TIDMTT.
RNS Number : 7933Y
TUI Travel PLC
04 December 2014
4 December 2014
TUI Travel PLC
("TUI Travel")
Preliminary results for the year ended 30 September 2014
ANOTHER YEAR OF OUT-PERFORMANCE
-- Growth roadmap exceeded for the second year running - 11% increase
in underlying operating profit(1) on a constant currency basis(2)
-- Mainstream strategy continues to deliver sustainable, profitable
growth
-- Accommodation Wholesaler roadmap target surpassed - underlying operating
profit(1) up 21% on a constant currency basis(2)
-- Merger with TUI AG will accelerate long-term growth and future-proof
our proven business model
-- Pleased with current trading for Winter 2014/15; Strong Summer 2015
UK trading continues
Peter Long, Chief Executive of TUI Travel PLC, commented:
"We have delivered another year of out-performance against our
growth roadmap achieving an underlying operating profit growth of
11% at constant currency rates(2) . This demonstrates the strength
and resilience of our business model in what has been a competitive
trading environment for many tour operators and airlines. The
combination of our market leadership position, scale, focuson
unique holidays distributed increasingly online and our
relationship with the customer throughout their whole holiday
experience continues to provide a strong basis for sustainable,
profitable growth.
"The merger with TUI AG will strengthen and future-proof our
combined Group. It will also enhance the certainty of long-term
unique holiday growth and reinforce our clear competitive advantage
through further control over the end-to-end customer experience.
This will mark the start of an exciting new phase of growth,
delivering significant opportunities and value to customers,
employees and shareholders."
Key financials
Year ended 30 September Underlying results(1) Statutory results
GBPm 2014 2013(3) Change% 2014 2013(3)
Revenue 14,619 15,051 -3% 14,619 15,051
Operating profit 612 589 +4% 499 297
Profit before tax 475 461 +3% 362 169
Free cash flow 403 427 -6% 403 427
Basic EPS (pence) 29.1 30.1 -3% 16.4 4.6
Dividend per share (pence) 24.55(4) 13.5 24.55(4) 13.5
---------------------------- --------- -------- -------- ---------- --------
(1) Underlying operating profit excludes separately disclosed
items, acquisition related expenses, impairment of goodwill and
financial assets and interest and taxation of results of the
Group's joint ventures and associates
(2) Constantcurrency basis assumes that constant foreign
exchange translation rates are applied to the underlying operating
result at prior year rates
(3) Comparative figures for the year ended 30 September 2013
have been restated to reflect the adoption of revised IAS 19
'Employee benefits'
(4) Dividend of 20.5p payable on completion of the merger. This
includes 10.5p in lieu of a final dividend
Highlights
-- Growth roadmap exceeded: 11% increase in underlying operating profit
at constant currency(2)
* Underlying operating profit increased by 11% to
GBP654m on a constant currency basis(2) . Underlying
operating profit increased to GBP612m (2013:
GBP589m).
* Significant increase in statutory operating profit to
GBP499m (2013: GBP297m), reflecting improvement in
underlying operating profit, lower impairment charges
and lower separately disclosed items.
-- Mainstream strategy continues to deliver sustainable, profitable
growth
* Mainstream underlying operating profit up 13% on a
constant currency basis(2) to GBP581m (2013:
GBP514m). Driven by strong performances in the UK,
Germany and Netherlands and a halving of French tour
operator losses.
* Underlying operating profit margin increase of 40bp
in the UK (6.9%) and 30bp in Germany (3%), on a
constant currency basis(2) .
* Nordics suffered from a challenging H1 performance
but results have since stabilised. A change of
management in H2 and implementation of our "One
Nordic" structure leaves us well positioned for
growth.
* The trading environment in Russia and Ukraine
continues to be challenging due to geopolitical
issues.
* Unique holiday mix now 71%. Directly distributed
holidays are 68% of Mainstream holidays, with online
sales at 38%.
* Record customer satisfaction level of 79% maintained
across our key markets.
* One Mainstream model firmly in place, delivering a
more effective and streamlined operation.
* Our customers continue to experience the benefits of
our digital transformation strategy.
-- Leveraging our global leadership position in Accommodation Wholesaler
* TTV growth of 15% driven by Asia and Latin America.
* Strong underlying operating profit growth of 21% at
constant currency(2) , exceeds roadmap target.
-- Delivering increased shareholder value
* Free cash flow increases 12% to GBP477m on a constant
currency(2) basis. The available net cash(5) position
of GBP371m (2013: GBP2m) provides further balance
sheet strength.
* Our GBP350m October 2014 convertible bond saw 99.6%
conversion into TUI Travel shares, demonstrating
investor confidence in the business.
* Cash conversion rate of 85% (2013: 93%)(3) ahead of
70% target; continued strong ROIC performance 14.6%
(2013: 14.8%).
* A second interim dividend of 20.5p will be payable on
completion of the merger. This includes 10.5p in lieu
of a final dividend (2013: 9.75p).
-- Pleased with current trading(6)
* Winter 2014/15 - 63% of the programme sold with
Mainstream bookings and average selling prices up 1%.
* Strong trading in UK continues across both seasons
with bookings up 4% for Winter 2014/15 (53% sold) and
9% for Summer 2015 (22% sold).
(5) Net cash position defined as cash and cash equivalents less loans,
overdrafts, finance leases and excludes restricted cash.
(6) No statement in this announcement relating to current trading
or outlook is intended as a profit forecast for any future period
and no statement in this announcement should be interpreted to mean
that earnings or earnings per share for TUI AG or TUI Travel, as
appropriate, for the 2014/15 financial year or future financial years
would necessarily match or exceed the historical published earnings
or earnings per share for TUI AG or TUI Travel, as appropriate.
Investor and Analyst Webcast
A presentation for analysts and investors will be held today at
09.00(GMT) at the London Stock Exchange, 10 Paternoster Square,
London, EC4M 7LS. The presentation will also be webcast. For
details of the webcast please visit www.tuitravelplc.com.
Merger with TUI AG
On 28 October 2014, the proposed merger between TUI AG and TUI
Travel PLC to form the world's number one integrated leisure
tourism business was approved by both sets of shareholders. Our
combined portfolio will include Europe's market leading tour
operator brands, powerful direct distribution across all channels
including online and the high street, six airlines with circa 140
aircraft, over 300 hotels with 210,000 beds, 12 cruise ships, the
talent of 77,000 employees and, unlike most of our competitors, we
have the added advantage of owning the entire customer
experience.
It is expected that the Court Hearing to sanction the Scheme and
Reduction of Capital will be held on 10 December 2014 and that the
Scheme will become effective on 11 December 2014 (as set out in the
Scheme Document). Due to technical issues relating to the mechanics
of depositing the New TUI AG Shares with Clearstream and the
crediting of a global certificate representing those New TUI AG
Shares to the securities deposit account of Capita IRG Trustees
Limited, the TUI AG DIs will not be credited until 17 December
2014. Therefore, the admission to listing and trading on the London
Stock Exchange of TUI AG Shares is expected to take place at 08.00
(GMT) on Wednesday 17 December 2014.
Enquiries:
Analysts & Investors
Andy Long, Director of Strategy & Investor Tel: +44 (0)1293 645 831
Relations
Tej Randhawa, Investor Relations Manager Tel: +44 (0)1293 645 829
Sarah Coomes, Investor Relations Manager Tel: +44 (0)1293 645 827
Press
Lesley Allan, Corporate Communications Director Tel: +44 (0)1293 645 790
Mike Ward, External Communications Manager Tel: +44 (0)1293 645 776
Michael Sandler / Kate Hoare (Hudson Sandler) Tel: +44 (0)207 796 4133
OUR GROWTH LEVERS : CREATING SHAREHOLDER VALUE
We are delighted with our performance this year against our
clearly defined strategic growth levers. These drive improved
profitability and free cash flow, and therefore, strong returns on
investment. This improvement will allow us to invest further in the
future of our business which will benefit our customers, colleagues
and shareholders.
1. Delivering Mainstream Growth
Our Mainstream business reported a record performance over the
year, with underlying operating profits growing by 13% to GBP581m
on a constant currency basis.
We continue to leverage fully the strength of expertise across
the Sector and the scale of the Group through our "One Mainstream"
initiative. This continues to evolve, delivering greater benefits
as one business across the strategic drivers of unique holidays,
direct distribution and operational efficiency.
1.1 Unique holidays only available from TUI Travel
Unique holidays
Our unique holidays form the backbone of our Mainstream
businesses and are exclusive to us. Unique holidays provide value
added services and features which command a margin premium over
commodity products. This in turn leads to higher customer loyalty
and an increase in repeat bookings. Unique holidays also book
earlier enabling us to manage our capacity and yield more
effectively. Due to our experience in designing and operating new
concepts it is increasingly difficult for our competitors to
replicate these holidays.
New openings during the year included Sensatori Jamaica, new
Couples product in Croatia (Kalamota Island) and a new Holiday
Village resort in Ibiza. We also opened six new Blue Star and five
new Blue Couples concepts for the Nordic market. 2014 also marked
the first season of our pan-Mainstream SuneoClub concept, which saw
openings in Kos and Djerba among others.
Moving forward into next year, we will see three new Sensatori
resorts in Turkey, Cyprus (Aphrodite Hills) and Ibiza and six new
Splash resorts in Spain, Greece and North Africa. New
Sensimar/Couples resorts are also planned for Croatia, Tunisia,
Portugal, Ibiza and Bodrum.
Sales of higher margin unique holidays during the year increased
by three percentage points to 71% of Mainstream holidays. We have
maintained our record customer satisfaction score of 79% for our
three largest Mainstream markets. Demand for unique holiday
experiences continues to see strong growth and our customers are
delighted with the holiday experiences we have designed for them.
We believe there is a direct correlation between unique holidays
and strong customer service questionnaire scores that leads to
increased customer retention.
One mobility platform
Our unique holiday offering gives us control over the end-to-end
customer experience and an opportunity to interact with our
customers throughout their journey. We have a clear digital
strategy to enhance and deepen the relationship with our customers.
Our award-winning TUI Digital Assistant (TDA) app has now had one
million downloads across Mainstream. The digital assistant is a key
driver of customer engagement at every stage of the customer
journey.
We recently expanded the functionality of the TDA by adding
'search and book' on the iPad for both the Thomson and First Choice
apps in the UK. This will be followed by the Android and iPhone
launch in Q1 2015. 'Search and book' will be expanded to the
Nordics by the end of Q1 2015. Traffic from mobile devices
(including tablets) continues to grow dramatically, standing at 36%
of overall visits in 2014, up from 25% in the prior year. In the
UK, the conversion rate on smartphones has increased by just under
50%.
The use of a common app platform has enabled us to widen the
roll out across a number of Mainstream markets. As well as the UK
and Germany, the app is now live in the Nordics, Austria and
Switzerland. We will continue to leverage our one common mobility
platform in 2015 by launching the app across the rest of our
Mainstream markets. The ongoing pipeline of features includes
online check-in via the app (expected by early 2015), flight
extras, travel documents and hotel check-in.
Flight experience
The flight experience is a key part of our unique holiday
offering. We continue to reshape the composition of our airline
fleet to drive customer satisfaction and simplify the fleet to one
short-haul and one long-haul aircraft type. Having a modern,
cost-efficient and reliable fleet is strategically important to the
Group, as well as operating the most carbon efficient airlines in
Europe.
Our Boeing 787-8 Dreamliner fleet has proved to offer a much
better experience to our customers. The feedback we receive from
those who fly on these aircraft is exceptional. As at November
2014, we operate eight 787 Dreamliner planes, with a further five
to be delivered by the end of FY15. We remain the only integrated
tour operator to operate these aircraft and carried one million
long-haul customers during 2014.
The expanded 787 fleet has been a key driver of demand for
long-haul travel, enabling us to travel non-stop to destinations
such as Western Mexico, Mauritius and Thailand. The range of
long-haul destinations offered will be expanded during the coming
year, with direct flights to Costa Rica in November 2015 as well as
other destinations being considered such as St Lucia, Antigua,
Vietnam and Malaysia. The long-haul opportunity complements our
existing end-to-end customer proposition which is difficult for
LCCs and scheduled carriers to replicate.
