TUI AG

Friedrich Joussen - Chairman of Executive Board and CEO Horst Baier - CFO Thomas Ellerbeck - Group Director of Corporate & External Affairs

Jamie Rollo - Morgan Stanley Patrick Coffey - Barclays Richard Clarke - Sanford C. Bernstein Tim Ramskill - Crédit Suisse Jaafar Mestari - JP Morgan Alex Brignall - Redburn Mark Irvine-Fortescue - Panmure Gordon

So good morning. Thank you for coming and also for everybody on the webcast.

It's great to have you all here for our H1 result. And I will start off and then hand over for the more difficult part to Horst and then we'll take the questions.

So let's start with actually, here my opening remark slide. I think when you look at the numbers, and we come to them in detail, it's a good performance.

And we started well into the year and H1 is very solid. What I also can say that we have actually further now transformed our business into hotels and cruises, and I'll come to that in a minute.

We will also report in the future a little bit different than in the past. And I want to explain why we do it and what we do.

Also when I look right now at the brand migration, which was obviously a big obstacle in the past, we are now almost through the only market we have not migrated right now is actually the U.K. But everybody else is migrated.

So we are operating all under TUI brand and that is a very good sign as well. When I look at the number of customers, it's always important when you have consumer that you are more relevant to more customers.

And we had right now 8% more customers in the first half. And I think that's very good.

And also, when I look at summer trading in a minute, you see that we are up on customer numbers as well as on average sales price. So overall, the H1 has actually been in form and shape that we want to reiterate our guidance.

We are very confident that we will hit our guidance for this financial year. Now I talked to you a little bit about the reporting and what we changed.

And you see on that chart, what I mean. In the middle, it says the two differences.

The first one is actually that Blue Diamond Hotels from the future on, will not be reported as part of Northern Region, but as part of our Hotels & Resorts P&L. That is actually the Hotel Group, which is the daughter company, 100% daughter company of Sunwing.

Sunwing is our Canadian JV. We call it always the small Riu, because it is actually when it comes to the Caribbean, pretty much like Riu, so similar investments, similar hotels, similar sizes.

And it's, of course, one of the strongest growing parts of the world. And therefore, to separate it out and actually contribute where it is and belongs to, I think, is very important.

And the other part is actually, again, a business, which has historically been reported under the U.K. is actually Thomson Cruises.

And you see that in the numbers, as Thomson Cruises has a similar dynamic than TUI Cruises, I think it's important that we separate them out. And both of these are not only part of the respective groups, but also will be separated out in the reporting when I come to the hotel and cruises P&L.

By the way, internally, the governance still says where it is. So I think it's important to note that David Burling will stay responsible for both of them.

But for presentation purposes, I think it's important and particularly, when you see right now. The effect, we come from 42%, actually, if we included them into the other two, actually 50% and we can say 50% already last year was actually hotel and cruises, when it comes to the profit pool of the company.

Now when I right now look at the H1, you can see that our turnover has been up 3.3%. Actually, if you take it on constant currency, it has been 8.2%.

This was mainly driven by customers, a little bit by price as well. For the summer, you'll see it is more price driven and that I come to in a minute.

Underlying EBITDA was on a like-for-like basis 6.3% up, and I come to that. And you know that exclusive currency effect also excludes the phasing's for Easter, but I come to that in a minute.

Reported EBITDA, on a like-for-like basis 3.7%. Operating cash flow improvement mainly driven through the now, of course, exclusion of Travelopia, which actually had a very similar cyclical swing than our core business, and therefore, the working capital went up and down.

Hotelbeds went up and down and that is right now excluded. And therefore, I think we are much more less or much less seasonal business than we have been in the past.

Now when I go right now to the waterfall of our EBITDA. You'll see the minus € 237 million, which you saw last year in EBITDA.

When you exclude the restatement for discontinued operations, in that case, Travelopia, you see minus € 206 million. And when you right now see the underlying trading and then the merger synergies, as promised as well as a small impact of aircraft financing and the one-off effect, which actually we had via -- because of the TUIfly sickness in October last year, you come to the minus € 193 million.

And then this is actually the 6.2 improvement. Then you see the Easter timing, which actually now is in April as well as the FX effect.

So Easter timing was not included in the March numbers but is in April. I can report Easter happened in April.

So we already know the Easter numbers. It really happened.

So but it shows you that actually, operationally, these numbers are all very -- fit very well to make us very confident that at least we hit the 10% increase in EBITDA this year, despite all gossips or potential turbulences in markets, which you might see and read about. Now when I look at Hotels & Resorts, you see, we start from the € 84 million, then we actually add the Blue Diamond profit contribution for H1 last year, which I said, right now will be reported in the Hotels & Resorts P&L.

Then you see very strong performance of Riu, € 34 million; Robinson, € 5 million; Blue Diamond, another € 3 million; and then a slight decrease in other to 135 million, the Easter effect, which is all Riu and a small FX effect. Now let me talk a little bit about Riu.

Riu is, I think, when you look of -- when you look at this slide you can even think how strong it is. Because in last year, we had included a one off effect of sale of Tropicana, as we have said, which was, as you might recall, 11 million.

So you see how strong Riu really is. And that is in this time, not so much the Spanish effect, a little bit on the Canaries but mainly it is actually Caribbean.

And it shows how strong the performance comes along, and how important the Riu activity is for us. In Robinson, I think it's also interesting because Robinson has a lot of activities also in Turkey.

Now Turkey is not that important for the winter season, but still it is, and -- for one or two months this end. And still in that environment, we have managed actually to increase the performance in 5 million.

And as I said, Blue Diamond is actually a very good contributor to the whole story, which you'll see here. And just to recall, just to remind everybody in the hotels and cruises profitability is much more evenly spread for the year.

As you can see, it's always positive. And also, it is actually much more cash converted.

So I think that is something which should give you assurance that the transformation story is fully intact and actually contributing more and more to our company perception. Also we have significant openings this year.

And I just printed out some of them. So you see Blue.

