TUI AG

Friedrich Joussen - Chief Executive Officer Horst Baier - Chief Financial Officer

Tim Ramskill - Credit Suisse Patrick Coffey - Barclays Investment Bank Jamie Rollo - Morgan Stanley Alex Brignall - Redburn Partners Simon Larkin - Bank of America Merrill Lynch Alexia Dogani - Goldman Sachs Nick Thomas - Bank of America Merrill Lynch Stuart Gordon - Berenberg Bank

Good morning, everybody. We are one-hour later than usual, but anyway, nonetheless very excited to have you all here.

So - also good morning to the guys on the webcast before I forget that. What I would like to do now, together with Horst, actually guide you through our results of H1.

And I can say that I - that we believe it’s a very strong set of results. And maybe to open it, and I think it’s important to see that also last year we had a very great year.

We had a year of 15% EBITDA increase. And also this year we believe that we will - we are well on track to do another at least 10%, which is our guidance.

We had outlined our strategy - I will recap that in a minute - that we would like to become from a trading business a more vertically integrated content-centric business, and be on the good path to achieve that. We have actually sold Hotelbeds to a price of €1.2 billion.

If you had asked me, just half a year ago, I would have said that is a very good price. And I still believe it’s a very good price.

Now, we are also announcing today that we start, after the strategic review, to start selling process of our specialist group. And I’ll come to that in a minute in a little bit more detail.

So of course, and that is also I think very important, we are a growth company; we are not a company which just sell off stuff; we are a growth company. And I will say that, at the appropriate time, again, we will keep you updated of how we want to grow and where we want to invest and but the timing will be for that at the December, so the full year results.

Right now, we want to focus on the trading. And the money is not even in the bank, so we give ourselves a little bit more time.

But for the full year results you should have more clarity of what we really spend the money on. Now, talking a little bit about the strategy before I go on, we have been trading businesses around the world.

And I think this is a very good strength we have. But we will use that strength actually to better integrate vertically the business.

We become more content-centric, meaning we have differentiated content, Hotel and also Cruises. At the same time, we are a player of global scale, so we are a global market-leader, but our DNA is also local competitiveness.

So we will combine in I think a unique way global scaling platform and local competitiveness, so local relevance. And I think this DNA piece should be always kept in mind, because it’s also I think very strong.

Now global platforms we have chosen is actually the brand, it is the Aviation. It is Hotels.

It is Cruises. It is Destination Services and it is IT.

And one thing is also clear; we invest into the transformation of our business from something which was purely trading into a vertically integrated tourism business. Now let me turn to H1 performance.

Revenue growth 3%, in light of geopolitical difficulties and so on. I think it’s very important.

We have been missing out more or less at least half in, of Egypt, Tunisia FX effects, the start of the Turkish business and so on and so on, North Africa very difficult. And still we grow our revenues 3%.

I think that’s a very good message. And also, and particularly underlying EBITDA on the constant currency basis, 17.7% up.

Again, I think a very strong set of results. Three drivers of that and you will see that in the subsequent slides, UK, Riu and of course Cruise.

We also have achieved the synergies we promised, so that’s also a basis for the strong set of results. Now, when you look at that slide you’ll see trading strong, vertical integration strong.

You see the last time the Europa 2 effect, you remember that we had the lease contract, which we turned into equity and then also the effects which I cannot read - the finance, the new finance structure in Aviation. All of that together, a little bit of Easter effect as well and FX effect is where brings up the improvement to - in the underlying EBIT which I talked about of almost 18%.

Now when I focus onto the source markets, you see a different set of results. And Northern is more or less flat.

Within Northern very strong performance in the UK, at the same time little bit difficulties in Canada, you might know that the Canadian dollar against the U.S. dollar weakened quite significantly.

There was a tradition in the Canadian business that we didn’t hedge. That hit us a little bit there, not to say it, quite some hit.

But, operationally and trading-wise, the business in Canada is of course intact. Germany, which is the core of Central Region, actually still went backward year-on-year.

That’s what we said also in Q1. It is not something which has turned around fast.

And so we said, we talked about the three to five year journey, that’s still what we are saying. Anyhow, you’ll look at the catch-up over the second-half of the year.

So you should expect to see from now on improving trends in Germany as well. Western Region, mainly driven Belgium, there was a one-off effect as you know last year, €12 million.

Then we had North Africa trading, which was a little bit difficult. And then, eventually the terroristic attack in - which took down the Brussels airport, which is of course our airport.

And we had to regroup 12 planes to Ostend. And then you then get is 100 kilometers you need to get the staff there, you need to move customers back and forth, and so on and so on, which of course had a very significant effect in Belgium as well.

And overall, we are very pleased that particularly strong drivers in the UK and strong drivers in the Nordics. And also the underlying trading in the Benelux market is strong.

One area which is also part of the Western Region is actually France. And France was very strong against the prior year and €8 million up.

And that’s also the reason why we think that, yes, this year we will be first year since years that we will be breakeven in France overall. This includes Corsair, and therefore, we have been looking very closely what we do in order to get a sustainable business.

And one thing is very clear that our French operation is too small. Scale effects are not possible in the way that your infrastructure in terms of sales outlets and so on.

And therefore - also do we fly with our own airplanes, yes or no, from regional airports? We need more scale.

Therefore, we decided to buy the Transat business in France, another 9%, so in sum 21%. And this I think will be - first of all, when we turn around businesses then we’re also are investing into these businesses.

We are ready to invest, because we want to grow and we are there to stay. So that is the message I want to deliver on that side.

Now, when I go on, Hotels & Resorts, very strong, of course driven by Riu. West-Med, East-Med demand is weakened.

As you all know, Turkey, Egypt and so on. Therefore West-Med and Canaries go up.

That’s where Riu is and that’s the reason why you see this being up. 4% more occupancy, 2% more capacity, 8% more yield.

That’s of course all very, very, very good numbers. I want to caution a little bit on this point, that you don’t multiply the result by 2 and think this is it, because in the winter season to be up in occupancy is easier than in the summer season, because in summer season you are full, and also in other years you are full.

So therefore, we need to be a little bit cautioned by just multiplying the €43 million with 2 and say this might be the summer effect. The summer effect, even if you have a great year, will be much smaller because of that reason.

Robinson has been hit by Tunisia. It has been hit by Egypt.

