ANNUAL REPORT

2017

CONTE NTS & FINANCIAL HIGHLIGHTS

Financial highlights

Formats

TUI Group 2017 in numbers

2017€ 18.5 bn€ million

TurnoverVar. % atconstant
currency

17,153.9+ 8.1+ 11.7+ 17.3+ 33.9– 5.0– 9.7– 16.0+ 26.8+ 69.6+ 9.0+ 11.5+ 10.2n. a.
+ 0.7+ 19.2+ 38.0– 4.0– 8.4– 15.8+ 27.0+ 124.6+ 11.2+ 3.4+ 12.0+ 12.0 %1
underlying
EBITA

Underlying EBITA 1
Hotels & Resorts
Cruises
Source Markets
Northern Region
year-on-year
Central Region
Western Region
Other Tourism
Tourism
All other segments
TUI Group
Discontinued operations
Total

356.5
255.6
526.5
345.8
71.5
109.2
year-on-year
13.4
1,152.0– 49.91,102.1– 1.2
1,100.92, 4Underlying EBITDA 4

56 %2
from hotels &cruises content
EBITDA 4

Net profit for the period
Earnings per share4€ 1,102.1 m

Var. %

18,535.0+ 11.7 %1
turnover

EBITA

2016
restated€

1,026.5

898.1+ 14.3

1,541.7

1,379.6+ 11.723.6 % ROIC
6.75 % WACC

Equity ratio (30 Sept.)3%
Net capex and investments (30 Sept.)2time 4of merger
comparedNet
withcash
30 %(30atSept.)
Net cash (30 Sept.) 5
Employees (30 Sept.)€ 1.14

303.8
190.9
554.3
383.1
85.1
86.1
7.9
1,056.9– 56.41,000.5
92.9
1,093.4€

1,490.9

1,305.1+ 14.2

910.9
1.36

464.9
0.61

+ 95.9+ 123.0

24.9
1,071.9
583.0–
66,577

22.5
634.8
31.8
318.0
66,779+ 2.4+ 68.9
n. a.
n. a.
– 0.3

65

cents

Differences may occur due to rounding
This Annual Report of the TUI Group was prepared for the fi nancial year from 1 October 2016 to 30 September 2017. The
terms for previous years were renamed accordingly.
Due to the following changes to segmental reporting the prior year’s reference fi gures were restated accordingly:
The main part of the Specialist Group (Travelopia), carried under discontinued operations in previous year, was sold June 2017.
Prior to that Crystal Ski and Thomson Lakes & Mountains, previously part of the Specialist Group, were transferred to thesegment Northern Region. Blue Diamond Hotels & Resorts lnc., former part of Northern Region was reclassifi ed to the Hotels &Resorts segment. Marella Cruises (former Thomson Cruises, Northern Region) was transferred to the Cruises segment.
1
In order to explain and evaluate the operating performance by the segments, EBITA adjusted for one-off effects (underlying
EBITA ) is presented. Underlying EBITA has been adjusted for gains/losses on disposal of investments, restructuring costs
year-on-year
according to IA S 37, ancillary acquisition costs and conditional purchase price payments under purchase price allocations andother expenses for and income from one-off items.
2
Our defi nition of EBITA is earnings before net interest result, income tax and impairment of goodwill and excluding the result
from the measurement of interest hedges.
3
Equity divided by balance sheet total in %, variance is given in percentage points.
4
Continuing operations
5
Discontinuing operations
1
At constant currency rates
2
Share of underlying EBITA TUI Group, based on 2017 Year End and 2014 Year End reported numbers+ 33.7 %1
underlying EPS

Dividend
per share

The Annual Report andthe Magazine arealso available online

OnlineMobilehttp://annualreport2017.
tuigroup.com

Compass

This is a pagereference.

This is a
web link.

COMBINED MANAGE ME NT REPORTC O R P O R AT E G O V E R N A N C E

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

TO OUR SHAREHOLDER SOUTLOOK»Three years after the merger,
we are in an ideal strategic
position to turn our sights onto
new horizons. We will pursue
consistent growth, investments
to generate value and efficiency
through digitalisation.«Friedrich Joussen, Chief Executive Officer of TUI AG

Contents
2
5
6
8
15

Letter to our shareholders
OutlookGroup Executive Committee
Report of the Supervisory Board
Audit Committee Report

COMBINED
MANAGEMENT REPORT
20
30
47
51
72
88
91
96

Corporate profile
Risk report
Overall assessment by the Executive Boardand report on expected developments
Business review
Non-financial Group declaration
Annual financial statements of TUI AG
TUI share
Information required under takeover law

CORPORATE GOVERNANCE
100
103

Executive Board and Supervisory Board
Corporate Governance Report

CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES
134
134
135
136
138
140
141

Income statement
Earnings per share
Statement of comprehensive income
Financial position
Statement of changes in Group equity
Cash flow statement
Notes

241
242
250

Responsibility statement by management
Independent auditor’s report
Forward-looking statements

Financial highlights

Formats2017

2016
restated

Var. %

Var. % atconstant
currency

Turnover18,535.0

17,153.9+ 8.1+ 11.7

Underlying EBITA 1
Hotels & Resorts
Cruises
Source Markets
Northern Region
Central Region
Western Region
Other Tourism
Tourism
All other segments
TUI Group
Discontinued operations
Total

356.5
255.6
526.5
345.8
71.5
109.2
13.4
1,152.0– 49.91,102.1– 1.2
1,100.9

303.8
190.9
554.3
383.1
85.1
86.1
7.9
1,056.9– 56.41,000.5
92.9
1,093.4+ 17.3+ 33.9– 5.0– 9.7– 16.0+ 26.8+ 69.6+ 9.0+ 11.5+ 10.2n. a.
+ 0.7+ 19.2+ 38.0– 4.0– 8.4– 15.8+ 27.0+ 124.6+ 11.2+ 3.4+ 12.0€ million

1,026.5

898.1+ 14.3

Underlying EBITDA 4

1,541.7

1,379.6+ 11.7

EBITDA 4

1,490.9

1,305.1+ 14.2

€

910.9
1.36

464.9
0.61

+ 95.9+ 123.0

Equity ratio (30 Sept.)3%
Net capex and investments (30 Sept.)
Net cash (30 Sept.)4
Net cash (30 Sept.) 5
Employees (30 Sept.)

24.9
1,071.9
583.0–
66,577

22.5
634.8
31.8
318.0
66,779+ 2.4+ 68.9
n. a.
n. a.
– 0.3

EBITA

2, 4

Net profit for the period
Earnings per share4

The Annual Report andthe Magazine arealso available online

OnlineMobilehttp://annualreport2017.
tuigroup.com

Compass
Differences may occur due to rounding
This Annual Report of the TUI Group was prepared for the fi nancial year from 1 October 2016 to 30 September 2017. The
terms for previous years were renamed accordingly.
Due to the following changes to segmental reporting the prior year’s reference fi gures were restated accordingly:
The main part of the Specialist Group (Travelopia), carried under discontinued operations in previous year, was sold June 2017.
Prior to that Crystal Ski and Thomson Lakes & Mountains, previously part of the Specialist Group, were transferred to thesegment Northern Region. Blue Diamond Hotels & Resorts lnc., former part of Northern Region was reclassifi ed to the Hotels &Resorts segment. Marella Cruises (former Thomson Cruises, Northern Region) was transferred to the Cruises segment.
1
In order to explain and evaluate the operating performance by the segments, EBITA adjusted for one-off effects (underlying
EBITA ) is presented. Underlying EBITA has been adjusted for gains/losses on disposal of investments, restructuring costs
according to IA S 37, ancillary acquisition costs and conditional purchase price payments under purchase price allocations andother expenses for and income from one-off items.
2
Our defi nition of EBITA is earnings before net interest result, income tax and impairment of goodwill and excluding the result
from the measurement of interest hedges.
3
Equity divided by balance sheet total in %, variance is given in percentage points.
4
Continuing operations
5
Discontinuing operations

This is a pagereference.

This is a
web link.

LE T TER TO OURSHAREHOLDERS

Dear shareholders,2017 was another very good year! We were able to continue our
success story. With underlying EBITA up by 12 per cent, TUI Group
increased its operating result by more than ten per cent for thethird time in a row. We are keeping our promise. Above all, the strategic alignment for the new TUI is clearly correct. Our focus on
hotels and our investment in cruise liners is reaping rewards. We
owe the Group’s positive economic performance to our customers,
to our 67,000 employees in over 100 countries and to your loyalty
as shareholders of TUI AG . This year too, we want you to share
in TUI ’s success with a very attractive dividend. We have therefore
proposed to the Annual General Meeting to increase the dividend
to 65 cents per share for the completed financial year.
We operate in a growth industry. People want to travel, regardless ofglobal political events. With the exception of 2009 at the peak of
the financial crisis, our sector has grown faster than gross domestic
product every year. These are favourable conditions for picking
up further market share and continuing to build on our position as
the world’s leading tourism group. That is our goal, and we are
devoting our full energy to achieving it.
How are we framing this growth? In this financial year alone, we
opened ten new hotels, while our cruise fleet acquired two more
vessels to make 16. Our own hotels and cruise ships now accountfor 56 per cent of our earnings. Attaching greater weight to these
operations in our earnings portfolio brings definite advantages.
These businesses generates stronger margins and are is much lessseasonal. Whereas the earnings contributions from our tour operators are posted almost entirely in the last three months, the inflow
from our hotel and cruise business is more evenly spread over theyear and every quarter is positive. This trend has strengthened TUI
and makes us more attractive to investors and the capital market.

We enhanced our leeway for growth even further during the last
financial year by selling our specialist travel brands. The disposalof Travelopia to the private equity company KKR generated anenterprise value of around 370 million euros. We also spun off ourremaining stake in Hapag-Lloyd AG. This final exit from container
shipping and the sale of non-core businesses complete the transformation. TUI is now a pure play tourism group. Our vision‘Think Travel. Think TUI.’ aptly reflects our aspirations. And ourstrategic positioning ensures that we can provide every modulein the tourism value chain from advice and booking to travel, accommodation and destination services. The TUI brand symbolises
quality and trust. Differentiated product is above all secured byour own hotels, clubs and ships. Brands like TUI Blue, Robinson,
Riu and TUI Magic Life, Hapag-Lloyd Cruises with the MS Europa
and TUI Cruises with the ‘Mein Schiff ’ fleet guarantee TUI quality
for holidaymakers all over the world. We don’t just sell this travel
experience; we are setting standards, because TUI is at once
developer, investor and operator.
So we want to build on the success of our traditional markets andactivities. And we want to expand our business into regions andcountries of the globe where we do not yet have a presence. That
includes a number of countries in Southern Europe. In Italy andPortugal, the TUI brand is familiar because they are important
destinations and many of our customers travel there. As a holiday
provider, however, we have so far had almost no market visibility.
Emerging economies like Brazil and China are also shifting further
into our focus. Their new middle classes are growing fast andincreasingly discovering the joys of travel for themselves. We wantto profit from that, but in those markets we do not intend tocreate a dense network of travel agencies. Instead, we will rely
exclusively on our online presence and on strong local partners.

COMBINED MANAGE ME NT REPORTC O R P O R AT E G O V E R N A N C E

TO OUR SHAREHOLDER SOUTLOOKFriedrich Joussen, CEO of TUI AG

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T SOur goal is ambitious, but we believe in these markets. As part ofour strategy programme ‘TUI 2022’, the target for this expansion
over the next five years is to win one million new customers andgenerate an additional one billion in turnover. This expansion entails
big opportunities for our hotel investments in those parts of theworld, because the demand for capacity will no longer come solely
from Europe like now, but also from the surrounding region. The
Caribbean has set a shining example: our hotels there enjoy excellent occupancy rates – thanks to long-haul tourists from Europe
combined with guests from the United States and Canada. We canachieve the same in South-East Asia. For our new hotels and investments, the occupancy risk is tangibly reduced because our target
groups are broader, more diverse and increasingly international.
I also believe there are major opportunities for TUI in our clear
strategy for digitalisation. This digitalisation will not only help us
tap into new markets like China. It is happening throughout thecompany. Data enable us to reach out to our customers in a better,more personal manner and to market new services. For me, moredigital means more service – and better service – for the customer,
and more efficiency for the company. TUI’s use of blockchain has
attracted a lot of attention. Ever more so because we aren’t justtalking about the potential, but actually began placing it in theservice of our hotels in summer 2017. As an integrated tourism
group, we accompany our customers right along the value chain,from the moment they seek advice and book a holiday to theservices they require at the destination and their accommodationin the hotel or on board the liner. This teaches us about theirlikes and preferences, enabling us to offer personalised add-ons.
Personalised means relevant – products and services that offer
these customers genuine added value. In recent months, we haverolled out a centralised, efficient IT infrastructure across theGroup. It provides the technical basis for TUI to gain a single viewof the customer and the customer experience. Our investments
in IT are easily summed up: more service for our customers andmore value for us as a company. It is my firm conviction that inthis field we are setting the standards for our industry.
TUI is in bouncing good health, and TUI is ready for more growth.