We always said Blue will come along, and it's coming right now along. It will be our strong hotel brand in the future, which is 100% controlled.

May be interesting also the two Robinson Clubs, which you'll see actually, are both in Southeast Asia. And I just have been for a couple of weeks in China.

And we have announced this TUI 2022. And so the activities where actually we get customers from markets which we don't service those markets today.

We always said one million customers with a 1 billion of revenues. Of course, a cornerstone of this activity is China.

And one of the areas of our focus is that we build hotels in Southeast Asia, where we know that these hotels are always more than 50% filled with Asians. So one of our growth components in China as well as in other Asian countries is actually destination oriented Southeast Asian hotels.

And we have one of the hotels of Robinson, but also the Riu hotels in Southeast Asia have already significant number of Asian guests. Now when I go to the next page, you see actually the cruise.

Cruise actually restated for Thomson Cruises last year to 49 million, from 40 million to 49 million. And then you'll see positive components 8 million for TUI Cruises, 16 million for Thomson Cruises and 5 million for Hapag-Lloyd Cruises.

Thomson Cruises is fully related to actually the Discovery one. And you know that we always have said, it's important that we buy this ship.

And if it needed another proof that this is a good investment, I think here you can see that this is a good investment because it's similarly profitable than our ships -- comparable ships in Germany as well. You'll see then from TUI Cruises, you might have expected some number between 12 million and 13 million.

There's a little bit of dry docking and as well as a little bit of different routing, but the story is intact. The yields are exactly on the same level than the years before and also, the occupancy is 100%.

So we are adding capacity. And we are not diluting any yields.

And you'll see also Hapag-Lloyd, this 5 million has been an additional profit despite the fact that we didn't have additional capacity. So that's also very nice.

So we just have increased yields, a little bit reduction in dry docking in that case. So when I look right now onto the growth pipeline, we want to grow these businesses, it's very clear.

You see that this year actually, we will have Mein Schiff 6 in June. And actually, I think two days ago, TUI Discovery two was delivered.

So that's actually also very well booked. So we are looking forward.

And then also, you see actually the additional growth pipeline that actually, the new Mein Schiff one and two, which are -- in former presentations we had Mein Schiff. We called them Mein Schiff seven and eight.

But you know because we replaced the old Mein Schiff one and two into the U.K. as part of Thomson Cruises, we didn't want to have Mein Schiff three, four, five, six, seven and eight.

So we said the new Mein Schiff 1. So that is actually already the official brand and naming of these ships, which are all -- will be delivered on time and everything is going according to plan.

Hapag-Lloyd, there are two expedition ships, which are in the pipeline, which we already ordered. So again, here a growth story and it shows that we are investing in a very disciplined way into the growth of our business and the transformation, so we'll say that.

Now let's talk a little bit about the Source Markets. And you see here the restatement between H1 '15 and the restated H1 '15/'16, and that is actually the carve out of Blue and Thomson Cruises.

And then you see Northern Region, minus 21 million; Central Region, minus 5 million; Western Region, minus 22 million and then, of course, the sickness of 24 million. You see behind on the right side of the minus 379 million, you see the Easter timing and FX translation, which of course, is positive because of weak pound with losses is, of course, actually translating better in the summer, unfortunately, a little bit less.

But here, it's translating with a positive effect. And when you look the different regions, I think it's important to say in the Northern Region, you have a couple of effects.

First off, which I want to mention. First of all, a little bit of trading weakness in the U.K.

combined with actually the Easter, this combined with -- no, Easter phasing on the right side combined with a little bit of weakness in trading as well as in the Nordic countries. Now the Nordic countries, I can say and you can see in the numbers, is much, much stronger now in summer.

We had a very weak winter, but summer is much better. In the U.K., we also see strong trading when it comes to revenues and customers.

And we have to see how much -- if it's good enough in order to bear the additional cost, which we have because of the pound-€o translation, but the trading itself is pretty good. Now this -- also, the € 21 million contains the one brand effect, which we have.

So the brands migration effect in the Nordics, which is on about € 12 million. So that is also -- I will come to the numbers of the rebranding and how it works.

But of course, it is a hit when you rebrand because you need to spend additional money on the unaided awareness, also physical rebranding, which is important. So these are the effects here, countered by very, very strong trading in Canada.

And Canada is, as I recall, up € 15 million for the first half year. So it is something which is very strong.

And I'm pretty sure it will stay strong. In Central Region, we were more or less flat.

There is validation. There is one thing in there, which is an unforeseen aircraft repair.

So therefore, it's more or less flat. But I can say for the full year, Germany looks pretty good.

So I'm very confident that Germany, actually will be slightly turning around. And as you all know, and we will be discussing, we are trying to also rebase it a little bit and be more direct, but also think about the aviation and the role of aviation in the German markets.

So we are doing a lot of stuff, and it seems to work. In the Western Region, you have particularly three effects, which are important.

The first one, again, is a slight double-digit rebranding which we have. That says whole Belgium, actually has been rebranded.

And the second one is, it's the first time we include Transat into our numbers. Transat, of course, is a very positive acquisition with enormous synergies, but again, a cyclical market with negative in the winter and positive in the summer.

And the last one, which is there as well, is actually a night slot issue in Schiphol, I talked about already in Q1. And that is, of course, because we are talking about H1, it's still included.

But overall, I think the numbers you see here are pretty much in line with our budgets. And therefore, with a better performance in hotel and slightly better performance in cruises, including these numbers, again, are the basis of our reiteration of guidance of at least 10% EBITDA this year, growth this year.

Now when I talk about the drivers and maybe I go to the -- just to the charts, you see on this slide. You see the customer numbers and you see it's -- the regions are somehow balanced.

And I think that's maybe the first thing you can see, 6 million customers in the U.K., 6.3 million in Germany and you see the respective regions. You see also that all regions, overall regions, we are more direct, and we are more online and that has been always the strategy and that remains to be the strategy.

We want – we are passionate about the control of our channels. Of course, it's a mix of regions.

