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TUI Travel PLC (TT.)

  Print      Mail a friend       Annual reports

Thursday 02 December, 2010

TUI Travel PLC

Preliminary Results for the Y

RNS Number : 2394X
TUI Travel PLC
02 December 2010
 



TUI Travel PLC
Preliminary results for the year ended 30 September 2010

 

Key Financials

 


Underlying results1

Statutory results

£m

2010

pro forma2

2009 restated

Change%

2010

2009

restated

Revenue

13,525

13,851

 -2% 

13,400 

13,851 

Operating profit / (loss)

447

401

+11% 

81 

(5)

Profit / (loss) before tax

337

324

+4% 

(36)

(94)

Basic eps (pence)

22.0

20.0

+10% 

(7.8)

(4.8)

Dividend per share (pence)

11.0

10.7

+3% 

11.0 

10.7 

1Underlying operating profit and underlying profit before tax are from continuing operations and exclude separately disclosed items, amortisation of acquisition related expenses, goodwill impairment and joint ventures and associates. Underlying profit before tax also excludes separately disclosed financial expenses. Underlying earnings per share excludes the same items, net of related taxation.

2Pro forma, unaudited results for the period, reported before the estimated financial impact of the closures of European airspace as a result of volcanic ash. See note 1 for basis of preparation.

 

·

Pro forma underlying operating profit of £447m (2009 restated: £401m).

 

·

Good turnaround progress in the year, particularly in Canada, Germany scheduled flying and Nouvelles Frontières.

 

·

Social plan signed with employee representatives allows the implementation of the Corsair turnaround plan.

 

·

Differentiated products performed well in Summer 2010.

 

·

Sustained improvement in demand since July and trading for Winter 2010/11 and Summer 2011 remains positive.

 

·

Working capital improvements during the year resulted in a stronger than expected cash flow performance, with net debt lower at £249m (2009: £338m).

 

·

Final dividend of 7.8p per share, resulting in a full year dividend of 11.0p per share (2009: 10.7p).

 

Peter Long, Chief Executive of TUI Travel PLC, commented:

 

''In a difficult trading environment we have continued to achieve incremental synergy benefits and made good progress in delivering the turnaround opportunity during the year. The 2010 result was, however, affected by a weaker trading performance in the UK, primarily due to increased winter losses resulting from capacity-led volume reductions in anticipation of lower demand. The early summer period was disrupted by a number of factors that increased customer uncertainty, including the volcanic ash related airspace closures. We then experienced an improvement in demand later in the Summer period and trading closed out well in all source markets, including the UK.

 

In the three years since the merger we have achieved a number of key successes, including the successful delivery of the synergy programme, the exit from scheduled flying operations in the UK and Germany, and the strong position we have established in the difficult Canadian source market.



 

Our journey is not complete, however, and we have a number of remaining initiatives to drive further profit improvements. Of these, the turnaround of Corsair, our French airline, is a significant opportunity and the agreement with employee representatives we are announcing today is an important milestone towards making the airline viable.

 

We have seen sustained improvement in demand since July and recent trading for future seasons remains positive in most source markets. Whilst current booking activity is good, driven by demand for our differentiated products, we remain cautious about 2011 given the continued economic uncertainty and the relatively early stage of the booking cycle".

 

A presentation for analysts and investors will be held today at 9.45am (GMT) at RBS, 250 Bishopsgate, London EC2M 4AA. The presentation will also be webcast. For details of the webcast please visit www.tuitravelplc.com.

 

Enquiries:

 

Analysts and Investors


Paul Rushton, Director of Investor Relations

Tel: 01293 645 795



Press:


Lesley Allan, Corporate Communications Director

Tel: 01293 645 774

Michelle Jeffery, Corporate Communications Manager

Tel: 01293 645 776

Michael Sandler / Kate Hough (Hudson Sandler)

Tel: 020 7796 4133

 



 

CURRENT TRADING  AND OUTLOOK

 

Current Trading

 

Winter 2010/11

 

We have continued to see positive recent trading trends across most source markets. In line with our product strategy, we have expanded our portfolio of differentiated product and unique holiday experiences and this is driving booking activity.

 

YoY  customer booking variation %

Cumulative
bookings at 17 Oct

Bookings since previous trading statement

Cumulative
bookings at 21 Nov

 

 
 
 

UK

+6

+2

+5

Nordic Region

+32

+27

+31

Germany

+10

+9

+9

France

+13

-6

+8

Belgium

+15

+7

+12

Netherlands

+12

+18

+14

 

Current Trading1

Winter 2010/11

 
 
 


 
 
 

y-o-y variation%

Total ASP2

Total
Sales2

Total
Customers2

 
Risk Only
Capacity3
Left to sell3








MAINSTREAM







UK

+11

+16

+5


+5

+3

Nordic

Flat

+31

+31


+18

-18

Northern Region

+7

+21

+14











Germany

+2

+11

+9


+6

Flat

Austria

+7

+6

Flat




Switzerland

-2

-4

-1




Poland

-12

-2

+11




Central Europe

+1

+10

+8




 

 

 

 




France

+3

+11

+8




Belgium

-2

+11

+12




Netherlands

+6

+20

+14




Western Europe

+2

+13

+11




 

 

 

 




SPECIALIST & ACTIVITY

NA

+4

NA




A&D4

+7

+33

+25











1These statistics are up to 21 November 2010
2These statistics relate to all customers whether risk or non-risk

3These statistics include all risk capacity programmes

4These statistics refer to B2B Online businesses only and sales refer to total transaction value (TTV)

In the UK, as previously reported, capacity for the season is 5% higher due to a change in the fleet mix in Canada from B757s to smaller B737s which results in a higher number of B757s in the UK. Trading remains positive, with booking increases in line with the capacity change and higher average selling prices. Load factor is currently 47%. In November and December, two of Thomson Cruises' five ships are in extended dry dock for routine maintenance and the resulting reduction in contribution will partially offset improved trading in the tour operator in that period.

 

In the Nordic region, cumulative bookings are now up 31% versus the prior year and the load factor is 81%, up eight percentage points. Demand for our market leading portfolio of differentiated products, coupled with the successful use of an additional long-haul aircraft from our airline in France, is driving these strong booking volumes. Our product offering has been enhanced for Winter 2010/11 and Summer 2011 through co-operation with the UK business to bring the Splash, Holiday Village and Sensatori concepts to the Nordic region.

 



 

In Germany, booking volumes remain ahead of capacity with volumes up 9% versus the prior year. Due to the late timing of Easter and in response to demand we are commencing certain summer destinations earlier than usual and as these departure dates are reported as part of the winter season, reported 'winter' capacity is up 6%. Adjusting for this effect, underlying winter capacity is flat. Our load factor in Germany is currently 57%.

 

In the Western Europe source markets, the strong booking activity experienced towards the latter part of the summer season has continued into winter. In France, demand for our differentiated Nouvelles Frontières Hotel Clubs and Club Marmara products is a key driver of volume growth.

 

In the Specialist & Activity Sector, all divisions have experienced higher sales to date versus the prior year. Our private jet tours businesses, TCS and Starquest, have seen a strong rebound in booking activity as the number of tours has increased following the reduction in 2009/10. There has also been good growth in our market leading ski brand, Crystal.

 

In A&D, the strong booking volumes for online accommodation experienced in 2010 has continued with booking volumes, transaction values and margins all higher than the prior year.

 

Summer 2011

 

Trading for Summer 2011 remains good in those source markets currently on sale.

 

In the UK, total booking volumes are up 7% versus the prior year, driven by demand for our differentiated product and increased duration flexibility. Bookings for differentiated products are currently up 26% and we expect these products to represent half of all holidays sold over the full season. We have increased the flexibility in holiday durations significantly and have experienced strong demand for nine to twelve night durations.

 

Average selling prices in the UK are currently up 4% versus the prior year and given that Summer 2011 is expected to have minimal cost inflation (based on achieved hedged rates and current forward rates), margins are currently ahead of the prior year.

 

In the Nordic region, booking volumes are up 13%, again driven by our portfolio of differentiated products.

 

Current Trading 1

Summer 2011

 
 
 


 
 
 

y-o-y variation%

Total ASP2

Total
Sales2

Total
Customers2

 
Risk Only
Capacity3
Left to sell3








UK

+4

+11

+7


+1

Flat

Nordic

+1

+14

+13


+5

+4

Northern Region

+4

+11

+7











1These statistics are up to 21 November 2010
2These statistics relate to all customers whether risk or non-risk

3These statistics include all risk capacity programmes

 

Fuel/Foreign Exchange

 

We have hedged a significant proportion of our expected fuel and foreign exchange exposure for 2011:

 

 

 

Winter 2010/11

Summer 2011

Euro

 

87%

83%

USD

 

92%

85%

Jet Fuel

 

87%

86%

As at 25 November 2010

 

 

 

 

Corsair

 

After constructive and positive discussions, negotiations with employees and union representatives have been finalised, enabling Corsair to implement its turnaround plan. Employees have demonstrated strong support for the airline and a great willingness to deliver a successful turnaround. Social plans have been signed with the required employee representatives.



 

Under the turnaround project, we plan to change the fleet to replace three of our B747 aircraft with two A330 aircraft which will optimise capacity and route planning. Customers will enjoy a significantly improved onboard experience as we also reconfigure and update the cabins in the existing fleet.

 

We have agreed a number of significant productivity improvements with employee representatives, including a reduction in the number of employees by c.25%, a freeze on salaries for a period of three years, a reduced cabin crew composition and rationalisation of allowances.

 

We expect this restructuring programme to enable the airline to achieve at least a breakeven result. Material benefits from the programme are expected to start to come through in 2012 with the full benefits delivered in 2013.

 

Integration and cost efficiencies

 

The merger integration is now largely complete and we have delivered £195m of synergy benefit to date, with the remaining £5m expected to be delivered in 2011. As part of the integration process, we have identified and removed areas of duplicated cost. We are, however, continuing to review areas of our cost base to maintain competitiveness, especially in commodity segments. These include cost reductions and productivity improvements in Group airlines, replacement of core reservation systems in the UK and Germany, and an overhead reduction programme throughout the business.

 

Outlook

 

Since July, we have experienced a sustained improvement in trading which resulted in Summer 2010 closing out well in all source markets and positive trends for the Winter 2010/11 and Summer 2011 seasons. Trading for our unique, differentiated product continues to outperform commodity segments and we are introducing new concepts in 2011 leaving us well placed to capitalise on this trend. Whilst encouraged by current trading, we remain cautious about 2011 given the continued economic uncertainty and the relatively early stage of the booking cycle.

 

BUSINESS AND FINANCIAL REVIEW

 

Restatement of prior year results

 

As previously announced, a number of irrecoverable receivable balances totalling £117m have arisen as a result of failures to reconcile balances adequately in legacy systems in the retail and tour operator businesses in TUI UK. These balances are required to be written off and, as a result, we have restated the results for the year ended 30 September 2009. The adjustments to the results are non-cash in nature and have no impact on the company's cash and net debt position.

 

The completion of a detailed balance sheet audit and controls review by internal and external auditors leaves us confident there are no further accounting issues. In the remainder of this Business and Financial Review, we use the restated results as the 2009 comparator.

