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Company TUI Travel PLC
TIDM TT.
Headline

Prelim results for the year ended 30 Sept 2012

Released 07:00 04-Dec-2012
Number 6376S07

RNS Number : 6376S
TUI Travel PLC
04 December 2012
 



4 December 2012

TUI Travel PLC

 

("TUI Travel")

 

Preliminary results for the year ended 30 September 2012

 

WELL POSITIONED FOR CONTINUED GROWTH

 

Key financials

 

Year ended 30 September

 

Underlying results1

Statutory results

£m

2012

2011

Change%

2012

2011

Revenue

14,460

14,687

-2%

14,460

14,687

Operating profit

490

471

+4%

301

255

Profit before tax

390

360

+8%

201

144

Free cash flow

240

451

-47%

240

451

Basic EPS (pence)

25.8

23.6

+9%

12.5

7.7

Dividend per share (pence)

11.7

11.3

+4%

11.7

11.3

1 Underlying operating profit excludes separately disclosed items, amortisation of business combination intangibles, acquisition related expenses, impairment of goodwill and available for sale financial assets, predecessor accounting for Magic Life in 2011 and interest and taxation of results of the Group's joint ventures and associates

 

Highlights

 

·   

Record year of profit and improved operational efficiency

 


-     Operating profit increase of 12% to £526m on a constant currency* basis. Underlying operating profit of £490m (2011: £471m), an increase of 4%.

 


-     Record Mainstream underlying operating profits, on a constant currency* basis, in all markets with the exception of France and Southern Europe.

 


-     Outstanding performance in the UK with a record underlying operating profit of £197m (2011: £149m) and operating profit margins of 5.4%, up from 4.2% in the prior year.

 


-     Business improvement programme outperformance with £42m delivered in the year.

 


-     Strong underlying earnings per share growth of 9% to 25.8p (2011: 23.6p). Statutory earnings per share grew by 62% to 12.5p (2011: 7.7p).

 


-     Final dividend increase of 4% to 8.3p per share (2011: 8.0p), resulting in a full year dividend of 11.7p per share (2011: 11.3p).

 

·   

Modern Mainstream strategy delivering results

 


-     Sales of higher margin unique holidays increased by three percentage points to 65% of Mainstream holidays.

 


-     Online sales up three percentage points to 33% of Mainstream sales. Direct distribution up two percentage points to 65% of Mainstream sales.

 

·   

Significant international expansion across Online Accommodation

 


-     Online Accommodation profits up 3% to £35m, including an £11m investment in our Accommodation OTA.

 

-     Accommodation Wholesaler continues to consolidate its global leadership position; TTV growth of 13% to £1.4bn.

 

-     Accommodation OTA - Continued investment in high growth markets; TTV growth of 4% to £447m including AsiaRooms growth of 25%.

 

·   

Clear strategy continuing to drive strong trading momentum

 


-     Very encouraging Winter 2012/13 trading.

 

-     Strong Summer 2013 bookings in the UK, Nordics and Germany. Significant growth in profitable market share in the UK.

 


-     Clear roadmap for sustainable future growth with an annualised underlying operating profit growth rate of between 7 to 10%.

 


*Constant currency basis calculated by translating the 2012 results at 2011 exchange rates

 

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

 

"The year has been one of many successes. We have delivered record Group profits while the UK achieved outstanding results both in terms of profit and margin all against a backdrop of continued economic uncertainty. Our proven strategy continues to evolve and drive strong trading momentum throughout the Group. Overall, with the exception of France, trading for both Winter 2012/13 and Summer 2013 is very encouraging.

 

"We are today pleased to announce the next stage of our strategic development. This roadmap for growth, built on our detailed understanding of the market and robust business models, means that we are well placed to continue to deliver long-term sustainable growth, which in turn, will drive further value for both our shareholders and our customers."

 

Investor and Analyst Webcast

 

A presentation for analysts and investors will be held today at 9.00am (GMT) at the London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS. The presentation will also be webcast. For details of the webcast please visit www.tuitravelplc.com.

 

Enquiries:

 

Analysts & Investors

 

Will Waggott, Chief Financial Officer

Tel: +44 (0)1582 645 334

Andy Long, Head of Strategy & Investor Relations

Tel: +44 (0)1293 645 795

Press

 

Lesley Allan, Corporate Communications Director

Tel: +44 (0)1293 645 790

Mike Ward, External Communications Manager          

Tel: +44 (0)1293 645 776

Michael Sandler / Katie Matthews (Hudson Sandler)

Tel: +44 (0)20 7796 4133

 



 

CURRENT TRADING AND OUTLOOK

 

CURRENT TRADING

 

As a result of our new Mainstream sector structure announced in April 2012, where the regional structure was disbanded from 1 October 2012, we are now reporting Mainstream sector trading in the format below with a focus on our four largest markets.

 

Winter 2012/13

 

Strong trading momentum from Summer 2012 has continued into Winter 2012/13 across all major markets with the exception of France. Our focus on unique holidays distributed online is delivering very pleasing year-on-year volume growth with margins that are in line with expectations.

 

Current Trading 1

Winter 2012/13

 
 

YoY variation%

Total ASP2

Total
Sales2

Total
Customers2

 
Risk Only
Capacity3
Left to sell3








MAINSTREAM







UK

+4

+5

+1


Flat

-2

Nordic region

+5

+10

+5


+4

+3

Germany

+6

+8

+2


-3

-14

France tour operators

+8

-22

-28


-34

-35

Other 4

+1

Flat

-1




Total Mainstream

+4

+3

-1











SPECIALIST & ACTIVITY

N/A

-3

N/A











A&D 5

+7

+20

+12




1 These statistics are up to 25 November 2012 and are shown on a constant currency basis
2 These statistics relate to all customers whether risk or non-risk

3 These statistics include all risk capacity programmes

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

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

 

In the UK, bookings are up by 1% against a flat capacity. Average selling price is up 4%, partly reflecting the successful pass-through of inflationary cost increases of circa 2-3%. Sales of unique holidays (differentiated and exclusive product combined) are up 5% compared with this time last year and account for 78% of holidays sold to date, up three percentage points on the prior year. Online sales continue to grow, accounting for 44% of Winter holidays booked, up by three percentage points on the prior year. Booked load factor is currently 49%.

 

In the Nordic region, bookings are up by 5%, in line with its capacity increase. Average selling price is up 5%. Sales of unique holidays (differentiated and exclusive product combined) are up 5% compared with this time last year, accounting for 83% of holidays sold to date, in line with the prior year. Online sales continue to grow, accounting for 63% of Winter holidays booked, up by two percentage points on the prior year. Booked load factor is currently 73%.

 

In Germany, bookings are up 2% against a capacity decline of 3%. Long-haul continues to perform well. Average selling price is up 6%. Sales of unique holidays (differentiated and exclusive product combined) are up 8% compared with this time last year, accounting for 55% of holidays sold to date, up five percentage points on the prior year. Booked load factor is currently 56%.

 

In France, we have reduced capacity by 34%, with sizeable reductions in loss-making capacity to Egypt and a number of long-haul destinations. As a result of this, bookings are down 28%, which is in line with our expectations. Booked load factor is currently 55%.

 

In A&D bookings are up 12% and sales (TTV) are up 20% versus the prior year. This was driven by both Accommodation Wholesaler, where bookings are up 14% and Accommodation OTA, where bookings increased by 7%.

 

Sales in Specialist & Activity are down 3%, driven by the Education and Sport divisions. Trading in the Education division reflects the challenging market place and in the Sport division trading is down following tough comparatives from the same period last year due to the IRB Rugby World Cup.

 

Summer 2013

 

It is still early in the bookings cycle for Summer 2013, however trading to date has been very encouraging in those markets on sale.

 

Current Trading 1

Summer 2013

 
 
 

YoY variation%

Total ASP2

Total

Sales2

Total

Customers2

 
Risk Only
Capacity3
Left to sell3








UK

+3

+15

+12


+3

+1

Nordic region

+3

+20

+16


+4

+3

Germany

+3

+12

+9


Flat

-1

1 These statistics are up to 25 November 2012
2 These statistics relate to all customers whether risk or non-risk

3 These statistics include all risk capacity programmes

In the UK, bookings are up by 12%, ahead of a 3% increase in capacity. Whilst it is early in the booking cycle, we are significantly outperforming a flat market. Average selling prices are up by 3%. Sales of unique holidays (differentiated and exclusive product combined) are up by 18% compared to the same period last year accounting for 83% of holidays sold to date, up by two percentage points. Online sales account for 32% of Summer holidays booked, in line with the prior year. To date, 20% of the programme has been sold.