Those two factors will enable us to continue to outperform themarket in the coming years. That is why we are so confident that
we can increase underlying EBITA by at least 10 per cent a year
until 2020. Those are bright prospects for you as shareholders.
Thank you for your interest and support over the last year. Your
trust and encouragement are important to us. Let’s take the next
steps together.
Kind regards,

Friedrich Joussen
CEO of TUI AGCOMBINED MANAGE ME NT REPORTC O R P O R AT E G O V E R N A N C E

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

TO OUR SHAREHOLDER S
A N N U A L R E P O R T 2 0 17

5Letter to our Shareholders
OUTLOOK

KEY
FIGURESOUTLOOK
ACHIE VEMENTO U TLOOK

Outlook 2017 1

Actual 20172018

Turnover in € bn

in excess of

3%

2, 4

19.2 + 11.7 %approximately+ 3 % 2, 3

2

EBITA (underlying) in € m

at least+ 10 %

2

1,121 + 12.0 %at least
2+ 10 % 2

Adjustments in € m

100

4

costs

76

~ 80

costs

costs

Net capex and investments in € bn

1.0

5

0.9

5

~ 1.2

6

Net debt in € bn

broadly
neutral 4

0.6

net cashslightly
negative

1 As published on 8 December 2016, unless otherwise stated
2 Variance year-on-year assuming constant foreign exchange rates are applied to the result in the current and prior period and based on thecurrent group structure
3 Excluding cost infl ation relating to currency movements
4 Target adjusted
5 Excluding aircraft orderbook fi nance
6 Assuming acquisition of Mein Schiff 1 for Marella Cruises

GROUP E XECUTIVECOMMIT TEEDAVID BURLING

Member of the Executive Board;
Nothern Region, Airlines,
Hotel Purchasing

DR HILKA SCHNEIDERGroup Director Legal,
Compliance & Board Office

THOMAS ELLERBECKGroup Director Corporate &External Affairs

ELIE BRUYNINCK X
CEO Western Region

KENTON JARVISGroup Director Controllingand Financial Director
Tourism

FRIEDRICH JOUSSENCEOCOMBINED MANAGE ME NT REPORTC O R P O R AT E G O V E R N A N C E

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

TO OUR SHAREHOLDER S

7DR ELKE ELLER

Member of the Executive Board;
Human Resources, Personnel Director
SEBASTIAN EBEL

Member of the Executive Board;
Central Region, Hotels and Resorts, Cruises,
TUI Destination Services
ERIK FRIEMUTH

Group Chief Marketing Officer

FRANK ROSENBERGER

Member of the Executive Board;
IT, New Markets

HENRIK HOMANNHORST BAIER

Group Director Strategy

Member of the Executive Board;
CFO

Please refer to our
website for CVs
www.tuigroup.com/en-en/
about-us/about-tui-group/
management

8

REPORT OF THE
SUPERVISORY BOARD
Ladies and Gentlemen,
TUI AG has delivered on its promise! With the completion of financial

year 2017, your Company has delivered the considerable year-on-yearincrease in earnings promised in the wake of the merger in 2014 for thethird consecutive year. This success is the result of major, joint efforts
by the Executive Board, employees and Supervisory Board – and we areproud of it! In a geopolitical situation characterised by continued uncertainty and risks, TUI AG has sent an important signal of reliability to you,its owners, but also to its employees. The trust you placed in the merger
between TUI AG and TUI Travel PLC was justified.
Today, we can regard the merger and the integration of the two companies
and cultures as completed. The Executive Board has fully delivered andin some key areas even outperformed the synergies promised in thewake of the merger. As the global employee survey carried out for thethird consecutive year has shown, TUI ’s executives and employees show
far above-average engagement. They trust the work performed by the
Executive Board and the strategy, which focuses on the transformationfrom a conventional trading company and tour operator to a verticallyintegrated content provider. We thus continue to be on track.
In financial year 2017, the Supervisory Board supported in particular
the further development of key issues of relevance to the Company. We
intensively discussed the Group’s future strategic orientation with the
Executive Board. Apart from the influence of blockchain technology on
today’s business model, the situation at TUI fl y and the ultimately failed
negotiations about a European aviation joint venture, we also discussed
the Group’s strategy in Asia and held in-depth discussions about the
impact of Brexit on the Company. In order to prepare the strategic
debates of the Supervisory Board, the Strategy Committee formed in2016 again proved to be a valuable, focused platform. The Committee also
discussed, inter alia, TUI Group’s airline strategy and its platform strategy(e. g. IT, brand, marketing) and the associated Group-wide systems.
Corporate Governance issues were another focus of our work. Apartfrom features derived from the further development of the German
and the UK Corporate Governance Codes, we also dealt with a review of
the remuneration system for the Executive Board. Following the merger,
we had deliberately placed the focus on continuity. We merely shifted
the remuneration for Supervisory Board members to a system of purely
fixed remuneration two years ago. Nevertheless, we recognise that ourshareholders regard the remuneration system applied for a number ofyears as being in need of revision. Following careful review and analysis,
we managed, taking into account and weighing up the interests ofmany stakeholders – including cross-border stakeholders – and following
intense debates about numerous alternatives, we finally succeeded in

adopting a remuneration system meeting all legal requirements andmanifold recommendations. It will be applied with retroactive effectfrom 1 October 2017, as all Executive Board members have agreed. The
new system will increase the transparency of the exercise of discretionby the Supervisory Board in individual performance assessment
through alignment with a target system. Moreover, we have abandoned
the possibility of paying discretionary bonuses for good. The payment
hurdles for the variable remuneration have become significantly more
ambitious following your legitimate comments, and they offer the Executive Board new opportunities. My colleagues on the Supervisory Board
and I are convinced that the new, unanimously adopted compensation
system for the Executive Board members harmonises the sometimes
diverging interests of shareholders, employees and Executive Board
members in the best possible manner. Based on this conviction, we willsubmit the remuneration system, described concerning its major elements
and amendments on page 116 of the Annual Report, to the Annual
General Meeting 2018 for its approval.
We have also repeatedly dealt with the future composition of theSupervisory Board and its chair, after Peter Long announced that hewas no longer seeking to assume the role as chairman of the Supervisory
Board. Peter Long will remain Chairman of the Strategy Committee andsuccessfully continue its work in cooperation with the members. The
Supervisory Board also plans to elect Mr Long as its second Deputy
Chairman when Sir Mike Hodgkinson leaves the Supervisory Board at
the Annual General Meeting 2018.
Although I have been elected for a term of office that will expire at theAnnual General Meeting 2021, I had already announced at my re-election
in 2016 that I was going to exercise my functions for an appropriate
period of time. I intend to step down from my offices as at 30 September 2018. Against this backdrop, my activities but also those of theNomination Committee, Presiding Committee and Supervisory Board
were devoted in part to the search for a successor. I am delighted that
the Supervisory Board, at its meeting on 12 December 2017, proposed
Dr Dieter Zetsche as a candidate for election by the Annual General
Meeting 2018 and has announced its intention to elect Dr Zetsche as
Chairman of the Supervisory Board upon my departure should he beelected by the shareholders. I am convinced that TUI AG has gained ahigh-calibre, experienced entrepreneur with extensive international
experience and a far-reaching understanding of strategically important
issues with Dr Zetsche.

COMBINED MANAGE ME NT REPORTA N N U A L R E P O R T 2 0 17

C O R P O R AT E G O V E R N A N C E

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

9Report of the Supervisory Board

Cooperation between the Executive Board and theSupervisory Board
In a stock corporation under German law, there is a mandatory strict
separation of the executive board and the supervisory board. While themanagement of the company is the exclusive task of the executive
board, the supervisory board is in charge of advising and overseeing theexecutive board. As the oversight body, the Supervisory Board provided
on-going advice and supervision for the Executive Board in managing
the Company in financial year 2017, as required by the law, the articles
of association and our own terms of reference.
Its actions were guided by the principles of good and responsible
corporate governance. Our monitoring activities essentially served toensure that the management of business operations and the management of the Group were lawful, orderly, fit for purpose and commerciallyrobust. The individual advisory and oversight tasks of the Supervisory
Board are set out in terms of reference. Accordingly, the Supervisory
Board is, for instance, closely involved in entrepreneurial planning
processes and the discussion of strategic projects and issues. Moreover,there is a defined list of specific Executive Board decisions requiring theconsent of the Supervisory Board, some of which call for detailed review
in advance and require the analysis of complex facts and circumstancesfrom a supervisory and consultant perspective (own business judgement).
TUI AG falls within the scope of the German Industrial Co-Determination

Act (MitbestG). Its Supervisory Board is therefore composed of an equal
number of shareholder representatives and employee representatives.
Employee representatives within the meaning of the Act include a senior
manager (section 5 (3) of the German Works Council Constitution Act)and three trade union representatives. All Supervisory Board members
have the same rights and obligations and they all have one vote in voting
processes. In the event of a tie, a second round of voting can take place
according to the terms of reference for the Supervisory Board, in whichcase I as Chairman of the Supervisory Board have the casting vote.
In written and verbal reports, the Executive Board provided us withregular, timely and comprehensive information at our meetings andoutside our meetings. The reports encompassed all relevant facts
about strategic development, planning, business performance and theposition of the Group in the course of the year, the risk situation, risk
management and compliance, but also reports from the capital markets(e. g. from analysts), media reports and reports on current events (e. g.
crises). The Executive Board discussed with us all key transactions of
relevance to the Company and the further development of the Group.
Any deviations in business performance from the approved plans wereexplained in detail. The Supervisory Board was involved in all decisionsof fundamental relevance to the Company in good time. We fully discussed
and adopted all resolutions in accordance with the law, the Articles of
Association and our terms of reference. We were comprehensively andspeedily informed about specific and particularly urgent plans and projects, including those arising between the regular meetings. As Chairmanof the Supervisory Board, I was also regularly informed about current

The Supervisory Board of TUI AG at its meeting on
17 October 2017, TUI AG Hannover.
Back row: Dr Dierk Hirschel, Coline Lucille Mc Conville,
Mag. Stefan Weinhofer, Peter Long, Peter Bremme,
Andreas Barczewski
Third row: Michael Pönipp, Carola Schwirn,
Angelika Gifford, Wolfgang Flintermann
Second row: Janis Carol Kong, Anette Strempel,
Ortwin Strubelt, Prof. Edgar Ernst
Front row: Valerie Frances Gooding, Prof. Klaus Mangold(Chairman), Frank Jakobi (Vice Chairman),
Carmen Riu Güell, Sir Michael Hodgkinson (Vice Chairman)
Member not in the photo:
Alexey Mordashov

10business developments and key transactions in the Company between
Supervisory Board meetings.

Deliberations in the Supervisory Board and its
Committees
Prior to Supervisory Board meetings, the shareholder representatives
on the Supervisory Board and the employees’ representatives met inseparate meetings, which were regularly also attended by Executive
Board members.
Apart from the full Supervisory Board, a total of fi ve committees werein place in the completed financial year: the Presiding Committee, Audit
Committee, Strategy Committee, Nomination Committee and Integration
Committee. The Mediation Committee formed pursuant to section 27 (3)of the Co-Determination Act did not have to meet. The Chairman ofeach Committee provides regular and comprehensive reports about thework performed by the Committee at the ordinary Supervisory Board
meetings.
In financial year 2017, we again recorded a gratifyingly high meeting
attendance, as we have done for several years. Average attendance was
93.8 % (previous year 96.6 %) at plenary meetings and 97.6 % (previous
year 90.7 %) at Committee meetings. No Supervisory Board member
attended fewer than half of the Supervisory Board meetings in financial
year 2017. Members unable to attend a meeting usually participatedin the voting through proxies. Preparation of all Supervisory Board
members was greatly facilitated by the practice of distributing documents in advance in the run-up to the meetings and largely dispensing
with handouts at meetings.

Attendance at meetings of the Supervisory Board in financial year 2017
Attendance at meetings of the Supervisory Board 2017
Supervisory
Board

PresidingCommittee

Audit
Committee

Nomination
Committee

Strategy
Committee

Prof. Klaus Mangold (Chairman)
Frank Jakobi (Deputy Chairman)
Sir Michael Hodgkinson (Deputy Chairman)
Andreas BarczewskiPeter Bremme
Prof. Edgar Ernst
Wolfgang Flintermann
Angelika Gifford
Valerie Frances Gooding
Dr. Dierk HirschelJanis Carol KongPeter Long
Coline Lucille McConville
Alexey A. Mordashov
Michael Pönipp
Carmen Riu Güell
Carola Schwirn
Anette Strempel
Ortwin Strubelt
Stefan Weinhofer

8 (8)
8 (8)
8 (8)
8 (8)
7 (8)
8 (8)
8 (8)
7 (8)
7 (8)
7 (8)
8 (8)
7 (8)
7 (8)
6 (8)
8 (8)
7 (8)
8 (8)
8 (8)
8 (8)
7 (8)

8 (8)1
8 (8)
7 (8)

8 (8)

2 (2)1

6 (6)
6 (6)

8 (8)
8 (8)

8 (8)

Attendance at meetings in %Attendance at Committee meetings in %

93.8
97.6

93.8

96.9

Name

(In brackets: number of meetings held)
1 Chairman of Committee
2 Deputy Chairman of Committee

2 (2)Integration
Committee
1 (1)11 (1)1 (1) 2

8 (8)
7 (8)
8 (8)1

1 (1)
6 (6)
5 (6)

1 (1)

8 (8)
7 (8)
6 (6)1
7 (8)
6 (8)

1 (1)
2 (2)

6 (6)

8 (8)
8 (8)

2 (2)

