The TUI Group operates in the tourism sector with its shareholdings. TUI AG also holds a financial stake in container shipping. The financial commitment to container shipping was reduced by around €1bn to around €1.5bn in the financial year under review. As at 30 September 2011, it comprised the financial stake of 38.4% in Hapag-Lloyd Holding AG and hybrid capital worth €0.35bn granted to Hapag-Lloyd Holding AG.
Depending on the type of business, the tourism operations and financial commitment in Container Shipping entail various inherent risks. Risks may arise from the Group’s own entrepreneurial action or external factors. In order to identify and actively control these risks, the Group has introduced Group-wide risk management systems.
Risk policy
TUI’s risk policy is designed to steadily and persistently increase the Group’s corporate value, achieve its medium-term financial goals and secure the Company’s ongoing existence in the long term. It is thus an integral component of the Group’s corporate policy.
TUI Travel, the largest Sector in the Tourism Segment, is particularly well placed to offset developments in individual markets or product groups by virtue of its flexible business model. Committed flight and hotel capacity stayed within limits. The flight capacity of the Group’s own airlines is largely oriented to the needs of the respective tour operators. The size of the fleet of the Group’s own airlines can be adjusted to changes in demand in the short to medium term with the aid of graduated leasing agreements.
In terms of turnover, TUI is Europe’s market leader in Tourism, above all via its stake in TUI Travel PLC. In order to seize market opportunities and leverage the potential for success, risk must be accepted to a reasonable degree. The purpose and goal of the risk management system is to identify risks of any kind early on, assess them and contain them so that the economic benefit outweighs the threats.
The performance of Container Shipping is influenced by several external factors, including changes in freight rates and oil prices (bunker) as well as the general development of capacity in relation to fluctuating demand for transportation services. In financial year 2010/11, the rise in oil prices caused higher bunker costs, which were not fully passed on to customers in a market environment characterised by higher container shipping capacity and intense competitive pressure. One of the key factors for future prospects is the increase in global capacity in Container Shipping. As in previous years, additional capacity in Container Shipping will also be commissioned in the next few years. This could adversely affect freight rates if they are not matched by a corresponding increase in demand. The prospects for Container Shipping may also be affected by extraordinary events such as natural disasters. Due to the earthquake and the consequent reactor accident in Japan, demand for transportation services dropped in this region in financial year 2010/11.
Risk management
The TUI Group’s risk management comprises clearly defined systems and methods incorporated in the organisational and workflow structure. The methodological basis and the frequency of controls are tailored to reflect different types of risk. The controls set out in Group-wide policies are continually monitored, developed and adjusted to changing business environments.
Central risk management comprises the independently organised reporting system for the early identification of risks threatening the existence of the Company (German Act on Control and Transparency in Business, KonTraG), initiated, coordinated and monitored by the KonTraG working group as the competent body. Early risk identification aims to provide reports, both regular and case-by-case, in order to identify potential risks within the Group companies, assess these risks with the aid of uniform parameters and summarise them in an overall Group-wide system. The risk management measures to be taken are implemented within the operative entities and mapped and supported by means of operational systems. Nevertheless, there is a feedback loop between early risk identification and operational risk management. There is also interaction with the planning and control process.
The Supervisory Board, in particular the Audit Committee of TUI AG, oversees the effectiveness of the risk management system in accordance with stock legislation provisions. The Supervisory Board is involved in this process by means of regular quarterly reports from the Executive Board and, where necessary, ad hoc reports at its regular meetings.
Risk management is supported by the Group-wide auditing departments. It focuses on risk reporting in accordance with KonTraG, both regularly and on a case-by-case basis. In preparing the annual financial statements as at 30 September 2011, the system for the early detection of risks threatening the existence of the Company was reviewed by the auditors and was found to be fully operational.
The regular risk reporting system did not identify any specific risks threatening the continued existence of individual Group companies or the entire Group, either during the financial year 2010/11 or at year-end.