It’s also in Turkey. And the effects in Robinson are even more visible in the first-half year, because more or less all Robinson’s are around the Med.

And the Med is, of course, in the winter, closed. So therefore, I think what we overstate or something we overstate potentially in Riu also you shouldn’t deduct from Robinson result 2 times €14 million.

So this will be a catch-up in the second-half. But anyway, it is what it is in the first.

Overall, I think a very strong result in Hotels & Resorts. Now coming to Cruises, this actually is another very good story, from €18 million from €40 million.

You’ll see TUI cruises with €13 million. Full year, easy math, times 2 is €26 million.

We have 50% of the company, 100% basis, 50 - €26 million was €52 million. We always said you know that a new cruise ship is around about €50 million to €55 million after-tax profit, and that’s what you see here.

So it’s - all the major driver of that result is the additional capacity, this unchanged - more or less unchanged occupancy and more or less unchanged yield, so additional capacity still 100% occupancy or 101%, still a very high-yield. And then you see Hapag-Lloyd Cruises partly is turnaround, partly is actually the change in ownership structure, which is driving that result, but I think a very strong growth driver going forward.

Let me talk about the Specialist. Specialist is operationally trading-wise improving a little bit.

Then we lose it in FX. I think anyway that we are advised very well to actually start the sales process.

And to illustrate why I think that is good, I have introduced one slide. Then these businesses are, let’s say, 50, I don’t - I didn’t count them, but let’s say, 50 businesses around the world.

And they are great brands. I think when you look at Hayes & Jarvis; when you look at Sovereign, when you look at Exodus I think a 40-year-old adventure company and enormous customer loyalty and re-buy rates and net promoter score; when you Moorings and Sunsail, so sailing companies, world market leaders, yes, the biggest marina in the world, British Virgin Islands; when you go there it’s impressive.

When you go Quark, polar expeditions with Russian icebreakers and so on, they do €80 million of revenue with €8 million of EBITDA. I mean, this is a good, strong set of businesses, 50 businesses around the world.

But all have one thing in common, they don’t use our brand, they don’t use our IT, they are not in our hotels, they are not in our cruise ships, they don’t use our aviation; so no synergy. And therefore, we have decided we want to be disciplined.

We want to be vertically integrated, content-centric. We cannot just talk about it, we need to execute on it.

Therefore, actually we’re starting now the process. There’s one exception, that’s the reason why there’s light blue ski.

So that is the Crystal Ski and Thomson Lakes & Mountains. They are instrumental for our winter occupancy, winter load-factor for our airplanes in the UK.

That’s the reason why they will stay. That’s the reason why we’ll put them, with immediate effect, into our UK business, because that’s where the benefits are.

Now the guy who actually - the people who run that business: strong management team under the leadership of Will Waggott. Will Waggott will lead the process.

He will be the guy. He will be talking, start talking about it.

We even have a brand for it. This business will be called Travelopia, and it will be nice.

Now, what the outcome is, I don’t know. What the interest is, we just can guess.

If you had asked me about Hotelbeds Group half-a-year ago what the outcome would be, I would have been terribly wrong. So now I’m - I don’t know, let’s have a look.

Strategic buyers, financial investors, I think private equity; this is made for private equity. I think a group of that size, of that diversity and so on I think could be very interesting.

And we are now testing the waters. We are kicking off the process.

And actually, Will be leading it and I think he’s a strong leader and trusted leader for us in the financial community. And hopefully, we will get it to a good result as well.

With that, I will turn over to the financial performance. Horst?

Thank you very much, Fritz. Good morning, ladies and gentlemen, from my end as well.

I will immediately jump into the P&L and will run through the moving parts of the P&L in order. I’ll start with the adjustments.

€51 million in the half-year, which is a reduction of €34 million compared to the prior year. Within the €51 million, we have €34 million of purchase price allocation effect, which we are used to.

And on top of that we have included €7 million restructuring merger-related cost. In comparison to the prior year, the debt is attributable to the fact that we had a write-down on a tax receivable in Italy, and we had one case in Turkey where we had a provision.

So that’s the reason why we are down. When it comes to the guidance of SDI for the full year, as you know, we are pretty rigorous when it comes to restructuring costs and integration costs.

So we will be - we believe that we will bring down our SDIs from €180 million to €160 million for the full year, a reduction of €20 million. Then let me continue with the net interest expense, which is at €82 million, which is a reduction of roughly €24 million compared to the prior year.

Here we had some different impacts coming from lower convertible bond interest and a non-repeat of merger-related charges. And on top of that, I think we are on the right track when it comes to the development of our interest expense, because we reduced debt in the low season, so we are doing the right stuff and we are improving ourselves as far as rating is concerned.

Hapag-Lloyd AG, we will talk a little bit later about what is on the agenda, as far as this container shipping participation is concerned. This is a financial asset held for sale.

And we have to do a valuation on this financial asset held for sale according to a level 1 valuation as it is foreseen within the IFRS. That means I have here for Hapag-Lloyd AG a share price, which I can see every day on the stock exchange.

Unfortunately, on March 31 the share price was down to €16.10. And that required another depreciation of our assets.

Today it’s back to €19.50. Unfortunately, I’m not entitled according to IFRS to revalue the Hapag-Lloyd shares.

So we have come down now probably to very low point as far as the share price of Hapag-Lloyd is concerned and that makes the €100 million charge within our P&L. Coming now to income taxes, you see that the €89 million credits which is sitting here, is pretty small compared to the earnings before tax figures.

In the last year it was far higher. However, to remind you, on the last year that was the first year where we were able to account for the tax losses carried forward, so we had a one-off effect on the amount of €123 million.

That is explaining quite a big chunk of this delta. On top of that, we did this year-one entry, a tax charge which is based on a new assessment as far as the tight tax situation in Germany.

For the cost for a hotel stay is concerned, we have a law in Germany since 2008 that foresees that the portion of the hotel stay and the package cost have to get part of the basis for calculating the trade tax in Germany. And we always were against that and argued against that, because we believe this is kind of disadvantageous compared to the treatment of other players in the tourism industry, for instance, the OTAs.

And our clear opinion was, and that’s how we built our arguments, that you are not fully able to identify exactly the portion of the overnight stay compared to the reception service, compared to the breakfast, compared to the full board whenever you have one. However, the finance authorities are of a different opinion.