And in Nordics, we are virtually 100% direct. And in Germany, we are 20% online and another 20% or 30% direct.

So it's a spread. And therefore, I think that's clear.

And we still can improve, and we will improve over the years. And then you see the unaided brand awareness down there.

And here, the interesting thing, I think, is that Netherlands right now, for example, has achieved after the first year of rebrand and unaided awareness of 75%. I mean, this is higher than, for example, Germany.

Germany, right now being with TUI in the market for almost 20 years. And therefore, you'll see what kind of power can unfold if you do the rebrand well.

And the payback of the Netherlands rebranding was shorter than 12 months. So I think it's important, particularly gives us confidence when we go right now for the rebranding in the U.K., which is, of course, a much bigger market.

Also when you look at Belgium, Belgium actually has been coming up unaided awareness 5%. It's now 58%.

And with that is more aided awareness than actually Thomson in the U.K. And that says something, I think.

You see the Thomson bar chart on the left side. And then on Sweden -- by the way, Belgium is similarly above every budget we made than the Netherlands are.

And then you'll see the Nordics, respective Sweden going from 1% unaided awareness to 41%. It's a little bit more tough.

It's a little bit more tough than actually Belgium and the Netherlands, but still according to plan. And that is more normal shape, I would say.

That is something we would have expected the two others actually are much better than we had expected. So that's good.

Maybe on that slide, what I would also mention is a couple of other things. The first one is aside for the brand, we are now much more digital on one platform.

I had to talk to you about the customer data platform. Now all the markets are migrating or have migrated.

We have now all destination management in all destinations on one platform. So it is all cloud based.

Whenever you enter an airplane or you leave an airplane, when you go into hotel, when you come and book the next time, it's all the same customer database. So there is not -- variety of customer database is just one.

And I have personally looked at how it -- the working is right now and the destination is, of course, brilliant. Because people book with iPads, and actually, just whatever people come out of the airplane, they can just see it all in one table.

They know exactly what they have booked, how they have booked and what class they have booked, if they upgraded or didn't upgrade and so on. And so all of the customer and booking history, everything is actually fully cloud-based available at all touch points throughout the value chain.

And I think that's what we wanted to achieve and that's now the basis for doing now all our mobile app development, all our CRM development. Now we have just to do it once and have not to do it many times.

And I think that is an enormous benefit. And it took two years in order to achieve it.

So it's not something you can do very easy. Second, Transat.

With Transat the integration is going very well. We actually have now pushed on the pedal a little bit.

And you will see, in actually, I think your slide about guidance that we actually will restructure a little faster than we thought, and we also have the headroom to do so. So we will achieve the guidance and restructure a little faster, which I think is also a good message.

On the German airline, that is something where you could say, couldn't we do it -- with Niki and with Etihad, couldn't we do it a little bit faster. Here, my view is -- at least, my experience is, it's a very, very substantial contract we are doing because we are giving up the majority of the control of an airline.

We are putting it into a JV because we believe strategically, it's the right thing to do. Airline capacity is going out on about 30 airplanes, more thick routes, to Mallorca, to Greece, to the Canaries, more efficiency, a little less competition.

This is all tick, tick, tick strategically fine. The issue is, we give up something, and we simulate an ownership and risk capacity with a commercial contract.

And here my view is a good contract for me is much better than a fast contract. And we cannot get this wrong.

And therefore, I gave the negotiation team a very clear guidance. I want to be 100% certain.

Particularly, as the German market, airline market, is not the most easy. I want to be very certain that we are 100% spot-on once we have done the contract.

So it might take a little bit of time. But at the same time, in all fairness, we are even a beneficiary of the situation right now, because our load factors in our German airlines have never been higher.

But in this -- in the difficult environment and people like to book with us. So it's not even a bad situation.

But long-term strategic, of course, I want to reiterate. It is absolutely right thing to do assuming that we find also the other people finding it a good thing to do, which is -- I cannot comment on.

Anyway, so coming to current trading. I talked about the hotels.

Right now, as we speak for the summer, we have two TUI Blue hotels. Another five or so will be coming or four or five will be coming this year.

We have a little bit of subdued demand for -- to Turkey and North Africa, but the popularity in Spain and Canada is increasing. Caribbean are enormous.

Turkey is ahead a lot right now that the Russian market opened again. And we think that even our Russian joint venture will almost bring 200,000 customers to Turkey this year.

So you see it's actually helping a lot that, that market is opening. Cruises, I said, Mein Schiff six and TUI Discovery two are on plan, a little bit even before schedule.

So that will be good for this year. And when I look at the source market, 62% sold, revenue up 8%, bookings up 4%.

I think bookings up ahead of prior years. And I think, I hope -- I think you understand how important that is, because if the load factors are up then it's, of course, the best position to be in for the remaining trading of the season because then you have to really yield less.

So and all of that together, I think, it says that we believe that we are in a very good position. We have now completed all the synergy delivery.

We are now more integrated. We are under one brand.

We are on one IT event and the other global platforms. Our disposals of the noncore businesses has been successful, and we are, even with Hapag-Lloyd container, we are in a much better position than we ever have been.

The company's IPO, the companies with a merger seem to make a lot of sense. The share price right now is € 27 something, and in the books, it's € 16.

So it is on its way out of our company. So that's also good.

We are transforming the company, hotels and cruises are more important. And therefore also, our investment strategy into this new growth markets make a lot of sense.

So I think we are in a good path. And now I would like to hand over to Horst.

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

I will run quickly through the standards like the P&L, cash and balance sheet. Let me start with the income statement.

As far as adjustments are concerned, we are sitting at € 34.5 million. € 22 million of it is real SDIs and € 15 million is purchase price allocation.

When it comes to the full year, we will adjust our guidance. We guided to an € 80 million full year.

Now we will guide you on € 100 million. Fritz already mentioned that we have taking the restructuring cost for Transat in one go.

That was for the purpose of getting all the contracts signed with our union representatives, but it does not mean that we will advance delivery of synergies. However, we will deliver what we have promised.