Our "One Airline" cost saving initiative will see one structure
across all of our Mainstream markets. This will enable one IT
platform and a joint perspective on crew planning/aircraft
deployment across our six airlines. The leadership structure for
this "one virtual airline" is in place with all aviation operations
now under one Airline Operations Director. Cost savings will be
driven by leveraging our scale across joint purchasing and a common
supply chain. Being able to offer our customers the most advanced,
comfortable aircraft, whether they are travelling with us to short
or long-haul destinations, while reducing our environmental impact,
will only strengthen our position.
1.2 Distributed directly to the customer - growth from online
Direct distribution
Our direct distribution channels are central to the Group's
strategy. By increasing the direct distribution of our holidays we
lower distribution costs, reduce the reliance on third party
distributors and can build on our customer relationships. Our
direct distribution mix improved by two percentage points over the
year to 68% of Mainstream sales, with improvements in all three
largest source markets. The improvement in direct distribution was
driven by the online channel which also increased by three
percentage points in 2014 to 38% of Mainstream sales. During the
year, we generated GBP4.1bn of revenue online within our Mainstream
business, reflecting 6% growth in online package bookings.
One online platform
We continue to drive the online customer experience through
investments made in our online platforms. This helped to deliver a
tangible increase in conversion as customers booking their holidays
experienced an enhanced user interface including focused search
functionality. We expect that our other key source markets will
join the UK and Nordics on the same online platform during 2015.
Our websites are tablet and mobile optimised as our customers
increasingly use their tablets and mobile devices to dream, plan,
search and book with us.
Next generation retail stores
We are currently operating 23 next generation stores in the UK,
following the first store that launched in Bluewater late last
year. These stores combine personal advice and service with a rich
digital
experience that enables customers to build their perfect
holiday. Features include a giant video wall to show off new video
content, an interactive map and table to help research holidays,
the 'Advice Bar' with staff on hand to answer questions and free
in-store Wi-Fi.
Additional next generation stores will continue to open in the
UK at high footfall sites. We have also carried this concept into
other key source markets and now operate two next generation stores
in both Germany and the Netherlands.
1.3 Leveraging our scale
As Europe's largest tour operator we leverage our scale across
all source markets to consolidate our market-leading position and
grow the number of customers travelling with us. Our One Mainstream
structure is in place and yielding tangible benefits. The move from
multiple online and back-end platforms to one core platform will be
a key driver of efficiencies going forward.
We have market leading positions and brands across our
portfolio. The breadth of our brands offers our customers a wealth
of holiday experiences. This leading market position and scale
means that our competition cannot easily replicate what we do.
There are significant barriers to entry in both our positioning and
deep-rooted relationships with hotel suppliers. Our scale also
enables us to deliver synergy benefits through joint contracting
and purchasing of accommodation and destination contracting.
We maintain a target of overheads as a percentage of sales of
less than 5%, which was maintained in 2014.
2. Organic Specialist & Activity growth
The Specialist & Activity Sector offers a wide range of
unique activity and experience based holidays to 1.3m customers
from around the world. We have market-leading positions in a number
of specialist segments with a portfolio of experiential and
tailor-made holidays, unrivalled product knowledge and superb
customer experiences.
During 2014, the Specialist & Activity Sector saw a mixed
performance from its various businesses, delivering broadly flat
operating profit on a constant currency basis. We saw a strong
result from our North American Education and North American
Specialist businesses. Sport benefited from weak year-on-year
comparatives as well as the Ashes and 2014 FIFA World Cup
tournament. However, these results were offset by soft trading
within the Marine and Adventure businesses.
3. Leveraging our global leadership position in Accommodation
Wholesaler through growth in existing markets
Our Accommodation Wholesaler business is a market leader
operating in the B2B segment with a global distribution presence.
We have a clear strategy of consolidating our market-leading
position even further by focussing on high growth markets, such as
Asia, Africa and Latin America. The global hotel market, which
includes all hotel bookings, amounts to EUR378bn with the
Accommodation Wholesaler market accounting for EUR35bn of this
spend. We also continue to explore avenues for new product growth -
for example, ROI Back (Global Obi), which was acquired during 2014,
provides online solutions and marketing to hotels. In addition, we
announced a three year deal in March 2014 with easyJet Holidays to
act as their accommodation and transfer & activity
provider.
Accommodation Wholesaler continues to grow its global leadership
position delivering TTV growth of 15% to GBP1,899m during the year
with a strong performance from Asia and Latin America. Roomnights
grew by 16% to 22.5 million during 2014, with hotel inventory also
increasing by 8% to over 67,000 hotels. Accommodation Wholesaler
delivered a 21% growth in underlying operating profit during the
year, on a constant currency basis.
4. Investing in Accommodation OTA
In Accommodation OTA (online travel agent) our focus is to build
on our strong brand positioning of LateRooms.com in the UK and
expand in the emerging markets through AsiaRooms.com across Asia
and in Brazil with MalaPronta, Brazil's fourth largest
accommodation-only OTA.
Accommodation OTA TTV declined by 9% to GBP382m during the year.
The decline in TTV was primarily driven by a reduction in
unprofitable marketing spend within our AsiaRooms brand. On the
mobile side, we launched new iOS and Android apps across all brands
(LateRooms, AsiaRooms and Malapronta). We look to capitalise on
mobile growth through a single content management platform in the
year ahead.
5. Focus on free cash flow generation, ROIC and operational efficiency
One of our key strategic objectives is to continue to improve
the Group's profitability and free cash flow, delivering superior
returns on investment. This improvement will allow us to invest
further in the future of our business which will benefit our
customers, colleagues and shareholders.
During the year, we generated a strong free cash flow, with an
improvement year-on-year of GBP50m to GBP477m on a constant
currency basis. We delivered a strong ROIC performance of 14.6%
(2013: 14.8%), down slightly on prior year due to foreign exchange
translation and an increase in the underlying effective tax rate,
as a result of delivering increased profits in higher taxed
jurisdictions such as Germany. We generated a cash conversion rate
of 85% in 2014 (2013: 93%). This was above our cash conversion
target of at least 70%.
Our Group-wide business improvement programme delivered GBP12m
of cost savings during the year, in line with our expectations.
These cost savings were primarily driven by back office
restructuring and IT platform replacement across a number of
markets. This leaves GBP7m of the business improvement programme
left, which is expected to close fully in 2015 with these cost
savings coming through the UK and Specialist & Activity
Sector.
6. Pioneering sustainability change in our sector
We see sustainability as an integral part of our differentiation
strategy and we have experienced a range of business benefits,
including cost efficiencies, quality improvements and the enhanced
engagement of customers, colleagues and suppliers. We have made
significant progress in the final year of our Sustainable Holidays
Plan - our three year sustainability strategy which aligns with our
corporate strategy and strategic drivers.
Our airlines are the most carbon efficient in Europe. In 2014,
TUI Travel airlines CO(2) per revenue passenger kilometre was 69.9g
- an improvement of 10.3% over the last six years. This was
achieved through investment in new, more fuel-efficient aircraft,
operational efficiencies, fuel conservation activities and capacity
amends.
We exceeded our goal to deliver 10 million greener and fairer
holidays over three years, by taking over 11.5 million customers to
hotels with credible sustainability certifications (5.5 million in
2014). We featured over 5,900 hotels with sustainability
certifications in 2014.
Our sustainability performance has been recognised through many
achievements in 2014:
-- For the seventh consecutive year, TUI Travel was featured in
CDP's Climate Disclosure Leadership Index (CDLI) and was ranked
joint first place in the FTSE 350 for our approach to climate
change reporting and disclosure. TUI Travel was the only Travel
& Leisure company to feature in the 2014 CDLI.
-- We continue to be listed in the FTSE4Good Index in
recognition of meeting strict social, environmental and governance
standards.
-- TUIfly was ranked the most climate-efficient airline in the
world with over one million passengers in the 2014 atmosfair
Airline Index.
-- Thomson Airways won the Best Aviation Programme for Carbon
Reduction at the 2014 World Responsible Tourism Awards.
CURRENT TRADING*
Winter 2014/15
We are pleased with our current trading performance for Winter
2014/15. To date 63% of the Mainstream programme has been sold,
with overall bookings and average selling prices up 1%.
Current Trading(1) Winter 2014/15
YoY variation% Total Total Total Programme sold (%)
ASP(2) Sales(2) Customers(2)
Mainstream
UK +2 +7 +4 53
Nordics +4 -3 -6 73
Germany Flat +1 +2 58
France tour operators +3 -8 -11 54
Other(3) -2 +2 +4 78
Total Mainstream +1 +2 +1 63
Accommodation Wholesaler(4) +2 +19 +17 N/A
(1) These statistics are up to 30 November 2014 and are shown on
a constant currency basis
(2) These statistics relate to all customers whether risk or
non-risk
(3) Other includes Austria, Belgium, Netherlands, Poland and
Switzerland
(4) Sales refer to total transaction value (TTV) and customers
refers to roomnights
In the UK, bookings are up 4% and average selling prices are up
2%. We are continuing to see strong demand for long-haul
destinations, driven by our expanded 787 fleet, with overall
long-haul bookings up 13%. New winter resorts include the Sensatori
Jamaica, which opened its doors in May 2014. Unique holiday
bookings are up 7%, accounting for 84% of overall bookings, up
three percentage points on prior year. Online bookings are up 7%,
accounting for 51% of bookings, up two percentage points on prior
year. To date, approximately 53% of the Winter programme has been
sold.
In the Nordics, bookings are down by 6% but ahead of the
capacity reductions we have made to strengthen our competitive
position in this difficult market. We are pleased with average
selling prices, which are up by 4%. Sales of unique holidays
account for 92% of bookings, in line with last year. Online
bookings account for 69% of bookings, up three percentage points on
prior year. To date, approximately 73% of the Winter programme has
been sold.
In Germany, bookings are up 2% with flat average selling prices.
Unique holiday bookings are up 12%, accounting for 48% of total
bookings, up four percentage points. Our digital transformation
continues to deliver, with online bookings up 27%, accounting for
12% of total bookings, a two percentage point increase. To date,
approximately 58% of the Winter programme has been sold.
In France, bookings are down 11% but ahead of capacity
reductions, where we have made selected capacity cuts in North
Africa. We are encouraged by positive average selling prices, which
are up 3%. We have seen good growth in alternative destinations for
the French market, such as Spain which is up by more than 50%
versus the prior year. To date, approximately 54% of the Winter
programme has been sold.
Accommodation Wholesaler continues to grow double-digit with TTV
up by 19%. We remain encouraged by the trading performance in
Specialist & Activity with sales up 4%.
Summer 2015
The strong start to UK trading for Summer 2015 continues, with
bookings up by 9%. Average selling prices are up 2%, reflecting
strong pricing in the prior year comparative. Sales of unique
holidays are up 7% compared with this time last year, accounting
for 84% of holidays sold to date, broadly in line with the prior
year. To date 22% of the programme has been sold.
Fuel / Foreign exchange
The majority of our fuel and currency requirements for the
seasons currently on sale are already hedged, which 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.
Winter 2014/15 Summer 2015
Euro 88% 67%
US Dollars 88% 77%
Jet Fuel 90% 80%
As at 28 November 2014
------------------------ --------------- ------------
Outlook*
We are delighted to have delivered another year of
out-performance against the growth roadmap set out in December
2012. This demonstrates the strength and resilience of our business
model in what has been a competitive trading environment for many
tour operators and airlines. Our UK business is going from strength
to strength, delivering a 6.9% underlying operating profit margin
this year, as we continue to build on our strong market-leading
position. In Germany further progress has been made in realising
operational efficiencies, growing unique content and driving online
sales. Also particularly pleasing has been our performance in the
Netherlands and reducing our losses by half in the French tour
operator. In addition to the strong performance by Mainstream, our
Accommodation Wholesaler business delivered a second year of growth
in earnings in excess of its growth roadmap.
We are pleased with the progress in Winter 2014/15 trading and
the strong start to Summer 2015 trading in the UK continues. The
combination of our market leadership position, scale, focus on
unique holidays distributed increasingly online and our
relationship with the customer throughout their whole holiday
experience continues to provide a strong basis for sustainable,
profitable growth. The merger with TUI AG will strengthen and
future-proof our combined Group. It will also enhance the certainty
of long-term unique holiday growth and reinforce our clear
competitive advantage through further control over the end-to-end
customer experience. This will mark the start of an exciting new
phase of growth, delivering significant opportunities and value to
customers, employees and shareholders.
