TUI AG

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

Jamie Rollo - Morgan Stanley Alex Brignall - Redburn Tim Ramskill - Credit Suisse Patrick Coffey - Barclays Jaafar Mestari - JPMorgan Jeffrey Harwood - Stifel Johannes Braun - Commerzbank Steven Graham - Avolon Aerospace

Welcome for our financial results ‘15/16. I have been told to be short and precise in order to have enough time for questions.

So, I have – we have been, as usual, sharing the presentation. I will be opening, do a little bit of review and trading.

Horst will be talking to you about numbers and then we have a section on strategy and outlook. Then, as you can see, we sum up and have Q&A.

So, when I look at last year, I think we had a very good second year after merger with a 12.5% increase in underlying EBITDA and that includes Travelopia. And if you exclude Travelopia and then it’s still – it is 14.5%.

So, Travelopia actually diluted the average a little bit and we can have a good discussion why that happened and what that is, but it shows the core of the business is even stronger or the remaining core, once we will have been divesting Travelopia, which we will be – which we expect to do in the first half of this financial year. We have actually, I think, a strong performance.

You will be seeing that already 50% of our profit contributions come from content. So, you see actually the transformation of the business happening.

And maybe also on the first slide it’s worth mentioning that we thought about the question a little bit – what we actually will do in terms of commerce for the future? And because we want to invest and we have invested last year, we want to invest next year.

We said it would be a good thing to extend our financial guidance to year ‘18/19 to another 10% EBITDA CAGR for the year ahead. Now, when I look to the last year, you will see again the 12.5% and the 14.5%.

On a constant currency basis, we have been also extending our revenues with 1.4%, while normalized operating cash flow was €0.9 billion, ROIC way above our internal financing cost, 21.9%. And I come to that also in our sections when I talk about the hotels and particularly hotels and cruises business.

The dividend per share we want to propose to the Annual General Meeting is €0.63, which is exactly on the level which we have promised to deliver. You know the 10% extra which we actually said at merger.

Now, when I look right now into the bridge, we see underlying trading very strong. We see merger synergy is very strong another €60 million merger synergies.

So, with that, it’s more than 80% delivered. We have remaining €10 million in each of corporate streamlining and destination services, but they are also already in – if you like, worked through though there is no uncertainty about it.

They will exactly happen like that in the next year. So, for us that means promised mergers fully in the bag, actually even more, we, particularly in central synergies, we had after the merger increased our promise a little bit and it happened exactly as we said.

We had, yes, in our last year major constraints for the geopolitical environment. All of that is part of the 12.5% or 14.5% you see here, the €50 million, which are Turkey, Tunisia and Egypt related and still we delivered.

You see the enormous translation effect of €91 million. This is all the British pounds being after the Brexit a little bit weak and therefore in the months of higher revenues a translation effect into euros.

I cannot mention it often enough. It’s not real.

We, of course, have our revenues, which we – in our books in euro, but of course we don’t repatriate the money or what. The pound is the pound and you know, of course, we have investment in pounds as well and therefore a true translation effect, if you like, but it is a big effect as you can see.

But even if you included it and want to – that still is 4.5%. I mean, so, growth is growth.

So, source markets, a little bit of a mixed basket, Northern region very strong, Western region very strong. The Western region includes, by the way, two effects, which I want to mention.

The first one is the shutdown of the Brussels Airport in the year and we had in Belgium one of the major markets, the main airport closed down and still we have growth. And it includes in the Netherlands the re-branding and I come to that in a minute when it comes to strategy as well.

We have in the Netherlands higher than budget and higher than last year EBITDA despite the effect – the full effect of the re-branding. So, I would be saying if we had a question and the question is also for the future re-branding, how expensive is it and so on, at least for the Netherlands I can say it was very positive.

But the major driver of Western region is, of course, the turnaround in France and that has been quite successful. In Central region, we are minus €15 million.

And here I think you can say it is constrained markets. We increased market shares.

When you look at some of our competitors, I would say we have increased – we have been increasing market share, but they have been more than others driven by the Turkey effect. Therefore, yes, it is still a little bit difficult in Germany and Austria and therefore that is the €15 million.

It also includes one effect I have to say, which we had said Germany will be around flat. And last minute we got something, a subsidy case from more than 10 years ago of Hapag-Lloyd Express or HLX [indiscernible] subsidies, which somehow is around €10 million, which is a one-off effect, which somehow now we have to be provided for.

We don’t know if we will have to pay for it, but that is something which was also part of the Central region thing. On the other hand, you see in the lower piece of the slide, direct distribution up, online distribution up, underlying EBITDA, I think that’s all operationally in a pretty good shape.

Hotels and resorts, very strong with RIU, then you have the Turkey North Africa effect again. That is something which we will be also seeing this year, because we have some lease contracts in – oops, thank you – we have some lease contracts in Turkey and Tunisia, which actually we cannot stop this year, but next year will be – they will be much easier, but still a very strong growth.

And I think also when you look at the occupancy rates, revenue per bed, I think particularly impressive on the RIU front. So, ‘14 to ‘16, 5 percentage points more occupancy and €10 more revenue per bed on average is of course something which is nice and shows that besides Caribbean that also the Spanish Canaries and Balearics have been enormous profit from actually the movement of customers, 2 million customers roundabout from East Med to West Med, which actually is reflected here.

What we also did and what we will do in the future ROIC developments, ROIC 12.3%, all new as you know, our investments we are doing are above 15%. So, you see a strong movement, I think 2 percentage points within one year is self-explanatory and shows the discipline which we have when we invest into new stuff.

I turn to cruises. And actually this is here two major areas of growth: TUI Cruises, Hapag-Lloyd cruises.

Thomson Cruises is not part of this yet, but will be in future, but for the reconciliation I think it’s – was easier to show it that way here. TUI Cruises is just an additional ship.

And I want to recall what we said last year. We said an additional ship is between €50 million to €60 million after-tax profit, 32 times 2, because it’s a 50% here, because it’s an at-equity accounted business.

32 times 2 is 64. So, it’s a little bit more than €60 million, but we are not so worried if it’s more than €60 million, so that I think is great.

I think the other thing which is even more for me at least was nice is Hapag-Lloyd Cruises we didn’t add any capacity, but we still have €17 million more profits. And you can see that actually when you look at the bottom end of the chart.

You see that actually here the dark blue on the right side, the average daily rate is actually Hapag-Lloyd Cruises, is €580 per lower berth. And you see the capacity is more or less stable.

So, that’s – I think that’s pretty good. On the ROIC that’s also what we said.

Yes, historically, you couldn’t see it, because here we had a lot of tonnage, which came into the market and didn’t generate revenue because of the strong growth. But now we are growing very nicely and we are now more than 21%, just one year more for the – more than 4 percentage points.

And the relation between new tonnage, which actually generates cost, but not revenue yet and actually existing tonnage, which generates cost and revenue, this equation will be, of course, much more turned into a normalized business and therefore also for the future you will see the ROIC number increasing. I think the important point here is that we want to make and of course, with Horst you will believe anyway, but also for me we want to show, yes, it is huge investment programs, but yes we are very disciplined.

And for the hotel piece as well as for the cruise piece, it’s not only way above our WACCs, but is also way above the hurdles which we actually have set ourselves, which is the 15% ROIC hurdle. Now, I also like the next picture and I am pretty sure that you will like it as well.

We have – when I now look for the last year it is a year where we already had 50% of profits from our content business. And the nice thing here is that it’s not only, we believe, more resilient, more cash converting, but also it is much less seasonal and you can see that actually on the left side, whereas in the touristic businesses, we usually have three quarters of – so, the two operator business we have three quarters of negative contribution, one quarter of positive contribution.

That is very different in our content businesses and particularly where the investment goes from here on. It’s even less seasonal than even the chart you see on the top left, because it’s mainly Caribbean and mainly cruise and that is more or less equally spread throughout the quarters.

So, on the top left you also have some of the hotels, for example, in Spain, which have been still seasonal, but we are talking about the new investment into Caribbean and so – and there is 365 days operation and we are growing customers as well from Europe, but also from in the winter seasons, countercyclical, from Canada as well. So, I think that’s a nice picture and it shows how the transformation is really progressing and it shows that we are already 50% content.

Now, let’s talk a little bit about trading. Winter is already 60% sold and revenues are up 9%, that’s good.

And summer is early stage. And particularly UK has been already in sales since some while.

We have in UK now is the only country where we already have significant sales already for summer season, 20% sold, revenues up 16%, bookings or customers up 9%. And this includes, of course, all effects which you potentially would expect from Brexit and so on and so on.

