TUI AG: 1st Quarter Results 2018

QUARTERLY STATEMENT 
Q1 2018

TUI Group - financial highlights

Q1 Highlights

• We have delivered a good start to the year. Q1 turnover increased by 9 %1 to EUR 3,581 m and underlying EBITA improved by EUR 35 m to - EUR 25 m. Growth was delivered with strong demand for our Holiday Experiences and a good portfolio performance by Sales & Marketing.
• We have simplified our segmental reporting. Destination Services 
  is a key part of our customers' holiday experience, handling over 24 million transfers each year, and delivering tours and activities for 4.6 million guests. The results of this business were previously 
  re­­ported in Other Tourism. Given its strategic importance, in particular as we deliver the benefits of our One CRM initiative, Destination Services is now reported separately in the segmental results, and within Holiday Experiences (together with Hotels & Resorts and Cruises). Other Tourism and All Other Segments have been combined into one segment. There are no changes to the total numbers.

• As well as growth in Holiday Experiences and a good portfolio performance by Sales & Marketing (including the non-repeat of last year's higher than normal levels of sickness in TUI fly), the Q1 result was influenced by the following specific items:
  • EUR 38 m gain on disposal of three Riu hotels.
  • EUR 20 m adverse impact of the bankruptcy of Niki to whom TUI fly previously leased crew and aircraft.
  • In addition, the variance in all other segments above reflects planned extended aircraft maintenance in Corsair.

New TUI Cruises ship - Spring 2023

Our TUI Cruises joint venture will continue to expand its cruise fleet, with the addition of a new 2,894 berth ship in Spring 2023. The ship, which will be a sister ship to the 2018 and 2019 launches, will be fully financed by the joint venture, with no additional capital expenditure requirement from TUI Group. This will enable TUI Cruises to enhance the customer experience with a greater range of innovative and envir­onmentally sound ships and itineraries, thereby continuing its participation in the high growth German cruise market.

Outlook

• We have delivered a good start to the financial year, with growth 
  in our Holiday Experiences and a good portfolio performance in Sales & Marketing.
• We will continue to deliver our growth strategy as set out in December 2017, through market demand, digitalisation and investments.
• Current trading is progressing in line with our expectations and we are well positioned to deliver at least 10 % underlying EBITA growth in FY181.
• We are delivering our ambition - strong strategic positioning, strong earnings growth and strong cash generation, with underlying EBITA doubling between FY14 and FY201.

1 Assuming constant foreign exchange rates are applied to the result in the current and prior period.

Current Trading

Holiday Experiences

Demand remains strong for the Western Mediterranean and Caribbean (despite hurricane disruption and reflecting demand from North America) and continues to improve for Turkey and North Africa, in particular from Sales & Marketing . We are delivering further expansion of our own hotel brands, with eight openings in Winter 2017 / 18 and seven further openings in Summer 2018. At the same time we continue to streamline the existing portfolio, with the disposal of three Riu hotels in Q1 and five further repositionings under the TUI Blue and TUIMagic Life brands in FY18. In addition, the Robinson Club Jandia Playa in Fuerteventura is undergoing renovation and will be closed for most of FY18.

In Cruises new launches are scheduled for TUI Cruises, Marella Cruises and Hapag-Lloyd Cruises in 2018 and 2019, as well as the new build just announced for TUI Cruises in Spring 2023. Demand for our cruises remains strong, with an increase in yield in all three brands. In Marella, Majesty left the fleet in November 2017 and Spirit will leave the fleet after Summer 2018.

Volumes in Destination Services develop in line with our Sales & Marketing business. We are opening a new destination management company (DMC) this April in Jamaica, and will continue to develop our destination portfolio.

Sales & Marketing

Sales & Marketing continues to progress well. Winter 2017 / 18 revenues are up 6 % on prior year, with bookings up 3 %. There is strong growth in bookings for North Africa, Thailand, Cape Verde and Cyprus. Long haul continues to grow, although demand for the Caribbean from Sales & 
Marketing has remained subdued post hurricanes.

In Northern Region, Nordics bookings continue to grow strongly (+ 5 %) with higher pricing (+ 3 % on average) and margins reflecting strong demand for our holidays, remixed destination portfolio and the introduction of the Cyrus yield management system. In the UK, demand is resili­ent. Bookings for Winter 2017 / 18 are down 4 % (or down 3 % including cruise) versus a very strong prior year comparative of + 12 % (including cruise). Load factor is slightly ahead of prior year, with a small reduction of risk capacity in line with demand. Average selling price is up 8 %, reflecting the ongoing impact of the weaker Pound Sterling, which con­tinues to result in more normalised trading margins.

In Central Region, bookings in Germany are up significantly on prior year (+ 8 %), as we continue to build market share. Average selling price is up 1 %. There is particularly strong demand for Canaries as well as recovery in demand for North Africa, especially Egypt. In addition, long haul volumes continue to grow, including to Thailand as a result of the opening of the new Robinson club. Switzerland and Poland are also performing well.