* No statement in this announcement relating to current trading
or outlook is intended as a profit forecast for any future period
and no statement in this announcement should be interpreted to mean
that earnings or earnings per share for TUI AG or TUI Travel, as
appropriate, for the 2014/15 financial year or future financial
years would necessarily match or exceed the historical published
earnings or earnings per share for TUI AG or TUI Travel, as
appropriate.
BUSINESS AND FINANCIAL REVIEW
Group Performance
Key financials
Year ended 30 September Underlying results(1) Statutory results
GBPm 2014 2013(3) Change% 2014 2013(3)
Revenue 14,619 15,051 -3% 14,619 15,051
Operating profit 612 589 +4% 499 297
Profit before tax 475 461 +3% 362 169
Free cash flow 403 427 -6% 403 427
Basic EPS (pence) 29.1 30.1 -3% 16.4 4.6
Dividend per share (pence) 24.55(4) 13.5 24.55(4) 13.5
---------------------------- --------- -------- -------- ---------- --------
(1) Underlying operating profit excludes separately disclosed
items, acquisition related expenses, impairment of goodwill and
financial assets and interest and taxation of results of the
Group's joint ventures and associates
(2) Constantcurrency basis assumes that constant foreign
exchange translation rates are applied to the underlying operating
result at prior year rates
(3) Comparative figures for the year ended 30 September 2013
have been restated to reflect the adoption of revised IAS 19
'Employee benefits'
(4) Dividend of 20.5p payable on completion of the merger. This
includes 10.5p in lieu of a final dividend
Group revenue decreased by 3% from the prior year to
GBP14,619m(2013: GBP15,051m). This result was driven by adverse
foreign currency translation impact. The main drivers of the
year-on-year improvement in underlying operating profit are as
follows:
GBPm
2013 underlying operating profit 589
Mainstream trading +47
Non repeat of French contract provision +11
Accommodation Wholesaler +10
Business improvement +12
Other (includes Emerging Markets and Inbound Services) -15
----
2014 underlying operating profit at constant currency 654
FX translation -42
----
2014 underlying operating profit 612
====
Underlying operating profit improved by GBP65m to GBP654m in
2014, on a constant currency basis(2) .
The improvement in underlying operating profit was driven by
strong performances in the UK, Germany and Netherlands, as well as
a halving of French tour operator losses. These positive results
were partly offset by weakness in the Nordics trading in the first
half of the year, and by the performances of Russia and
Ukraine.
A reconciliation of underlying operating profit to statutory
operating profit is as follows:
Year ended 30 September 2014 2013
GBPm GBPm
Underlying operating profit 612 589
Separately disclosed items 1 (24)
Acquisition related expenses (67) (65)
Impairment of goodwill - (188)
Impairment of financial assets (29) -
Taxation on profits and interest of joint ventures
and associates (18) (15)
------ ------
Statutory operating profit 499 297
====== ======
Segmental Performance
Segmental performance is based on underlying financial
performance (which excludes certain items, including separately
disclosed items, acquisition related expenses and impairment of
goodwill).
Mainstream
The Mainstream sector reported an underlying operating profit of
GBP546m (2013: GBP514m). On a constant currency basis, underlying
operating profit increased by 13% to GBP581m.
Mainstream 2014 2013 Change
Customers ('000)
UK 5,223 5,232 Flat
Nordics 1,557 1,600 -3%
Germany(1) 6,245 6,459 -3%
France 1,390 1,585 -12%
Other 5,070 5,094 Flat
------- ------- -------
Total 19,485 19,970 -2%
======= ======= =======
Revenue (GBPm)
UK 3,927 3,879 +1%
Nordics 1,108 1,223 -9%
Germany 3,951 4,161 -5%
France 945 1,077 -12%
Other 2,476 2,528 -2%
------- ------- -------
Total 12,407 12,868 -4%
======= ======= =======
Underlying operating profit /
(loss) (GBPm)
UK 271 251 +8%
Nordics 47 79 -41%
Germany 113 113 Flat
France (36) (60) +40%
Other 151 131 +15%
------- ------- -------
Total 546 514 +6%
======= ======= =======
Mainstream key performance indicators
(%)
Unique mix(2) 71 68 +3pp
Customer satisfaction - key source
markets 79 79 Flat
Direct distribution mix 68 66 +2pp
Online mix 38 35 +3pp
(1) Germany customers restated to include seat only sales
distributed by TUIfly.com
(2) Unique mix updated to include Airtours brand and long-haul
destinations not previously included within packages
The main drivers of the year-on-year change in underlying
operating profit are summarised in the following table:
GBPm UK Nordics Germany France Other Mainstream
2013 251 79 113 (60) 131 514
Trading +16 -26 +11 +10 +36 +47
French contract provision - - - +11 - +11
Business improvement +4 - - +5 - +9
---- -------- -------- ------- ------ -----------
2014 at constant currency 271 53 124 (34) 167 581
FX translation - -6 -11 -2 -16 -35
---- -------- -------- ------- ------ -----------
2014 271 47 113 (36) 151 546
==== ======== ======== ======= ====== ===========
UK
Key performance indicators (%) 2014 2013 Change %pts
Unique mix 84 83 +1pp
Direct distribution mix 91 89 +2pp
Online mix 51 47 +4pp
The UK business delivered a GBP20m improvement in underlying
operating profit to GBP271m during the year. This translates to an
operating margin of 6.9%, a 40 basis point improvement over the
prior year. This record result was driven by focus on higher margin
unique holidays increasingly distributed online and greater
operational efficiency.
We continued to see strong demand for unique holidays,
accounting for 84% of departures, up by one percentage point on the
prior year. New openings during the year included Sensatori
Jamaica, new Couples product in Croatia (Kalamota Island) and
Morocco (Madina Gardens) as well as a new Holiday Village resort in
Ibiza. The result benefited from a two percentage point increase in
direct distribution to 91% compared with the prior year. Online
bookings accounted for 51% of all bookings, up four percentage
points year-on-year.
The UK business delivered GBP4m of efficiency savings towards
the business improvement programme in the period.
Nordics
Key performance indicators (%) 2014 2013 Change %pts
Unique mix 94 93 +1pp
Direct distribution mix 90 89 +1pp
Online mix 70 67 +3pp
Nordics achieved an underlying operating profit of GBP47m (2013:
GBP79m). The decline in operating result was driven primarily by a
weak performance in H1 reflecting weaker pricing due to a
significant reduction in the Egypt programme, political unrest in
Thailand and a more competitive environment overall, particularly
in the Canaries which is a key destination and source of Winter
profitability. The Nordic business delivered an underlying
operating margin of 4.2% (2013: 6.5%) or 4.5% on a constant
currency basis.
Our performance during the second half of the year stabilised,
delivering a broadly flat H2 operating profit year-on-year on a
constant currency basis. We united the four countries under a "One
Nordic" structure which will be built upon as we focus on
differentiated product and driving further operational
efficiencies. A change in management in early Summer saw Eivor
Andersson join the Group to take charge of TUI Nordic.
Unique holidays accounted for 94% of departures, one percentage
point ahead of the prior year. Direct distribution increased by one
percentage point to 90%. New openings during the year included one
new Blue Village in Kos, six new Blue Star and five new Blue
Couples concepts in Antalya, Bodrum, Palma, Sicily, Cyprus. Online
distribution continues to grow, standing at 70% of bookings, up
three percentage points over the prior year.
Germany
Key performance indicators (%) 2014 2013 Change %pts
Unique mix (1) 52 49 +3pp
Direct distribution mix 37 36 +1pp
Online mix 11 8 +3pp
(1) Unique mix updated to include Airtours brand and long-haul
destinations not previously included within packages
Germany reported a GBP11m increase in underlying operating
profit on a constant currency basis to GBP124m. Including currency
translation, Germany reported flat operating profit of GBP113m
(2013: GBP113m). Operating margin for the German business increased
by 20 basis points to 2.9% in 2014, and to 3% on a constant
currency basis.
Last year we launched our popular TUI Reisewelten labels (Beach,
Classic, Lifestyle, Nature, Premium and Scene) which, along with
continued focus on our highly differentiated holiday concepts, has
increased the mix of unique holidays to 52%, up three percentage
points. We continue to implement our strategy to improve direct
distribution with a focus on online via our TUI.com website. Direct
distribution stands at 37%, an increase of one percentage point
over the prior year. Online continues to grow and stood at 11% of
bookings in 2014, up by three percentage points from the prior
year.
France
Key performance indicators (Tour 2014 2013 Change %pts
operator) %
Unique mix 89 81 +8pp
Direct distribution mix 56 56 Flat
Online mix 24 18 +6pp
France reported a reduced underlying operating loss of GBP36m
(2013: loss of GBP60m). This reflected the continued delivery of
efficiency savings and alignment of tour operator capacity in line
with demand.
Our overall direct distribution mix of 56% (2013: 56%) remained
flat with the increase in online bookings offset by the planned
closure of part of our retail estate. The French tour operator
delivered GBP4m of efficiency savings towards the business
improvement programme in the period.
The Airline result declined by GBP6m from the prior year with an
operating loss of GBP7m. The year-on-year decline was driven by
weak local demand, not helped by an outbreak of the Chikungunya
virus in the Caribbean and Ebola concerns in Africa. The French
airline delivered GBP1m of efficiency savings towards the business
improvement programme during the period.
France 2014 2013 Change %
Underlying operating loss (GBPm)
Tour Operator (29) (59) +51
Airline (7) (1) N/A
----- ----- ---------
(36) (60) +40
Other
The Other source markets generated operating profit growth of
15% to GBP151m (2013: GBP131m), driven by a very strong performance
from our Netherlands business that saw operating profit more than
double. This was due to a higher volume of unique holidays sold and
airline efficiencies.
Emerging Markets
Emerging Markets reported an underlying operating loss of GBP18m
in the year (2013: loss of GBP12m). The result for this sector
reflects the ongoing challenging trading environment for the tour
operators in Russia and Ukraine. The trading environment continues
to be challenging due to geopolitical issues.
Emerging Markets (includes share 2014 2013 Change %
of JV)
Revenue (GBPm) 11 - N/A
Underlying operating loss (GBPm) (18) (12) -50
Accommodation & Destinations
Accommodation & Destinations (A&D) delivered an
underlying operating profit of GBP80m (2013: GBP78m). On a constant
currency basis, underlying operating profit moved forward GBP7m to
GBP85m, reflecting a GBP10m improvement in Online Accommodation and
GBP3m reduction in profit in Inbound Services.
TTV for the Sector increased by 6% to GBP3.3bn (2013: GBP3.1bn).
This was primarily driven by the strong double-digit growth in
Accommodation Wholesaler.
Accommodation & Destinations 2014 2013 Change %
Key performance indicators
Accommodation Wholesaler roomnights
(Online) +16
Accommodation OTA traffic (Online) -6
Accommodation OTA roomnights (Online) -11
Incoming passenger volumes +2
Revenue (GBPm) 872 750 +16
Underlying operating profit (GBPm)
Online Accommodation 48 40 +20
Inbound Services 32 38 -16
----- ----- ---------
Total 80 78 +3
===== ===== =========
The main drivers of the year-on-year change in underlying
operating profit are summarised in the table below:
GBPm Online Accommodation Inbound Accommodation
Services & Destinations
2013 40 38 78
Trading - -3 -3
Accommodation Wholesaler +10 - +10
Accommodation OTA - - -
--------------------- ---------- ----------------
2014 at constant currency 50 35 85
FX translation -2 -3 -5
--------------------- ---------- ----------------
2014 48 32 80
===================== ========== ================
Online Accommodation
The Online Accommodation business delivered underlying operating
profit of GBP48m (2013: GBP40m), reflecting a strong underlying
performance within Accommodation Wholesaler. TTV for Online
Accommodation grew by 10% to GBP2.3bn and roomnights increased by
16%.