Risk transfer
Risk management includes making provision for cover. Potential damages and liability risks from day-to-day business operations are covered, as far as economically reasonable, by insurance policies. The Group has concluded, inter alia, liability and property insurance policies customary in the industry, and insurance policies for its airlines and maritime operations. These insurance policies are regularly reviewed and adjusted where necessary.
Risks related to future development
Environment and industry risks
Both Tourism – the TUI Group’s core business – and Container Shipping are exposed to a number of macroeconomic risks. Since travel expenditure is discretionary and price-sensitive, demand for tourism products hinges in particular on macroeconomic developments in the key source markets. Future economic declines such as high unemployment rates in relevant source markets, unexpected rises in interest rates, direct or indirect tax or the cost of living may therefore lead to reduced disposable income and, as a consequence, to substantial falls in demand for travel and other tourism products. In this regard, it is not just the real developments that people actually experience, but even the expectation of macroeconomic developments and their impact on individual lives that play a role. Changes in economic cycles, in particular, may affect demand for tourism products. Such macroeconomic cycles may be influenced by global political events such as terrorist attacks, wars, social unrest and political instability.
In addition, specific risks to business may arise from increases in commodity prices, in particular oil products, which may be driven directly by a rise in oil prices or indirectly by the exchange rate between the US dollar and the euro or sterling. These risks may, for instance, lead to weaker economic growth in countries of relevance to the TUI Group’s activities, and this can indirectly dampen demand for tourism services, adversely affecting the Group’s financial and earnings position. Rising oil prices also directly drive up a key cost factor in holiday tours. If the cost increases are factored into prices, this may have an adverse effect on demand for these products. If, by contrast, the costs associated with higher oil prices are not or only partly passed on to customers in the form of price increases, this may also adversely affect the Group’s earnings position.
The demand for travel may also be affected by what happens next in the financial markets and the discussions about high sovereign debt in individual countries. Firstly, changes in exchange parities may result in exchange rate-driven changes in the cost situation in Tourism or Container Shipping. Secondly, efforts by countries to consolidate their budgets may impact on the disposable income of private households in these countries. This might cause demand for travel to decline. The continuing euro and sovereign debt crisis in some European countries and the associated uncertainty among consumers may lead to general consumer restraint, even in countries not directly affected by the debt crisis, and thus adversely affect demand for holiday tours.
Business operations may also be affected by market-specific events such as changes in consumer behaviour or cutbacks in consumer spending.
A detailed assessment of the macroeconomic prospects for the medium term is presented in the Report on Expected Developments.
Risks from acquisitions and divestments
Acquisitions effected in the past have created goodwill for the TUI Group. Should cash flows fall below expected levels due to a business downturn, impairments (in particular impairment of goodwill) might be required and would thus impact Group earnings.
As before, TUI intends to sell off all assets invested in Container Shipping. There are no indications at present that the values recognised for the hybrid capital granted to Hapag-Lloyd or the financial investment might be at risk.
Risks from information technology
TUI’s business operations rely heavily on IT technology. The reservation processes and the related back-office processes require an IT infrastructure that is available at all times. Moreover, the internet is growing in importance as a distribution channel and as the technology used in cooperating with various business partners. Disruptions to the availability of IT systems may impair TUI’s business processes and result in turnover losses and cost increases.
TUI aims to reduce the risk of IT system failure. To this end, it has introduced a Group-wide IT governance structure, which is constantly being optimised. In order to enhance the reliability of the IT systems, the Group-wide programme to maintain and secure business operations incorporates IT disaster recovery management.
As the largest provider in tourism, TUI has to permanently develop its existing systems in order to secure and expand its leading market positions in the competitive environment, which is characterised by new technologies.
As part of TUI’s IT strategy, system platforms will be further consolidated so as to optimise business processes and enhance the effectiveness of the IT systems used within the Group. TUI is also planning to establish a central expert team in the Group in order to be able to respond even faster to changes in customer behaviour.