Now, I said – how was Brexit really having an influence on our business? And I think the most impressive slide is potentially the next, because here I have the summer bookings which we had in the respective timeline down there and the black – and the blue one, summer bookings 2017 and then the light blue one summer bookings ‘16 of one year ago.

And I think two things you can see here. If you had not known that the EU referendum date, I think you would not be able to spot it and so virtually nothing changed.

And I would say if you look at this booking pattern this year versus a year ago, it’s remarkably the same. And if at all you would say the Brexit had a year – had an impact already a year before the referendum, because somehow the light blue line seems to be a little bit weaker a year before the referendum took place than the dark blue, if at all.

And therefore, my view is I don’t see anything. I don’t know if you might see anything.

Now, the interesting thing is, of course, now the next months, because the big – the strong bookings come in, in January, February and March. My expectation would be at least for the next summer, winter, this winter anyway not but also next summer and winter season we are so in a way hedged that I would not see any issue.

Quite to the contrary, potentially we will see market share wins, because not everybody can hedge. OTS cannot hedge.

It’s more difficult. And therefore, I think we will see that.

And the second thing also, not only in terms of cost, but also in terms of revenues, if the pound is weak there is an enormous attraction for all-inclusive holidays. I mean then you have more clarity on your budget and so on and so on.

And we have in the UK more than 60% all-inclusive. So, I would say there is a good reason to assume that next summer will be nice as well.

With that, I want to hand over before we come to strategy to the financial numbers and Horst, please.

Good morning, ladies and gentlemen. Thank you very much, Fritz.

I would like to run you now through the fiscal year ‘15/16 numbers. I start, as usual, with the income statement.

Adjustments of €103 million, which is reduced compared to the last year. Last year we had all the integration cost.

Interest is around €180 million, so, kind of same level as last year. However, we have included €12 million, which was due to the early repayment of the high-yield bond.

You know we have issued a new €300 million bond which has an investment grade style and we could have split or spread the additional cost over the lifetime of the new bond. However, we advanced it into fiscal year ‘15/16.

Hapag-Lloyd, we needed to write-down our shares to a share price of €16.10. The account for the Hapag-Lloyd shares as a financial instrument available for sale.

So, we are required to take every depreciation through the P&L. Whenever the share price appreciates again, then it goes through equity until the point of time when we will be able sell our Hapag-Lloyd shares.

And as you may have seen, the Hapag-Lloyd share price has appreciated again after the €16.10 low point which we have seen. That was too fast, because I have to talk about the tax charges as well.

We have income tax of €153 million, which was significantly higher compared to that what we saw last year. However, last year the capital loss – our tax losses carried forward for the first time, so that was kind of a one-off positive effect, which we saw within our P&L.

Discontinued operations, this includes the disposal gain on Hotelbeds Group, €681 million. And finally that leads us to a group result after minorities of €1.037 billion.

And whenever you translate that in earnings per share, then you see that the basic calculation brings us to €1.78 and the underlying EPS is around €0.86. Then I would like to make one move through our cash flow bridge.

The charts here – the chart here illustrates that we are already generating a strong normalized cash flow, operating cash flow, which together with the disposal proceeds enables us to do our transformation, Fritz spoke about that one and to continue to deliver on our dividend policy as you know it. The normalized cash flow is around €944 million.

Then we have had some special effects as far as fiscal year ‘15/16 was concerned. There was an improvement in the working capital and that is attributable to very conscious working capital management, but it is attributable to some phasing as well.

At the same time, we did a top-up into our UK pension fund. You are all aware of the discount rate development as far as pensions are concerned.

So, we negotiated with the trustees and finally, due to the fact that there was cash available from the Hotelbeds disposal we made a top-up into the pension fund. Ultimately, I believe this chart documents that we are on a pretty positive track as far as operating cash flow generation on a normalized basis is concerned.

The next chart is illustrating, to a certain extent, our gross CapEx, then the CapEx divestments, net financial investments and the net pre-delivery payments, which we have made for aircraft. The total amount of net CapEx is €605 million – of our gross CapEx is €605 million and the total amount of our net CapEx investments and pre-delivery payments is €690 million.

That is slightly below that what we have guided on, €750 million. What’s the reason for that one?

There was kind of some delay as far as CapEx was concerned. We did the advance payments for the two expedition ships, which we have ordered only in October and not in September, so a phasing effect.

Ultimately, I believe and that is in the strap line on the bottom of this chart, the net CapEx and investments reflect the investment in our transformational growth story. Coming to the movement in net debt, we exceeded our guidance to be broadly neutral and got to a net cash position of €350 million.

The reasons for that are pretty obvious from my point of view. You have seen that we have improved as far as working capital is concerned.

And you have seen that we have had some phasing effects. So, we ended with a €350 million.

Whenever you take out the net cash position of Travelopia, €318 million, then you still get to a net cash position of the continued operations of our Group of €32 million. Coming to the next slide, which is giving you the full picture, which you need in order to understand our financial guidance, you see all the elements which are used to calculate the leverage ratio.

That is not only the financial liabilities and cash, but we have to include the net pension obligation as well and the fair value of our operating leases. So, this is kind of an element which helps you to understand how we manage our business and that we have a very careful look on our leverage ratio going forward as we have done it in the past, which already brings me back to Fritz Joussen, who will now start with our strategy update.

Thank you, Horst. So, I think I just wanted to start with repeating once more where we come from and where we go to.

I think when you look at the company’s – and the company and particularly to its level and years ago, I think there is no doubt that was a strong heritage as trading companies. Peter always talked about a loose federation of companies, which actually says it was not integrated.

And the high seasonality, at the same time significant airline commitments, it’s clear, Horst showed you, it was not on the balance sheet, but of course, it was there and increasing competition from online travel agencies and low cost carriers. I think that’s where we come from.

And the question is – where do we go to or what are we delivering? I think you start seeing that we have a more integrated decision-making in terms of all the customer experience and also the levers of value across the value chain, we think very much more integrated when it comes to the question of brand, of hotel investment, of cruise investments, pockets of growth and these kinds of things.

Also the loose federation is not that loose anymore. I mean – and I come to that IT, aviation platforms.

If we have five airlines and you five times negotiated with Boeing, you don’t get the deals. If you have IT platforms, but you don’t combine them how can you do an integrated experience from actually the point of sale to the destination service and also the hotel?

How can you recognize customers? How can you yield integrated if you are not integrated?

And it is a little bit of difference. And not last, not least, also the question of brand, being an integrated global brand has benefits.

Yes, there was a little bit of question if the cost wouldn’t be too high and so on, but I think the answer is in the system and I come to that. But also I want to be clear.

We have made the decision for six global platforms. We call it freedom in a framework within these six platforms.

You see on the second bullet of the right side. Local markets are local markets and they are different and we compete locally, so we call it one company local rules.

So, we are locally active and we want to keep what’s good in the business, the local, commercial attitude of beating competition locally. That is part of our DNA and that’s what we don’t want to change.

Two bullet points which, of course, you say – proves the pudding. And the pudding we will provide to you; disciplined investments, yes?

So, we invest into areas where we have pockets of growth and scarcity of supplies. So, we look into the markets and say – usually the returns are very high.

Then we have certain areas, certain micro-markets, where actually for a certain time the amount is going very strongly. Supply is very constrained.

We have a relative high market share. And when we do this, ROIC of 15% is not a problem actually quite to the contrary.

And you see that in the Caribbean, very, very strong. You see that in cruises and in the European cruise business, extremely strong.

You see that in Cape Verde Islands, very strong. Almost all 5-star hotels are more or less related to us.

There are market shares which are nice and therefore – and we have a strong, growing demand. Therefore, profitability is extremely positive.

And so we are strategically investing into pockets of growth and not throwing out money. And I think you shouldn’t be worried.

It’s big money still, but it is hopefully wisely spent. The integrated business model delivers already 50%.

So, we are not saying – today, we don’t know how exactly to do it and miraculously, in 2 or 3 years it will be bigger. We say it’s already 50% and it has been much smaller two years ago.

Cruise – our cruise business when I joined was negative. We didn’t have Thomson Cruises as a cruise business.

We didn’t have TUI Cruise of just starting with initial losses and Hapag-Lloyd was minus 40%. And what you see today is quite a different picture and so already 50% of our profit contributions are content with less seasonality as I said and with less – or with higher cash conversion.

So, I think that’s all. Hopefully, it’s good.

So our vision, world-leading integrated tourism business based on hotels and cruise content. So, if I look now into the components, what we are delivering, so how does it really work off?