Then I would like to touch base on interest, € 61 million in the half year compared to € 82 million in the last year. So you see that this reduction is coming through due to lower RCF interest, due to lower interest on our bonds.

We have called the high-yield bond and replaced it. And you see some benefits coming through by the fact that we have disposed of Hotel beds Group, so more cash is in the system and that means that we don't have to raise money under the RCF as we have done it in the past.

There are some counter-effects included in the interest line of the P&L as well. So we have some more finance leases on aircraft, and we have now the TUI Discovery as well.

So you'll see there is kind of a very positive development as far as net interest expense is concerned and that will repeat when it comes to the cash interest, which you will see in the cash flow. The tax credit, in the half year, we have lost earnings before taxes.

So we have to calculate tax credit, stands at 65 million. And we already indicated to you in February that we were able to reduce our effective tax rate to 20%, which is important from my point of view.

Reason for that is that we have restructured a little bit as far as the group setup of companies is concerned, and we are generating our profitability in areas where we have lower tax rates. So ultimately, that means less taxes going forward and that should be fine as far as EPS is concerned.

Discontinued operations include 47 million impairment on Travelopia. We guided you already in our last appearance in February that there will be a disposal loss on Travelopia.

And now we booked the impairment and that what is supposed to come. When we are at the closing is the recycling of FX differences, which are sitting in the equity at the time being, which will be a loss as well.

We acquired the entities as the sterling was higher and the U.S. dollar was higher.

And therefore, we see now this recycling effect as far as the disposal of Travelopia is concerned. And that brings me now to the cash flow statement.

And here, I would like to draw your attention to the development of working capital. Fritz has already touched base on the 300 million improvement, which is due to the fact that we have disbursed of Hotelbeds Group.

And that means less seasonality as far as our working capital development is concerned. Now you will see a comparable effect whenever we have closed the disposal of Travelopia.

So our business becomes more stable over the year, less seasonal and that especially, with a higher degree of hotel business and cruise business within our overall portfolio. Operating cash flow sits at 316 million minus.

And here you can see once again, this improvement in working capital. When it comes to net CapEx, net financial investments and our net pre delivery payments.

I can tell you that we are absolutely on track as far as our net CapEx is concerned. We'll stick to our guidance, which you will see in a minute.

And we will stick to the overall envelope as far as PDPs is concerned, 200 million for the year. So everything is on track.

And you see within our cash flow that we are moving into the right direction as far as our guidance is concerned. Ultimately, we will show to you at the end of the fiscal year, strong operating cash flow.

And you will then see from the full year cash flow as well that our transformation, that means away from Hotelbeds, Travelopia and to more hotels and more cruises, that this transformation is financed by the disposal of Hotelbeds, of Travelopia and ultimately, by the disposal of Hapag-Lloyd as well. That brings me now to the next chart.

And this is kind of a summary, where we stand at the time being. We have a very robust business and that is based on this balance of different destinations and of different source markets.

We have derisked our ownership profile by not owning everything by 100%, but making use of the expertise of our joint venture partners and share some of the risk in some areas with them. We have documented to you that we managed to reduce our interest line and that we will see a lower effective tax rate which is good.

As far as EPS is concerned, we stick to our dividend policy, which is quite important as well. And I already touched base on the financing structure of our hotel and our cruise CapEx, which is refinanced by our disposals.

We are committed to stick to a very rigorous policy when it comes to investments. And we are committed to stick to our policy as far as improving our credit rating is concerned.

So ultimately, I believe we are on the right track as far as our delivery of the growth strategy is concerned, which ultimately should be very accretive for you guys as shareholders. When it comes to Blue Diamond and the Thomson Cruises, Fritz has already described that we disclosed that now was in the respect of segments, hotels and cruises.

We have performed an exercise, which was reviewed by our auditors to have these data available. And we will apply the methodology, which we have used as far as Thomson Cruises is concerned, which is a part of the U.K.

business. We will apply this methodology in a consistent way, so you will always see figures on a like-for-like basis.

That brings me to our outlook for the fiscal year 2016, '17. On a constant currency basis, we remain with the 3% growth.

And we definitely underline our guidance when it comes to underlying EBITDA is concerned at least 10% growth. I spoke briefly about adjustments due to the fact that we have now taking the restructuring expense for Transat in one go.

We increased to 100 million as far as adjustments are concerned composed of integration costs and PPA. Net interest line shows a very positive development.

And therefore, we reduced our guidance to 140 million. We stick to our net CapEx guidance as we have done it in our last appearance at 1 billion.

And you know that the years '17, '18 and '19 are the years of transformation with higher investment volumes. After that, we will go back to a normal volume.

And ultimately, our net financial debt guidance stands at €800 million that does not include proceeds from Travelopia. However, it does not include impact by the disposal of our -- possible disposal of our TUIfly operation, which will lead to some cash impact as well.

When we have all the bits and pieces available, then we will adjust our net financial debt guidance. Underlying effective tax rate, I just touched base on that one at 20%, which is good.

And that is now the right timing for coming to the summary. And I pass on the baton to Fritz, again.

So summary. I think we are well transforming the business.

H1 has been good. H2 is fully in line with our expectations.

Transformation is going well, and we stick to our financial guidance, which we have given. And with that, I want to close and open for Q&A.

Jamie. I'll start with Jamie.

Jamie Rollo from Morgan Stanley. Three questions, please.

First of all, just on the U.K., you talked about slowdown there, I think, 3% volume growth was the figure at March for summer trading, now it's about flat. Could you talk a bit more about why we're seeing that slowdown?

And how you see things look going forward? And also, on the sort of costs side, you mentioned, your accommodation costs rising, of course, you have hedging benefits this year.

So how should we think about 2018 when its hedges are fully rolled off? And secondly, on the Cruise business.

It looks like in the appendix, your yields are slightly lower year-on-year down about 1%, if we look at the occupancy and average rate. And I'm just wondering why that is given the benefit of the new ship.