 

Group Performance

 

Year ended 30 September

 

 

Underlying results1

Statutory results

£m

2010

pro forma2

2009 restated

Change%

2010

2009

restated

Revenue

13,525

13,851

 -2% 

13,400 

13,851

Operating profit / (loss)

447

401

+11% 

81 

(5)

Profit / (loss) before tax

337

324

+4% 

(36)

(94)

Basic eps (pence)

22.0

20.0

+10% 

(7.8)

(4.8)

Dividend per share (pence)

11.0

10.7

+3% 

11.0 

10.7 

1Underlying operating profit and underlying profit before tax are from continuing operations and exclude separately disclosed items, amortisation of acquisition related expenses, goodwill impairment and taxation of results of the Group's joint ventures and associates. Underlying profit before tax also excludes separately disclosed financial expenses. Underlying earnings per share excludes the same items, net of related taxation.

2Pro forma, unaudited results for the period, reported before the estimated financial impact of the closures of European airspace as a result of volcanic ash. See note 1 for basis of preparation.



 

Group revenue was 2% lower than the prior year at £13,525m (2009 restated: £13,851m) driven by the impact of the strategic transactions in Canada and Germany scheduled flying which reduced revenue by 3%. Revenue from acquisitions increased revenue by 1% over the prior year whilst organic revenue was flat and the impact of foreign currency translation was neutral.

 

The Group achieved a £46m improvement in underlying operating profit to £447m in 2010 (2009 restated: £401m). This improvement has primarily been achieved through the delivery of integration synergies, the recovery of scheduled flying losses in Germany and the strategic venture in Canada, partially offset by weaker trading. The trading performance was driven by increased winter losses, especially in the UK source market following capacity-led volume reductions. Improved summer trading, including strong performances in Belgium and the Nordic region was not enough to offset the increased winter losses.

 

The main drivers of the year on year improvement in underlying operating profit are:

 

£m

 

2009 underlying operating profit

401

Incremental synergies

+75

Turnaround of underperforming businesses

+53

Trading

-76

Acquisitions (including Emerging Markets JV)

+4

Foreign exchange translation

-10

2010 underlying operating profit

447

 

 

 

A reconciliation of underlying operating profit to statutory operating profit / (loss) is as follows:

 

Year ended 30 September

2010

£m

2009

£m

Underlying operating profit

447 

401 

Separately disclosed items - operating (Note 3)

(181)

 (340)

Volcanic ash impact

(104)

Impairment of goodwill

(12)

(7)

Acquisition related expenses

(63)

(56)

Taxation on profits of joint ventures and associates

(6)

(3)

Statutory operating profit / (loss)

81 

(5)

 

 

 

 

Segmental Performance

 

As previously announced and consistent with the adoption of IFRS 8, which requires that an entity's operating segments are reported on the same basis as internally reported information, the results of joint ventures and associates are now reported within each relevant sector's result.

 

Northern Region

 

The Northern region achieved a 10% improvement in underlying operating profit to £182m in 2010 (2009: £166m). The improvement was largely driven by incremental merger synergies of £62m and an improved result in Canada following the strategic venture with Sunwing, partially offset by trading in the UK.

 



 

 

Underlying operating profit bridge
£m

UK & Ireland

Nordics

Canada

Northern Region

2009 (excl. JV's & Associates)

142 

46 

(24)

164 

2009 JV's & Associates

2009 (incl. JV's & Associates)

142 

48 

(24)

166 

Synergies

+62 

+62 

Turnaround

+2 

+19 

+21 

Trading

  -79 

+7 

           - 

-72 

Acquisitions               

               +2 

             - 

               +2 

FX translation

 - 

               +3 

+3 

2010 (incl. JV's & Associates)

127 

60 

(5)

182 

 

 

 

 

 

 

Northern Region

2010

 

2009

 

Change %

 

 

 

 

 

 

Customers ('000)1

 

 

 

 

 

UK and Ireland

 

5,399

 

5,687

 

-5%

Nordic

 

1,224

 

1,177

 

+4%

Total

 

6,623

 

6,864

 

-4%

 

 

 

 

 

 

Revenue (£'m)

 

 

 

 

 

UK and Ireland

3,392

 

3,245

 

+5%

Nordic

904

 

797

 

+13%

Canada1

52

 

168

 

-69%

Total

4,348

 

4,210

 

+3%

 

 

 

 

 

 

Underlying operating profit/(loss) (£m)

 

 

 

 

 

UK and Ireland

 

127

 

142

 

-11%

Nordic

 

60

 

48

 

+25%

Canada

 

(5)

 

(24)

 

+79%

Total

 

182

 

166

 

+10%

 

 

 

 

 

 

Underlying operating margin %

 

 

 

 

 

UK and Ireland

3.7%

 

4.4%

 

-70bps

Nordic

6.6%

 

6.0%

 

+60bps

Canada

n/a

 

n/a

 

n/a

Total

4.2%

 

3.9%

 

+30bps

 

 

 

 

 

 

1From 14 January 2010, our Canadian operations have been accounted for under the equity method and Canadian customer numbers have been excluded

 

UK & Ireland

 

The UK & Ireland businesses delivered an underlying operating profit of £127m (2009 restated: £142m).

 

Summer trading was not strong enough to offset increased losses in the winter season. Winter losses increased largely due to planned capacity reductions which, whilst ensuring that supply and demand were in balance, removed holidays from the programme that had previously made a positive contribution.

 

The summer trading performance was affected by a slowdown in bookings following a downturn in consumer confidence in the early summer. Consumer booking trends were affected by the recurrence of airspace closures caused by the volcanic ash, the emergency budget and subsequent austerity measures, and the better than average UK weather, combined with the expected quiet trading period during the World Cup. The slowdown resulted in more stock left to sell in the lates period than expected and although this period traded well, margins were inevitably affected by this shift to later booking patterns.

 

The expansion of unique products continued in 2010, helping to mitigate margin pressure in commodity products, with the differentiated product mix increasing by three percentage points to 42%. This included the opening of Sensatori Tenerife in May and the expansion of the First Choice Holiday Village portfolio with new units in Lanzarote and Rhodes.



 

Controlled distribution increased by three percentage points to 81% in 2010, driven by the online channel. This was supported by improvements in functionality to the Thomson and the First Choice websites and the success of personalised portals such as 'MyThomson', which allows customers to manage their bookings online.

 

Our business in Ireland delivered £2m of turnaround progress. A rationalisation in capacity resulted in an improved trading performance, helped by the high profile failure of a competitor. Furthermore, cost savings were achieved through back-office restructuring and optimisation of the distribution network, which included the introduction of a virtual call centre and a reduction in the number of retail shops.

 

Nordic Region

 

The Nordic region, consisting of our operations in Sweden, Norway, Denmark and Finland,achieved an improved underlying operating profit of £60m (2009: £48m).

 

The profit improvement was largely driven by a sharp improvement in customer demand coupled with successful capacity planning. The business is highly flexible as in-house flying accounts for only c.60% of all packages sold, allowing capacity to be adjusted to meet market demand. After reducing capacity in Summer 2009 and Winter 2009/10 in response to lower demand, the business was able to add capacity when demand improved for Summer 2010.

 

Demand for TUI Nordics holidays outstripped that for competitors' products as a result of multi-year investment in product and service differentiation which has contributed to strong improvements in customer satisfaction scores and repeat bookings. The range of unique products was further increased in 2010 with the opening of a Blue Village Exotic Aquamarine in Hurghada, the eco-friendly Blue Village Atlantica Caldera Creta Paradise and Blue Village Bellavista in Bulgaria.

 

As a part of the Nordic business' focus on sustainability, TUIfly Nordic became the first charter airline globally to achieve ISO14001 certification. Furthermore, during 2010 all Mediterranean Blue Villages achieved this certification.

 

The business has also invested in multimedia content to improve online product presentation and this has further promoted the web as the main distribution channel. Web-sales increased to 57% (2009: 52%). From Summer 2011, traditional holiday brochures will no longer be produced, emphasising the online culture within the business. Total controlled distribution was flat at 85% as we reduced the number of owned stores.

 

Canada

 

Canada reported an underlying operating loss of £5m (2009: loss of £24m). This represents a significant turnaround in our participation in Canada, and results from the completion of the strategic venture with Sunwing in January 2010. The transaction has strengthened our position in the Canadian market, providing the Group with a 49% stake in the second largest tourism business. On an annualised basis, assuming the strategic venture was effective for the full financial year, Canada would have delivered a profit of £2m in 2010.

 

We have identified opportunities to realise significant synergies in the venture, primarily though network planning benefits and actions to remove duplicated resources, such as migration to a single reservation system, integration of certain back office functions and consolidation of office premises. We estimate that our share of the synergy benefits is worth at least £8m per annum, resulting in a target of £10m for our share of the venture's profits.

 

Central Europe

 

The Central Europe division reported an underlying operating profit of £92m in 2010, an improvement of £21m over the prior year (2009: £71m). This improvement is principally due to the elimination of scheduled flying losses (£20m).

 



 

Underlying operating profit/(loss) bridge, £m

Germany

 

Austria

 

Switzerland

 

Poland

 

Central Europe

2009 (excl. JV's & Ass.)

65

 

8

 

-

 

(7)

 

66

2009 JV's & Ass.

5

 

-

 

-

 

-

 

5

2009 (incl. JV's & Ass.)

70

 

8

 

-

 

(7)

 

71

Turnaround

+20

 

-

 

-

 

+5

 

+25

Trading

-6

 

+1

 

+4

 

-

 

-1

Synergies

-

 

+1

 

-

 

-

 

+1

FX Translation

-3

 

-1

 

-

 

-

 

-4

2010 (incl. JV's & Ass.)

81

 

9

 

4

 

(2)

 

92

 

 

 

 

 

 

 

 

 

 

 

Central Europe

2010

 

2009

 

Change %

 

 

 

 

 

 

 

 

Customers ('000)

 

 

 

 

 

 

Germany

6,938

 

8,775

 

-21%

 

Austria

558

 

565

 

-1%

 

Switzerland

286

 

286

 

flat

 

Poland

116

 

104

 

+12%

 

Total

7,898

 

9,730

 

-19%

 

 

 

 

 

 

 

 

Revenue (£m)

 

 

 

 

 

 

Germany

3,800

 

4,144

 

-8%

 

Austria

324

 

405

 

-20%

 

Switzerland

183

 

185

 

-1%

 

Poland

68

 

62

 

+10%

 

Total

4,375

 

4,796

 

-9%

 

 

 

 

 

 

 

 

Underlying operating profit/(loss) (£m)

 

 

 

 

 

 

Germany

81

 

70

 

+16%

 

Austria

9

 

8

 

+13%

 

Switzerland

4

 

-

 

n/a 

 

Poland

(2)

 

(7)

 

+71%

 

Total

92

 

71

 

+30%

 

 

 

 

 

 

 

 

Underlying operating margin %

 

 

 

 

 

 

Germany

2.1% 

 

1.7%

 

+40bps

 

Austria

2.8% 

 

2.0%

 

+80bps

 

Switzerland

2.2%

 

-

 

+220bps

 

Poland

(2.9%)

 

(11.3%)

 

+840bps

 

Total

2.1% 

 

1.5%

 

+60bps

 

 

 

 

 

 

 

 

 

Germany

 

Underlying operating profit was £81m, an improvement of £11m (2009: £70m). Underlying operating margins also improved by 40bps to 2.1% (2009: 1.7%). This improvement was driven by the £20m benefit of exiting from scheduled flying operations. This transaction was also the primary driver behind the 21% reduction in customers in the year.

