Notes on the Consolidated Profit and Loss Statement

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(1) Turnover (2) Cost of sales and administrative expenses (3) Other income/other expenses (4) Impairments of goodwill (5) Financial income (6) Financial expenses (7) Result from companies measured at equity (8) Adjustments (9) Income taxes (10) Result from Discontinued Operations (11) Group profit for the year attributable to shareholders TUI AG (12) Group profit for the year attributable to minority interests (13) Earnings per share (14) Tax effect of other ­comprehensive income

Since the balance sheet date was changed from 31 December to 30 September, the present consolidated financial statements are based on a short financial year from 1 January to 30 September 2009. The consolidated profit and loss statement for the short financial year 2009 is therefore not directly comparable with the figures for 2008.

In the short financial year 2009, the Group’s earnings position was mainly characterised by the profit from the sale of Container Shipping in the first quarter of 2009.

In an overall difficult market environment, earnings by Tourism rose overall due to the enhanced earnings position of the TUI Travel Group. By contrast, Group earnings were adversely affected in particular by the measurement of the loans granted to the new container shipping group and the prorated losses of Container Shipping, to be measured at equity, for the period from April to September 2009.

(1) Turnover

Group turnover by business activity

Turnover was impacted by the year-on-year weakening of the sterling exchange rate. TUI Travel also recorded a decline in turnover due to capacity cuts resulting from active capacity management, on sound pricing and occupancy rates.

Other turnover included costs of brochures and advertising materials charged to hotels and travel agencies, costs incurred for TUI’s company health scheme BKK TUI and operating income from sideline operations.

(2) Cost of sales and administrative expenses

The cost of sales and administrative expenses included:

Lease, rental and leasing expenses

Where rental and lease expenses for operating leases were directly related to the turnover generated, these expenses were shown under the cost of sales. However, where rental and lease expenses were incurred for administrative buildings, they were shown under administrative expenses.

Personnel costs

Pension costs included expenses for defined benefit pension obligations. The interest portion of the measurement of pension obligations was carried under financial expenses due to its financing character. The expected income from the associated fund assets was carried under financial income. A detailed presentation of pension obligations is provided in Note 32.

In the short financial year, personnel costs declined for various reasons including the weakness of sterling and cost savings achieved as integration between the First Choice Holidays Group and the TUI Group was taking effect.

The average annual headcount (excluding apprentices) developed as follows:

Average annual headcount in the (short) financial year (excl. apprentices)

Amortisation of intangible assets and depreciation of property, plant and equipment

Depreciation and amortisation included the amortisation of other intangible assets, depreciation of property, plant and equipment as well as write-downs of investment property. The uniform Group-wide useful lives underlying depreciation and amortisation and the principles for impairment are outlined under ‘Accounting and measurement’ in the Notes.

Depreciation/amortisation/impairments

In the short financial year 2009, depreciation and amortisation for the first time reflected the strategic realignment of the airline activities implemented in mid-2008 for a reporting period. In the framework of this realignment, aircraft had been sold through sale-and-lease-back agreements.

Impairments in the short financial year 2009 almost exclusively related to the Corsair aircraft fleet.

(3) Other income/other expenses

Other income/other expenses

Other income mainly related to gains on disposal from the sale of aircraft engines, the sale of a hotel complex in the French source market and the sale of sailing yachts.

Other income carried in 2008 primarily resulted from book profits in connection with sale-and-lease-back agreements for aircraft and the sale of aircraft spares (totalling €32.9m), gains on disposal in the real estate sector (€6.0m) and the sale of ship containers (€11.0m).

Other expenses carried in 2008 mainly related to book losses from the conclusion of sale-and-lease-back agreements for 19 aircraft totalling €101.7m.

(4) Impairments of goodwill

According to the provisions of IFRS 5, goodwill had to be impaired by €8.9m for Jet4you, a Moroccan company available for sale.

The implementation of impairment tests according to IAS 36 did not result in any further impairments. Even applying sensitivities to the main parameters of the impairment test (a reduction in the growth rate of 0.5% or an increase in the interest rate of 0.5%), did not result in any impairments.

In 2008, impairments mainly related to goodwill of TUIfly and Tenuta di Castelfalfi.

(5) Financial income

Financial income

(6) Financial expenses

Financial expenses

In the short financial year 2009, financial expenses mainly comprised the write-downs of the loans totalling €353.9m granted to Albert Ballin Holding GmbH & Co. KG and Hapag-Lloyd AG. Measurement of these loans took account of the impact of interest rate effects arising on the comparison of currently appropriate interest rates for Container Shipping and the interest rates agreed in March 2009 and, in particular, the conditions which had to be met to obtain approval of a state loan guarantee for the benefit of the container shipping group.

A positive effect on the overall financial result was created by the general fall in interest rate levels year-on-year and the significant enhancement of the financial position of the Continuing Operations.

(7) Result from companies measured at equity

Result from companies measured at equity

The result from companies measured at equity comprised the net profit for the year attributable to the associated companies and joint ventures.

The considerable decrease in the result from companies measured at equity was driven by the first-time measurement of the 43.33% stake in the new container shipping group held by the TUI Group as an associated company following the sale of Container Shipping in March 2009. Negative earnings attributable to this group amounted to €-214.2m.

In the completed short financial year, as in 2008, the result from companies ­measured at equity did not comprise any impairments. In the short financial year under review, proportionate losses of €1.0m (previous year: €1.5m) attributable to associated companies and joint ventures were not recognised since these losses exceeded the value of the stakes held. Accumulated losses not yet included in at equity measurement totalled €6.1m (previous year: €5.1m).

