also page 90

CRUISE MARKET

The global cruise industry generated revenues of around $ 45.6 bn in 2018, an increase of 4.6 % year-on-year. The global estimate suggests that altogether around 26.8 million guests will undertake an ocean cruise in calendar year 2019. At around 14.5 million passengers, the North American market remains the largest cruise market in the world, followed by around 6.9 million passengers from Europe (Cruise Market Watch Website, www.cruisemarketwatch.com /
growth). The most frequently visited destinations are the Caribbean with a share of 34.4 % of guests and the Mediterranean with 17.3 % of guests (CLIA, 2019 Cruise Trends & Industry Outlook).

In 2018, the European cruise markets recorded penetration rates varying from country to country but overall considerably lower than North America, the most mature cruise market in the world. Germany is Europe's largest cruise market, with 2.1 million passengers in 2018. At 2.5 %, its penetration rate was lower than in the United Kingdom & Ireland. The United Kingdom & Ireland is
the second largest cruise market in Europe, with approximately 2.0 million cruise passengers and Europe's strongest penetration rate of 3.0 % in 2018 (Cruise Market Watch Website, www.cruisemarketwatch.com/market-share, October 2018; CLIA, Cruise Industry Ocean Source Market Report - Australia, 2018). The European cruise sector remains an attractive industry, which will grow in line with the growth forecast for the entire tourism sector.

DESTINATION EXPERIENCES

The market for tours and activities in the destinations is the fastest-­growing tourism segment (Phocuswright, Euromonitor). Currently, the market remains highly fragmented on the supplier side and is predominantly operated offline. However, due to growing consolidation and digitalisation, it is subject to rapid change. With the acquisition of the Italian tech start-up Musement in FY 2019 and the acquisition of Hotelbeds' Destination Management division in the previous year, TUI Group is well positioned in the excursions, tours and activities business in the destinations. The combination of a single customer platform and cutting-edge technology enables the Group to present tailored offerings to its customers both before and during their holiday. Our platform comprises around 150 k excursions and activities, offered online both to TUI customers and third-party customers. This year, we also agreed to cooperate with Ctrip, China's leading online travel portal, in order to be able to offer our Destination Experiences to the Ctrip ­customers in future.

Strong TUI master brand

Our brand with the red 'smile' - the smiling logo formed by the three letters of our brand name TUI - stands for the TUI Group aspiration to ensure consistent customer experience, digital presence and competitive strength. In recent years, in order to further leverage the appeal and strength of our core brand and tap the associated growth potential, we have created a global branding and consistent brand experience. TUI is now among the best-known travel brands in our core European countries. Local rebranding with the rollout of the TUI brand has been very successful. Two years after rebranding in the last of the source markets, the UK, TUI has matched or surpassed the unaided brand awareness of the previous brands. Seeking to leverage the appeal of our high brand and market presence for our hotel concepts, we have established TUI Blue, a fast-growing core hotel brand integrating TUI into its name.

Group earnings

Comments on the consolidated income statement

TUI Group's earnings position weakened year-on-year in FY 2019. The operating result (underlying EBITA) of TUI Group's continuing operations declined by € 249.5 m to € 893.3 m in the period under review, or by 25.6 % year-on-year on a constant currency basis. This decline was driven in particular by external challenges in Markets & Airlines such as the grounding of ­Boeing 737 Max jets, overcapacities for flights to Spain and the ongoing uncertainty surrounding Brexit.

Income Statement of the TUI Group for the period from 1 Oct 2018 to 30 Sep 2019

€ million

2019

2018
adjusted

Var. %

Turnover

18,928.1

18,468.7

+ 2.5

Cost of sales

17,257.4

16,465.8

+ 4.8

Gross profit

1,670.7

2,002.9

- 16.6

Administrative expenses

1,219.4

1,291.3

- 5.6

Other income

21.3

67.4

- 68.4

Other expenses

22.5

3.5

+ 542.9

Impairment of financial assets

4.5

20.1

- 77.6

Financial income

119.7

83.8

+ 42.8

Financial expenses

171.4

165.5

+ 3.6

Share of result of joint ventures and associates

297.5

292.1

+ 1.8

Earnings before income taxes

691.4

965.8

- 28.4

Income taxes

159.5

190.9

- 16.4

Result from continuing operations

531.9

774.9

- 31.4

Result from discontinued operations

-

38.7

n. a.