 

In the Nordic region, bookings are up 16% and average selling prices up 3%. Sales of unique holidays (differentiated and exclusive product combined) are up by 18% compared to the same period last year, accounting for 94% of holidays sold to date, up by two percentage points. Online sales continue to grow, accounting for 60% of Summer holidays booked, up by two percentage points on the prior year. To date, 12% of the programme has been sold.

 

In Germany, the Summer 2013 programme launched very recently. We are encouraged by early trading with bookings up by 9% and average selling prices up by 3%. To date, 10% of the programme has been sold.

 

Fuel / Foreign exchange

 

We have hedged the majority of our fuel and currency requirements for the seasons currently on sale, which gives us certainty of costs when planning capacity and pricing. The following table shows the percentage of our forecast requirement that is currently hedged for Euros, US Dollars and jet fuel. As previously indicated, jet fuel costs account for approximately 10% of our cost base and at current market rates we estimate our fuel costs would increase by circa 10% for 2013.

 


Winter 2012/13

Summer 2013

Euro

96%

86%

US Dollars

76%

87%

Jet Fuel

93%

81%

As at 29 November 2012



 

Business improvement programme

 

We announced at the start of our financial year that we expected to deliver £107m of business improvement, in broadly even tranches over the next three years. We have delivered £42m of operational efficiency savings through the business improvement programme in the last 12 months.

 

Outlook

 

Overall trading remains positive across all our major source markets with the exception of France where the environment remains extremely challenging. Strong trading momentum from Summer 2012 has continued into Winter 2012/13, particularly in the UK and the Nordics, where our unique holidays (differentiated and exclusive product combined) are selling well and growth in our direct distribution channels continues to have a positive effect on margins. While still early in the booking cycle, the Summer 2013 programme, in the UK, Nordics and Germany is showing strong signs of growth with additional capacity in the UK and Nordics.

 

Our strategy of increasing our unique holiday (differentiated and exclusive product combined) offering, selling through direct distribution channels with a focus on online and driving continued operational efficiency throughout the business is paying dividends. Our strong business models, which have evolved through a deep understanding of the leisure travel market and the needs of our customers, lay the foundations for continued success and long-term sustainable growth. We have set out a road map for growth over the next five years and will deliver improved customer experiences and increased shareholder value.

 

Roadmap for growth

 

Our new roadmap for growth enables us to provide updated guidance for the future prospects of the Group. We believe that TUI Travel has the ability to deliver an underlying operating profit CAGR of between 7 to 10% over the next five years. This includes growing customer numbers while enhancing the margin within the Mainstream business, growth in our Specialist & Activity portfolio, as well as positive contributions from our fast growing Online Accommodation business.

 

We will be hosting an analyst and investor morning at 9.00am (GMT) today at which we will give further details in and around the measures and outlook underpinning this growth.

 



 

BUSINESS AND FINANCIAL REVIEW

 

Group Performance

 

Year ended 30 September

 

Underlying results1

Statutory results

£m

2012

2011

Change%

2012

2011

Revenue

14,460

14,687

-2%

14,460

14,687

Operating profit

490

471

+4%

301

255

Profit before tax

390

360

+8%

201

144

Free cash flow

240

451

-47%

240

451

Basic EPS (pence)

25.8

23.6

+9%

12.5

7.7

Dividend per share (pence)

11.7

11.3

+4%

11.7

11.3

1 Underlying operating profit excludes separately disclosed items, amortisation of business combination intangibles, acquisition related expenses, impairment of goodwill and available for sale financial assets, predecessor accounting for Magic Life in 2011 and interest and taxation of results of the Group's joint ventures and associates

 

Group revenue declined by 2% from the prior year at £14,460m (2011: £14,687m). This result was driven by organic growth of 2% and a foreign currency translation impact of -4%. Organic revenue growth was driven by higher volumes and average selling prices in many source markets.

 

The main drivers of the year-on-year improvement in underlying operating profit are:

 

£m


2011 underlying operating profit

471

Magic Life winter losses

(17)

2011 underlying operating profit (incl Magic Life winter losses)

454

Trading

54

Flooding in Thailand - Nordics

(13)

Investment in Accommodation OTA

(11)

Business improvement

42

2012 underlying operating profit at constant currency

526

FX translation

(36)

2012 underlying operating profit

490

 

 

Underlying operating profit improved by £72m to £526m in 2012, on a constant currency basis and including the Magic Life winter losses.  

 

This was driven by strong performances in the UK, Nordic region, Belgium, and Canada as well as the delivery of £42m cost savings through the business improvement programme. However, these positive results were partially offset by the retranslation of fourth quarter Eurozone profits into Sterling, the inclusion of Magic Life winter losses, investment in Accommodation OTA and Corsair weakness.

 

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

 

Year ended 30 September

2012 

£m 

 

2011 

£m 

Underlying operating profit

490 

 

471 

Separately disclosed items

(92)

 

(74)

Predecessor accounting for Magic Life

 

(17)

Acquisition related expenses

(62)

 

(82)

Impairment of goodwill

(20)

 

(39)

Impairment of available for sale financial asset

(10)

 

Interest and taxation on results of joint ventures and associates

(5)

 

(4)

Statutory operating profit

301 

 

255 

 

 

 

 

 



 

Segmental Performance

 

Segmental performance is based on underlying financial information (which excludes certain items, including separately disclosed items, acquisition related expenses and predecessor accounting for Magic Life in 2011).

 

Mainstream

 

The Mainstream sector reported an underlying operating profit of £420m (2011: £370m). On a constant currency basis, underlying operating profit increased by 22% to £451m.

 

Mainstream

2012


2011


Change %




 



Customers ('000)1






Northern Region

6,660


6,867


-3%

Central Europe

7,382


7,282


+1%

Western Europe

6,067


6,100


-1%

Total

20,109


20,249


-1%

Revenue (£m)






Northern Region

4,743


4,671


+2%

Central Europe

4,544


4,841


-6%

Western Europe

3,031


3,151


-4%

Total

12,318


12,663


-3%

Underlying operating profit (£m)2






Northern Region

295


250


+18%

Central Europe

101


103


-2%

Western Europe

24


17


+41%

Total

420


370


+14%







1 Customer figures have been restated for 2011 to reflect redefined product reporting following the implementation of a new system

2 Underlying operating profit excludes separately disclosed items, amortisation of business combination intangibles, acquisition related expenses, impairment of goodwill and available for sale financial assets, predecessor accounting for Magic Life and interest and taxation of results of the Group's joint ventures and associates

 



 

Northern Region

 

The Northern Region reported an underlying operating profit of £295m (2011: £250m). Most divisions improved year-on-year, with a particularly strong performance by the UK, increasing underlying operating profit by 32% to £197m.

 

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

 

£m

UK


Nordic 

Region 


Canada


Hotels 


Northern 

Region 

2011

149


70 


18


13 


250 

Magic Life winter losses

-



-


(17)


(17)

2011 (incl Magic Life winter losses)

149


70 


18


(4)


233 

Trading

44


16 


3



71 

Flooding in Thailand - Nordics

-


(13)


-



(13)

Business improvement

4



-



FX translation

-


(2)


-



2012

197


71 


21



295 











 

Northern Region

2012


2011


Change %




 



Customers ('000)






UK & Ireland

5,158


5,440


-5%

Nordic region

1,502


1,427


+5%

Total

6,660


6,867


-3%

Revenue (£m)






UK & Ireland

3,634


3,588


+1%

Nordic region

1,084


1,054


+3%

Canada

-


-


-

Hotels

25


29


-14%

Total

4,743


4,671


+2%

Underlying operating profit (£m)1






UK & Ireland

197


149


+32%

Nordic region

71


70


+1%

Canada

21


18


+17%

Hotels

6


13


-54%

Total

295


250


+18%







1 Underlying operating profit excludes separately disclosed items, amortisation of business combination intangibles, acquisition related expenses, impairment of goodwill and available for sale financial assets, predecessor accounting for Magic Life and interest and taxation of results of the Group's joint ventures and associates

 

UK & Ireland

 

The UK & Ireland businesses delivered a £48m improvement in underlying operating profit to £197m (2011: £149m), as a direct result of the strategy of focusing on higher margin unique holidays (differentiated and exclusive product combined) distributed increasingly online. This improvement in profit led to record underlying operating profit margins for the UK business of 5.4%.

 

Unique holidays (differentiated and exclusive product combined), such as Sensatori, SplashWorld and Couples, continues to drive value for our business. Unique holidays accounted for 79% of total holidays in 2012, up four percentage points on 2011. We continue to grow a number of our concepts including Couples, which offers child-free hotels within the programme and Small and Friendly, a collection of intimate hotels, which complements our core offering.

 

Online sales grew by five percentage points to 44% of bookings in 2012, more customers now book using our websites than by any other distribution channel. Thomson remains one of the top most visited travel websites in the UK. Further enhancements were made to the First Choice website to improve navigation and enhance content, which has resulted in a higher conversion rate of visits to the website. Direct distribution increased by five percentage points versus the prior year to 87% in 2012.