In Western Region, bookings in Belgium and Netherlands are ahead of prior year (+ 4 % overall) with a strong load factor performance. Average selling price is up 2 %. In France bookings are impacted by subdued demand for the Caribbean post hurricanes, however, load factor remains ahead of prior year as a result of prudent risk capacity management. We remain focussed on improving the underlying result in France this year, and on the delivery of synergies from the Transat acquisition.

Looking ahead, Summer 2018 has started well. The programme is 35 % sold, in line with prior year, with revenues up 8 % and bookings up 6 %. Growth is driven by higher bookings for Greece, Turkey and Cyprus. In addition, although it is generally less significant as a destination in Summer compared with Winter, there is also higher demand for North Africa. At this relatively early stage, bookings in all three regions are up versus prior year, with a particularly strong start in Nordics, Germany and Benelux. In the UK, where the programme is 41 % sold, the rebrand continues to drive up unaided awareness of TUI. UK bookings are broadly in line with prior year (- 1 %), with average selling price up 3 %.

Consolidated earnings

Segmental performance

Holiday Experiences

• Hotels & Resorts delivered a further improvement in occupancy and average revenue per bed in the quarter, driven by the strength of our portfolio of destinations, new hotel openings, and our integrated model.
• Seven new hotels were opened in the quarter, bringing the total opened since merger to 35.
• We also continued to streamline our existing portfolio. Three hotels were sold by Riu in the quarter, realising a gain of EUR 38 m. In addition, four hotels will be repositioned from Sensimar to TUI Blue, and a club will be repositioned from Robinson to TUI Magic Life.

• Riu delivered further improvement in operational result, with a strong occupancy rate of 85 % and average revenue per bed increase of 1 %, despite disruption in the Caribbean caused by hurricanes. The new Riu Dunamar hotel was opened in Mexico during Q1.
• Robinson's performance was in line with prior year, with occupancy reflecting the ramp up of two new clubs in Thailand and the Maldives.
• Blue Diamond delivered further growth in earnings, despite hurricane disruption, through reduced costs and higher average revenue per bed across the hotel portfolio.
• Demand continues to improve for our hotels in Turkey and North Africa, driving a better operational performance.

• The Cruises underlying EBITA result increased in the quarter, with a strong yield performance across all three brands and capacity additions.
• TUI Cruises earnings increased due to the addition of Mein Schiff 6 in May 2017, with a continued strong performance across the rest of the fleet.
• Marella Cruises earnings increased primarily due to the addition 
  of Marella Discovery 2 in May 2017. Majesty exited the fleet in 
  Q1 (November 2017).
• Hapag-Lloyd Cruises earnings decreased slightly due to year on year dry dock effects. The underlying performance continues to be strong.

• Destination Services delivered a good operational performance, with a strong increase in turnover.
• Overall arrivals grew by 3 % and excursions grew by 2 %.
• The underlying EBITA result reflects a change in operating model leading to a shift in earnings to Q3 and Q4.

Sales & Marketing

• Sales & Marketing delivered a good portfolio performance overall. Turnover grew by 9.0 % at constant currency rates, driven by the 4.4 % increase in customer volumes as well as higher selling prices in the UK primarily as a result of currency cost inflation.
• Direct and online distribution mix also continued to increase, to 74 % and 48 % respectively.

• Nordics delivered a significant increase in earnings in the quarter. This was driven by strong trading, the TUI rebrand, implementation of Cyrus yield management and One CRM, improvements to the destination mix and delivery of operational efficiencies.
• In the UK, we continue to see strong demand for our holidays. The TUI rebrand is progressing very well, with a significantly increased level of unaided awareness. The result for the quarter reflects higher levels of marketing expenditure in association with the rebrand.
• The UK continues to deliver healthy trading margins, normalising compared with recent years in line with our expectations as a result of currency cost inflation.
• Our Canadian joint venture delivered a good performance in the quarter, with further growth in earnings.

• Germany continues to see strong demand for holidays, with volumes up 6 % in Q1 and continued growth in market share. German direct and online distribution mix improved further this quarter, to 48 % and 20 % respectively.
• In addition, we commenced the introduction in Germany, Austria and Switzerland of our Cyrus yield management system.
• The Central Region result reflects the non-repeat of last year's sickness event in TUI fly (EUR 24 m benefit). This was offset partly by the write-off of EUR 20 m wet lease receivable as a result of the Niki insolvency.
• Following the insolvencies of Air Berlin and Niki, TUI fly has taken back some aircraft and crew, with the remainder being wet leased out under a new agreement. For Q1, there has been some impact on the airline cost base which was not fully recovered through trading and efficiency, however, we expect this to improve over time.

• The Benelux result improved on prior year, with an increase in customer volumes of 6 % and the non-repeat of rebrand costs for Belgium and issues surrounding night flying from Schiphol in Netherlands.
• The French result decreased on prior year as a result of the inclusion for a full quarter of the losses of Transat, acquired at the end of October 2016.

• The result for all other segments now includes those results other than Destination Services which were previously in Other Tourism.
• The variance on prior year reflects the impact of extended planned aircraft maintenance in Corsair.