I want to talk about these five things. And to start with cruise, that’s what you see and here you can see that over time we have been making enormous progress in terms of particularly underlying EBITDA as you see it there, down there.

So, it’s in all pockets of the business. It is actually a good story.

And when you see then that we say future, yes, we have a lot of things we want to do. Three new builds in the JV of TUI Cruises, three more ships in Thomson and also two new builds which we have already decided, expedition ships, in Hapag-Lloyd.

And the amount of investment is of course very big. It is €200 million per ship.

It’s not new ships. It’s used ships, as you know, in Thomson Cruises.

It’s €145 million per new ship, per new expedition ship, in Hapag-Lloyd. And of course, a new vessel in TUI Cruises costs, the ship, 5 and 6 will be more to the €600 million and 7 and 8 will be even higher because bigger ships.

At the same time, you will not see the CapEx, because it’s all ring-fenced in the equity accounted vehicle. Interestingly enough, they are all paying it from their own cash flow.

So, it’s – cash flow is strong enough to pay dividends and also to invest into the new vessels. And the profit contribution you see down here, we have again the €25 million to €30 million on the 50% basis per ship in TUI Cruises, I think, interestingly enough, the €25 million on 100% basis on Thomson.

This is exactly the amount Mein Schiff 1 and Mein Schiff 2, so the older ships, on 100% basis also do in actually TUI Cruises. So, it is more or less replicating the story.

And if you ask me what could we do even more? A little bit more tonnage in the UK would be great.

The problem is a little bit and that’s what I always said, if you want to have a new ship now and you order it with some of the four yards only available you – the next free slot is 2023, which is not so nice. At the same time, it’s also pretty nice, because it shows the constraint in supply.

And now you comes back it shows that there will be quite some while where the surplus of demand oversupply in Europe will be existing. And I cannot imagine that this will change and you should not imagine that this will change over short-term.

And the expedition market is, anyway, growing very fast now. We replaced one older ship and we have new capacities for Hapag-Lloyd.

Hapag-Lloyd has a very proven track record in luxury expedition as well. Here lower berth – per lower berth revenues or yields are also above €500.

So, it’s – I think it’s very good. Now, ROIC we said 21.3%, well above our segmental WACC and it is absolutely value accretive and a nice business, high cash generation.

In my view, in my way, also strongly scaling and we will do a lot here in that area. And Horst will also show you a little bit of what are the inflows of money?

What are the outflows? What actually do we give up in EBITDA?

What do we add in EBITDA correspondingly? So, I think maybe you remember then this picture as well.

Now, on the – we have added 18 group hotels or hotels in our – on our roadmap. And you see a little bit of – and I actually had some of the hotels are non-risk and some of them are risk.

I just wanted to highlight it to you that, for example, in New York, the RIU is actually something the family invests and we don’t invest, but still we have a management contract and all management contract of all RIU hotels worldwide are in the JV. So, we still make some money and we still bring customers to New York and we still have our offer which we have.

So, it’s not that we – all of the hotels you see and you read about we invest, but some of them we do. And particularly Mauritius, for example, is some of the things where you have a low supply and a very high yield and therefore, it is very attractive to do it.

So, you see actually that we have extended our portfolio and we will be progressing to do so. As said, the structure more or less is – when you look at the new hotels to come, they are predominantly all-year around.

That is actually a basis which makes the 15% ROIC hurdle possible. If you have short season hotels, it’s not possible.

We look into high growth regions with scarcity of supply. And when we see other areas, then we do management contracts and that actually leaves us without capacity risk, but it makes it possible that our brand is actually spread out and present.

And of course, our ROIC hurdle is significantly above our segmental WACC also in that area. Now, let’s talk a little bit about the third area of investment after cruise and after hotels, and that is actually the IT and system area and I have actually pulled out four things which are very tangible and on their way.

One is Tui App, the world is moving more mobile and the Tui App is actually the first IT development, which has started in an integrated way. So, many other IT developments now need to be migrated to integrated, but the Tui App is the first one who started in an integrated way.

And the interesting thing is all Tui Apps look a little bit different, so you know [indiscernible] on app looks a little bit different than the German app. In the German app sometimes you have indirect channels and you cannot have book and search.

So, when you look at the app, you think it’s different apps, but in reality, it’s all the same. And that is the nice thing.

We have a very modern approach. It’s called – we call it Lego, like the Lego blocks.

You put things together and you distract things, but whatever you do is available everywhere. And so it gives us the local flexibility of local competition, local difference in markets, local difference in marketing, yes, but central IT stack and therefore, it’s all the same and we develop once and we deploy many.

Customer platform, group marketing platform, here is a little bit different. The important point is of course that you have visibility of all customer data, cloud-based, everywhere, so that you don’t have different customer data repositories.

You have it once. And then in destination, people when you come at the airport, they see which travel agency booked what and so on and so on.

It’s all multilingual. And also at the same time, at the hotel you have the full visibility.

If people book spa treatments in the hotel, you have the visibility the next time you book, for example, in the app. You know that this guy has booked spa treatments, so if you do ancillary sales you know what to offer and you know what not to offer.

And this actually customer platform is now the first version live in Germany. Rollout comes ‘17/18 and destination services in Q2 ‘17.

So, then you will see based on these platforms whoever is our customer service rep in destination has these things there. So it took a little bit of design.

It’s clear and it’s one of the most complicated project because you need to touch each and every company, but it’s worth the effort. And based on this customer platform, we have our group marketing platform.

And the group marketing platform is now a customer analytics tool and a campaign management tool. It’s a very proven technology, unique technology.

It’s a very strong and big system, but it is about efficiency of how you talk to customers. And if you have, for example, 30 parallel campaigns, that you don’t bombard the customers with e-mails or whatever, but you know that you have a ranking of campaigns, efficiency of campaigns and it’s automatic and machine learning and that is a proven technology, but of course you need a standard customer platform in order to do this.

So, on top of that customer platform now comes this intelligence of integrated campaigning and this is actually now live in the Netherlands and Belgium and the Nordics. Germany is February ‘17.

In UK, it will be September ‘17. And that means at that point in time all campaigning, all campaigning is fully integrated.

Local markets can do it, but benchmarking across markets will be possible. We will be able to compare what kind of ancillaries work where and how do we actually sell.

Do we sell it – ancillaries more in the source market or more on the aeroplane or more in destination, in the hotel? What is more efficient?

When do you talk? How do you do upgrades from rooms to suites or from – to deluxe rooms or what?

And these kind of things once we have this tool up and running and we have it on the integrated customer platform, we will be able to learn. And that is of course the nice thing, because that is standard.

When you have 20 million customers, the only way of really capturing what you do is actually if you do it in a statistic and mathematical way. If you have product managers or – putting the campaign and then mass e-mailing out, this is absolute past and this is absolutely not what the future will be.

And therefore, it is heavy lifting, but it’s absolutely worth the effort and it’s playing to our advantage of being integrated, because we can see what customers do and we are not just an agent of a hotel room, but we never do a hotel contract. So, it is actually playing to our advantage.

And the last not least is actually yield management. We have very strong yield management systems, all homemade, double integrated yield.

The software is our own IPR. We have now rolled it out to the Nordics.

So, the software is now the second season in the Nordics and the software is learning. So, it’s also doing the price and fully automated and we will be rolling out the software now over the next 24 months to all our properties.

And just to give you for examples, what we mean when we say integrated IT, what we mean when we say one IT. By the way, it’s important enough that we appointed yesterday a CIO on Executive Board level and the CIO will be also responsible for all new markets, so for everything outside our source markets, because here will be very important to strongly partner with booking with Google and so on.

So, we will have a single IT stake so that more or less with the APIs, the Googles and the likes can actually interconnect to us and therefore we get additional customers sales footprint for our Caribbean hotels, for example, in Brazil of our Spanish hotels, for example, from Portugal or from Spain and so on where we don’t have our own two operating businesses. So, CIO in future markets, one separate Executive Board member from January 1 onward.

So, then talk about one brand. This is an old slide.

It just says it’s worth it. So now, what do we see?

We see, on the top left the October 1, 2015 TUI launch. The major point of re-branding is getting the unaided brand awareness up.

If you get the unaided brand awareness up, it will be successful. If you don’t get it up, it’s a failure.

As I said, in the Netherlands market, we had a payback within a year, so we beat our profits in ‘16, what we actually did in 2015. We extended online and more direct.

We had more than budget and more than last year profitability. And what you see the base ingredients to it was the unaided awareness up in very short-term, just a couple of weeks after the introduction.