 

Trading in the tour operator deteriorated by £6m versus the prior year. This was largely as a result of weak trading in Q3 10, with lower load factors in June, lost sales following the volcanic ash disruption, price pressure on commodity product and by a shift in mix towards lower margin holidays (such as overland tours). Summer 2010 bookings improved significantly in the last quarter of 2010 with volumes up 14% in Q4 10 over the prior year, however the increased lates mix also led to a reduction in profitability. The result was also affected by foreign exchange translation losses of £3m.

 

Germany improved its controlled distribution by two percentage points to 51%. During 2010 the online brand 1-2-FLY.com was launched, offering dynamically packaged flight and hotel content.

 



 

Austria

 

Austria reported underlying operating profits of £9m (2009: £8m) and an improvement of 80bps in underlying operating margin to 2.8% (2009: 2.0%). Underlying margins improved by £1m over the prior year, due to growth in demand for differentiated hotel content, such as Magic Life, Pegasos and the Blue Collection, and an increase in online volumes. Controlled distribution increased by 10 percentage points to 31%.

 

Switzerland

 

Switzerland reported underlying operating profits of £4m and an underlying operating margin of 2.2%, a significant improvement over 2009's breakeven result. This was primarily as a result of margin improvement, driven by fewer holidays sold in the lates market versus prior year.

 

Poland

 

Poland reported an underlying operating loss of £2m in 2010 (2009: loss of £7m). Customer demand for the Summer 2010 programme was strong, with volumes up 24% over prior year in H2 10.

 

Western Europe

 

Western Europe reported underlying operating profits of £51m in 2010, an improvement of £18m over the prior year (2009: £33m). The improvement was largely driven by strong trading in Belgium and turnaround in Nouvelles Frontières.

 

Underlying operating profit / (loss) bridge, £m

France

 

Netherlands

 

Belgium

 

Western Europe

2009

(19)

 

 

45 

 

33 

Trading

+2 

 

 

+13 

 

+15 

Turnaround

+6 

 

+1 

 

 

+7 

Synergies

+3 

 

 

 

+3 

FX Translation

-4 

 

-1 

 

-2 

 

-7 

2010

(12)

 

 

56 

 

51 

 

 

 

 

 

 

 

 

 

Western Europe

2010

 

2009

 

Change %

 

 

 

 

 

 

Customers ('000)

 

 

 

 

 

France

2,031 

 

1,959 

 

+4%

Netherlands

1,211 

 

1,274 

 

-5%

Belgium

1,861 

 

1,790 

 

+4%

Total

5,103 

 

5,023 

 

+2%

 

 

 

 

 

 

Revenue (£m)

 

 

 

 

 

France

1,244 

 

1,228 

 

+1%

Netherlands

668 

 

700 

 

-5%

Belgium

754 

 

724 

 

+4%

Total

2,666 

 

2,652 

 

+1%

 

 

 

 

 

 

Underlying operating profit / (loss) (£m)

 

 

 

 

 

France

(12)

 

(19)

 

+37%

Netherlands

 

 

flat

Belgium

56 

 

45 

 

+24%

Total

51 

 

33 

 

+55%

 

 

 

 

 

 

Underlying operating margin %

 

 

 

 

 

France

(1.0%)

 

(1.5%)

 

+50bps

Netherlands

1.0% 

 

1.0% 

 

Flat

Belgium

7.4% 

 

6.2% 

 

+120bps

Total

1.9% 

 

1.2% 

 

+70bps

 

 

 

 

 

 

 

France

 

Underlying operating profit bridge, £m

Nouvelles Frontières

 

Corsair

 

Marmara

 

France

2009

(13)

 

(24)

 

18 

 

(19)

Turnaround

+6 

 

 

 

+6 

Trading

 

+1 

 

+1 

 

+2 

Synergies

+2 

 

 

+1 

 

+3 

FX Translation

-2 

 

-1 

 

-1 

 

-4 

2010

(7)

 

(24)

 

19 

 

(12)

 

 

 

 

 

 

 

 

 

France reported an underlying operating loss of £12m in 2010 (2009: loss of £19m). The £7m improvement was mainly due to continued turnaround in Nouvelles Frontières.

 

Nouvelles Frontières benefited from reduced costs following the restructuring implemented last year and from the successful introduction of the new Nouvelles Frontières Hotel Clubs concept and the extended flight programme out of regional airports in France. Online sales also increased by five percentage points to 17% of total bookings.

 

Marmara increased its market share across all of its destinations in the year and also successfully added new medium and long-haul destinations. Controlled distribution increased by three percentage points to 41%.

 

Collaboration between the two tour operators in France delivered incremental synergies of £3m in the year.

 

Corsair reported a flat underlying operating result. The scheduled flying market in France continues to be highly competitive and management is executing plans to make Corsair a viable airline in the future.

 

Netherlands

 

Netherlands reported an underlying operating profit of £7m (2009: £7m). Underlying operating margins improved in 2010 by £1m, driven by a three percentage increase in controlled distribution to 60% (2009: 57%). This was mainly due to strong online growth due to improved websites for Arke.nl and ArkeFly.nl. However, foreign exchange translation adversely affected the result by £1m.

 

Belgium

 

Belgium achieved a strong improvement in underlying operating profits to £56m (2009: £45m). Customer volumes increased by 4% over the prior year, driven by the launch of new destinations and growth in the offering from regional airports. Margins also improved as a result of a five percentage point increase in controlled distribution to 55%, driven by the online channel.

 

Specialist & Emerging Markets Sector

 

The Specialist & Emerging Markets Sector reported underlying operating profits of £19m in 2010 (2009: £31m). The decrease was driven by start up losses of £6m in Emerging Markets, and capacity cuts in our private jet tours business in the US, partly offset by better trading in the UK division.

 



 

Specialist & Emerging Markets

2010

 

2009

 

Change %

 

 

 

 

 

 

Customers ('000)

 

 

 

 

 

Europe

536 

 

530 

 

+1%

US

267 

 

290 

 

-8%

Total

803 

 

820 

 

-2%

 

 

 

 

 

 

Revenue (£'m)

 

 

 

 

 

Europe

547 

 

584 

 

-6%

US

170 

 

241 

 

-29%

Total

717 

 

825 

 

-13%

 

 

 

 

 

 

Underlying operating profit/ (loss)  (£m)

 

 

 

 

Europe

17 

 

16 

 

+6%

US

 

15 

 

-47%

Emerging Markets

(6)

 

 

n/a

Total

 

19 

 

32 

 

-41%

 

 

 

 

 

 

Underlying operating margin %

 

 

 

 

Total

2.6%

 

3.9%

 

-130bps

 

 

 

 

 

 

 

Europe

 

Underlying operating profit was £17m (2009: £16m). This was mainly as a result of margin improvement in some of the UK businesses, such as Hayes & Jarvis, Sovereign and Citalia, who were able to change the mix of holidays sold to a higher proportion of premium holidays in 2010.

 

US

 

The US division reported underlying operating profits of £8m (2009: £15m). The reduction in profits was due to the c.70% reduction in the number of tours operated by our US private jet tours business in Winter 2009/10, as the key booking period for this season was during the peak of the recession in the fourth quarter of 2008. Following a strong recovery in demand, we have increased the number of tours for the Winter 2010/11 season and the business is performing well.

 

Emerging Markets

 

This division reported underlying operating losses of £6m (2009 profit: £1m), due to our continued investment in market and product development in the businesses we acquired in Russia and the CIS. In 2010 the TUI brand was introduced into these markets, with the rebranding of the retail network, the launch of a TUI website and the co-branding of brochures. The division now has 480,000 customers, and a retail estate of over 150 travel agencies. The Russian & Ukrainian markets remain attractive, with the annual package market estimated to be between 8.5m to 10m customers.

 

Strong macroeconomic conditions, positive consumer behaviour and a growing appetite for travel make the markets of Brazil, India and China particularly interesting. The Group already has a presence in these markets however we are currently evaluating our participation strategy across all three markets.

 

Activity Sector

 

The Activity Sector delivered underlying operating profits of £61m in 2010 (2009: £59m), driven by £7m of profits from acquisitions and £2m of incremental synergies, offset by £6m due to weaker trading and a £1m loss from foreign exchange translation.

 



 

Activity

 

2010

 

2009

 

Change %

 

 

 

 

 

 

 

Revenue (£m)

 

 

 

 

 

 

Marine

 

134

 

131

 

+2%

Adventure

 

286

 

240

 

+19%

Ski, Student and Sport

 

448

 

445

 

+1%

Total

 

868

 

816

 

+6%

 

 

 

 

 

 

 

Underlying operating profit (£m)

 

 

 

 

Marine

 

16

 

19

 

-16%

Adventure

 

9

 

13

 

-31%

Ski, Student and Sport

 

36

 

27

 

+33%

Total

 

61

 

59

 

+3%

 

 

 

 

 

 

 

Underlying operating margin %

 

 

 

 

 

 

Total

 

7.0%

 

7.2%

 

-20bps

 

 

 

 

 

 

 

 

The Marine division reported underlying profits of £16m, a decrease of £3m versus the prior year (2009: £19m), primarily due to weak demand for the Winter 2009/10 programme.

 

The Adventure businesses reported underlying operating profits of £9m (2009: £13m). The annualisation of acquisitions made in the prior year contributed £3m of profit in 2010. However, underlying trading worsened by £7m, despite higher earnings at small group adventure operator Exodus, mainly due to weak demand in Australian Adventure and Polar Cruising. Our Australian businesses had a challenging time: Peregrine Adventures saw lower demand for higher priced long-haul travel; Adventure Tours Australia felt the effect of the strong Australian dollar which rendered outback experiences less affordable to their backpacker clients, although good progress has been made in extracting cost synergies following the combination of a number of similar businesses acquired in the last three years. Polar expedition specialist Quark had a difficult year, with clients reluctant to commit to their higher priced, iconic cruises in the uncertain economic climate.

 

The Ski, Student and Sports divisions increased underlying operating profits by £9m to £36m (2009: £27m). The divisions delivered strong trading growth of £3m, driven by growth in the Student businesses and a good year for the Sports division due to the Football World Cup, Vancouver Olympics and England's cricket tour to South Africa. Businesses acquired during the year, plus the annualisation of acquisitions made in the prior year, contributed £4m of incremental profit. In the Student division, the integration of new acquisitions (Hampstead School of English and the Manchester Academy of English) with our existing business, EAC Language Centres, has created a strong brand presence in the English language teaching industry. In the Ski division, Crystal, the UK's largest ski operator, experienced strong customer demand for its new Crystal Ski+ product which includes ski hire and lift pass in the package at highly competitive rates. The business also delivered incremental synergies of £2m, through the integration of the former TUI and First Choice ski businesses.

 

Accommodation & Destinations (A&D) Sector

 

The A&D Sector reported underlying operating profits of £71m in 2010 (2009: £67m). The underlying trading result was unchanged, with the increase driven by incremental merger synergies of £4m and a £1m contribution from the annualisation of prior year acquisitions, partially offset by foreign exchange translation losses of £1m.

 



 

Accommodation & Destinations

 

 

 

 


change %

 

 

 

 

 

 

Customers 

 

 

 

 

 

B2B roomnights

 

 

 

 

+23%

B2C roomnights

 

 

 

 

+17%

Incoming passenger volumes

 

 

 

 

-4%

 

 

 

 

 

 

 

2010

 

2009

 

change %

 

 

 

 

 

 

Revenue (£m)

551

 

552

 

Flat

 

 

 

 

 


Underlying operating profit  (£m)

71

 

67

 

+6%

 

 

 

 

 

 

Underlying operating margin %

12.9%

 

12.1%

 

+80bps

 

 

 

 

 

 

 

Within the flat underlying trading result, the B2B and B2C online businesses have benefited from strong volume growth and improved conversion rates. Profitability was offset, however, by start-up investment in new markets within the online businesses and the impact of reduced tour operator volumes in the incoming business and reduced activity in our Asian Meetings, Incentives, Conferences and Entertainment business which suffered from reduced corporate spending in the early part of the year.

