TUI AG

Friedrich Joussen - Chairman and CEO Horst Baier - CFO

Patrick Coffey - Barclays Jamie Rollo - Morgan Stanley James Ainley - Citi Angus Tweedie - Bank of America Jaafar Mestari - JP Morgan Richard Clarke - Bernstein Alex Brignall - Redburn Adrian Pehl - Commerzbank Tim Ramskill - Credit Suisse

Okay. So very welcome to our Full Year Results and Strategy Update.

If I had a clicker to click slides I could be, -- do I have a clicker? Don't, I have a clicker.

I had a clicker. So, very welcome.

We want to do actually two things today; to give you a little bit of update where we stand with our strategy. Also, a slight change in the strategy, explain a little bit, also, our way forward.

But of course, foremost, actually, also, explain the performance and also, the numbers of last year and how to read it. Now, I think when you look at last year, you can say that it was a very strong year for TUI.

On a constant currency basis, you see an increase in turnover of 11.7%. And that is, I think, very important.

You're also going to, as a basis, 1 million more customers. It's very important -- good consumer brands are more relevant to more customers.

And double-digit growth in revenue, definitely, is very reassuring on the resilience of demand across our markets. That has also translated in a 12% year-on-year growth of the EBITDA and also on a constant currency, we had guided at 10% and delivered 12%, and I think that's also a good message, because after the merger of TUI and TUI Travel, initially, we had said three years of at least 10% EBITDA growth if we deliver 15%, 15%, and 12%.

And last year was not a very easier. I mean, it started with [Indiscernible] crisis in Germany; it went with Brexit, first Brexit consequences.

Air Berlin insolvency, Monarch insolvency, [Indiscernible] at the end of the day a delivery of 12% underlying EBITDA growth. Now, when you look at the earnings per share, then you so -- that takes also, of course, into consideration interest and particularly, the interest numbers, which are I think very favorable and Horst will be talking about that it was up 33.4% and resulted into a €1.14 earnings per share, which of course, is a very strong number now.

And we have agreed yesterday with our Board, our officers, is that we would actually propose to the Annual General Meeting in February, a dividend of €0.65 per share. Now, I know that a particular interest of all of you is also do we spend money wisely and I know that is a critical thing.

And therefore, we have, actually, put forth on this top slide, the ROIC number. And the ROIC number is with 23.6% not only much, much higher than the WACC of 6.75%, but it's also higher than last year.

So, we went up from 21.9% to 23.6%. And the WACC, by the way, improved from 7.5% to 6.75%.

That is a number we can actually not influence that much, because of this mainly interest environment, but the spread has become bigger. And as you know, we always talked about new investment, at least a 15% until we also see on the segment numbers that the performance was pretty good.

Before I go on right now into the slides, I would like to do a couple of remarks. We are a company that actually is going topline.

We are a company that's going bottom-line. We pay our shareholders, I think, attractive dividends when you look at our dividend yield, its very premium.

Therefore, shareholders have the opportunity to anticipate the success of the company. And we take the advantage from our increased cash conversion to invest in growth and expand the position as the world's largest tourism group and today's investments are, actually, the growth of tomorrow.

If I look at the strategy -- or when I look at the strategy, the TUI of today is very different TUI than the TUI five years ago. Today, we are pure play tourism group with a very strong capital base and very strong balance sheet, and Horst will be talking about that.

So, we have actually delivered our transformation from a classical tour operator to a hotel and cruise group massively since we took over TUI Travel in 2014 and the success of the transformation is reflected in the results. Today, we are basically, and that's how we understand our business, developer, investor, and operator of hotel and cruise businesses and that's where we invest, and that's where we grow.

With that, we can shape and demonstrate innovation, quality and service, and if I, for example, talk about a new build, steel as a commodity. But what's inside the ship is some of the strongest differentiation levers which we have for our customers through the product and innovations at TUI, strength number one.

Of course, I'm frequently asked now, what happens to TUI operating? Is that something in the past and is it not important anymore?

And my simple answer is, yes, I would see it like the following we have doubled our strength since 2014. We combined the opportunities from product and innovation, this actually, distribution capabilities, which are unrevealed in the industry, 20 million customers in Swiss markets have a yearly contact value of something like €850 per customer and on average is very, very strong base, our local market presence, the market knowledge.

Also, the geographic diversity allows us to have a very resilient business. And as I said, 20 million consumers, which actually do a contract with you of €850 each, is a lot.

In terms of the -- if you would like to phrase it in an industrial logic, you would say, hotels and it was cruise ship of products, their innovations, and our TUI operators are very powerful marketing and sales organizations. In terms of number of customers, we have very big organizations, like the U.K.

or like Germany, but at the same time, we forget, sometimes that also the smaller companies, like, for example, the Nordics, are the innovation drivers in our industry. In the Nordics, we are now 100% on line, if you like, or 100% direct and mostly online, I mean, we just closed our last travel agency.

I mean, English and the Nordic customers are very, very, very open to these kind of new distribution mechanisms. I also want to say, we are not documenting.

We are, as a consumer company and we want to be as a consumer company that our customers are. So, if customers are fine, purchases products online, we will be online.

We have no problem to be 100% online. In the U.K., we two-third online; in Germany, we are less than -- and we are where are the customers are and it should be where the customers are.

Now, traditionally, TUI operator has been a provider of travel and holiday experiences, and the TUI operator model was a trading model. This all related strength and all related weaknesses.

Weaknesses like low margin and trading business, high seasonality, you remember the time spend than there was actually quarter four of the year. Profits are below, cash conversion low, differentiation opportunities.

In the Hotel and Cruise business, this is significantly different. Profit contributions are more stable around the year.

They are more diverse. They are diverse in risk also around the world.

And of course, they are more cash converting. And that's what you see this year, we had Q3.

We already said, the first time in company history, we are accumulative cash positive -- accumulated profit positive and EBITDA positive. And you also see these numbers.

You see it in the earnings per share, but you also see it in the cash, which we have at hand at the end of the year, which is also very, very good result I think. Before I go into the slides, let me talk very briefly, also, on digitization.

Digitization is further milestone in our transformation of the business. In the completed financial year, we took enormously steps forward and I will be talking about that in the second part of my presentation.

We have found a way and we are convinced that we can combine with modern IT, better and faster cost -- better cost positions and higher performance with actually customer service. Good personal service and digital leadership are no contradiction.

For us, digital means more and better service for customers. At the same time, we can be more efficient through the unified systems and cloud-based systems.

Many people, by the way, talk about blockchain technologies and I will talk in a minute how we actually already use our operational system, blockchain technologies to actually serve our customers better and yield our product better. If you want to address 20 million customers individually, you need the most modern IT technology.

So, it's not a contradiction. We actually started -- we started our journey in the digital world more than two years ago.

You can see the first results and when we talk about the strategy update today, you will actually see how exactly we are using digital technology in order to grow our results, also, in the future. Now before that, I would like to go through the slides a little bit more in detail and show you what has happened.

You see here, the traditional waterfall from financial year 2016 to financial year 2017. You see actually the currency effects.

But excluding the currency effects, you see the 12% growth driven by Hotel and Cruise content with €131 million equally -- almost equally distributed in gross of Hotel and Cruise profitability. You see an €8 million improvement in the sales and marketing.

So, in the traditional TUI-operating businesses, of which, central region was very positive in trading, western region was very positive and trading, northern region were difficulties. And northern region is a blend of actually and as you know, several countries; the U.K.

as well as Canada as well as the Nordic countries. The Nordic countries had the best -- one of the best years in -- particularly in the summer, I think the best summer of company history.

But of course, when the dilution of the pound when -- in -- after the Brexit announcements of 20%, of course, changed the cost position and the margin position in the U.K. Now that said, is it worrying?

To be also clear, I'm not worried. Because one thing you can see, we had more customers than last year than we had in the years before.

The purchasing pattern, so the spending pattern in the U.K., is very, very stable. It's around average £1,000 per customer.

And also, our market research into the future shows £1,000. So, the missing part of the equation is, of course, then the offer.

So, what do you get for £1,000? And here, I think, we will see challenges, and we foresee changes.

When it comes to the portfolio, there will be changing patterns. There will be a little bit less in the future, I believe, at the same time, we will see the increases and Bulgaria and in Croatia.

And that's, actually, we are building it. Will there be a problem for long-haul offerings in the Caribbean?

I can assure is not because the biggest growth driver we see right now in the Caribbean is actually the American demand. Because more and more Americans get actually passports, they want to travel abroad, and whenever, actually, we have one less occupancy from Europe, you see two additional occupancies from the U.S.

Our average occupancy in our Caribbean hotels is more than 95%, 365 days around. So therefore, I think, there will be changes.

It's very clear that Brexit will not be unnoticed, but it's already part of these numbers. Not just synergies fully delivered, as promised.

We see the one-off effect of sickness. That was very early part of the year and of course, will not happen again.

And we see the Air Berlin one-off effect of the insolvency 2015 and that delivers a 12% growth. Now, when I look now into the hotels and resorts, you can see that our average occupancy has increased over the year, particularly in the RIU, with the RIU brand.