Business risks in Tourism
In the Tourism Segment, customers’ booking behaviour is essentially affected by the general economic climate and external factors. Political events, natural disasters, epidemics or terrorist attacks may affect holidaymakers’ decisions and thus the course of business in individual markets. This may adversely affect demand in individual source markets or demand for certain destinations. Moreover, unscheduled costs may arise for the repatriation of customers from destinations affected by external events.
In the financial year under review, the political unrest in North Africa and the Middle East caused a substantial decline in demand for destinations in Egypt and Tunisia. This affected in particular TUI tour operators in France and TUI hotels in Egypt. The impact on business in the other source markets was largely contained by flexible capacity management.
Market risks increase with tougher competition and the emergence of new market participants operating new business models. Factors that may adversely affect sales by retail shops are web-based distribution of travel services and low-cost airlines.
A substantial business risk in Tourism relates to the seasonal planning of flight and hotel capacity. In order to plan ahead, tour operators must forecast demand and anticipate trends in holiday types and preferred destinations. The TUI business model underlying operations in TUI Travel and Hotels & Resorts is well suited to countering the ensuing capacity utilisation risks:
The Group’s own airline and hotel capacity is considerably lower than the number of customers handled by its tour operators. This enables the Group to keep its product portfolio flexible by sourcing third-party flying capacity and hotel beds and concluding contractual agreements accordingly.
The Group’s presence in all major European countries allows it to limit the impact of regional fluctuations in demand on the take-up of capacity in the destinations.
Due to the Group’s presence in all key holiday regions, fluctuations in demand between the destinations can be countered. Lower demand for tours to a specific destination can be offset by expanding the portfolio for other destinations.
Additional opportunities are offered by multi-channel distribution and direct and modular online marketing of capacity.
Risks from the equity stake in Container Shipping
Apart from its investment of around €1.2bn, i.e. a 38.4% stake, in Hapag-Lloyd Holding AG, TUI’s financial commitment at the balance sheet date comprised hybrid capital of €0.35bn granted to Hapag-Lloyd Holding AG.
A persistent deterioration in the operating performance of Container Shipping might lead to a decline in the carrying amount of the investment. In its medium-term planning, TUI expects Hapag-Lloyd to show an overall positive development of business operations.
TUI currently sees no indication whatsoever suggesting that the carrying amounts of the hybrid capital granted to Hapag-Lloyd might need to be impaired.
Financial risks
The TUI Group operates a central finance management system that performs all essential transactions with the financial markets.
In the wake of the merger of TUI’s tourism activities with First Choice to form TUI Travel PLC in 2007, a division of labour was introduced for the central cash management system, previously managed exclusively by TUI AG, central corporate finance and the central financial risk management system. TUI Travel PLC performs these functions for the TUI Travel Group, while TUI AG continues to hold this function for all other business operations in the Group.
Policies exist to define financing categories, rules, competences and workflows as well as limits on transactions and risk items. Trading, settlement and controlling functions are segregated in both functional and organisational terms. Compliance with the policies and limits is constantly monitored. As a matter of principle, all hedges entered into by the Group must be supported by underlying recognised or future transactions. Recognised standard software is used for recording, evaluating and reporting on these hedges.
Financial instruments
In the TUI Group, financial risks mainly arise from payment transactions in foreign currencies, the need for fuel (aircraft fuel and bunker oil), and financing via the money and capital markets. In order to limit risks arising on changes in exchange rates, market prices and interest rates for underlying transactions, TUI uses derivative financial instruments not traded on stock markets. These are primarily fixed-price transactions (e.g. forward transactions and swaps) and, to a lesser extent, options. These transactions are concluded at arm’s length with first-rate companies operating in the financial sector whose counterparty risk is regularly monitored. Foreign exchange translation risks from the consolidation of Group companies not reporting in euros are not hedged.
Detailed information about hedging strategies, risk management, financial transactions and the scope of such financial transactions at the balance sheet date is provided in the section on “Financial instruments” in the Notes to the consolidated financial statements.