Group profit

531.9

813.6

- 34.6

Group profit attributable to shareholders of TUI AG

416.2

727.2

- 42.8

Group profit attributable to non-controlling interest

115.7

86.4

+ 33.9

Turnover and cost of sales

Turnover

€ million

2019

2018
adjusted

Var. %

Hotels & Resorts

660.0

606.8

+ 8.8

Cruises

965.8

900.3

+ 7.3

Destination
Experiences

856.2

309.7

+ 176.5

Holiday Experiences

2,482.0

1,816.8

+ 36.6

Northern Region

6,345.2

6,457.7

- 1.7

Central Region

6,413.0

6,222.4

+ 3.1

Western Region

3,231.9

3,328.5

- 2.9

Markets & Airlines

15,990.1

16,008.6

- 0.1

All other segments

456.0

643.3

- 29.1

TUI Group

18,928.1

18,468.7

+ 2.5

TUI Group at
constant currency

18,959.5

18,468.7

+ 2.7

In FY 2019, turnover by TUI Group climbed by 2.5 % to € 18.9 bn. On a constant currency basis, turnover grew by 2.7 %. Alongside a year-on-year decrease in customer numbers of 0.6 % in the source markets, this primarily reflected capacity increases in the Cruises segment, higher average prices in the Hotels & Resorts segment and an increase in business volume due to the acquisition of Destination Management from Hotelbeds Group and of the Italian start-up Musement. In the income statement turnover is presented alongside the cost of sales, which was up by € 791.6 m in the period under review.

GROSS PROFIT

Gross profit, i. e. the difference between turnover and the cost of sales, fell by € 332.2 m year-on-year as a result of higher costs due to the grounding of Boeing 737 Max jets and the market environment in Markets & Airlines.

ADMINISTRATIVE EXPENSES

Administrative expenses declined by € 71.9 m year-on-year to € 1,219.4 m.

OTHER INCOME AND OTHER EXPENSES

In the financial year under review, other income mainly resulted from the sale of aircraft assets and buildings. In the prior year, other income had mainly resulted from the sale of three hotel companies and a hotel.

Other expenses include the loss on disposal from the sale of Corsair S. A. of € 12.0 m.

FINANCIAL RESULT

The financial result improved by € 30 m to € - 51.7 m. This was mainly driven by the reversal of provisions for interest payments in connection with the revaluation of tax obligations and by the reversal of foreign exchange hedges no longer required.

SHARE OF RESULT FROM JOINT VENTURES AND
ASSOCIATES

The result from joint ventures and associates comprises the net profit for the year contributed by these companies measured at equity. In the period under review, the at equity result totalled € 297.5 m.

RESULT FROM CONTINUING OPERATIONS

The result from continuing operations declined by € 243.0 m to € 531.9 m in FY 2019.

RESULT FROM DISCONTINUED OPERATIONS

In the prior year, the result from discontinued operations derived from changes in amounts directly associated with the sale of Hotelbeds Group and Specialist Group.

GROUP PROFIT

Group profit fell year-on year-by € 281.7 m to € 531.9 m.

SHARE IN GROUP PROFIT ATTRIBUTABLE TO TUI AG SHAREHOLDERS

The share in Group profit attributable to the TUI AG shareholders decreased by € 311.0 m to € 416.2 m in FY 2019. The decrease was primarily driven by the impact of the grounding of 737 Max jets in Markets & Airlines.

NON-CONTROLLING INTERESTS

Non-controlling interests in Group profit for the year totalled € 115.7 m. They mainly related to RIUSA II Group.

EARNINGS PER SHARE

The interest in Group profit for the year attributable to TUI AG shareholders after deduction of non-controlling interests totalled € 416.2 m in FY 2019 (previous year € 727.2 m). Basic earnings per share therefore amounted to € 0.71 (previous year € 1.17) in FY 2019.

