Speech of Dr. Michael Frenzel, CEO TUI AG Annual results press briefing on 22 March 2006 in Hanover

– Check against delivery –

Ladies and Gentlemen, my colleagues on the Executive Board and I bid you a warm welcome to our annual press briefing 2006 and the presentation of our annual financial statements for 2005.

TUI AG looks back on a very eventful year in 2005 – a year that shaped the future of our Group. We have consistently developed our two-pillar strategy by means of our acquisition in the shipping division. As the world market leader in tourism and the new number five in shipping, we have established an excellent position in two growth markets which will form the basis for further growth in the future.

One of the key milestones in this context is the successful placement of a capital increase totalling one billion euros to partly fund the acquistion of CP Ships. Our equity rose by around 70 per cent last year. This represents a significant improvement in Group financing. At the same time, we also managed to substantially improve our Group’s long-term financing. With the successful placement of three bonds amounting to a total of 1.3 billion euros, we extended the maturities of the refinancing instruments for the acquisition of CP Ships and our own liabilities. TUI AG is placed on a sound financial footing with a complete long-term financing package. In other words, we have used the past year to strengthen the solidity of our Group even further.

Ladies and Gentlemen, let me start today’s annual press briefing by focusing on a number of key points concerning our annual financial statements. Mr Feuerhake will provide you with more details after my presentation.

2005 was an overall successful year for the TUI Group. What is particularly gratifying is that we achieved further growth in our core businesses tourism and shipping. In tourism, we increased our earnings, although we did not grow in all markets due to the impact of a number of exceptional circumstances. In shipping, we reproduced last year’s record result despite a substantial increase in costs.

Before turning to the figures, I would like to point out that we had to apply a number of revised or newly adopted IASB accounting standards to our consolidated financial statements for 2005. This affected e.g. the measurement of individual items of the profit and loss statement and the balance sheet. This is another area that Mr Feuerhake will comment on in a moment. We will also be adjusting our future reporting in this direction: in future it will be based on EBITA, as is customary in the financial community, instead of EBTA. You will find both indicators in the available documents. In my presentation I will refer to EBTA values for the last time.

Last year we increased our turnover by divisions which comprises central operations and the discontinuing operations apart from our core businesses tourism and shipping by 8.7 per cent year-on-year to 19.6 billion euros. At 633 million euros, earnings by divisions did not fully match the previous year’s level. This is partly due to the increase in the expenses of central operations and lower earnings from discontinuing operations available for sale, in particular a reduction in earnings by our US steel trading operations which have now been sold.

Overall, the business trend in tourism was positive last year. Benefiting from the sustained recovery of travel markets, tourism increased its turnover by 5.8 per cent to 14.1 billion euros. Earnings by the tourism division (EBTA) also grew by two per cent to 360 million euros.

We recorded a substantial increase in turnover in the UK and Germany, which also caused a significant improvement in our earnings position in the source markets Northern and Central Europe.

In the Central Europe sector we increased our turnover by 6.8 per cent to 5.7 billion euros and earnings (EBTA) by one third (33.3 per cent) to 83 million euros.

In the German tour operation business, the specialist tour operators in particular achieved a year-on-year improvement in their performance. In flight operations, the increase in earnings by the sector was attributable to the continuing good seat load factor achieved by the airline Hapagfly and the first-time profit generated by Hapag-Lloyd Express. In Switzerland, the realignment of the tour operation business paid off, generating clearly positive earnings once again.

The Northern Europe sector reported a very gratifying performance. Turnover grew 2.9 per cent to 4.8 billion euros. At 109 million euros, the sector posted a particularly strong rise in earnings (EBTA) of 40.4 per cent. This leap in earnings reflects, among others, the success of the restructuring programme in the UK, as well as improved earnings in the Nordic countries. The start-up costs for the establishment of our British low-cost airline Thom-sonfly, which started operation of two new airports in the first half of the year, caused an opposite effect.