Liquidity management
In the course of the annual Group planning process, TUI draws up a multi-annual finance budget. In addition, TUI produces a monthly rolling liquidity plan covering a period of one year. The liquidity plan covers all financing categories within the Group.
Liquid funds, money and capital market instruments as well as bilateral bank loans and syndicated credit facilities are used to meet the Group’s financing requirements. Besides TUI AG, TUI Travel PLC in particular has separate access to banks and the capital market and an independent ability to secure the liquidity of the tourism companies allocated to it.
In order to meet its long-term financing requirements, the TUI Group has issued seven bonds in the capital market, including a hybrid bond carried as equity. Nominal liabilities under these bonds totalled €2.2bn at the balance sheet date. The bonds had different structures and maturities. Future repayment or refinancing risks were limited by optimising the maturities and volumes of these bonds.
In the completed financial year, TUI AG repaid current financial liabilities worth a total of €1.2bn as scheduled and called bonds with a total volume of €0.7bn due in 2012 for early redemption, in order to optimise the structure of its financial liabilities. Following the completion of financial year 2010/11, TUI AG purchased the amount outstanding under a convertible bond issued by TUI AG and maturing in September 2012 of €0.2bn in the framework of a public tender offer, and initiated the process of early redemption for reasons of minimal outstanding principal amount, respectively. Detailed information on this transaction is provided in the Report on Subsequent Events in the Management Report.
In March 2011, TUI AG placed five-year convertible bonds worth €0.3bn. In addition to this, TUI AG modified the contractual arrangements to extend the redemption date, from March 2013 to July 2014, of a structured transaction worth €0.2bn, serving to avoid potential dilution effects from a convertible bond issued by TUI Travel PLC in April 2010.
In May 2011, TUI Travel PLC extended the debt maturity profile of its bank credit lines. TUI Travel PLC cancelled bilateral and syndicated bank credit lines totalling £1.2bn, most of which had to be repaid by June 2012, ahead of their due date, signing a new syndicated banking facility of £1.2bn maturing in June 2015. At the balance sheet date, an amount of £0.1bn had been drawn from TUI Travel PLC’s banking facilities.
Further information, in particular on the remaining terms, is provided under the heading “Financial liabilities” in the Notes to the consolidated financial statements.
The refinancing schemes of TUI AG and TUI Travel contributed substantially to strengthening the medium-term liquidity reserve of the respective financing categories. Current cash flows provide further financing options. Moreover, the scope for using additional capital market options or the assets still invested in Container Shipping is being examined.
Essential contractual regulations for the financing instruments
TUI AG’s financial liabilities taken up via the capital market, the financing transaction based on the exchangeable bond with an option for shares in TUI Travel PLC issued by a non-Group third party, and TUI Travel PLC’s syndicated and bilateral credit facilities comprise a number of obligations:
In the case of TUI Travel’s syndicated credit facility, for instance, there is a duty to comply with financial covenants on (a) compliance with an EBITDAR-to-net interest expense ratio measuring the Group’s relative charge from the interest result and the lease and rental expenses; and (b) compliance with a net debt-to-EBITDA ratio, calculating the TUI Travel sub-group’s relative charge from financial liabilities. The covenants also restrict TUI Travel PLC’s scope for encumbering or selling assets, acquiring other companies or shareholdings and effecting mergers.
The capital market instruments, the financing transaction based on the exchangeable bond for shares in TUI Travel PLC, and the bilateral and syndicated credit facilities also contain additional contractual clauses typical of financing instruments of this type. Non-compliance with these obligations awards the lenders the right to call in the facilities or terminate the financing schemes for immediate repayment.
TUI’s and TUI Travel PLC’s business transactions and expected business developments are continually checked for compliance with contractual provisions.
More detailed information on financing and financial debt is provided in the section “Financial situation of the Group” and under “Financial liabilities” in the Notes to the consolidated financial statements.