 

The UK business delivered £4m of efficiency savings towards the business improvement programme in the year.

 

Nordic Region

 

The Nordic region achieved an improved underlying operating profit of £71m (2011: £70m), delivering an operating margin of 6.5% for the year, one of the highest in the Group. The region delivered a broadly flat performance over the year, despite a £13m negative impact during the first half of 2012 as a result of flooding in Bangkok which adversely affected consumer demand to Thailand and reduced yields.

 

Unique holidays (differentiated and exclusive product combined) accounted for 92% of total holidays in 2012, up five percentage points on 2011. This increase in unique content was partly driven by two new Blue Villages: Blue Village Exotic in Thailand that launched during the Winter season and Blue Village Bodrum Imperial in Turkey that launched in the summer.

 

The Nordic region continues to successfully implement its online strategy, with online bookings accounting for 65% of the total in 2012, up four percentage points on 2011. Direct distribution increased by one percentage point versus the prior year to 87% in 2012.

 

Canada

 

The strategic venture with Sunwing in Canada continues to perform well, delivering an improved operating profit of £21m (2011: £18m). The result was driven by a strong trading performance, as a result of improved margins and volumes during the period.

 

Hotels

 

The Hotels division comprises hotel management companies and joint ventures in hotel assets. The division delivered underlying operating profit of £6m in 2012 (2011: £13m). The result was impacted by the inclusion of winter losses for the Magic Life companies acquired in July 2011 that were not incurred in the prior year. The underlying like-for-like trading position (including Magic Life winter losses in both years) moved forward by £8m (excluding FX). This improvement was driven by changes in a number of hotel concepts and the winter closure of unprofitable hotels.

 



 

Central Europe

 

Central Europe delivered underlying operating profit of £101m (2011: £103m). This result was delivered despite an adverse foreign exchange impact of £18m due to the retranslation of Eurozone profits into Sterling during the fourth quarter. The main drivers of the year-on-year change in underlying operating profit are summarised in the following table:

 

£m

Germany 


Austria 


Switzerland 


Poland 


Central 

Europe 

2011

89 


11 



(2)


103 

Trading

(1)





Business improvement

14 





15 

FX translation

(15)


(2)


(1)



(18)

2012

87 


10 



(1)


101 











 

Central Europe

2012 


2011 


Change %

Customers ('000)






Germany1

6,425 


6,424 


Flat

Austria

525 


543 


-3%

Switzerland1

211 


149 


+42%

Poland

221 


166 


+33%

Total

7,382 


7,282 


+1%

Revenue (£m)






Germany

3,917 


4,235 


-8%

Austria

308 


333 


-8%

Switzerland

207 


184 


+13%

Poland

112 


89 


+26%

Total

4,544 


4,841 


-6%

Underlying operating profit / (loss) (£m)2






Germany

87 


89 


-2%

Austria

10 


11 


-9%

Switzerland



Flat

Poland

(1)


(2)


+50%

Total

101 


103 


-2%







1 Customer figures for Germany and Switzerland have been restated for Q1 2011 to reflect redefined product reporting following the implementation of a new system

2 Underlying operating profit / (loss) excludes separately disclosed items, amortisation of business combination intangibles, acquisition related expenses, impairment of goodwill and available for sale financial assets and interest and taxation of results of the Group's joint ventures and associates

 

Germany

 

In Germany, underlying operating profit was £87m (2011: £89m). This included a £15m adverse impact from foreign currency translation, partly offset by £14m of efficiency savings from the business improvement programme. On a constant currency basis, the underlying operating profit increased by 30%, despite absorbing the impact from a turbulent Greek political and economic situation.

 

Unique holidays (differentiated and exclusive product combined) maintained a share of 47% of total holidays in 2012. We launched several new concept hotels during the year including brands such as Best Family, Puravida and Sensimar.

 

Online bookings accounted for 18% of the total in 2012. Whilst in the Mainstream business online bookings accounted for 4% of bookings, a new TUI.com website was launched during the year as part of a strategy to focus on and improve online sales in the Mainstream business.

 

The German business delivered £14m of efficiency savings towards the business improvement programme in the year. The savings related to our GET 2015 programme focusing on cost reduction and growth and were delivered through back office restructuring.

 

Other Central European businesses

 

The other Central European businesses of Austria, Switzerland and Poland performed largely in line with the prior year. Austria reported underlying operating profit of £10m (2011: £11m). An increase in underlying trading was offset by the adverse impact of foreign currency translation. In Switzerland, underlying operating profit was £5m, in line with last year (2011: £5m). In Poland, the underlying operating loss was £1m (2011: £2m loss). The Polish business delivered £1m of business improvement in the year.

 



 

Western Europe

 

Western Europe reported an underlying operating profit of £24m (2011: £17m). The main drivers of the year-on-year change in underlying operating profit are summarised in the following table:

 

£m

France 


Netherlands 


Belgium 


Southern 

Europe 


Western 

Europe 

2011

(53)


22 


50 


(2)


17 

Trading

(6)




(2)


(2)

Business improvement

14 





22 

FX translation

(2)


(3)


(8)



(13)

2012

(47)


20 


55 


(4)


24 











 

Western Europe

2012 


2011 


Change %







Customers ('000)






           France

1,956 


2,057 


-5%

           Netherlands

1,455 


1,360 


+7%

           Belgium

2,528 


2,541 


-1%

           Southern Europe

128 


143 


-10%

           Total

6,067 


6,101 


-1%

Revenue (£m)






            France

1,263 


1,363 


-7%

            Netherlands

839 


783 


+7%

            Belgium

840 


902 


-7%

            Southern Europe

89 


103 


-14%

            Total

3,031 


3,151 


-4%

Underlying operating (loss) / profit (£m)1






            France

(47)


(53)


+11%

            Netherlands

20 


22 


-9%

            Belgium

55 


50 


+10%

            Southern Europe

(4)


(2)


-100%

            Total

24 


17 


+41%







1 Underlying operating (loss ) /profit excludes separately disclosed items, amortisation of business combination intangibles, acquisition related expenses, impairment of goodwill and available for sale financial assets and interest and taxation of results of the Group's joint ventures and associates

 



 

France

2012


2011


Change %







Underlying operating loss (£m) 1






Tour Operator

(32)


(43)


+26%

Airline

(15)


(10)


-50%


(47)


(53)


+11%







1 Underlying operating loss excludes separately disclosed items, amortisation of business combination intangibles, acquisition related expenses, impairment of goodwill and available for sale financial assets and interest and taxation of results of the Group's joint ventures and associates

 

France

 

France reported an underlying operating loss of £47m (2011: loss of £53m) an improvement of £6m versus the prior year. The decreased loss was driven by an improved performance by the French tour operators and offset by an increased loss in the airline Corsair.

 

The tour operator reported a reduced loss of £32m (2011: loss of £43m). The improvement of £11m versus the prior year was driven by the successful delivery of £8m of efficiency savings towards the business improvement programme in the year and stronger late summer trading. This was partially offset by continued lower demand for North African destinations. The tour operator is particularly reliant on these destinations - historically Egypt, Tunisia and Morocco have made up around 40% of their capacity in total, and around 65% for Marmara alone. Whilst trading conditions remain very challenging, we saw demand pick up for both Tunisia and Morocco, particularly in the later part of the summer season.

 

Progress to consolidate the businesses of the French tour operators continues with the aim of creating a single business with a long-term viable future. The legal merger was completed in January 2012 and the integration timetable for this restructuring is progressing to plan.

 

The airline result reported a loss of £15m (2011: loss of £10m), reflecting the continuing competitive market place, a reduction in capacity on certain routes and an increase in fuel prices which could only partially be passed on to the customer. However, the business improvement programme is progressing as planned delivering £6m of efficiency savings in the year.

 

Netherlands

 

The Netherlands delivered underlying operating profit of £20m (2011: £22m), reflecting a more challenging market. A number of new destinations were launched during the year including Western USA and Zanzibar for our long-haul routes and Venice, Croatia and Israel in our mid-haul routes.

 

Belgium

 

Underlying operating profit in Belgium increased by £5m to £55m (2011: £50m), despite absorbing an £8m adverse FX impact. The performance reflects a record Winter that saw volumes increase by 10% and better airline utilisation.

 

Direct distribution increased by three percentage points during the period to 62%, whilst sales through the online channel rose by six percentage points to 43%.

 

Our Moroccan low cost airline Jet4You was consolidated into the Belgian business from 1 April 2012. This is a natural fit as Jet4You is currently owned and operated by the Belgian business and Jetairfly is our lowest cost airline. This helped drive internal synergies and the business improvement programme delivered an £8m improvement in the year from Jet4You.