100.0

97.2

100.0

COMBINED MANAGE ME NT REPORTA N N U A L R E P O R T 2 0 17

C O R P O R AT E G O V E R N A N C E

Report of the Supervisory Board

Key topics discussed by the Supervisory Board
The Supervisory Board held nine meetings focusing on the following
issues:1. At its meeting on 26 October 2016, the Supervisory Board discussed
the current business performance. The discussions also focused on
strategic options for the German TUI fl y. In that context, we intensively deliberated on a potential joint venture with Etihad. The debate also related to the stake in Hapag-Lloyd AG (HLAG) and thestatus of the divestment process for Specialist Group. The Supervisory
Board furthermore approved the budget for financial year 2017 andthe acquisition of a stake in Peakwork Software.
2. At its extraordinary meeting on 23 November 2016, the Supervisory
Board intensively discussed the status of negotiations and approval
for the conclusion of a (non-binding) memorandum of understanding
to form a joint venture between TUI fl y and Etihad. These extensive
deliberations focused on essential framework parameters and thefuture alignment of the planned joint venture.
3. At the extraordinary Supervisory Board meting on 1 December 2016,
held in the form of a conference call, we adopted the personal performance factors for the annual performance bonuses for membersof the Executive Board for financial year 2016 after due deliberation.
Following an in-depth review, we also established the appropriatenessof the remuneration and pensions for Executive Board members.
4. At its meeting on 7 December 2016, the Supervisory Board discussed
in detail the annual financial statements of TUI Group and TUI AG ,each having received an unqualified audit opinion from the auditors,
the combined management report for TUI Group and TUI AG , theReport by the Supervisory Board, the Corporate Governance Report
and the Remuneration Report. The discussions were also attended
by representatives of the auditors. Following comprehensive debateof these reports and its own review carried out on the previous day
by the Audit Committee, the Supervisory Board endorsed the findingsof the auditors and approved the financial statements prepared by
the Executive Board and the combined management report for
TUI AG and the Group. The annual financial statements for 2016
were thereby adopted. Moreover, the Supervisory Board approved
the Report by the Supervisory Board, the Corporate Governance
Report and the Remuneration Report. It also adopted the invitation
to the ordinary AGM 2017 and the proposals for resolutions to besubmitted to the AGM . The Supervisory Board discussed various
options relating to aircraft funding and the future approach to be
adopted by the Group. We also resolved the 2016 declaration ofcompliance with the German Corporate Governance Code and the
Corporate Governance Declaration required by the UK ’s Corporate
Governance Code. We moreover decided to adjust our targets forthe composition of the Supervisory Board (see Corporate Governance Report) and considered various reports, including a report on
the results of our 2016 TUIgether employee survey, the implementation of the female and gender quotas in Germany, the IT
strategy and security. In the framework of Executive Board matters,

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11Frank Rosenberger was appointed as member of the Executive
Board with effect from 1 January 2017 and a new business allocation
plan reflecting the changes in the allocation of responsibilities to
Board members was adopted. The Supervisory Board was also
given a status report on l’tur and updates on the sales process for
Travelopia and the joint venture between TUI fl y and Etihad.
5. On 13 February 2017, the Supervisory Board mainly discussed
TUI AG’s interim statement and report for the quarter ended 31 December 2016 and prepared the 2017 Annual General Meeting. The
Supervisory Board also discussed the structure of Executive Board
remuneration. We dealt with the sales process for Hotelbeds Group,
the business performance and future strategy for source market
Germany and approved the final initiation of the sales process for
Travelopia. The Supervisory Board also discussed the expansion of
capacity at TUI Cruises GmbH and was given reports about theactivities of the TUI Foundation and TUI Care Foundation. We were
given a comprehensive update on the status of negotiations regarding
the planned joint venture between TUI fl y and Etihad (e. g. economic
framework, open issues). We also adopted resolutions on transactions
requiring the Supervisory Board’s consent, including the issue of
employee shares for financial year 2017 and the further sale ofshares in HLAG . We were furthermore given a report on the statusof the proceedings Erzberger versus TUI AG before the ECJ.
6. On 12 May 2017, we debated TUI AG’s interim report for the second
quarter ended on 31 March 2017 and the half-year financial report.
We also resolved to extend the appointment of Sebastian Ebel as an
Executive Board member and his service contract by a further
three years. The Supervisory Board moreover discussed the initialapproaches for a reform of the Executive Board remuneration
system and we were given another status report on the negotiations regarding the planned joint venture between TUI fl y andEtihad. The Supervisory Board was then given another update on apotential capacity expansion at TUI Cruises GmbH and the status of
the sale of shares in HLAG . We also discussed on-going activities tostrengthen IT security and various aspects related to the internaland external security structure. The Supervisory Board consideredvarious Corporate Governance issues and was given a report on thestate of pay regarding TUI Group’s key litigation cases. The Supervisory Board was also informed about the current business performance and market in Turkey. We debated and deliberated on theimpact of the Brexit referendum on the Group. Moreover, theSupervisory Board approved a number of transactions requiring its
consent (including the issue of employee shares in financial year 2018,
the extension of the revolving credit facility ahead of its due date
and the sale of Travelopia subject to certain conditions).

12

7. At its extraordinary meeting on 29 June 2017, the Supervisory
Board discussed the termination of the negotiations on the joint
venture between TUI fl y and Etihad and engaged in comprehensive
and extensive debates with the Executive Board on the resulting
options for a repositioning of TUI fl y.
8. On 30 August 2017 (by written circulation), the Supervisory Board
approved the increase in the Company’s capital stock for the issueof employee shares under the oneShare employee share programme
for financial year 2017.
9. During a two-day strategy off site meeting on 13 and 14 September 2017, we intensively debated the key challenges surrounding thebusiness model, growth opportunities, IT trends (e. g. blockchain
technology), the Group-wide customer value and customer relationship management platform, uniform branding (oneBrand) andthe cruise strategy.
We then comprehensively debated the consolidated fi ve-year plan.
The discussions also focused on the insolvency of Air Berlin. We
furthermore deliberated on Executive Board matters and adopted
the fundamental structure of the new remuneration system for the
Executive Board. We were also given reports on crisis management,
the Security, Health & Safety structure and the security of ourcustomers and employees. We heard a report on the effects of theTransparency of Remuneration Act and the implementation of the
Act and dealt with succession planning for the Executive Board andprofessional development at the top management level. We also
discussed the new CSR reporting (see Management Report) andadopted diversity concepts for the composition of the Executive
Board and Supervisory Board. We moreover adopted the overall
competence profile for the full Supervisory Board. We then adopted
resolutions regarding transactions requiring our consent (including
the granting of a guarantee as collateral for a loan).

Meetings of the Presiding Committee
The Presiding Committee takes the lead on various Executive Board
issues (including succession planning, new appointments, terms andconditions of service contracts, proposals for the remuneration system).
It also prepares the meetings of the Supervisory Board. In the period
under review, the Presiding Committee held nine meetings.

1. At its extraordinary meeting on 12 October 2016, the Presiding
Committee intensively discussed the business interruption of theGerman TUI fl y against the background of efforts undertaken by
the Executive Board to find cooperation partners for the airline,
which had become public. The Presiding Committee was given a
presentation on the measures initiated by the Executive Board andthe status and timeframe of negotiations relating to the cooperation
partner project.
2. At its meeting on 26 October 2016, the Presiding Committee discussed Executive Board issues, including deliberations on the creationof a new Executive Board function with a focus on IT and new markets.
The Committee also discussed various topics relating to Executive
Board remuneration for the completed financial year and the current
financial year.
3. At its extraordinary meeting on 23 November 2016, the Presiding
Committee discussed the status of the negotiations about the joint
venture between TUI fl y and Etihad. We also deliberated on various
Executive Board issues and adopted resolutions regarding the variableannual remuneration for financial year 2016. We then reviewed theappropriateness of Executive Board remuneration and pensions
and discussed the terms and conditions of the service contract for
Frank Rosenberger.
4. At its meeting on 6 December 2016, after due deliberation, thePresiding Committee recommended the appointment of FrankRosenberger as an Executive Board member to the Supervisory
Board and discussed further Executive Board issues.
5. On 13 February 2017, the Presiding Committee again discussed thestatus of negotiations on the joint venture between TUI fly and Etihad
as well as the Group’s major litigation cases and the divestment
process for Travelopia. We then formulated approaches for a fundamental revision of the compensation system for the Executive Board.
6. At its meeting on 12 May 2017, the Presiding Committee discussed
renewing the appointment of Sebastian Ebel and the status of thereform of the remuneration system for the Executive Board. Following
the abolition of the Integration Committee in December 2016, wewere given a report on the merger-related synergies and intercultural
integration.

Members of the Presiding Committee:

7. At an extraordinary meeting on 13 June 2017, by written circulation,
the Presiding Committee granted approval to Friedrich Joussen tojoin the Supervisory Board of Sixt SE / Pullach.

• Prof. Klaus Mangold(Chairman)• Peter Bremme• Carmen Riu Güell• Sir Michael Hodginson

8. At an extraordinary meeting on 30 August 2017, the Presiding
Committee intensively discussed the status of the reform of the
remuneration system for the Executive Board.

• Frank Jakobi• Alexey Mordashov• Anette Strempel• Ortwin Strubelt

9. On 13 September 2017, we discussed Executive Board issues. We
were also informed about the remuneration structure for the
management level below the Executive Board as well as HR development topics.

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Report of the Supervisory Board

2. At its meeting on 5 December 2016, the Committee discussed
marketing topics, the divestment process for Travelopia and theaviation strategy.

AUDIT COMMIT TEE

Members of the Audit Committee:• Prof. Edgar Ernst (Chairman)• Andreas Barczewski• Dr Dierk Hirschel• Janis Kong

• Prof. Klaus Mangold• Coline McConville• Michael Pönipp
• Ortwin Strubelt

3. On 17 February 2017, we deliberated on the growth of the Mein
Schiff fleet and discussed the situation in source market Germany
and the marketing strategy pursued in that market.

The Audit Committee held eight ordinary meetings in the financial year
under review. For the tasks and the advisory and resolution-related
issues discussed by the Audit Committee, we refer to the comprehensive
report on page 15.

4. At its meeting on 11 May 2017, the Committee discussed the growthstrategy for new markets with a special focus on Asia, in particular
China. In that context, we intensively debated the expansion ofcooperation schemes as well as TUI ’s own initiatives.

N O M I N AT I O N C O M M I T T E E

5. At the meeting on 15 August 2017, we again comprehensively debatedthe aviation strategy following the termination of the talks with Etihadon the creation of a joint venture.

The Nomination Committee proposes suitable shareholder candidates
to the Supervisory Board for its election proposals to the Annual General
Meeting or appointment by the district court.
Members of the Nomination Committee, which held two meetings:• Prof. Klaus Mangold (Chairman)• Carmen Riu Güell• Sir Michael Hodgkinson• Alexey Mordashov

6. At its meeting on 12 September 2017, the Strategy Committee discussed the impact of the insolvency of Air Berlin on our current
business and future implications for our aviation strategy.
I N T E G R AT I O N C O M M I T T E E

1. At its meeting on 11 May 2017, the Nomination Committee discussed
the future composition of the shareholder side of the Supervisory
Board and its committees.

The Integration Committee was established by the Supervisory Board
for a period of two years after the completion of the merger between
TUI Travel PLC and TUI AG (until December 2016). Its task was to advise
and oversee the Executive Board during the integration process required
after the merger.
Members of the Integration Committee:

2. At its meeting on 12 September 2017, the Nomination Committee
again discussed the future composition of the shareholder side of
the Supervisory Board.
S T R AT E G Y C O M M I T T E E• Prof. Klaus Mangold(Chairman)• Sir Michael Hodgkinson(Deputy Chairman)

The Strategy Committee was established on 9 February 2016 by resolution of the Supervisory Board. Its task is to advise the Executive
Board in developing and implementing the corporate strategy. The
Committee met six times in the financial year under review. Apart from
Committee members, the meetings of the Strategy Committee areregularly attended by Sir Michael Hodgkinson.

At its only meeting in the period under review, which was also its last,
held on 6 December 2016, the Committee discussed the final report on
the integration process and the post-merger synergies. Overall, theCommittee has rendered a valuable contribution to the delivery of thesynergies and the success of cultural integration.

The members of the Strategy Committee, which met six times, are:C O R P O R AT E G O V E R N A N C E• Peter Long (Chairman)• Angelika Gifford• Val Gooding• Frank Jakobi• Prof. Klaus Mangold• Alexey Mordashov

1. At its meeting on 25 October 2016, the Supervisory Board extensively
dealt with the Group’s aviation strategy and the future positioning
of TUI fl y. We also discussed various aspects related to Customer
Relationship Management (CRM) and IT investments.

• Prof. Edgar Ernst• Valerie Gooding• Frank Jakobi• Coline McConville

Due to the primary quotation of the TUI AG share on the London Stock
Exchange and the constitution of the Company as a German stock
corporation, the Supervisory Board naturally also regularly and comprehensively deals with the recommendations of German and British
corporate governance. Apart from the mandatory observance of therules of the German Stock Corporation Act (AktG), German Industrial
Co-Determination Act (MitbestG), the Listing Rules and the Disclosure
and Transparency Rules, TUI AG had announced in the framework of themerger that the Company was going to observe both the German
Corporate Governance Code (DCGK ) and – as far as practicable – the
UK Corporate Governance Code (UK GCG).

14

For the DCGK – conceptually founded, inter alia, on the German Stock
Corporation Act – we issued an unqualified declaration of compliancefor 2017 pursuant to section 161 of the German Stock Corporation Act,
together with the Executive Board. By contrast, there are some deviations
from the UK CGC due for the most part to the different concepts underlying a one-tier management system for a public listed company in the
UK (one-tier board) and the two-tier management system comprised of
Executive Board and Supervisory Board in a stock corporation based onGerman law.
More detailed information on corporate governance, the declaration ofcompliance for 2017 pursuant to section 161 of the German Stock
Corporation Act and the declaration on the UK CGC is provided in the
Corporate Governance Report in the present Annual Report, preparedby the Executive Board and the Supervisory Board (page 99), as well as
on TUI AG’s website.

of the situation of TUI AG and TUI Group. Upon the recommendation of
the Audit Committee, we approve the annual financial statements forfinancial year 2017; the annual financial statements of TUI AG are thereby
adopted. We comprehensively discussed the proposal for the appropriation of profits with the Executive Board and approved the proposal
in the light of the current and expected future financial position of theGroup.

Executive Board, Supervisory Board andcommittee membership
The composition of the Executive Board and Supervisory Board as at
30 September 2017 is presented in the tables on pages 100 – 101 for
the Supervisory Board and page 102 for the Executive Board.
In financial year 2017, the composition of the boards did not change.

