10 May 2013

TUI Travel PLC

("TUI Travel")

Interim Results for the six months ended 31 March 2013

14% IMPROVEMENT IN FIRST HALF RESULT - STRONG TRADING CONTINUES

Key Financials

¹ Underlying operating loss excludes separately disclosed items, acquisition related expenses, impairment of goodwill and interest and taxation of results of the Group's joint ventures and associates

Highlights

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

"Our strategy of focusing on unique holidays and putting our customers at the heart of our business continues to deliver strong growth. With our market leading brands and scale we have the ability to give our customers great holiday experiences, at terrific value, in a segment of the market that is increasing in popularity. Our drive to Modern Mainstream is contributing significantly to our outperformance in a number of markets where we are achieving strong booking volumes and improved margins. Given current trading and the visibility we have within our businesses we anticipate full year underlying operating profit growth of at least 10% on a constant currency basis."

Investor and Analyst briefing and webcast

A presentation for analysts and investors will be held today at 9.30am (GMT) at the London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS. There will be a live audio webcast of the  presentation. Please visit www.tuitravelplc.com for more details.

Interim Management Statement & Q3 Results

TUI Travel will issue its interim management statement and third quarter results on Wednesday 7th August 2013.

Enquiries:

² Figure excludes impact of empty leg accounting. Empty legs relate to the cost incurred by aircraft returning from the beginning and end of each season without customers (an empty leg of a round trip).  As a result of the change in estimate in empty leg accounting referred to in the year-end accounts, the phasing of the empty leg costs will change in each quarter but there will be no full-year cost impact.

³Constant currency basis assumes that constant foreign exchange translation rates are applied to the underlying operating result in the current and prior year

CURRENT TRADING & OUTLOOK

Winter 2012/13

The Winter programme across our Mainstream markets has closed out ahead of our expectations, reflecting a strong lates market. The season ended with higher average selling prices, margins and load factors across each of our key source markets.

Our unique holiday offering continues to be popular with customers, accounting for 69% of Mainstream bookings this Winter, up by three percentage points versus the prior year. The proportion of holidays sold online continues to increase, accounting for 36% of all holidays booked in Winter, up one percentage point over the prior year.

¹ These statistics are up to 5 May 2013 and are shown on a constant currency basis

² These statistics relate to all customers whether risk or non-risk

³ These statistics include all risk capacity programmes

⁴ Other includes Austria, Belgium, Netherlands, Poland and Switzerland

⁵ These statistics refer to online accommodation wholesaler only; Sales refer to total transaction value (TTV) and customers refers to roomnights

Summer 2013

Since our last announcement, trading across our key source markets remains in line with our expectations. However, we remain particularly pleased with strong trading in the UK and Nordic markets, which continue to show double-digit revenue growth. Average selling prices and margins across our key source markets are up on the prior year. To date 58% of the overall Mainstream Summer programme has been sold. In Accommodation Wholesaler and Specialist & Activity, trading remains in line with our expectations.

¹ These statistics are up to 5 May 2013 and are shown on a constant currency basis

² These statistics relate to all customers whether risk or non-risk

³ These statistics include all risk capacity programmes

⁴ Other includes Austria, Belgium, Netherlands, Poland and Switzerland

⁵ These statistics refer to online accommodation businesses only; Sales refer to total transaction value (TTV) and customers refers to roomnights

In the UK, bookings are up by 7%, ahead of a 3% increase in capacity. Trading in the UK continues to outperform the market according to GFK Ascent. Average selling prices are up by 5%, partly reflecting cost base inflation of approximately 2% and the continued increase in unique holidays. Sales of unique holidays are up by 15% compared to the same period last year, accounting for 83% of holidays sold to date, up by three percentage points.  Customer demand for our unique Sensatori, Couples and Holiday Village products remains strong with bookings outperforming the prior year. Online sales account for 42% of Summer holidays booked, up one percentage point on the prior year. To date, 62% of the programme has been sold.