Alternative Performance INDICATORS

The table below shows the reconciliation of earnings before tax from continuing operations to underlying EBITA.

Reconciliation to underlying earnings from continuing operations

€ million

2019

2018
adjusted

Var. %

Earnings before income taxes from continuing operations

691.4

965.8

- 28.4

plus: Net Interest expense

74.1

82.3

- 10.0

plus: Expense from the measurement of interest hedges

2.9

6.4

- 54.7

EBITA from continuing operations

768.4

1,054.5

- 27.1

Adjustments:

 

 

 

less: Gain / plus: Loss on disposal

12.0

- 2.1

n. a.

plus: Restructuring expense

52.0

34.9

+ 49.0

plus: Expense from purchase price allocation

38.8

33.3

+ 16.5

plus: Expense from other one-off items

22.1

22.2

- 0.5

Underlying EBITA from continuing operations

893.3

1,142.8

- 21.8

We define EBITA as earnings before interest, income taxes and goodwill impairments. EBITA includes amortisation of other intangible assets. It does not include the result from the measurement of interest hedges. TUI Group's EBITA declined by € 286.1 m to € 768.4 m due to weaker business performance in FY 2019.

EBITA

€ million

2019

2018
adjusted

Var. %

Hotels & Resorts

442.6

420.0

+ 5.4

Cruises

366.0

323.9

+ 13.0

Destination
Experiences

34.7

42.6

- 18.5

Holiday Experiences

843.3

786.5

+ 7.2

Northern Region

33.0

245.3

- 86.5

Central Region

60.4

73.5

- 17.8

Western Region

- 44.4

100.0

n. a.

Markets & Airlines

49.0

418.8

- 88.3

All other segments

- 123.9

- 150.7

+ 17.8

TUI Group

768.4

1,054.5

- 27.1

Discontinued operations

-

38.7

n. a.

Total

768.4

1,093.2

- 29.7

In order to explain and evaluate the operating performance of the segments, earnings adjusted for special one-off effects (underlying EBITA) are presented below. Underlying EBITA has been adjusted for gains / losses on disposal of financial investments, restructuring expenses according to IAS 37, all effects from purchase price allocations, ancillary acquisition costs and conditional purchase price payments and other expenses for and income from one-off items.

One-off items carried here include adjustments for income and expense items which are large or frequent enough to hamper or distort an evaluation of operating profitability in the segments and the Group. These items include in particular major restructuring and integration expenses not meeting the criteria of IAS 37, material expenses for litigation, gains and losses from the sale of aircraft and other material business transactions with a one-off character.

TUI Group's underlying EBITA declined by € 249.5 m to € 893.3 m in FY 2019.

Underlying EBITA

€ million

2019

2018
adjusted

Var. %

Hotels & Resorts

451.5

420.0

+ 7.5

Cruises

366.0

323.9

+ 13.0

Destination
Experiences

55.7

45.6

+ 22.1

Holiday Experiences

873.2

789.5

+ 10.6

Northern Region

56.8

278.2

- 79.6

Central Region

102.0

94.9

+ 7.5

Western Region

- 27.0

124.2

n. a.

Markets & Airlines

131.8

497.3

- 73.5

All other segments

- 111.7

- 144.0

+ 22.4

TUI Group

893.3

1,142.8

- 21.8

TUI Group at
constant currency

879.9

1,182.8*

- 25.6

* Rebased previous year's number adjusted for € 40 m in 2018, arising from
the revaluation of Euro loan balances within Turkish hotel entities.

In FY 2019, income of € 35.5 m from the reduction of pension obligations in the United Kingdom, the sale of aircraft assets and the reversal of provisions was adjusted for. This was offset by expenses of € 38.8 m from purchase price allocations and other adjusted expenses of € 121.6 m. They mainly related to the following items and circumstances:

Losses ON DISPOSAL

In FY 2019, losses on disposal of financial assets worth € 12.0 m had to be adjusted for following the sale of the French airline ­Corsair.