And now we have got a court judgment in Germany, which came in last week. And they have positioned themselves that you clearly can identify this portion of the hotel stay.

And so, we needed to make a decision as far as our assessment in respect of providing for this risk is concerned. Up to now, we were of the opinion there is a lesser than 50% probability that we have to provide for it.

Now, after this judgment rule came through we have had to go to 51% probability that we have to account for it. And that’s the reason why we plugged in €37 million provision for this trade tax risk, which does not mean ultimately that we accept this story.

We will fight against it. And what we have plugged in now is the provision covering the period 2008 through 2016 half-year.

Then, let me continue with the discontinued operation. What we have in here as far as the current year is concerned is the result of Hotelbeds Group.

And last year it was LateRooms and Hotelbeds. Talking a little bit about the delivery of the merger synergies, as you can see, we have now realized to-date €35 million in total, which is an additional €15 million for the first six month of this year.

We are absolutely on track. That means we are delivering on the corporate streamlining.

We will continue to deliver on the occupancy. Even though that we have a tough situation as far as North Africa and Turkey is concerned, we managed to bring up the occupancy, including Turkey and North Africa, by 1%.

So we are underway on our path to deliver the occupancy synergy what we have promised. When it comes to Destination Services, the €20 million in total, this is purely attributable to our destination management companies, which we have now integrated into our tour operating business.

We have realized €5 million this year and will deliver the remaining - the remainder of €15 million within the next two years. So we are absolutely committed and on track, as far as the overall delivery of €100 million of synergies is concerned.

This brings me to the cash flow statement. The operating cash flow has improved by roughly €500 million, when you compare the 2014-2015 number with the number for the first six months of this fiscal year.

And the most important element as far as this improvement is concerned is the change in working capital. We do see an improvement here.

And that is simply the reflection of the normal swing, which we have when we started September 30 and go into the winter season. In prior years there was kind of another policy applied as far as payment of suppliers was concerned.

And we have got back to a normal policy as far as this is concerned, because what I would like to do is I would like to manage the normalized working capital. Whenever I have some adjustments in there and then it’s difficult to manage working capital.

And what we would like to do is we would like to be efficient on working capital. Net CapEx, €230 million; net investments, €45 million; that gives us a free cash flow of minus €912 million, which as you know, is attributable to our low-season during winter and after deduction of the dividends and the hybrid interest, which we still had in the last year in this line item.

The movement in cash net of debt is €1.2 billion compared to a €1.9 billion last year. Moving onto the movement in net debt, and this is now rather a complex bridge between the opening net debt-cash position to the closing net debt position as per balance sheet, I concentrate myself a little bit on fiscal year 2016.

You see that we start with minus €214 million on the September 30, 2015. Then we have the movement and cash net of debt, which you have seen on the prior chart.

Then we have some translation impact, positively €59 million, and ultimately, minus €10 million non-cash movement in debt, which is not a big deal. So that brings us to a closing net debt, including discontinued operations, of €1.4 billion.

However, within this number sits the cash which belongs to Hotelbeds Group, which is €173 million. So if we deduct this cash amount then we get to a net financial debt of €1.579 billion as far as the end of March of this year is concerned.

Let me give you some flavor on our guidance for net financial debt, because that was I believe a specific area of interest. Up to now we guided to a net financial debt position of roughly €500 million as per the end of the year.

And now, we have some adjustments which are coming from the disposal of Hotelbeds Group. At first, we definitely will see, hopefully September, maybe a little bit earlier, the cash which comes in from the disposal of Hotelbeds Group, which is roughly €1.1 billion.

Then we have a negative impact whenever we deconsolidate Hotelbeds Group. Hotelbeds Group has as per the end of the year a cash position in the amount of €300 million.

So they have a negative working capital sitting on their balance sheet on September 30 of each year. When we deconsolidate now Hotelbeds Group, then we will lose this cash position.

And you can turn it around a little bit in that way that we advance the seasonal swing of Hotelbeds by this deconsolidation of the cash, because if we would have continued with Hotelbeds Group then this €300 million of cash would have just disappeared due to the seasonal swing towards the December point in time as well. So it’s kind of preempting a little bit the seasonal swing, the €300 million amount.

And then on top, we would like to make a contribution to the UK pension funds in the magnitude of £150 million. So you may ask, why are you intending to do this, and there is a simple answer to that one.

Couple of years ago and you are all familiar with the situation of deficits in pension systems, a couple of years ago we established a structure by which we transferred the ownership of the Thomson and the First Choice brands into the UK pension fund. And for making use of these brands, we paid every year a fee, brand utilization fee.

Now, we are on our track to go to one master brand within the group, including the UK, so we will move to the TUI master brand. And that means that the value of this asset which is sitting in the pension fund at the time being kind of the security, covering parts of the deficit, will disappear.

And in order to have a replacement for that asset, we will contribute £150 million into the pension fund, which ultimately is kind of a reduction of debt. And whenever it comes to the rating approach, the pension deficit is calculated as an element in the financial debt position.

So that’s a reason why we are expecting, based on a starting point of €500 million net financial debt guidance, that’s the reason why we are expecting to have now a situation to be broadly neutral as far as net financial debt is concerned. Let me now give you some more flavor on the situation as far as Hotelbeds is concerned, Specialist group is concerned and Hapag-Lloyd AG is concerned.

We spoke about Hotelbeds. There is the expectation that we will finalize, that we will complete this transaction by the end of September.

You have seen the cash impact. And you certainly have noticed on my first chart that we expect to have a net-net gain out of this disposal of Hotelbeds Group in the magnitude of €600 million.

And that means this is after deduction of taxes, this is after deduction of advisor fees, and this is after deduction of some, let’s say, providing for risks which may be around but which will not necessarily come. So that is the story about Hotelbeds Group.

Then Specialist group, Fritz alluded to it. Marketing will start in autumn.

And it is always the same. Before you can start marketing you have to do some homework.

We have experienced that with Hotelbeds Group as well. People love to talk to investment bankers and love to talk to private equity, but nobody wanted to do the carve-out accounts.

And this time, we have a situation that we need to do some restructuring. Fritz and I will certainly have a talk with Will as far as his business plan is concerned.

So there is some lead-time, which is ahead of us now, but definitely we will start in autumn. Hapag-Lloyd, I already alluded to that one.