In the Nordics, bookings are up 9% and broadly in line with capacity growth, whilst average selling prices remain 5% ahead of the prior year. Sales of unique holidays are up by 11% compared to the same period last year, accounting for 95% of holidays sold to date, up by two percentage points. In particular, strong demand for our Blue Village and Blue Star products has resulted in customer bookings up by 17% and 13% respectively. Online sales continue to grow, accounting for 68% of Summer holidays booked, up by two percentage points on the prior year. To date, 63% of the programme has been sold.

In Germany, bookings are down by 3% with average selling prices up 7%. Sales of package holidays are up year-on-year, however our Overland programme continues to be down. Sales of unique holidays remain strong and are up 9% over the same period last year accounting for 54% of all packages sold, an increase of four percentage points over the prior year. This has been driven by the Summer 2013 launch of our new TUI Reisewelten labels (Beach, Classic, Lifestyle, Nature, Premium and Scene), which have been well received by our customers. Online sales have increased by 17% over the period. To date 55% of the programme has been sold in Germany.

In France, bookings are down by 15%, reflecting capacity cuts of 19%, primarily for seat-only and long-haul destinations. Whilst the trading environment remains challenging, we continue to reshape our programme towards more profitable destinations. To date 50% of the programme has been sold.

In Accommodation Wholesaler, TTV is up by 14%, driven by the Latin American and Asian markets. TTV sales for North American and European Cities performed well against the prior year, despite a weaker performance from Spain and Portugal driven by weak demand from the domestic market.

In Specialist & Activity, whilst sales in North American Specialist and Adventure are robust, trading conditions remain challenging in a number of other segments and as a result overall sales are down by 3% on the prior year.

Fuel/Foreign exchange

We have hedged the majority of our fuel and currency requirements for the seasons currently on sale, which gives us certainty of costs when planning capacity and pricing. The following table shows the percentage of our forecast requirement that is currently hedged for Euros, US Dollars and jet fuel.

Foreign exchange translation improved the underlying operating result by £1m in the first half, primarily due to the strength of the Euro. If exchange rates remain at current levels we anticipate that the impact on the full year will be positive.

Outlook

As the leader in our industry with a clear strategic focus based on our tour operator and online accommodation business models, the Group is structured internally to ensure that it is able to optimise its growth potential and continued delivery of long-term success and value. Mainstream, our largest Sector, has under the leadership of Johan Lundgren been simplified into one cohesive team. The Mainstream Board is responsible for the delivery of the Sector's growth with clearly defined goals and accountability across all source markets and functions. It is working to maximise the identified opportunities arising from the scale of the business, brand strength, long-term supplier relationships, operational efficiencies and common KPIs. Operating the Sector in this way is delivering and has a clear link to our continued outperformance.

Our acceleration to Modern Mainstream is based on the pillars of unique holidays, direct distribution and operational efficiencies which are key components of the overall Group strategy. We are confident that this strategy is driving performance and based on current trading we expect to report underlying profit growth of at least 10% on a constant currency basis for the 2013 financial year.

BUSINESS AND FINANCIAL REVIEW

Group Performance

Six months ended 31 March 2013

¹ Underlying operating loss excludes separately disclosed items, acquisition related expenses, impairment of goodwill and interest and taxation of results of the Group's joint ventures and associates

Group revenue declined by 1% to £5,397m (H1 12: £5,447m). This result was driven by a foreign currency translation impact of -1%. Organic revenue growth over the period was flat overall versus the prior year.

The Group's underlying operating loss reduced to £289m (H1 12: loss of £317m). However, this included a £15m impact from empty leg accounting² as outlined at the FY12 preliminary results. On an underlying basis, excluding the impact from empty leg accounting, underlying operating loss reduced by £43m to £274m.

Our business improvement programme is progressing to plan with £17m of cost savings delivered in the period.