 

Southern Europe

 

Southern Europe, which consists of tour operators based in the Italian and Spanish source markets, reported an underlying operating loss of £4m (2011: loss of £2m). This reflects the heavy reliance on North Africa, much of which was disrupted during the same period last year.

 



 

Emerging Markets

 

Emerging Markets reported an underlying operating loss of £15m in the year (2011: loss of £12m). The result for this sector reflects our continued investment in brand and distribution in Russia and the CIS and the continued impact of unrest in Egypt. During the year, we consolidated our existing businesses into a single brand (TUI) featuring all destinations, establishing a strong platform for the future. The sector now has close to  600,000 customers, up 15% on prior year.

 

Emerging Markets (share of JV)

2012


2011


Change %

Underlying operating loss  (£m)1

(15)


(12)


-25%

1 Underlying operating loss excludes separately disclosed items, amortisation of business combination intangibles, acquisition related expenses, impairment of goodwill and available for sale financial assets and interest and taxation of results of the Group's joint ventures and associates

 

We are continuing to evaluate our strategic participation options in the Chinese and Indian market. In India, our tour operating and retail business TUI India was re-launched with an increased focus on targeting the more affluent consumer segments with a range of new products including family clubs in Goa and Mauritius, driving controlled distribution more aggressively and a focus on online with the launch of a re-branded website. In China, we continue to assess our market participation options and have been further developing our plans in the outbound segment via TUI China, our joint venture cooperation with China Travel Service (CTS).

 

In the 2012/13 financial year the Emerging Markets sector will no longer exist. Emerging Markets will be included in the Mainstream sector but reported separately, while India and China will sit within and be reported in the Accommodation & Destinations sector.

 



 

Accommodation & Destinations

 

Accommodation & Destinations (A&D) delivered an underlying operating profit of £66m (2011: £72m). This included an £11m investment in Accommodation OTA, a £4m adverse impact of foreign currency translation and a £3m impact relating to the reallocation of costs from the Emerging Markets sector to the Accommodation & Destinations sector.

 

The main drivers of the year-on-year change in underlying operating profit are summarised in the table below:

 

£m

Online Accommodation


Inbound

Services


Accommodation & Destinations

2011

34


38


72

Trading

14


(2)


12

Investment in OTA

(11)


-


(11)

Reallocation of costs - Emerging Markets

-


(3)


(3)

FX translation

(2)


(2)


(4)

2012

35


31


66







 

Accommodation & Destinations

2012


2011


Change %

Customers ('000) 






Accommodation Wholesaler roomnights (Online)





+13%

Accommodation OTA roomnights (Online)





+7%

Incoming passenger volumes





Flat

Revenue (£m)

664


652


+2%







Underlying operating profit  (£m)1






Online Accommodation

35


34


+3%

Inbound Services

31


38


-18%

Total       

66


72


-8%







1 Underlying operating profit excludes separately disclosed items, amortisation of business combination intangibles, acquisition related expenses, impairment of goodwill and available for sale financial assets and interest and taxation of results of the Group's joint ventures and associates

 

TTV for the Sector increased by 8% to £2.8bn (2011: £2.6bn). This was driven by growth in Hotelbeds and Bedsonline in Accommodation Wholesaler, by LateRooms/AsiaRooms in Accommodation OTA and by our cruise handling business, Intercruises.

 

The Accommodation & Destinations Sector divisions will now be described as follows:

 

-     Online Accommodation: Includes Accommodation Wholesaler and Accommodation OTA.

-     Inbound Services: Businesses that provide transfers, excursions, tours, tailor-made products, cruise handling services and meetings and events.

 

Online Accommodation

 

The Online Accommodation business delivered a £1m improvement in underlying operating profit to £35m (2011: £34m). The result included a trading improvement of £14m offset by a £11m investment in Accommodation OTA and a £2m adverse impact of foreign currency translation.

 

Roomnights for the Accommodation Wholesaler increased by 13% due to strong organic growth from the brands Hotelbeds and Bedsonline, where the key area of focus remains on international expansion, particularly in the Americas and Asia. Accommodation Wholesaler TTV grew by 13% to £1.4bn.

 

Roomnights for Accommodation OTA increased by 7% due to a good performance from LateRooms and AsiaRooms.  Accommodation OTA TTV grew by 4% to £447m, including AsiaRooms growth of 25%. LateRooms showed year-on-year room night and commission growth partly driven from offline marketing to drive brand awareness and development of mobile offering to meet changing consumer channel preferences. The expansion and roll out of the AsiaRooms brand is on track, with significant market share gains in both Malaysia and Singapore. Local language traffic now represents the largest single source of traffic. We entered the Brazilian market through the acquisition of MalaPronta.com in September 2012.

 

Inbound Services

 

The Inbound Services business delivered underlying operating profit of £31m (2011: £38m), reflecting a reallocation of costs from the Emerging Markets sector to the Accommodation & Destinations sector and the adverse impact of foreign currency translation.

 

Inbound Services remains the market leader in a fragmented market. We have simplified the way we present ourselves to third party providers through the launch of the brands Destination Services and Worldcome. We are also looking at opportunities with the independent traveller segment of this market.

 

Incoming passenger volumes were flat over the prior year. In cruise handling, the number of port calls handled increased by 12%.

 

Specialist & Activity

 

Specialist & Activity reported a profit of £48m (2011: £65m), down £17m, due to declines in the Adventure and Education divisions partly offset by North American Specialist and Sport divisions. This included £1m adverse impact from foreign currency translation and £2m adverse impact of unrest in the Middle East and North Africa. The business improvement programme delivered a £1m improvement in the year.

 

Specialist & Activity

2012


2011


Change %

Customers ('000)

1,586


1,500


+6%

Revenue (£m)

1,478


1,372


+8%

Underlying operating profit (£m)1

48


65


-26%

1 Underlying operating profit excludes separately disclosed items, amortisation of business combination intangibles, acquisition related expenses, impairment of goodwill and available for sale financial assets and interest and taxation of results of the Group's joint ventures and associates

 

Adventure was impacted by the unrest in the Middle East and North Africa and the reduction in demand to Australia due to the global financial crisis and a strengthening Australian dollar. The result also reflected the consolidation of first-half losses from our strategic venture with Intrepid Travel. Education continued to be impacted by a reduction in party sizes and demand for gap year travel due to the downturn in the UK economy and rise in university tuition fees. The high cost of accommodation in London due to the 2012 Olympics and strength of Sterling also impacted demand in our language school businesses. We are making progress with the restructuring of the Education division, as outlined last year, to reduce back office costs, drive operational efficiencies and have simplified the management structure.

 

The North American Specialist division saw an improvement in underlying operating profit driven by a switch in mix towards higher margin products offered by operators such as Starquest (private jet tours) and Quark (polar expeditions) and improved cost control. The Sport division benefited from the Olympics and the 2012 UEFA European Championships.

 

Acquisitions & Investments

 

The Group invested £16m in acquisitions in 2012.

 

In September 2012, the Accommodation & Destinations sector acquired MalaPronta.com, Brazil's fourth largest accommodation-only OTA with a strong reputation and brand positioning. MalaPronta.com has achieved 117% compound annual revenue growth in the past 7 years growing to its current level of more than 130,000 room nights sold last year. The acquisition of MalaPronta.com is part of the Accommodation OTA strategy to build its offering and positioning globally particularly in the emerging markets.

 

Taxation

 

Underlying profit before tax for the year was £390m. The effective tax rate on these profits is 27%. Based on the current structure of the business and existing local taxation rates and legislation, it is expected that the underlying tax rate will be maintained at this level in the medium term. The actual tax rate for the year ended 30 September 2012 is 33%. This differs to the underlying tax rate due to the tax effect of separately disclosed items and non-recognition of deferred tax assets in certain loss making territories.

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

 

Earnings per share

 

Underlying basic earnings per share was 25.8p (2011: 23.6p). Basic earnings per share was 12.5p (2011: 7.7p).

 

Dividends

 

The Board is recommending a final dividend of 8.3p per share (2011: 8.0p). On 8 May 2012 the Board recommended an interim dividend of 3.4p per share (2011: 3.3p), making a full year dividend of 11.7p per share (2011: 11.3p). The final dividend will be paid on 10 April 2013 to holders of relevant shares on the register at 8 March 2013.

 

The Group's policy is to maintain underlying dividend cover at around two times. We intend to continue to operate a dividend re-investment plan as an alternative to receiving a cash dividend.

 

Cash and liquidity

 

The net debt position (cash and cash equivalents less loans, overdrafts and finance leases) at 30 September 2012 was £108m (30 September 2011: net cash of £4m). The two main impacts in the year were advances under finance leases for three aircraft, totalling £83m and FX retranslation effect of £70m of net debt balances in the Eurozone.