And you know that I would love to sell Hapag-Lloyd shares. However, the first step in order to get a liquid asset was to do the IPO.

And we pushed it through I would say in a period where nobody was too eager to go for an IPO. Then Hapag-Lloyd continued its work.

And you probably have noticed that there was a leakage as far as further merger talks are concerned with UASC. And that was confirmed by Hapag-Lloyd.

And as it looks like the market has received that pretty well, because the share price went back to €19.40, €19.50 today. So we will see what we can do with Hapag-Lloyd.

But we are absolutely committed to dispose of our Hapag-Lloyd shares in a meaningful way, because we are committed to maximizing growth and value for our businesses. Now, I come to my last slide.

And this is something like a reference to that what Fritz said before. We would like to invest in transformational growth.

There was already some talk, even though we haven’t got the money from Hotelbeds yet, about the use of proceeds. And you know me, by now, I’m always a little bit conservative and would like to have the money first before I really start to jump into spending the money.

And Fritz and I are absolutely of the same opinion that we would like to grow this company in a way that we are investing into the right stuff. Therefore, we are thinking about content, hotels and cruise ships.

We believe that we have documented to you that we are able to deliver on our targets as far as EBITDA margin is concerned and as far as return on invested capital is concerned. This company needs additional transformational change.

We need to get into a different league. And I’m absolutely convinced that we will be able to get into this different league.

At the same time we are looking at opportunities to have some synergetic advantages, like for instance in France, where we decided to acquire Transat. This will bring us into a different status as far as profitability in France is concerned.

So, what I can promise to you is that we will be pretty rigorous as far as our investment decisions are concerned. But that we are absolutely decided to move on this company on the path of growth as far as top line is concerned and as far as results are concerned.

And you are better off when you do that with a strong balance sheet as we have it today. And one element of that was that the guys from Moody’s upgraded ourselves as far as our rating is concerned.

So they have advanced a little bit now Standard and Poor’s. And we have got now from the Moody’s guys a Ba2 rating.

That was my part as far as the financials are concerned. And now I hand it back to Fritz.

Yes, Horst, thank you very much. I think to add on this slide, and - if or when we have - when we are a little bit further on our way to become a content-centric and vertically integrated business, less seasonality, less gearing, higher profitability, more resilient business, and so on, and so on.

And I think this transformation, which we started from being just enormously big traders with 20 million customers in our core Source Market, is possible. And you can see it already, because when you look at Cruise results, when you look at hotel results and so on.

And these are results which are four quarters a year positive. These are not like only the last quarter and then you have an enormous swing and so on.

The business will in our view in a couple of years, five years, look very different. And we will use the proceeds also to drive this transformational growth.

And, of course, Horst, of course, keeps me intellectually honest and disciplined. So, now, trading, trading has been good in winter.

We had Egypt closed. We had North Africa, in the first month, as you know, Tunisia, closed.

Turkey, in the beginning, now of the season in Turkey in April, low demand, and still we grow the trading and we grow revenue. I think that’s a good indication people want to travel, and that’s it.

And summer is very similar. We have good growth despite the fact that we have a much lower demand in Turkey.

We have actually - so therefore, we believe we are on good track to also fulfill our guidance, particularly underlying EBITDA at least 10%, meaning we are making up for it. And we have very strong-performing parts of our business.

It’s also because some of the parts of the business don’t perform that well. If you are not strong in Turkey and people want to go, they go to West Med, we have a scarce supply, margins go up, and so on, and so on.

It shows the resilience of the business and our position which we have taken. Now in summary and I think a very good first-half performance, Hotelbeds has been a very good outcome.

We started right now with Specialist. And with that we deliver on the promise that we will actually be a more easy business and more integrated, more vertically integrated, more content-centric.

We reiterate our guidance to at least 10%. And this is not only this year but also to remind you also the next years.

So that’s all and there’s very strong focus. And I think with also the strategic action we are taking right now, it’s very clear.

It becomes increasingly clear that we are becoming a content-centric, vertically integrated business, global scale, local relevance. And so, you know the stuff on strategy, which I talked to you in the beginning.

With that said, thank you very much for listening. And now, we are open for questions.

Yes, please.

Yes, it’s Tim.

Yes, Tim here.

On the left hand side, and then…

So let me see that I have pen. Did we have one?

Here we go.

[I had a bigger pen] [ph].

Okay. Yes, yes.

Thanks. Good morning, Tim Ramskill from Credit Suisse.

I’ve got three questions, please, if that’s okay. The first is with regard to the Specialist business and the disposal plans.

The margins in the specialist business are quite substantially lower now than they were a few years ago. Did you contemplate trying to restructure that business and improve profitability prior to a disposal process?

Second question, just on your medium-term profit guidance of at least 10%, I’m assuming now that with Hotelbeds gone that that’s still growth ex-Hotelbeds. So maybe just specifically the Source Markets business, where I suspect most people would have had perhaps little bit less than 10% growth in their estimates, which the business is quite challenging.

How do we still get to the 10% without Hotelbeds? And then, the final question is just as regards to the £150 million, that’s got to go into UK pension fund.

That’s effectively £150 million to scrap a brand. What’s the risk that we see here in a few years’ time in that very well-respected brand in the UK has some negative impact on trading and suddenly that doesn’t look like £150 million particularly well spent?

So maybe you could just tackle that.

Okay. So I think what you’ll see is over time a lower relevance of the Specialist businesses and the growth in our core - when I look at the margin development of our core businesses and the EBITDA development of the core businesses, it was at a certain point in time I think close to 10% of profit pool.

Now, it is down to something 4%-onward [ph]. Yes, so it is less.

Now, you can argue about many things and if things have been wrong or right. I think some of the businesses had been great performing.

When you look at Quark, I think five years ago it was so toxic that actually the partners in PEAK, they didn’t want to have it. So we said we bring - we want to bring it in and the people in PEAK said, we don’t want to have it.

And now it’s making €8 million of profit. So, I think the good thing is there are things which are restructured and which are going very well.

And there are always things which are loss-making. And, of course, that needs to be considered in the sales process, because I think the dynamics of that business is a different one than ours.

Now the question is, of course, why don’t we do that, because we have to think about what we spend the money on? When, for example, a Quark business comes and says - I want to have a new polar expedition ship, then somebody needs to say, yes or no, or whatsoever.