In the Western Europe sector, turnover climbed by 9.9 per cent to 2.8 billion euros in the 2005 financial year.
One of the main driving forces in this sector was the strong performance in the Netherlands, supported by the launch of TUI Airlines Nederland. Solid business in Belgium also contributed to growth. However, at a loss of minus 10 million euros (EBTA), earnings by the Western Europe sector which generated positive earnings of 40 million euros (EBTA) in the previous year did not meet our expectations.

This unsatisfactory performance in the Western Europe sector is attributable to a negative trend in France and explains the overall moderate growth in tourism earnings. The socio-political unrest at the end of the year affected our French tour operators and our airline Corsair much more than expected. Due to the riots in the French suburbs, bookings in France continued to decline in an already weak market. Turnover in the high-margin travel month of December fell 20 per cent short of the previous year’s level. This was a trend we had not expected. The resulting losses in earnings as well as the one-off expenses for Corsair’s fleet re-newal programme were the main reasons for this loss.

As our position in France was impacted by exceptional circumstances or one-off effects, I am confident that this source market will recover and return to positive earnings soon. The French management has already developed a series of measures to counteract this trend, including an adjustment of flight capacity and a significant reduction in costs across the board.

But let us return to the good news. In the 2005 financial year the destinations sector again posted gratifyingly good results, with turnover growth of 4.8 per cent to 532 million euros. Earnings by this sector, which combines our hotel companies and our incoming activities, increased significantly by 17.9 per cent to 169 million euros. This improvement is largely due to our hotel companies. The positive trend was generated by our good operative business with high occupancy rates by our tour operators and the first-time consolidation of two hotel companies. In summary therefore we are on a promising and good track in our tourism business where our key sectors Northern Europe, Central Europe and destinations show a significant increase in their earnings (17 per cent). Let me now turn to shipping, our second stronghold. We have included CP Ships as of the acquisition date, i.e. 25 October to 31 December, in our consolidated financial statements.

Ladies and Gentlemen, with a total of 3.07 million standard containers (including 0.4 million CP Ships), the transport volume of our shipping division grew 27.3 per cent year-on-year, driven by the persistent fast growth in world trade. The proportion attributable to Hapag-Lloyd Container Linie was 87.1 per cent. Due to the growth in volume and the steady development of freight rates, turnover in the shipping division rose 42.7 per cent to 3.8 billion euros (including 0.6 billion euros CP Ships). Hapag-Lloyd again showed a particularly gratifying trend, with a growth in turnover of 20.1 per cent to 3.1 billion euros.

Earnings by the shipping division matched last year’s record level, totalling 279 million euros (EBTA). At 281 million euros, Hapag-Lloyd even slightly outperformed the previous year’s record level. The fourth quarter also saw a very good operative performance of CP Ships, which posted positive earnings. However, due to the negative effects associated with the first-time consolidation of CP Ships, its overall profit contribution was –2 million euros.

Ladies and Gentlemen, we are sure that many of you are particularly interested in our shipping business, so let me examine this sector in greater detail with you:

Hapag-Lloyd again grew faster than the market last year. Our shipping division again generated excellent earnings compared with the industry as a whole. This achievement is particularly noteworthy as Hapag-Lloyd was again faced with substantial cost increases last year, as was the entire sector. These cost increases primarily came from higher short-term charter and bunker costs and amounted to additional costs of more than 100 million euros. The fact that Hapag-Lloyd nevertheless continued to operate at a considerable profit is due to the renewed increase in per capita efficiency and the further expansion of its market position.