Risks from pension provisions
Pension funds have been set up to finance pension obligations, in particular in the UK. These funds are managed by independent fund managers who invest part of the fund assets in securities. The performance of these funds may thus be adversely affected and impaired by developments on the financial markets.
The present value of fully or partly funded pension obligations totalled €1.9bn, while the fair value of external plan assets amounted to €1.4bn. The funded pension obligations exceeded plan assets by €0.4bn. Combined with the present value of pension obligations not covered by funds of €0.5bn, this resulted in pension obligations with a net present value of €0.9bn, fully covered by pension provisions. Detailed information on the pension obligations is provided under the heading “Provisions for pensions and similar obligations” in the Notes to the consolidated financial statements.
Other financial commitments
At the balance sheet date, the TUI Group had other financial commitments of €2.4bn (following €2.1bn as at 30 September 2010). These liabilities mainly related to order commitments for investments. Around €0.4bn had a remaining term of up to one year.
At the balance sheet date, financial liabilities from operating lease, rental and charter agreements amounted to €3.3bn (previous year €2.9bn). At €1.4bn, aircraft accounted for the largest proportion of financial liabilities from operating lease, rental and charter agreements, with approximately €0.9bn relating to hotels, €0.4bn to travel agencies, €0.4bn to administrative buildings, €0.3bn to yachts and motor boats, and €0.1bn to other liabilities. Around €0.9bn had a remaining term of up to one year.
Detailed information on other financial commitments is provided in the corresponding section in the Notes to the consolidated financial statements.
Environmental risks
Both current TUI Group companies and those already divested are or have been involved in the use, processing, extraction, storage or transport of materials classified as harmful to the environment or human health. TUI takes preventive measures to counter environmental risks arising from current business transactions and has taken out insurance policies to cover certain environmental risks. Where environmental risks have not passed to the purchaser in divestment transactions, TUI has built appropriate provisions to cover any potential claims.
Other risks
Contingent liabilities and litigation
Contingent liabilities are potential liabilities not recognised in the balance sheet. At the balance sheet date, they amounted to €498.4m (following €453.7m in the previous year). They mainly related to the granting of guarantees to secure the amounts due to banks of Hapag-Lloyd AG.
Neither TUI AG nor any of its subsidiaries are involved in pending or foreseeable court or arbitration proceedings which might have a significant impact on the Group’s business position. This also applies to actions claiming warranty, repayment or any other remuneration brought forward in connection with the divestment of subsidiaries implemented over the last few years. As in previous years, the respective Group companies formed appropriate provisions to cover any potential financial charges from court or arbitration proceedings.
Information on contingent liabilities and litigation is also provided in the corresponding sections in the Notes to the consolidated financial statements.
Key features of the internal control and risk management system in relation to the Group accounting process (sections 289 (5) and 315 (2) no 5 of the German Commercial Code HGB)
1. Definition and elements of the internal control and risk management system in the TUI Group
The TUI Group’s internal control system comprises all the principles, processes and measures that are applied to secure effective, economical and proper accounting and compliance with the pertinent legal provisions.
The TUI Group’s internal control system consists of internal controls and the internal monitoring system. The Executive Board of TUI AG, in exercising its function to manage business operations, has entrusted responsibility for the internal control system in the TUI Group in particular to the Group Controlling, Group Accounting & Financial Reporting, Group Finance and Group HR units managed within TUI AG.
The elements of the internal monitoring system in the TUI Group consist of both process-related and non-process-related measures. Besides manual process controls, e.g. the “four-eyes principle”, another key element of process-related measures are the automated IT process controls. Process-related monitoring is also secured by bodies such as the working group on the German Act on Control and Transparency in Business (KonTraG), and by specific Group functions such as Group Tax or Group Legal.