This is, of course, related to Spain. This is, of course, related to the Caribbean.

RIU has an anonymous foretold. And I said, the average occupancy in the Caribbean is 95%, it's driving up this number.

When you look at the average revenue per bed, very healthy. When you look at the innovation pipeline, you see that we have opened 28 hotels since mergers, 10 openings last year, and here is my reassurance to you that we are not spending the money unwisely.

The average ROIC is now at 13.2%. New openings are above 50, that's reason it's moving in the right direction.

Not more to say about this, and I would like to turn to Cruise. Cruise, we have three companies, and you see them in the picture.

TUI Cruises, Marella Cruises and Hapag-Lloyd Cruises, very different characteristics, all very interesting. I think TUI Cruises, we added last year, a million passengers, additional capacity with the delivery of new ships from 3.5% to 4.5%, [Indiscernible] 33% up at the same time, we increased yield.

Resilience is a big growth market. It's one of the reasons of this enormous profitabilities.

Marella Cruises added 30% capacity, increased yield from £121 to £131, same story. Average which, we can put into service, we believe today and this will be also for the next years, because you have such a scarcity of supply, every ship will be like this.

In Hapag-Lloyd, we didn't put anything in service, so this -- the capacity was stable. But look at the yield development over the last four years from €452 to almost €600.

Ultra-luxury Cruising and Ultra-luxury experiences, so expedition is actually very strong demand. We will put -- two new ships, as you know not next year, but the year thereafter, we are building ships according to plan.

We are pretty sure that these offerings will find their way and will find their markets. In terms of segment ROIC, 20%, still in the growth phase.

So, therefore, I think again it shows how -- where the money is spent and how much -- how profitable that business in and how resilience these businesses are. Turning into marketing, so its Swiss markets.

Very pleased to see that, actually, we have an increase in customers from 19 million to 20 million. So, a million more customers who are more relevant to more customers, as I said.

Very, very strongly related to successful rebrandings in the countries. And you see, after the rebranding, the brand is younger, it's more digital, it's more direct in all of the markets.

And I have, actually, put on the slides, the unaided brand awareness, which is the major lead indicator for actually successful rebranding. The first rebranding we did for us was actually the Netherlands.

Now, it's at 72% unaided awareness. It is the highest unaided awareness of -- in any of our countries.

And it's also the highest, by the way, of [Indiscernible] offers in the Netherlands. With our old brand, we never have been more successful, for example, like [Indiscernible], more so in terms of unaided awareness.

Today, we are way above any other brand in our sector. Then, actually, a year ago, was Nordics and Belgium, 48.53.

Both rebrands are, of course -- it's funny. It wasn't TUI before the rebranding.

Actually, in reality, we should be, maybe, showing the old brands, the local brands, which we have been a market, both unaided awareness are higher than the old brand was ever was in these markets. And it drove was much more direct.

It drove much more digital and the payback of the brand expenses was within a year. So, you don't even see it in the number.

Now, there was always a little bit of skepticism if, actually, good old friend like Thomson could be actually rebranded. By the way, Arke was older than in the Holland and Thomson here.

So also good old Arke could be rebranded. But I always said, I'm pretty confident that we will be fine.

Now, we are -- we started the rebranding early September. We are now -- December, we have now unaided awareness.

On this slide, I think it says 31, in reality, we are already at 35, so you know, it's actually week-over-week picking up. There will be a little bit idle in the next weeks, because the next weeks is Christmas and we are a little bit off air.

And then big selling season is, of course, January and February and then they will be full steam ahead. It's more favorable than the plan was.

So, therefore -- also, this year's guidance all include that, actually, U.K. rebranding will go ahead, as it is now done for the first month is.

One of the things which I have to say is, also, I think, very positive, is that our Net Promoter Score, actually, is also all-time high on average is now even at one point higher than it was last, and it's at a level of 50, which is, I think, very strong results. And last, not least, as we always guided in the Direct & Online, you can see that also here, the developments are very favorable over the years.

That said, I would like talk and close with before I hand for the numbers to Horst. Trading, we actually continue this year with seven openings, mainly, of course, as you can imagine Caribbean and South East Asia.

These are the destinations where actually the growth actually happens now. But also, we see strong demand still in Western Net.

We also see improvements, strong improvements in Turkey and North Africa. Our trading into Turkey for next summer is 70% up.

We have decided to prolong our contracts with local hoteliers and we had a long discussion, would it be picking up or not? We already think that we will, over some time, see, again, a scarcity of supply in Turkey.

So, it's obvious, we had been downturn and now actually, it's coming back. So I think that's very promising.

Now, -- by the way, today is volume mainly. But in margin, still is a little bit low.

But as we all know, yielding businesses, margin follows volume. So, you need to have surplus of demand versus supply, then you can start yielding.

So, I think for the next summer, the world will be fine, okay? Now, Cruises is actually and as I said, very strong.

We don't see new ship launches in 2018 and 2019 and Horst will be talking about it and we think the ships will be equally positive than the ships have been until now. And I look to the Swiss markets, volumes up for winter; 3%, summer, is, of course, early stages.

As I said, Turkey is coming back. Strong performances in Nordics, very strong in Nordics.

Pretty good performance in Germany, when it comes to trading. In U.K., I think, very resilient.

And one of the things I think I see already is that it's not so much the absolute level of the pound, it is the relative movement of the pound. So, we have seen this 20% price increase and then overtime, customers somehow get used to different price positions.

Rebranding is going on as well. So, we are very optimistic for, actually, this financial year.

Horst, with that, I would like to hand over to you.

Thank you very much, Fritz. Good morning.

Pleasure to be here. I start with the income statement.

Fritz alluded, already, to underlying EBITA that. Then I'm coming to adjustments, €76 million reduced compared to prior year.

And that is due to the completion of our post-merger integration. Then moving on to net interest expense, I was already addressed before the meeting that we did well on our net interest expense and we should have guided a little bit more precisely on that one.

However, I'm quite happy that we made this move down to €120 million. And reason for that is -- yes, that is right.

Thanks. Reason for that is we cashed in all the money from our disposals, so we used less RCF.

We saw some positive impact coming through by the low interest rates, as far as our pension valuation is concerned. And you have to keep in mind that we have, in this number, kind of, an additional €10 million interest expense coming from finance leases.

So, bottom-line, this is a very strong development and that reflects, a little bit, the strengths, which we have within our balance sheet and I come to that in a minute. You are all aware of the fact that we have sold our 14.5 million shares in Hapag-Lloyd AG, the container shipping line.

We started our dribbling-out exercise in March of this year. And then in July, we made use of an ABB process and got rid of the remainder of the shares and the profit, which we have realized is €172 million.

You know that we have written down our Hapag-Lloyd shares in the prior year to share price of €16.10 and now I believe we have sold them with €28.75 or so on average. Good result, ultimately, and the end of a long-lasting story.

That brings me to our earnings before taxes, €1.80 billion. Income taxes, pretty low as well.

When you look now at the P&L, it's kind of 16%. We stick to our 20% underlying tax rate guidance.

So, we had some extra effects, especially Hapag-Lloyd profit. That's the reason why we have come so low as far, as the P&L line is concerned.

However, when we will look at the cash flow statement, then you will see that our cash tax is pretty low as well, which is good. Then discontinued operations, you are all aware of the fact that we have disposed off Travelopia and again, we are very satisfied that we could make that move, because that means more simplification of our business, more focus on our core business, going forward.

Then after deduction of minority interest, you get to our group result of roughly €645 million and when you translate that into the pro forma underlying EPS for the continuing operations, you get the €1.14, which is a 34% increase over the prior year. Moving on to the cash flow and movement in net debt, you see that we have had a strong EBITDA reported development, €1.5 million, roughly, over the €1.3 million of the prior year.

Working capital moved into the right direction and that is due to the fact that we did a quite good business as far as our sales and marketing organizations in the Swiss markets are concerned and we may have had a little bit of phasing, say, a €50 million. So, it's a little bit flattering, but overall, it's very positive.

At equity income, we have to take it out of the cash flow statement and introduce the dividends received from our joint ventures and associates. Tax paid, I already touched base on that one, was €146 million on a very low level as well.

Then the cash interest, €57 million, shows our positive development as far as balance sheet strength is concerned. Pension contribution is, in fiscal year 2017, back to a normal level.

In the last year, we had the top payment, which we made into the U.K. Pension Fund.

And in fiscal year 2018, I believe, my -- our colleagues have already guided you on that one, we will have kind of a €50 million final top up again for the U.K. Pension Fund, but then we will back to a normalized funding schedule as far as our pension funds are concerned.

So, operating cash flow, Strong, was €1.5 billion. As far as net CapEx and investments, including the PDPs for aircraft is concerned; we are now at roughly €1.1 billion.

I always told you that we are not -- or did not all only cash-in the disposal proceeds, but that we would like to transform our business. And the investment line shows now, for the first time, the strong cash-out, which we did on the basis of our transformation and I come to that later again.