But at the same time we have - it’s very clear that one ship at TUI Cruises or one ship - new ship in TUI UK generates more contribution than 50 brands and Specialist. And I think you need to choose what kind of company you want to be.

Now could we restructure a little bit more? Could we do this and that and that?

At the end of the day, I think also delivering is very important. And we could have waited another two years and do something or we actually try to see and - what the markets are.

And I think interest is low, a lot of cash available in the market and so on. If the interest grows in two years, what kind of sales process do you think?

And therefore my view is and our view is, let’s do it. And get it done and see - and for us it’s not a decision, we just test, we just have a look, and we do the presales work.

We do the restructurings. We do the carve out business plans.

We do the - and so on and so on, and we see the interest. My instinct tells me the interest will be there and we’ll have a positive response.

And we will see. Now, 10%, yes, ex-Hotelbeds.

So we are at least 10% growth company. Last one?

Risk of rebranding.

This is a very good point. Now, believe me, it’s not the first rebranding I did.

And it’s a little bit like refurbishing a house or whatever. You say - you might not like the result, but once you have done if you say, I should have done it two years earlier.

And I’m –and we did the thing in the Netherlands within the rebranding process. It took us - within the rebranding process we won 7 percentage points in market share.

We are now the most popular brand in the UK in relevance, the first time higher than KLM. So the first time in company history, Acub [ph] was 100 years old, and you could say highly reputed.

No. Therefore, I don’t want to say that things are easy.

I don’t want to say that’s a homerun and so on and so on. I don’t want to say we take it light - how do you say?

Light footed or lighthearted or whatever. We will be very thorough.

But at the same time, I have a clear vision, and this is we are the world market leader. And the world market leader, don’t fiddle around with small differences everywhere.

So we have global platforms, we have chosen, this is a strategic decision. And I’m pretty sure, that it will be very successful otherwise we wouldn’t have done it.

Now Thomson is not the next one to go. The next one to go is actually Jetair and all the Nordic markets, which are four different plans again.

So these are the brands, which come right now. I personally will do the reviews of the brand change programs together with our CMO, and the results will be I think also good once we have seen it.

Now, as I say, we need a platform for the future. We will get it done.

How expensive it will be, who knows? But I think after the Dutch experience, I would say most likely we will be - it will be a lower ticket than we have said before, because as I said, in the rebranding phase of the Netherlands, we increased market share with 7%, so sustainable growth, better growth than we had expected.

Thank you. Patrick was the next one.

Yes. Hi, three questions from me.

Patrick Coffey at Barclays. Horst, you mentioned that you’re looking kind of in the future to invest in growth to move into a different league, which sounds suspiciously like big M&A to me.

Is that something you could do in terms of hotel and cruise? Would you be interested in big M&A?

Second question and so slightly different. Given the share price weakness, are you considering any share buybacks at any stage, if the share price continues to be kind of low at these levels?

And then the final question, on the Specialist group, obviously, you’re beginning the process. Is there anything around working capital timings there that you want to flag in advance of that, so we’re aware of that when the deal goes through hopefully?

Thanks.

Let me do the first one and half of the second one, and the other half, Horst, I think. So - and third one, Horst maybe.

December is the time when we talk about, what we want to do. And we will have a very thorough review and we will be very explicit about these things.

But at the same time, when you look at the results of, for example, Cruises in the UK and bookings now for the Discovery 1 and so on and so on, it’s very clear we need to invest organically. When you look at the results of Caribbean hotels and the growth path in the Caribbean, if you don’t invest in Caribbean, it will run out of growth.

And so I think organic is, of course, the more safe. But to be also very clear, we don’t want to exclude anything before we review.

After the review, we will be talking about the point. Now on return of money to shareholders, I respect the wish that is there, and is it buyback or is it special dividend or is it whatever?

I respect it. Now, I think when you look at our policy, how to return money to shareholders, we are a very attractive package.

I mean, our dividend policy puts us on the top of dividend payouts in our industry. So we are returning a lot of money.

And also I want to say, I believe that sustainability also there is very important, that people can plan. So therefore, I think, that we have a clear policy that we have set out in the 2.7%, another 10% on top and so on and so on.

And if we keep our promise on these things, I think it’s very important. Now, I don’t want to exclude other things, but my point is, I think for me, if I had to do a priority for me, dividend policies, dependability and sustainability for me would be potentially more important than others.

Now, that said, if you run out of ideas and we have run out of growth, and therefore we are not a growing company and so on, then to the right, the shareholders would expect that we don’t waste money, that we also gave any excess of cash back to the shareholders. So give us a little bit of time until December and then we will be more precise.

Yes. And I think to add from my end on share buybacks, as far as Specialists and working capital impact is concerned, I have to say it’s a little bit too early to be absolutely precise on that one.

As I said, what we are going to do now is to have the transfer of the Crystal Ski business and the Lakes & Mountains business into the UK. And then we are working all the business planning stuff as far as the remainder is concerned, do the restructuring, and based on that, I probably will be able to give some more flavor on that one, when we are a little bit further down the road.

I think it was Jamie, and then close to the micro. So…

Thanks. Jamie Rollo from Morgan Stanley.

Three questions, please. First, just back on the Specialist disposal, you’ve given us the underlying EBIT last year of, I think, €56 million.

But what was the underlying EBITDA, and particularly excluding the retained skiing business? And also what was the NAV or what is the NAV, please, of Specialist, just roughly?

Secondly, in terms of the performance of the business in the second quarter, Northern Region had a much, much weaker performance than Central or Western Region, which was the opposite of Q1. Is there anything odd in there that caused that performance?

And are you still expecting Central Region profits to be flat or even up this year? And then finally, just a bit more clarification on timing.

You were going to talk in December. I think you said about proceeds, and what you’re going to do with the cash.

But I think you’ve also said, you won’t stop marketing Specialist until the end of the financial year. So you won’t know, will you, how much total cash, you’re going to get in from everything you’re selling?

So how can you make a sort of full explanation of what you’re going to do with the proceeds? Thank you.

Yes. That’s true.

Maybe, Horst, you can take the first question of the carve out financials. I think also the overlay of the EBITDA was a question and it was something, central cost maybe we have to take out.

Now Northern Region, I think very strong UK and very weak Canada. And Canada is not operation - there are two effects, when you have a weak Canadian dollar.