And this is of course then huge marketing, with classical TV advertising, explain what TUI is or that TUI comes, so getting it up and also what it does and why it is better and so on, good reasons why. And you see that pattern.

Now, in Belgium and in Sweden and also the other Nordic countries, we launched 1 November on October 19, 2016. And the interesting thing is it looks pretty much similar when it comes to the right graph then to the Dutch graph.

Unaided awareness cut over the traditional brand, the old brand – yes, this is the dotted grey line – very, very soon after launch. I cannot tell you if it’s economically successful, I only can tell you it looks very similar to Netherlands.

Now, in the year we will be able to tell you if it was economically successful. I would say unaided awareness up in this form, the likelihood it will be successful is, in my view, extremely high.

And that is important, so if short payback times. So, if it’s self-funded, it’s very important.

Then we come to the new platform. Then we have a global brand and more consistent and quality appearance.

And of course, then in a year from now we will do the UK market, which is of course a little bit bigger and it’s good to have something in the pockets and all the learnings in the pockets and have an understanding of what exactly you do in order to then do the real big thing. Now, efficiencies, I said central platforms for local airlines.

That’s what we do. We are doing the things together which we should be meaning purchasing, financing, procurement, maintenance, also the configuration of aeroplanes, but at the same time we still have the local airlines.

That’s very clear. It’s a matter of local competitiveness to do flight and crew planning, which airport do you fly from and which airport do you fly to, the Germans, the market share you have in the certain sector.

And therefore, I think that is all local, but aviation is taking care of the back office. Destination, one brand, seamless – on seamless IT platform, we had the carve-out from Hotelbeds, cloud-based customer platforms, so that they can really work with modern technology and can truly work integrated.

So, it’s one team right now and we are progressing very strongly. And also little bit of consolidation, which we did in the successful turnaround in France.

If you had asked me a year ago would you invest into something in France? I would have said not at all, but now – successful teams get more money.

And I have to say the French team was incredibly successful turning around the business. And we will be, from a breakeven business, pretty soon in at least 3% margin business.

You can see that, because the biggest thing is now we had 800,000 customers. Now, we added something which is 600,000 customers.

We had 6% or 6.5% overhead and that’s of course sheer scale. So now we put everything together, but we need one organization.

And that alone will deliver the €25 million to €30 million, so that is 100% certain, because you don’t have a market. It’s pretty much like TUI and TUI Travel, one headquarter.

It’s relatively easy and it’s a low hanging fruit, which we are doing here that will be a sustainable position in the French market, which is a big market. It’s not that small.

Now, the last thing I want to do in the strategy section is talking in Germany again. And now, because I think this is one of the remaining obstacles a little bit, if you like.

And I fundamentally believe that the DNA of the German market is a very big – is a very good one. It’s a large population, strong, affluent demographics.

People have money. People have time, six weeks of paid vacation.

And then people, on average, a little bit older and the cruise business is brilliant. I mean, time, money and age are the major drivers of revenues and profitability, but it’s our brand.

I mean, it’s – when we look at all brand characteristics for TUI, Germany is number one. I mean, it’s more known than the Mercedes brand.

It is – so our position, good, people characteristics with high average spend. So, we are not very successful today.

We are still market share gaining and others have more problems, but in comparison to our other markets, it’s not one of the nicest sticks, but we will get it done and I can’t promise you that we will get it done. It will take a little bit of time.

Now, one of the areas which I always mentioned was the sales structure. Our sales cost in Germany because of the structure, are relatively high.

At the same time, you will ask yourself why do we do the same with Etihad, then if the sales structure is the main problem? Well, the Etihad JV, if it comes to life, will deliver two things to us.

The first one is actually lower cost per seat. So, it’s a clear path forward defined.

We do a commitment for buying seat from the JV. We will – in driver seat, we will buy some.

We will buy commitment for the next 10 years. That’s the idea.

And the other thing that’s even more important, our commitments on flight seats will go from 5 million seats to 2.5 million seats. And the problem here is in Germany a little bit that actually our own capacity is too high and then you have a risk capacity, which is slightly too high.

The last 500,000 seats are incredibly unprofitable. I mean, if you need to get – to sell the last 500,000 or 5 million, that is actually where we lose everything and it’s not average, average, average, it is the last.

And therefore, the reduction of commitment in the JV would mean that we are not forced to do more than 2.5 million long-term and then we can do many things. We can, for example, risk – when we go more direct in the market from an indirect, that we lose for a year or two a little bit of market share.

If we do that today, we sit on risk commitment and it might be – I call it a difficult situation. If we really get this and pull this through it will be good.

Now, the good thing is it’s a win-win-win situation, because also Etihad has, as you know, a slight problem in Germany with Air Berlin. And now when they – when we combine the touristic efforts we will reduce capacity.

So what we contribute and what they contribute, at the end of the day, will be roundabout 30 aircrafts less than of what we – what has both entities on the standalone basis fly touristic now. So it will be less.

And also, the routes which we are flying, particularly Greece, Balearics and Canaries, will have, let’s call it – they are more thick, so we will be bigger. I don’t want to say less competition also.

It’s more like more efficiency. So, we will have less capacity and more efficiency.

And therefore, I believe that for both of the partners it can be very nice. Now, we have signed a term sheet with our partners here.

Of course, a term sheet is not a contract, so until the contract is signed, there will be a couple of months. Until you have regulatory approval, there will be also another couple of months at least.

You can imagine it will be not that easy, so that’s the reason why I always said we intend and we potentially will get – we will be not worse off if it doesn’t work. But I think if it works it will be great and therefore we have a very strong vision that this will be good.

But of course, until it’s really pulled off, it will be a little bit and a little bit time to go. But hopefully we are working against the plan that from April 1 next year we will be one company or this company will be one company and we will be actually a customer of a JV, with of course risk capacity involved, but not an ownership of a not really scaling and high-costing airline in Germany.

So that was just something I wanted to mention, so it is, in my view, a very important step of our 3 to 5-year journey in order to fix Germany as well. And Germany as I said, once it’s fixed, all the DNA of the German demand and our position and so on and so on I think has all the ingredients to be something which is much nicer than it is today.

Horst?

Thank you, Fritz. After Fritz has spoken about all the elements of our transformation, I would like to talk a little bit about the numbers which are attached to the transformation.

And I start again with our strong operating cash flow generation. You see here the underlying EBITDA for the fiscal years 2015 and 2016 and the normalized operating cash flows.

We believe that our strong operating cash flows, plus the proceeds which we receive from disposing Hotelbeds Group and Travelopia and hopefully Hapag-Lloyd shares as well, will support our transformational growth which we have ahead of us. This brings me a little bit to the different elements of our transformational story.

And I start with the balanced ownership model, which we have within our hotels and resorts. Number one issue is we have a balanced ownership model.

That means that roughly 40% of our controlled hotels are under management contracts, 40% are in ownership and 11%, roughly is leased and the remainder is franchise, you name it. When you dig a little bit deeper into the situation, then you see that roughly 50% of our owned hotels are sitting in joint venture and structures like we have then with RIU family and that slightly less than 50% are sitting within subsidiaries.

When you think a moment about the joint venture structures, you certainly understand that this is kind of something where we are benefiting strongly from, especially against the background that this is kind of a de-risked way to invest into hotels. And then the third element which you have to reflect about is that our controlled/owned hotels are only 25% of all the customers which we accommodate.

75% of our customers stay in the third-party hotel, so again an element which is giving some risk reduction. And we believe that we have, with our strong sales and marketing capabilities, the good basis to deliver superior occupancies and superior yields as far as our own hotels is concerned.

And one thing is absolutely crucial. We are very strict as far as our hurdle rate is concerned, 15% on every new hotel which we are doing.

This brings me to cruise ships and aircraft. And as you can see, we, at the time being, operate 14 cruise ships in different ownership models and under different brands.

We have a pipeline as far as our expansion and cruises is concerned. One thing you have to take into consideration is that 80% of the ship financing is supplied by ECA supported banks, bank financing and that we have to deliver 20% equity portion.

The 20% equity portion is not necessarily to get paid, because to a certain extent we do the expansion in TUI cruises in a ring-fenced model. And on top of that, we have the working capital impact whenever we order a new ship and bring this new ship on sale.

Then of course 12 months ahead of the first cruise, the advance payments of our customers are coming in, and there is kind of a rule of thumb that roughly 70% of the equity which we have to deliver is financed by advance payments of our customers. We have a Thomson Cruises fleet modernization ahead of us, three more ships to come.