Disposal proceeds, Travelopia, Hapag-Lloyd and then free cash flow is at €824 million, which was covering our dividend payments to the TUI AG shareholders and to the RIU family and some other joint venture partners as well. So, movement in cash, net of debt, is positive -- strongly positive.

That brings me now to our cash -- net cash position. I got that everybody was a little bit surprised that we ended with €583 million.

And again, I heard some slight criticism as far as our guidance was concerned. I take this criticism, you know me, I'm a little bit on the conservative side always.

And I rather stick to it, because I believe positive surprises maybe better ones than the negative ones. Yes, what happened?

We spoke -- I spoke about working capital number one, and we saw a little bit of phasing as far as our investment volume is concerned. Some staff was foreseen to come in 2017 as cash-out but hadn't only in the beginning of 2018.

And that is, I would say, this area where you never get 100% your arms around. So, maybe we will some phasing again in year 2018.

However, basically, I believe our cash position documents very strongly, how strong our business model works. This leads me now to one of my favorite slides, which is -- I have to make the use of the clicker, which is, kind of, the proof as far as our balance sheet strength is concerned.

You asked me a couple of times, what is your intention as far as net financial debt was in the group is concerned? And I always answered, a little bit diverting.

I don't care too much about the absolute level of net financial debt. I'm looking at the leverage ratio, because the leverage ratio is the most comprehensive KPI as far as our balance sheet is concerned.

We have included all debt elements and when you divide these debt elements by the EBITDAR and we are able to show 2.5 turns, as far as fiscal year 2017 is concerned. You know that we have introduced a couple of years ago a financial policy.

We have brought down this financial policy, the range, as far as leverage ratio is concerned, two times, over the last years. In 2017, we managed to get to 2.5, which was a lower range of the band, which we have given to you.

And we when we come to our guidance, and it is shown here on the right-hand side of the chart as well, you see that we will bring down our range again, which is 3.0 times to 2.25 times. And you all know my ambition that we continue to walk on this path to increase stability of our balance sheet by keeping all the other stuff intact as well, which are part of our messaging.

This brings me to the fiscal year 2018 guidance. As far as sales volume is concerned, plus 3%, and that is excluding the inflation impact, which we cannot foresee at the time being.

Underlying EBITDA, at least 10% growth and Fritz will come to the later to the point that we extend our guidance as far as the 10% is concerned until 2020. Adjustments will stay on the level as we have seen in this year.

Net interest expense, we get some additional finance leases in fiscal year 2018. So, therefore, 120, and I'm running a little bit the risk that I may get some criticism later, again, from this number from you.

Underlying effective tax rate, 20% and our net debt cash position shall be, roughly, slightly negative. So, as far as leverage ratio is concerned, I already indicated to you that we are bringing down our range and as far as the interest cover is concerned, we would like to bring up the range and that will all happen and as far as our dividend guidance is concerned, we would like to increase our dividend in line with our underlying EBITDA growth, which is our standard since a couple of years.

So, that is a set of numbers. And I'll -- now I would like to come to one section, which is touching base a little bit on our investments over the last 12 months.

We had quite some discussions in respect of the level of investment which we are doing. You were a little bit concerned about the amount of money which we are intending to spend or which we have already spent.

And therefore, I would like to give a little bit more color to that one. And when you look at the chart, then it's probably my second-favorite chart, where you see that we have cashed in €2 billion.

And then we have started our journey, as far as transformation is concerned and spent already some money bought Marella discovery too, got 28 hotels, 60% of that, I believe, by management contracts. So, very efficient, bought Transat and so you can see, we have still kind of remaining prefunding from our disposables, which is in the magnitude of €1.1 billion, so we are more or less halfway through as far as our transformation is concerned.

And then you see the journey, which is still ahead of us and which will bring us then to, let's say, around zero, maybe, the -- is a little bit of earmarked funds still available when we are through with our journey. However, important in this context is, we lost a profit-building block, which was, kind of, €120 million attached to Travelopia, attached to Hotelbeds.

And when we through with our transformation, after 2019, we will have doubled our profit-building block coming from hotels, coming from cruise ships, coming from efficiency, coming from synergies and source markets. So, I believe this is quite important as far as our focus on discipline is concerned.

Then I would like to come to another chart, which I like very much, and I don't want to go into too much detail. When you look at us, you have perceived -- or when you looked at us, you have perceived us as a European company.

Northern European countries was a source markets and Mediterranean was our destinations. However, we have managed to develop, kind of, a second cluster, and the second cluster is the North America.

We started with hotels. We're attracting customers from North America, U.S.

and Canada and this is a strong engine. We have started to replicate this approach, this portfolio approach, to Asia as well slowly, not too much at the time being but more to come.

When you look at the return on invested capital and the 28 hotels that we have added since our merger, then it's 10%. However, it's still in the ramping up phase and it always takes a little bit of time until you get full traction as far as hotels are concerned.

Nevertheless, our target is 15%, and I can assure you, we will stay disciplined as far as our investment behavior is concerned going forward. Then cruises, as far as Germany is concerned, it's a fantastic story.

And I really have to say, when I look at that what was delivered by TUI Cruises since 2009 that is really terrific. So, these guys will now get, in 2018 and 2019, two additional ships.

These will be shipped number one and two, new and then old ships, number one and two will go to the U.K. And you have seen already in the U.K.

the Discovery 1 and Discovery 2 alluded to it, moved up the average rate. So, quality is a different one and with the new capacity coming to the U.K., we are very positive as far as the further development of Marella Cruises is concerned.

When you look at the Hapag-Lloyd Cruises, two expedition ships supposed to come in fiscal year 2019 and 2020. When you look at the market dynamics, I would say, strong demand, very positive track record that we have with our product.

So, I'm very positive on that what is ahead of us as far as cruises are concerned. And this leads me now to a subject, which we have discussed a couple of times and that is the subject is there sufficient cash available within our system in order to fund all of our investments, which we are doing?

So, quite interesting from my point of view, is that under our underlying EBITDA is, when you look at the numbers around €1.5 billion, €50 billion, which is strong. When you then take into consideration that going forward, our normalized CapEx will be around 3% to 3.5%.

When you take into consideration that there is still a €1.2 billion stack of money available, which is not yet spent, then you get to the point that our underlying business is converting cash by 65% roughly, which is important. So, we are not paying our dividends out of that.

Our business is strong. The 65% is sufficient to cover the dividend payments, to cover the tax payments, to cover the pension payments, and to bring down leverage, strengthens balance sheet.

So, I like this shot, I have to say, because it is really giving you the messages. We continue to grow and whenever we are doing investments, we stick to the 15%.

We are doing part of our investment through our joint ventures, which is efficient. We are working on the balance sheet strengths.

So, that it is not given up. And we are paying attractive dividends to our shareholders.

And now coming to my last chart, which is kind of -- there are three important issues, important to Fritz and myself. We would like to grow our result, our operational result, is in the focus.

And when you look back to the last couple of years, we have delivered 12% CAGR. When you look at our investment activities, very disciplined over the last couple of years.

And when you look at our business, it's an integrated business. And hotels and cruises are kind of the backbone for being differentiated.

They are delivering strong returns for invested capital. The source markets are kind of vacuum cleaners, which are getting the customers to our properties.

So, a strong integrated business model, which is able to deliver a strong return on invested capital on TUI Group together. Thank you very much.

So, thank you, Horst. Let's turn to the third chapter and that is actually the strategy update.

This picture, you know although we painted it a little bit different than in the past to confuse you a little bit. No, I actually it said, it's the value chain.

It has 40% -- 44% EBITDA in sales and marketing, 56% of the EBITDA that is already in the content business. And it demonstrates our business very well.

And I think what I would like to draw your attention to is the bottom, because you could say -- and the strategy for the two different parts of the business, little bit different. The one is actually the market demand, digitization and diversification.

So, I come to that in a minute, how we do it. But it's a diversification and also digitization of what we are driving.

And of course, market shares in our core markets, as you have seen, right? So, the other part of the business is actually growth and diversification.

So, again, you have a diversification and at the end of the day, you could say, our business is double diversified, because it diversifies, actually, the demand but also, the supply. And if things happen in the verge, we are active in more than 100 countries.

So, to the right, sometimes you say if you have your own hotels, you have a bigger risk, but it's a diversified risk, like you have in a normal stock portfolio, right? So, based on this, we have actually generated quite good results.

And you saw the 15% and 15%, and 12%. And also, we said, looking forward, we would like to see at least another three years with at least 10%.

And I wanted to very briefly touch now that we would like to talk a little bit of how we achieved the 10% and to give that a little bit color. And you see the different shades in this 10%.

And the light shade says there will be some growth because of investments we do into hotels. And there will be -- and that is the dark shade, some growth, because we, actually, take benefits from efficiencies and that is mainly driven by digitization, and that is the part I want to talk about.

If you would like, in the first three years, we always talked about investment and synergies, and we delivered synergies back. It was also the efficiency issue, right?

Now the synergies are passed. We have delivered.

Now, we talk about investment and digitization, right? And also, it's on purpose that this light dark blue bar is growing a little bit over time, because we believe that the digitization benefits will actually take the leading role when we look at the three years overtime.