RESTRUCTURING COSTS

In FY 2019, restructuring costs of € 52.0 m had to be adjusted for. They mainly resulted from restructurings in Germany and the UK.

EXPENSES FOR PURCHASE PRICE ALLOCATIONS

Expenses for purchase price allocations related in particular to scheduled amortisation of intangible assets from acquisitions made in previous years.

ONE-OFF ITEMS

Net expenses for one-off items amounted to € 22.1 m and included an amount of around € 17 m relating to Holiday Experiences. This mainly related to costs for reorganisations in the Destination Experiences segment as well as in the United Kingdom, the Nordic countries, Germany and France.

OTHER SEGMENT INDICATORS

Reconciliation to EBITDAR (continuing operations)

€ million

2019

2018
adjusted

Var. %

EBITA

768.4

1,054.5

- 27.1

Amortisation (+) / write-backs (-) of other intangible assets and depreciation (+) /
write-backs (-) of property, plant and equipment

509.0

439.8

+ 15.7

EBITDA

1,277.4

1,494.3

- 14.5

Long-term rental, leasing and leasing expenses

713.0

721.5

- 1.2

EBITDAR

1,990.4

2,215.8

- 10.2

 

EBITDA and underlying EBITDA

 

EBITDA

Underlying EBITDA*

€ million

2019

2018
adjusted

Var. %

2019

2018
adjusted

Var. %

Hotels & Resorts

554.3

518.8

+ 6.8

563.3

518.9

+ 8.6

Cruises

457.6

398.3

+ 14.9

457.6

398.3

+ 14.9

Destination Experiences

62.2

53.3

+ 16.7

71.2

54.8

+ 29.9

Holiday Experiences

1,074.1

970.4

+ 10.7

1,092.1

972.0

+ 12.4

Northern Region

110.4

305.6

- 63.9

114.6

326.7

- 64.9

Central Region

84.8

101.3

- 16.3

123.7

115.9

+ 6.7

Western Region

- 18.0

122.4

n. a.

- 5.9

142.4

n. a.

Markets & Airlines

177.2

529.3

- 66.5

232.4

585.0

- 60.3

All other segments

26.1

- 5.4

n. a.

35.0

- 2.2

n. a.

TUI Group

1,277.4

1,494.3

- 14.5

1,359.5

1,554.8

- 12.6

Discontinued operations

-

38.7

n. a.

-

-

-

Total

1,277.4

1,533.0

- 16.7

1,359.5

1,554.8

- 12.6

* Adjustments according to reconciliation from page 67, excluding amortiasation and write-backs

Segmental performance

Holiday Experiences

Holiday Experiences

€ million

2019

2018
adjusted

Var. %

Turnover

2,482.0

1,816.8

+ 36.6

Underlying EBITA

873.2

789.5

+ 10.6

Underlying EBITA
at constant currency*

859.1

829.5*

+ 3.6

* Rebased previous year's numbers adjusted for € 40 m in 2018, arising from the ­revaluation of Euro loan balances within Turkish hotel entities.

Hotels & Resorts

€ million

2019

2018
adjusted

Var. %

Total turnover

1,511.7

1,389.7

+ 8.8

Turnover

660.0

606.8

+ 8.8

Underlying EBITA

451.5

420.0

+ 7.5

Underlying EBITA at
constant currency rates

437.5

460.01

- 4.9

Capacity hotels total2
('000)

42,094

39,428

+ 6.8

Riu

18,056

17,503

+ 3.2

Robinson

3,333

3,095

+ 7.7

Blue Diamond

4,379

3,638

+ 20.4

Occupancy rate hotels total3 (in %, variance
in % points)

82

83

- 1

Riu

88

89

- 1

Robinson

73

71

+ 2

Blue Diamond

77

80

- 3

Average revenue per bed hotels total4
(in €)

66

63

4.6

Riu

64

64

+ 0.2

Robinson

93

93

+ 0.3

Blue Diamond

118

111

+ 5.8

Turnover measures include fully consolidated companies, all other KPIs incl. ­companies measured at equity.