 

Segmental structure

 

In June we announced a new segmental structure to be effective from 1 October 2010. The main change was the merger of the Specialist and Activity sectors. As part of this restructure, the Emerging Markets Sector operates as a standalone entity reporting directly to the Chief Executive and some of the European specialist businesses transferred to the Mainstream and A&D sectors. Two new divisions are now reported: Southern Europe includes continental European businesses in Spain and Italy transferred from Specialist & Emerging Markets; Hotels includes hotel management companies and joint ventures in hotel assets previously reported in the Nordics region. In this Business and Financial Review we report the segmental results under the existing structure, but future reporting will be on the new structure.

 



 

The segmental revenue and underlying operating profits under the new structure are shown in the table below:

 

£m

Revenue

Underlying operating profit

 

 

 

Germany

3,800

81 

Switzerland

183

Austria

324

Poland

68

(2)

Central Europe

4,375

92 

 

 

 

UK & Ireland

3,392

127 

Nordic

864

56 

Canada

52

(5)

Hotels

40

Northern Region

4,348

183 

 

 

 

France Airline

343

(24)

France Tour Operator

967

14 

Netherlands

668

Belgium

754

56 

Southern Europe

131

Western Europe

2,863

57 

 

 

 

Total Mainstream

11,586

332 

 

 

 

Emerging Markets

-

(7)

Specialist & Activity

1,352

78 

A&D

587

73 

Group

-

(29)

 

 

 

TOTAL

13,525

447 

 

Acquisitions

 

 

In Canada, we entered into a strategic venture with Sunwing, a leading Canadian tour operator. Under the terms of the deal, TUI Travel contributed its Canadian operations plus a net C$102m and Sunwing contributed its operations to the strategic venture. TUI Travel received a 49% interest in the strategic venture, with Sunwing's owners receiving 51%.

 

TUI Nordic acquired 51% of WonderCruises which is the fastest growing cruise tour operator in the Nordic region. This acquisition makes TUI Nordic well placed to participate in the rapidly expanding Nordic cruise market.

 

Also in the Mainstream Sector, we have invested in a hotel management company in Turkey and a number of small travel agencies in Germany.

 

In the specialist sectors, we made six bolt-on acquisitions, including:

 

·

Consolidation of our leading position in the student sports tours market with the acquisition of SET Sports Tours, which organises sports tours and festivals for schools, clubs, and universities.

 

·

Expansion of our presence in the English language teaching market with the acquisition of the Hampstead School of English and Manchester Academy.

 

·

Acquisition of Select Tours, Australia's premier cruise handling operator, strengthening our leading position in the global cruise handling market.

 

 

Taxation

 

Underlying profit before tax excluding joint ventures and associates for the year was £348m. The effective tax rate on these profits is 27.5%. Based on the current structure of the business and existing local taxation rates and legislation, it is expected that the underlying tax rate will be maintained at this level.



 

The cash tax rate is expected to be lower than the underlying income statement tax rate as we utilise our deferred tax assets generated from restructuring expenditure and trading losses. In the coming year, we envisage a cash tax rate of approximately 20% of underlying profit before tax.

 

Earnings per share

 

Underlying basic earnings per share was 22.0p (2009 restated: 20.0p). Basic loss per share from continuing operations was 7.8p (2009 restated: 4.8p).

 

Dividends

 

The Board is recommending a final dividend of 7.8p per share (2009: 7.7p). On 11 May 2010, the Board recommended an interim dividend of 3.2p per share (2009: 3.0p), making a full year dividend of 11.0p per share (2009: 10.7p). This represents a payout ratio of 50% of underlying basic earnings per share. The final dividend will be paid on 1 March 2011 to holders of relevant shares on the register at 2 February 2011.

 

The Group's policy is to maintain underlying dividend cover at around two times. We intend to continue to operate a dividend re-investment plan as an alternative to receiving a cash dividend.

 

Cash and liquidity

 

The net debt position (loans, bonds, overdrafts and finance leases less cash and cash equivalents) at the year end was £249m (2009: £338m). This consisted of £1,304m of cash and £1,553m of interest-bearing loans and liabilities.

 

The reduction in net debt was primarily driven by an improved working capital performance as a result of:

 

·    

Increased customer payments received in advance following strong booking activity for future seasons; and

 

·    

Ongoing implementation of cash management initiatives, including: increased deposit levels and early payment of final customer balances; renegotiations with suppliers, particularly on hotel prepayments; and management focus on cash.

 

We undertook a number of financing actions in the year, including:

 

·   

An issue of £350m of convertible bonds due in October 2014;

 

·   

An issue of £400m of convertible bonds due in April 2017; and

 

·   

Additional revolving credit facilities of £150m, maturing in June 2012.

 

 

Following the repayment of €509m on 1 December 2010, we have now repaid most of the shareholder loan with the final repayment of €160m scheduled for 30 April 2011.

 

In addition to the above, we have existing credit facilities of £910m which mature in June 2012. Given the Group's current facilities and current cash flow forecasts, the Board remains satisfied with the Group's funding and liquidity position. Fixed charges cover and the ratio of net debt to EBITDA, which we believe to be the most useful measures of cash generation and gearing, were 2.0x and 0.4x respectively at the year end (2009 restated: 1.9x and 0.6x respectively). Fixed charges cover is defined as EBITDA before operating lease rentals charge divided by net interest plus operating lease rentals. EBITDA is defined as earnings before interest, tax, depreciation and amortisation and is calculated on an underlying basis.

 

Pension deficit

 

The net accounting pension deficit at the year end was £493m (2009: £500m). The cash contribution to fund the pension deficit was £64m in 2010. We are in discussions with Trustees which may reduce the annual cash contribution by transferring certain assets into the schemes.



 

Consolidated income statement

for the year ended 30 September 2010                                                                                                 






Restated 



Year ended 

Year ended 

Year ended 

Year ended 



30 September 

30 September 

30 September 

30 September 



2010 

2010 

2010 

2009 (A) 



Unaudited 

Unaudited 





pro forma 

pro forma 





before impact

impact of





of Volcanic ash

Volcanic ash (A)

Statutory

Statutory

 

Note

£m 

£m 

£m 

£m 

Continuing operations

Revenue

 

2

13,525 

(125)

13,400 

13,851 

Cost of sales


(12,238)

21 

(12,217)

(12,735)

Gross profit / (loss)


1,287 

(104)

1,183 

1,116 

 





 

Administrative expenses


(1,099)

(1,099)

(1,130)

Share of (losses) / profits of joint ventures and associates


(3)

(3)

Operating profit / (loss)


185 

(104)

81 

(5)

 Analysed as:





 

Underlying operating profit / (loss)

1, 2

447 

(35)

            412 

401 

Separately disclosed items

3

(181)

(69)

(250)

(340)

Acquisition related expenses


(63)

(63)

(56)

Impairment of goodwill


(12)

(12)

(7)

Taxation on profits and interest of joint ventures and associates


(6)

(6)

(3)

 


185 

(104)

81 

(5)

 





 

Financial income

4



69 

72 

Financial expenses

4



(186)

(161)

Net financial expenses




(117)

(89)

 





 

Loss before tax




(36)

(94)

Taxation (charge) / credit

6



            (50)

42 

Loss for the year from continuing operations




(86)

(52)

Discontinued operation





 

Loss from discontinued operation




(18)

(14)

Loss for the year




(104)

(66)

 





 

Attributable to:





 

Equity holders of the parent




(104)

(67)

Non-controlling interests




Loss for the year




(104)

(66)

 


 

 

Pence 

Pence 

Basic and diluted loss per share (pence) for loss attributable to the equity holders of the Company during the year


 

 

 

 

- basic and diluted: from continuing operations

9

 

 

(7.8)

(4.8)

- basic and diluted: from discontinued operation

9

 

 

(1.6)

(1.3)

 

(A) Refer to 'Basis of Preparation' within note 1 of the financial statements for details

 

 

Non-GAAP measures              

 

Reconciliation of underlying operating profit to underlying profit before tax

 





 

Year ended

 30 September 2010

Restated

Year ended

 30 September 2009

 


 

 

£m 

£m 

Underlying operating profit

1 / 2

 

 

447 

401 

Net underlying financial expenses

4

 

 

(110)

(77)

Underlying profit before tax


 

 

337 

324 

 



 

Consolidated statement of comprehensive income

for the year ended 30 September 2010

 

 



Restated 

 


Year ended 

 30 September  2010 

Year ended 

30 September  2009 


Note


£m 

£m 

Loss for the year



(104)

(66)

Other comprehensive (expense) / income





Foreign exchange translation


(88)

129 

Actuarial losses arising in respect of defined benefit pension schemes


(42)

(271)

Cash flow hedges:




 - movement in fair value


33 

(60)

 - amounts recycled to the consolidated income statement


41 

(81)

Foreign exchange gains recycled through the consolidated income statement


(6)

Share of other movements in reserves of associates and joint ventures


Changes in the fair value of available for sale financial assets


(4)

(1)

Deferred tax on items taken directly to equity

6(iii)

(9)

105

Other comprehensive expense for the year net of income tax



(73)

(179)

Total comprehensive expense for the year



(177)

(245)






Total comprehensive expense for the year




Attributable to:




Equity holders of the parent


(177)

(247)

Non-controlling interests



Total



(177)

(245)

 



 

Consolidated balance sheet

at 30 September 2010

 




Restated 

Restated 



30 September 

30 September 

1 October 



2010 

2009 

2008 

 

 

£m 

£m 

£m 

Non-current assets

 

 

 

 

Intangible assets

 

4,659 

4,737 

4,429 

Property, plant and equipment

 

1,012 

964 

926 

Investments in joint ventures and associates

 

211 

112 

114 

Other investments

 

79 

77 

56 

Trade and other receivables

 

156 

194 

210 

Retirement benefit asset

 

17 

Derivative financial instruments

 

21 

13 

48 

Deferred tax assets

 

114 

211 

205 

 


6,253 

6,309 

6,005 

Current assets



 

 

Inventories

 

49 

51 

51 

Other investments

 

36 

29 

Trade and other receivables

 

1,404 

1,482 

1,599 

Income tax recoverable

 

34 

30 

29 

Derivative financial instruments

 

144 

271 

273 

Cash and cash equivalents

 

1,304 

790 

1,130 

Assets classified as held for sale

 

57 

126 

157 

 


2,992 

2,786 

3,268 

 


 

 

 

Total assets


9,245 

9,095 

9,273 

 



 

 

Current liabilities



 

 

Interest-bearing loans and borrowings

 

(757)

(327)

(99)

Retirement benefits

 

(5)

(3)

(2)

Derivative financial instruments

 

(122)

(284)

(178)

Trade and other payables

 

(4,301)

(4,220)

(4,073)

Provisions

 

(236)

(189)

(235)

Income tax payable

 

(84)

(67)

(89)

Liabilities classified as held for sale

 

(31)

(59)

(22)

 


(5,536)

(5,149)

(4,698)

Non-current liabilities


 

 

 

Interest-bearing loans and borrowings

 

(796)

(801)

(1,167)

Retirement benefits

 