 

This consisted of £830m of cash and £70m of current interest-bearing loans and liabilities and £868m of non-current interest-bearing loans and liabilities. As at 30 September 2012, undrawn committed borrowing facilities totalled £1,018m (2011: £1,044m).

 

Cashflow conversion is 75% of underlying profit before tax, excluding the net pre-delivery payments on aircraft of £53m (2011: £34m). Free cash flow deteriorated by 47% to £240m (2011: £451m), analysed as follows:

 

£m

2012 

 

2011 

Underlying operating profit

490 

 

471 

Depreciation and amortisation included within underlying operating profit

152 

 

172 

Underlying EBITDA1

642 

 

643 

Working capital movement

60 

 

218 

Capital expenditure (net of disposals)

(262)

 

(162)

Other2                                                                                                          

(200)

 

(248)

Free cash flow

240 

 

451 

 

 

 

 

1 Earnings before interest, tax, depreciation and amortisation

2Includes pension funding, tax, interest and cash impact of separately disclosed items

We remain satisfied with our funding and liquidity position. We have three main sources of long-term debt funding as at 30 November 2012 - these include the external bank revolving syndicated credit facilities totalling £1,020m which mature in June 2015, a £350m convertible bond (due October 2014) and a £400m convertible bond (due April 2017). The external bank revolving facility is used to manage the seasonality of the Group's cash flows and liquidity.

 

Separately disclosed items (SDIs)

 

Separately disclosed items net to a £92m expense in the year (2011: £74m expense). The following table provides a breakdown of these items:

 

£m

2012 

 

2011 

Restructuring costs

102 

 

137 

Pension

 

(63)

Incremental costs caused by volcanic ash disruption in 2010

 

(7)

Other

(10)

 

Total SDIs

92 

 

74 

 

 

 

 

 

Restructuring costs of £102m were incurred in the year. The largest items by division were as follows:

 

·   

£66m in France in relation to the ongoing restructuring of the tour operator and airline;

·   

£5m relating to the restructure of the Moroccan airline Jet4You;

·   

£7m credit in Germany in relation to an unused restructuring provision;

·   

£24m in the Specialist & Activity and A&D sectors.

 

The remaining costs related primarily to Group head office companies.

 

Further information is included within Note 3.

 



 

Consolidated income statement

for the year ended 30 September 2012


 

 

Note

Year ended

30 September

2012

£m

Year ended

30 September 2011

£m





Revenue

2

14,460 

14,687 

Cost of sales


(12,965)

(13,351)

Gross profit


1,495 

1,336 

Administrative expenses


(1,199)

(1,094)

Share of profits of joint ventures and associates


13 

Operating profit


301 

255 

Analysed as:




Underlying operating profit

2

490 

471 

Separately disclosed items

3

(92)

(74)

Predecessor accounting for Magic Life


(17)

Acquisition related expenses


(62)

(82)

Impairment of goodwill


(20)

(39)

Impairment of available for sale financial asset


(10)

 - 

Taxation on profits and interest of joint ventures and associates


(5)

(4)


301 

255 

Financial income

4

96 

83 

Financial expenses

4

(196)

(194)

Net financial expenses


(100)

(111)

Profit before tax


201 

144 

Taxation charge

6

(64)

(57)

Profit for the year


137 

87 

Attributable to:




Equity holders of the parent


138 

85 

Non-controlling interests


(1)

Profit for the year


137 

87 

 



Year ended

30 September

2012

Pence

Year ended

30 September 2011

Pence

Basic and diluted earnings per share for profit attributable to the equity holders of the Company during the year




Basic earnings per share

9

12.5

7.7

Diluted earnings per share

9

12.3

7.6





 



 

Consolidated statement of comprehensive income

for the year ended 30 September 2012


 

 

 

 

 

Year ended

30 September

 2012

£m

Year ended

30 September 2011

£m

Profit for the year


137 

87 

Other comprehensive (expense) / income




Foreign exchange translation


(160)

(18)

Actuarial losses arising in respect of defined benefit pension schemes


(172)

(89)

Tax on actuarial losses


32 

(7)

Cash flow hedges:




- movement in fair value


(42)

85 

- amounts recycled to the consolidated income statement


(30)

(4)

Tax on cash flow hedges


15 

(22)

Available for sale financial assets:



- movement in fair value


(4)

(2)

- amounts recycled to the consolidated income statement


10 

Other comprehensive loss for the year net of tax


(351)

(56)

Total comprehensive (loss) / income for the year


(214)

31 

Total comprehensive (loss) / income for the year




Attributable to:




Equity holders of the parent


(211)

26 

Non-controlling interests


(3)

Total


(214)

31 

 



 

Consolidated balance sheet

at 30 September 2012



30 September 2012

£m

30 September 2011

£m

Non-current assets




Intangible assets


4,482 

4,642 

Property, plant and equipment


1,096 

1,001 

Investments in joint ventures and associates


258 

242 

Other investments


66 

72 

Trade and other receivables


225 

202 

Retirement benefit asset


Derivative financial instruments


21 

30 

Deferred tax assets


125 

138 



6,273 

6,328 

Current assets




Inventories


61 

69 

Other investments


19 

22 

Trade and other receivables


1,312 

1,472 

Income tax recoverable


15 

62 

Derivative financial instruments


98 

185 

Cash and cash equivalents


830 

902 

Assets classified as held for sale


13 

13 



2,348 

2,725 

Total assets


8,621 

9,053 

Current liabilities




Interest-bearing loans and borrowings


(70)

(96)

Retirement benefits


(2)

(3)

Derivative financial instruments


(125)

(133)

Trade and other payables


(4,549)

(4,622)

Provisions for liabilities


(300)

(317)

Income tax payable


(39)

(133)



(5,085)

(5,304)

Non-current liabilities




Interest-bearing loans and borrowings


(868)

(802)

Retirement benefits


(646)

(511)

Derivative financial instruments


(20)

(18)

Trade and other payables


(48)

(56)

Provisions for liabilities


(316)

(353)

Deferred tax liabilities


(29)

(71)



(1,927)

(1,811)

Total liabilities


(7,012)

(7,115)

Net assets


1,609 

1,938 

Equity




Called up share capital


112 

112 

Convertible bond reserve


88 

85 

Other reserves


2,627 

2,846 

Accumulated losses


(1,262)

(1,155)

Total equity attributable to equity holders of the parent


1,565 

1,888 

Non-controlling interests


44 

50 

Total equity


1,609 

1,938 

 

The financial statements were approved by a duly authorised Committee of the Board of Directors on 3 December 2012 and signed on its behalf by:

 

 

Peter J Long

William H Waggott

Chief Executive

Chief Financial Officer

 

Company number: 6072876

 



 

Consolidated statement of changes in equity




Other reserves






Called up

share

capital

£m

Convertible

bond

reserve

£m

Merger

reserve

£m

Translation

reserve

£m

Hedging

reserve

£m

Accumulated

losses

£m

Equity

holders of

parent

£m

Non-

Controlling

Interests

£m

Total

Equity

£m

At 1 October 2010

112

83

2,521

292

(19)

(1,014)

1,975 

1,976  

Profit for the year

-

-

-

85 

85 

87  

Other comprehensive (loss) / income for the year

-

-

-

(3)

56 

(112)

(59)

(56) 

Total comprehensive (loss) / income for the year

-

-

-

(3)

56 

(27)

26 

31  

Transactions with owners











Share-based payment - charge for the year

-

-

-

19 

19 

19 

Acquisition of shares by Employee Benefit Trust

-

-

-

(7)

(7)

(7)

Dividends

-

-

-

(122)

(122)

(2)

(124)

Capital increase in Magic Life

-

-

2

Disposals to non-controlling interests

-

-

-

(3)

(4)

(7)

46 

39 

Change in deferred tax rate on equity portion of convertible bond

 

-

 

2

 

-

 

 

 

 

 

 

At 30 September 2011

112

2,523

37 

(1,155)

 




Other reserves






Called up

share

capital

£m

Convertible

bond

reserve

£m

Merger

reserve

£m

Translation

reserve

£m

Hedging

reserve

£m

Accumulated

losses

£m

Equity

holders of

parent

£m 

Non-

controlling

interests

£m

Total equity          £m 

At 1 October 2011

112

85

2,523

286 

37 

(1,155)

1,888 

50 

1,938 

Profit for the year

138 

138 

(1)

137 











Other comprehensive loss for the year

(157)

(62)

(130)

(349)

(2)

 

(351)

Total comprehensive (loss) / income for the year

(157)

(62)

(211)

(3)

 

(214)

Transactions with owners











Share-based payment - charge for the year

 

 

 

 

 

 

16 

 

16 

 

 

 

16 

Share-based payment - disposal on award of shares

(5)

(5)

(5)

Dividends

(125)

(125)

(3)

(128)

Acquisition of non-controlling interests

(1)