1 Rebased previous year's number adjusted for € 40 m in 2018, arising from
the revaluation of Euro loan balances within Turkish hotel entities.

2 Group owned or leased hotel beds multiplied by opening days per year

3 Occupied beds divided by capacity

4 Arrangement revenue divided by occupied beds

  • Our diversified hotel portfolio of multiple destinations delivered total earnings of € 437.5 m, down € 23 m at constant currency, against a prior year rebased underlying EBITA which included € 43 m net gain on disposal in Riu. Our industry-leading occupancy rate remained high at 82 % demonstrating the popularity of our portfolio of brands and destinations, as well as the success of our integrated model which funnels a significant proportion of our Markets & Airline customers to our owned content, underpinned by the high level of direct distribution across our markets. Average rate increased by 5 % to € 66, driven by improving rates in Turkey versus prior year.
  • As anticipated, we saw demand in the year for Spain normalising with both rates and occupanies coming off record highs, which has been partly offset by better results in our Turkish and North African hotels as demand returned to these regions. Reflecting the normalisation in Spain, occupancy at Riu declined 1 % point to 88 % versus prior year, with improved occupancies in the ­Caribbean offset by the lower occupancies in the Canaries. ­Average rate remained in line with prior year at € 64.
  • Robinson saw a strong operational performance across the year, driven by the addition of a new hotel in Turkey, increased demand for clubs in Turkey and North Africa in particular and the reopening of our flagship hotel Jandia Playa in Fuerteventura which was closed last year for renovation. Occupancy grew by 2 % points to 73 % with average rate in line with prior year at € 93.
  • Blue Diamond earnings declined in the year from higher interest and depreciation costs of our new properties and lower occupancy rates across the portfolio, particularly from reduced demand to our Dominican Republic and Mexican properties. Occupancy rate fell 3 % points to 77 % and average rate was up 6 % including FX and flat excluding FX.
  • Our Other hotel brands benefitted from a good performance in Greece during the year and strong performance across our Turkish and North African hotels, as demand returned to the two latter regions.
  • In line with our growth strategy, we opened 25 hotels in the year, totaling 70 openings since merger, well ahead of the original target set. Around two thirds of our around 70 openings since merger are lower capital intensity, (operated under either a management or franchised contract or owned with JV partner).

Cruises

€ million

2019

2018
adjusted

Var. %

Turnover1

965.8

900.3

+ 7.3

Underlying EBITA

366.0

323.9

+ 13.0

Underlying EBITA
at constant currency

366.7

323.9

+ 13.2

Occupancy
(in %, variance
in % points)

 

 

 

TUI Cruises

100.7

100.8

- 0.1

Marella Cruises

100.4

100.9

- 0.5

Hapag-Lloyd Cruises

78.9

78.3

+ 0.6

Passenger days ('000)

 

 

 

TUI Cruises

6,138

5,194

+ 18.2

Marella Cruises

3,298

2,953

+ 11.7

Hapag-Lloyd Cruises

332

352

- 5.7

Average daily rates2
(in €)

 

 

 