Accommodation Wholesaler continues to grow its global leadership
position, delivering TTV growth of 15% to GBP1,899m during the year
with a strong performance from Asia and Latin America. Roomnights
grew by 16% to 22.5 million during 2014, with hotel inventory also
increasing by 8% to over 67,000 hotels. Accommodation Wholesaler
delivered a 21% growth in underlying operating profit during the
year, on a constant currency basis.
Accommodation OTA TTV declined by 9% to GBP382m during the year.
The decline in TTV was primarily driven by a reduction in
unprofitable marketing spend within our AsiaRooms brand. On the
mobile side, we launched new iOS and Android apps across all brands
(LateRooms, AsiaRooms and Malapronta). We look to capitalise on
mobile growth through a single content management platform in the
year ahead.
Inbound Services
The Inbound Services business delivered underlying operating
profit of GBP32m (2013: GBP38m). The reduction in profit was driven
by GBP3m adverse foreign exchange translation and the continued
difficult trading environment in North Africa.
Incoming passenger volumes increased by 2% over the prior year.
In cruise handling, the number of port calls handled increased by
11%.
Specialist & Activity
Specialist & Activity reported underlying operating profit
of GBP38m (2013: GBP41m). On a constant currency basis, Specialist
& Activity reported broadly flat profits of GBP40m (negative
translation impact of GBP2m). The year-on-year decline reflects
soft trading within the Marine and Adventure businesses. This was
partially offset by improved trading in North American Specialist
and North American Education. The Sport division benefited from the
Ashes and 2014 FIFA World Cup tournaments.
Specialist & Activity 2014 2013 Change %
Customers ('000) 1,293 1,403 -8
Revenue (GBPm) 1,329 1,433 -7
Underlying operating profit (GBPm) 38 41 -7
------------------------------------ ------ ------ ---------
The Specialist & Activity Sector delivered GBP3m of
efficiency savings towards the business improvement programme in
the period.
Acquisitions
Acquisitions were made in the year for a total investment value
of GBP31m. The main acquisition made during the year, on 20
December 2013, was a further 41% of the voting equity shares of Le
Passage to India Tours and Travels Private Limited ('LPTI'), a tour
operator and destination management company incorporated in India.
The Group previously owned 50% of LPTI and accounted for this as a
joint venture. The total consideration for this step acquisition
was GBP20m, including GBP10m of non-cash consideration for the
Group's share of LPTI that it previously owned.
Net financial expenses
Net financial expenses have increased by GBP9m to GBP137m. The
increase was primarily due to a number of one-off items totalling
GBP19m, the largest of which were the acceleration of the
amortisation of the old revolving credit facility and the impact of
revaluation of a put option for an investment in a tour operator in
Germany. These one-off charges were partially offset by a GBP10m
reduction in interest due to the conversion of the GBP350m
convertible bond at the end of the financial year.
Separately disclosed items (SDIs)
Separately disclosed items net to a GBP1m credit in the year
(2013: GBP24m expense). The following table provides a breakdown of
these items:
GBPm 2014 2013
Restructuring 37 54
Pension credit (67) (25)
VAT regularisation 41 -
Other (12) (5)
----- -----
Total SDIs (1) 24
===== =====
The separately disclosed items expense includes the following
items:
-- GBP14m in Germany arising from the restructure of support functions
and the airline engineering department.
-- GBP10m in France from the ongoing restructure of both the tour operator
and the airline.
-- Restructuring charge of GBP4m in the Accommodation & Destinations
Sector and GBP4m in Marine.
-- GBP67m pension credit primarily relating to two pension transactions
which completed in the UK.
-- GBP41m charge from regularising the VAT position of Hotelbeds Product
SLU, registered in Spain.
Further information is included within Note 3.
Impairment of financial assets
Given the ongoing challenging trading environment for tour
operators located in the Russian and Ukrainian source markets, an
impairment of GBP28m was booked against loans to our joint venture
entity. This non-underlying item is included within "Impairment of
financial assets". Further information is included within Note
8.
Taxation
The underlying effective rate of taxation for the year ended 30
September 2014 is calculated based on the underlying profit before
tax (excluding separately disclosed items, acquisition related
expenses and impairment charges) and equates to 31% (2013: 27%).
The increase in the underlying effective tax rate is due to the
effect of the geographical mix of profits.
The actual tax rate of 46% differs from the underlying effective
tax rate primarily due to the write off of certain deferred tax
assets totalling GBP26m where there is no longer sufficient
certainty of the timing any benefits that might arise in the
future.
During the year, the Group paid GBP3m of UK cash corporation tax
and a further GBP122m of cash corporate taxes in other
jurisdictions.
Earnings per share
Underlying basic earnings per share was 29.1p (2013 restated:
30.1p). Higher underlying operating profits at constant currency
rates were offset by the impact of foreign exchange translation, an
increased interest charge and the higher underlying effective tax
rate. Statutory basic earnings per share increased to 16.4p (2013
restated: 4.6p), reflecting lower separately disclosed items in the
year.
Dividends
On 13 May 2014 the Board recommended an interim dividend of
4.05p per share (2013: 3.75p), which was paid on 3 October
2014.
On 15 September 2014, as part of the Rule 2.7 announcement, the
Directors announced that the Company will, immediately prior to
completion of the merger with TUI AG, declare and pay a second
interim dividend of 20.5p per share, which includes a 10.5p
dividend per share in lieu of a final dividend for the financial
year ended 30 September 2014. This second interim dividend will be
payable to those shareholders on the register of members of the
Company at the Scheme Record Time and will be paid prior to
completion of the merger conditional on the Court Order having been
granted at the Scheme Court Hearing.
Cash and liquidity
The net cash position (cash and cash equivalents less loans,
overdrafts and finance leases) at 30 September 2014 was GBP371m (30
September 2013: GBP2m). This excludes restricted cash of GBP140m
(2013: GBP145m). Further information is included in Note 12. The
GBP350m convertible bond saw 99.6% conversion into TUI Travel
shares on maturity in October 2014. The number of shares issued as
a result of the conversion was 99,541,916.
The net cash position consisted of GBP1,374m of cash and cash
equivalents, which includes restricted cash of GBP140m, GBP89m of
current interest-bearing loans and liabilities and GBP774m of
non-current interest-bearing loans and liabilities. As at 30
September 2014, undrawn committed borrowing facilities totalled
GBP1,301m (2013: GBP1,192m).
Cashflow conversion is 85% of underlying profit before tax. Free
cash flow generation was GBP403m (2013: GBP427m), analysed as
follows:
GBPm 2014 2014 2013
Constant
currency
basis(2)
Underlying operating profit 612 654 589
Depreciation and amortisation included within
underlying operating profit 205 211 202
------ ---------- ------
Underlying EBITDA(1) 817 865 791
Working capital movement 116 161 172
Capital expenditure (net of disposals) (172) (180) (217)
Pension funding (66) (66) (74)
Tax (125) (129) (110)
Interest (89) (92) (71)
Exceptional cash costs (78) (82) (64)
------ ---------- ------
Free cash flow 403 477 427
====== ========== ======
(1) Earnings before interest, tax, depreciation and
amortisation
(2) Constantcurrency basis assumes that constant foreign
exchange translation rates are applied to the underlying operating
result at prior year rates
We remain satisfied with our long-term debt funding and
liquidity position. This includes external bank revolving credit
facilities totalling GBP1,400m (including GBP175m letter of credit
facilities) which mature in June 2018 and a GBP400m convertible
bond (due April 2017). The external bank revolving facilities are
used to manage the seasonality of the Group's cash flows and
liquidity.
We also have a medium-term GBP150m bank credit facility in place
to cover the October 2015 put option on the GBP400m convertible
bond. This facility matures in April 2016.
Consolidated income statement
for the year ended 30 September 2014
Year ended
30 September
Year ended 2013
30 September (restated)
2014
Note GBPm GBPm
--------------------------------------------- -------- --------------- ---------------
Revenue 2 14,619 15,051
Cost of sales (12,928) (13,395)
Gross profit 1,691 1,656
--------------------------------------------- -------- --------------- ---------------
Administrative expenses (1,172) (1,376)
Share of (losses)/profits of joint ventures
and associates (20) 17
Operating profit 5 499 297
--------------------------------------------- -------- --------------- ---------------
Analysed as:
Underlying operating profit 1(C), 2 612 589
Separately disclosed items 3 1 (24)
Acquisition related expenses (67) (65)
Impairment of goodwill 8 - (188)
Impairment of financial assets 8 (29) -
Taxation on (losses)/profits and interest
of joint ventures and associates (18) (15)
Total operating profit 5 499 297
--------------------------------------------- -------- --------------- ---------------
Financial income 4 15 19
Financial expenses 4 (152) (147)
Net financial expenses (137) (128)
--------------------------------------------- -------- --------------- ---------------
Profit before tax 362 169
Taxation charge 6 (175) (115)
Profit for the year 187 54
--------------------------------------------- -------- --------------- ---------------
Attributable to:
Equity holders of the parent 183 51
Non-controlling interests 4 3
--------------------------------------------- -------- --------------- ---------------
Profit for the year 187 54
--------------------------------------------- -------- --------------- ---------------
Year ended
Year ended 30 September
30 September 2013
2014 (restated)
Note Pence Pence
----------------------------------- ---- -------------- --------------
Basic and diluted earnings per
share for profit attributable to
the equity holders of the Company
during the year
Basic earnings per share 13 16.4 4.6
Diluted earnings per share 13 16.3 4.6
Comparative figures for the year ended 30 September 2013 have
been restated to reflect the adoption of revised IAS 19 'Employee
benefits'. Further details are provided in Note 1(B).