The Supervisory Board, in particular the Audit Committee, of TUI AG, like Group Auditing at TUI AG and the decentralised audit departments within Group companies, are incorporated into the TUI Group’s internal monitoring system through their non-process-related audit activities. On the basis of section 107 (3) of the German Stock Corporation Act, the Audit Committee of TUI AG deals primarily with the auditing of annual financial statements, monitoring of the accounting process and the effectiveness of the internal control and risk management system.
The Group auditors and other auditing bodies such as the tax auditor are involved in the TUI Group’s control environment through their non-process-related activities. The audit of consolidated financial statements by the Group auditor and the audit of the individual financial statements from Group companies included in the consolidated financial statements, in particular, constitute a key non-process-related monitoring measure with regard to Group accounting.
With regard to Group accounting, the risk management component of the internal control system addresses the risk of misstatements in Group bookkeeping and external reporting. Apart from operational risk management, which includes the transfer of risks to insurance companies by creating cover for damage and liability risks and also hedging transactions to limit foreign currency and fuel price risks, the TUI Group’s risk management system also embraces the systematic early detection, management and monitoring of risks across the Group. In order to ensure systematic early risk detection throughout the Group, the TUI Group has installed a monitoring system for the early detection of risks threatening the existence of the Company in accordance with section 91 (2) of the German Stock Corporation Act, permitting the prompt identification and monitoring of both risks threatening the existence of the Company and other risks, over and above the requirements of this legislation. The Group auditors assess the proper functioning of the early risk detection system in accordance with section 317 (4) of the German Commercial Code. The TUI Group adjusts this system swiftly to any changes in the respective environment. Group Auditing also performs regular system checks as part of its monitoring activities to ensure that the system is functional and effective. More detailed explanations of the risk management system are provided in the section on “Risk management” in the Risk Report.
2. Use of IT systems
Bookkeeping transactions are captured in the individual financial statements of the subsidiaries of TUI AG, mainly through local SAP or Oracle accounting systems. In preparing the consolidated financial statements for TUI AG, the subsidiaries complement their respective individual financial statements to form standardised reporting packages that are subsequently posted by all Group companies in the TRACE reporting system based on SAP BO FINANCE. All reporting packages captured by the TRACE reporting system are then transferred via an interface into the PCE consolidation system. The consolidation system, developed by TUI AG itself, builds on a Microsoft data base system and has been used to prepare TUI AG’s consolidated financial statements for many years. TUI AG’s Group Auditing regularly checks the accuracy of the PCE consolidation system and its authorisations and did not have any ground for objections in the financial year under review. TUI AG’s Group auditor regularly audits the interface between the TRACE reporting system and the PCE consolidation system and the reconciliation tables right through to the consolidated financial statements. The PCE system generates and fully documents all consolidation transactions used to prepare the consolidated financial statements of TUI AG, e.g. capital consolidation, asset and liabilities consolidation, and expenses and income elimination including at equity measurement. All elements of TUI AG’s consolidated financial statements, including the disclosures in the Notes, are developed from the PCE consolidation system. PCE also provides various modules for evaluation purposes in order to prepare complementary information to explain TUI AG’s consolidated financial statements.
3. Specific risks related to Group accounting
Specific risks related to Group accounting may arise, for example, from the conclusion of unusual or complex business transactions, in particular at a critical point in time at the end of the financial year. Business transactions not processed by means of routine operations also entail risks. The discretion necessarily granted to employees for the recognition and measurement of assets and liabilities may result in further Group accounting-related risks. The outsourcing and transfer of accounting-specific tasks to service companies may also give rise to specific risks. Accounting-related risks from derivative financial instruments are outlined in the Notes to the consolidated financial statements.
4. Key regulation and control activities to ensure proper and reliable Group accounting
The internal control measures aimed at securing proper and reliable Group accounting ensure that business transactions are fully recorded in a timely manner in accordance with the legal provisions and the Articles of Association. This also ensures that inventory stocktaking is properly implemented and that assets and liabilities are properly recognised, measured and carried in the consolidated financial statements. The control operations also ensure that booking records provide reliable and comprehensible information.