TUI Cruises

174

178

- 2.2

Marella Cruises3 in £

149

141

+ 5.7

Hapag-Lloyd Cruises

641

615

+ 4.2

1 No turnover is carried for TUI 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

  • FY 2019 was another strong year of growth for our Cruise segment, with underlying EBITA increasing by € 43 m to € 367 m at constant currency. Each of our three leading cruise brands in Germany and UK launched a ship in the year, delivering continued high occupancy and robust average daily rates across the fleet. The development reflected the successful and high performing joint venture structure of TUI Cruises as well as strong performances by Marella and Hapag-Lloyd Cruises, our fully-owned subsidiaries.
  • TUI Cruises (our joint venture with Royal Caribbean in the German speaking market) delivered a strong result versus prior year reflecting as expected, the increased capacity of 18 % during the year (New Mein Schiff 1 launch in H2 of FY 2018 and new Mein Schiff 2 launch in February 2019). Average daily rate of € 174 was down 2 % versus prior year, reflecting in part, the early delivery of Mein Schiff 2 in low yield season, the late marketing of Mein Schiff Herz and our itinerary mix, with one further ship in the Mediterranean this year which typically commands a lower yield. Occupancy remained high at 101 %, in line with prior year, demonstrating the sustained demand for our German language, premium all-inclusive product, particularly against a German cruise market which saw significant increase in capacity during the year.
  • Marella Cruises (our UK cruise brand) saw the annualisation of earnings from Marella Explorer 1 and addition of Marella Explorer 2 from May 2019, partially offset by Marella Spirit which exited the fleet in October 2018. Fleet occupancy remained high at 100 % and average daily rate increased 6 % versus prior year to £ 149, as we continued to deliver our modernisation programme and expansion in line with the UK cruise market.
  • Hapag-Lloyd Cruises (our luxury and expedition brand) saw the departure of the old Hanseatic in the Autumn of 2018 and addition of Hanseatic nature in May 2019. Occupancy remained strong at 79 % in line with prior year and average daily rate increased by 4 % to € 641 reflecting the higher yield of our newer addition to the fleet.

Destination Experiences

€ million

2019

2018
adjusted

Var. %

Total turnover

1,231.4

600.3

+ 105.1

Turnover

856.2

309.7

+ 176.5

Underlying EBITA

55.7

45.6

+ 22.1

Underlying EBITA
at constant currency

54.9

45.6

+ 20.4

  • Destination Experiences saw the first full-year inclusion of our Destination Management and Musement businesses which were acquired in 2018. There was significant growth in customer volumes as result, particularly in North Africa, South East Asia, Australia and Caribbean with tours and excursions sold more than doubling versus prior year.

Markets & Airlines

Markets & Airlines

€ million

2019

2018
adjusted

Var. %

Turnover

15,990.1

16,008.6

- 0.1

Underlying EBITA

131.8

497.3

- 73.5

Underlying EBITA
at constant currency

138.1

497.3

- 72.2

Net Promoter Score1
(in %, variance
in % points)

53

50

+ 3.0

Direct distribution mix2
(in %, variance
in % points)

74

74

-

Online distribution mix3
(in %, variance
in % points)

48

48

-

Customers4 ('000)

21,075

21,198

- 0.6

1 NPS is measured in customer satisfaction questionnaires completed post-holiday. It is based on the question 'On a scale of 0 to 10 where 10 is extremely likely
and 0 ist not at all likely, how likely is it that you would recommend the brand to a friend, colleague or relative?' and is calculated by taking the percentage of
promoters (9s and 10s) less the percentage of detractors (0s through 6s).

2 Share of sales via own channels (retails and online)

3 Share of online sales

4 In Q1 2019, the Italian tour operators were transferred from All other segments to the Central Region. In addition, the Crystal Ski companies, which provide services in the destinations, were reclassified from Northern Region to Destination Experiences.

  • During FY 2019 our Markets & Airlines business experienced a number of external challenges, most significantly from the Boeing 737 Max grounding, compounded by the continued weaker consumer confidence from ongoing Brexit uncertainty, the knock-on impact of the Summer 2018 heatwave resulting in delayed customer bookings and reduced pricing and margin pressure from airline overcapacities to Spain.
  • As a result, in line with our communications during the course of the year, many of our markets saw their earnings decline in the year, with overall Markets & Airlines underlying EBITA down € 359 m at constant currency, including Boeing 737 Max impact of € 293 m. The Summer 2019 programme closed out well with bookings and capacity in line with the prior year however the average selling price increase was insufficient to cover our cost headwinds in the year. Overall customer volumes declined slightly by 0.6 % year on year with customer growth in Central Region offset by reductions in both Northern and Western regions. Both direct and online distribution mix remained stable at 74 % and 48 % respectively. There was a strong increase in our net promoter score to 53, from 50, which evidences our continued priority and focus on our customer holiday experiences as well as the strong appeal for our differentiated customer offers.
  • These ongoing market challenges saw the bankruptcy of one of our key competitors at the end of Summer 2019, and in recognition of these continuing headwinds, we have set up a Markets & Domain Transformation Board to deliver our Markets Transformation Programme (MTP) to continually improve our market competiveness. The programme will be jointly led by our regional MD's and our key digital experts and will focus on delivering enhanced CRM, driving digital upselling through mass-individualisation and differentiation, harmonisation of our product and purchasing, mobile distribution and common IT platforms as well as increasing our airline efficiency, to protect and where possible, extend our strong core market positions.