(1)

(1)

Change in deferred tax rate on equity portion of convertible bond

 

 

 

 

‑ 

 

 

 

 

 

At 30 September 2012

112

88 

2,523

129

(25)

(1,262)

1,565 

44 

1,609 

 

 



 

Consolidated statement of cash flows

for the year ended 30 September 2012


Note

Year ended

30 September

2012

£m

Year ended

30 September

2011

£m

Profit for the year


137 

87 

Adjustment for:




Depreciation and amortisation


219 

238 

Impairment of intangible assets and property, plant and equipment


22 

30 

Impairment of goodwill


20 

39 

Equity-settled share-based payment expenses


16 

19 

(Profit) / loss on sale of property, plant and equipment


(9)

Share of profit of joint ventures and associates


(5)

(13)

Loss on foreign exchange


14 

38 

Impairment of available for sale financial asset


10 

Dividends received from joint ventures and associates


Pension curtailment gain recognised in consolidated income statement


(1)

(64)

Financial income

4

(96)

(83)

Financial expenses

4

196 

194 

Taxation


64 

57 

Operating cash flow before changes in working capital and provisions


591 

555 

Decrease / (increase) in inventories


17 

(9)

Increase in trade and other receivables


(55)

(68)

Increase in trade and other payables


126 

140 

(Decrease) / increase in provisions and retirement benefits


(35)

125 

Cash flows generated from operations


644 

743 

Interest paid


(75)

(86)

Interest received


15 

Income taxes paid


(82)

(53)

Cash flows generated from operating activities


502 

613 

Investing activities




Proceeds from sale of property, plant and equipment


116 

148 

Acquisition of subsidiaries net of cash acquired


(23)

(33)

Proceeds from other investments


Investment in joint ventures, associates and other investments


(25)

(18)

Acquisition of property, plant and equipment


(287)

(257)

Acquisition of intangible assets


(91)

(56)

Cash flows used in investing activities


(309)

(213)

Financing activities




Proceeds from new loans and deposits taken


14 

26 

Repayment of borrowings


(43)

(556)

Repayment of finance lease liabilities


(19)

(145)

Dividends paid to ordinary and non-controlling interests


(128)

(124)

Shares purchased by Employee Benefit Trust


(7)

Cash flows used in financing activities


(176)

(806)

Net increase / (decrease) in cash and cash equivalents


17 

(406)

Cash and cash equivalents at start of the year


902 

1,304 

Effect of foreign exchange on cash held


(89)

Cash and cash equivalents at end of the year


830 

902 

 

Movements in cash and net debt are presented in Note 8.

 



 

Notes to the consolidated financial statements

 

1. Basis of preparation

 

(A) Statutory accounts

The financial information set out above does not constitute the Group's statutory accounts for the year ended 30 September 2012. Financial Statements for the year ended 30 September 2012 will be delivered to the registrar of companies in due course. PricewaterhouseCoopers LLP has reported on these accounts and their report was (i) unqualified, (ii) did not include a reference to any other matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

 

(B) Accounting policies

The accounting policies applied by the Group in its consolidated financial statements for the year ended 30 September 2012 are in accordance with International Financial Reporting Standards and IFRIC interpretations as adopted by the European Union (Adopted IFRSs) and the Companies Act 2006 applicable to companies reporting under IFRS. The accounting policies are consistent with those of the consolidated financial statements for the year ended 30 September 2011 with the exception of the adoption of the following amended International Financial Reporting Standards (IFRS) and Interpretations that are applicable for the year ended 30 September 2012:

·     IAS 24 (revised) 'Related party disclosures'

·     Amendment to IFRS 7 'Financial instruments: Transfers of financial assets'

·     Amendment to IFRIC 14 'Prepayments of a minimum funding requirement'

·     Annual improvements project (2010) (partly applicable for the year ended 30 September 2012)

These amended standards and interpretations have no significant impact on the consolidated results or financial position of the Group, but may impact certain disclosures.

(C) Underlying measures of profits and losses

The Group believes that underlying operating profit, underlying profit before tax and underlying earnings per share provide additional guidance to statutory measures to help understand the underlying performance of the business during the financial year. The term underlying is not defined under IFRS. It is a measure that is used by management to assess the underlying performance of the business internally and is not intended to be a substitute measure for adopted IFRS GAAP measures. The Group defines these underlying measures as follows:

Underlying operating profit is operating profit from continuing operations stated before separately disclosed items, the impact of predecessor accounting, acquisition related expenses, impairment of goodwill and available for sale financial assets and interest and taxation on the Group's share of the results of joint ventures and associates.

Underlying profit before tax is profit from continuing operations before taxation (Group and share of joint ventures and associates), the impact of predecessor accounting, acquisition related expenses, impairment of goodwill and available for sale financial assets, interest and taxation of joint ventures and associates and separately disclosed items included within the operating result.

Underlying earnings used in the calculation of underlying earnings per share is profit after tax from continuing operations excluding the impact of predecessor accounting, acquisition related expenses, impairment of goodwill and available for sale financial assets and separately disclosed items included within the operating result. For the purpose of this calculation, an underlying tax charge is used which excludes the tax effects of separately disclosed items, acquisition related expenses, goodwill and available for sale financial asset impairment charges and separately disclosable tax items.

It should be noted that the definitions of underlying items being used in these consolidated financial statements are those used by the Group and may not be comparable with the term 'underlying' as defined by other companies within both the same sector or elsewhere.



 

(D) Funding and liquidity

The Board remains satisfied with the Group's funding and liquidity position. At 30 September 2012, the main sources of debt funding included:

·     A total of £970m syndicated bank revolving credit facilities which mature in June 2015;

·     £186m of drawn finance lease obligations with repayments up to March 2022;

·     £350m convertible bond due October 2014; and

·     £400m convertible bond due April 2017.

The ratio of earnings before interest, taxation, depreciation, amortisation and operating lease rentals (EBITDAR) to fixed charges (being the aggregate amount of interest and any other finance charges in respect of borrowings and including all payments under operating leases) and the ratio of net debt to earnings before interest, taxation, depreciation and amortisation (EBITDA), which the Board believes to be the most useful measures of cash generation and gearing, as well as being the main basis for the

 

Group's credit facility covenants, are well within the covenant limits at the date of the balance sheet. Forecasts reviewed by the Board, including forecasts adjusted for significantly worse economic conditions, show continued compliance with these covenants. For both covenants, earnings are calculated on an underlying basis as described above.

On the basis of its forecasts, both base case and adjusted as described above, and available facilities, the Board has concluded that the going concern basis of preparation continues to be appropriate.

 

2. Segmental information

 

IFRS 8 requires segmental information to be presented on the same basis as that used for internal management reporting. Segmental information is reported by the Group's business sectors to the Group Management Board (GMB).  The GMB consists of tour operating and functional experts drawn from across the Group who execute TUI Travel's day-to-day operations, allocate resources to and assess the performance of the operating segments. Consequently, the GMB is considered to be the chief operating decision maker for the purposes of IFRS 8.

 

Group structure

The Group presents segmental information in respect of its four Sectors. For the year ended 30 September 2012, the four Sectors are divided into either Regions (Mainstream Sector) or divisions (Sectors other than Mainstream), which are further sub-divided into operating segments. Aggregation criteria is then used to combine certain of these operating segments into reported segments.

 

The Mainstream Sector consists of three Regions: Northern, Central Europe and Western Europe. The Northern Region comprises the distribution, tour operating and airline businesses in the UK & Ireland, Canada, the Nordic Countries (comprising the markets of Sweden, Norway, Denmark and Finland) and the Hotels division comprising hotel management companies and joint ventures in hotel assets.

 

Central Europe comprises the distribution, tour operating businesses and an airline in the source markets of Germany, Austria, Switzerland and Poland. 

 

Western Europe comprises the distribution, tour operating and airline businesses in France, Belgium, the Netherlands and Southern Europe (comprising Spain and Italy). The Moroccan based airline, Jet4You, has been integrated into Belgium during the year, with internal reporting to the GMB being amended to reflect this change.

 

Each source market within each Region represents an operating segment, for the purposes of segmental information.

 

The Specialist & Activity Sector operates under seven divisions: Adventure, Education, Languages, Marine, North American Specialist, Sport and Specialist Holidays Group. The Sector has over 100 international specialist and activity brands delivering a range of unique customer experiences. The Specialist & Activity Sector is considered to be one operating segment, in line with internal management reporting.

 

The Accommodation & Destinations Sector (A&D) sells and provides a range of services in destinations to tour operators, travel agents, corporate clients and direct to the consumer worldwide. A&D is structured along the following divisions: Accommodation Wholesaler (previously known as Business to Business (B2B)), Accommodation OTA (previously known as Business to Customer (B2C)) and Specialist, although the A&D Sector in total is considered as one operating segment, in line with internal management reporting.