Conflicts of interest
In the period under review, the Supervisory Board continuously monitored the occurrence of conflicts of interest. In the framework of thetransactions requiring its consent, the Supervisory Board approved, at
its meeting on 12 May 2017, the granting of a guarantee by TUI AG as
third-party security for Togebi Holdings Limited (’ TUI Russia’) before acourt in Turkey to initiate a lawsuit. TUI Russia is indirectly controlled byAlexey Mordashov. Mr Mordashov is a member of the Supervisory
Board and abstained from voting in order to avoid a conflict of interest.

Audit of the annual and consolidated financial
statements of TUI AG and the Group
Deloitte GmbH Wirtschaftsprüfungsgesellschaft, Hanover, audited theannual financial statements of TUI AG prepared in accordance with theprovisions of the German Commercial Code (HGB), as well as the joint
management report of TUI AG and TUI Group, and the consolidated
financial statements for the 2017 financial year prepared in accordancewith the provisions of the International Financial Reporting Standards(IFRS), and issued their unqualified audit certificate. The above documents, the Executive Board’s proposal for the use of the net profit
available for distribution and the audit reports by the auditors had been
submitted in good time to all members of the Supervisory Board. They
were discussed in detail at the Audit Committee meeting of 11 December 2017 and the Supervisory Board meeting of 12 December 2017,
convened to discuss the annual financial statements, where the Executive
Board provided comprehensive explanations of these statements. At
those meetings, the Chairman of the Audit Committee and the auditors
reported on the audit findings, having determined the key audit areas
for the financial year under review beforehand with the Audit Committee.
Neither the auditors nor the Audit Committee identified any weaknesses
in the early risk detection and internal control system. On the basis of
our own review of the annual financial statements of TUI AG and TUIGroup and the joint management report, we did not have any grounds
for objections and therefore concur with the Executive Board’s evaluation

At the meeting on 7 December 2016, Frank Rosenberger was appointed
to the Executive Board with effect from 1 January 2017 for a period of
three years.
At the meeting on 12 May 2017, the appointment of Sebastian Ebel as
an Executive Board member was extended by three years to 30 November 2020.
In addition, the Supervisory Board extended the appointments ofDavid Burling and Dr Elke Eller. After the extensions became effective on
12 December 2017, David Burling is now appointed until 31 May 2021
and Dr Elke Eller is appointed until 14 October 2021.

Word of thanks
The Supervisory Board warmly thanks the Executive Board, the managers
and all employees for their contribution to the very successful financial
year 2017.
Hanover, 12 December 2017
On behalf of the Supervisory Board
Prof. Klaus Mangold
Chairman of the Supervisory Board

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Report of the Supervisory Board, Audit Committee Report

15

AUDIT COMMIT TEE REPORT
Dear Shareholders,remaining meeting dates and agendas are geared in particular towards
the Group’s reporting cycle and the agendas of the Supervisory Board.

as the Audit Committee, it is our job to assist the Supervisory Board incarrying out its monitoring function during the financial year, particularly
in relation to accounting and financial reporting for the TUI Group, as
required by legal provisions, the German Corporate Governance Codeand the Supervisory Board Terms of Reference.
In addition to these core functions, we are responsible in particular formonitoring the effectiveness and proper functioning of internal controls,
the risk management system, the Group Auditing department and thelegal compliance system.
Furthermore, the Audit Committee is responsible for selecting external
auditors. The selected auditors are then required to be put forward by
the Supervisory Board to the Annual General Meeting for appointment.
Following the appointment by the Annual General Meeting, the Supervisory Board formally commissions the external auditors with the taskof auditing the annual financial statements and consolidated financial
statements and reviewing the quarterly interim reports.
The Audit Committee was elected by the Supervisory Board directly
after the Annual General Meeting 2016 and consists currently of thefollowing eight Supervisory Board members:• Prof. Edgar Ernst (Chairman)• Andreas Barczewski• Dr Dierk Hirschel• Janis Kong

• Prof. Klaus Mangold• Coline McConville• Michael Pönipp
• Ortwin Strubelt

The membership of the Audit Committee members corresponds to theduration of their appointment to the Supervisory Board. There are no
personnel changes to report in the composition of this committee since
the last election.
Both the Chairman of the Audit Committee and the remaining membersof the Audit Committee are seen by the Supervisory Board as meetingthe criterion of being independent. In addition to the Chairman of the
Audit Committee, at least one other member is required to have expertisein the field of accounting and experience in the use of accounting principles and internal control systems.
The Audit Committee has six regular meetings a year, and additional
topic-specific meetings may also be convened. From this financial year
onwards, these topic-specific meetings have included two meetings inwhich the Executive Board explains to the Audit Committee the key
content of the pre-close trading updates published shortly before thereporting date of the annual and six-monthly financial statements. The

The Chairman of the Audit Committee reports on the work of the Audit
Committee and the proposals it has to make in the Supervisory Board
meeting that follows each Audit Committee meeting.
Apart from the Audit Committee members, the meetings have been
attended by the Chairman of the Executive Board, the CFO and thefollowing management members, based on the topics covered:• Director of Group Financial Accounting• Director of Group Audit• Director of Group Compliance & Risk
• Director of Group Treasury & Insurance
The external auditors have also been invited to meetings on relevant
topics. Wherever required, additional members of TUI Group senior
management and operational management have been asked to attend
Audit Committee meetings, as have external consultants.
Where it was deemed necessary to go into further detail on specifictopics or cases, the Chairman of the Audit Committee held – in addition
to Audit Committee meetings – individual meetings with the relevant
Executive Board, senior management or auditor representatives. The
Chairman of the Audit Committee reported on the key findings andconclusions from these meetings in the next Audit Committee meeting.
The members took part in the Audit Committee meetings as shown in
the table on page 10.

Transfer of the audit mandate for TUI AG
and the TUI GroupBy way of a resolution of the Annual General Meeting of TUI AG dated
14 February 2017, Deloitte GmbH Wirtschaftsprüfungsgesellschaft(Deloitte) was elected as the auditor of TUI AG and the TUI Group. We
were regularly notified about the transfer process of the audit mandate
to Deloitte at our meetings during the financial year.
Up to the point of the Annual General Meeting, the mandate was granted
to PriceWaterhouseCoopers AG , who were thus responsible for the auditof the first quarterly financial statements. This responsibility passed to
Deloitte from the second quarter onwards.
The transfer process proceeded professionally and smoothly during
the financial year. The experience gathered thus far with Deloitte as an16auditor also confirms that we have gained a reliable partner for theaudit in Deloitte.

Reliability of financial reporting and monitoring ofaccounting process
The Executive Board of a German stock corporation (Aktiengesellschaft)is solely responsible for preparing its Annual Report & Accounts (ARA).
Section 243(2) of the German Commercial Code (HGB) requires the ARA
to be clearly structured and to give a realistic overview of the company’s
financial situation. This is equivalent to the requirement of the UK Codefor the ARA to be fair, balanced and understandable. Even though theevaluation of this requirement has not been transferred to the Audit
Committee, the Executive Board is comfortable that the submitted ARA
satisfies the requirements of both legal systems.
In order to be sure ourselves of the reliability of both the annual financial
statements and interim (quarterly) reporting, we have requested that
the Executive Board inform us in detail about the Group’s business performance and its financial situation. This was done in the four Audit
Committee meetings that took place directly before the financial statements in question were published. In these meetings, the relevant reports
were discussed and the auditors also reported in detail on key aspects ofthe financial statements and on the findings of their audit or review.
In order to monitor accounting, we examined individual aspects in great
detail. In addition, the accounting treatment of key balance sheet items
were reviewed, in particular goodwill, advance payments for tourism
services and other provisions. In consultation with the auditors, we madecertain that the assumptions and estimates underlying the balance
sheet were appropriate. In addition, any material legal disputes and key
accounting issues arising from the operating businesses were assessedby the Audit Committee.

After the announcement of the plan to set up a European charter airline
with the involvement of TUI fl y, huge flight cancellations resulted due tosickness notifications from pilots and cabin staff. We obtained extensive
information on the reasons and above all the economic effects of thisincident.
Similarly, we gathered information about the large corporate transactionsof the financial year. This included not only the acquisition of the French
Transat Group but also the sale of the Travelopia Group and the shares in
Hapag-Lloyd AG . Furthermore, we also examined TUI ’s investing activity
in the following areas: Airlines, Hotels & Resorts, Cruises and IT. We had
the key investments within the Group divisions and the contributions toearnings from these investments explained to us.
The Audit Committee also discussed the going concern and viability
statement analysis prepared by the company to support the statements
made in the half-year report and the ARA .
Starting with financial year 2018, the management report must contain
information on corporate social responsibility (CSR). The management
decided to publish the respective information already for this financial
year. We had the management tell us about the state of implementationand the content of the report as the responsibility for the review of thecontent lies with the Supervisory Board.
In addition, the consistency of the reconciliation from profit before tax
to the key figure ‘underlying earnings’ and the material adjustments
were discussed for all quarterly reports and for the annual financial
statements.
Our evaluation of all discussed aspects of accounting and financial reporting has been in line with that of both management and the Groupauditors.

In the period under review, we concerned ourselves above all with thefollowing individual subjects:

Effectiveness of internal controls and the risk
management system

Owing to the existing geopolitical risks, we stipulated that each of thequarterly financial statements be accompanied by a report on the effects
on earnings, the risks from guarantee and advance payment mechanisms
related to Group and third-party hotels in Turkey and North Africa andabout the countermeasures being undertaken.

The Audit Committee recognises that a robust and effective system ofinternal control is critical to achieving reliable and consistent businessperformance. To fulfil its legal obligation to examine the effectiveness ofinternal controls and the risk management system, the Audit Committee
is informed regularly about their current status and also about the further
development of them.

The potential exit of the United Kingdom from the European Union was
repeatedly an agenda item at our meetings. In particular, we listened toreports about the risks connected to the exit. For instance, effects are
expected on the British airlines regarding flight rights within the European Union, not to mention the impact of a sustained weakness of sterlingon the cost structure of the British tour operators.

The Group has continued to evolve its internal control framework whichis underpinned by the COSO concept. Regular testing by managementof the key financial controls is now a matter of routine in the larger
businesses, and in our two largest Source Markets (UK and Germany)
more widespread testing of internal controls is conducted.

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Audit Committee Report

Within the Group, the compliance function is further broken down into
three areas: Finance, Legal and IT. These teams play a crucial role in
improving controls across the Group and identifying areas where more
focus is required. The Group auditors also report to us on any weaknesses
they find in the internal control system of individual Group companies,
and management tracks these items to ensure that they are addressedon a timely basis.
As stated on page 30 of the risk report, the Audit Committee receives
regular reports on the performance and effectiveness of the risk management system. The Risk Oversight Committee is an important management
committee within the Group and we are satisfied that there is appropriate,active management of risk throughout the Group.
The Group Audit department ensures the independent monitoring of
implemented processes and systems as well as of core projects andreports directly to the Audit Committee in each regular meeting. In the
period under review, the Audit Committee was not provided with any
audit findings indicating material weaknesses in internal controls or therisk management system. As well as this, talks are held regularly between
the Chairman of the Audit Committee and the Director of Group Audit
for the purposes of closer consultation.
The audits planned by the Group Audit department for the following
year were presented to the Audit Committee in detail, discussed andapproved. The Audit Committee feels that the effectiveness of theGroup Audit department is ensured through this regular consultation.
The legal compliance system was examined by third-party experts which
confirmed the suitability of the compliance approach. The Groupwide,
uniformly implemented system was presented to us and we received areport about the conducted risk analysis and the measures derived fromit. In addition to the core elements of the internal control and risk management system, the Group’s hedging policy was part of the reporting
to us during the year.

Whistleblower systems for employees in the eventof compliance breaches
Whistleblower systems have been set up across the Group to enable employees to draw attention to potential breaches of compliance guidelines.

Examination of auditor independence and objectivity
After finalisation of the tender process in the financial year 2016, theAudit Committee recommended to the Supervisory Board that it propose
Deloitte to the Annual General Meeting as auditors for financial year 2017as well. Following the commissioning of Deloitte as auditors by the Annual
General Meeting in February 2017, the Supervisory Board appointed
Deloitte with the task of auditing the 2017 annual financial statements
and reviewing the half-year financial statements as per 31 March 2017.
The Chairman of the Audit Committee discussed with Deloitte in advancethe audit plan for the annual financial statements as at 30 September 2017, including the key areas of focus for the audit and the main
companies to be audited from the Group’s perspective. Based on this, theAudit Committee firmly believes that the audit has taken into account themain financial risks to an appropriate degree and is satisfied that theauditors are independent and objective in how they conduct their work.
The audit fees were explained in the context of this selection process
and we are convinced that the amount of these costs is reasonable. Basedon the regular reporting by the auditors, we have every confidence inthe effectiveness of the external audit.
In order to ensure the independence of the auditors, any non-audit
services to be performed by the auditors must be submitted to the Audit
Committee for approval before commissioning. Depending on the amountinvolved, the Audit Committee makes use of the option of delegating
the approval to the company. The Audit Committee Chairman is only
involved in the decision once a specified cost limit has been reached.
Insofar as the auditor has performed services that do not fall under theGroup audit, the nature and extent of these have been explained to the
Audit Committee. This process complies with the company’s existing
guideline regarding the approval of non-audit services and it takes into
account the requirements from the AReG regulations on prohibited
non-audit services and on limitations of the scope of non-audit services.
In financial year 2017, these non-audit services accounted for 7 % of theauditor’s overall fee of € 9.1 million.
I would like to take this opportunity to thank the Audit Committee
members, the auditors and the management for their hard work overthe past financial year.
Hanover, 11 December 2017

Reporting on the legal compliance system included information about
the groupwide standardisation of these whistleblower systems and wewere also shown the main findings during the current financial year
from this system.