One ship will go into ownership. About the two other ones, we are not yet decided.

I don’t know whether you have taken notice of that one Fritz showed, one chart about cruises and for the first time we indicated to you the result that Thomson Cruises has already delivering to us. So, when you take all these elements which are sitting in the presentation together, you get a flavor how strong the cruise business is contributing to our underlying EBITDA.

Coming to aircraft, 149 aircraft are operated within our Group. And there is a financing attached to these 149 aircraft in the magnitude of roughly €3 billion.

We have an order book ahead of us, roughly 70 aircraft, when I have that correctly on the back of my mind. The majority of these aircraft will be 737 MAX aircraft.

However, we will see some 7879s coming through as well. That means that there will be some pre-delivery payments attached to these coming aircraft and that will be something which is of importance within the next couple of years, €200 million of pre-delivery payments in fiscal year ‘16/17 and then €100 million each in the following two years.

When it comes to the final decision how we finance an aircraft, then this is a case-by-case decision. However, my assumption is we will continue to make use of operating leases.

That means whenever we get an aircraft from the manufacturer Boeing, where we have placed ourselves the order in order to make use of the scale effects by placing a big order then we do a sale and leaseback transaction. And sale and leaseback transactions have gotten quite attractive to us, because we manage to improve our rating and because we make use of aircraft which are pretty popular.

Another element of financing is finance lease. We still have the opportunity to get finance lease transactions realized in Japan so-called Japanese operating lease structures.

And for that purpose, it is important that we document to all the lessors that our company is becoming stronger and stronger from a calibrating point of view. Now, I am coming a little bit to our investment volume which is ahead of us, on the next years.

And on purpose we started here on this chart on the left hand side with a consideration which we have received by disposing of Hotelbeds, €1.1 billion. And there is additional money ahead of us whenever we manage to close the Travelopia deal and whenever we manage to sell the Hapag-Lloyd shares.

In ‘16 we invested – you have seen that roughly €600 million, the number will go up in fiscal year 2017, €1 billion. The years ‘18 and ‘19 will be roughly €800 million.

These numbers do not include the pre-delivery payments, which you have seen on the prior chart. When I look into the future, then we aim for achieving a normalized CapEx level, which is around 3.5%.

And the split probably will be 40% hotels, 20% cruise ships because we have these ring-fenced structures, 20% IT. Fritz spoke intensively about that, what is going on in IT.

This is kind of the grease in the system which makes us successful in selling our products. And other is covering roughly 20%, the remaining 20% of our CapEx.

So that what we get in as money from disposals will support the financing of this transformation. That means the additional CapEx which will be beyond this target, that 3.5% CapEx volume.

Some of you have approached us over the last couple of months and have communicated to us, yes, indeed we understand what you want to do, but we do not really understand the mechanics of your transformation. And against this background, we tried to bring these mechanics of our transformation in a very simplified way on one chart.

And I start on purpose on the left-hand side, again with the proceeds which are already in and which are supposed to come in and then the different components for which we would like to spend our money. And the first bar which you see there is €290 million for cruises, which is the Discovery 2, which I spoke about and which is the equity portion of two expedition ships.

Then Fritz spoke about France, consolidation, making use of synergies. We invested €55 million for the acquisition of Transat.

The next issue, which is not a true fit on this chart, is the top up for the UK pension fund, €174 million. This is not generating additional EBITDA, I know that, but it helps us to save some interest and therefore I put it on this chart as well here.

And finally, we will probably invest another €600 million into hotels. This is this famous number, 40 to 45 hotels.

And as Fritz explained, it will be a mix. That means probably 40% ownership.

However, half of that will go into joint ventures, ring-fenced, half of it may be in subsidiary companies and then we will see lot of management contracts. So, that’s the reason why the overall envelope for the 40 to 45 hotels is €600 million, which means it will – a mixture of different of ownership models.

When you go then to the right hand side of the chart, you see the building block of profit which we have lost or will lose by having sold Hotelbeds and by going to sell Travelopia, roughly €90 million. As far as cruises is concerned, we expect that we get a building block in, in the magnitude of €55 million.

So the €290 million investment will lead to €55 million of EBITDA. Transat is supposed to bring us synergies, €25 million to €30 million, €11 million interest savings due to the top-up into the UK pension fund and ultimately, €90 million profit from hotels.

And that is pretty easy, 15% on €600 million delivers €90 million. And when you now take all these building blocks together, then you see that this is something in the magnitude of €190 million, which will replace the €93 million which we have lost from Hotelbeds Group and Travelopia.

That will take a little bit of time, so there is a delay. The investment is front-end loaded and the EBITDA is rather back-end loaded.

However, we are extremely disciplined in doing these investments and on following up, so that we get all these EBITDA returns to us and to our P&L. Financial targets, I will come, I believe, one chart later to dividend policy.

So, I can promise to you that we would like to continue with our dividend policy that we do the transformation, so we spend money. Nevertheless, we would like to improve our rating.

And what you can see from this chart is that we would like to improve the range as far as leverage ratio is concerned, 3.25 to 2.5 times. That is a reduction.

We have achieved 3.3 times in fiscal year ‘15/16, so we intend to continue on that one. And we would like to increase the interest cover of 4.75 to 5.75 times compared to 4.8 times achieved, in fiscal year ‘16.

So, message is we continue on that track because we believe that this will help us to get access to the capital markets at all times and to have decent rates as far as all of our financing needs are concerned. Dividend, as I already said to you, we continue to do that what we have promised to you, and that brings us, for fiscal year ‘15/16, to a proposal to our AGM of paying a dividend of €0.63.

And on the right hand side, we have documented to you whenever it is €0.63 then probably we will see an outflow in February ‘17 in the magnitude of €370 million. And now, I am coming to a chart which includes from my point of view, everything.

And therefore, we used the heading Growth Roadmap Summary. When you look on the left hand side of this chart, you see the big headlines we would like to grow as far as our hotel and our cruise business is concerned and Fritz described precisely what we would like to do.

We would like to move on as far as our one brand strategy is concerned for our sales and marketing activities and we definitely will move on as far as unification of IT systems is concerned. There is a framework definitely and we will continue to go for efficiencies.

And ultimately, we would like to have a strong balance sheet which enables us to be flexible and to make use of opportunities, which are lying in the future. So that ultimately means when you go to the right hand side of the chart that we are absolutely convinced that we will be able to deliver at least 10% underlying EBITDA growth CAGR, until ‘18/19.

And you have seen that on this one chart, we are convinced that we can replace the earnings dilution from disposals by investing into cruises and through hotels and through IT and so on. We believe that our integrated model delivers sustainable growth.

And ultimately, we believe by taking that altogether we are able to deliver a balanced guidance approach. And that is the last chart of my presentation as far as year ‘16/17 is concerned.

We intend to deliver 3% turnover growth. You have seen our intentions as far as underlying EBITDA is concerned.

Fritz and myself always said that we would like to keep our adjustments under control, so again a decrease of €80 million. Net interest should be around €160 million, net CapEx and investments, excluding pre-delivery payments for aircraft, €1 billion.

You have seen that on the chart which I showed earlier. We expect, as we are on this transformational move, that we will have a net financial debt situation position of €800 million as per the end of September ‘17.

And our underlying effective tax rate will be around 25% as already indicated two years ago. So these are the elements of our guidance.

And with that, I pass on the clicker to Fritz. I will have to come to the end of our presentation.

Yes, it’s the end. So, this is in the summary what we said before.

I think we are on a good path. We divested Hotelbeds.

We are divesting Travelopia. It’s a much easier thing, more or less 100 brands with that leave the group.

Loose federation is coming to an end. We have six global platforms still in the framework compete for market share locally.

We have for systems and investment profiles, a common policy and an integrated approach which leaves the freedom to compete locally. And as said, we use the proceeds in order to transform the company.

We are now 50% already content when it comes to the profits. We know and we are aware of and understand that the investment is now and the benefits are later.

Therefore, we extended our guidance to ‘18/19 to give you more assurance that we think we are absolutely on the right way. Thank you very much and now we are open for questions.

That’s good. Why don’t you start this, Jamie?

Thanks. Good morning.

Jamie Rollo from Morgan Stanley. Three questions, please.

First just on the profit bridge you have helpfully given us clearly it’s not hard to get to 5% plus annual EBIT growth from the cruise and hotel contribution. You have been selling businesses and you have lost about 10% of your EBIT.