Yes, initially, they will be similar size and over time, they will be the predominant driver of actually the profit growth. Now, how can that happen and what is it?

And the good thing is it's not a tons of small stuff. It is just two initiatives.

And for completeness, actually, I have booked -- I have printed out the six global platforms, which we always talked about, right? This is actually the right hours.

We always said there must be a good reason that still we are altogether. And when we compete in the market for market shares and we do offers and we serve customers and we try to beat competition, that's all fine, but there must be something which we and as a group other than will be together.

And we always talked about these six things; Brand, IT, Aviation, Hotels, Cruises, Destination Services. These are the six global platforms.

These are the things we want to do together. Now, they are still very important and we add now two things.

And I want to talk about these two things, and they are in the blue arrows, right? On two, actually, is actually is months, year.

How do we actually think about customers? When we say, we have 20 million customers, they do €800 or let's say, €850, or however you look at it each, could be €870.

And we say, yes, it could be €870. And the question is how could there be €870?

I will be talking about that, okay? The second initiative is actually here with three one inventory base, one purchasing.

We buy, around the world, €5 billion hotel deliveries, Hotelbeds with partners for €5 billion, right? How do we buy?

How digital is that process? Do we get the best prices we've ever there?

How, actually, are price-building mechanisms, reverse-auctioning mechanisms? How do we -- how does artificial intelligence play a role?

Do we know all prices of all offers around the world? I mean, we had 100 million more customers or 100 more customers, 200 more customers, 300 more customers short-term to [Indiscernible] four-star hotel.

How do buy this additional capacity? I mean, a lot of value at hand, because it's €5 billion.

It's big. We have 100 million risk capacity in our own hotels.

100 million risk capacity, bed nights. Are we selling these bed nights in the market to the maximum price possible?

Do we allocate our risk capacity into the source markets, most intelligent? What, actually, has digitization to do with that?

That's what I want to explain, okay? These are the two initiatives, initially, 5%, over time; take over the lead of our profitability growth.

Now important is, of course, when you talk about CRM, important is, when I talk about the CRM, I think first, that you are close to the customer and relevant to customer. One very basic work which we have done in the past is actually that we rebranded into one.

And that's very important, because if you want to be close to the customer, you need to be the trusted brand. It's a very important precondition for the CRM project.

And also, there is another very important precondition and actually that is, do you understand exactly how to build prices in the yield environment? And we have introduced [Indiscernible] our own [Indiscernible] deal management, our own solution rolled out into all markets.

I have to do caveat, not into Belgium and Netherlands, not because it's not necessary or not value-creating there. But we are changing the -- our booking landscape to a common system.

And when you change the booking landscape, you apply the yield system afterwards, because if you apply the yield system today, you have an integration today, and you need to be integrating it in two years again, when you're on the common booking platform. That's the only reason why it's not there.

And the other thing we have been doing, we have been actually developing our mobile architecture in a way that everybody uses now the same architecture for the -- it's not exactly the same app, but it is the same architecture. So, when we actually introduce a certain feature, a cost-saving feature, something which actually, when customers open the app, there is an offer.

When we have these kind of offers, or one payment solutions, they want to expect the offer, how exactly do they pay? And how exactly process?

Whenever we do something, it's immediately available everywhere, yes? Because of the open architecture, even if you have a TUI Cruises app or [Indiscernible] app or TUI app in a different countries, the function that integration is possible because we have the same app architecture everywhere.

And with these important preconditions, proximities with customer, the same brand to the customer, the same architecture on our mobile increasingly mobile devices Internet anyway, but also mobile devices. The challenge now we have is the following.

The challenge is CIM, how do you individualize offers to 20 million customers, right? So, how can you actually offer customer relevant stuff to 20 million customers, not mass, but individual mass customization?

And the picture, we have is actually the picture of a retail store, where a customer comes and of course the store owner knows this customer perfect. Good morning, Mr.

[Indiscernible] and he knows what I buy, right? So, knowing the customer developing direct relationship put analytics and insights at the core of what we do?

Do we know what our customers do exactly, when? Do we know what excursions customer booked?

Do we know what value the customer had over time? Eventually, do we know what customers did in our resort?

I mean, did they go to bed early or late? Or I mean, at the end of the day, obsession about to know what people do when they are doing business with us.

Personalized marketing to drive value. Retention, when customers finished their vacation, what do we do with them?

How do we keep them interested? How do we make sure that when they book the next time, they have with us first?

Okay. This is what I talk about and always at the scale of 20 million customers, right?

Now, that said, the good thing is we have an enormous benefit, because we are vertically integrated. We never give the customer control to anybody else.

And we have all these touch points. So, when customers -- and you see the touch points in the blue dots, when customers do business with us, they see us and talk to us very often.

And the idea of Cruise is that with each and every customer, we have the so-called next best activity at hand whenever they talk to us we know exactly what would be the most value-accretive activity which we could be doing at that point in contact. Now that said, we have built technology-wise, four layers, which we have rolled out over the last two years to all of our markets.

The data collection layer so whatever people do, whatever our customers do with us, we collect, and big data is attitude more than a platform. Big data is, you never fall away a single customer data point, which you have ever collected.

Because -- and that's of course, you need -- it's very difficult if you have your own system proprietary in your own IT center. When you have it on a cloud, it's not a big problem, because storage is cheap.

So, all our systems today never fall away a single data point of a customer, okay? The second is, then, data market layer.

So, the data made accessible in 100 countries in the world, right? So, how do you do this exactly when you are in a destination and want to get customer data at hand?

We work with big cloud providers, I can say in Europe, for example, with the Amazon Cloud. And of course, this cloud is accessible, very highly secure, according and in line with data protection is also very clear.

But it's accessible everywhere with a very high performance. So our systems are all cloud-based, okay?

Third, data analysis layer, so the question is what is a good campaign? And if we think of a new campaign, let's assume for a moment, we have a nice new offering in excursions in the certain country, which customers should we address it to?

And the systems, as we have designed right now, do the following. We throw all campaigns to all customers and let the system sort out, which of camping really gets through.

So, the system calculates which actually -- where is the most value accretive campaign for each customer. And that said, at the end of the day, the system, artificial intelligence, will-based engines, data side customers or our marketing managers don't have to decide.

They decide and I come to the some [Indiscernible]. Campaign layer.

Campaign execution direct booking, how easy is it, if you talk to customers that customers turn what we offer into something which makes money, okay? So that said, this is the architecture which we hold out, and that is the nature which we hold out.

And now, I would like to show you two examples how it exactly works. And this example is actually the profile building of customers, right?

So what we do is, when the customer comes to our webpage, he immediately gets a cookie. So, the cookie is actually where the customer -- and the customer looks for something and lets the call the customer, I think wasn’t it is Sophie, it was Sophia.

So, Sophia, of course, is not a real character. So, Sophia looks for Ibiza and on the website.

The next time Sophia comes, we recognize Sophia because we recognize the cookie, right. We don't know its Sophia, because she has not given us any name, but we know it's a cookie, which we have seen and therefore we can started displaying information, which is more relevant than just displaying our website, okay?

Now let's assume for a moment, Sophia, which gives -- looks at says, I'm interested in an offer and is maybe not Ibiza, but it is maybe Mallorca. And she actually looks at some hotels, and eventually puts in her name and address.

And not making a contact with us, but just maybe she wants to have an e-mail and says, can you send me some information and I would -- like to look at it. So, we are starting or building, yes, Sophia as somebody we know.

We have -- the status is a new prospect status, we have e-mail address, mobile number, maybe family status and we have short-listed some of the hotels. Now, [Indiscernible] and we can start communicating to Sophia already.

For example, we can say, you have not completed your purchase, right? Is there anything we can do?

Would you like to have -- would like to have a call, multichannel? Would you like, what is it, is it something we would like to understand?

So, we can start communicating to Sophia and know her. Now, let's assume for a moment she actually starts to buy with us, then the status changes to new customer.

We immediately, she comes in to the lowest value tier because actually, the customers is very new to us, we don't know. And actually, we collect, for example, marketing allowances, yes.

We say, please give us your telephone number, can we offer you some campaigns. Of course, also security is important we say when you go on vacation with us as you know, if you give us a telephone number and something happens or flight changes, we can give you some information.

So, we start actually to communicate and get more and more knowledge about Sophia. And of course, we can start already because she has offered -- she has now purchased this hotel thing, we can now start thinking how to get from €850 to €870 okay?

So, as soon as we have the agreement, we now start -- so what could be nice? We start offering late checkout, we start offering room upgrades, we start offering whatever, and at the end of the day, all campaigns, as I say, go parallel and the system decides that maybe female have other preferences than male or maybe family customers difference than just couples and so on, and the system, artificial intelligence, always learns as we and we enrich the customer data.

And then you know of course, over time, we will have a full track record of Sophia, so Sophia is then maybe has a third, fourth purchase, we will know exactly what kind of excursion she will have done, we know if she upgraded in destination to a suite, we know actually if she did spa treatments or not. And if -- I mean, if she did spa treatment, why not offer spa treatment when she is still at the home.