(489)

(498)

(268)

Derivative financial instruments

 

(23)

(18)

(50)

Trade and other payables

 

(93)

(108)

(149)

Provisions

 

(307)

(250)

(180)

Deferred tax liabilities

 

(28)

(97)

(235)

 


(1,736)

(1,772)

(2,049)

 


 

 

 

Total liabilities


(7,272)

(6,921)

(6,747)

 



 

 

Net assets


1,973 

2,174 

2,526 

 



 

 

Equity



 

 

Share capital

 

112 

112 

112 

Convertible bond reserve

 

83 

Other reserves

 

2,772 

2,775 

2,749 

Retained deficit

 

        (995)

(716)

(340)

Total equity attributable to equity holders of the parent

 

1,972 

2,171 

2,521 

Non-controlling interests

 

Total equity

 

1,973 

2,174 

2,526 

 

The financial statements were approved by a duly authorised Committee of the Board of Directors on 1 December 2010 and signed on its behalf by:

 

Paul Bowtell

Chief Financial Officer



 

Consolidated statement of changes in equity

 






















Share

 Convertible bond

Merger

Translation

Hedging

Retained

Equity holders

Non -controlling



capital

reserve

reserve

reserve

reserve

deficit

of parent

interests

Total

 

£m 

£m

£m 

£m 

£m

£m 

£m 

£m 

£m 

At 1 October 2008 (as previously reported)

112 

2,490 

232 

27 

(270)

2,591 

2,596 

Restatement (Note 1(C))

-  

-  

(70)

(70)

(70)

Restated balance at

1 October 2008

112 

2,490 

232 

27 

(340)

2,521 

2,526 

(Loss) / profit for the year (as previously reported)

 

 

 

 

 

 

 

 

(25)

 

 

(25)

 

 

 

 

(24)

Restatement (Note 1(C))

(42)

(42)

(42)

Restated (loss) / profit for the year

(67)

(67)

(66)

Other comprehensive income / (expense) for the year

 

 

 

 

 

 

 

 

 

Other comprehensive income / (expense)

128 

(102)

(206)

(180)

 1 

(179)

Restated total comprehensive  income / (expense) for the year

128 

(102)

(273)

(247)

(245)

Transactions with owners

 

 

 

 

 

 

 

 

 

Share-based payment (net of deferred tax)

16 

16 

16 

Dividends

(107)

(107)

(3)

(110)

Acquisition of non-controlling interests

 

 

 

 

 

(12)

 

(12)

 

(1)

 

(13)

Restated balance at

30 September 2009 

112 

2,490 

360 

(75)

(716)

2,171 

2,174 

 

 

 

 

Share 

Convertible bond

Merger 

Translation 

Hedging

  

Retained

Equity holders 

Non-controlling 



capital 

reserve

reserve 

reserve 

reserve

deficit

of parent 

interests 

Total 

 

£m 

£m

£m 

£m 

£m

£m 

£m 

£m 

£m 

At 1 October 2009 (as previously reported)

112 

2,490 

360 

(75)

(604)

2,283 

2,286 

Restatement (Note 1(C))

(112)

(112)

(112)

Restated balance at 1 October 2009

112 

2,490 

360 

(75)

(716)

2,171 

2,174 

Loss for the year

(104)

(104)

(104)

Other comprehensive (expense) / income for the year

 

 

 

 

 

 

 

 

 

Other comprehensive (expense) / income for the year

(59)

56 

(70)

(73)

(73)

Total comprehensive (expense) / income for the year

(59)

56 

(174)

(177)

(177)

Transactions with owners

 

 

 

 

 

 

 

 

 

Share-based payment (net of deferred tax)

20

20 

20 

Acquisition of own shares

(7)

(7)

(7)

Dividends

(118)

(118)

(2)

(120)

Issue of convertible bonds (net of deferred tax)

 - 

83

83 

83 

At 30 September 2010

112 

83

2,490 

301 

(19)

(995)

1,972 

1,973 

 

 

 



 

Consolidated statement of cash flows

for the year ended 30 September 2010

 



 

Year ended 

Restated 

Year ended 



30 September 

30 September 



2010 

2009 

 

Note

£m 

£m 

Loss for the year


(104)

(66)

 



 

Adjustment for:



 

Depreciation and amortisation


261 

287 

Impairment of intangible assets and property, plant and equipment


27 

132 

Equity-settled share-based payment expenses


14 

16 

Loss / (profit) on sale of property, plant and equipment

5

1   

(12)

Share of loss / (profit) of joint ventures and associates


(9)

Loss / (gain) on foreign exchange

5

14 

(23)

Change in value of trade investment


(30)

-

Dividends received from joint ventures and associates


10 

Financial income

4

(69)

(72)

Financial expenses

4

186 

161 

Loss from discontinued operation


18 

14 

Taxation


50 

(42)

Operating profit before changes in working capital and provisions


380 

396 

 



 

Decrease / (increase) in inventories


(2)

Decrease in trade and other receivables


34 

93 

Increase / (decrease) in trade and other payables


100 

(141)

Increase / (decrease) in provisions and employee benefits


93 

(23)

Cash flows from operations


608 

323 

 


 

 

Interest paid


(59)

(68)

Interest received


Income taxes paid


(34)

(43)

Cash flows from operating activities


517 

218 

 



 

Investing activities



 

Proceeds from sale of property, plant and equipment


26 

161 

Proceeds from disposal of associated undertakings net of cash disposed of


Acquisition of subsidiaries net of cash acquired


(51)

(48)

Acquisition of non-controlling interests


(3)

Proceeds from other investments


Investment in joint ventures, associates and other investments


(90)

(51)

Acquisition of property, plant and equipment and software


(204)

(234)

Cash flows from investing activities


(309)

(175)

 



 

Financing activities



 

Proceeds from new loans and deposits taken


768 

17 

Repayment of borrowings


(257)

(280)

Repayment of finance lease liabilities


(31)

(22)

Ordinary and minority interest dividends paid


(120)

(110)

Acquisition of shares for share-based payments


(7)

Cash flows from financing activities


353 

(395)

 


 

 

Net increase / (decrease) in cash and cash equivalents


561 

(352)

Cash and cash equivalents at start of the year


790 

1,130 

Reclassification of cash to assets classified as held for sale


(4)

Effect of foreign exchange on cash held


(47)

16 

Cash and cash equivalents at end of the year


1,304

790 

 

Movements in cash and net debt are presented in Note 8. 

 



 

Notes to the consolidated financial statements

 

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 2010.  Financial Statements for the year ended 30 September 2010 will be delivered to the registrar of companies in due course.  KPMG Audit Plc has reported on these accounts; their report was (i) unqualified, (ii) did not include a reference to any 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) Statement of compliance

The accounting policies applied by the Group in its consolidated financial statements for the year ended 30 September 2010 are in accordance with International Financial Reporting Standards as adopted by the European Union (Adopted IFRSs).  The accounting policies have been applied consistently to all periods presented in the consolidated financial statements.

 

 (C) Restatement

On 10 August 2010, as part of its unaudited results for the third quarter (nine months ended 30 June 2010), TUI Travel PLC reported that following completion of the integration of IT systems in its UK mainstream business, it had written off a number of legacy receivable balances that had built up over an extended period of time, amounting in total to £29m. This balance was reported as a separately disclosed item.

 

The audit for the full year ended September 2010 highlighted a further £88m of irrecoverable balances that needed to be written off, giving a total of £117m. These have arisen as a result of failures to reconcile balances adequately in legacy systems in the retail and tour operator businesses in TUI UK. As a result, TUI Travel PLC has restated its results for the year ended 30 September 2009.

 

The adjustments to the results are non-cash in nature and have no impact on the Group's cash and net debt position. As a result of process improvements during the year, the impact in 2010 has been limited to £5m.

                                                                      

The components of the restatement, including the 2010 impact, are summarised in the table below:

 

£m                                                                   

2010

2009

Pre 2009

Total

Revenue overstatement

5

12

70

87

Release of unmatched credits

-

30

-

30

Total

5

42

70

117

 

 

Revenue overstatement

In 2004, the UK tour operator, Thomson, implemented a new Retail booking system into its distribution network of shops, call centres and website.  As part of that implementation, some controls were put in place to ensure that the new Retail booking system was recording the same data as the existing Tour Operating system.  In the main, these controls operated well for the first few years of the new system and any differences found as part of the recent investigation were minimal.

 

Subsequently, as part of a drive for further cost savings and efficiencies, processes around the two systems were streamlined, roles were consolidated and parts of the process were transferred to an outsource provider in India.  As a result, it is now understood that control weaknesses arose and the level of differences between the two systems grew.  These differences arose because transaction data was not accurately reflected in the Retail shops.  Discounts given on the price of holidays, cancellation fees and administration fees for changes to holiday bookings were inaccurately recorded by travel agents as a price change as opposed to being allocated to the relevant category within the Retail booking system.  This led to an overstatement in revenue in the Tour Operator and a mismatch with the cash actually received from the customer that was booked in the Retail booking system. 

 



 

When the tourism business of TUI AG merged with First Choice Holidays PLC on 3 September 2007, a key part of the business plan was the integration of the two UK tour operator businesses, Thomson and First Choice.  As part of that business merger it was decided to co-locate the businesses in Luton (the Thomson headquarters) and integrate the First Choice business on to the Thomson systems.  The systems changeover occurred in 2008 and as a result the volumes going through the systems increased.  Furthermore, the strategic initiative to increase controlled distribution in the business also meant that the volumes going through internal channels were growing steadily. These changes caused the level of overstated revenue to increase, reaching a peak in 2008.  Subsequently, in 2009 as a result of the introduction of a new front-end selling system in the in-house retail stores, tighter controls were placed on the retail agent whereby discounts, cancellation fees and administration fees had to be booked to the appropriate category in the system and accordingly these operational changes meant that the level of overstated revenue started to fall.  Further actions taken in 2010 further improved the situation.

 

Over a period of seven years the level of overstated revenue amounted to £87m with £5m arising in 2010, £12m in 2009 and the balance of £70m prior to the year ending 30 September 2009.  The result of this revenue overstatement has been to reduce the 2009 profit by £12m and reduce the opening reserves as at 1 October 2008 by £70m.

 

Release of unmatched credits

As a consequence of the systemic deficiencies in the revenue recognition process that resulted in the overstatement referred to above, unmatched credits built up in the books of the retailer.  These unmatched credits were deemed by UK management to be surplus to requirements in 2009 and were accordingly released to cost of sales in the profit and loss account in that year.  Had the systemic errors in the revenue recognition process been identified and addressed at the time, these unmatched credits would not have existed as they would have been appropriately matched off.  It is now evident that the analysis carried out, the judgements made and the processes undertaken at the time to book the release of these unmatched credits in the records of the entity concerned were inappropriate and that the information provided to both Group management and to the external auditors was inaccurate. Accordingly, the release of unmatched credits has now been reversed in the restated income statement for the year ended 30 September 2009.

 

Tax

The associated tax benefits have not been recognised as the legal entities impacted already had unrecognised tax losses.  The effect of the restatement is therefore to increase the unrecognised tax losses. 

 

The tables below show the impact of the restatement on the relevant Consolidated income statement and balance sheet lines.

 

Prior year comparatives have been restated for the following items.