Why aren’t you increasing your 10% EBIT growth guidance given you are accelerating your CapEx plans, you are spending a lot more money and you are already over halfway there to get the 10% per annum? The second question is on the CapEx guidance, you are going to be negative to zero free cash flow post that CapEx for the next 3 years.

When do you think the company will be in a position to actually fund the dividend from free cash flow rather than from borrowings? Is that sort of more like 2020 onwards?

And the final one, I am not sure you can answer this, but on TUIfly, could you please help us understand how much EBIT it contributes currently for 100% and what the P&L impact might be from them shifting that into the JV? Thank you.

I’ll let Horst think about the first two questions and I will take the last one, okay. Now, when you are a cost center then your EBIT contribution increases when you increase your cost.

I mean, that’s a little bit the odd thing. And we have a contract with Air Berlin right now where we have a cost plus contract with Air Berlin meaning we have cost, we put a little bit of margin on top and then we actually write a bill to Air Berlin.

So, that’s a little bit odd, because it’s the wrong incentive system and therefore it’s difficult to ask question because – to answer questions. So, I would therefore try to do it the other way around.

When we look at the JV and the thing we are putting now into the JV and then look forward, we always say, yes, there might be – it will be a good company. We believe it will be – the company will be profitable and it will be a company which actually has good ingredients.

It’s a company where we have 60 aeroplanes and more or less our legacy cost will stay in the remain core of Air Berlin and we put in flights rights and an AOC and then actually the – we have good routes, touristic routes, with lower capacity than we have today. And that’s all good.

The interesting thing is all of that profitability, we don’t want to look at right now, but what we look at is the reduction of commitment or the committed price reduction with the JV provides to us as part of the deal. And we have a roadmap for that.

Let me say, okay, the first year will be this, the second year will be this, the third year will be this. Now, how much it is, I think we have not communicated and I think it would be very fair that we communicate it in due course when we come to a joint agreement together with our partners, which have then – actually which we do the deal with and it’s a little bit early.

So, our intercompany – let’s say in between the companies, what the reductions are, that is the first lever. And the second lever is that we come from 5 million commitment to 2.5 million commitment.

And Jamie, that’s pretty much what I said. The most toxic thing when you have risk capacity is if you have less demand than supply.

And as soon as demand is 10% lower, let’s say, or 15% lower than supply, you start to price margin the cost. So that is very, very, very dangerous and that’s the reason why I say we are doing many things in Germany today, because we want to avoid that situation.

And therefore, you have oversupply in Germany in the aviation space everywhere. You have for years that supply grew faster than demand and that’s the reason why it is so difficult and very specific for Germany, very difficult to earn money in aviation.

And it was not us, we are not okay situation, because we have a cost plus model with Air Berlin. So, we are virtually a little bit protected.

But look at what happened to Air Berlin, look at what happens to Germanwings, look at what happens to whoever the market in general is not very easy. And therefore, I think we have done a deal which, potentially, structure-wise not short-term because it needs to be embedded and so on, structure wise, not the JV part, but the intercompany part between JV and us will provide real true strategic benefits.

Now as said, this is a little bit the mechanic. Now, it needs to come from term sheets which are signed to something which is a contract which then in turn has to be stamped off by the regulators and so on.

We believe we will be able to do so, but at the same time, its interesting months to come. And that’s I think what I can say to the question number three.

Horst?

So, I have now the question number one, as far as the profit bridge is concerned and understand you, Jamie, in that way. When you take all the elements which we have now delivered to you, then you can get to a CAGR for underlying EBITDA which is beyond 10%.

And as we started with our journey in 2014 we gave the guidance for the CAGR of 10% over a period of 3 years. At that time, in December ‘14, nobody knew about Tunisia, nobody knew about Turkey and all the incidents which we have seen in our source markets, think about the Paris incidents, think about the Brussels southern incident.

However, in the first two years of our story now we delivered I believe in year number one, 15.4%, and in year number two, 12.5%. So, we are ahead of that what we promised originally.

And we are kind of maybe careful people saying whatever happens, we have a resilient business model. We have portfolio of destinations, a portfolio of source markets and we feel pretty confident that we can deliver on that what we have told you today.

The number two question was in respect of now you are funding the dividends by credits, by financing, bank financing. I am chewing always on this question, because I have heard that yesterday from one of our Supervisory Board members.

And I always say number one, the money is not earmarked, so you can say we pay the dividend from our operating cash flow and our investments are paid by bank financing. Secondly, in the calculations which we have done and which we have presented to you, we have not included proceeds from Travelopia and we have not included proceeds from Hapag-Lloyd’s.

So, one can have the opinion to say, okay, whenever we manage to sell Travelopia, whenever we manage to sell Hapag-Lloyd then there will be cash in building blocks which will pay for transformation. So, money is free from our operational cash flow to pay for dividends.

So that is my point of view as far as the profile of cash-ins and outs are concerned is going down.

More healthy.

Thank you. It’s Alex Brignall from Redburn.

I just have three questions, if I could. The first one is I guess on the use of that Travelopia and Hapag-Lloyd funding and it’s not necessarily to get you to tell us what you are going to do with it, but the bridge that you have built of having 25% of your capacity being your own, that’s clearly going up and you are using the funds from previous disposals to fund that.

How much further can that go? And so therefore how many more of the disposals would you want to use to increase your risk capacity or is there a level at which you are comfortable and therefore you say, this is how much risk we want.

This is how much we want that is not risk. The second one just on Turkey and I guess it’s a trading one that you may not know yet.

But what have you seen in terms of the trading patterns to Turkey? There was some talk of an improvement at the back-end of the summer season.

Has that continued? And then thirdly just very simply on capacity, obviously early in the booking cycle you are a long way ahead, but where do you expect your capacity growth to come out for the full year, please?

Thank you.

I tried to take them and maybe, Horst, you jump in particularly on the risk one. I see it the following.

I am not so much targeted with 25% or 20% or whatever. For me, it’s more important do we find pockets of growth where we have good market positions, restricted competition, where we believe that actually we will have some kind of strong market.

And then I think it’s also a matter of can we protect this? And I give you one example.

In the Cape Verde Islands, there is of course several islands. And there is one island Boa Vista and all 5-star hotels is us.

Now, we are now increasing another capacity and suddenly we want to fly there with bigger aeroplanes and we need 300-meter longer runway and we want to extend the hours when we fly, because otherwise we cannot get enough customer there. So, we go to the government and say we would like to have another runway with lightings that we actually can fly there.

And they say, that’s okay, but we don’t have money. So, it might even be that we invest a little bit in infrastructure, because at the end of the day, the cluster of owning more or less everything in 5-star hotels in a certain destination makes us strong, because then if we can make that destination relevant in our marketing stories, it’s beautiful.

And therefore, I think as long as we find pockets where our propositions are strong and we can build strategic story clusters around where actually we have good market positions, we are fine. And we are not so fussed about we have €600 million, we want to spend all €600 million no matter what and quite to the contrary, we want to build these many hotels and no matter what.

We are very – in terms of strategic planning, very clear and disciplined in terms of where we put money and also in terms of diversity of destinations and do we put all eggs in one basket. So, it’s a lot of discussions and we don’t make that so easy.

On Turkey, yes, we have come down, our customers, from 2 million to 1 million. How will it be this year?

Difficult to say. Bookings are pretty much like they were a year before.

Russia opened. That is something which has not – last year was full year closed because of the Russian jet shot down.

Russia is – Turkey is, for Russia, one of the two destinations without visa. The other one is Egypt.

Egypt is still closed. So, there will be, in my view, a strong movement from Russia to Turkey.

So, let’s see. Destination, which destinations will be big?

Strong is of course long-haul. We added a lot of long-haul capacity and we will.

Strong is West Med. We secured bed stock and have our own hotels there that I think is also good.

Bulgaria is strong. Bulgaria is more replacing Tunisia now.

You cannot replace Tunisia by Spain because of different cost levels. Yes, we are looking a little bit for the seasons after next.

If, for example, the lower pound would result into a down-trading in quality from the – so how much 5-star do we have, how much 4-star do we have and if that resulted into something that demand traded a little bit down, a mix. But at the same time, I have to say I don’t expect this.

If I expect something, I expect – historically, I would expect that if people have less money to spend they travel 11 instead of 14 days, which funnily enough doesn’t deteriorate the margin. You just need a couple of more customers, right.

I mean, you need to be a little bit more broad or you need to gain a little bit – or you put a little bit more from share capacity into exclusive capacities and these things. But that’s pretty much the trends what I would see.

But in the tendency, long-haul cruise is very strong and West Med is very strong. Maybe do you want to add something to the hotel – or I mean, did I say….