Prof. Edgar Ernst
Chairman of the Audit Committee

Croatia and Montenegro. The two Balkan states
have recently developed into high-growth travel
destinations, making them interesting settings for
new TUI hotels. An experienced scout visits thearea to check out potential sites and properties.
Top of his evaluation criteria: location.
 E A D M O R E A B O U T T H E W O R K O F O U R H OT E L S CO U T
RIN THE MAGAZINE UNDER ‘PEARL DIVER’COMBINED MANAGE ME NT REPORTC O R P O R AT E G O V E R N A N C E

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

Combined Management Report*
20 Corporate profile
20 Business model and strategy
24 How we do it – Group structure27	How we measure it – value-oriented Groupmanagement
30 Risk report47	Overall assessment by the Executive Boardand report on expected developments
51 Business review
51	Why we do it – macroeconomic industry andmarket framework* T he present combined Management Report has been drawn up forboth the TUI Group and TUI AG . It was prepared in accordance with­s ections 289, 315 and 315 (a) of the German Commercial Code ( HGB )and German ­A ccounting Standards ( DR S ) numbers 17 and 20.

55
59
64
66
72
88
91
96

Group earnings
Segmental performance
Net assets
Financial position of the GroupNon-financial Group declaration
Annual financial statements of TUI AG
TUI share
Information required under takeover law

The combined Management Report also includes the ­Remuneration ­Report, the Corporate ­G overnance Report
and the Financial Highlights.

20

Business modeland strategy

a This number includes concept hotels and 3rd party concept hotelsb This number relates to Sales & Marketing / all otherC O R P O R AT E G O V E R N A N C E

COMBINED MANAGE ME NT REPORTC O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

21﻿C orporate Profile

Our Business Model

Our Employees

TUI is the world’s leading tourism group – an integrated business that
operates in all stages of the customer’s holiday journey.

Qualified and committed employees are amajor prerequisite for TUI ’s long-term success.
One of the key elements of our global HR
strategy, therefore, is to attract and promote
people with talent and to retain them by­offering attractive employment conditions.

We deliver the full customer experience from inspiration and booking
through the travel journey to the experience in the destination. We
fulfil this through our own hotel and cruise brands, third party committed and non-committed accommodation as well as destination
services, such as transfers and excursions. Hence, we set ourselvesapart from component-only players as we are able to enhance thecustomer experience throughout the holiday.
Our integrated model allows us to leverage the distribution power ofour source markets and to optimise customer volumes for our own
assets. At the same time, offering differentiated and controlled
products, we drive demand in our source markets and create entry
barriers. Thus, we maximise yields while minimising risk with our
integrated approach.

Our Segment Strategy
Sales & Marketing: Market demand,­digitalisation and diversification
Across three regions (Northern, Central and Western) we use our distribution and fulfilment power to serve 20 m customers. Our businessmodel allows our source markets to act with maximum flexibility,
allowing them to create personalised packages for our customers
while optimising yield and minimising risks through combining both
owned as well as 3rd party aviation, hotel and cruise capacity.

It is our staff who breathe life into our corporate
values ‘Trusted’, ‘Unique’ and ‘Inspiring’. Alongside our vision and our customer promise, they
form the basis for our attitudes and actions.
Our employee survey TUI gether, which was
carried out in in the period under review is a
crucial yardstick, showing us our strengths
and areas for potential improvements, so that
we can improve the corporate performance andmake TUI an even more attractive employer.
The survey measures the Engagement Index ofTUI Group, which is 77 in this year’s cycle.
Further information about our employees
and our sustainability strategy can be foundon page 81.

22

Our in-house aviation with around 150 aircraft allows us to utilise
own flight capacity in conjunction with own hotel capacity in order tobuild high profile destinations, such as Cape Verde. In these destinations, we provide unique experiences to our customers and createhigh barriers of entry by managing both hotel capacity and flightavailability. In addition, our airline allows for flexibility in destination
planning, as we are in the position to shift capacities and changeroutes according to our business needs.
Destination Services, our own incoming agency, provides fulfilment
services to our customers such as hotel transfers but also offers
experiences in the destinations such as excursions.
Our Sales and Marketing business is well positioned to benefit
from continued tourism market growth. In 2017 we have accelerated
our digitalisation efforts and inter alia launched two important IT-­initiatives: One CRM and One Inventory Base & One Purchasing.
Customer knowledge is key to provide outstanding holiday experiences that result in satisfied and loyal customers. One CRM , building
on a shared customer data base drives our knowledge of our customers and therefore enables us to build direct and personalised
relationships. Using automated machine learning and analytical capabilities, we share our customer insights with the wider business andenable personalised marketing, sales and services. We are now able toprovide individualised experiences, which in turn are expected to leadto cross- and up-selling opportunities. Last but not least, we develop
retention propositions based on our enhanced knowledge, thereby
driving emotional loyalty and engagement with our brand.

Building on the Blockchain technology, we are striving to centralise our inventory on one database, namely, One Inventory / One
Purchasing. Own and third party hotel bed capacity is being incorporated in the data base, which is accessible for all source markets.
An Artificial Intelligence system creates suggestions on the respective
bed capacity allocation and / or bed swap to the source markets basedon customer demand, allowing TUI to optimise yields. Blockchain as anunderlying technology ensures transparency and trust as well as an
immutable tracking of ownership. Suppliers can be on-boarded easily,
including new partners from all over the world.

Holiday experiences: Grow and diversify
in the hotel and cruise business
TUI ’s hotel portfolio entails 380 hotels, operating under a concept,
ownership, lease, management or franchise model. We differentiatewith our own brands Robinson, TUI Magic Life and TUI Blue, as wellas with our successful joint venture brands, such as Riu. TUI branded
hotels show high customer satisfaction and revenue per customer,
signalling the attractiveness to our customers.

Since the merger we concluded three non-core business disposals,
namely Travelopia, Hotelbeds and the shareholding in Hapag-Lloyd
AG . We intend to reinvest the disposal proceeds mainly into ourhotel and cruise business, thereby further growing and diversifying
our portfolio and pursuing on average a target ROIC of 15 % for new
investments. Redeploying capital to our holiday experience businesses
will enhance our capital return and will reduce the cyclicality of our
cash flow profile.

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23﻿C orporate ProfileOn the hotel side, in line with our existing portfolio, we intend to growpredominantly our low capital intensity share, i. e. through management contracts or through Joint Verntures. In unique destinations orin destinations with an all-year round business, we perceive ownership to be a superior strategy.
Further, we focus on diversifying our portfolio geographically by
growing our Caribbean and Asian destinations, while strengthening
our core destinations in Europe.
In our cruise segment, we operate a fleet of 16 cruise ships under
three cruise lines, namely our TUI Cruises Joint Venture, Marella
Cruises and Hapag-Lloyd Cruises. Each cruise business is dedicatedto a specific audience and tailors its concept accordingly, with TUICruises and Marella Cruises focusing on local mainstream customers
and Hapag-Lloyd offering luxury and expedition experiences.
The demand in our distinct market segments relevant for our target
customers remains very strong. Despite capacity growth, occupancyof our cruise ships remains at above 100 % in the mainstream market
at stable prices, allowing us to further enhance capacity by expanding
our fleet.

Summary
Three years after the merger, we are a stronger, integrated and stra­tegically better positioned business. The merger synergies are fully
delivered.
Looking ahead we continue to expect to deliver double digit annual
earnings growth with less seasonality, strong cash conversion1 andstrong ROIC performance. This will be driven by market demand,
digitalisation benefits and disciplined expansion of own hotel andcruise content.
We therefore expect to deliver at least 10 % growth in underlying
EBITA in financial year 20182 and extend our previous guidance of atleast 10 % underlying EBITA C AGR to financial year 20201.
The Executive Board and the Supervisory Board are recommending
a dividend of 65 cents per share in respect of the financial year 2017.
Subject to approval at the Annual General Meeting on 13 February 2018, shareholders who held relevant shares at close of businesson 13 February 2018 will receive the dividend on 16 February 2018.
Further financial targets are achieving a leverage ratio 3.00 to 2.25
times and an interest coverage 5.75 to 6.75 times.

1	We define our cash conversion as the Group’s EBITDA less our long-term gross capex

target in relation to the Group’s EBITDA .
2	A ssuming constant foreign exchange rates are applied to the result in the current andprior period and based on the current Group structure.

24

C O R P O R AT E P R O F I L E
How we do it – Group structure

SALES & MARKETING• Northern ­Region• Central Region• Western ­Region

H O L I D AY E X P E R I E N C E S• Hotels & Resorts• Cruises

OTHER• Other Tourism• All other segments

TUI AG parent company

E XECUTIVE BOARD AND GROUP E XECUTIVE COMMIT TEE

TUI AG is TUI Group’s parent company headquartered in Hanover andAt the balance sheet date, the Executive Board of TUI AG consisted of
the CEO and five other Board members.

Berlin. It holds direct or, via its affiliates, indirect interests in the principal
Group companies conducting the Group’s operating business in individual
countries. Overall, TUI AG’s group of consolidated companies comprised
259 direct and indirect subsidiaries at the balance sheet date. A further
13 affiliated companies and 28 joint ventures were included in TUI AG’s
consolidated financial statements on the basis of at equity measurement.
	For further details on principles and methods of consolidation and TUIGroup shareholdings see pages 143 and 233.

For details on Executive Board members see page 102

A Group Executive Committee was set up in order to manage TUI Groupstrategically and operationally. As at 30 September 2017, the Committee
consisted of twelve members who meet under the chairmanship of CEO
Friedrich Joussen.

TUI Group structure

O R G A N I S AT I O N A N D M A N A G E M E N T

TUI AG is a stock corporation under German law, whose basic principle
is dual management by two boards, the Executive Board and the Supervisory Board. The Executive and Supervisory Boards cooperate closely
in governing and monitoring the Company. The Executive Board is
responsible for the overall management of the Company.

TUI Group’s core businesses, Sales & Marketing and Holiday Experiences,are clustered into the segments Northern, Central and Western Region,
Hotels & Resorts and Cruises. TUI Group also comprises Other Tourism
and All other segments.
SALES & MARKETINGThe appointment and removal of Board members is based on sections
84 et seq. of the German Stock Corporation Act in combination withsection 31 of the German Co-Determination Act. Amendments to the
Articles of Association are effected on the basis of the provisions ofsections 179 et seq. of the German Stock Corporation Act in combination
with section 24 of TUI AG’s Articles of Association.

With our three regions Northern, Central and Western Region, we
have well positioned sales and marketing structures providing morethan 20 million customers a year with exceptional holiday experiences.
Our sales activities are based on online and offline channels that also
benefit from TUI ’s strong market position. The travel agencies include
Group-owned agencies as well as joint ventures and agencies operated
by third parties. Thanks to our direct customer access, we are able tobuild close relationships with our guests, and in future this will allow us
to gear their entire holiday experience even more closely to their personal wishes and preferences, giving us a crucial advantage over ourcompetitors. In order to offer our customers a wide choice of hotels, ourC O R P O R AT E G O V E R N A N C E

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25

Corporate profile

COMBINED MANAGE ME NT REPORT

Sales & Marketing organisations have access to the exclusive portfolio
of TUI hotels. They also have access to third-party bed capacity, someof which have been contractually committed.

cruise business Marella Cruises (operated under the brand Thomson
Cruises until October 2017), previously also carried under Northern
Region, was reclassified to the Cruises segment.

Our own flight capacity continues to play a key role in our integrated
business model. A combination of owned and third-party flying capacity
enables us to offer tailor-made travel programmes for each individual
source market region and to respond flexibly to changes in customer
preferences. Thanks to the balanced management of flight and hotel
capacity, we are able to develop high-profile destinations and optimise
the margins of both service providers. In financial year 2017, we continued to deliver our internal efficiency enhancement programme at
one Aviation, delivering further economies of scale. This has secured
the continued competitiveness of our airlines despite challenging market
conditions. With our fleet of around 150 aircraft, we rank among the
top 10 European airlines in terms of size and are by far the largest
charter company. By introducing 737MAX aircraft in 2018, we will continue our strategy of operating a modern, fuel-efficient fleet, whichbegan with the 787 Dreamliner.

CENTRAL REGIONNORTHERN REGION

The Northern Region segment comprises Sales & Marketing activities
and airlines in the UK , Ireland and the Nordics. In addition, the Canadianstrategic venture Sunwing and the joint venture TUI Russia have been
included within this segment. In the period under review, the hotel
operator Blue Diamond Hotels and Resorts Inc., St. Michael, Barbados,
previously carried under Northern Region, was integrated into our hotelbusiness and is now carried in Hotels & Resorts. Moreover, the British

Hotels & Resorts financing structure

The Central Region segment comprises the sales and marketing activities
and airlines in Germany and the Sales & Marketing activities in Austria,
Switzerland and Poland.
WESTERN REGION

The sales and marketing activities and airlines in Belgium, the Netherlands
and the Sales & Marketing activities in France are included within thesegment Western Region.
H O L I D AY E X P E R I E N C E S

Holiday Experiences comprise our hotel and cruises activities.
HOTELS & RESORTS

The Hotels & Resorts segment comprises TUI Group’s diversified
portfolio of Group hotel brands and hotel companies. The segment
includes ownership in hotels, joint ventures with local partners, stakes
in companies giving TUI a significant influence, and hotels operated
under management contracts.
In financial year 2017, Hotels & Resorts comprised a total of 327 hotels
with 238,775 beds. TUI Group also comprised 53 concept hotels operated by third-parties under the TUI concepts TUI Sensatori, TUI Sensimar
and TUI Family Life.