At least then she can have a free choice of she wants to have a spa treatment or massage or whatever at 5 o'clock or 4 o'clock. If she would wait until Sophia is in the hotel, maybe the spa treatments are all blocked.

I mean these are the things. And if we get, I mean, more and more demand of spa treatments, maybe we even have more people in our spa in the hotel.

Today, one of the biggest issues we see in hotels, if customers are turned off, the people coming to the hotel I want to have spa treatment and everything is locked. Now the biggest run, when you go in a hotel is, I want to be -- I want to know when I get my massage, when I have this, when I have this.

I mean, why do we not have three more people working in the hotel? Because we don't know.

Here, we know that customers want to have it, then we can offer it. So, this is actually how the system works and this is actual fields, this is the data fields.

180 data points per customer are actually built on a recurring basis and the in-depth knowledge of customers from prospects to loyal customers is building over time. Now, the last slide for actually CRM, I want to do is actually to give you a first result because the system is now operating fully fledged in Nordic markets because as I said, these are sometimes the most innovative -- not the biggest ones, but the most innovative markets.

And here, we have actually changed fully from manual marketing to fully automated marketing. The differences, in the manual marketing, we said use letters as seasonal campaigns, tactical campaigns, and so on.

We got products to customers. We said we have a product and then we get it to customers, right?

So, it's this kind of sending information. We have a new hotel; we send it to relevant customers.

That was the approach. The approach was a segment approach.

Now, the automated marketing is very different. Here we get customers to products.

Here we get customers to products. We think customer-centric and we align products around customer needs; very, very different approach.

Here, we don't let them use escape to many people. Here we tailor our campaigns to individual customers, right?

Now, the results you see on the right side. In the Nordic source markets, before we actually switched on the engine, we had 1,400 parallel campaigns, which is already something.

I mean, it's not broadcast, no differentiation, it's already second. 214 million contacts, I mean, 140 million send outs.

Think about that the Nordic market let's say, has, what is it, 1,800 -- 1.8 million customers. So, every customer more or less got 50 campaigns.

Afterwards, afterwards, 8,600 campaigns, with four million contacts. Four million contacts and the profitability we generated was higher afterwards than it was before.

And I mean -- this means we don't pollute, right? Of course, the normal campaigns we send out, you have a conversion rate of 0.5.

With the things we are doing here, we get to 20. I mean every fifth offer; every fifth offer is relevant enough that a customer pushes a buy button.

Now that said, is early stages. Because the system of course learns, that is the nature of the beast, that's building knowledge, knowledge, knowledge, knowledge, that's Big Data.

But for first results is when that's pretty good. Okay, second is digitization issue.

Now, we talked about customers, let's talk about inventory, okay? Now as I said, we have 20 million customers and we have hotels and own hotels and also third-party hotels on risk, and third-party hotels.

100 million bed nights in risk and 5 billion purchasing volume from third-party hoteliers. And we have actually, on the 20 million customers, we are sophisticated, we have a Cyrus yield system and the Cyrus yield system actually calculates prices based on the demand curve and that we fill all our hotels at the end of the season and so on and so forth.

So, that's it. On top of that or complementing to that, we have actually introduced right now, a Blockchain based inventory system and the project we are working on right now, is a common purchasing system based on our own developed system or solution.

It's a very strong and very rich own purchasing solution which we have developed on a proprietary basis. Now, how does actually now this exactly work with the Blockchain, right?

And assume for a moment and this picture shows it very nicely, assume for a moment, you have a hotel that actually customers book from the U.K. and also from Germany, right?

So, the question is of course, today is very easy, let's assume, the hotel has 100 rooms and today is very easy, you know how it works. You allocate 50 homes to the U.K.

and 50 homes to Germany and they are, as an inventory, carried and administrated in the booking system. So, what we have done right now, we have actually flexed the inventory out of the booking system and have put onto the blockchain.

So it's not a static allocation of inventory into the booking system. Now what happens is the following as a first application, as a first application, Cyrus communicates to the blockchain inventory and suggests that may be, for example, in the U.K., the bookings into that hotel are running very well so the prices are very healthy, and we are running in front of the traditional booking curve, and may be in Germany, exactly the opposite.

Maybe the prices are low. So, therefore, Cyrus communicates to actually the blockchain and starts to suggest that maybe we should reallocate some of the risk inventory from Germany to U.K.

because we could make more money. And this is actually what we call bed swap, the bed swap feature, and that's exactly what the system is doing today.

And what I have done now is that you don't think I just make it up. I have actually put a screenshot, okay?

Okay, and here you see the suggestions, yes? That's actually what the system comes up.

It comes up with a proposal ID number 291. It's created on the 22/09/2017, so it's real, okay?

It's not something which is not existing. It suggested from the 01/11/2017, to the 30/04/2018, so 180 days, you actually do the following.

Your accommodation codes ESFU0011 should change to FUE14006, okay? You understand immediately what it is.

Now actually it changes from one market to another, the [Indiscernible] hotel in Fuerteventura and the additional -- the Cyrus system suggest that we create an additional margin by that, this €198,450, okay? That's as easy.

Now, today, this is not fully automated. Today, we give this recommendation to traders in Germany and traders in the U.K.

So, the traders are still in control. So, traders say, I accept the swap.

The party who actually has to give the inventory and the party accepts the inventory, both have to agree. The nice thing on Blockchain is, nothing gets lost.

So, if they don't agree, we see what actually has happened and we see what actually was the proposal of the system and the difference in value and we can start educating our staff. But, of course, over time, we don't need manual interaction, right?

Today, we have a little bit of manual interaction but over time, this would be automated. That's said, I want to come to my last slide, which actually is regarding as inventory piece and the vision according to that.

The Blockchain actually opens because all the inventory is now in this Blockchain technology very flat, available everywhere. Opens also very a nice opportunity because you could see the Blockchain could be open, right?

Today we use it as a cost mechanism, but you could open it up, for example, we could open it up for our Chinese markets. When we, for example, have a hotel in the Maldives and we put it on to the Blockchain inventory, we open the Blockchain inventory either to our own LTE technology, which we deploy in China, or maybe to some OTAs in China.

Like hotel bed bank if you like, the interesting is without intermediary fees because it's all flat, we don't want manual, this is just available inventory. And if, for example, in China, just 5% of the risk capacity what we sold of our Maldives hotel, what happens?

Low risk market entry in China because it's easy. It's one of the most global technologies which is around.

And the second thing is if you sell 5% of your risk capacity in China, the remaining risk capacity for our core markets is 5% less. And yield systems work in a way, when you have less risk capacity that already the first price for the first offer you sell is higher.

Because the risk you have to sell is lower and therefore, the whole yield curve for our markets go up. Now, that said, I want to close here, that's two mega initiatives; one to customers, mass individualization of 20 million; one to the content, risk inventory management and inventory solutions.

Two mega initiatives, which I'm absolutely 100% convinced, will be the major profit drivers over time. Because you know, this is so clear, it's everything is mass, 100 million bed nights, 5 billion purchasing volume, 20 million customers.

And these are two initiatives, which we have launched, which are implemented now, and over time, will take over what was historically, synergy or whatever. It's digital efficiency and that's not -- it's not -- digital is not, I sell my products on the website.

This is not -- this is interesting, and so we can do it 100%. Digitizing a business is digitizing the full supply-chain in the business and that's what we are doing, okay?

So that said, let me close this chart, which I like a lot. 2014, we had an EBITDA of €779 million.

If we deliver -- assume for a moment we deliver the three times 10 growth in next year, our EBITDA will be around €1.5 billion. So, we will have doubled our EBITDA with no capital increase, but with dividend paid, okay?

So, we are on a trajectory to really transform our business and I think the journey will go on. Thank you very much.

So, open for questions.

[Indiscernible] takes all the questions.

[Indiscernible] First one.

I don't know, so...

Thanks. Hi, it's Patrick Coffey from Barclays.

Couple of questions on the numbers and then onto strategy update. So, on the numbers, Horst, you mentioned, you make criticism for your 20% tax guidance.

Is that suggesting that it could be lower, and if so, why? Then on the working capital, can you just give us the guidance for working capital inflow in FY 2018.

Then going on to the CRM piece and going back to maybe the Sophia example, how long has that CRM system been up and running? Just trying to work out how incremental the system might be over the next few years.

When did you move from manual to customized marketing and is it across the whole group? And then, I guess, finally, is the investment in the systems within the CapEx guidance for FY 2018 and beyond?

Thanks.

Okay. I'll take the third question first and then leave Horst speak, then I can remember all your questions.

First of all, it's part of the investment guidance. Second, CRM systems, we are talking about low double-digit investments, blockchain is more or less, I don't want it there for free, but Blockchain is open source technology.

I mean, Blockchain doesn't cost anything, the issue is more you need to know what you really want. I mean, that's more the problem of intellectual property, to do something.

But in principle, Blockchain technology is not expensive, right? Prior to the contrary, its way, way, way less expensive than if you had an IT system doing the same thing.

On the -- on CRM, we have talked about, I think, a couple of years ago, that we would have a joint customer data repository, which is cloud-based and that is exactly the system. We talked about, I think, the unit [Indiscernible] and engines, which we are using.