So, no, I believe you answered the question. From my point of view, we have a split as far as our own hotels and resorts, managed hotels and resorts are concerned, which is kind of 26% Western Med, then we have 25% Eastern Med.

We have 20% North Africa, because we have Egypt and we have 20% in the Caribbean. So, I would say when we expand now our 365 days Caribbean footprint that is fine with me.

And I see….

But Egypt is not so bad. And Egypt is not even so bad

No, it’s not bad. So what we have is kind of a broad portfolio as far as our hotel properties are concerned.

And as long as we manage to have that portfolio approach, I would say that this 25% which you have seen is not kind of a natural law. So, we probably are even able to increase it to a certain extent.

Thank you. Good morning.

It’s Tim Ramskill from Credit Suisse. Three questions, please.

Fritz, in your opening comments you talked about the €50 million impact from Turkey and North Africa and I think you suggested that contractually that might get a little bit easier in 2017. So maybe you can just help us understand if there is going to be a slight reversal of that to come?

Second question, in terms of the returns that the cruise business generates, I guess 21% versus as we know some of the large operators struggling to get back to double-digit returns. So, just interested to understand why you believe that your business is generating such superior returns versus some of those larger operators?

And then the third question, maybe just delving into the German plans a little bit further, I think again you alluded to the fact that distribution obviously is the big challenge in Germany, how do you see the opportunities to change the distribution mix if you become more flexible in terms of your commitments, please?

Yes. Tim, of course, I think – let’s take them all one by one.

Reversal, it’s difficult to say. I mean, I think we see some reversal now for Egypt in winter.

Tunisia and Turkey, you cannot judge so much. We will see in January, February and so on, because here are the big booking months.

I would say if you don’t have terroristic attacks and so if it’s off the news for some while, the demand is pretty resilient. I was in Turkey just 2 weeks ago for 2 days and met our partners and government officials.

Also they are willing to put additional subsidies or the prolonged subsidies for flying, so keeping the flights open and so on and so on. So I think I am – how to say, I am not 100% optimistic, but kind of optimistic.

Also because again when you have the Russians now traveling again, that helps a lot. It is a matter of how much occupancy do you make and of course, every 5% occupancy points help a lot.

On the – this is a very good question, I think on the returns in cruises. When I meet our partners at Royal Caribbean, they say it’s the most profitable pocket of their businesses worldwide and TUI Cruises.

And I think it’s related to the 102%. I mean, we have 102% occupancy.

We added partly 60% share. I think it’s very strong.

And we achieved them without yielding down. I mean, we have €100 – we had stable yields, more or less, since 3 years, €170 on and on and on and the demand for these products in Germany, particular German products in Germany, but interestingly enough, also UK products in UK.

So people feel a certain demand for these kind of localized products and they prefer – some of them prefer them versus the international products. I cannot say so much about competitors.

I have a very strong visibility of – anyway of, for example, i.e., the German market. And when you look at how they put capacity out and in and how they place and displace capacity, it seems to be less stable.

So – but I think you need to talk to them to see what they do. In terms of the German plan, I am convinced that you need to come down to something which is reasonable sales cost, because that is the big difference between other markets and them.

But again here, you know, you can imagine that shared channel’s power is the biggest where you have the lowest own channel and as you know it becomes smaller and smaller over time. So, when you do something, be better prepared in the beginning and therefore I think reducing risk capacity is a very good thing when you want to be prepared to change something.

And I have been now for – I say since a year it is a 3 to 5-year journey. And I was fully aware that these would be not an easy fix and a fast fix.

The good thing is we have enough levers to still do at least 10%. So – but keep it as – or see it as something I know and I will keep an eye on.

And I am – and I say I think we will be able to fix it. But I also said it was – always said it was very not very fast as you can recall from our last year’s meeting or even the year before.

But it is – the market is attractive. And it is not the first time that in Germany or in other markets, sales costs were too high in shared channels and then you went more direct.

I mean, telecommunication, where I came from, that was usual, it was all shared channels. And it was built in line with an enormous amount of determination over years into a direct distribution business, fully exclusive.

Therefore, I think it can be done. But as I said, if you have too high a risk, if you have too much risk capacity, it’s a very dangerous position, because you are so much relying on volumes.

And therefore I think it is a very important point. Horst?

Patrick.

Patrick, where is Patrick?

Patrick is over there.

Over there.

Hi, it’s Patrick Coffey from Barclays. Just to buck the trend, there is one question.

In terms of the cash position and dividend payments and CapEx kind of following on from Jamie’s point that the dividend isn’t covered by free cash flow. Should we assume that if the macro environment declines going forward at some stage, you would continue to pay the dividend and cut CapEx?

So the dividend is kind of sacrosanct to the business.

The difficult question always to Horst.

Yes. So, I don’t know what I shall say to the development of the macroeconomic, I have to say.

At the time being, when you especially look at the UK, there is uncertainty, yes indeed, but the consumer in the UK is continuing to go on holiday to buy things. And when you go to Germany, you have a pretty resilient consumer demand as well.

So I don’t see at the time being that there is a big change in the behavior of the consumers, number one. Number two, when we would come to a situation that everything starts to become gloomy then we have to think what we are going to do.

But again, what I said is, we have established from my point of view, meanwhile, not only a portfolio of destinations but a portfolio of source markets as well. Think about our American cluster, if you so want, with the RIU Hotels, with the Blue Diamond Hotels of Sunwing with a lot of customers traveling from the U.S.

and from Canada to these properties. So, the portion of the European vacation in these properties is pretty low.

When we continue to grow in the Asian region as we have started with the Robinson Club, the Maldives, Sri Lanka, then we are addressing new markets as well. And we on purpose would like to have pretty simple sales platform available in order to be able to serve to customers from these regions.

So talking about a downturn, I am a little bit careful, because I am saying, probably we will not have a downturn in all of the source markets in which we are in at the same time. And so I am saying this portfolio approach helps a lot to make our company more resilient and more stable.

Jaafar?

Hi, this is Jaafar Mestari from JPMorgan. Just three questions for me please.

The first one on customer behavior and the booking curve that you have shown us for the UK. What are you hearing from your sales teams in terms of the behavior there?

And is there any chance that this fairly resilient curve actually includes some behavior changes and early bookings and customers trying to secure better deals and being a bit more stressed about next year? The second question is on ROIC, you suggested that this is not adjusted for the amount you have already invested, do you have an estimate of how much capital was sitting on the balance sheet as of September that was not getting any profit contribution yet?

So pre-payments for aircraft or payments for hotels are still under construction? And the third question is you are showing this share of source market customers that go to group hotels.

It looks like a 25%, on that pie chart. Form memory it was 15% at the time of the merger.

Where is that going to go and what sort of buffer do you need to maintain to still be able to remove third-party capacity if demand is a little bit softer than thought?

Now, I will try to do one and three and maybe Horst on the ROIC, now on the booking, it’s difficult to say, because it’s early days. I think what I see is a move away from unbundling to integrated offers.

So, I think we are grabbing market shares and that people more or less – the other players like the OTAs, they cannot hedge, because they don’t have commitments, right? So, if the price goes up, because of the exchange rate, it fully translates into prices.

And therefore, I would not be astonished if you see a shift in market share. Actually, I have a little bit of proof for my theory, because when you look at the relative weak performance of Travelopia.

And Travelopia has two parts, there is an American part and there is actually a tailor-made part in the UK, so Hayes & Jarvis. And when I look the price development Hayes & Jarvis versus our dynamic packaging approach, you see an enormous difference.

And Hayes & Jarvis is not hedged and you see actually that they have actually lower numbers of customers, I think 25%. And I would assume that other people who are not hedged, other players who are not hedged will see similar things.

So therefore, I think potentially it’s more maybe a change in market shares than it is a change in buying behavior. Then the question of – what was the other one?

The third one was….

Risk question?

Risk, yes, yes, risk.

How much can we go up as far as our…

We don’t have a target to put more people into our – I think it’s very important that our hotels can rely on that if they have a initial, we have direct sales and therefore we fill them. And we have done that last year in Turkey and it was an enormous benefit.

Because we could actually – when actually demand came down and came down and came down, we still had enough people to fill our own hotels. We just took off our non-risk capacity with third-party hoteliers and actually the redirected customers.

In some of the markets, particularly in Germany, we even when customers had booked, we started to offer them better rooms into our own hotels. So we touched customers again which had booked in the third-party hotel and we said, we will give you an upgrade and a suite and we booked them into our hotels.