Hotels & Resorts beds per region

8 (9)Other countries

3 (3)Franchise

13 (15)
Lease

45

(44)
Management

%

29

(20)
Caribbean

39 (38)
Ownership(25) 23
Eastern­Mediterranean%

18 (20)
North Africa /
Egypt
22 (26)
Western­Mediterranean

In brackets: previous year

Riu
Riu is the largest hotel company in the portfolio of Hotels & Resorts.
The Majorca-based company has a high proportion of regular customers
and stands out for its professionalism, proven quality and excellent

service. Most of the hotels are in the premium and comfort segments
and they are predominantly located in Spain, Mexico and the Caribbean.

26

Robinson
Robinson, the leading provider in the German-speaking premium clubholiday segment, is characterised by its professional sport, entertainment
and event portfolio. Moreover, the clubs offer high-quality hotel amenities,
excellent service and spacious architecture. Most of the hotels are locatedin Spain, Greece, Turkey, the Maledives and Austria. The facilities arealso aspirational in terms of promoting sustainable development andsigning up to specific environmental standards.
Blue Diamond
In the period under review the hotel operator Blue Diamond Hotels andResorts Inc., St. Michael, Barbados, has been integrated into the Hotel& Resorts segment. It was previously carried under Northern Region.
Blue Diamond is a fast growing resort chain in the Caribbean with aunique approach of tailoring hotels to meet the highest expectations.

Marella Cruises
Marella Cruises, previously operated under the brand Thomson Cruises,offers voyages for different segments in the British market. Its fleet
includes the Marella Discovery, named in June 2016, and the Marella
Discovery 2, launched in May 2017.
Hapag-Lloyd Cruises
Hapag-Lloyd Cruises is based in Hamburg, and it holds a position ofleadership in the German-language market with its fleet of four liners in
the luxury and expedition cruise segments. Its flagships are the vessels
Europa and Europa 2, which were again awarded the five-star-plus
category by the Berlitz Cruise Guide and are the world’s only ships to berecognised in this way. The expedition vessels include the Hanseatic and
the Bremen.
OTHER TOURISM

Other hotel companies and concept hotels
Other hotel companies include in particular the Group’s other core brands
TUI Blue and TUI Magic Life, the hotels of the Grupotel and Iberotel
brands as well as our exclusive hotel concepts TUI Sensimar, TUI Sensatori
and TUI Family Life. They provide holidays in top locations in our destin­
ations and meet high performance, quality and environmental standards.
CRUISESThe Cruises segment consists of Hapag-Lloyd Cruises and the joint
venture TUI Cruises. In the period under review, the British cruise business Thomson Cruises, previously managed within Northern Region,
was reclassified to the Cruises segment. In October 2017 Thomson
Cruises was rebranded to Marella Cruises. With their combined fleet of
16 vessels, the three cruise lines offer different service concepts toserve different target groups.

Cruise Fleet By Ownership Structure

TUI Cruises (JV )Marella Cruises*
Hapag-Lloyd Cruises

Owned

Finance
Lease

Operating
Lease

Total

6
1
3

–
3
–

–
2
1

6
6
4

As at 30 September 2017
* Previously operated under the brand Thomson Cruises

TUI Cruises
Hamburg-based TUI Cruises is a joint venture formed in 2008 between
TUI AG and the US shipping company Royal Caribbean Cruises Ltd., inwhich each partner holds a 50 % stake. With six ships, TUI Cruises is
top-ranked in the German-speaking high-volume premium market for
cruises. The Berlitz Cruise Guide rated Mein Schiff 3, Mein Schiff 4, Mein
Schiff 5 and Mein Schiff 6 among the world’s five best liners in the
category ‘Large Ships’.

Other Tourism comprises central functions such as IT, one Aviationand the French airline Corsair. This segment also includes destination
services, catering to the needs of around 12 million customers in about
115 destinations around the world.
ALL OTHER SEGMENTS

The category ‘All other segments’ includes our business activities forthe new markets, the corporate centre functions of TUI AG and theinterim holdings, as well as the Group’s real estate companies.
The final remaining stake in Hapag-Lloyd AG , container shipping was
disposed on 10 July 2017 after some stakes had already been sold in
the market.
D I S C O N T I N U E D O P E R AT I O N S

In financial year 2017, Specialist Group carried under discontinued operations in previous year, comprised the tour operator activities pooled
under Travelopia, above all providing expedition trips, luxury travel,
trips to sports events, student travel and sailing trips. The language
travel segment had already been sold in the prior financial year. Crystal
Ski and Thomson Lakes & Mountains, which had previously also formed
part of Specialist Group, were reclassified to Northern Region and integrated into TUI UK ’s business at the beginning of financial year 2017, as
they have strong synergies and deliver exciting travel experiences.
The sale of Specialist Group (Travelopia) to Kohlberg Kravis Roberts (KKR)
was completed on 15 June 2017.

Research and development
As a tourism service provider, the TUI Group does not engage in researchand development activities comparable with manufacturing companies.
This sub-report is therefore not prepared.

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27

Corporate profile

How we measure it – value-oriented Group management
Management system and Key Performance
Indicators
As the world’s leading tourism group with one global brand, an attractive
hotel portfolio, a growing cruise business, a modern and efficient aircraft
fleet and direct access to 20 million customers, we aim to secure ourvertically integrated business model by means of profitable growth andachieve a sustainable increase in the value of the TUI Group.
A standardised management system has been created to implement
value-driven management across the Group as a whole and in its individual business segments. The value-oriented management system isan integral part of consistent Group-wide planning and controlling
processes.
Key management variables used for regular value analysis are Return
On Invested Capital (ROIC ) and Economic Value Added. ROIC is comparedwith the segment-specific cost of capital. ROIC is calculated as the ratioof underlying earnings before interest, taxes and amortisation of goodwill (underlying EBITA) to average invested interest-bearing invested
capital (invested capital) for the segment.
Our definition of EBITA is earnings before interest, income tax and impairment of goodwill and excluding the result from the measurement ofinterest hedges.
In order to explain and measure TUI Group’s operating performance,
we use underlying EBITA . The underlying EBITA has been adjusted forgains on disposal of financial investments, expenses in connection withrestructuring measures according to IAS 37, all effects of purchase priceallocations, ancillary acquisition cost and conditional purchase pricepayments and other expenses for and income from one-off items. The
one-off items carried as adjustments are income and expense items
impacting or distorting the assessment of the operating profitability ofthe segments and the Group due to their level and frequency. These
one-off items include major restructuring and integration expenses notmeeting the criteria of IAS 37, major expenses for litigation, profit andloss from the sale of aircraft and other material business transactionsof a one-off nature.
In the framework of our growth strategy, we aim to achieve an underlying
EBITA CAGR of at least 10 % over the years to financial year 2020 (on aconstant currency basis).
In order to follow the development of the business performance of oursegments in the course of the year, we monitor the financial indicators
turnover and EBITA , but also key non-financial performance indicators,
such as customer numbers in our Sales & Marketing, and capacity or
passenger days, occupancy and average prices in Hotels & Resorts andCruises. In the framework of our sustainability reporting, we have also
defined a target indicator for specific CO 2 emissions per passenger kilometre for our airlines. We measure achievement of that indicator on anannual basis.
	Information on operating performance indicators is provided in the sections
on ‘Segmental performance’and ‘Non-financial declaration’ and in the Reporton Expected Developments

28

Cost of capital
Cost of capital (WACC)
Hotels

Cruises

Sales &­Marketing

TUI Group

%

2017

2017

2017

2017

Risk-free interest rate
Risk adjustment
Market risk premium
Beta factor 1
Cost of equity after taxes
Cost of debt capital before taxes
Tax shield
Cost of debt capital after taxes
Share of equity 2
Share of debt capital 2
WACC after taxes 3
Cost of equity before taxes
Cost of debt capital before taxes
Share of equity 2
Share of debt capital 2
WACC before taxes 3

1.25
6.23
6.50
0.9590
7.48
2.09
0.52
1.57
84.70
15.30
6.50
9.59
2.09
84.70
15.30
8.50

1.25
5.44
6.50
0.8373
6.69
2.09
0.04
2.05
64.80
35.20
5.00
6.80
2.09
64.80
35.20
5.25

1.25
5.41
6.50
0.8320
6.66
3.52
0.81
2.71
63.56
36.44
5.25
8.12
3.52
63.56
36.44
6.50

1.25
5.64
6.50
0.8672
6.89
2.95
0.62
2.33
69.46
30.54
5.50
8.36
2.95
69.46
30.54
6.75

1 Segment beta based on peer group, group beta based on weighted segment betas
2 Segment share based on peer group, group share based on weighted segment shares
3 Rounded to 1/4 percentage points

The cost of capital is calculated as the weighted average cost of equity
and debt capital ( WACC ). While the cost of equity reflects the return
expected by investors from TUI shares, the cost of debt capital is basedon the average borrowing costs of the TUI Group. The cost of capitalalways shows pre-tax costs, i.e. costs before corporate and investor taxes.
The expected return determined in this way corresponds to the same
tax level as the underlying earnings included in ROIC .

for invested interest-bearing capital (invested capital) for the relevant
segment or sector. Given its definition, this performance indicator is not
influenced by any tax or financial factors and has been adjusted for
one-off effects. From a Group perspective, invested capital is derived
from liabilities, comprising equity (including non-controlling interests) andthe balance of interest-bearing liabilities and interest-bearing assets.
The cumulative amortisations of purchase price allocations are thenadded to the invested capital.

ROIC and Economic Value Added

Apart from ROIC as a relative performance indicator, economic value
added is used as an absolute value-oriented performance indicator.
Economic Value Added is calculated as the product of ROIC less associatedcapital costs multiplied by interest-bearing invested capital.

ROIC is calculated as the ratio of underlying earnings before interest,
taxes and amortisation of goodwill (underlying EBITA) to the average

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29Corporate profile

ROIC and Value added TUI Group€ million
EquitySubscribed capital
Capital reserves
Revenue reserves
Non-controlling interest
plus interest bearing financial liability items
Pension provisions and similar obigations
Non-current financial liabilities
Current financial liabilities
Derivative financial instruments
less financial assets
Financial assets available for sale
Derivative financial instruments
Cash and cash equivalents
Other financial assets
plus purchase price allocation
Invested Capital
Invested Capital Prior year
Seasonal adjustment1
Ø Invested capital2
Underlying EBITA
ROIC

Weighted average cost of capital ( WACC )Value added
1 Adjustment to net debt to reflect a seasonal average cash balance
2 Average value based on balance at beginning and year-end, incl. seasonal adjustment.

For TUI Group, ROIC was 23.6 %, up by 1.7 percentage points comparedto the previous year. With the cost of capital of 6.75 %, this meant positive
Economic Value Added of € 787.0 m (previous year € 657.4 m).

Notes

(24)
(25)
(26)
(28)
(29)
(31), (38)(31), (38)(38)(17), (38)(38)(22), (38)

2017

2016

3,533.7
1,501.6
4,195.0– 2,756.9
594.0
3,328.1
1,127.4
1,761.2
171.9
267.6
3,024.7
69.5
295.3
2,516.1
143.8
317.5
4,154.7
4,180.6
500.0
4,667.7
1,102.1
23.61
6.75
787.0

3,248.2
1,500.7
4,192.2– 3,017.8
573.1
3,769.1
1,450.9
1,503.4
537.7
277.1
3,137.2
316.2
671.4
2,072.976.7
300.5
4,180.6
3,968.1
500.0
4,574.4
1,000.5
21.87
7.50
657.4

30

RISK REPORT
Successful management of existing and emerging risks is critical to thelong-term success of our business and to the achievement of our strategic objectives. In order to seize market opportunities and leverage thepotential for success, risk must be accepted to a reasonable degree.
Risk management is therefore an integral component of the Group’s
Corporate Governance.
The current financial year has seen further maturity of the risk management framework with testing of key controls now occurring in our twolargest source markets and regular testing of key financial controls
occurring across all of our larger businesses. Our risk governanceframework is set out below.

Risk Governance Framework
S T R AT E G I C D I R E C T I O N A N D R I S K A P P E T I T E

The Executive Board, with oversight by the Supervisory Board, determines the strategic direction of the TUI Group and agrees the nature andextent of the risks it is willing to take to achieve its strategic objectives.
To ensure that the strategic direction chosen by the business represents the best of the strategic options open to it, the Executive Board
is supported by the Group Strategy function. This function exists tofacilitate and inform the Executive Board’s assessment of the risk landscape and development of potential strategies by which it can drive
long-term shareholder value. On an annual basis the Group Strategyfunction develops an in-depth fact base in a consistent format which
outlines the market attractiveness, competitive position and financial

performance by division and source market. These are then used tofacilitate debate as to the level and type of risk that the Executive
Board finds appropriate in the pursuit of its strategic objectives. The
strategy, once fully defined, considered and approved by the Executive
Board, is then incorporated into the Group’s three-year roadmap andhelps to communicate the risk appetite and expectations of the organisation both internally and externally.
Ultimate responsibility for the Group’s risk management rests with the
Executive Board. Having determined and communicated the appropriate
level of risk for the business, the Executive Board has established andmaintains a risk management system to identify, assess, manage andmonitor risks which could threaten the existence of the company or
have a significant impact on the achievement of its strategic objectives:
these are referred to as the principal risks of the Group. This risk
management system includes an internally-published risk management
policy which helps to reinforce the tone set from the top on risk, byinstilling an appropriate risk culture in the organisation whereby employees are expected to be risk aware, control minded and ‘do the rightthing’. The policy provides a formal structure for risk management toembed it in the fabric of the business. Each principal risk has assigned
to it a member of the Executive Committee as overall risk sponsor toensure that there is clarity of responsibility and to ensure that each of
the principal risks are understood fully and managed effectively.
The Executive Board regularly reports to the Audit Committee of theSupervisory Board on the overall risk position of the Group, on theindividual principal risks and their management, and on the performanceand effectiveness of the risk management system as a whole.