The first one is, of course, that people travel less. So there was a little bit of a shrinking market, and we are a market leader in Canada.

But the bigger effect was actually that in the JV there was - there are freedom - there has been too much freedom, in my view, to not hedge. So vacations were sold and were not hedged and then the Canadian dollar came down and therefore the margins were squeezed.

And that is something, which we will fix. But it - so it’s a one-off effect, if you like.

Now, it has happened. And therefore you see Northern Region flat.

But to give you the all-off magnitude in the Canadian impact is round about, I think, €19 million. So it is quite an effect.

So don’t read of it that actually something in the trading is going slow. Now Germany, so Central Region, end of year is still what we said, will be better than last year.

And I always have said at least 10% are on the basis that Germany can be flat. And year on year and overall, and that’s still what I think.

Now on the - it’s true, and I don’t say that in December, we have all facts in hands and afterwards nothing will happen in the world. Therefore there will be a life after December.

But in December we have, I think, sorted out, as we did strategic reviews for the Specialist, we will have sorted out a strategic review directionally, where we want to see the transformational growth happen and how we want to see the company shaping up in the future and that is what we do. And of course we will not have all data for all proceeds and not everything will be there.

So therefore - but we will have a clearer view, I think, and share that with you how we - what is the financial strategy, what is - how should our balance sheet look like, where do we want to invest, what are the main strategic drivers, which we believe actually drives this transformational growth to become a more vertically integrated, content-centric business format. And that is what we will do in December.

And we want to have it very thoroughly done, because it is the future of our company will be determined with the strategic directions we will take then. Horst, do you have…

There was the answer on EBITDA, which we owe, Jamie. The whole of the Specialist group, it was in year 2015 €87 million roughly.

And I have to say, I don’t know the EBITDA number of the Crystal Ski business and the Lake & Mountains business. However, some - Welcun [ph] is giving me some additional information.

I don’t know, whether that helps now in this context. I’m not fast enough, Jamie, so we have to - I don’t get my arms around it, so we have to give it to you guys afterwards, yes.

[indiscernible].

Eh?

EBITDA, it’s in fact EBITA, it’s EBITA.

EBITDA, that was the question.

Yes, that’s ski and mountains.

From my point of view, the €10 million, €11 million EBITA, yes, shouldn’t…

Should be similar.

Not too much different from the EBITDA.

There is no - there is a little bit of IT also.

But it’s not a big deal.

No, it’s not a big deal. So we have €11 million EBITA in the skis and mountain and Crystal, so I think that would correspond.

Roughly.

Maybe a million or so.

We will clarify.

We will clarify this.

Okay, a number. This is the specialty of Wolfgang.

And maybe we can answer that after we have had Alex. And after that, I think we have Simon, as well.

Is that fine with you? Yes?

The correct answer instead of a fast answer.

Thank you. It’s Alex Brignall from Redburn.

I just have two questions, please. In terms of the acquisitions, I guess if you could give us a bit review on whether you like the current structure that you have in terms of joint ventures for where you’ve tended to put a lot of the capital, or whether wholly owned could be an idea as well.

And then, in terms of the disposed earnings, could you tell us what impact that has on the dividend, if you’ll protect the level of dividend growth that you have despite Specialist earnings being gone and Hotelbeds earnings being gone? Thank you very much.

Yes, Joint ventures, I think that is one of the areas, which is a big thinking, because joint ventures, I think generally operationally is - has been good for us, because you have - when you look at TUI Cruises, yes, you have all the expertise of a group. How can you imagine that you enter into a cruise business worldwide from more or less nothing without the expertise of a Royal Caribbean?

And I think that is something which is remarkable. And when you look at how successful that joint venture right now is, I think it’s amazing.

Now when you look at Riu, 40 years, including all the knowledge about building in the Caribbean, also Sunwing. Through Sunwing, Blue Diamond, we have built again Caribbean.

These are, particularly Sunwing, for them the smallest Caribbean short haul. So it is actually building just a destination just on long haul is very difficult.

So I think in general, I think operationally joint ventures are good. Now a little bit of the problem is that when you increase the value in the joint venture, you have somehow a trapped value and how do you get resolution long term?

Therefore we are also - for example, we look at Thomson Cruises or what will be also TUI Discovery over time, not TUI Cruises, but TUI-related, 100% operated and owned cruise company. I think there is good reasons to keep it that way, because right now we - the first delivery we got from - of the Discovery was actually from Royal Caribbean.

But we didn’t need to actually put this then in joint venture structure, or next deliveries or when we get Mein Schiff 1 and Mein Schiff 2 over time into the UK market. There’s a good reasons not to put this into the JV as well, because it’s also clear that there are ups and downs.

Now for the time being we don’t foresee that our JV structures will change significantly, because, as I said, the partnerships are very good. The big partnerships are actually the Royal Caribbean partnership, which is a very, very good partnership for us, the Riu partnership, again a very good partnership for us.

And also the Sunwing partnership in Canada is equally good. And therefore we don’t foresee it.

We don’t foresee a change on a big scale.

As far as the dividends are concerned, we paid for fiscal year 2015 €0.56. And I think we had this one nice chart in the year-end presentation, where we guided on all the calculation or the math will be done as far as fiscal year 2016 is concerned.

So assuming we will move on as we have guided today to you, I think we will stick to our dividend policy. And ultimately it’s a little bit of question where we will end.

When you think a little bit over time, then yes, indeed, we will lose now an earnings building block due to the fact that Hotelbeds Group will be gone. However, we opened a little bit the curtain, and Fritz was very precisely in saying there will be more to come in December that we intend to add other building blocks.

That may mean that there is a kind of little gap timing-wise in between, as far as one building block is concerned which has left, and the other ones which will come. Nevertheless, we have always been pretty, I think, structured in our thinking when you, for instance, think about this 10% additional on our dividend, which was kind of bridging a time gap as well.

So I would say leave it for the time being as it is. We are reasonable people.

Another way of looking at it, if it’s to make it easy and simple, if we had €1 billion and we invested into something with 15% return, which we theoretically set as a threshold, I think we would be good well off. Now, as I said, let’s do it - let’s do the session in December, and we will not - we will do something or we will - I think we will have a very compelling story.

So now the book value I think is coming across or not? No, okay.

[It’s nothing happened] [ph].

The D is two. The D is two.