Is there any signs of sort of underlying pricing weakness? And then finally, if we look at the breakdown of your profit growth, € 25 million underlying EBITDA improvement in H1.

But we get to a much bigger number if we look at the joint ventures with Riu, the TUI Cruise business and the Canadian JV, more like sort of € 50 million taking your -- the bridges. So the business you're in 100% of it still is sort of going backwards.

How should we think about the sort of free cash flow conversion of what you own 100%? And the long-term prospects for that sort of core source markets business?

Okay. I kick it off and maybe Horst wants to add to that.

I think when you look at the U.K., there's no doubt that in U.K. times will be a little bit more tough in the future than they have been in the past.

I mean, that's very clear. When you have -- and that's what we always -- I think, at least, what we always indicated.

It's a little bit -- it depends a little bit on the pound. But when you have a pound, which is instead of £ 0.75, £ 0.85, then at a certain point in time, it will have an impact.

Now the issue is the U.K. business is enormously resilient.

It is a business which has a very strong track and control. And the biggest risk, of course, you have is you have too much fixed capacity.

And we just take care of that in the future. I mean, we will keep our market shares, try to keep market shares.

But at the same time, we also trade our margin and our integrated yield management. We'll make sure that we will make up some of the cost increases in our margin as well.

The only thing which should not happen in the future is, of course, that you have too much risk capacity that you have to sell out, and we take care of that. So I have no doubt that our U.K.

business will be strong. If it will stay at 7.5% margin, which it has been last year, it's very doubtful.

But at the same time, when I say, at least 10%, I mean, at least 10%. And therefore, we will make up and U.K.

is not all of the markets. U.K.

is one of the markets. And our balanced portfolio will make sure that we stick to our guidance and that we do our profit growth.

At the same time, we have been, when you look at our competitors, by far the most profitable. And I cannot influence the market, but I can influence that I'm number one.

And therefore -- and also, one thing is also clear. If we are not little bit, how do you say -- if we are asked -- if we would start to be very competitive, and actually, would be taking on prices and would marginalize other players it would be also difficult position to be.

So we have decided to be a little bit -- we create more margin per persons within the market. And we are playing a little bit the volume as long, of course, as we can make sure that our risk capacity is covered.

And that is also the strategy forward. It's a conservative strategy, but it's the best energy for me in today's environment.

On the Cruise, it's just a matter of, when you add additional cruise ships, you cannot let them all run on the most profitable routes. I mean, then everything is going the same and that the diversity indicates that from the top you start actually cover more routes, but be assured, it's not a single notch off the profitability.

So nothing has changed, nothing has changed over there.

About what type of business is going backward?

I think, yes, of course, we are happy that we have our businesses. I mean, the important part is that we have good dividend policies in place with our 50% on JVs and we have it.

And when I see with Riu, we have a very good dividend policy now in place. And Horst can maybe talk about that.

And also in the TUI Cruises, we'll be cash out everything, which is a surplus in cash. So there is no cash in the company left and that is something, which is a joint ambition of worker bee and us, and therefore, that's for me perfectly fine.

By the way, we are now building, of course, as you can see, Thomson Cruises, when you can see Hapag-Lloyd Cruises. When you see TUI Blue, which we have now started, and when you look at the pipeline where the money goes, it's also clear.

And by the way, in Sunwing, we have a similar dividend policy like we have in Riu, but maybe you can, Horst.

We have very consistent policy as far as Riu is concerned. This year, we will have a distribution, which is roughly 60% of the earnings after taxes position of the two Riu companies, which we have within our group accounts.

TUI Cruises is paying to that extent possible, when you mirror it against our further expansion. So we need to have sufficient equity proceeds available for the new ships and everything is distributed to the shareholders.

As far as Blue Diamond is concerned, we are at the time being in a strong growth phase. So we need to have some refinancing at the beginning, but then we will go into this roughly 50% distribution mode with them as well.

It's Patrick Coffey from Barclays. Two questions for me, please.

The footnote on Page 21 suggests that net debt will be kind of in line with what you said before. But this is before the disposal of Travelopia and Hapag-Lloyd.

We know Travelopia is being disposed, but does that imply that Hapag-Lloyd – the stake in Hapag-Lloyd will be disposed of in this financial year? And if not, can you just talk us through your thoughts on that disposal?

Yes.

And then talking about disposals, again, on TUIfly, you mentioned at the end the cash impact. Could you maybe to just expand on that?

I know the contract hasn't been signed, but directionally, what should we be thinking about the cash impact when that JV deal has been signed?

Horst?

The 800 million net financial debt forecast does not include Travelopia proceeds. And I think we have guided to you that it is 325 million.

Now depending on the translation into euros, we will have a reduction, which then should be in the magnitude of, let's say, 380 million. When it comes to Hapag-Lloyd AG shares, I always shared with you my view.

I would like definitely to sell our Hapag-Lloyd stake, but not at a non-meaningful price. So now we waited for the business combination of Hapag-Lloyd AG and UASC.

We expect that the closing of the merger transaction will take place in the next couple of weeks and that should be a good basis for us to review all of the different options, which are given to us for disposing our Hapag-Lloyd stake. That is something which will change our guidance as far as net financial debt is concerned as well.

And then thirdly, Fritz has said, we are working on the contracts as far as TUIfly is concerned and a good contract is better than a fast contract. Whenever we take TUIfly out of the full consolidation of the TUI Group, then the cash which was sitting within TUIfly will leave the group as well.

And that is an amount, which is in the magnitude between 300 million and 400 million because going forward, that will only be a net equity company for us. But as explained before, we need to get this baby to bed first and then we will see the impact as far as our balance sheet and our net financial debt position is concerned.

I mean, adding to this, it is -- when you look at the traditional two operator businesses, they were not vertically integrated, but they had all off-balance sheet obligation, off-balance sheet debt of the airline. So they were not potentially as obliged as maybe was immediately visible.

But, of course, you know that because you looked at the businesses. Now that said, when we actually take some of these obligations off our balance sheet or off our responsibility, we need to be very careful to do the right things.