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Risk report

TUI Group Risk Management Roles & Responsibilities

EXECUTIVE BOARD

Direct & Assure• Overall responsibility forrisk management• Determine strategic approach
to risk• Approve risk policy including risk appetiteand set tone at the top• Agree how principal risks are managed,­mitigated and monitored• Review the effectiveness of therisk management system

R I S K OV E R S I G H T CO M M I T T E E ( RO C )Review & Communicate• Formulate risk strategy and policy• Discuss and propose risk appetite• Summarise principal risks• Ensure effective monitoring• Embed risk within business planning

GROUP RISK TEAM

Support & Report

BUSINESSES & FUNCTIONS

Identify & Assess• Understand key risks• Review key risks and mitigation• Manage and monitor risks• Report on risk statusR I S K C H A M P I O N CO M M U N I T Y

The Risk Oversight Committee (‘ ROC ’) ensures on behalf of the Execu­
tive Board that business risks are identified, assessed, managed andmonitored across the businesses and functions of the Group. Meetingon at least a quarterly basis, the ROC ’s responsibilities include consider­ing the principal risks to the Group’s strategy and the risk appetite foreach of those risks, assessing the operational effectiveness of the controls
in place to manage those risks and any action plans to further improve
controls, and reviewing the bottom-up risk reporting from the businesses
themselves to assess whether there are any heightened areas of concern.
The ROC helps to ensure that risk management is embedded into theplanning cycle of the Group and has oversight of the stress-testing of
cash flow forecasts.

Senior executives from the Group’s major businesses are required toattend the ROC on a rotational basis and present on the risk and control
framework in their business, so that the members of the ROC can ask
questions on the processes in place, the risks present in each businessand any new or evolving risks which may be on their horizon, and also toseek confirmation that the appropriate risk culture continues to be inplace in each of the major businesses.
Chaired by the Chief Financial Officer, other members of the Committee
include the Group Director Controlling and Finance Director Tourism,
the directors of Compliance & Risk, Financial Accounting, Treasury &Insurance, Group Reporting & Analysis, Assurance, M & A, Investor
Relations and representatives from the IT and Legal Compliance functions and Group HR . The director of Group Audit attends without

32

having voting rights to maintain the independence of their function. The
ROC reports quarterly to the Executive Board to ensure that it is kept
abreast of changes in the risk landscape and developments in the management of principal risks, and to facilitate regular quality discussions
on risks and risk management at the Executive Board.
The Executive Board has also established a Group Risk team to ensurethat the risk management system functions effectively and that the risk
management policy is implemented appropriately across the Group.
The Group Risk team supports the risk management process by providing
guidance, support and challenge to management whilst acting as thecentral point for coordinating, monitoring and reporting on risk acrossthe Group. The Group Risk team is responsible for the administrationand operation of the risk and control software which underpins theGroup’s risk reporting and risk management process.
Each division and source market within the Group is required to adopt
the Group Risk Management policy. In order to do this, each either has
their own Risk Committee or includes risk as a regular agenda item attheir Board meetings to ensure that it receives the appropriate senior
management attention within their business. In addition, the divisions
and source markets each appoint a Risk Champion, who promotes therisk management policy within their business and ensures its effective
application. The Risk Champions are necessarily in close contact with
the Group Risk team and they are critical both in ensuring that the risk
management system functions effectively and in implementing a cultureof continuous improvement in risk management and reporting.
RISK MANAGEMENT PROCE SS

The Group Risk team applies a consistent risk methodology across all
key areas of the business. This is underpinned by risk and control software which reinforces clarity of language, visibility of risks, controls andactions and accountability of ownership. Although the process of risk
identification, assessment and response is continuous and embedded
within the day-to-day operations of the divisions and source markets, it
is consolidated, reported and reviewed at varying levels throughout theGroup on at least a quarterly basis.

Risk Identification: On a quarterly basis, line management closest to
the risks identify the risks relevant to the pursuit of the strategy within
their business area in the context of four types of risk:• longer-term strategic and emerging threats;• medium-term challenges associated with business change programmes;• short-term risks triggered by changes in the external and regulatoryenvironment; and• short-term risks in relation to internal operations and control.
A risk owner is assigned to each risk, who has the accountability andauthority for ensuring that the risk is appropriately managed.
Risk Descriptions: The nature of the risk is articulated, stating theunderlying concern the risk gives arise to, identifying the possible causal
factors that may result in the risk materialising and outlining the potential
consequences should the risk crystallise. This allows the divisions /source markets and the Group to assess the interaction of risks andpotential triggering events and / or aggregated impacts before developing
appropriate mitigation strategies to target causes and / or consequences.
Risk Assessment: The methodology used is to initially assess the grossrisk. The gross risk is essentially the worst case scenario, being the
product of the impact together with the likelihood of the risk materialising if there were no controls in place to manage, mitigate or monitor
the risk. The key benefit of assessing the gross risk is that it highlights
the potential risk exposure if controls were to fail completely or not bein place at all. Both impact and likelihood are scored on a rating of 1 to 5
using the criteria outlined below.
The next step in the process is to assess the controls which are currently
in place and which help to reduce the likelihood of the risk materialisingand / or its impact if it does. The details of the controls including thecontrol owners are documented. Consideration of the controls in place
then enables the current or net risk score to be assessed, which isessentially the reasonably foreseeable scenario. This measures theimpact and likelihood of the risk with the current controls identified inoperation. The key benefit of assessing the current risk score is that itprovides an understanding of the current level of risk faced today andthe reliance placed on the controls currently in operation.

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Risk report

Impact Assessment
INSIGNIFICANTMINOR

M O D E R AT EMAJORC ATA ST R O P H I C

Q U A N T I TAT I V E< 3 % EBITA *(< € 30 m)

3 – < 5 % EBITA *( 30 – < € 50 m)

5 – < 10 % EBITA *(50 – < € 105 m)

10 – < 15 % EBITA *(105 – < € 160 m)≥ 15 % EBITA *( ≥ € 160 m)

Q U A L I TAT I V E

Minimal impact on

Limited impact on

Short term impact on

Medium term impact on

Detrimental impact on• Global reputation• Programme delivery• Technology reliability• Health & Safety­standards• Global reputation• Programme delivery• Technology reliability• Health & Safety­standards• Global reputation• Programme delivery• Technology reliability• Health & Safety­standards• Global reputation• Programme delivery• Technology reliability• Health & Safety­standards• Global reputation• Programme delivery• Technology reliability• Health & Safety­standards* Budgeted underlying EBITA for the financial year ended 30 September 2017

Likelihood Assessment
RARE

U N L I K E LY

POSSIBLE

L I K E LY

A L M O ST C E R TA I N< 10 % Chance

10 – < 30 % Chance

30 – < 60 % Chance

60 – < 80 % Chance≥ 80 % Chance

Risk Response: If management are comfortable with the current risk
score, then the risk is accepted and therefore no further action is required.
The controls in place continue to be operated and management monitor
the risk, the controls and the risk landscape to ensure that the risk
score stays stable and in line with management’s tolerance of the risk.
If, however, management assesses that the current risk score is too
high, then an action plan will be drawn up with the objective of introducing new or stronger controls which will reduce the impact and / or
likelihood of the risk to an acceptable, tolerable and justifiable level.
This is known as the target risk score and is the parameter by which
management can ensure the risk is being managed in line with theGroup’s overall risk appetite. The risk owner will normally be the individual tasked with ensuring that this action plan is implemented within
an agreed timetable.

register if deemed to be of a significant nature so that the ongoing status
and the progression of key action plans can be managed in line with theGroup’s targets and expectations.
AD HOC RISK REPORTING

Whilst there is a formal process in place aligned to reporting on risks
and risk management on a quarterly basis, the process of risk identification, assessment and response is continuous and therefore if required
risks can be reported to the Executive Board outside of the quarterly
process if events dictate that this is necessary and appropriate. Ideallysuch ad hoc reporting is performed by the business or function which is
closest to the risk, but it can be performed by the Group Risk team ifnecessary. The best example of ad hoc risk reporting in the year was an
assessment of the risks posed by the insolvency of Air Berlin.
R I S K M AT U R I T Y & C U LT U R E

Each division / source market will continue to review their risk registeron an ongoing basis through the mechanism appropriate for their businesse. g. local Risk Committee. The risk owner will be held to account if actionplans are not implemented within the agreed delivery timescales.
This bottom-up risk reporting is considered by the ROC alongside theGroup’s principal risks. New risks are added to the Group’s principal risk

During the current financial year, the Risk Champions and the Group
Risk team have continued to work together on risk management actions
plans for the businesses as part of the culture of continuous improvement.
Periodically we ask the businesses to formally assess the risk maturity
and culture of their business, primarily through the Risk Champions
completing self-assessment questionnaires, validating this with their local
boards and then discussing their responses with the Group Risk team.

34

We regularly conduct a Group-wide employee survey, and the feedback
received from our employees often leads to a number of initiatives being
taken. The survey is a key yardstick for us, indicating where we standand facilitating the reinforcement of our vision and values into our
corporate culture.
ENTIT Y SCOPING

A robust exercise is conducted each year to determine the specificentities in the Group which need to be included within the risk andcontrol software and therefore be subject to the full rigour of the risk
management process. The scoping exercise starts with the entities
included within the Group’s consolidation system, and applies materiality
thresholds to a combination of revenue, profit and asset benchmarks.
From the entities this identifies, the common business managementlevel at which those entities are managed is identified to dictate theentities which need to be set in the risk and control software itself tofacilitate completeness of bottom-up risk reporting across the Group.
This ensures that the risks and controls are able to be captured appropriately at the level at which the risks are being managed.
EFFEC TIVENE SS OF RISK MANAGEMENT SYSTEMThe Executive Board regularly reports to the Audit Committee of theSupervisory Board on the performance and effectiveness of the risk
management system, supported by the ROC and the Group Risk team.
The results of control testing in the UK&I and German businesses andthe financial control testing undertaken across a number of our larger
businesses forms a key part of the effectiveness oversight. Additionally,
the Audit Committee receives assurance from Internal Audit through its
programme of audits over a selection of principal risks and business
transformation initiatives most critical to the Group’s continued success.
The conclusion from all of the above assurance work is that the risk
management system has functioned effectively throughout the year
and there have been no significant failings or weaknesses identified. Of
course there is always room for improvement and as noted earlier, theRisk Champions and the Group Risk team have continued to work
together on risk management actions plans for the businesses. Broadly
this concerns ensuring consistency of approach in assessing risk scores,
clearer identification of controls currently in place as well as any actionplans to introduce further controls, and ensuring that risk identification
has considered the four risk categories.
Finally, in accordance with Section 317 (4) HGB (German Commercial
Code), the auditor of TUI AG has reviewed the Group’s early detection
system for risks in place as required by Section 91 (2) AktG (German
Stock Corporation Act) to conclude, if the system can fulfill its duties.

Principal Risks
There are some principal risks which are inherent to the tourism sector
and necessarily face all businesses in the sector. For these inherent
risks we have controls, processes and procedures in place as a matter ofcourse which serve to mitigate each risk to either minimise the likelihood of the event occurring and / or minimise the impact if it does occur.
These risks are on our risk radar and we regularly monitor the risk, thecontrols and the risk landscape to ensure that the risk score stays stable
and in line with our risk appetite in each case.
Furthermore, the tourism industry is fast-paced and competitive, withthe emergence of new market participants operating new businessmodels, combined with consumer tastes and preferences evolving all
the time. As a result as a business we always have to adapt to thechanging environment, and it is this process of constant change which
generally gives rise to a number of principal risks which we have toactively manage in order to bring the risk into line with our overall risk
appetite. We have action plans in place to increase controls around eachof these risks and reduce the current net risk score to the target levelindicated in the heat map overleaf.
In the heat map the assessment criteria used are shown on page 33.
Note that the quantitative impact assessment is based on the budgeted
underlying EBITA for the financial year ended 30 September 2017.
If the risk detail in the subsequent tables does not suggest otherwise,
the risks shown below relate to all segments of the Group. The risks
listed are the principal risks to which we are exposed and are notexhaustive. They will necessarily evolve over time due to the dynamic
nature of our business.

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Risk report

COMBINED MANAGE ME NT REPORT

Principal Risk Heat Map
I NHE R E NT R I SKSC U R R E NT R I SK PO SI T I O N

gh re
Hi Sco
sk
Ri

7

B
1
G

C

6

7

I MPAC T

I

E

1

F

3

6

A

D

5

3
2

B

H

4

5

Destination Disruptions
Macroeconomic Risks
C Competition & Consumer Preferences
D Input Cost Volatility
E Seasonal Cash Flow Profile
F Legal & Regulatory Compliance
G Health & Safety
H Supply Chain Risk
I Joint Venture Partnerships
A

4

AC T I VE R I SKS

w reLo Scosk
Ri

C U R R E NT R I SK PO SI T I O N
12

LIKELIHOOD

34CU RREN T RI S K PO S I TIONTARGET RISK POSITION

This shows the current level of risk faced
today after taking in to account thecontrols that are in place and which areoperating as intended.

This shows the target level of risk deemed to be
an acceptable, tolerable and justifiable risk pos­ition after further actions have been implemented
to mitigate the risk.

5
6
7

TARGET RISK POSITIONIT Development & Strategy
Brand Change
Growth Strategy
Integration & Restructuring Opportunities
Corporate & Social Responsibility
Information Security
BrexitPrincipal risks – Inherent to the sector
Nature of Risk

Mitigating Factors

D E S T I N AT I O N D I S R U P T I O NProviders of holiday and travel services are exposed to the inherent riskof incidents affecting some countries or destinations within their operations. This can include natural catastrophes such as hurricanes ortsunamis; outbreaks of disease such as Ebola; political volatility as has
been seen in Egypt and Greece in recent years; the implications of war
in countries close to our source markets and destinations; and terrorist
events such as the tragic incident in Tunisia last year.
There is the risk that if such an event occurs which impacts on one ormore of our destinations that we could potentially suffer significant
operational disruption and costs in our businesses. We may possibly berequired to repatriate our customers and / or the event could lead to asignificant decline in demand for holidays to the affected destinations
over an extended period of time.