 

Consolidated income statement

 

Year ended

30 September 2009

 

 

 

Revenue

 

 

 

Cost of sales

 

Operating profit / (loss)

 

Underlying operating profit

 

 

 

Loss before tax

 

Loss from the year from continuing operations








 

£m

£m

£m

£m

£m

£m

Originally reported

13,863 

(12,705) 

37 

443 

(52)

(10) 

Correction

(12)

(30) 

(42)

(42)

(42)

(42) 

Restated

13,851 

(12,735) 

(5)

401 

(94)

(52) 

 

Earnings / (loss) per share

 

Year ended

30 September 2009

Earnings per share - Continuing Operations

Underlying Earnings per Share

 

Basic

Diluted

Basic

Diluted

 

Pence

Pence

Pence

Pence

Originally reported

(1.0)

(1.0)

23.8 

23.5 

Correction

(3.8)

(3.8)

(3.8)

(3.7)

Restated

(4.8)

(4.8)

20.0 

19.8 

 



 

Consolidated balance sheet

 


30 September 2009

30 September 2008

 

Current trade and other receivables

 

Current trade and other payables

Equity

 

Current trade and other receivables

 

Current trade and other payables

Equity

 

£m

£m

£m

£m

£m

£m

Originally reported

1,536 

(4,162)

2,286

1,653

(4,057)

2,596

Correction

(54)

(58)

(112)

(54)

(16)

(70)

Restated

1,482 

(4,220)

2,174

1,599

(4,073)

2,526

 

 

(D) Pro forma financial information

An unaudited pro forma income statement for the year ended 30 September 2010 has been prepared by the Directors, on the pro forma basis described below.  This is to illustrate the estimated financial effect on the Consolidated income statement in the current year of the unprecedented closure of UK and European airspace, following the eruption of the Eyjafjallajokull volcano in Iceland in April 2010.  During this period of closure and the period to resumption of a full flying schedule, from 15 April to circa 23 April 2010, the Group's ability to earn revenue from package holidays and flights was severely impacted and the Group incurred costs associated with disruption caused to holidays in progress and stranded passengers.

 

The unaudited pro forma information is presented alongside the Consolidated income statement.  This is to provide information which the Directors consider helps to provide a better understanding of the underlying performance of the business.  The differences between the unaudited pro forma income statement information and the consolidated statutory income statement for the year are summarised as follows: 

 

·     

The pro forma income statement excludes the estimated incremental direct costs incurred by the Group in respect of welfare costs to accommodate and repatriate the customers who were affected by the closure of European airspace.  These costs principally include hotel costs for stranded inbound and outbound customers and the cost of repatriation of inbound customers.  These costs amount to £69m.

·     

The pro forma income statement includes the estimated revenue (£93m) and estimated attributable cost of sales and administrative expenses (£68m) from holidays and flights which were both booked and paid for prior to the closure of the airspace but which were cancelled or unable to depart during the affected period (a foregone gross profit contribution of £25m).  

·     

The pro forma income statement also includes an estimated reduction in holiday and flight sales of £32m and cost of sales of £22m in the immediate period after 23 April 2010, as a result of the uncertainty from both the original closure of airspace and further additional closures and disruption in May, particularly in the UK.  This impact, in terms of foregone gross profit contribution, is estimated at £10m.

·     

Certain customers whose holidays and / or flights were cancelled will have subsequently re-booked their holiday once full holiday and flying operations commenced again after 23 April 2010.  It is not possible to reliably track such re-bookings.  It is also not possible to demonstrate that the re-booked holiday capacity would not otherwise have been sold and made a positive contribution, given the ability of the Group to sell and distribute holidays up until the date of departure.  Consequently no adjustment has been to reflect an estimate of such possible re-bookings in the pro forma information.

·     

The pro forma income statement does not include the estimated benefit of lost revenue and positive contribution which would have arisen from sale of further holidays during the airspace closure period from 15-23 April 2010 in the 'lates' market which would otherwise have departed during this period.

 



 

A detailed analysis of the impact on the pro forma income statement due to the volcanic ash disruption is shown in the table below:

 

 

Cancellations

Estimated impact

Incremental

 

 

15-23 April

post 23 April

costs

Total 

 

£m 

£m 

£m 

£m 

Revenue

(93)

(32)

(125)

Cost of sales

68 

22 

(69)

21 

Gross profit

(25)

(10)

(69)

(104)

 

 

 

 

 

Separately disclosed items ('SDI')

(69)

(69)

Non SDI

(25)

(10)

-  

(35)

 

(25)

(10)

(69)

(104)

 

·     

The closure of UK and European airspace had no effect on the comparative year to 30 September 2009 and therefore no pro forma income statement is presented for this period.

 

(E) 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 IFRSs' GAAP measures.  The Group defines these underlying measures as follows:

 

Underlying operating profit is operating profit or loss from continuing operations stated before separately disclosed items (Note 3), acquisition related items, impairment of goodwill, interest and taxation on the Group's share of the results of joint ventures and associates.

 

Underlying profit before tax is profit or loss from continuing operations before taxation (Group and share of joint ventures and associates), acquisition related items, impairment of goodwill, the interest expense of joint ventures and associates and separately disclosed items included within both the operating result (Note 3) and net financial expenses (Note 4).

 

Underlying earnings used in the calculation of underlying earnings per share is profit after tax from continuing operations excluding acquisition related items, impairment of goodwill and separately disclosed items included within both the operating result (Note 3) and net financial expenses (Note 4) (net of related taxation).

 

It should be noted that the definitions of underlying items being used in these consolidated financial statements 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.

 

(F) Funding and Liquidity

The Board remains satisfied with the Group's funding and liquidity position.  The main sources of debt funding are:

 

1.

the shareholder loan from TUI AG, which is €669m and is being repaid as follows; 1 December 2010: €509m and 30 April 2011: €160m;



2.

a total of £1,060m syndicated bank revolving credit facilities which mature in June 2012;



3.

£40m of bonding and letter of credit facilities which mature in September 2011 and a further £50m which mature in June 2012;



4.

a £350m convertible bond (due 2014) issued on 1 October 2009 and settled on 5 October 2009; and



5.

a £400m convertible bond (due 2017) issued on 22 April 2010 and settled on 27 April 2010.

 

In addition to the above facilities a further £30m bonding and letter of credit facility which matures in

June 2012 was signed on 15 October 2010. 

 



 

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 currently well within the covenant limits.  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 in Note 1(E).

 

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.  In particular the Board believe that the funding already in place is sufficient to repay the Shareholder loan which will become payable as described above.

 

2. Segmental information

 

The Group has adopted IFRS 8 'Operating Segments' for the first time in the year. IFRS 8 requires segment 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 GMB.  The GMB consists of tour operating and functional experts drawn from across the Group that executes TUI Travel PLC's day-to-day operations and allocates resources to, and assesses the performance, of the operating segments. Consequently, the GMB is considered to be the chief operating decision maker.

 

The Group presents segment information in respect of its business segments. On the adoption of IFRS 8, the Group has determined new segments in line with the requirements of this standard. The Group's operating segments were previously defined as Mainstream (split between Central Europe, Northern Region and Western Europe), Specialist and Emerging Markets, Activity and Accommodation & Destinations Sectors. Under IFRS 8, the results of Germany, the UK & Ireland and Canada are shown separately from Central Europe and Northern Region respectively as these meet the threshold of being individual reportable segments. The French airline, Corsair, has been separately disclosed from the rest of Western Europe as it is the only scheduled airline consolidated within the Group and therefore has a different business model to the rest of the Group's integrated tour operators.  A more detailed explanation of each segment is included in the Business performance section of the Annual Report & Accounts. Comparative information has also been restated to reflect these new segments.

 

Certain Group operating segments have been aggregated into reportable segments where their activities are considered to be sufficiently similar in nature under the aggregation criteria of IFRS 8. The results of Nordics form the rest of Northern Region; Switzerland, Austria and Poland form the rest of Central Europe; and Belgium, the Netherlands and the French tour operating businesses form the rest of Western Europe.

 

Central 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 they are not allocated) are classified within all other segments.

 

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(E).  The GMB reviews revenues and underlying operating profit before the impact of the volcano.  Consequently, the segmental results are shown on a pre-volcano as defined in Note 1(D) basis and reconciled back to the statutory result.

 

Inter-segment sales and transfers reflect arms-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 debt position of the Group.

 

No one customer exceeds 10% of entity revenues in any segment. Impairment losses arising in the period relate to Specialist segments.  All impairment losses have been recognised in the profit and loss account.

 

Segment assets comprise capital expenditure (as this is the only measure of assets reported to the GMB) and represent the amounts purchased in the year. Capital expenditure is measured within the Group as non-business combination- related additions of intangibles and property plant and equipment.



 

Note that with effect from 1 October 2010, the Group has reorganised its business sectors.  The Mainstream Sector remains unchanged in terms of operating segments.  The Specialist Sectors have been refined and renamed to reflect the strategic priorities of TUI Travel as it develops.  The three Specialist Sectors are now called Accommodation & Destinations, Specialist & Activity and Emerging Markets.  Segmental information will be presented using this new structure throughout the forthcoming financial year ending 30 September 2011.

 

Year ended 30 September 2010

 

Sector

Total revenue

before impact of volcanic ash

Inter-segmental revenue

Total external revenue

Underlying operating profit / (loss) before joint ventures and associates and volcanic ash

Group's share of underlying operating profit of joint ventures and associates

Underlying operating

profit / (loss) before impact of volcanic ash

 

£m 

£m 

£m 

£m 

£m 

£m 

UK

3,453

(61)

3,392

127 

 - 

127 

Canada

52

 - 

52

(5)

(5)

Rest of Northern Region

967

(63)

904

58

60 

Total Northern Region

4,472

(124)

4,348

180 

182 

 

 

 

 

 

 

 

Germany

3,829

(29)

3,800

76 

81 

Rest of Central Europe

627

(52)

575

11 

11 

Total Central Europe

4,456

(81)

4,375

87 

92 

 

 

 

 

 

 

 

French Airline

399

(56)

343

(24)

(24)

Rest of Western Europe

2,336

(13)

2,323

75 

75 

Total Western Europe

2,735

(69)

2,666

51 

51 

 

 

 

 

 

 

 

Total Mainstream

11,663

(274)

11,389

318 

325 

 

 

 

 

 

 

 

Specialist & Emerging Markets

717

717

25 

(6)

19 

Activity

868

868

61 

61 

Accommodation & Destinations

760

(209)

551

61 

10 

71 

 

 

 

 

 

 

 

All other segments

(29)

(29)

 

 

 

 

 

 

 

Total Group

14,008

(483)

13,525

436 

11 

447 

 



 

Year ended 30 September 2009

 

Sector

Total Revenue

Inter-segmental revenue

Total external revenue

Underlying operating profit / (loss) before joint ventures and associates

Group's share of underlying profit of joint ventures and associates

Underlying operating profit / (loss)


£m

£m

£m 

£m 

£m 

£m 

UK (restated*)

3,332

(87)

3,245 

142 

142 

Canada

168


168 

(24)

(24)

Rest of Northern Region

878

(81)

797 

46 

48 

Total Northern Region (restated*)

4,378

(168)

4,210 

164 

166 

 







Germany

4,183

(39)

4,144 

65 

70 

Rest of Central Europe

654

(2)

652 

Total Central Europe

4,837

(41)

4,796 

66 

71 

 







French airline

432

(75)

357 

(24)

(24)

Rest of Western Europe

2,310

(15)

2,295 

57 

57 

Total Western Europe

2,742

(90)

2,652 

33 

33 

 







Total Mainstream (restated*)

11,957

(299)