Cash flow / Net capex and investments / Net debt

The cash outflow from operating activities decreased by EUR 181 m to EUR 1,320 m. The net debt position of the continuing operations improved by EUR 644 m to EUR 874 m. The year-on-year improvement was attributable mainly to the receipt of disposal proceeds not yet fully reinvested.

* Excluding effects from Hotelbeds disposal.

The decline in net capex and investments was mainly driven by the acquisition of Transat last year and the sale of three Riu hotels in Q1 2018.

Foreign Exchange / Fuel

Our strategy of hedging the majority of our jet fuel and currency requirements for future seasons, as detailed below, remains unchanged. This gives us certainty of costs when planning capacity and pricing. The following table shows the percentage of our forecast requirement that is currently hedged for Euros, US Dollars and jet fuel for Sales & Marketing, which account for over 90 % of our Group currency and fuel exposure.

Income statement

Cash flow statement

Financial position

Alternative performance measures

Key indicators used to manage the TUI Group are EBITA and underlying EBITA.

EBITA comprises earnings before interest, income taxes and goodwill impairments and excluding the result from the measurement of interest hedges. EBITA includes amortisation of other intangible assets.

We consider underlying EBITA to be the most suitable performance indicator for explaining the development of the TUI Group's operating performance. Underlying EBITA has been adjusted for gains on disposal of financial investments, expenses in connection with restructuring measures according to IAS 37, all effects of purchase price allocations, ancillary acquisition cost and conditional purchase price payments and other expenses for and income from one-off items.

The table below shows the reconciliation of earnings before tax from continuing operations to underlying earnings. In Q1 2018, adjustments (including one-off items and purchase price allocations for continuing operations) totalled EUR 20.2 m. This increase of EUR 11.0 m versus the prior year was primarily attributable to restructuring costs incurred in the period under review for the integration process in France.

The improvement in the interest result in Q1 2018 was mainly driven by the improvement in net debt position and lower interest rates.

Adjustments include one-off income and expense items impacting or distorting the assessment of the operating profitability of the segments and the Group due to their level and frequency. These items primarily include major restructuring and integration expenses not meeting the criteria of IAS 37, material expenses for litigation, gains and losses from the sale of aircraft and other material business transactions of a one-off nature.

TUI Group's operating loss adjusted for one-off effects declined by EUR 35.4 m to EUR 24.9 m in Q1 2018.

In Q1 2018, adjustments included expenses for purchase price allocations of EUR 7.6 m and in particular restructuring costs for the integration of Transat in France.

Other segment indicators

Cautionary statement regarding forward-looking statements

The present Quarterly Statement Q1 2018 contains various statements relating to TUI's future development. These statements are based on assumptions and estimates. Although we are convinced that these forward-looking statements are realistic, they are not guarantees of future performance since our assumptions involve risks and uncertainties that could cause actual results to differ materially from those anticipated. Such factors include market fluctuations, the development of world market prices for commodities and exchange rates or fundamental changes in the economic environment. TUI does not intend to and does not undertake any obligation to update any forward-looking statements in order to reflect events or developments after the date of this Statement.

Analyst and investor enquiries

Peter Krüger
Director of Investor Relations and M&A
Tel.: + 49 (0)511 566 1440

Contacts for Analysts and Investors in UK, 
Ireland and Americas

Sarah Coomes
Head of Investor Relations 
Tel.: + 44 (0)1293 645 827

Hazel Chung
Investor Relations Manager
Tel.: + 44 (0)1293 645 823

Contacts for Analysts and Investors in Continental Europe, Middle East and Asia

Nicola Gehrt
Head of Investor Relations
Tel.: + 49 (0)511 566 1435

Ina Klose
Investor Relations Manager
Tel.: + 49 (0)511 566 1318

Jessica Blinne
Junior Investor Relations Manager
Tel.: + 49 (0)511 566 1425

Investor and analyst conference call and webcast

A conference call and audio webcast for analysts and investors will take place today at 7:15am GMT / 8:15am CET. The dial-in arrangements for the call are as follows:

For Germany: +49 30 232531411
For UK: +44 203 367 9216
For France: +33 172 253098
For US: +1 646 7129911

The presentation slides and details of the audio webcast will be made available ahead of the presentation at the following link: http: / /www.tuigroup.com / en-en / investors

Financial calendar

13 February 2018

Annual General Meeting 2018

9 May 2018

Half Year Financial Report 2018

Capital Markets Day

9 August 2018

Quarterly Statement Q3 2018

27 September 2018

Pre-close Trading Update

13 DeCember 2018

Annual Report 2018

Contact and ­publishing details

published by

TUI AG
Karl-Wiechert-Allee 4
30625 Hannover, Germany
Tel: + 49 (0)511 566-00
Fax: + 49 (0)511 566- 1901

www.tuigroup.com

concept and Design

3st kommunikation, Mainz

photography

Cover: Michael Neuhaus

The English and a German version of this 
Quarterly Statement are available on the web: 
www.tuigroup.com / en-en / investors

Published on 13 February 2018