I think Simon was the next.

Good morning. It’s Simon Larkin from Bank of America Merrill Lynch.

Could I ask a question around the balance sheet for one second? You’re going to move to a sort of neutral year-end net debt position.

You’ve also talked a lot about wanting to strengthen the balance sheet. You’ve got your credit rating improvement recently.

Do you regard a neutral year-end net debt balance sheet position as being we’ve improved the strength of the balance sheet, or would you want to, in ideal terms, improve that further?

I was always pretty clear to say what we would like to achieve is a crossover rating. And this is - in the end it’s, to a certain extent, the math, which has to work and to the right direction, and it is the sustainability and delivery on the results.

Because whenever you go to the rating agencies, they have this mathematical approach and then they have this qualitative approach as well. And the qualitative approach is please document to us that you can deliver on results even in a challenging environment.

That means, I’m not mad about having a zero net financial debt position as per the end of the year. If it is a fit to a successful business, then I can live with a net financial debt position which is, I don’t know, €300 million, €500 million, you name it.

Ultimately I believe it’s the whole set of information, which you have in front of your eyes. We have a seasonality within our business.

So when you take the swing of last year, €1.7 billion, reduce it by €300 million cash attributable to Hotelbeds Group, you are still around €1.4 billion swing. That means we are in a net financial debt position, when you take the average in the year.

I think the guidance is just a description of what it will be but not what it should be, I mean, because de facto we will get some cash in. De facto, you saw the results.

Therefore de facto, potentially €500 million minus is more or less a zero. What the right position will be is actually - the outcome will be - will be an outcome of the strategic process.

I think the point, Horst is making is a very good point. I think the TUI of the future will be less seasonal, it will have less swing, it will be more cash-generative, because we are transforming the business.

And you see that already stronger contribution in Cruises, four quarters positive, stronger contribution in hotels, which is all year around hotels, as we said before. So you see these things happen.

And that will of course help, I think, enormously when it comes to credit rating, and so on because we are penalized a little bit by the sector, we are in and by the volatility people see and the structure, and then the dependence on all kind of things, which, at the end of the day, I think we show that we are more resilient than we have been in the past. So therefore, I think the outcome of the - one of the outcomes of the strategic process now, use of funds and so on and so on, will be also what our balance sheet should look like.

Could I ask a second question on just could you clarify for me the difference between 1H and 2H in terms of what the tour operator customers represent of Riu’s customers?

Sorry, I didn’t get your question, sorry, I’m sorry, I didn’t.

It’s what proportion of Riu’s occupancy is generated by the tour operator 1H versus 2H? Is there a big difference or is it pretty similar?

What percent of tour operators sleep in our own beds, you mean? This is roundabout still true, 20 million customers in tour operating, 7 million customers in our content, so this and this.

Of course, not all the 20 million or the 7 million. Then this is not - it’s very clear.

It’s even not possible if you wanted to. When you look at half of the Riu investment, for example, is in Caribbean.

And you need for infrastructure and sustainable market development, you need short haul access. And that means a lot of the customers and more than half of the customers in the Riu hotels in the Caribbean come from U.S., where we don’t even have a sales engine.

So therefore it is - but still I think it remains that you need a very big funnel in order to de-risk investments. But therefore if - same with ships, same with hotels.

We always talked about 60 more hotels or 20% more capacity, so meaning instead of 7 million, potentially 8.4 million, 8.5 million or whatever 7 million customers in our own assets. I think here we are in a ballpark there.

There is still a lot of oversized funnel to actually fill our capacity and make our - the major risk of growth is, of course, low occupancy. You have a fixed asset, virtually no proportional cost, everything, whatever the additional room is filled is revenue equals margin.

And that is something, which I think this 8.4 million customers capacity in hotels is still on the very safe side. Let me give to you and talk - mention one thing also.

It’s not only this and this. It is also the question, how do you build prices and markets.

And here we have now decided, as you might have seen, that we take actually the yield system, so the question of how to build prices based on capacities and based on demand. We take that on a group level and it will be one system worldwide.

And it’s a very complicated mathematical tool, complicated in a way, because we have what’s called in the theory double marginalization problems. We have not only kept limited capacity in - or fixed capacity in hotels.

We also have fixed capacity in airplanes. And therefore we have to yield two fixed assets based on demand and based on capacity.

And that is very complicated. And we have a very good system in place.

It’s all homemade. You wouldn’t be surprised that this was actually or is a system we are using in the UK.

It is the best system I have seen. And therefore we have now made this as a global priority, one IT.

And this is part of our intelligence, how to be priced optimally that we don’t sell too fast, that we don’t wait too long and so on and so on. Please.

Yes.

Yes. In what sequence so ever.

The lady or - and then you.

Thank you. So it’s Alexia Dogani from Goldman Sachs.

I had two questions, please. Just firstly on the source market, can you talk a little bit about the initiatives you’re doing in Germany that lead you to be confident that Germany will sort of start to improve in the second half given the sort of weak performance in the first half, to get to flat for the full year?

And then just secondly on France, if you could give us a little bit of color what drove the improvement in performance between France to EU destinations and whether you see that continuing. And just finally then on Cruises.

Clearly you’re quite positive on sort of the growth prospects in this business. What are the constraints for sort of pursuing faster growth?

Is it shipbuilding capacity? Is it access to funding?

Is it just the operational ability to bring ships within the group? Thanks.

Okay. The last one is the easiest one.

It’s also a very good message. It’s shipbuilding capacity.

So that means for the next six years or five years, we know what capacity will come to the market. And that is making us very confident that we will achieve and what we’ll plan to achieve.

Germany and France is both very interesting, and maybe I can answer them in one. When you look at the markets, and you look at whatever is talked about and so on, I think one thing is very clear, in Germany GP1 is great.

So price - revenues minus direct cost is, what 20% or so. It’s maybe the highest in all of our markets.

Then deduct as the sales cost, which is round about double the level of the UK, and then we have overheads. And they will come to a margin.

So we are losing on the - the main message is we are losing on the sales cost. And that’s what I always said we need to change it.

Now, funny enough, I think we are, together with Sebastian, who is actually now in control, and of course we have a good discussion on it. So Sebastian Ebel, as you know, is a seasoned operator.

And I’m pretty sure that over time, he will have a good impact. Now the change this year doesn’t mean that we are through with it.