The focus of Hapag-Lloyd’s activities in 2005 remained on Asia operations, which accounted for some 41 per cent of total operations. In addition, we have for some time enjoyed an excellent position in the fast-growing inner-Asian transport market. With a total of 20 million standard containers, this market has a larger volume than the Trans-Pacific market (18 million TEUs). The reason for this is the rapid growth of trade between the Asian economies. Capacity utilisation of our vessels in inbound transport from eastern Asia remains excellent. The rates of the Trans-Pacific trade lane, however, are increasingly subject to competitive pres-sure. Hapag-Lloyd has a market share of only 3 per cent in this region and is therefore less impacted by this trend than e. g. many of its Asian competitors.

Although the North Atlantic route, i.e. the trade lane between Europe and North America, did not post the same growth rates as Asian transport in the past, it showed a significant increase in freight rates. Hapag-Lloyd again managed to exceed the very good result achieved in the previous year. There was a further increase in the transport volume in the Latin American trade lanes. As you already know, CP Ships focuses its operations on North Atlantic routes. Charter rates here are currently up 8 per cent year-on-year and have remained virtually stable since December. We can therefore say that CP Ships with its focus on the Atlantic contributes to the stabilisation of our earnings in the current situation.

As already mentioned at the beginning of my remarks, shipping is a growth sector. It is expected that a total of 118 million standard containers will be transported in 2010 (up from 86 million in 2005). This trend is boosted by sustained globalisation and the continued shift away from shipping goods with conventional carriers towards container shipment.

In view of the high growth rates of the past and the positive volume growth expected for the future, we have ordered a considerable number of container ships to be delivered this year and next year. This adds up to an excess tonnage of only 3 per cent, which, in operative terms, will be even less.

In our opinion excess freight capacity may emerge on individual routes – in particular on routes from the Far East to Europe – for a limited period of time. As manifested by the pressure on freight rates the market is already anticipating this trend in individual trade lanes. This pressure is emerging despite the fact that the utilisation rate of the ships is still over 90 per cent.
To give you a better feeling for the market development, which has in some cases been portrayed far too negatively, I would like to point out that Hapag-Lloyd generated approx. 12 per cent volume growth by the end of February. Freight rates have fallen by about 1 per cent year-on-year. So the growth in volumes continues. We are disproportionately impacted by increases in bunker, overland transport and short-term ship charter costs. This situation has not arisen overnight and, incidentally, has not come as a surprise to us. This scenario provides the basis for our 2006 planning. Our assumption is that this is a dip in the trend rather than a structural problem.

Ladies and Gentlemen, the integration of Hapag-Lloyd and CP Ships is proceeding absolutely on plan. The liner networks are an ideal complement to each other and there are hardly any over-laps. The integration means that we can further improve our offerings for our customers and tap synergies at the same time.

The integration of our services on the North Atlantic is to start in early summer and the remaining services are to be successively integrated by the end of the year.

The major advantage of the integration process is Hapag-Lloyd’s decentralised worldwide uniform organisation and its leading IT systems which are to be expanded accordingly. Instead of three, there are now five regions with the respective country organisations. This is where the integration is to be mainly implemented in operative terms. This process is to be completed by 2007. As of 2008, we expect an annual total cost synergy potential of at least 180 million euros.

With the acquisition of CP Ships, TUI has brought Hapag-Lloyd up from its previous mid-range position to a top 5 ranking in container shipping. We know that shipping operations are subject to cycles – not so much in quantitative terms but in terms of the development of freight rates. However, Hapag-Lloyd has always been highly profitable. There is no doubt that this market offers potential and high yields, also in the long term. It is our intention to tap this potential, and we will do so. Our goal is to firmly establish ourselves among the top 5 players, with the fifth rank in the league being our minimum objective.

After this look at container shipping, I would now like to give the floor to Mr Feuerhake.

Speech part two

Ladies and Gentlemen, by way of conclusion, let me briefly summarise our key messages and give you an overview of our prospects for 2006 and beyond:

• The Group has achieved a fundamental positive change in the basis of its operations and its financing structure.
• The Group looks back upon a good operative year 2005.
• What is crucial is that we have again generated high earn-ings in our core businesses, tourism and shipping. The Central Europe sector, and in particular the Northern Europe sector, have achieved double-digit percentage in-creases in earnings year-on-year.
• Our tourism earnings have been impacted by exceptional negative developments in source market France that will not occur again this way.
• In shipping, the integration of CP Ships is on target and will generate a further significant increase in the profitabil-ity of shipping in the medium term.