And I had always an idea that we should be more light on aviation and a little bit more heavy on hotels and cruises because aviation doesn't differentiate, you have enormous surplus on supply. Market entry barriers are enormously low, exit barriers are really high.

You have -- when you look at order books, it's -- for us, it's important to think about these strategically. But that said, if nothing would happen, we'll still be, potentially, okay.

But I think it's worth to go the extra mile in a market where, potentially, we are with our wet lease agreement with Air Berlin. We are -- whatever the restructuring is, we are always at the table because we have this 14 airline -- airplanes wet leased into Air Berlin, which is, of course, for us a very privileged situation.

But I think acting fast, we are not in a hurry. We are more in rethinking the industry.

And once we have actually come up, we will also -- of course, we will line out to you how exactly we did what we did and why we did these things. And we have our best teams now working on these issues.

And reengineering, quality reengineering and another transformational step of our industry.

By the way, I forgot to mention one thing, and the colleagues were so kind to remind me, which is good. Whenever TUIfly goes then not only cash will go, but pension obligations will go in the same magnitude roughly.

And the different bit of maintenance, which is...

Fewer maintenance reserves and so on. But I believe the important issue is cash and roughly same magnitude will leave the group.

Richard Clarke from Bernstein. Three questions from me.

One thing that, Horst, you said about the Hapag-Lloyd sales proceeds, is it will be used to fund the current investment program.

Yes.

I've always thought that what you were selling already with Travelopia and Hotelbeds was enough to fund what you set out in term -- in the hotels and cruises. So is that right that the Hapag-Lloyd proceeds will need to be used on stuff you've already committed to?

Or can you even go further? And second question, you've made a good progress on the German direct bookings, up 4%.

How have you done that? And what's the trade-off of taking bookings away from the agents market both in Germany and maybe in other regions?

And third one, are there any more kind of Blue Diamonds in the rough? Are there any more hotel chains sort of sitting within any of the source markets that you'd would like to move around or is that process now done?

Of course, on the proceeds, needs to be used, I would not say. But if we have good ideas, could be used.

But I think, let's get -- let's cash in the first and then we decide about [indiscernible].

Yes, maybe there was a slight misunderstanding. What we are doing at the time being, we are transforming the company.

So we have higher CapEx, amounts that we typically have realized in the past and what we would like to realize going forward. And therefore, we make use of the proceeds which are coming in.

At the same time, we are delivering a strong operating cash flow which enables us that we stick to this attractive dividend policy, which we have. So as money is not really earmarked, yes, proceeds from Hapag-Lloyd not earmarked for buying of hotels or building of hotels, you have to take the complete picture and that what I always underline was, stick to profitability as indicated and do the transformation, and thirdly, improve our rating KPIs that gives you kind of full picture of the story.

Yes, Germany is moving more direct. I mean, I always said the transformation process will be three to five years, and I stick to that.

I mean, until we have a much -- even much bigger direct share, this transformation is not complete and we don't have enough control. Directionally, of course, we are moving in that direction and we are making good steps.

We have now also exchanged a little bit of management, if you follow that up, one of our best. Actually, I would say, potentially our best second line CEO has taken the Chief Commercial role in the market.

He has transformed the Polish business. Now Polish is much smaller, but much more tough.

And therefore, I'm confident that we are now adding right skills and we are transforming the business. Did we actually -- no, it didn't hurt too much; quite to the contrary.

I think right now one of the areas which is potentially helping us a little bit is position of Air Berlin. I mean, that also needs to be seen.

Do we like it, don't we like it, it's another subject. But of course, we are operationally very stable.

And that is, of course, an asset which some of our partners like. Last, not least, the question on the hotels.

No, I think the big group now is actually the Blue Diamond group. I mean, we have very strong.

We have been coming from Norway and Canada. And we are now by far the market leader in Canada.

Canada is a very, very strong market for the Caribbean. It's very countercyclical.

So it's been strong winter seasons. We bring the airplanes.

We fly to the Caribbean in summer. And what I said to the ships is similar to Caribbean.

Whatever hotel they build has return on invested capital of 20%. I mean, this is right now very, very strong.

And the interesting thing is, I would say, long haul is very strong. But the interesting thing is, also, I think the true driver of this strong profitability is that it has such a strong -- shortfall market is there.

When you look at the amount of Americans who travel to the Caribbean and how it develops year over year over year, it's enormous. And more and more Americans get now passports, they want to travel international and so on, which they didn't do in the past.

And that's a little bit also what we see right now and what we get ready to capture when we go to Southeast Asia. Because as I said, when I was now in China, you see the second wave of tourism coming.

And the second wave of tourism is not 10 cities in 9 days and you make photos, you jump off a booth. You make some photos, you jump into and buy the Gucci bags and you hop on the booth and you go to the next.

The next generation is coming right now, what we call the young affluent. And I'm pretty sure in five years' or some time, we will see a very, very strong development in Southeast Asia because the local source market for Southeast Asia actually has opened much more than it has today.

And today, as I said, it's still picking the right locations and picking the right hotels. But in the Caribbean, it's more manufacturing hotels.

It's whatever we can build actually should be built because it is very, very profitable. Tim?

Tim Ramskill from Crédit Suisse. Three questions, also, please.

And the first is, when we look at your guidance for 3% revenue growth and the 10% constant currency profit growth, the booking position for the summer looks much better than a sort of plus-3% number. So are revenues likely to go a little higher?

What does that mean for margins? Just kind of help us square it away how to think about that.

Second question is kind of back to little bit what Jamie was asking about, about U.K. trading.

I think On the Beach talked about how the tour operators had been at an advantaged position in the early part of the season given the timing of hedges, but that's now sort of ceased to be the case. So I just wondered if you'd agree with that.

And also on a related point, as you look out into the winter '17, '18, I guess you're starting to price products. So what price increases are you likely to be looking for in the U.K., given that the hedging benefits are rolling off?