The change this year is more or less saying - because we added - we started increasing market share in Germany. That means winter losses are bigger then - and summer wins are bigger.

Therefore it’s a normal thing that we are more or less a little bit less successful in the winter and we will be more successful in the summer. That doesn’t mean we are through the turnaround.

I always said the turnaround is three to five years. And when you want to change in Germany round about, I think, 14% sales cost to something which is below 10% sales cost, this is tricky.

So therefore it will take a little bit of time and it will be not done very fast. In France, it’s a very different animal.

In France, GP1 is lower, but it has been increased, because we changed over the last three years from 85% North Africa to 85% product mix West-Med and Canaries. That means higher prices, higher margins.

Then sales costs have been improving. We closed more or less all travel agencies in south of France.

We are more online than we have been in the past, so a couple of percentage points sales cost improvement. Overheads percent, 1.5% improvement in France is not very easy to restructure anyway.

The team has done it, and now we are in a better position. Still we are loss making in France.

The biggest problem here is we don’t have scale. When you have a business with that kind of size of market or as a country and you want to cover the country and you only have 800,000 customers, it’s difficult to improve it even further.

We said we will be breakeven this year, but that’s the reason why we buy this other company, because then we can - we have a more - then we can start flying from the regional airports. We will actually put Jetair flights, which we already decided, Jetair flights into the regional airports, a very cost effective airline.

And I think we will be fine. Please, yes?

Yes. It’s Nick Thomas from Merrill Lynch.

Just a quick one on the cruise business, you’ve shown us that TUI Cruises generates a ROIC of 10%. Are you able to just indicate, how much higher than that returns are on the newer ships, the last couple of ships to be delivered into the fleet?

I would imagine they generate higher returns and therefore how much lower they might be on the older ships. And as you brought in those newer ships, have return on capital been diluted in those older ships over that period?

I think you still have a distortion of - the ROIC is right now not a very good number here, yes, and the reason for that, you’re always having strong growth phases like here. We added last year 60% capacity.

You always have cost for everything and revenue for a smaller portion. And therefore the return on capital, and also particularly on equity, but also on capital in this company will grow over time, because just the percentage of growth capacity.

This lagging investment actually will be lower. But, Horst, do you have numbers on this?

No. I cannot give you the numbers on the single ships.

At least, what we see is performance of, for instance, Mein Schiff 1 and 2 is not suffering from new capacity which is coming in. So what we experience is that there is still a lot of demand, especially in Germany, when it comes to new capacity into the market.

What I - yes. What I maybe have to say, a new ship is €500 million, 20% equity, everything else is financed.

After-tax profit fully loaded €50 million to €60 million. Then you can - interest is, what 1%, 2%.

Thank you.

It’s a nice business, as long as you fill it. If it’s not filled, then not a nice business.

But it’s all 100% filled on that one. Please?

Hi, Stuart Gordon from Berenberg. A couple of questions, please.

Firstly could you give us an idea of what you’re expecting in terms of dividends, both coming in from Riu and the Cruises, as well as outgoing dividends in the other Riu business? And the second question is, I think you’ve taken quite a few provisions for North Africa.

And I was just wondering to what extent they will be released this year and whether you’ll need to take any further provisions for Turkey? Thanks.

Yes. We have taken some provisions for Tunisia, and we will use them this year.

It is actually €17 million last year, which we billed in the last quarter. It will be in least used.

Turkey, we also have a little bit of provision, which is what, 30, no…?

Sometimes we - we have a provision of one court case. However, the real challenge which we have is that we have lease contracts in Tunisia, and we have lease contracts in Turkey.

And what you do is you have to look at these contracts and have to evaluate, whether these are onerous contracts. And that depends now a little bit on the performance, which is ahead of us.

I think we have pretty fine provided for when it comes to Tunisia. As far as Turkey is concerned, we are on a good track as far as steering our customers in the properties are concerned, which are leased by us or where we have commitments.

So that ultimately means that we probably don’t suffer from an occupancy point of view. However, the prices will be pretty low and that means that profitability of these losses - leased properties will not be too good.

However, that is already built-in in our forecast in our guidance. And therefore, I am cautioning always a little bit, when it comes to these accounting issues, we are properly provided for as far as lease contracts, onerous contracts are concerned.

We are building in the burden, which will may be ahead of us into our forecast as far as the legal entities in the hotel business is concerned.

When you look at, I think Turkey is very simple, 2 million customers, 1 million customers potentially will go this year. We have 270,000 capacity with our own hotels, another 300,000 with third party, so we are with 1 million still above.

A little bit of the issue now is of course, because it’s always late. It’s a late business, so margins will go down.

30% of the 300,000 third party hoteliers, we are renegotiating each and every contract, so there will be a margin squeeze in the tour operator piece. And of course, our own hotel we also squeeze.

And there are actually we squeeze ourselves. So we will have a margin effect in the hotel piece as well, because otherwise our hotels would not be competitive in terms of the general margin situation.

And these tour operator piece, margin squeeze and the hotel piece is both actually part of our guidance today. And this is something, which will hit us at the same time you have seen strong results in the Canaries, particularly in the Canaries in the winter, but also Balearics to be expected in summer.

More or less, I think every bed will be filled, if not oversold. And so it will be interesting to see what happens.

Usually we sell share - we sell risk capacity, first, and do share capacity, second. Now we reversed it for Spain, so we sell share capacity first, and with our risk capacity, we wait until the last minute, because we will be the guys, hopefully, who have capacity and something to sell when others potentially stop selling.

And therefore we want to keep our business growing and that’s the reason why we reversed that. And it’s a good - I think that’s also the benefit of being a vertically integrated company.

That’s what you can do.

And the dividends?

On dividends, yes, Horst?

The question was directed to the dividends, which we receive from our joint venture partners, which was Riu and TUI Cruises. We - in the first half year we already got €12 million dividend from Riu.

And typically we have a 50% earnings after-tax dividend distribution out of Riu. When it comes to TUI Cruises, I have to confess that I don’t have the number on my radar screen for this year.

There was some, I think, some discussion about an increase. However, we have to deliver that to you.

I don’t know it by heart.

€67 million? Okay.

Yes.

Yes.

Not small, at least.

No, it was significant. Okay?

So thank you very much for being here. Thank you very much for listening and also for the questions.

And see you later.

Thank you.