Northern Region

€ million

2019

2018
adjusted

Var. %

Turnover

6,345.2

6,457.7

- 1.7

Underlying EBITA

56.8

278.2

- 79.6

Underlying EBITA
at constant currency

63.7

278.2

- 77.1

Direct distribution mix1
(in %, variance
in % points)

94

93

+ 1

Online distribution mix2
(in %, variance
in % points)

67

66

+ 1

Customers ('000)

7,428

7,566

- 1.8

1 Share of sales via own channels (retail and online)

2 Share of online sales

The Northern Region comprises UK, Nordics and the joint ventures in Canada as well as the associated company in Russia.

  • In the UK, demand across the year was impacted by the factors outlined above. The grounding of the Boeing 737 Max increased costs by € 121 m and the insolvency of relevant competitor led to bad debt costs of € 10 m in the final quarter. Customer volumes declined slightly by 0.7 % on prior year, resulting in significantly lower margin for the year.
  • Nordics, as flagged from the beginning of the financial year, was the most impacted by the reduced demand due to Summer 2018 heatwave, with a 6 % decline in customer volumes and load factor reduction. During the course of the year, as part of the drive for greater efficiency in aviation, the business announced plans to move short-haul air operations to external airlines at three bases in Scandinavia. The Boeing 737 Max grounding led to costs of € 33 m for the region.
  • Share of earnings in Canada decreased, primarily from Boeing 737 Max grounding impact which cost € 16 m.
  • These factors were partly offset by a € 29 m hedge gain which crystalised during Q1 which was no longer required.

Central Region

€ million

2019

2018
adjusted

Var. %

Turnover

6,413.0

6,222.4

+ 3.1

Underlying EBITA

102.0

94.9

+ 7.5

Underlying EBITA
at constant currency

101.5

94.9

+ 7.0

Direct distribution mix1
(in %, variance
in % points)

50

50

-

Online distribution mix2
(in %, variance
in % points)

22

22

-

Customers3 ('000)

7,830

7,778

+ 0.7

1 Share of sales via own channels (retail and online)

2 Share of online sales

3 In Q1 2019, the Italian tour operators were transfered from All other segments to the Central Region. Prior-year figures were adjusted accordingly.

Central Region comprises Germany and Austria (operated as one market), Switzerland, Italy and Poland.

  • Similarly, in Germany, demand was impacted by the factors outlined above, in particular from airline overcapacities to Spain, resulting in a decline of customer volume by 1 %. The grounding of the Boeing 737 Max increased costs by € 27 m, partially offset by the non-repeat of the Niki bankruptcy in the prior year of € 20 m, with the insolvency of relevant competitor incurring € 2 m of bad debt costs. Both direct and online distribution remained stable 50 % and 22 % respectively.
  • Switzerland saw demand negatively impacted in line with our key markets. In contrast, Poland continues its growth trajectory with customer volumes growing 17 % at good margins.

Western Region

€ million

2019

2018
adjusted

Var. %

Turnover

3,231.9

3,328.5

- 2.9

Underlying EBITA

- 27.0

124.2

n. a.

Underlying EBITA
at constant currency

- 27.1

124.2

n. a.

Direct distribution mix1
(in %, variance
in % points)

75

73

+ 2

Online distribution mix2
(in %, variance
in % points)

57

55

+ 2

Customers ('000)

5,816

5,854

- 0.6

1 Share of sales via own channels (retail and online)

2 Share of online sales

Western Region comprises Belgium, Netherlands and France.