The main drivers of the year-on-year improvement in underlying operating loss were:

A reconciliation of underlying operating loss to statutory operating loss is as follows:

² Empty leg accounting.  Empty legs relate to the cost incurred by aircraft returning from the beginning and end of each season without customers (an empty leg of a round trip).  As a result of the change in estimate in empty leg accounting referred to in the year-end accounts, the phasing of the empty leg costs will change in each quarter but there will be no full-year cost impact.

Segmental Performance

Segmental performance is based on underlying financial information (which excludes certain items, including separately disclosed items and acquisition related expenses).

Mainstream Sector

The Mainstream sector underlying operating loss reduced by £45m to £235m, excluding the impact of empty leg accounting which has no full year impact. Underlying Mainstream operating loss in H1 was £250m (H1 2012: loss of £280m).

The main drivers of the year on year change in underlying operating loss are summarised in the following table:

UK

The UK business delivered a £22m improvement in underlying operating loss to £103m, excluding the impact of empty leg accounting. Underlying H1 operating  loss was £113m (H1 2012: loss of £125m).

This improved position was driven by strong load factors and late Winter trading as well as a focus on higher margin unique holidays increasingly distributed online. The trading result also included a £5m benefit from an earlier Easter in the second quarter. Demand for our unique holidays remained strong over the period, accounting for 81% of departures in H1, up two percentage points on the prior year. We expanded a number of unique holiday products over the Winter season, driven by customer demand,  including Couples and Splash concepts. The result also benefited from a three percentage point increase in direct distribution to 87% compared with the prior year. Online bookings accounted for 45% of all bookings during the first half, up two percentage points year-on-year.

The UK business delivered £1m of efficiency savings towards the business improvement programme in the period.

Nordics

Nordics achieved an underlying operating profit of £38m (H1 2012: profit of £22m). This improved position was driven by strong trading in the tour operator and a non-repeat of the flooding in Bangkok which adversely affected the result last year. We remodelled our Winter programme, remixing it towards a higher number of medium-haul destinations including the Canaries. This improvement in profit led to a strong underlying operating margin for the Nordic business of 6.5%.

Unique holidays accounted for 90% of departures in the first half, in line with the prior year but masking a shift from exclusive to higher-margin differentiated products. In particular, there was strong demand for our Blue Couples (customer bookings up by 78%) and Blue Star concepts (customer bookings up by 40%). Direct distribution increased by two percentage points to 87%. Online distribution continues to grow, standing at 64% of bookings in H1, up three percentage points over the prior year.

Germany

Germany reported an underlying operating loss of £63m (H1 2012: loss of £61m). Excluding the impact of empty leg accounting, underlying operating loss was flat at £61m. Long-haul performed particularly well, with strong demand to Thailand, USA and Cuba.

Unique holidays accounted for 49% of departures in H1 FY13, up three percentage points over the prior year. Demand has been driven by the Robinson and Sensimar brands, with the latter benefiting from the opening of the Sensimar Khao Lak. We continue to implement our strategy to improve direct distribution with a focus on online via our re-launched TUI.com website.

The German business delivered £3m of efficiency savings towards the business improvement programme in the period.

France

France reported an underlying operating loss of £51m (H1 2012: loss of £61m). This improved performance was primarily driven by successful cost-saving initiatives through the business improvement programme. This relates to the airline and consolidation of the French tour operators to create a single business, which was implemented last year.

The tour operator continues to be impacted by low demand for North African destinations such as Tunisia, Egypt and Morocco and general consumer weakness. We have reduced our loss-making long-haul programme, removing unprofitable routes and destinations from the portfolio.

The Airline saw changes to the fleet composition during the quarter, with two new A330-300s aircraft arriving during the period. A smaller, more flexible fleet will help to reduce risk within the programme. Our remaining 747s and A330-200s were also refitted during the period to allow for increased leg room and achieve higher levels of customer satisfaction.

The French business delivered £10m of efficiency savings towards the business improvement programme in the period.