11,658 

263 

270 








Specialist & Emerging Markets

825


825 

31 

32 

Activity

816


816 

59 

59 

Accommodation & Destinations

719

(167)

552 

60 

67 








All other segments

(27)

(27)








Total Group (restated*)

14,317

(466)

13,851 

386 

15 

401 

 

*Please refer to Basis of Preparation within Note 1 for details

 

Reconciliation of segmental analysis of revenue to statutory revenue

 




Restated 



Year ended 

30 September 

2010 

Year ended 

30 September 

2009 

 

Note

£m 

£m 

Total external revenue in segmental analysis


13,525 

13,851 

Pro forma impact of volcanic ash

1

(125)

Statutory revenue


13,400 

13,851 

 



 

Reconciliation of underlying operating profit to loss before tax

 




Restated 



Year ended 

30 September 

2010 

Year ended 

30 September 

2009 

 

Note

£m 

£m 

Group underlying operating profit disclosed above


447 

401 

Impact of volcanic ash

1

(35)



412 

401 

Separately disclosed items

3

(250)

(340)

Acquisition related expenses


(63)

(56)

Impairment of goodwill


(12)

(7)

Taxationon profits  and interest on joint ventures and associates


(6)

(3)

Operating profit / (loss)


81 

(5)

Net financial expenses

4

(117)

(89)

Loss before tax


(36)

(94)

 

Other segmental information

 


Capital expenditure


Total depreciation of property, plant and equipment and amortisation of intangible assets


30 September

30 September


30 September 

30 September


2010 

2009


2010 

2009


£m 

£m


£m 

£m

UK

188

63


84

Canada

1


3

Rest of Northern Region

15

19


9

7

Total Northern Region

203

83


93


 



 

 

Germany

24

28


35

35

Rest of Central Europe

2

4


4

4

Total Central Europe

26

32


39


 



 


French airline

22

26


22

25

Rest of Western Europe

22

33


37

49

Total Western Europe

44

59


59


 



 


Total Mainstream

273

174


191

214


 



 

Specialist & Emerging Markets

4

5


11

12

Activity

29

35


27

34

Accommodation & Destinations

17

16


32

27

All other segments

1

4


Total Group

324

234


261

287

 

Total depreciation of property, plant and depreciation and amortisation of intangible assets of £261m (2009: £287m) comprises £94m (2009: £103m) of amortisation of intangible assets and £167m (2009: £184m) of depreciation.



 

Reconciliation of capital expenditure to amounts included in the financial statements

 



Year ended 

Year ended 



30 September 

30 September 



2010 

2009 



£m

£m

Total Group capital expenditure as shown above


324 

234

Analysed as:


 


Additions to intangible assets


43

82

Additions to property plant and equipment


281

152



324

234

Reconciliation to the notes to the financial statements


 


Additions to intangible assets in segmental analysis


43

82

Additions to goodwill


1

3

Intangible assets: total additions


44

85



 


Additions to property plant and equipment in segmental analysis


281

152

Property plant and equipment: total additions


281

152

 

Group wide disclosures

 

The UK is the Group's parent company's country of domicile. Revenues from external customers and non-current assets are split geographically as follows:

 


 

UK

 

Germany

 

France

 

Other Europe

Rest of

the World

 

Total



Restated










Restated


2010 

2009 

2010 

2009 

2010 

2009 

2010 

2009 

2010 

2009 

2010 

2009 

 

£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 

Revenue from external customers

4,134

4,150

3,704

3,753

1,313

1,337

3,524

3,831

725

780

13,400

13,851

Non-current assets

2,685

2,598

639

643

735

779

856

955

756

726

5,671

5,701

 

United Kingdom revenue arises where the source of the supply is the United Kingdom.  In addition to the United Kingdom, revenue relating to an individual country is separately disclosed when it represents 10% or more of total revenue. 'Other Europe' is defined as Continental Europe and Eire excluding UK, Germany and France. Non-current assets for the table above includes intangible assets and property, plant and equipment and excludes all financial instruments, deferred tax assets and post-employment benefit assets in accordance with IFRS 8. 

 

3. Separately disclosed items

 


Year ended 

Year ended 


30 September 

2010 

30 September 

2009 

 

£m 

£m 

Merger related integration costs

116

144 

Aircraft and other assets

7

124 

Restructuring and other separately disclosed items

58

72 

Total pre volcanic ash

181

340 

Incremental costs caused by volcanic ash disruption

69

Total

250

340 

 

Separately disclosed financial expenses

7

12 

 

The 2009 comparative numbers have been reallocated to ensure that they are in alignment with the revised criteria used to differentiate between the different types of separately disclosed items.

 



 

Separately disclosed items within the operating profit / (loss) are included within the Consolidated income statement as follows:

 


Year ended 

Year ended 


30 September 

2010 

30 September 

2009 

 

£m 

£m 

Cost of sales

133

209 

Administrative expenses

117

131 

Total

250

340 

 

Merger related integration costs

These relate primarily to the costs of integration of the UK businesses.  The majority of costs arise from the integration of First Choice and Thomson in the UK, and, in particular, from the formation of one airline and an integrated retail estate.  A combined Mainstream UK head office has been established in Luton. 

 

The UK business has also now completed the creation of a single management information (MI) suite.  The improved MI and forecast capability which it has given the business has now led to the closing out of certain foreign currency positions based on the improved visibility of past and future requirements, resulting in a £20m charge in the current year.

 

Costs also arose from the ongoing merger of former TUI businesses based in Continental Europe with their First Choice counterparts (£4m).  In the Accommodation & Destinations Sector separate First Choice and TUI Tourism incoming agencies have been combined in a number of key destinations, notably Spain, the Dominican Republic, Greece and Turkey (total £16m).

 

Costs include amounts paid or provided for redundancy and integration remuneration costs (including the cost of the Value Creation Share Plan and rolled over First Choice share awards, property closures and onerous lease obligations, as well as professional fees relating to the integration project.

 

Aircraft and other assets

Included in the year ended 30 September 2010 is a £47m credit which relates to a combination of aircraft order cancellation credits and compensation for delays to the delivery of aircraft.  Principal charges include £15m for the impairment of the cruise ship, the 'Island Escape'; £12m to provide for costs relating to the Corsair fleet renewal as part of the restructuring of that business;  and £7m to record an onerous lease provision on an unused property. 

 

In the year ended 30 September 2009 there was a £124m impairment charge principally in respect of asset write downs of Boeing 747s operated by Corsair. 

 

Restructuring and other separately disclosed items

Costs incurred in the year ended 30 September 2010 include restructuring programmes which are not related to the business combination of First Choice and the Tourism businesses of TUI AG.  The principal items are £43m to significantly restructure Corsair, the scheduled French airline; £22m for the restructuring of hotel operations in Turkey and £13m to restructure the tour operator, retail network and hotel operations of Nouvelles Frontières in France.  Also included is a £30m credit arising from the revaluation of the investment in The Airline Group and a £13m gain recognised on the disposal of the Canadian Mainstream operation which was contributed when creating the strategic venture (Note 18).  This gain was more than offset by our share of post-deal restructuring costs and related Skyservice write-offs.

 

The main costs incurred in the year ended 30 September 2009 were £40m in relation to transaction costs and associated restructuring in the German source market, due to the transaction to sell TUIfly's city charter business to Air Berlin PLC, £16m due to the closure of the Sunsail Clubs in Turkey and the Caribbean, and £13m for restructuring in the French tour operator, Nouvelles Frontières.

 

Volcano impact

Included in separately disclosed items are the incremental direct costs incurred by the Group in respect of welfare costs to look after the customers who were affected by the closure of European airspace.  These costs principally include hotel costs for stranded inbound and outbound customers, and the cost of repatriation of inbound customers.  These costs amount to £69m and are shown in the 'Pro forma impact of volcanic ash disruption' column on the face of the Consolidated income statement.



 

 

Separately disclosed financial expenses

The separately disclosed financial expenses in the year ended 30 September 2010 relate to non debt items, principally a £3m interest charge on a tax penalty imposed by the Turkish authorities relating to financial years up to and including 2008. 

 

The separately disclosed financial expenses for the year ended 30 September 2009 relate to non debt items including the revaluation of a put option written by the Group in respect of a non-controlling interest shareholder of L'TUR Akiengesellschaft Tourismus AG.

 

4. Net financial expenses

 

 

Year ended 

Year ended 

 

30 September 

2010 

30 September 

2009 

Financial income

£m 

£m 

Bank interest receivable

Interest on pension scheme assets

66 

64 

Other financial income

Total

69 

72 

 


 

Financial expenses


 

Bank interest payable on loans and overdrafts

(10)

(11)

Finance charges on convertible bond

(44)

Interest on pension scheme liabilities

(84)

(81)

Interest payable in respect of loans from parent

(15)

(42)

Finance lease charges 

(11)

(10)

Unwinding of discount on provisions

(11)

(5)

Other financial expenses

(11)

(12)

Total

(186)

(161)

Net financial expenses

(117)

(89)

 

 

Year ended 

Year ended 

 

30 September 

2010 

30 September 

2009 

 

£m 

£m 

Net financial expenses (as above)

(117)

(89)

Less separately disclosed financial expenses (Note 3)

12 

Net underlying financial expenses

(110)

(77)

 

5. Income, expenses and auditors' remuneration

 


Year ended 

Year ended 


30 September 

2010 

30 September 

2009 

 

£m 

£m 

Included within operating profit in the consolidated income statement for the year are the following (credits) / charges

 

 

Operating lease income: aircraft

(54)

(18)

Operating lease rentals: land and buildings

162 

163 

Operating lease rentals: aircraft and other equipment

417 

408 

Depreciation of property, plant and equipment

167 

184 

Amortisation of intangible assets

94 

103 

Charge for share-based payments

15 

17 

Loss / (profit) on sale of property, plant and equipment

(12)

Loss / (gain) on foreign currency retranslation

14 

(23)

Impairment of goodwill and other intangibles

12 

Impairment of property, plant and equipment

15 

125 

 

Operating lease rentals, land and buildings, includes £15m (2009: £8m) of costs included in separately disclosed items (Note 3) as provisions for onerous leases, primarily related to vacated properties in the UK and Ireland.  In addition to the operating lease rentals disclosed above, charges of £149m (2009: £71m) were incurred in respect of hotel accommodation rentals which are disclosed as operating leases under IFRIC 4: Determining whether an arrangement contains a lease.



 

 

 

Year ended 

Year ended 

 

30 September 

2010 

30 September 

2009 

 

£m 

£m 

Auditors' remuneration

 

 

Auditors' remuneration for these financial statements and other Group

 

 

subsidiary financial statements pursuant to legislation

Other services pursuant to legislation (including regulatory reporting)

Other services

 

 

Auditors' remuneration refers to fees paid to the Group's auditors, KPMG Audit Plc, and its associates and does not include fees paid to other auditors who audit subsidiaries of the Group.  Other services are principally in respect of work relating to the restatement described in Note 1(C), defined benefit pension scheme advice and tax compliance work in respect of certain overseas subsidiaries.