Consolidated statement of comprehensive income
for the year ended 30 September 2014
Year ended
Year ended 30 September
30 September 2013
2014 (restated)
GBPm GBPm
-------------------------------------------- --- -------------- --------------
Profit for the year 187 54
------------------------------------------------- -------------- --------------
Other comprehensive (loss)/income
Items that will not be reclassified
to profit and loss:
Remeasurements of defined benefit
pension schemes (192) (11)
Tax on remeasurements of defined
benefit pension schemes 45 (14)
------------------------------------------------- -------------- --------------
Items that will not be reclassified
to profit and loss (147) (25)
Items that may be subequently reclassified
to profit and loss:
Foreign exchange translation (159) 44
Foreign exchange gains recycled through
the consolidated income statement (1) (1)
Cash flow hedges:
- movement in fair value (28) (76)
- amounts recycled to the consolidated
income statement 113 (5)
Tax on cash flow hedges
Available for sale financial assets: (17) 22
- movement in fair value (1) 1
- amounts recycled to the consolidated
income statement 1 -
------------------------------------------------- -------------- --------------
Items that may be subsequently reclassified
to profit and loss (92) (15)
Other comprehensive loss for the
year net of tax (239) (40)
------------------------------------------------- -------------- --------------
Total comprehensive (loss)/income
for the year (52) 14
------------------------------------------------- -------------- --------------
Total comprehensive (loss)/income
for the year
Attributable to:
Equity holders of the parent (58) 15
Non-controlling interests 6 (1)
Total (52) 14
------------------------------------------------- -------------- --------------
Consolidated balance sheet
at 30 September 2014
30 30 September
September 2013
2014 GBPm
Note GBPm
---------------------------------------- ------- ------------------------------------------- ----------------------
Non-current assets
Intangible assets 4,299 4,384
Property, plant and equipment 1,267 1,238
Investments in joint ventures and
associates 246 243
Other investments 25 36
Trade and other receivables 187 205
Derivative financial instruments 30 3
Deferred tax assets 165 168
---------------------------------------- ------- ------------------------------------------- ----------------------
6,219 6,277
---------------------------------------- ------- ------------------------------------------- ----------------------
Current assets
Inventories 56 57
Other investments 18 36
Trade and other receivables 1,292 1,331
Income tax recoverable 51 24
Derivative financial instruments 130 41
Cash and cash equivalents 9 1,374 1,753
Assets classified as held for sale 7 10
2,928 3,252
---------------------------------------- ------- ------------------------------------------- ----------------------
Total assets 9,147 9,529
---------------------------------------- ------- ------------------------------------------- ----------------------
Current liabilities
Interest-bearing loans and borrowings 11 (89) (594)
Retirement benefits (4) (3)
Derivative financial instruments (186) (147)
Trade and other payables 10 (4,858) (4,773)
Provisions for liabilities (284) (277)
Income tax payable (67) (76)
(5,488) (5,870)
---------------------------------------- ------- ------------------------------------------- ----------------------
Non-current liabilities
Interest-bearing loans and borrowings 11 (774) (1,012)
Retirement benefits (695) (658)
Derivative financial instruments (15) (26)
Trade and other payables (104) (79)
Provisions for liabilities (360) (362)
Deferred tax liabilities (67) (31)
(2,015) (2,168)
---------------------------------------- ------- ------------------------------------------- ----------------------
Total liabilities (7,503) (8,038)
---------------------------------------- ------- ------------------------------------------- ----------------------
Net assets 1,644 1,491
---------------------------------------- ------- ------------------------------------------- ----------------------
Equity
Called up share capital 122 112
Share premium account 337 -
Convertible bond reserve 67 91
Other reserves 2,537 2,625
Accumulated losses (1,464) (1,378)
---------------------------------------- ------- ------------------------------------------- ----------------------
Total equity attributable to equity
holders
of the parent 1,599 1,450
Non-controlling interests 45 41
---------------------------------------- ------- ------------------------------------------- ----------------------
Total equity 1,644 1,491
---------------------------------------- ------- ------------------------------------------- ----------------------
The financial statements were approved by a duly authorised
Committee of the Board of Directors on 3 December 2014 and signed
on its behalf by:
Peter Long William H Waggott
Chief Executive Chief Financial Officer
Company number: 6072876
Consolidated statement of changes in equity
for the year ended 30 September 2014
Other reserves
-----------------------------------------------
Called Equity
up Convertible holders Non
share bond Merger Translation Hedging Accumulated of controlling Total
capital reserve reserve reserve reserve losses parent interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- -------- ------------ -------------- -------------- --------------- ---------------- --------- ------------ ------------
At 1 October 2012 112 88 2,523 129 (25) (1,262) 1,565 44 1,609
-------------------- -------- ------------ -------------- -------------- --------------- ---------------- --------- ------------ ------------
Profit for the year
(restated) - - - - - 51 51 3 54
Other comprehensive
income/(loss) for
the
year (restated) - - - 56 (58) (34) (36) (4) (40)
Total comprehensive
income/(loss) for
the
year - - - 56 (58) 17 15 (1) 14
-------------------- -------- ------------ -------------- -------------- --------------- ---------------- --------- ------------ ------------
Transactions
with owners
Share-based payment
charge for the
year - - - - - 15 15 - 15
Repurchase of own
shares - - - - - (16) (16) - (16)
Dividends - - - - - (130) (130) (2) (132)
Acquisition of
non-controlling
interests - - - - - (2) (2) - (2)
Change in deferred
tax
rate on equity
portion
of convertible
bond - 3 - - - - 3 - 3
At 30 September
2013 112 91 2,523 185 (83) (1,378) 1,450 41 1,491
-------------------- -------- ------------ -------------- -------------- --------------- ---------------- --------- ------------ ------------
Other reserves
------------------------------
Called Equity
up Share Convertible holders
share premium bond Merger Translation Hedging Accumulated of Non-controlling Total
capital account reserve reserve reserve reserve losses parent interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ------- ------- ----------- ------- ----------- -------- ------------ ------- --------------- ------
At 1 October
2013 112 - 91 2,523 185 (83) (1,378) 1,450 41 1,491
----------------- ------- ------- ----------- ------- ----------- -------- ------------ ------- --------------- ------
Profit for the
year - - - - - - 183 183 4 187
Other
comprehensive
(loss)/income
for the year - - - - (159) 71 (153) (241) 2 (239)
Total
comprehensive
(loss)/income
for the year - - - - (159) 71 30 (58) 6 (52)
----------------- ------- ------- ----------- ------- ----------- -------- ------------ ------- --------------- ------
Transactions
with owners
Share-based
payment charge
for the year - - - - - - 24 24 - 24
Repurchase of
own shares - - - - - - (33) (33) - (33)
Dividends - - - - - - (150) (150) (3) (153)
Acquisition
of
non-controlling
interests - - - - - - (4) (4) 1 (3)
Conversion of
convertible
bonds (net of
deferred tax) 10 337 (24) - - - 47 370 - 370
At 30 September
2014 122 337 67 2,523 26 (12) (1,464) 1,599 45 1,644
----------------- ------- ------- ----------- ------- ----------- -------- ------------ ------- --------------- ------
Consolidated statement of cash flows
for the year ended 30 September 2014
Year ended
30 September
Year ended 2013
30 September (restated)
2014
Note GBPm GBPm
------------------------------------------ ----- -------------- --------------
Profit for the year 187 54
Adjusted for:
Depreciation and amortisation 250 248
Impairment of intangible assets
and property, plant and equipment 6 14
Impairment of goodwill 8 - 188
Equity-settled share-based payment
expense 19 15
Profit on disposal of property,
plant and equipment and intangible
assets 5 (16) (10)
Share of profit of joint ventures
and associates (8) (17)
Profit on sale of investment (1) -
Loss/(profit) on foreign exchange 5 3 (19)
Impairment of financial assets 8 28 -
Change in value of assets held
at fair value through profit and
loss 1 (5)
Dividends received from joint ventures
and associates 11 43
Past service credit and settlement
gain recognised in consolidated
income statement (67) (25)
Financial income 4 (15) (19)
Financial expenses 4 152 147
Taxation 6 175 115
Operating cash flow before changes
in working capital and provisions 725 729
Decrease in inventories 3 3
(Increase)/decrease in trade and
other receivables (35) 63
Increase in trade and other payables 117 59
Belgian VAT receipt 9 - 98
(Decrease)/increase in provisions
and retirement benefits (19) 11
------------------------------------------ ----- -------------- --------------
Cash flows generated from operations 791 963
Interest paid (105) (90)
Interest received 16 19
Income taxes paid (125) (110)
Cash flows generated from operating
activities 577 782
------------------------------------------ ----- -------------- --------------
Investing activities
Proceeds from sale of property,
plant and equipment 226 192
Acquisition of subsidiaries net
of cash acquired (21) (10)
Proceeds from other investments 31 -
Investment in joint ventures, associates
and other investments (27) (41)
Acquisition of property, plant
and equipment (273) (311)
Acquisition of intangible assets (107) (102)
Cash flows used in investing activities (171) (272)
------------------------------------------ ----- -------------- --------------
Financing activities
Proceeds from new loans and deposits
taken 14 82
Repayment of borrowings (43) (44)
Repayment of finance lease liabilities (26) (26)
Dividends paid to ordinary and
non-controlling interests (153) (132)
Cash flows used in financing activities (208) (120)
------------------------------------------ ----- -------------- --------------
Net increase in cash and cash equivalents 198 390
Cash and cash equivalents at start
of the year 9 1,753 830
Non-cash movement in bank overdrafts 9,12 (491) 491
Effect of foreign exchange on cash
held (86) 42
Cash and cash equivalents at end
of the year 9 1,374 1,753
------------------------------------------ ----- -------------- --------------
Movements in cash and net debt are presented in Note 12.
Cash flows generated from operating activities are analysed as
follows:
Year ended Year ended
30 September 30 September
2014 2013
Note GBPm GBPm
------------------------------------------------ ------- --------------- ---------------
Cash flows generated from underlying operating
activities 577 684
Belgian VAT receipt 9 - 98
------------------------------------------------ ------- --------------- ---------------
Total cash flows generated from operating
activities 577 782
------------------------------------------------ ------- --------------- ---------------
Notes
1. Basis of preparation
(A) Statutory accounts
The financial information set out above does not constitute the
Group's statutory accounts for the year ended 30 September 2014.
Financial statements for the year ended 30 September 2014 will be
delivered to the Registrar of Companies in due course.
PricewaterhouseCoopers LLP has reported on these accounts and their
report was (i) unqualified, (ii) did not include a reference to any
other matters to which the auditors drew attention by way of
emphasis without qualifying their report and (iii) did not contain
a statement under section 498(2) or (3) of the Companies Act
2006.
(B) Accounting policies
The accounting policies applied by the Group in its consolidated
financial statements for the year ended 30 September 2014 are in
accordance with International Financial Reporting Standards and
IFRIC interpretations as adopted by the European Union (Adopted
IFRSs) and the Companies Act 2006 applicable to companies reporting
under IFRS. The accounting policies are consistent with those of
the consolidated financial statements for the year ended 30
September 2013 except for the adoption of the following new and
amended International Financial Reporting Standards (IFRS) that are
applicable to the Group for the year ended 30 September 2014:
-- IAS 19 (revised) 'Employee benefits'
-- IFRS 13 'Fair value measurement'
-- Amendments to IFRS 7 Disclosures - Offsetting financial assets and financial liabilities
-- IASB's Annual improvements project (2011)
The Group has also early adopted the following amendments to
current IFRSs early:
-- Amendment to IAS 36 'Impairment of assets' in respect of fair value disclosures
-- Amendment to IAS 39 'Financial instruments: Recognition and
measurement' in respect of novation of derivatives and continuation
of hedge accounting
The amendment to IAS 12 'Income taxes' on deferred tax is not
currently applicable to the Group as it has no investment
properties measured at fair value.
With the exception of the impact following the revision to IAS
19, which is disclosed below, these new and amended standards have
had no significant impact on the consolidated results or financial
position. Additional disclosures in respect of the amendments to
IFRS 7 are provided within the consolidated financial statements
where applicable.
IAS 19 (revised) 'Employee benefits'
The revision to IAS 19 'Employee benefits' makes significant
changes to the recognition and measurement of defined benefit
pension expense and termination benefits and enhances the
disclosures for all employee benefits. The most significant impact
for the Group is that interest expense is now calculated by
applying the discount rate to the net defined benefit liability.
This replaces the interest cost on the defined benefit obligation
and the expected return on plan assets.
The revised standard has retrospective application and
consequently the relevant charges or income in the consolidated
income statement and the consolidated statement of comprehensive
income for the financial year ended 30 September 2013 have been
restated. The impact on opening retained earnings or net assets has
not been dealt with as a prior year adjustment on the grounds of
materiality.
The impact on the results for the year ending 30 September 2013
was as follows:
Year ended
30 September Year ended
2013 Impact of 30 September
(as previously IAS 19 2013
reported) (revised) (restated)
GBPm GBPm GBPm
Financial income 86 (67) 19
Financial expenses (202) 55 (147)
--------------------------------------- ---------------- ------------- --------------
Net financial expenses (116) (12) (128)
--------------------------------------- ---------------- ------------- --------------
Profit before tax 181 (12) 169
Taxation charge (118) 3 (115)
--------------------------------------- ---------------- ------------- --------------
Profit for the year 63 (9) 54
--------------------------------------- ---------------- ------------- --------------
Other comprehensive loss (49) 9 (40)
Pence Pence Pence
--------------------------------------- ---------------- ------------- --------------
Basic earnings per share 5.4 (0.8) 4.6
Diluted earnings per share 5.4 (0.8) 4.6
Underlying earnings per share 30.8 (0.7) 30.1
Diluted underlying earnings per share 29.6 (0.7) 28.9
--------------------------------------- ---------------- ------------- --------------
(C) Underlying measures of profits and losses
The Group believes that underlying operating profit, underlying
profit before tax and underlying earnings per share provide
additional guidance to statutory measures to help understand the
underlying performance of the business during the financial year.
The term underlying is not defined under IFRS. It is a measure that
is used by management to assess the underlying performance of the
business internally and is not intended to be a substitute measure
for adopted IFRS GAAP measures. The Group defines these underlying
measures as follows:
Underlying operating profit is operating profit from continuing
operations stated before separately disclosed items, acquisition
related expenses, impairment of goodwill and financial assets and
interest and taxation on the Group's share of the results of joint
ventures and associates.
Underlying profit before tax is profit from continuing
operations before taxation, acquisition related expenses,
impairment of goodwill and financial assets, interest and taxation
of joint ventures and associates and separately disclosed items
included within the operating result.
Underlying earnings used in the calculation of underlying
earnings per share is profit after tax from continuing operations
excluding acquisition related expenses, impairment of goodwill and
financial assets and separately disclosed items included within the
operating result. For the purpose of this calculation, an
underlying tax charge is used which excludes the tax effects of
separately disclosed items, acquisition related expenses, goodwill
and financial asset impairment charges and separately disclosed tax
items.