Emerging Markets

In the Emerging Markets Sector, our Russian business delivered an improvement in underlying trading leading to an operating loss of £7m (H1 2012: loss of £13m).

Accommodation & Destinations (A&D) Sector

Accommodation & Destinations (A&D) delivered an underlying operating loss of £1m (H1 2012: profit of £8m). This reflects the timing of investment in infrastructure, the investment in OTA including our recent Brazilian acquisition, Malapronta and the phasing of costs within Inbound Services.

TTV for the Sector increased by 12% to £1,160m (H1 2012: £1,034m). This was primarily driven by growth in Hotelbeds and Bedsonline in Accommodation Wholesaler and by our cruise handling business, Intercruises.

Online Accommodation

The Online Accommodation business delivered underlying operating profit of £1m (H1 2012: £7m), reflecting the timing of infrastructure investments, expansion in Asia for our OTA business and investment in our recent Brazilian OTA acquisition, Malapronta.

TTV for Online Accommodation grew by 14% to £763m and roomnights increased by 13% primarily due to strong organic growth from our Accommodation Wholesaler brands (Hotelbeds and Bedsonline). The key area of focus remains on international expansion, particularly in the Americas and Asia.

Inbound Services

The Inbound Services business delivered underlying operating loss of £2m (H1 2012: profit of £1m), reflecting the phasing of costs between the first half and second half of the financial year. Incoming passenger volumes increased by 4% over the prior year. In cruise handling, the number of port calls handled increased by 25%.

Specialist & Activity Sector

The Specialist & Activity Sector reported an underlying operating loss of £12m (H1 2012: loss of £16m). The year-on year improvement of £4m was driven primarily by the Specialist Holiday Group which benefited from an improved ski season, the restructuring of the sector (where we have cut central costs) and a £1m benefit from the earlier timing of Easter.

North American Specialist reported an adverse result due to one less departure in Starquest (private jet tours) during the second quarter and timings of trips within Quark (polar expeditions). The Sport division suffered from a lack of significant sporting events compared with the prior year, which benefited from UEFA and Olympic programmes.

Specialist & Activity delivered £1m of efficiency savings towards the business improvement programme in the period.

Acquisitions & Investments

Total consideration paid in respect of acquisitions was £9m during the period net of cash acquired. Further information is included in Note 11.

Taxation

Underlying loss before tax for the period was £346m. The underlying effective tax rate on these losses is 27%. 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 in the medium term. The effective tax rate for the six months ended 31 March 2013 is 35%. This differs to the underlying tax rate due to the tax effect of acquisition related expenses, separately disclosed items and the change in the deferred tax rate in the UK.

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

Dividends

The Board recommends an interim dividend per ordinary share of 3.75p (H1 12: 3.40p), payable to holders of relevant shares on the register at 6 September 2013. This will be paid on 4 October 2013.

We intend to continue to operate a dividend re-investment plan as an alternative to the cash dividend.

Separately disclosed items

Separately disclosed items net to an £8m expense in the period (H1 12: £52m). This included a restructuring charge of £17m, primarily relating to restructuring within our Specialist and Activity and French businesses. We also recorded a pension related credit of £14m. Further information is included in Note 5.

Cash and liquidity

The net debt position (cash and cash equivalents less loans, overdrafts and finance leases) at 31 March 2013 was £1,049m (31 March 2012: £1,184m). This consisted of £502m of cash and £123m of current interest-bearing loans and liabilities and £1,428m of non-current interest-bearing loans and liabilities.

We remain confident in our funding and liquidity position. We have three main sources of long-term debt funding - these include the external bank revolving syndicated credit facilities totalling £1,020m which mature in June 2015, a £350m convertible bond (due October 2014 and which we intend to refinance during the 2013 financial year) and a £400m convertible bond (due April 2017). The external bank revolving facility is used to manage the seasonality of the Group's cash flows and liquidity.

Consolidated income statement

for the 6-month period ended 31 March 2013

Consolidated statement of comprehensive income

for the 6-month period ended 31 March 2013