  • In line with our other markets, Belgium and Netherlands were impacted by the factors outlined above. Customer volumes in Belgium grew 3 % largely driven by seat-only customers, with tour operator customers and underlying EBITA outside of the Boeing 737 Max impact down. Netherlands saw customer volume decline by 0.2 % with pricing and margin weak throughout the year. Boeing 737 Max impact for the two regions totalled € 96 m. Online and direct distribution continue to grow, increasing to 57 % and 75 % respectively.
  • Despite our best efforts to turn around our business in France, the region saw a contracting tour operation market, reducing the impact of our rebranding campaign in the beginning of the calendar year. The knock-on impact from the extraordinarily hot Summer in the prior year continued to be a factor in FY 2019, with good weather again limiting demand in the region. Customer volumes disappointingly declined by 13 % across the year, combined with additional costs arising from the insolvency of competitor, saw a weaker result versus prior year.

All other segments

All other segments

€ million

2019

2018
adjusted

Var. %

Turnover

456.0

643.3

- 29.1

Underlying EBITA

- 111.7

- 144.0

+ 22.4

Underlying EBITA
at constant currency

- 117.3

- 144.0

+ 18.5

This segment comprises the business operations for new markets and in particular the central corporate functions and interim holdings of TUI Group, as well as central tourism functions such as information technology. To better reflect airline economic benefits in their respective regions, the underlying EBITA from the intercompany leasing of aircraft from the Group's central aircraft leasing function (which sits within All other segments) has been reallocated to the respective airlines (Northern Region, Central Region and Western Region). The previous year's figures have been restated accordingly to provide a like-for-like comparison.

The segment on this new basis, saw costs decrease by € 27 m at constant currency, driven by various one-off cost savings across central group functions.

Please refer to page 191 for further details on the reallocation.

Net assets

Development of the Group's asset structure

€ million

30 Sep 2019

30 Sep 2018 adjusted

Var. %

Fixed assets

11,044.4

9,830.7

+ 12.3

Non-current
receivables

913.0

820.1

+ 11.3

Non-current assets

11,957.4

10,650.8

+ 12.3

Inventories

114.7

118.5

- 3.2

Current receivables

2,407.3

2,268.0

6.1

Cash and cash
equivalents

1,741.5

2,548.0

- 31.7

Assets held for sale

50.0

5.5

+ 809.1

Current assets

4,313.5

4,940.0

- 12.7

Assets

16,270.9

15,590.8

+ 4.4

Equity

4,165.3

4,275.6

- 2.6

Liabilities

12,105.6

11,315.2

+ 7.0

Equity and liabilities

16,270.9

15,590.8

+ 4.4

The Group's balance sheet total increased by 4.4 % year-on-year to € 16.3 bn.

Vertical structural indicators

Non-current assets accounted for 73.5 % of total assets, compared with 68.3 % in the previous year. The capitalisation ratio (ratio of fixed assets to total assets) increased from 63.1 % to 67.9 %.

Current assets accounted for 26.5 % of total assets, compared with 31.7 % in the previous year. The Group's cash and cash equivalents decreased by 31.7 % year-on-year to € 1,741.5 m. They thus accounted for 10.7 % of total assets, as against 16.3 % in the previous year.

Horizontal structual indicators

At the balance sheet date, the ratio of equity to non-current assets was 34.8 %, as against 40.1 % in the previous year. The ratio of equity to fixed assets was 37.7 % (previous year 43.5 %). The ratio of equity plus non-current financial liabilities to fixed assets was 60.0 %, compared with 66.4 % in the previous year.

Development of the Group's non-current assets

Structure of the Group's non-current assets

€ million

30 Sep 2019

30 Sep 2018 adjusted

Var. %

Goodwill

2,985.8

2,913.1

+ 2.5

Other intangible
assets

710.6

643.2

+ 10.5

Property, plant and equipment

5,840.4

4,876.3

+ 19.8

Companies measured at equity

1,507.6

1,398.1

+ 7.8

Fixed assets

11,044.4

9,830.7

+ 12.3

Receivables and
assets

711.0

592.1

+ 20.1

Deferred tax claims

202.0

228.0

- 11.4

Non-current receivables

913.0

820.1

+ 11.3

Non-current assets

11,957.4

10,650.8