I mean, these are the things you need to do and these are the things which are the true benefit of being vertically integrated. These are the things when you have a direct sales force, that’s what you can do and that’s what we do.

Not always, but in the case of Turkey it was something which was advisable and that is the reason why actually economically, it was not so bad, the effect of turkey despite the fact that we had a million less customers was not so bad. And therefore, that is the piece.

But if we have, for example, in – if we built right now in the Caribbean, by definition, we need to have more – way, most of the customers from the American market where we don’t have – it’s the biggest short-haul market, enormous amount of people get passports, enormous amount of people want to travel to the Caribbean. And of course, you need short-haul markets in order to get destinations up and profitable and scaling.

Therefore, to fill these hotels, we will – the predominant part of filling will only come from markets where we don’t have our own distribution. That said, of course 25% in that case, or whatever is actually filled from Europe and that is of course making the difference between the footfall of 80% to 90% or occupancy or in the winter from where we fly in from Canada.

The difference between profitable and very profitable is of course enormously important and that is what we tried to achieve. Horst?

So then there was the second question which was referring to how much advance payments have you made in respect of cruise ships, in respect of hotels? Because what I believe you would like to do is you would like to exclude that and calculate kind of a true return on invested capital.

Yes, either doing an adjusted ROIC or if you are looking at EBIT, how much capital is actually definitely going to produce EBIT returns that you have already invested?

So, I don’t have the number on the top of my mind, I have to say. I know that we have made €49 million pre-delivery payments for aircraft.

And – however, I am not fully aware how much payments we have made for hotels in order to have a property available in 6 months or in 9 months from now. And I don’t have available whether we have an advance payment made for one of the cruise ships.

So for the expedition ones, it was delayed. And as far as the Discovery 2 is concerned, I am a little bit blank, I have to say.

So I don’t have that on my mind. Let’s have a look into that one and we come back to you guys.

It’s Jeffrey Harwood from Stifel. Just two quick questions.

First of all, what sort of average price increase is your average UK customer looking for next year? Would it be 7%, 8%, something of that order?

And secondly, the French business, can we assume that it was in a small loss-making position last year?

The second question is very easy. It was in a loss-making position last year, around about €10 million.

And we had a counter effect in Corsair. So the overall envelope was broadly neutral.

Yes, the question of price increases is difficult to say. I would think if you just translated the currency effect and said nothing else would happen we are talking about 0.75 to 0.86.

Of course, we know that not all of that is actually now in pounds, in euros, part of its pound and pound sales cost and so on. Part of it is pound and dollars, which is not dissimilar to euro anyway.

But I would assume that price increase in a regular field could be around the high single-digit. Now that said, as I said, we are strongly hedged.

I mean, therefore for us that might not be the case. Of course, we also know that cost is not determining price.

Therefore, our yield systems will take whatever price they get in order to fill these capacities. Therefore, you have a little bit of risk.

But you also have potential. If everybody needs to up the price and therefore we can up the price, but our costs stay constant, it can be also potential at least for the next seasons and what it will be then in ‘18 or so, I don’t know.

And I would assume as I said that potentially if I am not reading the signals, I would say customers will be not trading down, but will be, if they want to spend less money, traveling shorter, which relative and absolute margin wise is not a problem as long as we have enough customers. And that is something we will be seeing in due course.

We don’t know.

Johannes Braun I think had a question.

He is hiding very well.

Thank you. Johannes Braun, Commerzbank.

Three questions for me. First of all, the Air Berlin deal did not really go down well with staff to say the least initially.

So, the strikes that took place with TUIfly, what kind of concession did you have to offer and what did this do to your financial targets for the overall deal? That’s the first question.

Second question, what kind of cost inflation do you expect for the hotel business for the third-party hotel capacity that you buy in next year? I guess, especially in the Spain market there will be some cost inflation given the scarcity of supply there?

And then thirdly, regarding your guidance for the year – current year, do you already have visibility of how many hotels you are selling and what kind of book gains these are generating and would these be included in your 10% EBITDA growth guidance?

I think the last one we can say there is no transaction included. I mean, that’s easy.

With the inflation, I leave it for Horst, it’s difficult. With Air Berlin, now, of course, it creates a little bit uncertainty and then you have these things happening and it’s not the first time.

And you know also other companies suffer of pilot strikes even if they are not legal. Sometimes that happens.

And I have a principle and that says we do the right thing. First, we say what the right thing is and then we do it in a way with the people.

There is no strong meaning doing things against people. And particularly in the Air Berlin case, if you get it done – with Etihad let’s say, the Etihad case, if you get it done, the beauty is it is possible to do things in the win-win situation.

Because the main benefits, as I said, are less aeroplanes and it’s not our aeroplanes which are less, it’s less from Air Berlin or routes, which actually come in. So, it’s 61 instead of 90, which will create benefits and better flight routes, so more thick routes with different markets shares and also less W moves and these things.

So better block hours, better usage of our invested capital. So that’s what’s driving actually the benefits.

And therefore, I think we can be a little bit generous when it comes to compromises and work with our works councils. Now, we have – one thing I can say, we have after the whole thing and also after the signature – or in parallel to the signature of the term sheet, we have achieved agreement with all works councils, so, three, the ground, the cabin and also the pilots.

So we have collective agreements with them. So, we have actually now an agreement what to do.

We know it – we need to be cautious, because it’s not unions and unions are something different and they have different agendas and so on and so on. So, that might still be a little bit tough.

And we also – it’s clear. We have an agreement and not our partners have agreements.

So that is something that – but its all influx. And the thing I want to assure you, I think in principle, it should be possible because in principle, the benefits are not reduction of staff.

In principle, the benefits are more strategic, which is less capacity, which is more – better flight routes and better market shares on the flight routes. That’s what’s actually driving – I think will be driving the benefits.

Now, that’s also the reason why I said – and I want to be very clear – initially my colleagues had actually put on the slide this will do this, this will do this, this will do this. And I said, no, it will not.

It possibly can, because I know that from here to getting a signed contract in some time and the contract which is then approved by the regulator and authorized, it’s a long way to go. But the good thing is we have – it’s one of our pillars which we are now trying.

And we are – I am not so afraid. And we will – even if we have a little bit of actions and so on and so on.

We have – it’s part of our guidance at least what we can see right now. So, we should not be too worried.

I mean, let’s see.

So, the last one was on price increases due to higher demand for Western Med probably. And the answer is as follows.

Our purchasing guys and supported by the service organization, I believe were the first investment made with additional buying. So, we have these strong troops on the ground, I always say when it comes to work and the destinations and to make use of the longstanding relationships which we have with third-party hoteliers.

So, we did quite some, I would say, protection activity last year. Number two is whenever you have these longstanding relationships, you think twice as a hotelier before you start to overdo it.

So from my point of view, there is quite some protection built into our concepts of working again and again with the same group of hoteliers. And besides that, we have some inflation wording in our contracts which help us to protect ourselves against these strong moves into one region where people can get tempted to ask for higher prices.

So, it’s kind of different layers of protection, which we have built in and which we typically built in, because we can be in totally different situation in 2 or 3 years from now, again. I remember very well when Spain was absolutely out and Turkey was the boom destination.

Please.

Hi, Steven from Avolon Aerospace. Just going back to the JV with Etihad, you mentioned there would be 30 aircraft coming out of the market.

Can you explain where that comes from? You mentioned there would be reduction from 90 aircraft to 60 aircraft in the German market.

Yes.

Can you explain where the reduction of 30 comes from?

Actually, now I think you know when you look at the deal for Air Berlin and I think the structure you will be seeing is you will see one part which is the touristic part, then you see one part which is actually the remain core. So, the Air Berlin which is actually tying into Etihad and then you will see a third part which actually is the 40 wet lease bodies to Germanwings or Eurowings.

And my understanding is – and it’s more something you should be potentially asking Etihad that part of the 40 is actually the touristic, which is reduced.

I am sorry, lastly, what would be the additional capital going into this dual venture?

Sorry?

The initial capital into the JV with Etihad?

Okay, too early. Can we do that – I think the more precise we get right now, I think it’s important that we get – I think the intention we have communicated, I would like – we will be also together with Etihad to talk a little bit more about the bigger picture.

It’s not the only thing we do with Etihad and also with Abu Dhabi because they have also other things they want to do with you. And I think it would be the right thing to do that together with them.

Ladies and gentlemen, I have to ask you for your apologies now, because I think we have our next commitment. So, it was a pleasure to spend the time together with you.

And as you know, the IR team and myself, we are available for all the questions which will cross your mind on your way back to your offices. So, thank you very much.

Thank you.