Letter to our Shareholders
Letter to our Shareholders
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Dear Shareholders,
In 2008 we took a number of crucial decisions charting the future course of the TUI Group. With the sale of a majority stake in container shipping, TUI has become a pure tourism group, both in terms of external perception by the capital market and internal control. The sturdy liquidity and financial situation resulting from the transaction will further enhance the solidity of TUI AG and open up opportunities for a further expansion of our tourism business in the long run.
In October 2008, we concluded an agreement with the Hamburg-based Albert Ballin consortium on the sale of a majority stake in Hapag-Lloyd AG. The selling price is based on the long-term yield prospects in container shipping. However, the current market environment in container shipping deteriorated considerably in the last few months of 2008. Until the closing of the deal in March 2009, we therefore engaged in fair negotiations with our partners in order to devise solutions guaranteeing both the future of Hapag-Lloyd AG as one of the world’s leading shipping companies and stronger financial scope for TUI AG following the sale of a majority stake. Even after the sale of the majority stake, TUI AG will retain a 43.33% stake and will thus remain the largest individual shareholder of Hapag-Lloyd AG. In cooperation with the new co-shareholders we will continue to develop Hapag-Lloyd’s business in a responsible and sustainable manner.
We continued to develop our core business, tourism, in 2008 with a number of crucial measures. TUI Travel successfully completed its first full operative year. The integration and restructuring process advanced faster than initially expected in 2008. TUI Travel upgraded its target for sustainable annual synergies by 25 million to 175 million British pounds sterling. In the light of the current uncertainty about the economic framework, TUI Travel is currently pursuing very restrictive capacity management in all source markets.
Only a small portion of flying and hotel commitments for forthcoming seasons have been contracted. TUI Travel thus operates a robust and flexible business model that will also be able to overcome weaker economic phases.
In financial year 2008, TUI Hotels & Resorts moderately expanded its hotel capacity and almost matched the gratifying earnings level of financial year 2007, despite the strains imposed by the weakening US dollar. Our goal is to achieve a sustainable expansion of the high earnings quality in this sector by selectively sharpening our product portfolio.
A gratifying development in our cruise business was achieved by Hapag-Lloyd Kreuzfahrten with a renewed increase in equity in 2008. With the maiden voyage of the first TUI Cruises ship, to be named ‘Mein Schiff’, in May of this year, we are about to enter the German volume market for premium cruises.
In 2008, the integration of TUI’s tourism division and First Choice as well as the strategic realignment of TUI Travel flight operations placed a considerable strain on Group profit. Therefore we will propose to TUI AG’s Annual General Meeting to suspend distribution of a dividend for financial year 2008. We deliberately made these advance payments since they will significantly enhance the sustainable profitability of our tourism division in coming years.
Assessments of what the future holds in store for the world’s economy have continued to deteriorate in recent months against the backdrop of the current financial and economic crisis. For 2009, all research institutes expect a global slump in economic activity in all sectors, which will also affect demand in the travel market.
Thanks to the successful realignment of our Group portfolio, we considerably strengthened the solidity of the TUI Group in 2008. In tourism, we will be able to limit price and volume risks by means of effective capacity management and additional efficiency enhancement measures. In the light of our flexible business model and the delivery of planned synergies as integration proceeds at TUI Travel, we therefore currently expect an overall stable development for the profitability of our tourism division in financial year 2009.
In container shipping, too, the focus will be on market-oriented capacity management in 2009. Based on the current difficult market conditions in container shipping, however, operating earnings are expected to decline substantially year-on-year in 2009. The at equity result to be included after the sale will include financing costs for Hapag-Lloyd and is therefore expected to create correspondingly negative profit contributions for TUI’s Group profit.
Overall, we expect the profitability of our tourism division to show a stable development in financial year 2009 due to our flexible business model and the delivery of planned synergies. Should the economic situation in our key markets develop much less positively than expected, however, we will not be able to rule out potential follow-up effects of the current financial and market crisis on our operative business. For the Group as a whole, we will therefore not be able to repeat the operative earnings level of 2008, in particular due to the trends in container shipping.
As integration cost in 2009 will be significantly lower and taking into account the anticipated gain on disposal in container shipping reported earnings for the TUI Group are expected to be positive in the financial year 2009.
Yours sincerely,
Dr Michael Frenzel, CEO