Speech of Rainer Feuerhake, CFO TUI AG Annual results press briefing on 18 March 2008 in Hanover
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Ladies and Gentlemen, let me now present the consolidated financial statements for the 2007 financial year, which were in particular characterised to some extent by the acquisition of First Choice Holidays PLC. Dr Frenzel has already mentioned the key indicators. Let me first of all take you through the consolidated profit and loss statement.
As in previous years, financial reporting has been affected by changes in IAS requirements but also the harmonisation of P&L reporting following the acquisition of First Choice. These changes primarily include the structure of the consolidated profit and loss statement according to the internationally customary cost of sales method. A further aspect to be mentioned is the presentation of underlying EBITA in the consolidated P&L.
Turnover of 21.9 billion euro is presented alongside the cost of sales, which totals 20.3 billion euro and is thus up 5.9 per cent year-on-year. The cost of sales comprises all types of expenses associated with the generation of the turnover. It consists of all cost types serving the production of goods and services, e.g. cost of materials, personnel costs, depreciation/amortisation and rental and leasing expenses, e.g. for aircraft and hotels.
In the completed 2007 financial year, gross profit as the difference between turnover and costs totalled 1.5 billion euro, up 17.2 per cent year-on-year. Administrative expenses in the 2007 financial year remained flat, matching the previous year’s level of 1.4 billion euro. While an increase in administrative costs was caused by the first-time consolidation of First Choice, administrative costs declined in the shipping division in the completed financial year. Other income and other expenses primarily comprise gains and losses from the disposal of fixed assets. In the 2007 financial year, this item amounted to 336 million euro, up 50.6 per cent year-on-year. This increase was primarily attributable to the gain on the disposal of Montreal Gateway Terminal in the shipping division. The balance of gross profit, administrative expenses and the item ‘Other’ totals 485 million euro.
The consolidated P&L includes a charge of 259 million euro for the financial result. The result from companies measured at equity comprises the proportionate profit for the year of the companies in which the Group holds stakes of 20 to 50 per cent. At 65 million euro, it rose by 28.1 per cent year-on-year. This increase was caused by the positive development of the Altenwerder container terminal in the shipping division. Goodwill impairments totalled 54 million euro. They related to the amortisation of goodwill for Budget Travel and the Magic Life Group in the tourism division. Earnings before taxes by the continuing operations thus total 237 million euro, an improvement of around 970 million euro on 2006 figures.
Income taxes totalled 1 million euro and comprised current income taxes of 104 million euro and deferred tax income of 103 million euro. This income tax expense mainly resulted from the restructuring of German operations in the wake of the merger of the tourism entities with First Choice to form the new TUI Travel PLC. It was also caused by the convertible bond newly issued in 2007, which results in additional capitalisation of deferred taxes on TUI AG loss carryforwards. Both transactions result in a deferred tax income, roughly equivalent to an income tax expense of about the same amount. Actual income tax expenses of around 31 million euro were incurred in connection with the gain on disposal from the divestment of Montreal Gateway Terminals. In addition, non-German Group companies generated taxable profits were which could not be eliminated against loss carryforwards in Germany.
Group net profit for the year totals 236 million euro, including an amount of 175 million euro attributable to TUI AG shareholders. Minority interests account for 61 million euro of TUI earnings. The bulk of this amount is attributable to the hotel division.
In the 2007 financial year, the first-time inclusion of First Choice operations in TUI’s consolidated financial statements resulted in a significant increase in assets and debt. The Group’s balance sheet total grew by 25.1 per cent year-on-year to 16.3 billion euro.
At 3.9 billion euro, the Group’s net debt is around 700 million euro up year-on-year. This increase is attributable to the consolidation of First Choice Holidays PLC’s debt. Group debt generally rises for seasonal reasons towards the end of the year due to the swing in the tourism business. However, advance payments for the summer season will also rise in the summer due to the increase in the business volume so that in net terms average annual debt will not rise on its previous level.
By way of conclusion, let me make a few comments on Group financing. In January we issued an exchangeable bond on shares in TUI Travel. The funds raised in the framework of this bond have enabled us to terminate contingent credit lines – TUI AG today basically has no dues to banks and holds financial reserves in the form of liquid funds. Moreover, the exchangeable bond enables TUI Travel to gradually finance itself independently. TUI AG’s redemption obligations for the next three years can be financed from loan repayments by TUI Travel PLC and existing liquidity. Furthermore, the exchangeable bond will not cause a reduction in the stake in TUI Travel. TUI AG will satisfy the subscribers’ rights upon payment in the form of a cash settlement.