And then the final question just to sort of understand something slightly strategic. In terms of the hotel business where you've got brand like Sensatori, which obviously still sits within the source market business, how is that different to a franchised model within hotels?

And any chance that some of those profits, again, might be sort of reclassified at some point?

Okay. I'll try to tackle and maybe Horst will.

I think yes, the 3% revenue might be much more. and I -- how much more remains to be seen.

But I think what we see right now in – for the – we have 62% sold in the summer business with an 8% revenue up. I mean, so how much lower do we want to get for the remaining.

I think that's true. We didn't increase it too much because I think right now it's question, the question is what it does it really mean, right?

And this comes a little big -- little bit back to the question of hedging and the price increases and how much does it pay off. Because it's so much moving parts right now, it is difficult to say where we exactly end.

I think we are very certain that this year will be not an issue. And for next year, I'm already with local management sitting together and there's a mix of things.

The first one is, the question of what's the overall commitment? So how much do you need to yield, that was the thing.

I also added to Jamie's question. The second thing is, it's not a big issue if we have higher prices and if we just -- if the customers travel shorter times.

I mean, if -- then the margins stay exactly the same. I think, therefore, we started looking at the length of our pre-offering of our -- for our customers.

And then, of course, a lot is around lower price locations. And, I mean, here the question about Bulgaria, the question is how will Turkey develop?

What exactly do we do? We will go into -- we will go a lot of out of lease contracts in Turkey next year.

So what do we do? Should we buy distressed assets, and how exactly do we do that?

I mean, so we are -- we have a lot of planning going on, but I tell you there are so much -- there are so many moving parts right now that, I say, for this year, I'm 100% sure. For next year, I'm pretty sure that through our vertical integration of the business, we have the control of doing things.

And therefore, the vertical integration model helped us last year, helped us this year and will help us also next year. In terms of the hotel franchise and the Sensatori and these things.

I think the differentiated concept of Sensatori and of Sensimar in the family life help us a lot to differentiate in the market so that people can understand what they buy. They understand this is a concept you only can buy with us.

And therefore, you can price it potentially a little bit better and you are less comparable. And that's all perfect, and it's working well.

The difference between that and actually the hotel division and that is -- will be particularly visible, let's say, in a couple of years is what I have said right now about customer platform, that all the customer data is one cloud. And so is now for destination services and for our source market and will be part of our hotel.

We will be -- wherever we have inventory risk, where ever it's our customer, it will be us, us, us. And that is something, of course, when you have your own hotels and you have your own franchise, then you can do this.

When you are contracting to a Sensatori, with somebody, and it is not part of a JV and so on, it's much more difficult. So therefore, I think you will see that our thinking and also you will see over the next quarters, maybe a couple of changes also in the future, but leave it for a moment.

How we even more -- get more grip as we have right now done all our cloud-based IT, source market destination and airline platform, that's all integrated now. And now we start selectivity to extend this to our hotel companies.

And that give us full visibility to -- for all the customers and the full grip on full CIM end-to-end, and we control everything. And that's where we need to be, done.

So it's a little bit of -- we love all our brands, but when we own the hotels or franchise hotels, have the operational control, inventory control as well as customer control, then I believe, I strongly believe that it will be much more beneficial in the future. But it's the next step, and in a couple of years, you will see that I think.

Jaafar?

It's Jaafar Mestari from JP Morgan. Three questions, please, from me on hotels, Turkey and Hapag-Lloyd.

Just on the hotels pipeline, it sounds like more and more what's really relevant is not how many properties you open, but how big they are and what's the ownership model. So with five of your six openings in H1 being fully owned, is there a chance we end up materially bigger than the € 2 million EBIT contribution per assets that's the basis of your guidance?

And second on Turkey. You talked about the Russians coming back.

Have you seen any similar signs of early recovery, maybe in some other demographics? And lastly on Hapag-Lloyd's, the company presented what they think their shareholder register would look like post the merger, and I noticed that the minorities from UASC were considered part of a free floats and your stake was not, is there any reason for that?

Do you have any pact agreements, lockups that would restrict your monetization options?

Good. I think possibly, of course, do the Hapag-Lloyd thing.

I think on the hotel front, we always said on average, this was the averages of the average of the average. I mean, of course, it's clear when we invest in a hotel, that the numbers might look in the single case very different.

And when you have a managed hotel in Tunisia that you don't make the 2 million, it's also clear. So therefore, when we see right now some moving parts and we invest in a lot in the Caribbean because ROIC is 20%, and we give up some managed hotels in Tunisia, then the number of hotels don't change so much, but the profitability increase.

Just look over the last three years, I mean, it is I think very meaty numbers. The cruise piece -- no, the Turkey piece with Russia, I think interesting thing is the demand to Turkey right now is very volatile.

And months is off the press for a couple of weeks or three weeks, you will suddenly see also in our Western markets very good booking patterns, and it's difficult to say. Of course, it helps when you have 200,000 customers from Russia which actually are coming.

And therefore, you need -- you don't need to yield even the bigger picture. I would say -- and in other regions, is very similar.

Let's say -- let's exclude Tunisia for a moment because Tunisia has several warnings. But in Java, for example, from Germany, the business is building.

When you look at for [Indiscernible] and so on, so the part of Egypt, the Western part of Egypt, it's pretty strong. I mean, it was off the press and off TV for quite a while right now and the booking patterns are very strong.

So I think that's very good. Let me emphasis on one thing.

We are now running out of some lease contracts in Turkey which will help us next year.

Hotel designs.

As hotel designs, yes, we have lease contracts, which we inherited in early times. So we would not do these kind of things.

So we will hand over some lease contracts next year. So the questions now, what do we do?

And if Turkey comes back, and I mean, Turkey will come big time because Turkey is big. And therefore, we are now very -- thinking very smartly.

I would have said, maybe we could even buy a distressed asset also. The interesting thing is they are not really available.

So that says something about the market sentiment and that's also interesting. So I think a lot of people think right now Turkey will come back next year, which would be, of course, very, very helpful.