Group share in individual items of profit and loss statements of joint ventures

Group share in individual items of profit and loss statements of associated companies

(8) Adjustments

On top of the disclosures required under IFRS, the consolidated profit and loss statement comprises a reconciliation to underlying earnings. The one-off items show final consolidation profits under gains on disposal, events according to IAS 37 under restructuring, and all effects on EBITA under purchase price allocations.

In addition, one-off items carried here include adjustments for income and expense items that reflect amounts and frequencies of occurrence rendering an evaluation of the operating profitability of the Sectors and the Group more difficult or causing distortions. These items include in particular major restructuring and integration expenses not meeting the criteria of IAS 37, major expenses for litigation, gains and losses from the sale of aircraft and other material business transactions with a one-off character.

(9) Income taxes

Breakdown of income taxes

The current income taxes arising in Germany mainly resulted from a revaluation of tax risks. The decline in current taxes abroad was attributable, among ­others, to the use of tax loss carryforwards by TUI Travel PLC. Current income taxes related to other periods totalled €-71.7m (previous year: €-14.9m) in the short financial year.

In the short financial year under review, total income taxes of €-46.2m (previous year: expense of €42.8m) were derived as follows from an ‘expected’ income tax expense that would have arisen if the statutory income tax rate of TUI AG as the parent company (aggregate income tax rate) had been applied to earnings before tax:

Reconciliation of expected to actual income taxes

The tax effects arising in 2008 from the difference between actual and expected tax rates were mainly attributable to the results in connection with the transfer of TUI AG’s maritime assets to Hapag-Lloyd AG’s tonnage tax regime in order to prepare the sale of Container Shipping.

The tax effect of expenses with no tax effect mainly changed due to the at equity result from Container Shipping carried in the short financial year.

Compared with 2008, the effects of loss carryforwards included current tax loss carryforwards in Germany considered as non-realisable.

(10) Result from Discontinued Operations

In the short financial year 2009, the result from Discontinued Operations comprised Container Shipping until its disposal at the end of March 2009. Since September 2009, it has also included the Magic Life hotel company with four Group-owned hotel facilities in Turkey, available for sale, in the framework of the currently ongoing negotiations.

The Discontinued Operation Container Shipping consisted of Container Shipping activities and the shareholdings in the container terminals in Altenwerder and Montreal/Canada.

The result from Discontinued Operations comprised the operating income and expenses and the gain on disposal of Container Shipping.

Material items of the profit and loss statement of the Discontinued Operations   

Turnover by Container Shipping operations declined by 23% against the first quarter of 2008 to around €1.1bn until the deconsolidation date (end of March 2009). This development resulted from the decline in transport volumes and lower freight rate levels, whereas, on the other hand, the US dollar exchange rate rose against the euro.

The declines in transport volumes and average freight rates were attributable to the global economic downturn triggered by the financial crisis.

According to IFRS 5, depreciation of fixed assets and at equity measurement had to be suspended for the period until the disposal of Container Shipping. As a result, earnings rose by a total of €66.0m in the short financial year 2009.

Assets and liabilities of the Discontinued Operations

Apart from the four Turkish Magic Life club complexes available for sale, this item mainly included the operating receivables and liabilities from the operation of Magic Life hotels in Austria as well as Egypt, Greece, Turkey and Tunisia.

Cumulative expenses and income of the Discontinued Operations directly taken to equity totalled €-7.6m as at 30 September 2009 and exclusively related to Magic Life following the disposal of Container Shipping.

Cash flows from operating, investing and financing activities of the Discontinued Operations

In the short financial year 2009, the cash flows shown here for the Discontinued Operations comprised the business of the Magic Life Group as of 1 January 2009 and Container Shipping for the first quarter of 2009. In 2008, each of these two Sectors was shown for a 12-month period.

(11) Group profit for the year attributable to shareholders TUI AG

Group profit for the year attributable to TUI AG shareholders rose from €-121.4m in 2008 to €333.3m in the short financial year under review. The increase was largely attributable to the book profit from the sale of Container Shipping.

(12) Group profit for the year attributable to minority interests

Group profit for the year attributable to minority interests

Group profit for the year attributable to minority interests mainly related to consolidated subsidiaries in the Tourism Segment, in particular companies of the TUI Travel PLC Group and the RIUSA II Group.

(13) Earnings per share    

In accordance with IAS 33, basic earnings per share were calculated by dividing the Group’s net profit for the year attributable to TUI AG shareholders by the weighted average number of registered shares outstanding during the financial year under review. In the short financial year 2009, the average number of shares was the total number of shares at the beginning of the financial year (251,444,305 shares), since no new shares were issued (previous year: 198,730 new shares, for 23 days).

In analogy to IAS 33.12, the after-tax dividend on the hybrid capital was deducted from Group profit for the year attributable to shareholders of TUI AG since the hybrid capital represents equity but does not constitute Group profit attributable to TUI AG shareholders. For the hybrid capital, accrued dividend obligations totalling €17.2m at the balance sheet date (2008: €23.7m) were included in financial liabilities and will be paid in January 2010.

Earnings per share

As a rule, a dilution of earnings per share occurs when the average number of shares increases by adding the issue of potential shares from conversion options and warrants. Since basic earnings per share were negative for the continuing operations, no dilution effect arose for the short financial year 2009.

(14) Tax effect of other ­comprehensive income

Tax effect of other comprehensive income