It should be noted that the definitions of underlying items are
those used by the Group and may not be comparable with the term
'underlying' as defined by other companies within both the same
sector or elsewhere.
(D) Funding and liquidity
The Board remains satisfied with the Group's funding and
liquidity position. At 30 September 2014, the main sources of debt
funding included:
-- a total of GBP1,225m syndicated bank revolving credit
facilities which matures in June 2018;
-- GBP175m of bonding and letter of credit facilities which matures in June 2018;
-- GBP400m convertible bond due April 2017;
-- GBP150m bank syndicated facility which matures in April 2016
and which is only available in the event of a requirement to redeem
the Group's convertible bonds; and
-- GBP382m of drawn finance lease obligations with repayments up to June 2024;
The ratio of earnings before interest, taxation, depreciation,
amortisation and operating lease rentals (EBITDAR) to fixed charges
(being the aggregate amount of interest and any other finance
charges in respect of borrowings and including all payments under
operating leases) and the ratio of net debt to earnings before
interest, taxation, depreciation and amortisation (EBITDA), which
the Board believes to be the most useful measures of cash
generation and gearing, as well as being the main basis for the
Group's credit facility covenants, are well within the covenant
limits at the date of the balance sheet. Forecasts reviewed by the
Board, including forecasts adjusted for significantly worse
economic conditions, show continued compliance with these
covenants. For both covenants, earnings are calculated on an
underlying basis as described above.
On the basis of its forecasts, both base case and adjusted as
described above, and available facilities, the Board has concluded
that the going concern basis of preparation continues to be
appropriate.
This is the case both in the scenario that the merger with TUI
AG does not proceed, which is considered unlikely, and the scenario
once the merger is completed, as TUI AG has agreed to provide
facilities to enable, based on current expectations, TUI Travel PLC
and its subsidiaries to continue operations for the foreseeable
future.
2. Segmental information
IFRS 8 requires segmental information to be presented on the
same basis as that used for internal management reporting.
Segmental information is reported by the Group's business sectors
to the Group Management Board (GMB). The GMB consists of tour
operating and functional experts drawn from across the Group who
execute TUI Travel's day-to-day operations, allocate resources to
and assess the performance of the operating segments. Consequently,
the GMB is considered to be the chief operating decision maker for
the purposes of IFRS 8.
Group structure
The Group presents segmental information in respect of its
Sectors.The businesses within our Mainstream Sector are reported
via each key source market instead of regionally. Emerging Markets
remains outside of the Mainstream Sector for internal management
reporting purposes and is reported separately.
The Mainstream Sector consists of the following source markets:
UK & Ireland, Germany, the French tour operator, the French
scheduled airline, the Nordic countries, Canada, Belgium &
Morocco, the Netherlands, Austria, Switzerland, Poland, Southern
Europe and the Hotels division (comprising hotel management
companies and joint ventures in hotel assets). Each source market
represents an individual operating segment. Aggregation criteria is
used to combine certain of these operating segments into reported
segments.
The Specialist & Activity Sector operates under five
divisions: Adventure, Education, North American Specialist, Events
and Specialist Holidays Group. The Sector has over 100
international specialist and activity brands delivering a range of
unique customer experiences. The Specialist & Activity Sector
is considered to be one operating segment, in line with internal
management reporting.
The Accommodation & Destinations (A&D) Sector provides a
range of services in destinations to tour operators, travel agents,
corporate clients and direct to the consumer worldwide. A&D
consists of Online Accommodation (comprising Accommodation
Wholesaler and Accommodation OTA) and Inbound Services. The A&D
Sector in total is considered as one operating segment, in line
with internal management reporting.
The Emerging Markets Sector is a growing portfolio of travel
businesses in the source markets of Russia, Ukraine, India and
China and is considered to be one operating segment.
Reportable and reported segments
The results of the UK & Ireland, Germany, Nordics and the
French tour operator are reported separately due to the size and
importance of these source markets and meeting the threshold for
being individual reportable segments. The results for the French
scheduled airline, Corsair, are shown separately to that of the
French tour operator as it has a different business model to the
rest of the Group's integrated tour operators. All of the other
Mainstream source markets, except for the Hotels division, meet the
aggregation criteria set out in IFRS 8 and are reported as one
segment, the Rest of Mainstream. All of the aggregated businesses
are considered to be similar in nature and economically similar
over the long term. The Hotels division is reported separately as
this does not meet the aggregation criteria of IFRS 8.
Emerging Markets, the Specialist & Activity and A&D
Sectors are all reported as separate Sector totals as this is
consistent with internal management reports.
All reportable segments derive their revenues from the sale of
leisure travel and ancillary services. Segmental information for
both the current and prior year has been presented using this
structure. Corporate costs are in respect of central costs
including finance, human resources, legal, facility costs and some
information technology costs that do not relate to each business
segment and hence are not allocated.
Information regarding the results of each reportable segment is
provided below. Segmental performance is evaluated based on
underlying operating profit and is measured consistently with
underlying operating profit or loss in the consolidated financial
statements and as defined in Note 1(C). Inter-segmental sales and
transfers reflect arm's length prices as if sold or transferred to
third parties. Financial income and expenses are not allocated to
the reportable segments as this activity is managed by the Group's
treasury function which manages the overall net cash/debt position
of the Group. No one customer exceeds 10% of external entity
revenues in any segment.
Segmental analysis
Year ended 30 September 2014
Underlying
operating
Intersegmental Total external profit
Total revenue revenue revenue / (loss)
Sector GBPm GBPm GBPm GBPm
------------------------------------ ---------------- ----------------- ----------------- -----------
UK & Ireland 4,024 (97) 3,927 271
Germany 3,981 (30) 3,951 113
Nordics 1,119 (11) 1,108 47
French tour operator 566 (1) 565 (29)
French airline 392 (12) 380 (7)
Hotels 247 (204) 43 4
Rest of Mainstream 2,540 (107) 2,433 147
------------------------------------ ---------------- ----------------- ----------------- -----------
Total Mainstream 12,869 (462) 12,407 546
------------------------------------ ---------------- ----------------- ----------------- -----------
Specialist & Activity 1,331 (2) 1,329 38
Accommodation & Destinations 1,054 (182) 872 80
Emerging Markets 11 - 11 (18)
All other segments and unallocated
items - - - (34)
Total Group 15,265 (646) 14,619 612
------------------------------------ ---------------- ----------------- ----------------- -----------
Year ended 30 September 2013
Underlying
operating
Intersegmental Total external profit
Total revenue revenue revenue / (loss)
Sector GBPm GBPm GBPm GBPm
------------------------------------ ---------------- ----------------- ----------------- -----------
UK & Ireland 4,007 (128) 3,879 251
Germany 4,187 (26) 4,161 113
Nordics 1,223 - 1,223 79
French tour operator 706 - 706 (59)
French airline 408 (37) 371 (1)
Hotels 214 (160) 54 6
Rest of Mainstream 2,564 (90) 2,474 125
------------------------------------ ---------------- ----------------- ----------------- -----------
Total Mainstream 13,309 (441) 12,868 514
------------------------------------ ---------------- ----------------- ----------------- -----------
Specialist & Activity 1,437 (4) 1,433 41
Accommodation & Destinations 960 (210) 750 78
Emerging Markets - - - (12)
All other segments and unallocated
items - - - (32)
Total Group 15,706 (655) 15,051 589
------------------------------------ ---------------- ----------------- ----------------- -----------
Reconciliation of Group underlying operating profit to profit
before tax
Year ended Year ended
30 September
30 September 2013
2014 (restated)
Note GBPm GBPm
------------------------------------------- ----------------- ------------------- --------------------------
Group underlying operating profit 612 589
Separately disclosed items 3 1 (24)
Acquisition related expenses (67) (65)
Impairment of goodwill 8 - (188)
Impairment of financial assets 8 (29) -
Taxation on (losses)/profits and interest
of joint ventures and associates (18) (15)
------------------------------------------- ----------------- ------------------- --------------------------
Operating profit 499 297
Net financial expenses 4 (137) (128)
------------------------------------------- ----------------- ------------------- --------------------------
Profit before tax 362 169
------------------------------------------- ----------------- ------------------- --------------------------
3. Separately disclosed items
Year ended Year ended
30 September 30 September
2014 2013
GBPm GBPm
--------------------------------------------- ------------- --------------
Restructuring and other separately disclosed
items 30 59
Aircraft and other assets (6) (23)
Pension related credit (67) (25)
VAT regularisation 41 -
Litigation provisions 1 13
Total (credit)/charge (1) 24
--------------------------------------------- ------------- --------------
Separately disclosed items within operating profit are included
within the consolidated income statement as follows:
Year ended Year ended
30 September 30 September
2014 2013
GBPm GBPm
------------------------ -------------- --------------
Revenue - 1
Cost of sales (9) 4
Administrative expenses 8 19
Total (credit)/charge (1) 24
------------------------ -------------- --------------
Restructuring and other separately disclosed items
The overall charge of GBP30m includes GBP37m of restructuring
costs. Within Mainstream these are primarily related to the "One
Mainstream" initiative and comprise: GBP14m in Germany arising from
the restructure of support functions and the airline engineering
department, GBP10m in France from the ongoing restructure of both
the tour operator and the airline and GBP5m across other Mainstream
businesses. In addition, GBP4m of restructuring charges have arisen
in the Accommodation & Destinations Sector and GBP4m in Marine.
There has then been GBP7m of credits arising from the profit on
disposal of subsidiaries and the change in value of unhedged
foreign currency derivative instruments relating to future
seasons.
Included in the year ended 30 September 2013 charge of GBP59m
were: Mainstream restructuring costs of GBP29m which principally
related to the restructuring programmes in the French tour operator
and airline; GBP18m restructuring costs incurred across the
Specialist & Activity Sector due to the removal of the Sector
management team, the closure of a business in the Education
division, further restructuring of the PEAK adventure business
based in Melbourne, Australia and rationalisation of overseas bases
in the Marine division; and GBP7m of restructuring costs across the
Accommodation & Destinations Sector due to several programmes
aimed at rationalising the business structure and moving to a
number of regional shared service centres in Europe, Asia and the
Americas.
Aircraft and other assets
During the year ended 30 September 2014, a total credit of GBP6m
has been recognised which arises from various aircraft
transactions. GBP5m of this arose from sale and lease back
transactions through taking delivery from Boeing of nine aircraft
in the year, net of entry into service costs being incurred as
additional Boeing 787 Dreamliners are brought into service. The
comparative credit for various aircraft transactions for the year
ended 30 September 2013 was GBP18m. There was also a credit of
GBP1m (2013: GBP5m credit) recognised in the year on finalising the
disposal of the majority of our interests in The Airline Group
Limited, the transaction completing in March 2014.
Pension related credit
The GBP67m non-cash credit recognised in the year ended 30
September 2014 arose mainly from two UK pension transactions which
generated a total credit of GBP61m. During the first half of the
year the current pensioner members of the three main UK defined
benefit pension schemes were given the option to exchange
non-statutory future increases in their pension for a higher
pension now with only limited (statutory) increases to be applied
in future years. The level of acceptances reduced the present value
of future pension liabilities and the resulting credit has been
taken to the consolidated income statement under IAS 19 (revised)
as it represents a change in plan benefits. Net of advisor costs,
the credit to the consolidated income statement arising from this
transaction was GBP33m.
In the fourth quarter, agreement was also reached with the
Trustees of our UK defined benefit pension schemes to make the same
option available to the members not yet drawing their pension and
members were notified in September. An assumption with respect to
the expected level of take up of the option on retirement has been
made based on the experience with current pensioner members,
considerations specific to the non-pensioner population and
evidence from other similar exercises and applying this assumption
has resulted in a one-off reduction in pension liabilities of
GBP28m. This credit has also been taken to the consolidated income
statement under IAS 19 (revised) as it represents a change in plan
benefits.
In addition to the UK transactions, in Norway management agreed
with the employees to close the defined benefit pension scheme and
move the members into a defined contribution scheme. This change
has been classified as a settlement gain on scheme closure under
IAS 19 (revised) and the resultant reduction in accrued pension
liabilities of GBP4m has been recognised in the consolidated income
statement in the period in which it occurred.