 

The Emerging Markets Sector is a growing portfolio of travel businesses, currently focusing on the specific source markets of Russia and Ukraine and is considered to be one operating segment.

 

Reportable and reported segments

Under IFRS 8, the results of the UK & Ireland and Germany are reported separately within the Northern Region and Central Europe respectively due to the size and importance of these core markets and both meeting the threshold of being individual reportable segments. The results of Nordics are shown separately from other Northern Region segments as it exceeds the quantitative threshold defined in IFRS 8. Canada and the Hotels division have been reported separately as these two segments do not meet the majority of the aggregation criteria of IFRS 8.

 

The results of Austria, Switzerland and Poland have been aggregated into the Rest of Central Europe segment as these are considered to be economically similar over the long term and their activities are also considered to be similar in nature under the aggregation criteria of IFRS 8.

 

The French Airline, Corsair, has been separately disclosed from the Rest of Western Europe because, as a scheduled airline within the Group, it has a different business model to the rest of the Group's integrated tour operators. Following the integration of Jet4You into Belgium during the year, the results of Jet4You are now included within those of Belgium. Belgium, the Netherlands, Southern Europe and the French tour operating businesses form the Rest of Western Europe as these segments meet the aggregation criteria.

 

The Specialist & Activity Sector is reported separately as this qualifies as a reportable segment under IFRS 8. The results of Accommodation & Destinations and Emerging Market Sectors are reported voluntarily to be consistent with internal management reporting.

 

Segmental information for both the current and prior year has been presented using this structure, with the prior year information being restated to reflect the inclusion of Jet4You into Belgium.

 

Corporate costs are in respect of central costs including finance, human resources, legal, facility costs and some information technology costs that do not relate to each business segment and hence they are not allocated.

 

Information regarding the results of each reportable segment is provided below. Segmental performance is evaluated based on underlying operating profit and is measured consistently with underlying operating profit or loss in the consolidated financial statements and as defined in Note 1(C). 

 

Intersegmental sales and transfers reflect arm's length prices as if sold or transferred to third parties. Financial income and expenses are not allocated to the reportable segments as this activity is managed by the Group's treasury function which manages the overall net debt position of the Group.

 



 

Segmental analysis

 

Year ended 30 September 2012

 

 

 

 

Total revenue

Intersegmental

revenue

Total external revenue

Underlying

Operating

profit / (loss)

Sector

£m

£m 

£m

£m 

UK & Ireland

3,756

(122)

3,634

197 

Canada

-

21 

Nordics

1,085

(1)

1,084

71 

Hotels

191

(166)

25

Total Northern Region

5,032

(289)

4,743

295 






Germany

3,932

(15)

3,917

87 

Rest of Central Europe

670

(43)

627

14 

Total Central Europe

4,602

(58)

4,544

101 






French Airline

403

(43)

360

(15)

Rest of Western Europe

2,702

(31)

2,671

39 

Total Western Europe

3,105

(74)

3,031

24 






Total Mainstream

12,739

(421)

12,318

420 






Specialist & Activity

1,479

(1) 

1,478

48 

Accommodation & Destinations

859

(195)

664

66 

Emerging Markets

-

(15)

All other segments and unallocated items

-

(29)






Total Group

15,077

(617)

14,460

490 

 



 

Segmental analysis

 

Year ended 30 September 2011

 

 

 

 

 

 

Total revenue

 

Intersegmental  revenue  

 

Total external revenue

Underlying  operating   profit / (loss)

Sector

£m

£m 

£m 

£m 

UK & Ireland

3,648

(60)

3,588

149 

Canada

-

-

18 

Nordics

1,055

(1)

1,054

70 

Hotels

184

(155)

29

13 

Total Northern Region

4,887

(216)

4,671

250 






Germany

4,261

(26)

4,235

89 

Rest of Central Europe

666

(60)

606

14 

Total Central Europe

4,927

(86)

4,841

103 






French Airline

426

(70)

356

(10)

Rest of Western Europe

2,805

(10)

2,795

27 

Total Western Europe

3,231

(80)

3,151

17 






Total Mainstream

13,045

(382)

12,663

370 






Specialist & Activity

1,373

(1)

1,372

65 

Accommodation & Destinations

879

(227)

652

72 

Emerging Markets

-

-

(12)

All other segments and unallocated items

-

-

(24)






Total Group

15,297

(610)

14,687

471 

 

Reconciliation of Group underlying operating profit to profit before tax

 


Note

Year ended

30 September

2012

£m

 

Year ended

  30 September

2011

£m

Group underlying operating profit


490 

471 

Separately disclosed items

3

(92)

(74)

Predecessor accounting for Magic Life


(17)

Acquisition related expenses


(62)

(82)

Impairment of goodwill


(20)

(39)

Impairment of available for sale financial asset


(10)

 - 

Taxation on profits and interest of joint ventures and associates


(5)

(4)

Operating profit


301 

255 

Net financial expenses

4

(100)

(111)

Profit before tax


201 

144 

 



 

3. Separately disclosed items

 


 

Year ended

30 September
               2012
                         £m

 

Year ended 

 30 September 

                2011 

 £m 

Restructuring and other separately disclosed items

102 

137 

Pension related credit

(63)

Litigation provisions

17 

Change in accounting estimates

(27)

Items relating to the prior year

Total pre-volcanic ash

92 

81

Incremental costs caused by volcanic ash disruption

(7)

Total

92 

74 

 

Separately disclosed items within operating profit are included within the consolidated income statement as follows:


 

Year ended

30 September 2012

£m 

 

Year ended

30 September
2011

£m

Cost of sales

(6)

Administrative expenses

92 

80 

Total

92 

74 

 

Restructuring and other separately disclosed items

Mainstream restructuring costs account for £66m of the total incurred in the year ended 30 September 2012 and principally relate to: the restructuring programme in France where a single tour operating business, TUI France, is being created and the airline is also being restructured (£66m in total); the restructure of the Moroccan airline Jet4You (£5m); offset by a release of £7m of unused provision now that the German tour operator restructuring programme has been completed.

 

In addition there has been a total of £24m restructuring costs incurred across the Specialist & Activity and Accommodation & Destinations Sectors.  £8m of this total has arisen from restructuring actions taken in the Adventure division; £6m has arisen from the write-down of specific ski chalet assets which are now being actively marketed for disposal and where transactions are expected to complete within 12 months; £4m has arisen from actions taken in the Marine division and £3m from the finalisation of restructuring programmes in Greece, Morocco and Tunisia.  A total of £12m of costs have been incurred in Group head office companies, being primarily to support the various restructuring programmes around the Group.

 

Included in the year ended 30 September 2011 were Mainstream restructuring costs of £97m which principally related to a substantial programme to reduce costs and improve efficiencies in the German business (£32m); the ongoing restructure of Corsair, the scheduled French airline, and the retail network of Nouvelles Frontières in France (£35m in total); and further restructuring initiatives in the UK (£19m) including rationalising the retail distribution network.  In addition there was £15m of restructuring costs incurred in the Specialist & Activity Sector, £8m in the Accommodation & Destinations Sector and £17m of restructuring costs incurred in Group head office companies.

 

Litigation provisions

At the year end the Group has continued to assess the likely outcome of the legal actions it is involved in and, in accordance with IAS 37, has recognised provisions where it is more likely than not that an outflow of resources will be required to settle the obligation.  Due to the increasingly litigious environment the Group operates in, this year the process has resulted in a charge to the income statement of £17m which due to its size has been included as a separately disclosed item.

 

Change in accounting estimates

During the year ended 30 September 2012, the Group reviewed the estimates used in calculating aircraft maintenance provisions and empty leg provisions to ensure consistency of application of the latest estimates across the Group.  This process resulted in a credit to the income statement of £27m, which due to its size has been included as a separately disclosed item.

 

Pension related credit

In the year ended 30 September 2011, the Company engaged in a consultation process with the members of its defined benefit pension schemes which resulted in a restriction to salary increases used under the rules of the pension schemes to calculate benefits to a maximum of 2.5% in any one year. This change resulted in a reduction in accrued pension liabilities measured under IAS 19 of £63m, which under IAS 19 was recognised fully in the income statement in the period in which it occurred.  Therefore a £63m credit was included in the consolidated income statement in relation to this curtailment, which was included as a separately disclosed item.

 

Items relating to the prior year

During the year ended 30 September 2011, two errors were identified which related to the balance sheet as at 30 September 2010.  The omission of an elimination of surplus sundry payables from the Group balance sheet resulted in an overstatement of current liabilities of £38m.  This was offset by an understatement of current liabilities within Nouvelles Frontières, the French tour operator, of £45m.  As both errors offset within cost of sales and trade and other payables and did not materially change the profit, net assets or overall financial position of the Group, the correction of the errors was made through the profit and loss account in the year ended 30 September 2011.