It's a system you can buy. The Intelligence Council on top the question of decisioning engines.

So, how to ride campaigns versus each other and how to make sure that customers don't get flooded, but that actually the conversion rates with customers stays at 20% or something, which is good enough that customer say, it's good advice and not spam communication. That is actually now, as I said, it's available in all the markets.

Now, you have the Ferrari, if you like, now you need to learn how to run a Ferrari, right? And that is also where we actually now changed a little bit of our organization design in order to learn faster.

We will actually take the parts -- CRM parts of the local markets and organize in centers of excellence, so we do them in Sweden, the pre-departure communication story lining, we do that in Germany and I mean in resource, so that actually -- because it's all the same system, all the campaigns which you ride anywhere in the world can run anywhere in the world. And the system decides if the campaign is good enough or not, yes?

So, you saw this example in Sweden from this year and now overtime, it's actually building, right? So, it is more doing than implementing, the CRM systems are all there.

Patrick, you raised your question on the effective tax rate. What I said is, when you look into the P&L, the tax is, I believe, only 16% of profit.

However, what you have to do in order to come to the underlying effective tax rate, you have to carve out non-taxable profits from profit before tax number, and what I said is, when you do that, especially for fiscal year 2017 and take Hapag-Lloyd as some of the kind of simple chunkier amount, which is making the difference, then you get to an underlying effective tax rate of 20% and we will stick to that point. So, that will be the underlying effective tax rate.

And your second question, I have to confess, I forgot.

Working capital--

Working capital as far as fiscal year 2018 is concerned; we are normally development from my point of view, in line with our sales growth.

[Indiscernible] therefore.

So then, Jamie? Yes?

Thanks. Jamie Rollo from Morgan Stanley.

I just had a few. First of all on the numbers, please.

You referenced the U.K. margins fell down to what level, please?

And should we expect a bit more this year given the currency hedges have rolled off and you see any benefit from Monarch's collapse. Secondly, you quantify the €39 million from the TUI fly sickness and Air Berlin insolvency.

I assume we should assume there's reversed this year. But are there any other one-offs you know about which could come in?

And then, on the disappointment in France, should we expect that market to recover to the sort of 2% to 3% margin guidance with Transat? Thanks.

Okay, U.K., 5.5%. So, it's more normalized level now, but that said, it was a very, very strong business, and last year, actually it took a little bit of hit.

But again, we know, 12% growth based on now new level. I would assume that recovers a little bit in closing because I said, the change in price is more important than maybe the absolute level.

If you have a price increase year-over-year of 20% or cost increase and then price increase of let's say, you could not give in every on the cost we could not but let's say, price increase was still 9% or odd on average and then you see these numbers. I think, Monarch, yes, Monarch, of course, then when the market less, we increase capacity now.

We wanted to decrease risk capacity, but we increased risk capacity in order to gain market shares and the winter bookings are very strong. Our achieved marketing [Indiscernible] because of the rebranding.

Other people say more conserved. I mean whatever?

What was it than actually--

TUI fly €39 million.

Yes, the €39 million are one-offs. There is, of course, we have Air Berlin insolvency cost us more than just €15 million, but part, this actually recurring, therefore, it's in the trading and part of it is one-off, and therefore, it's one-off, okay?

TUI France?

And TUI France, I mean, we have -- we bought Transat in the synergies are well on track, yes? In France, we did something, which I think -- maybe if we could do it again, we should do it again.

In France, we have last year, as you know, negative. The French team wanted to rebrand the company into TUI and they have started rebranding the company.

But because the margins were negative, they didn't put any money behind it. And I think rebranding without money is actually not really a good idea.

So, we need to redo that somehow because then the unadded advantage is not there, then the traffic on your website is not big. Enough if your conversion is good, I mean, then you can only go with the third-party channels in the France as third-party channels are obviously, in course I mean.

So, therefore, we know what we need to do, we will get it to a positive territory, it will take a little bit of time. But that said, we are now -- we now have a couple of people who did rebranding knowing all the other markets and we will have -- we will relook a little bit if we cannot learn from best practice.

And we have James [Indiscernible].

Can I come -- ask -- wanted to ask about the second half of the presentation if that okay. Just as a separate the two.

More importantly...

That is hijacking.

I'll be quick. The 2020 target over half that 10% growth is from the initiatives.

So clearly, well over €50 million and you say you quantified that. Could you give us some more numbers behind that?

Clearly, there's quite a chunk of revenue numbers the must have signed off or happy with, so sales understand that. And secondly, in terms of the CRM generating customer loyalty, you said a lot to a lot of customers, but probably only once a year.

So, do you think you have enough repeat customers to actually build that customer loyalty?

Yes. First of all, we don't guide more precise right now than just say, if you assume for a moment you have 10% each, next year will be 5% from these two initiatives.

The other after maybe 6% or maybe 7%, so that's what shows the dark blue grows in close a little bit. So, we believe over time, it will be even more impactful because the system need to -- and when you deploy the system initially, you need to set it up, and then it needs to learn and the workforce needs to learn the CRM managers need to learn how to run this different tool.

It's not like an excel sheet, it's a little bit more complicated. On the -- do we have enough things which we can sell to customers?

I think it's amazing how little we communicate to customers. After -- what do we do we after -- we know, for example, that most of the customers book at the same time of the year again.

So, when do we start to communicate? If we know the customers booked in April last year, why are we not communicating in March next year, right.

So, we know all of that but today, we don't do anything with it. That's the reason the CRM actually allows us to operationalize the knowledge which we have, but also which the system gains because the system sees what the conversions are, the system sees what a good campaign is, and it should stop when actually conversion is not good.

So, therefore, the system learns. Ruled based, artificial intelligence-based, and also, we know a lot and that's actually in the system and we can communicate a lot after the vacation, we can share memories, we can do -- we can put together people who have been in the resort by our social media.

We can actually have memories of pictures and upload and so on, and everything which people do. So, I think there's a lot of communication possible to customers.

Not always we need to sell. Our most successful campaign is based on this engine is not a selling campaign.

Our most successful campaign is the best pickup for tomorrow. Because you just communicate 24 hours before the people depart, tomorrow the bus will come at 11 o'clock to pick you up.

This was once any inbound calls into our call center in Mallorca. Because people didn’t know when the bus would come, they just wanted to check.

So, now we communicate actively, and by the way, we have a follow-up campaign, which we found customers appreciated. Half an hour before the bus comes; we send again and say, in half an hour, the bus comes really.

So, people can say stay the pool instead of standing in front of the hotel; maybe they have a drink, right? So, that saves a lot of money and customer satisfaction is sky-rocketing because one-third of the calls in the call center was people calling, but can you count everybody who was not calling because you didn't know-- they didn't know the call center number.

And therefore, my point is at the end of the day, you don't know what kind of good ideas you come up with once you have these kind of systems. And that system allows us to do it because we know of course, when the customers will be flying tomorrow or if the flight is delayed, the system knows it.

But you know, when we do this manual, nothing will happen. And that's a little bit the mindset, the mindset of big data, the mindset of CRM is that each and every customer is an individual customer and not 20 million mass and we rash customers with mass and spam e-mails and everybody gets the same offer and these kind of things.

That has to stop and that will stop.

Okay, can we ask James, then, Angus, Jaafar, and all the other ones got coming. And after that-

Thank you. James Ainley from Citi.

Two financial questions please. When we get to FY 2020, how should we think about normalized CapEx for the business?

And what kind of level of new hotel openings, new cruise ship openings would that underpin going forward? And then the second question is on minorities, which look like they are up 2 million given the RUI profits were up 38 or something, a bit surprised by that.

Could you help us with the sort of trajectory of the minority development going forward?

Yes, normalized CapEx, 3% and to 3.5% that means we are working on our schedule, which we showed to you 28 hotels delivered, 30 more to come, splits as we have indicated all the time. So, there will be quite some management included and joint venture investments.

Cruise ships, I spoke about the two additional ships and cruisers then two ships going to the U.K. and that is sitting in our waterfall, which my favorite one or one of my favorites, then we are back to 2020 to 3% to 3.5%.

Then I believe the second question which you have asked was in respect of the minorities and I believe RIU had a relatively high tax burn the year. That's the reason why we stick to that -- more or less have the same amounts deducted as we had in the prior year, yes.

The CapEx question is which was really -- when we think about that 3.5% CapEx going forward from 2020 onwards, what kind of level of new hotel openings and cruise ship openings will that 2020 onwards?

Well, we have given you some guidance as far as our plans are concerned. And I have said that before the meeting already, there is never something like statements for eternity.

Whenever there is some investment, which is absolutely attractive and which is moving forward the business, then we certainly will decide for another cruise ship or we will decide for a specific hotel, but we will document that very clearly to you as far as profitability is concerned, as far as ROIC is concerned. However, independently from that one, we have a clear commitment as a management team; we go for the 3% to 3.5% yes?

That's kind of a steady-state maintenance type number.

Yes, when you look at the 3% and 3.5% it is always a little bit -- a little bit of new hotels as well. It's a little bit of maintenance.