During the year ended 30 September 2013, the management and
works council of TUI Nederland NV agreed to close their defined
benefit pension scheme and replace it with a defined contribution
scheme. This change was also classified as a past service gain
under IAS 19 (revised) and the resultant reduction in accrued
pension liabilities of GBP14m was recognised in the consolidated
income statement in the period in which it occurred. The management
of TUI Nederland NV and the pension scheme trustees also agreed to
transfer the existing pension fund assets and liabilities to AEGON,
a multinational life insurance, pensions and asset management
company headquartered in the Netherlands. This transfer of the
pension assets and liabilities generated a further credit in the
consolidated income statement of GBP11m.
VAT regularisation
During the year ended 30 September 2014, advice was taken on the
VAT position of Hotelbeds Product SLU, registered in Spain and
located in the Canary Islands. Given the stricter interpretation of
VAT regulations in Spain relating to businesses operating in the
Canary Islands, the external advice received was to regularise the
VAT position. Therefore during the year additional VAT payments of
GBP40m have been made which relate to years prior to the current
financial year and so have been included within separately
disclosed items. A final payment of approximately GBP1m is expected
to be made before the end of the calendar year to finalise the
matter and has been accrued for accordingly. Late payment interest
of GBP3m relating to this item has been included within financial
expenses.
Litigation provisions
At the year end the Group has continued to assess the likely
outcome of the legal actions in which it is involved and, in
accordance with IAS 37, has recognised provisions where it is more
likely than not that an outflow of resources will be required to
settle the obligation. This year the process has resulted in a
charge to the consolidated income statement of GBP1m.
In the year ended 30 September 2013, the Group's assessment of
the likely outcome of the legal actions in which it was then
involved resulted in a charge to the consolidated income statement
of GBP13m (EUR15m) in respect of the penalties agreed with the
Spanish tax authorities on 11 October 2013 under the terms of the
settlement reached.
4. Net financial expenses
Year ended
30 September
Year ended 2013
30 September (restated)
2014
GBPm GBPm
----------------------------------------------------- --------------- ---------------
Financial income
Bank interest receivable 15 19
----------------------------------------------------- --------------- ---------------
Financial expenses
Bank interest payable on loans and overdrafts (18) (23)
Finance charges on convertible bond (53) (63)
Interest on pension scheme liabilities (22) (26)
Finance lease charges and interest on debt financed
aircraft (12) (12)
Unwinding of discount on provisions (6) (5)
Facility fees (19) (13)
Change in the fair value of liabilities (6) -
Other financial expenses (16) (5)
--------------- ---------------
Total (152) (147)
-----------------------------------------------------
Net financial expenses (137) (128)
----------------------------------------------------- --------------- ---------------
5. Operating profit
Year ended Year ended
30 September 30 September
2014 2013
GBPm GBPm
--------------------------------------------------------- --------------- ---------------
Included within operating profit in the consolidated
income statement for the year are the following
(credits) / charges:
Operating lease income: aircraft (39) (40)
Operating lease income: land and buildings (2) (2)
Operating lease rentals: land and buildings, aircraft
and other equipment 584 604
Depreciation of property, plant and equipment 148 157
Amortisation of intangible assets: business combination
intangibles 51 57
Amortisation of intangible assets: other intangibles 51 34
Charge for share-based payments 21 17
Profit on disposal of property, plant and equipment
and intangible assets (16) (10)
Loss/(profit) on foreign currency retranslation 3 (19)
Impairment of goodwill and other intangible assets - 199
Impairment of financial assets 29 -
Impairment of property, plant and equipment 6 3
--------------------------------------------------------- --------------- ---------------
6. Taxation
The tax charge can be summarised as follows:
(i) Analysis of charge in the year
Year ended
Year ended 30 September
30 September 2013
2014 (restated)
GBPm GBPm
---------------------------------------------------- --- -------------- --------------
Current tax charge
UK corporation tax on profit for the year 8 6
Non-UK tax on profit / loss for the year 88 92
Adjustments in respect of previous years (3) 45
--------------------------------------------------------- -------------- --------------
93 143
-------------------------------------------------------- -------------- --------------
Deferred tax charge / (credit)
Origination and reversal of temporary differences:
Current year UK 38 6
Current year non-UK 20 7
Changes in tax rates (2) 4
Adjustments in respect of previous years 26 (45)
--------------------------------------------------------- -------------- --------------
82 (28)
-------------------------------------------------------- -------------- --------------
Total income tax charge in consolidated income
statement 175 115
--------------------------------------------------------- -------------- --------------
Following a review of the Group's deferred tax balances in the
year, the Directors have written off certain deferred tax assets
totalling GBP26m where there is no longer sufficient certainty of
the timing of any benefits that might arise in the future and which
have been treated as a separately disclosed tax item for the
purpose of calculating underlying earnings per share, as disclosed
in Note 13. As part of this review, GBP23m of deferred tax
liabilities have been written back to reserves in the year,
principally in respect of the convertible bonds.
In the year ended 30 September 2013, certain tax balances were
adjusted to reflect the position of the latest local statutory
accounts and tax returns. These adjustments were reflected in the
consolidated income statement in that year but due to their
underlying nature, were not treated as separately disclosed tax
items for the purpose of calculating underlying earnings per
share.
(ii) Reconciliation of effective tax rate
The total tax charge (2013: charge) for the year is higher
(2013: higher) than the standard rate of corporation tax in the UK
of 22% (2013: 23.5%). The differences are explained below:
Year ended
Year ended 30 September 2013
30 September 2014 (restated)
--------------------- ---------------------
GBPm % GBPm %
------------------------------------------- ----------- -------- ----------- --------
Profit before tax reported in the
consolidated income statement 362 169
Excluding share of losses/(profits)
in joint ventures and associates 20 (17)
------------------------------------------- ----------- -------- ----------- --------
382 152
------------------------------------------- ----------- -------- ----------- --------
Income tax on profit before tax excluding
share of losses/profit of joint ventures
and associates at the standard rate
of UK tax of 22% (2013: 23.5%) 84 22 36 24
Expenses not deductible for tax purposes 34 9 51 34
Income not taxable (5) (1) (10) (7)
Tax losses not recognised as an asset 26 7 33 22
Tax adjustments to deferred tax assets
previously recognised 18 5 - -
Utilisation of tax losses not previously
recognised (6) (2) (7) (5)
Higher tax rates on overseas earnings 3 1 8 5
Changes in tax rates (2) (1) 4 3
Adjustments to taxation in respect
of previous years 23 6 - -
------------------------------------------- ----------- -------- ----------- --------
Total income tax charge in consolidated
income statement 175 46 115 76
------------------------------------------- ----------- -------- ----------- --------
The underlying effective rate of taxation for the year ended 30
September 2014 is calculated based on the underlying profit before
tax (excluding separately disclosed items, acquisition related
expenses and impairment charges) and equates to 31%. The actual tax
rate of 46% differs from the underlying effective tax rate
primarily due to the separately disclosed tax item referred to
above.
7. Dividends
The following dividends which relate to the Company's ordinary
shares have been deducted from equity in the year:
Year ended Year ended
30 September 30 September
Pence 2014 2013
per share GBPm GBPm
--------------------------------- --------------- ------------- -------------
Dividends relating to the year
ended 30 September 2012
Interim dividend (paid October
2012) 3.4 - 38
Final dividend (paid April 2013) 8.3 - 92
---------------------------------- -------------- ------------- -------------
11.7 - 130
--------------------------------- -------------- ------------- -------------
Dividends relating to the year
ended 30 September 2013
Interim dividend (paid October
2013) 3.75 42 -
Final dividend (paid April 2014) 9.75 108 -
---------------------------------- -------------- ------------- -------------
13.5 150 -
--------------------------------- -------------- ------------- -------------
The interim dividend in respect of the year ended 30 September
2014 of 4.05p per share was paid on 3 October 2014 and this
dividend of GBP46m will be recognised as a deduction from equity in
the year ending 30 September 2015.
On 15 September 2014, as part of the Rule 2.7 announcement, the
Directors announced that the Company will, immediately prior to
completion of the merger with TUI AG, declare and pay a second
interim dividend of 20.5p per share, which includes 10.5p dividend
per share in lieu of a final dividend for the financial year ended
30 September 2014. This second interim dividend will be payable to
those shareholders on the register of members of the Company at the
Scheme Record Time and will be paid prior to completion of the
merger, conditional on the Court Order having been granted at the
Scheme Court Hearing.
8. Impairment charges
Impairment of financial assets
Year ended Year ended
30 September 30 September
2014 2013
GBPm GBPm
----------------------------------------- -------------- --------------
Impairment of loans to Russian joint
venture 28 -
Change in the fair value of available
for sale financial assets -- Air Berlin 1 -
----------------------------------------- -------------- --------------
Impairment of financial assets 29 -
----------------------------------------- -------------- --------------
In light of the ongoing challenging trading conditions in the
Russian and Ukrainian source markets, together with the need for
continued financial support from the Group, the Directors have
considered the recoverability and then impaired term loans
totalling GBP28m made to its joint venture that were made in
previous years, the current year, and after the year end.
Goodwill impairment charges
No goodwill impairment charges have arisen in the year ended 30
September 2014 since the recoverable amount for all cash generating
units (CGUs) tested was at least equal to the carrying amount.
Goodwill impairment charges in the comparative year ended 30
September 2013 totalled GBP188m and arose primarily in relation to
the French tour operator (GBP59m) and a number of CGUs within the
Specialist & Activity Sector (GBP109m). These impairments arose
since the cash flow model based on the 2013 five year plan did not
support the carrying amount of goodwill for these CGUs.
9. Cash and cash equivalents
30 September 30 September
2014 2013
GBPm GBPm
--------------------------- --------------- ---------------
Cash in hand 8 6
Cash at bank 391 920
Deposits 975 827
Cash and cash equivalents 1,374 1,753
--------------------------- --------------- ---------------
At 30 September 2014, cash and cash equivalents have been shown
net of specific overdraft balances within the Group's pooling
facilities where the Group has demonstrated both the intention and
ability to exercise its right to settle these particular balances
simultaneously. At 30 September 2013, GBP491m of cash and cash
equivalents within the Group's pooling facilities were shown gross
of specific overdraft balances as the Group did not have the
intention to settle those particular balances simultaneously at
that point in time.
Cash and cash equivalents includes GBP50m (2013: GBP47m) that is
not available for immediate use by the Group. This is made up of
monies held to meet regulatory requirements, together with cash
balances on short term deposits, held on a restricted basis by the
Group's captive insurance funds as part of their ongoing
operations.
In addition to the above restricted cash balances, the Group is
involved in a long-running VAT case with the Belgian government.
During the previous financial year a total of EUR116m was received
from the Belgian government in relation to the disputed VAT for the
years up to and including 30 September 2011, to stop the interest
charge from accumulating should they lose the case eventually. The
outcome of the case remains uncertain and is not expected to be
finalised in the near future. Given the uncertainty, the Group
continues to accrue VAT payable on the existing basis. If the Group
were to win the legal case, the amount recovered would be subject
to corporation tax in Belgium. This money, totalling EUR116m
(GBP90m) as at 30 September 2014, is currently held on a bank
deposit account in order that a collateralised bank guarantee can
be provided to the Belgian government for the duration of the legal
proceedings to give them assurance that they will be paid the money
back should they win the case. This receipt in 2013 of EUR116m
(GBP98m) is shown in the consolidated statement of cash flows as
the item fulfils the IAS 7 criteria for cash and cash equivalents
as well as in cash and cash equivalents. In view of the guarantee
provided to the Belgian Government, the Group's ability to use this
cash is restricted.