I mean, we don't know, but it would be very helpful.

I have to confess, I did not get really your question on Hapag-Lloyd. Can you repeat it?

Yes, if you look at the Hapag-Lloyd presentation of what's their shareholder register will look like post the merger, they expect about 15% free floats, and this includes in their definition all the tiny minorities of UASC. And then separately, you guys are there with an expected 8% stake and that's not in the free floats.

Is this just presentation or is there anything in term of agreement?

Yes. I'm not involved in the preparation of the Hapag-Lloyd presentation.

So I was pretty clear saying, yes, we will dispose of the shares. And give us a little bit of time, yes?

Alex Brignall from Redburn. Just three questions, please, if that's okay.

So pricing was plus five. I guess if you could just give us an idea of how that was against where you thought it might be earlier in the year and how we should expect that to progress, obviously, with the booking profile?

And then just in terms of CapEx and some of the growth that you've been talking about. So the CapEx growth, obviously, comes down a little bit in the next two years and then more in 2020.

But if you could talk about where the growth comes from after that, at the moment it's being attributed to the new hotels, but you talked a little bit about source market growth after that. To what extent does this CapEx help you to then grow your businesses in other regions that we're not currently in?

I think when you look at the pricing, it's all driven by U.K. And as its currency, I think it's very difficult to predict.

I mean, therefore, we need to be -- we cannot predict the currency. Therefore, we need to be -- set up the business to be best fit in order to react.

And therefore, what I said is we will not long haul, long haul is very resilient; not cruising, cruising is very resilient also in the U.K. But on the mid-haul and short-haul, we will actually be very much, how do you say, risk capacity.

We take a little bit more risk capacity potentially out then we will take a little bit more out than we potentially see in order to have wiggle room. And then is a question of, of course, how it will be used.

And as I said, this is particularly aircraft-risk capacity. We don't talk about hotels and cruises.

And this gives us a little bit of free room of -- to decide flexibility. We have this third-party flying is all included.

So this will be -- we can still fly the full program, but we believe it's a better position to be. And as I said, we are starting to building positions in new low-cost destinations.

And this is in Bulgaria, for example and Cape Verde for example, where we say, if we need it, let's put a little bit of stuff up, which actually can -- which is a replacement for regions where either prices are up or have been up or which are generally lower prices. We actually have the people who are more price-sensitive, we can -- we have offers for them.

Interestingly enough, we are also seeing first indication that price and spend will come down again. I mean, that is something we see that the independent hotels are starting to give discounts again.

It seems to be that maybe they have stretched -- overstretched a little bit, but it's...

CapEx, whatever the growth come from whenever we through...

Transformation will take a little bit of time. And that transformational journey is an important journey.

So that is more -- actually more hotels, more cruises will come along. Of course, then the second thing we are looking at is, of course, how we -- can we get more access to more customers.

And I always talked about this, it will be pure online. When you go to China, it can be pure online.

Very likely it will not be B2C. I mean, when you think about China and I just went, I was there two weeks ago -- actually last week I was again in Shanghai to open the ITB, which is the biggest fair event, which actually we brought to Shanghai right now together with the fair company, ITB company.

When you go to you China, you have more than 1 billion people. When you want to establish a brand in, let's say, in Germany, I know Germany, of course, from my past very well, I think you need to calculate a euro per inhabitant always.

And you cannot -- if you want to get unaided awareness up and so -- and you're talking about establishment in the Germany will be € 18 million. That means establishing a brand in China will be € 1 billion.

This is not the risk we want to take. So therefore, our software, our protocol stake is a B2B and a B2B2C, as I always say.

B2B meaning we can actually, for example, offer the fulfillment engine in a B2B environment, so that actually other business partners work with our fulfillment. We have outbound licenses in China.

We have all delivery in more than 100 destinations of the world and so on and so on. And B2B2C meaning we can be partners for airlines to provide our -- if they want to have on their websites booking and combine their flights with hotels, we can have -- our software actually can fulfill this.

And when we talked about 1 million customers with € 1 billion of revenue, more likely these are the roots, which we will be going and not just a blunt B2C offering which as I said, in China, it's very difficult. Possibly look at the B2C players, difficult to make money nowadays.

So that's more this. And then last, not least, we look at everything which is synergetic.

And this might be like the Transat piece, it might be counter seasonal businesses where actually we can get our cash and working capital position more equally distributed and so on. But that's -- these are the major initiatives, I would say, going forward.

But we will be active in, I hope, in many more countries also as source markets than we are active today in a couple of years.

Last question?

Mark Irvine-Fortescue, Panmure. Can I just ask a couple of questions on the airlines, please.

First one, I think your overall CapEx guidance normally excludes pre-delivery payments on aircraft coming to the fleet. Are you able now to give us any quantum around PDPs over the next couple of years?

And the other bit was just on the MAX aircraft. Have you had any discussions with Boeing recently after the teething problems on the engine?

And can you confirm those orders are still expected to come into the fleet as planned?

Yes. So as far as PDPs were concerned, Tom is in the room.

This year, € 200 million. And then, I believe, 100 million in the two following years.

And when it comes to the engines, I think Tom is constantly in talks with Boeing and the engine manufacturer in order to straighten this challenge out. And Tom, as far as I understand, you -- maybe two sentences.

Where are you?

Yes, so if I could just add to that. So the way in which the CFM engine part replacement need was communicated was then picked up and reported in the press in a way that perhaps created unnecessary broader coverage.

Boeing expect to be flying the aircraft again later this week, having already made the changes that are needed in a number of the engines. It was an isolated quality manufacturing point from one out of the three suppliers of those particular engine parts, the other two being unaffected.

And they only expect a delay of a few days in the delivery. And naturally, the news that they'd be flying again this week attracted rather less attention than the news that they wouldn't have been flying last week.

Thank you, Tom. Good.

Thank you very much. Or maybe one last question.

You look disappointed. No?

Okay, good. So thank you very much for joining in, and have a great day.

Bye-bye.

Thank you. Bye.