We had always dry-docks as far as ships were concerned and we invested all the years over in IT and Fritz alluded to that one. This is kind of the future of our business, yes?

So, I believe we move on with you, Angus?

Hi, Angus Tweedie with Bank of America.

Angus, good.

The first one is on the Blockchain CRM system. Am I correct in thinking you're developing that in-house?

And can you perhaps discuss what it gives you that you wouldn’t be able to white label by partnering with the GDS or something like that when we think about it? Secondly, slightly differently, on scrubbers and environmental regulation in cruise, can you give us an update on what you're doing with Marella and the older ships, in particular?

And then thirdly, in the U.K., just thinking about strategy for next year, looks like you've cut a bit of airline capacity in the first quarter of next year. Can you think us -- give us an idea of how you're thinking about that market and how you're going to play it?

The CRM piece is not the Blockchain piece. The CRM piece is actually a tailor-made solution that we purchased, right?

One is it can be very open from a [Indiscernible] IBM platform. Another one, the data cloud structure, is actually coming from SAP.

Usually we could have purchased that also from people like Salesforce, also a little bit of an issue is European data regulation doesn't allow you to get the customer data out of Europe without written consent of the customer, right, and because we don't have European cloud systems -- European cloud -- many of the cloud providers in the world don't guarantee that and that's the reason why we work with somebody who can guarantee that kind of compliance. On top of that, we have decision engines and these are mathematical algorithms which we program, that's our knowledge.

But the underlying technology is something you can buy. On the Blockchain solution, it's all proprietary and that is something which is also changing a lot still because that's also the reason why we don't open it up for third-parties yet, because then we would be restricted in the innovation speech, right?

So, now we are working latest, I would say, every third months, we still change the data architecture a little bit in order to facilitate our need space, but it's fully proprietary technology. The same with Cyrus, the same with [Indiscernible], so the purchasing of hotels.

These are proprietary solutions in-house developed, very often based on open-source technologies, so license-free technologies. Scrubber technology mentioned is it has been with TUI Cruises, I mean these are the older ships.

Of course, you know that today, the more modern ships are more environmental-friendly, but still these ships are, let's say, 15 years old. I mean there are many ships out there that are 30 years old.

I mean, therefore, I think we need to become better and better and better and also very clear in some of the destinations, you need to have most modern scrubber technologies. Long-term, you might and I think it will be natural gas, so -- but for that, you need you know the infrastructure.

In many destinations in the world, you don't have the infrastructure at hand. So, therefore, I think the scrubber technology, how we use it, is very, very environmentally-friendly.

For example, also the remainder of all this -- what comes out of this scrubber is actually something which we -- when we are in the harbors, we put off into the harbors and somebody said, do we put it into the sea? No, we don't.

So--

Airline U.K.

Airline U.K. yes, we reduced a little bit of risk capacity because in the prices, when the cost came up and the pound went down, we said we want to reduce risk and we use our third-party flying.

Now after Monarch, the thing has changed because now slots are available and suddenly, you have -- that's a different game, and therefore, we started increasing risk capacity again in order to take a fair market share, all of the Monarch. Yes, true.

Hi, good morning, it's Jaafar Mestari from JP Morgan. I've got two questions, please, first one on Turkey.

I think I heard a number, you said trading in Turkey was up 70%? Presumably, that applies to your hotels?

How is the Turkey volume doing out of your source markets for summer 2018?

That is the 2017. Actually, Kenton Jarvis is actually the touristic FD boss and also our eyes and ears.

So, no, it's -- the Chief Controller of the group, so no it's 70% from the source markets.

Okay. Thank you.

And then second question on the inventory. Some competitors have been outsourcing the long tail of their hotel inventories saying it's not necessarily worth the hassle of managing it in-house.

And once you have an inventory system and the Blockchain all integrated and up to speed, what do you think the direction of your hotel inventory is? Do you want to have more of that long-tail and where are you at the moment in terms of number of hotels and where can you go?

I would do many things, but I never outsource a core process and being a long-term inventory, never ever. I mean, this is core competency.

We need to know about customers book, we need to know where customers are, we need -- I mean, long-term could be New York, right? We want to know, we want to know our customers, same time in TUI.

We will not hand off anything of that. And our systems should be capable of doing it.

I'm very, very, very dogmatic on this. So, no knowledge of our customers goes anywhere but to us.

Thank you. And so at the moment, how many hotels do you have in inventory in total?

How many of those would you describe as the long chain -- the long tail? And how many can you manage once you're completely ramped up with the new inventory?

The Blockchain technology is just focused on all hotels, and today, in all fairness, owned and shared hotels. And that is the best -- between the markets, yes.

It's just in order to get the FX fast. [Indiscernible] the software which actually is now doing the purchasing will be the global solution.

I mean, has a price comparison engine. We connected all hotel bed banks, so we are not -- I mean, sometimes we buy direct, sometimes we buy hotel beds.

It has an internal price comparison engine on an actual basis. So, it's always benchmarking which is the best channel to buy a hotel and we buy the -- if you talk about the long-term trading business, we have different sources and we find in the different sources the same hotel.

If we buy, we get its most cheap. I mean, so virtually, we have connected hotel beds group and GTA and all these guys, we have connected everything.

And when we see that there is more than a couple of bookings or three bookings, four bookings, and then it's more relevant, we send our destination purchasers to the hotel and connect directly. I mean, the interesting thing -- I always say, it's interesting to see what your customers do, equally is interesting what you cannot offer what the customer has asked for.

And in the long tail, you see exactly that, you see certain demand building somewhere and then you have handed it off. You are not -- you don't have all the knowledge you could have.

And then you see something then start to build, then you can actually start thinking about, I don't buy it through bed bank, I go and connect to hotel directly and I when I see connecting to hotel directly delivers even better because we have one guy who wants to earn a margin all of the game, we can start saying, okay, it would be maybe interesting to have our own hotel in the certain destination, but you don't know this funnel if you give the long tail away. The long tail is the probe wherever you are in order to be intelligent.

I believe we had a couple of questions. It was Richard; it was Alex, [Indiscernible] and Tim.

So, maybe, we see that we cover all these questions, starting with Richard. And Richard, I needed to reconfirm your first name, I was Richard and Robert so I apologize my weakness on that one, but it's always kind of a challenge for me here to match faces and names.

All right, so I've got three questions, please. So, first one may be slightly re-wording James' question.

But just looking in 2020, you say you're still -- you've increased the EBITDA guidance out for another year, but you haven't provided us with another load of investment into 2020. So, do you -- where do you get that 10% or the investment piece just from the ships that are coming on in 2019?

Just from the hotels that are coming in on 2019? And I know you've got Hapag-Lloyd ship coming on in 2020 or is there an implied assumption of some more hotels to give you that 10% at that point?

Second question on Air Berlin, just to understand the mechanism here, your wet leases were with NIKI, but which has not gone insolvent, but you've somehow not received the payments from there. Are you a creditor in the insolvencies or is there a chance you are going to be able to get this money back at some point in the future or is just the -- there's no way you can recover that going forward?

And then third one, you referred to the upside from your investment in CRM as getting self from to go from €850 to €870 for a customer. What about direct booking, particularly in Germany?

It's been an issue where you've not managed to match the performance of the other territories. Can you hold back any of the CRM from the agents to try and encourage people to book direct, will they get more functionality if they book direct?

Will they not get the app? I'm thinking about some of the things the airlines do to drive direct bookings.

Can you replicate any of that?

I believe the first question was on investments. Once again -- and to be very clear, we have now this pipeline of investments.

So, additional 30 hotels and I believe we in one shot, I've shown to you that the 28, which we have introduced now have kind of a 10% return on invested capital and with the ambition to go up to 15% because you need to have something like a ramp up period. So, the story is, our profitability growth in year 2021 will still have kind of a tailwind of that investments which we have made now and which we are going to make in the years 2018 and 2019.

On the other hand, Fritz has alluded very strongly on how we generate additional sales volumes. How we make use of the efficiency, which is available out of our integrated model.

And these two pieces combined are the basis for our growth as far as underlying profitability is concerned. And that is, kind of, when you look at Fritz's picture, I always said it's, I don't know, 50 shades of blue, because it's moving a little bit into this efficiency additional customers volume, sales part, yes?

Okay. I mean, we have put the seven outlines, that is to Lufthansa holdings.

Even if NIKI would go insolvent, that would stay. This contract is alive.

We have another four aeroplanes for next summer, which we agreed. If NIKI was -- if the deal was not approved and NIKI would go into insolvency, that would, I think, be quite some air capacity going out of the German market, and potentially, that would be helpful.

We have one remaining bill left with NIKI that actually is around €20 million, which actually would, if in the case, the deal were not approved, and NIKI would be insolvent, would be a negative -- one-off negative for this quarter. But at the same time, I mean, less capacity already and the winter prices go up.

We see this Monarch. So, you have some communicating effects in that respect.

CRM.

On the CRM piece, your question was--?

Just whether there's an opportunity to use that to drive more direct bookings, particularly--?

Yes, yes, sorry, yes. I think you have several ways of driving direct bookings.