 

6. Taxation

The tax charge / (credit) can be summarised as follows:

 



Restated


Year ended 

Year ended 


30 September  2010 

30 September 

2009 

 

£m 

£m 

(i) Analysis of charge / (credit) in the year

 

 

 

 

 

Current tax charge:

 

 

UK corporation tax on loss for the year

(21)

Non-UK tax on loss for the year

61 

41 

Adjustments in respect of previous years

(15)

(3)

 

46 

17 

 

 

 

Deferred tax charge / (credit):

 

 

Origination and reversal of timing differences:

 

 

Current year UK

(6)

(5)

Current year non-UK

(2)

(43)

Changes in tax rates

(1)

Adjustments in respect of previous years

13 

(11)

 

(59)

 

 

 

Total income tax charge / (credit) in consolidated income statement

50 

(42)

 

(ii) Reconciliation of effective tax rate

The total tax charge (2009: credit) for the year is higher (2009: higher) than the standard rate of corporation tax in the UK of 28% (2009: 28%).  The differences are explained below:                                                                                                                              

 

 

Restated

 

Year ended

 30 September 2010

Year ended

30 September 2009

 

£m 

£m 

Loss before tax reported in the consolidated income statement (2009: restated)

(36)

 

(94)

 

Less share of loss / (profit) in joint ventures and associates

 

(9)

 

 

(33)


(103)

 

 

 

 

 

 

Income tax on loss before tax excluding share

 

 

 

 

of profit of joint ventures and associates at the standard rate

 

 

 

 

of UK tax of 28% (2009: 28%)

(9)

28 

(29)

28 

 

 

 

 

 

Expenses not deductible for tax purposes

(9)

(3)

Income not taxable

(2)

(4)

Non-utilisation of tax losses

67 

(203)

11 

(11)

Higher tax rates on overseas earnings / losses

(3)

(8)

Lower tax rates on overseas earnings / losses

(3)

9 

(1)

Changes in tax rates

(1)

Adjustments to taxation in respect of previous periods

(2)

(14)

14 

Total income tax charge / (credit) in income statement

50 

(151)

(42)

41 

 

The underlying effective rate of taxation for the year ended 30 September 2010 is calculated based on the underlying profit before tax (excluding separately disclosed items, amortisation of IFRS 3 business combination intangibles and goodwill impairment charges) and is calculated at 27%.  The actual tax rate of 151% differs from the underlying effective tax rate due to the tax effect of separately disclosed items (principally the non-recognition of tax losses arising from such items), amortisation of IFRS 3 business combination intangibles and goodwill impairment charges..

 

(iii) Deferred tax recognised directly in equity

 

The following taxation charge / (credit) has been recognised directly in equity within the Consolidated statement ofcomprehensive income:

 


Year ended 

Year ended 


30 September 

30 September 


2010 

2009 

 

£m 

£m 

Tax relating to components of other comprehensive income


 

Cash flow hedges

(39)

Defined benefit pension plans

(9)

(65)

Other

(1)

Total tax debited / (credited) to other comprehensive income

(105)

 

 

 

Tax (credited) / debited directly to equity

 

 

Equity settled transactions (share-based payments)

(4)

Convertible bonds

31 

Total tax debited / (credited) to equity

27 

 

 

 

Total

36 

(105)

 

(iv) Factors affecting future tax charge

 

A) The Emergency Budget on 22 June 2010 announced that the UK corporation tax rate will reduce from 28% to 24% over a period of 4 years from 2011.  The first reduction in the UK corporation tax rate from 28% to 27% was substantively enacted on 20 July 2010 and will be effective from 1 April 2011. This may reduce the Group's future current tax charge accordingly. It has not yet been possible to quantify the full anticipated effect of the announced further 3% rate reduction, although this should further reduce the Group's future current tax charge and reduce the Group's deferred tax liabilities / assets accordingly.

 

B) The Spanish tax authorities are auditing parts of the Group's Spanish operations for the years 2002 through 2006.  During 2010, the Spanish tax authorities formally notified the Group that they disagree with the Spanish corporate income tax treatment of two separate transactions that were undertaken during the period under audit.  The Group has had extensive discussions with the Spanish tax authorities to explain the nature of the transactions and seek to agree the Spanish tax treatment of these. 

 

The original tax deduction arising from the transactions being challenged by the Spanish tax authorities was approximately €28 million.  In prior years, the Directors recorded a tax creditor for their best estimate of the tax that they believe may become payable in the event that the Spanish tax authorities are successful in their challenge.  This creditor continues to be held at 30 September 2010, within income taxes payable.  In continuing to challenge these transactions, the tax authorities may seek to pursue a judicial process with the possibility of interest and penalties, the outcome of which at this stage is not certain.  On the basis of independent legal advice taken, the group firmly believes that in the event of any such case, it could be defended robustly.  It is likely that the resolution of this matter will take a number of years to reach a final conclusion.

 

C) Other factors which may affect the future tax charge include the mix of jurisdictions with different tax rates in which profits and losses arise, changes in tax rates and the potential future recognition of tax losses for which a deferred tax asset has not been recognised at the year-end.

 



 

7. Dividends

 

The following dividends which relate to ordinary shares have been deducted from equity in the year:

 



Year ended 

Year ended 



30 September 

2010 

30 September 

2009 

 

Pence per share

£m 

£m 

Dividends relating to the year ended 30 September 2008

 

 


 

 

 


Interim dividend (paid October 2008)

2.8 

31 

Final dividend (paid April 2009)

6.9 

76 

 

9.7 

107 

 


 

 

Dividends relating to the year ended 30 September 2009


 

 

 


 

 

Interim dividend (paid October 2009)

3.0 

33 

Final dividend (paid April 2010)

7.7 

85 

 

10.7 

118 

 

The interim dividend in respect of the year ended 30 September 2010 of 3.2p per share was paid on 1 October 2010 and this dividend of £36m will be recognised as a deduction from equity in the year ending 30 September 2011.

 

Subsequent to the balance sheet date, the Directors have proposed a final dividend of 7.8p per share (2009: final dividend of 7.7p per share) payable on 1 March 2011 to the holders of relevant shares on the register at 2 February 2011.  The final proposed dividend amounts to £122m and will, after approval by shareholders, be recognised in the consolidated financial statements for the year ending 30 September 2011.  The final ordinary dividend of 7.8p per share, together with the interim dividend of 3.2p per share, makes a total dividend of 11.0p per share relating to the year ended 30 September 2010. 

 

A dividend reinvestment plan is in operation.  Those shareholders who have not elected to participate in this plan, and who would like to participate with respect to the 2010 final dividend, may do so by contacting Equiniti directly on 0871 384 2030.  The last day for election for the final proposed dividend is 15 February 2011 and any requests should be made in good time ahead of that date.

 

8. Movements in cash and net debt

 


 

 

Cash

and cash

equivalents 

Convertible

bonds

 

Amounts due to related parties 

 

 

 

Bank loans 

 

 

 

Loan notes 

 

 

 

Finance Leases 

 

 

Other financial liabilities

 

 

 

 

Total 

 

£m 

£m 

£m 

£m 

£m 

£m 

£m

£m 

 

 

 

 

 

 

 

 

 

At 1 October 2008

1,130 

(840)

(185)

(9)

(187)

(45)

(136)

Cash movement

(352)

91 

143 

22 

23 

(67)

Non-cash movement

(4)

29 

(2)

(12)

11 

Foreign exchange

16 

(120)

(8)

(1)

(26)

(5)

(144)

Arising on acquisition

(1)

(1)

(2)

At 30 September 2009

790 

(840)

(51)

(6)

(192)

(39)

(338)

 









Cash movement

561 

(750)

222 

13 

31 

81 

Non-cash movement

117 

(121)

(4)

Foreign exchange

(47)

-- 

43 

13 

12 

At 30 September 2010

1,304 

(633)

(575)

(36)

(2)

(269)

(38)

(249)

 

Non-cash movements relate to the equity portion of the convertible bond issues and the inception of new finance leases arising on capital expenditure. (2009: financial liabilities arising from the issue of a put option in respect of minority interest shares) 

 



 

9. (Loss) / earnings per share

The basic loss 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 share ownership trusts.  The diluted loss 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 loss per share from continuing operations is as follows

 


 

(Loss) / earnings 

Weighted  average 

no. of shares 

(Loss) / earnings 

    per share 

 

  

(Loss) / earnings 

Weighted  average 

no. of shares 

(Loss) / earnings 

per share 




 

Restated 

Restated 

Restated 


2010 

2010 

2010 

2009 

2009 

2009 


£m 

Millions 

Pence 

£m 

Millions 

Pence 

Basic and diluted loss per share

(86)

 

1,107

(7.8)

 

(53)

 

1,107

 

(4.8)

Acquisition and related expenses and impairment of goodwill (net of tax)

127 

11.5 

47

4.2 

Separately disclosed items (net of tax)

203 

18.3 

227

20.6 

Basic underlying earnings per share

244 

1,107

22.0 

221

1,107

20.0 

Effect of dilutive options

-  

11

(0.2)

11

(0.2)

Effect of convertible bond (net of tax)

32 

144

0.1 

Diluted underlying earnings per share

276 

1,262

21.9 

221

1,118

19.8 

 

Basic and diluted loss per share from the discontinued operation is as follows

 


 

Loss 

Weighted average 

no. of shares 

Loss 

            per share 

 

  

Loss   

Weighted average 

no. of shares 

Earnings 

per share 


2010 

2010 

2010 

2009  

2009 

2009 


£m 

Millions 

Pence 

£m  

Millions 

Pence 

Basic and diluted loss per share

(18)

1,107

(1.6)

(14) 

1,107 

(1.3) 

 

For statutory measures of loss per share, in both the current and prior year the effect of options is anti-dilutive. The anti-dilutive effect is not taken into account and basic loss per share and diluted loss per share are both disclosed as 7.8 pence (2009: (loss of 4.8) pence) for continuing operations and 1.6  pence (2009: loss of 1.3 pence) for the discontinued operation.  The fully diluted weighted average number of shares on a statutory basis is 1,323 million (2009: 1,118 million).  The diluting effect of options in both years and the convertible bond (in 2010 only) is included solely to calculate diluted underlying earnings per share.

 

2009 loss per share, (basic and diluted) underlying earnings per share (basic and diluted) have been restated as a result of the restatement in Note 1(C).  The impact of the restatement on basic (and diluted) loss per share is to increase the loss by 3.8 pence per share from 1.0 pence per share to 4.8 pence per share.  Basic underlying earnings per share decreases by 3.8 pence per share from 23.8 pence per share to 20.0 pence per share.  Diluted underlying earnings per share decreases by 3.8 pence from 23.5 pence per share to 19.8 pence per share.

 

Reconciliation of loss for the year from continuing operations attributable to ordinary shareholders from continuing operations

 

 


 

 

£m 

£m 

Loss attributable to ordinary shareholders from continuing operations



 

(86)

(53) 

Result attributable to non-controlling interests from continuing operations



 

1  

Loss for the year from continuing operations



 

(86)

(52) 

 

2009 numbers have been restated as described in Note 1(C). None of the discontinued loss for the year is attributable to non-controlling interests (2009: none).



 

 

Non-GAAP measure                  

 

Reconciliation of underlying operating profit to underlying earnings

 












Restated





30 September

30 September





2010 

2009 

 


 

 

£m 

£m 

Underlying operating profit

1 / 2


 

447 

401 

Net underlying financial expenses

4


 

(110)

(77)

Underlying profit before tax



 

337 

324 

Underlying tax charge at 27% (2009: 28%)



 

(93)

(102)

Underlying earnings



 

244 

222

Attributable to ordinary shareholders



 

244 

221

Attributable to non-controlling interests



 

1

Underlying earnings



 

244 

222

 

2009 reconciliation has been restated as described in Note 1(C).  The underlying numbers shown are as described in Note 1(E) and exclude the impact of the Eyjafjallajokull volcano as described in Note 1(D).


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