Let’s move on to the prospects

In the shipping division we expect our transport volumes to again outperform the anticipated market growth of 8 per cent. Due to the shipping capacity to be commissioned on a worldwide scale in the near future, however, it is to be expected that supply and demand will not balance out in all trade lanes in 2006 and 2007. This will particularly apply to transports to and from Asia. Freight rates will show variations in the individual trade lanes. From to-day’s perspective we expect declines in the Europe/Far East and Trans-Pacific trade lanes while the North Atlantic trade lane continues to show potential for a further rise in freight rates.

Against the backdrop of the expected development of transport volumes and average freight rates, but in particular the integration of CP Ships, the shipping division will achieve a significant increase in turnover. We presume that turnover may grow to more than 7 billion euros in the 2006 financial year.

Earnings by the shipping division in the 2006 financial year will be strongly affected by the integration of CP Ships into the Hapag-Lloyd organisation. Earnings from current business operations will benefit from the first-time full consolidation of CP Ships, although Hapag-Lloyd Container Linie and CP Ships will probably not be able to repeat the high earnings generated in the previous year. This assumption is based, among others, on the persistently high bunker costs and short-term charter rates. However, the integration process entails costs which we have budgeted at around 100 million euros and which will predominantly be incurred in the 2006 financial year. Overall, it will there-fore be difficult to reproduce the previous year’s earnings level.

The World Tourism Organisation forecasts growth of 5 per cent for 2005. For the 2006 financial year, we expect growth in our core markets to be in the 3 to 5 per cent range. In our view, this growth will be primarily driven by modular bookings of travel modules, low-cost flight offerings and direct web-based sales.

As our travel bookings grew faster than the market in the financial year under review, we expect to be able to repeat that performance in 2006 again.

Based on our expected volume growth, we are targeting a significant increase in turnover, which may clearly rise to up to 15 billion euros. We expect the Central Europe sector to grow disproportionately.

Concerning the development of earnings (earnings before interest, taxes on income and amortisation of goodwill, EBITA), the individual sectors of the tourism division show an uneven picture. In the Central Europe sector we expect the measures taken to improve production sequences and product innovation to be reflected by a significant improvement in earnings. Earnings in the Northern Europe sector will increasingly benefit from the restruc-turing programmes implemented in the UK in the previous year. The Nordic countries, in contrast, will perhaps not fully reproduce the previous year’s earnings due to the high fuel costs. For the Western Europe sector we expect a year-on-year increase in profit contribution, in particular due to an improvement in the business trend in France where we expect to return to profitable operations again. In the destinations sector we expect an increase in earnings both in incoming agencies and hotel companies. Overall, we thus expect a further improvement in our tourism earnings for the 2006 financial year. These expectations are partly related to the success of further cost reduction measures, further improvements in our low-cost airlines and in the final analysis a significant reduction in one-off costs caused by exceptional effects.

We maintain our medium-term objective of returning to the returns on sales in tourism that we had already achieved before the occurrence of a number of world political events impacting the tourism sector, which has slowly been recovering from the aftermath of these events over recent years. In order to achieve this goal, we will have to engage in cost reductions, efficiency improvements, an extension of the value chain by means of the expansion of activities in the destinations, innovation such as our low-cost airlines and the use of new distribution media. In the final analysis, we expect further operative growth by means of market growth in existing source markets and access to new source markets in the emerging eastern Europe and Asian travel markets.

Ladies and Gentlemen, the Group is well on track, we are stronger than ever and will be able to weather the storm or the tides that may be facing us in future.

Many thanks for your attention.