10. Trade and other payables
30 September 30 September
2014 2013
GBPm GBPm
--------------------------------------- --------------- ---------------
Trade payables 1,096 931
Deferred and contingent consideration 2 4
Other payables 188 177
Amounts owed to related parties 134 97
Other taxes and social security costs 88 87
Accruals and deferred income 1,503 1,709
Client money received in advance 1,847 1,768
Total 4,858 4,773
--------------------------------------- --------------- ---------------
11. Interest-bearing loans and borrowings
30 September 30 September
2014 2013
GBPm GBPm
----------------------------- --------------- ---------------
Current liabilities
Bank loans and overdrafts 7 528
Finance leases 34 22
Convertible bonds 2 -
Other financial liabilities 46 44
Total 89 594
----------------------------- --------------- ---------------
At 30 September 2014, bank overdrafts have been shown net of
specific cash balances within the Group's pooling facilities where
the Group has demonstrated both the intention and ability to
exercise its right to settle these particular balances
simultaneously. At 30 September 2013, GBP491m of bank overdrafts
were shown gross of specific cash balances within the Group's
pooling facilities where the Group did not have the intention to
settle those particular balances simultaneously at that point in
time.
30 September 30 September
2014 2013
GBPm GBPm
----------------------------- ------------- -------------
Non-current liabilities
Bank loans 53 61
Loan notes 1 1
Finance leases 348 253
Convertible bonds 371 697
Other financial liabilities 1 -
Total 774 1,012
----------------------------- ------------- -------------
Convertible bonds
30 September 30 September
2014 2013
GBPm GBPm
----------------------------------------- ------------ ------------
GBP350m convertible bond 6.0% October
2014 2 336
GBP400m convertible bond 4.9% April 2017 371 361
Total 373 697
----------------------------------------- ------------ ------------
At 30 September 2014, the Group had two convertible bonds in
issue, details of which are as follows:
-- A GBP350m fixed rate 6% bond issued in October 2009. The bond
was convertible at the option of the holders, before or upon
maturity in October 2014. Conversion into ordinary shares occurred
prior to 30 September 2014 in respect of GBP348m (at par value) of
the original bond, the carrying value of which was GBP347m at the
respective dates of conversion. The balance of GBP2m was repaid in
full on 5 October 2014.
-- A GBP400m fixed rate 4.9% bond issued in April 2010. The bond
is convertible at the option of the holders, before or upon
maturity in April 2017. Conversion into ordinary shares will occur
at a premium of 33% to the Group's share price on the date of
issuance.
12. Movements in cash and net debt and cash conversion
i) Movements in cash and net debt
Amounts
due Bank Available
Cash to loans Other net
and cash Convertible related and Loan Finance financial Restricted cash/
equivalent bonds parties overdrafts notes leases liabilities Total cash (debt)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------- ----------- ------------- -------- ----------- ------ -------- ------------ ------ ----------- ----------
At 1
October
2012 830 (675) (10) (23) (1) (186) (43) (108) (34) (142)
Cash
movement 390 - 1 (41) - 26 2 378 (111) 267
Non-cash
movement 491 (22) 9 (524) - (113) (1) (160) - (160)
Foreign
exchange 42 - - (1) - (2) (2) 37 - 37
----------- ----------- ------------- -------- ----------- ------ -------- ------------ ------ ----------- ----------
At 30
September
2013 1,753 (697) - (589) (1) (275) (44) 147 (145) 2
Cash
movement 198 - - 36 - 23 (4) 253 (2) 251
Non-cash
movement (491) 324 - 491 - (132) (2) 190 - 190
Foreign
exchange (86) - - 2 - 2 3 (79) 7 (72)
At 30
September
2014 1,374 (373) - (60) (1) (382) (47) 511 (140) 371
----------- ----------- ------------- -------- ----------- ------ -------- ------------ ------ ----------- ----------
Cash and cash equivalents included GBP140m (2013: GBP145m) of
restricted cash.
The 2014 non-cash movement of GBP324m (2013: GBP(22)m) in
convertible bonds relates to the net amount of the conversion of
GBP348m (at par value) of the GBP350m bond (issued October 2009)
converting during the year and accretion of the equity portion of
the convertible bonds up to the earlier of the conversion or 30
September 2014.
The 2014 non-cash movement of GBP(491)m (2013: GBP491m) between
cash and cash equivalents and bank loans and overdrafts reflects
the impact of specific overdraft balances being presented on a net
basis, previously shown gross. Other non-cash movements in 2014 in
finance leases predominantly relate to advances in respect of
additions to aircraft within property, plant and equipment.
ii) Cash conversion (Non-GAAP measure)
The Group targets conversion of underlying profit before tax to
free cashflow of at least 70%. 'Underlying' as a measure of
operating profit is defined in Note 1(C). 'Free cashflow' is
defined as the movement in available cash net of debt during the
year before restricted cash, dividend payments, acquisitions and
business disposal proceeds, net pre-delivery payments for aircraft
and acquisitions of shares for share-based payments.
Calculations for the current and prior year are:
Year ended
Year ended 30 September
30 September 2013
2014 (restated)
GBPm GBPm
---------------------------------------------------------- -------------- --------------
Underlying operating profit 612 589
Net financial expense (137) (128)
Underlying profit before tax 475 461
---------------------------------------------------------- -------------- --------------
Movement in available cash net of debt 251 267
Add:
Dividends paid to ordinary and non-controlling interests 153 132
Acquisition of subsidiaries net of cash acquired 21 10
Investment in joint ventures, associates and other
investments 27 14
Net pre-delivery payments for aircraft (18) 4
Proceeds from other investments (31) -
Free cashflow 403 427
---------------------------------------------------------- -------------- --------------
Cash conversion 85% 93%
---------------------------------------------------------- -------------- --------------
13. Earnings per share
The basic earnings per share is calculated by dividing the
result attributable to ordinary shareholders by the applicable
weighted average number of shares in issue during the year,
excluding those held in the Employee Benefit Trust. The diluted
earnings per share is calculated on the result attributable to
ordinary shareholders divided by the adjusted potential weighted
average number of ordinary shares, which takes account of the
outstanding share awards and the impact of the conversion of the
convertible bonds, where their conversion is dilutive. The
additional underlying earnings per share measures have been
presented to provide the reader of the accounts with a better
understanding of the results.
Basic and diluted earnings per share are as follows:
Weighted Weighted
average average Earnings
no. Earnings Earnings no. per share
Earnings of shares per share 2013 of shares 2013
2014 2014 2014 GBPm 2013 Pence
GBPm Millions Pence (restated) Millions (restated)
---------------------------- ----------- ----------- ------------ ------------- ----------- -------------
Basic earnings per share 183 1,114 16.4 51 1,110 4.6
------------ -------------
Effect of dilutive options - 8 - 8
------------ -------------
Diluted earnings per share 183 1,122 16.3 51 1,118 4.6
---------------------------- ----------- ----------- ------------ ------------- ----------- -------------
For the statutory measure of diluted earnings per share, the
effects of including the convertible bonds are anti-dilutive in
both years and therefore this is not included within the
calculation.
Alternative measures of earnings per share
Weighted Weighted Earnings
average Earnings Earnings average per share
no. per 2013 no. 2013
Earnings of shares share GBPm of shares Pence
2014 2014 2014 (restated) 2013 (restated)
GBPm Millions Pence Millions
------------------------------ ----------- ------------ ----------- ------------- ------------ -------------
Basic earnings per share 183 1,114 16.4 51 1,110 4.6
----------- -------------
Acquisition related expenses
and impairments 96 253 -
Separately disclosed items (1) 24 -
Interest and tax on joint
ventures and associates 18 15 -
Separately disclosed tax
item 26 - -
Tax base difference 2 (9) -
------------------------------ ----------- ------------ ----------- ------------- ------------ -------------
Basic underlying earnings
per share 324 1,114 29.1 334 1,110 30.1
Effect of dilutive options - 8 - 8
Effect of convertible
bond (net of tax) 43 201 49 205
Diluted underlying earnings
per share 367 1,323 27.7 383 1,323 28.9
------------------------------ ----------- ------------ ----------- ------------- ------------ -------------
As disclosed in Note 6(i), following a review of the Group's
deferred tax balances in the year, the Directors have written off
GBP26m of deferred tax assets where there is no longer sufficient
certainty of the timing of any benefits that might arise in the
future. These charges have been treated as separately disclosed tax
items and have been excluded from the underlying earnings per share
calculations.
The tax base difference represents the remaining difference
between the actual tax charge in the consolidated income statement
(GBP175m) and the Group's underlying tax charge (GBP147m), as
disclosed below, after taking account of the separately disclosed
tax item.
Reconciliation of profit for the year attributable to ordinary
shareholders
Year ended
Year ended 30 September
30 September 2013
2014 (restated)
GBPm GBPm
-------------------------------------------------- --------------- ---------------
Profit attributable to ordinary shareholders 183 51
Result attributable to non-controlling interests 4 3
Profit for the year 187 54
-------------------------------------------------- --------------- ---------------
Reconciliation of underlying operating profit to underlying
earnings (Non-GAAP measure)
Year ended
Year ended 30 September
30 September 2013
2014 (restated)
GBPm GBPm
------------------------------------------ ------------- --------------
Underlying operating profit 612 589
Net underlying financial expenses (137) (128)
Underlying profit before tax 475 461
Underlying tax charge at 31% (2013:
27%) (147) (124)
Underlying profit for the year 328 337
Attributable to ordinary shareholders 324 334
Attributable to non-controlling interests 4 3
------------- --------------
Underlying profit for the year 328 337
------------------------------------------ ------------- --------------
14. Return on invested capital (Non-GAAP measure)
The Group has a roadmap to deliver sustainable long-term value
to shareholders with a return on invested capital (ROIC) greater
than the Group's post-tax weighted average cost of capital of 7.5%
(2013: 8.1%). This objective has been achieved again this year with
a ROIC of 14.6% (2013: 14.8%).
ROIC is defined as 'Underlying NOPAT' / 'Average Invested
Capital'. Underlying NOPAT is underlying net operating profit after
tax charged at the effective annual rate. 'Underlying' as a measure
of operating profit is defined in Note 1(C). As such, ROIC is
considered to be a non-GAAP measure of performance.
Average Invested Capital comprises an average of the net assets
(at the start and end of the year) of the Group, adjusted to add
back net debt, cumulative goodwill impairment charges and defined
benefit pension scheme net deficits. There is also an adjustment to
net debt to reflect a seasonal average cash balance.
Calculations for the current and prior years are:
Year ended Year ended
30 September 30 September
2014 2013
Return on invested capital GBPm GBPm
-------------------------------------------------- -------------- --------------
Underlying operating profit 612 589
Taxation at the underlying effective rate of 31%
(2013: 27%) (190) (159)
-------------------------------------------------- -------------- --------------
Underlying NOPAT 422 430
-------------------------------------------------- -------------- --------------
Net assets 1,644 1,491
Seasonal net debt adjustment 223 320
Cumulative goodwill impairment charge 378 378
Defined benefit pension net deficit 699 661
-------------------------------------------------- -------------- --------------
Invested Capital 2,944 2,850
-------------------------------------------------- -------------- --------------
Average Invested Capital 2,897 2,903
-------------------------------------------------- -------------- --------------
ROIC 14.6% 14.8%
-------------------------------------------------- -------------- --------------
15. Post balance sheet events
On 15 September 2014, the Independent Directors of the Company
and the Executive Board (Vorstand) of TUI AG announced that they
had reached agreement on the terms of a recommended all-share
nil-premium merger of the Company and TUI AG (the "merger"), to be
implemented by way of a scheme of arrangement of the Company under
Part 26 of the Companies Act 2006 (the "Scheme"). The scheme
document in connection with the Scheme, containing the notice of
the Court Meeting and Notice of General Meeting, was published on 2
October 2014 (the "Scheme Document").
At the Court Meeting of the Scheme Shareholders and the General
Meeting of the TUI Travel Shareholders, both held on 28 October
2014, the resolutions contained in the notice of the Court Meeting
and Notice of General Meeting were duly passed by the requisite
majorities. It is expected that the Court Hearing to sanction the
Scheme will be held on 10 December 2014 and that the Scheme will be
effective on 11 December 2014 (as set out in the Scheme Document).
Due to technical issues relating to the mechanics of depositing the
New TUI AG Shares with Clearstream and the crediting of a global
certificate representing those New TUI AG Shares to the securities
deposit account of Capita IRG Trustees Limited, the TUI AG DIs will
not be credited until 17 December 2014. Therefore, the admission to
listing and trading on the London Stock Exchange of TUI AG Shares
is expected to take place at 08.00 (GMT) on Wednesday 17 December
2014.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR ZMMGZLFRGDZM
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