The first one is, you just disconnect indirect channels, but you lose market share. That's maybe not advisable when you have aviation capacity to fill.

The second one is you know a little bit the commissions in the indirect channels. That's also possible.

We are doing that here and there when we have very strong products. Some of them, we pay lower commissions, for example, when it comes to TUI Cruises, very, very attractive product.

The -- also the aviation link to TUI Cruise, I think we are now at 8% or 6% or whatever commission, I mean in the retail. So, that's possible.

The most effective one is, of course, if customer say I want go the other way because there is something which is nice or better or so. And I think, particularly when you see our new CRM capabilities, I think there's a lot of that is also suggesting that this is something customers like because you can -- customers like to be known and customers like to get relevant offers and customers like to have the opportunity to book a spa treatment in the -- before actually they go in the hotel.

And that's, of course, things which in the new system will drive long-term, I think, direct relationship. Now that said, I think, as our industry suggests that it's not in either/or but it is in and, and that means you'll need to be somehow multichannel because customers also like travel agencies.

Why wouldn't they -- why would they buy a new travel agency if they didn't like it and maybe they like the owner or like what people run it or like to have a question, can I go to Turkey or can I please do this or that. And so I think this multichannel capability is very important and technically, it's now there.

Organizationally, as you know, these travel agencies are independent companies and there are certain limitations to pass on customer that hit back and forth, but that is something we need to solve then locally in Germany. I mean that's not a rocket science.

This needs to be solved. The important point is that we -- the structures and processes and systems are there to do it.

And we can have Alex and then have Pierre and Tim and 10 minutes left from my point of view. So, we try to squeeze it in now and I have to apologize for all the questions, which were not able to get asked, but we will do it in one-on-one.

[Indiscernible] Alex Brignall from Redburn. So, I'll cross one of mine, I'll ask two.

You've talked about growth in source markets and a lot of it comes from digital, but you also now have the ability to sell into source markets. Would you look at those as new divisions that could be considered like the existing source regions that you have and manage them in that way or will they always just go into your content business and be thought of separately within that distribution system?

And then secondly, I guess, you talked about the Nordics in terms of the e-mail changes and what you're sending out. Is there a way of quantifying that?

You used to give the split of the distribution cost by region and Nordics was always the best. But it feels like that's getting better sent over the percentage of revenue that you could save, either in Nordics or across the mix if you did that and in an optimal manner?

Thank you.

Yes, Nordics has been last year 6%. Of course that was the rebranding.

If you can normalize, it could be 5%, I assume. So, it's still very, very low.

On the new the new divisions and new [Indiscernible] division, source markets division, we have now given the task to our CIO on purpose because it will be all digital. And Frank Rosenberger, also big market divisions in his past.

So, he is now new market and CIO. So, it's not part of the source markets -- it's not part of the content.

It is a separate thing. We just haven't disclosed yet numbers to the outset.

Thank you very much.

Yes. Thank you for taking my question.

Adrian Pehl from Commerzbank. Actually, two, three ones.

First also an airline question. You said that the insolvency of Air Berlin cost you more than the €15 million you booked obviously.

On the other hand, there should be some benefit as capacity is going out, so I was wondering whether you could elaborate a little bit on the pricing situation there and also, give us a little bit of flavor in the source market profitability that you showed in terms of the bridge. How much is improving if you saw that already from airline pricing and then March is roughly from efficiency gains that you had in your normal source market operations, if I may call that.

And another question is on the digital, let's call agenda that you obviously have, is that also geared to some extent to fight against all these kinds of holiday tricks out there in the world, as you know the customer better. But on the other hand, how do you make sure then that you don't, let's say, stress your customers, their feedback implemented in there and how do you guarantee that?

And last question is, it sounds a little bit funny but how digital is the bus that you were talking about, i.e. the question behind it is, how do you ensure the front and like, for example, those services that you talked about, the bus linked to your CRM system so that the bus is actually knowing what capacity, how is it coming and things like that?

The first question on the trading in Germany is very strong; also the pricing is very strong. The question is how much is that Air Berlin is very difficult to answer and I will say, there is no science only, but we see a very strong winter trading.

Some of it remains to be seen, some of the people say there will be additional capacity coming in from third-party carriers, but we don't know. Also, initial summer trading next year in Germany is quite strong, but separating all the numbers would be difficult.

It's actually our new systems inventory, just particularly something which we can to compete internet players. The internet players, well this intermediate as in our industry, but they are hierarchical and they have difficult security.

We could see major flaws of the internet and we could elaborate for hours. In the Blockchain, you avoid hierarchical structure, the world is flat, it's open, everybody can know everything.

So, the Blockchain is not in the internet, the Blockchain is the next internet. It's the disintermediating technology for internet platforms.

So, therefore, I have some, how do you say, I have some fun in working with the technology, which now has as to compete and more as the race is open. And of course, Blockchain technology is fit for purpose in many instances being it Fintech [ph], which are working with it, but also in our environment is very, very powerful.

What was the last one? How digital is the bus?

We know if -- by the way, we know if the bus has actually air-conditioning lining with no customers in it. Is that the right answer?

As we know, if the driver is driving efficiently or it's smashing the gears and then hitting the brakes because it's all telemetric. In Germany, it would be a little bit more difficult, but in Spain, you can have a full telemetric bus and we have full telemetric buses.

The question is, how closely linked are your partners that you use or those kind of services in the front end to the system that you just [Indiscernible].

Yes, we also do best on our systems, optimize credit that you minimize stop, so it's fully integrated. Our partners locally work based on our systems.

Tim?

Thanks. Good morning.

Tim Ramskill from Credit Suisse. Just coming to the sort of description of source markets as the sales and marketing function.

I still struggle with that a little bit. I mean you've got 20 million customers, the majority of whom stay in third-party content.

You talk about the business being low capital intensity but it has 150 aircraft within it, we see which balance sheet, but still very capital-intensive in my mind. So, why do think that my observations are sort of wrong?

And then the second follow-up question around the source markets business moving forward. I think, slide 27, you show some potential benefits of the CRM system in terms of reducing cost and ancillary opportunities.

Just give us a sense as to what you think the direction of margin is within the source markets business. It's clearly still a big part of the group and a big part of -- I guess how we got to model things moving forward.

And then my final question is it's been touched on a couple of times, but in terms of the cruise business, you've got a pipeline of new deliveries basically to 2019. What do you think about in terms of the growth prospects of that business beyond that point, especially given that, as you mentioned, it's not easy to get new ship deliveries probably down till 2022, 2023?

Okay. Last one, I think until 2025, I would assume you will have an enormous capacity constraints markets worldwide for cruises because also, you see replacements coming up now and you talked about environmental-friendly, some of the reasons you cannot go with the old ships anymore.

I mean, so it will be supplier constraint market. Margin on source markets, the margin on ancillaries are usually very high, yes?

The question is, where do we show them and that is something sometimes you'll see them in source markets, but sometimes, you'll see it also in the destination management organization. At the end of the day, I would assume that when you look at the margin of the ancillary sales, I would assume you are closer to something like 50% or so or maybe sometimes 30%, but it's definitely much, much higher than our core margins.

So, last point was actually,

CRM?

No that was actually the capital intensity of aviation. I mean, it was not me who invented the -- the SMI business model.

I mean I came to the industry, people said we are asset-light and then I look into the asset-light on the balance sheet, but you're off balance sheet debt, which is enormous. I mean -- so, no, it's accepted that assets are -- it's not that asset-light in that respect.

I mean -- but that's normal. I think, we need to be thinking of how much aviation is necessary and that is a very, very fair and good question.

But there's no doubt that the vertical integrated model is creating different attitudes. I mean if we go -- if I go somewhere in destination, the only thing people in destination want to know, do we fly?

Because it's infrastructure, right? So, if I go to Crete, I say, can we prolong the season, can you fly two weeks longer?

They don't talk about hotels; they don't talk anything else but that. When we plan hotels -- when I go and plan a hotel in a certain destination, I look for everything.

Is it a nice beach, is it a good partner, is it good approval, is it forever? I never look does it ever play good till the destination because I assume, if nothing goes, I fly.

And therefore, I think, it's an integral part of the business, the question of how much. Now, I know that, that particularly your interest and also your position that sometimes you can come to conclusion to actually separate aviation from source markets and so on, that's all fine, I wouldn't do so but everybody has a choice.

I think, it's an integrated part of the P&L flying for me must be part of an P&L in order to have a good regard. If you -- if you flex out the aviation and put it somewhere and you a huge cost log and somebody needs to take care of it and then somebody in our company would be me or Horst and I love that actually David Burling takes care of it or Sebastian Ebel takes care of it, I mean [Indiscernible] operations because they know best how much flying is necessary really, how much third-party flying can they buy, how open is the market for these kind of things.

But that is a decision as I said, I think you can be of different opinions potentially.

Yes. Thank you very much.

Ladies and gentlemen, it was a pleasure to have you here today. And Fritz and myself would like to wish you all a Merry Christmas.

A peaceful time until then and we will all see again next year.

Thank you very much.

Bye.