 

Impact of volcanic ash

Included previously in separately disclosed items were the incremental direct costs incurred by the Group in respect of welfare costs to look after the customers who were affected by the closure of European airspace in April 2010.  These costs principally included hotel costs for stranded inbound and outbound customers and the cost of repatriation of inbound customers.  In the year ended 30 September 2011, there was a release of £7m of unused accruals as costs in relation to the disruption in 2010 were finalised with third party suppliers.

 

4. Net financial expenses

 


Year ended

30 September

2012

£m

Year ended

30 September

2011

£m

Financial income



Bank interest receivable

15 

10 

Interest on pension scheme assets

72 

73 

Other financial income

Total

96 

83 

Financial expenses



Bank interest payable on loans and overdrafts

(19)

(11)

Finance charges on convertible bond

(62)

(62)

Interest on pension scheme liabilities

(86)

(84)

Interest payable in respect of loans from parent

(2)

(4)

Finance lease charges 

(7)

(10)

Unwinding of discount on provisions

(8)

(11)

Other financial expenses

(12)

(12)

Total

(196)

(194)

Net financial expenses

(100)

(111)

 



 

5. Income and expenses

 


Year ended

30 September

2012

£m

Year ended

30 September

2011

£m

Included within operating profit in the consolidated income statement for the year are the following (credits) / charges:



Operating lease income: aircraft

(47)

(54)

Operating lease income: land and buildings

(2)

(4)

Operating lease rentals: land and buildings

194 

198 

Operating lease rentals: aircraft and other equipment

425 

460 

Depreciation of property, plant and equipment

127 

137 

Amortisation of intangible assets: business combination intangibles

59 

66 

Amortisation of intangible assets: other intangibles

33 

35 

Charge for share-based payments

16 

20 

(Profit) / loss on sale of property, plant and equipment

(9)

Loss on foreign currency retranslation

14 

38 

Impairment of goodwill and other intangibles

30 

51 

Impairment of property, plant and equipment

12 

18 

 

6. Taxation

 

Analysis of charge in the year

The tax charge can be summarised as follows:

 


Year ended

30 September

2012

£m 

Year ended

30 September

2011

 £m

Current tax charge




UK corporation tax on profit / loss for the year


24 

Non-UK tax on profit / loss for the year


70 

50 

Adjustments in respect of previous years


(42)

(3)



28 

71 

Deferred tax charge / (credit)




Origination and reversal of temporary differences:




Current year UK


21 

(40)

Current year non-UK


41 

Changes in tax rates


11 

14 

Adjustments in respect of previous years


(5)

(29)



36 

(14)

Total income tax charge in consolidated income statement


64 

57 

 

Following a review of the local tax positions in a number of the Group's major operating jurisdictions during the year, certain tax balances have been adjusted to reflect the position of the latest local statutory accounts and tax returns.  These adjustments in respect of prior years have been reflected in the current year income statement tax charge.

 



 

7. Dividends

 

The following dividends which relate to ordinary shares have been deducted from equity in the year:


Pence per

share

Year ended

30 September

2012

£m

Year ended

30 September

2011

£m

Dividends relating to the year ended 30 September 2010




Interim dividend (paid October 2010)

3.2

-

36

Final dividend (paid April 2011)

7.8

-

86


11.0

-

122

Dividends relating to the year ended 30 September 2011




Interim dividend (paid October 2011)

3.3

36

-

Final dividend (paid April 2012)

8.0

89

-


11.3

125

-

 

The interim dividend in respect of the year ended 30 September 2012 of 3.4p per share was paid on 3 October 2012 and this dividend of £38m will be recognised as a deduction from equity in the year ending 30 September 2013.

 

Subsequent to the balance sheet date, the Directors have proposed a final dividend of 8.3p per share (2011: final dividend of 8.0p per share) payable on 10 April 2013 to the holders of relevant shares on the register at 8 March 2013.  The final proposed dividend amounts to £92m and will, after approval by shareholders, be recognised in the consolidated financial statements for the year ending 30 September 2013.  The final ordinary dividend of 8.3p per share, together with the interim dividend of 3.4p per share, makes a total dividend of 11.7p per share relating to the year ended 30 September 2012. 

 

A dividend reinvestment plan is in operation.  Those shareholders who have not elected to participate in this plan, and who would like to participate with respect to the 2012 final dividend, may do so by contacting Equiniti directly on 0871 384 2030 or via the overseas helpline on +44 121 415 7047.  The last day for election for the final proposed dividend is 25 March 2013 and any requests should be made in good time ahead of that date.

 

8. Movements in cash and net debt

 


Cash and  cash  equivalents 

£m 

Convertible 

bonds 

£m 

 

Amounts due  to related  parties 

£m 

Bank loans 

£m 

Loan notes 

£m 

Finance  leases 

£m 

Other  financial  liabilities 

£m 

Total 

£m 

At 1 October 2010

1,304 

(633)

(575)

(36)

(2)

(269)

(38)

(249)

Cash movement

(406)

530 

145 

(6)

269 

Non-cash movement

(21)

(7)

(1)

(29)

Foreign exchange

(1)

13 

At 30 September 2011

902 

(654)

(36)

(30)

(1)

(132)

(45)

Cash movement

17 

23 

19 

65 

Non-cash movement

(21)

(83)

(3)

(107)

Foreign exchange

(89)

10 

(70)

At 30 September 2012

830 

(675)

(10)

(23)

(1)

(186)

(43)

(108)

 

9. Earnings per share

 

The basic earnings per share is calculated by dividing the result attributable to ordinary shareholders by the applicable weighted average number of shares in issue during the year, excluding those held in the Employee Benefit Trusts.  The diluted earnings per share is calculated on the result attributable to ordinary shareholders divided by the adjusted potential weighted average number of ordinary shares, which takes account of the outstanding share awards and the impact of the conversion of the convertible bonds, where their conversion is dilutive.  The additional underlying earnings per share measures have been presented to provide the reader of the accounts with a better understanding of the results.

 



 

Basic and diluted earnings per share are as follows:


 

 

 

Earnings 

2012 

£m 

 

Weighted

average no.

of shares

2012

Millions

 

 

Earnings

per share

2012

Pence

 

 

 

Earnings

2011

£m

 

Weighted

average no.

of shares

2011

Millions

 

 

Earnings

per share

2011

Pence

Basic earnings per share

138 

1,108

12.5

85

1,107

7.7

Effect of dilutive options

10


-

11


Diluted earnings per share

138 

1,118

12.3

85

1,118

7.6

For the statutory measure of diluted earnings per share, the effects of including the convertible bonds are anti-dilutive in both years and therefore this is not included within the calculation.

 

Alternative measures of earnings per share

 


 

 

Earnings 

2012 

£m 

Weighted

average no.

of shares

2012

Millions

 

Earnings

  per share

2012

Pence

 

 

Earnings 

2011 

£m 

Weighted

average no.

of shares

2011

Millions

 

Earnings

  per share

2011

Pence

Basic earnings per share

138 

1,108

12.5

85 

1,107

7.7

Acquisition related expenses and impairments

92 

-


121 

-


Predecessor accounting for Magic Life

-


17 

-


Separately disclosed items

92 

-


74 

-


Tax base difference

(36)

-


(36)

-


Basic underlying earnings per share

286 

1,108

25.8

261 

1,107

23.6

Effect of dilutive options

10


11


Effect of convertible bond (net of tax)

47 

205


45 

205


Diluted underlying earnings per share

333 

1,323

25.2

306 

1,323

23.1

 

The tax base difference primarily represents the difference between the actual charge in the consolidated income statement and the Group's underlying tax charge, as disclosed in Note 6. The dilutive effect of the convertible bonds is included solely to calculate diluted underlying earnings per share.

 

Reconciliation of profit for the year from continuing operations attributable to ordinary shareholders from continuing operations

 


 

Year ended 

30 September 

2012 

£m 

 

Year ended

30 September

2011

£m

Profit attributable to ordinary shareholders from continuing operations

138 

85

Result attributable to non-controlling interests from continuing operations

(1)

2

Profit for the year from continuing operations

137 

87

 



 

Non-GAAP measure

Reconciliation of underlying operating profit to underlying earnings

 


Note

Year ended 

30 September 

2012 

£m 

 

Year ended 

30 September 

2011 

£m 

Underlying operating profit


490 

471 

Net underlying financial expenses

4

(100)

(111)

Underlying profit before tax


390 

360 

Underlying tax charge at 27% (2011: 27%)


(105)

(97)

Underlying profit for the year


285 

263 

Attributable to ordinary shareholders


286 

261 

Attributable to non-controlling interests


(1)

Underlying profit for the year


285 

263 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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Prelim results for the year ended 30 Sept 2012 - RNS