Controls implemented to secure proper and reliable accounting include, for instance, analysis of facts and developments on the basis of specific indicator analyses. Separation of administrative, execution, settlement and authorisation functions and implementation of these functions by different persons reduces the potential for fraudulent operations. Organisational measures also aim to capture corporate or Group-wide restructuring or changes in sector business operations in Group accounting in a rapid and pertinent manner. They also ensure, for instance, that bookkeeping transactions are completely recognised in the period in which they occur in the event of changes in the IT systems used by the accounting departments of Group companies. The internal control system likewise ensures that changes in the TUI Group’s economic or legal environment are mapped and that new or amended legal Group accounting provisions are applied.
The TUI Group’s accounting provisions, including the provisions on accounting in accordance with the International Financial Reporting Standards (IFRS), govern the uniform accounting and measurement principles for the German and foreign companies included in TUI’s consolidated financial statements. Specific provisions must, in addition, be met when preparing sub-group financial statements. Besides general accounting principles and methods, provisions concerning the statement of financial position, profit and loss statement, notes, management report, cash flow statement and segment reporting have been established in compliance with EU legislation.
TUI’s accounting provisions also govern specific formal requirements for the consolidated financial statements. Besides defining the group of consolidated companies, they include detailed stipulations for the components of the reporting packages to be prepared by Group companies. Formal requirements govern, inter alia, the mandatory use of a standardised and complete set of schedules. TUI’s accounting provisions also include, for instance, specific provisions on the reporting and settlement of intercompany pricing and the associated transactions for balance reconciliation or determination of the fair value of shareholdings.
At Group level, specific controls to ensure proper and reliable Group accounting include the analysis and, where necessary, correction of the individual financial statements submitted by the Group companies, taking account of the reports prepared by the auditors or any meetings to discuss the financial statements held for that purpose. Based on the control mechanisms already established in the PCE consolidation system or plausibility checks implemented through the system, erroneous financial statements based on TRACE schedules are selected and corrected, if necessary, at Group level. The central implementation of impairment tests for the specific cash-generating units (CGUs) from a Group perspective secures the application of uniform and standardised evaluation criteria. The scope of regulations also extends to the central definition of the parameters applicable in the measurement of pension provisions or other provisions at Group level. The preparation and aggregation of additional data for the preparation of external information in the Notes and Management Report (including subsequent events) is also effected at Group level.
5. Disclaimer
With the organisational, control and monitoring structures established by the TUI Group, the internal control and risk management system enables company-specific facts to be captured, processed and recognised in full, and properly presented in the consolidated financial statements.
However, due to the very nature of the matter at stake, discretionary decision-making, faulty checks, criminal acts and other circumstances, in particular, cannot be ruled out and restrict the efficiency and reliability of the internal control and risk management systems, so that even Group-wide application of the systems cannot guarantee with absolute certainty the accurate, complete and timely recording of facts in Group accounting.
In the period under review, TUI Travel PLC identified two accounting errors for financial year 2009/10. Both the background to the errors and the correction of the errors in financial year 2010/11 have been outlined in detail in the Notes to the consolidated financial statements in the section on the cost of sales and current trade accounts payable.
As soon as the first indications emerged about the limited efficiency of the control systems used in France, staff consequences were drawn by Nouvelles Frontières and a comprehensive special on-site audit was implemented to assess the adequacy of the financial statements for the previous year. The management and the auditors also immediately informed the Audit Committee of the Supervisory Board and TUI AG’s Supervisory Board about the progress of the audit and the audit findings.
The lessons learned from the accounting errors in TUI Travel PLC with regard to the limited effectiveness of the control systems will be taken into account, with the involvement of TUI AG’s management, in further measures to expand and improve the contents and organisation of the systems and processes used to secure the adequacy and reliability of accounting.
Any statements made relate exclusively to those subsidiaries included in TUI AG’s consolidated financial statements where TUI AG is able to directly or indirectly determine their financial and business policies such as to obtain benefits from the activities of these companies.