• Whilst we are unable to prevent such events from occurring, we havewell defined crisis management procedures and emergency responseplans which are implemented when an event of this nature occurs,with the focus being on the welfare of our customers.
• Where the appropriate course of action is to bring customers home
immediately, our significant fleet of aircraft allows us to do thissmoothly and efficiently.
• Our policy is to follow foreign office advice in each of our source
markets with regards to non-essential travel. This serves to minimise
the exposure of our customers to turbulent regions.
• Due to our presence in all key holiday regions, when a specific destination has been impacted by an external event, we are able tooffer alternative destinations to our customers and to remix ourdestination portfolio away from the affected area in future seasons
if necessary.

36

Nature of Risk

Mitigating Factors• We always assume some level of destination disruption each year
when setting financial plans and targets, so that we are able to copewith a ‘normal’ level of disruption without it jeopardising achievement of our targets.

M AC RO E CO N O M I C R I S K S

Spending on travel and tourism is discretionary and price sensitive. The
economic outlook remains uncertain with different source markets at
different points in the economic cycle. Furthermore, terrorist incidents
in source markets can influence the overall demand for overseas travelin those markets. Consumers are also waiting longer to book their trips
in order to assess their financial situation.
There is the risk that fluctuations in macroeconomic conditions in oursource markets will impact on the spending power of our customers
which could impact on our short-term growth rates and lead to margin
erosion.

• Many consumers prioritise their spending on holidays above otherdiscretionary items.
• Creating unique and differentiated holiday products which match theneeds of our customers.
• Leveraging our scale to keep costs down and prices competitive.
• Having a range of source markets so that we are not over exposed to
one particular economic cycle.
• Expressing our key profit growth target in constant currency terms
so that short term performance can be assessed without the distortion
caused by exchange rate fluctuations.
• Promoting the benefits of travelling with a recognised and leading
tour operator to increase consumer confidence and peace of mind.

Furthermore, changes in macroeconomic conditions can have an impact
on exchange rates which, particularly for the £ / € rate, has a direct
impact on the translation of non-euro source market results into euros,
the reporting currency of our Group.
CO M P E T I T I O N & CO N S U M E R P R E F E R E N C E S

The tourism industry is fast-paced and competitive with the emergenceof new market participants operating new business models, combinedwith consumer tastes and preferences evolving all the time.
In recent years there has been an emergence of successful substitutebusiness models such as web-based travel and hotel portals which allow
end users to combine the individual elements of a holiday trip on theirown and book them separately.
Consumer tastes and preferences have evolved in recent years as well,with more consumers booking their holidays online and via mobiles andtablets, and booking closer to the time of travel.
There is the risk that if we do not respond adequately to such businessmodel disruption or if our products and services fail to meet changing
customer demands and preferences, that our turnover, market share andprofitability will suffer as a result.

• Our outstanding market position as a leading tourism group, thestrength of our brands and our integrated business model enables us
to respond robustly to competitive threats.
• The TUI Group is characterised by the continuous development of
unique and exclusive holidays, developing new concepts and services
which match the needs and preferences of our customers.
• Our integrated business model offers end-to-end customer services,from consultation and booking of holidays via flights with the Group’s
own airlines through to Group-owned or operated hotels, resorts
and cruise ships. Integration thus facilitates the development andmarketing of individual, tailored holiday offerings for customers which
it is difficult for competitors to replicate.
• Building strong and lasting relationships with our key hotel partners,
which further reinforces our ability to develop new concepts exclusive
to the TUI Group which competitors struggle to match.
• Focusing on being online throughout the whole of the customer
journey – from inspiration, to booking, to the holiday itself, as well as
returning and sharing experiences through social media.

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Risk report

Nature of Risk

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

Mitigating Factors

I N P U T C O S T V O L AT I L I T Y

A significant proportion of operating expenses are in non-local currency
and / or relate to aircraft fuel which therefore exposes the business tochanges in both exchange rates and fuel prices.
There is the risk that if we do not manage adequately the volatility of
exchange rates, fuel prices and other input costs, then this could resultin increased costs and lead to margin erosion, impacting on our ability
to achieve profit targets.
There is also the risk that if our hedging policy is too rigid, we may findourselves unable to respond to competitive pricing pressures during theseason without it having a direct detrimental impact on our market
position and / or profitability.

• Ensuring that the appropriate derivative financial instruments are used
to provide hedging cover for the underlying transactions involving fueland foreign currency.
• Maintaining an appropriate hedging policy to ensure that this hedging
cover is taken out ahead of source market customer booking profiles.
This provides a degree of certainty over input costs when planning
pricing and capacity, whilst also allowing some flexibility in prices so
as to be able to respond to competitive pressures if necessary.
• Tracking the foreign exchange and fuel markets to ensure the most
up-to-date market intelligence and the ongoing appropriateness of
our hedging policies.
• Detailed information on currency and fuel hedges can be found in
the Notes to the consolidated financial statements in section Financial
instruments.

S E A S O N A L C A S H F LO W P R O F I L E

Tourism is an inherently seasonal business with the majority of profits
earned in the European summer months. Cash flows are similarly
seasonal with the cash high occurring in the summer as advance payments and final balances are received from customers, with the cash
low occurring in the winter as liabilities have to be settled with many
suppliers after the end of the summer season.
There is the risk that if we do not adequately manage cash balances
through the winter low period this could impact on the Group’s liquidity
and ability to settle liabilities as they fall due whilst ensuring that financial
covenants are maintained.

• As our business is spread across a number of source markets within
the Tourism division there are some counter-cyclical features e. g.
winter is a more important season for the Nordic and Canadiansource markets. Some brands, such as the UK ski brand Crystal, havea different seasonality profile which helps to temper the overall profile.
• Our content-focussed strategy is also helping to reduce the seasonality risk, as hotels and cruises have a more evenly distributed profit
and cash profile across the year. This is highlighted by the fact that in
the current financial year, the Group made an underlying operating
profit for the first time over the nine months to 30 June.
• The business produces regularly both short term and long term cash
forecasts during the year which the Treasury team use to manage
cash resources effectively.
• We have implemented a financial policy which has led to an improvement in our credit rating and makes it easier to maintain financing
facilities at suitable levels.
• Existing financing facilities are considered to be more than sufficientfor our requirements and provide ample headroom.
• We continue to maintain high-quality relationships with the Group’s
key financiers and monitor compliance with the covenants contained
within our financing facilities.
• Raising additional finance from the Capital Markets, should it berequired, remains an option.

38

Nature of Risk

Mitigating Factors

L E G A L & R E G U L ATO R Y C O M P L I A N C E

Most providers of holiday and travel services operate across a numberof economies and jurisdictions which therefore exposes them to a rangeof legal, tax and other regulatory laws which must be complied with.
As the TUI Group is the world’s leading tourism business operating frommultiple source markets and providing holidays in more than 100 destin­
ations, we are exposed to a range of laws and regulations with which wemust comply or else risk incurring fines or other sanctions from regulatory bodies.

• Communication and strong tone from the top concerning compliancewith laws and regulations.
• Legal Compliance Committee established to ensure appropriate
oversight, monitoring and action plans and to further drive thecompliance culture across the Group.
• Embedded legal and tax expertise in all major businesses responsible
for maintaining high quality relationships with the relevant regulators
and authorities.
• Ongoing review conducted by the Group Legal Compliance team tocentrally monitor compliance with regulations and provide expert
advice to local teams on specific areas.

H E A LT H & S A F E T Y

For all providers of holiday and travel services, ensuring the health andsafety of customers is of paramount importance. This is especially so for
TUI as we are the world’s leading tourism group selling holidays to over 20
million customers per annum.
There is the risk of accidents or incidents occurring causing illness, injury
or death to customers or colleagues whilst on a TUI holiday. This could
result in reputational damage to the business and / or financial liabilities
through legal action being taken by the affected parties.

• Health and safety functions are established in all businesses in orderto ensure there is appropriate focus on health and safety processes
as part of the normal course of business.
• Ongoing monitoring is conducted by the Group Security, Health &Safety function to ensure compliance with minimum standards.
• Appropriate insurance policies are in place for when incidents do occur.

S U P P LY C H A I N R I S KProviders of holiday and travel services are exposed to the inherent riskof failure in their key suppliers, particularly hotels. This is further
heightened by the industry convention of paying in advance (‘prepayment’) to secure a level of room allocation for the season.
There is the risk that we do not adequately manage our financial exposure
should demand drop either for individual hotels and / or for the destin­
ation in which the hotels are located and to which the tour operator still
has a level of prepayment outstanding which could result in financial
losses.

• Owned and joint venture partner hotels form a substantial part ofour programme which reduces our inherent risk in this area.
• Established and embedded a robust prepayment authorisation process
to both limit the level of prepayments made and ensure that they are
only paid to trusted, credit-worthy counterparties.
• Where prepayments are made to external hoteliers this is to secureaccess to unique and differentiated product for which demand isinherently higher and more resilient to external events than forcommodity product.
• Prepayments are monitored on a timely and sufficiently granularbasis to manage our financial exposure to justifiable levels.

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Risk report

Nature of Risk

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

Mitigating Factors

J O I N T V E N T U R E PA R T N E R S H I P S

It is common for tourism groups to use joint venture partnerships insome of their operations in order to reduce the risk of new ventures or
to gain access to additional expertise. TUI has three significant joint
ventures – Riu, TUI Cruises and Sunwing.

• Good working relationships exist with all of our main joint venture
partners and they are fully aligned with and committed to the growthstrategy of TUI Group.

There is the risk that if we do not maintain good relations with our key
partners that the ventures’ objectives may not remain consistent withthat of the Group which could lead to operational difficulties and jeopardise the achievement of financial targets.

Actively managed principal risks – Strategic and emerging and business change
I T D E V E L O P M E N T & S T R AT E G Y

Our focus is on enhancing customer experience by providing engaging,intuitive, seamless and continuous customer service through delivery ofleading digital solutions, core platform capabilities, underlying technicalinfrastructure and IT services required to support the Group’s overall
strategy for driving profitable top-line growth.
There is a risk that we fail to keep up with or outpace the market andevolving consumer preferences, we do not concentrate our activities on
the correct areas for overall business success, do not address legacy
inefficiencies and complexities of our existing infrastructure, do not
ensure continuity of service for critical IT systems and / or do note­ xecute our strategy and developments in line with expectations.
If we are ineffective in our strategy or technology development this
could impact on our ability to provide leading technology solutions in
our markets thereby impacting on our competitiveness, our ability toprovide a superior customer experience and associated impact on
quality and operational efficiency. This would ultimately impact on ourcustomer numbers, revenue and profitability.

• Developed and communicated (in conjunction with Executives, Business & IT Leadership Teams) the Group’s IT Strategy which is clearlyaligned to our overall business objectives and considers external
factors such as the pace of technology change and internal factors
such as the underlying quality required throughout IT.
• Continuing to implement our online platform in order to enhancecustomer experience and drive higher conversion rates.
• Implementing a SAP -based central customer platform to collate all
information on our customers across their journey to provide a single
view of the customer alongside an eCRM platform which will support
strategic marketing.
• Placing increased focus on ensuring continuity plans for critical IT
systems are in place and regularly tested.
• Cascaded clear technology standards and associated delivery roadmaps which are linked to Group wide and source market objectives• Adopting API , Big Data and Cloud architecture to drive improved
speed, productivity and efficiency.
• Experimenting with Blockchain technology to be ahead of thecompetition.

40

Nature of Risk

Mitigating Factors

BRAND CHANGE

Our strategy is to migrate our many local tour operating brands in to
one global brand, with the aim of strengthening and enhancing ourcompetitive positon, particularly in the online world. We are aiming tocapitalise on the strength of the TUI brand on a global scale whilst
ensuring we maintain local roots.
There is an inherent risk when executing such a large scale global brandstrategy that we may not be able to maintain the benefits of local brandequity throughout the process and we recognise that such a large programme should take place with respect for the interests of all our
stakeholders and existing contractual obligations.
If we do not successfully deliver against our strategy this could result ina decline in brand awareness and loyalty with associated decline incustomer demand or it could impact on our ability to maximise on theopportunities facilitated by having one brand on a global scale.

• Undertaken detailed market research in each source market to assess
current brand positioning and likely impact of the brand change.
• Approved incremental marketing spend to raise the profile of the TUI
brand locally in order to promote the benefits and to manage theexpectations of our customers in relation to the future of our­enhanced products and services.
• Established a ’One Brand’ programme team responsible for coord­
inating and monitoring the brand change activity across all source
markets, with KPI s identified and tracked on a regular basis by both
local and group colleagues and prompt corrective action taken toaddress issues as they arise.
• Taking a phased and focussed approach to the brand change byimplementing in one source market at a time. This minimises the risk
at a given point in time and allows us to gain learnings from thesource markets undergoing transition and implement those learnings
in the next source market. Our first brand transition successfully
occurred in the Netherlands in the prior financial year 2016, with
Nordics and Belgium source markets successfully transitioned infinancial year 2017. The major brand transition in the UK&I of­T homson to TUI is now well underway in financial year 2018.
• Communicating both internally and externally across multiple media
channels to drive brand awareness, with increased awarenessthrough consistent marketing in key destination airports and changing
of the livery on our aircraft in order to support greater awareness of
the TUI Brand.

G R O W T H S T R AT E G Y

We have set ourselves a medium-term target of achieving at least 10 %growth in underlying EBITA at constant currency rates (see page 48).
This will be driven by growth in own hotel and cruises content, and top
line and efficiency improvements.
Additionally we have broadened our offering to customers by introducing
extra flexibility into our packages, and expanded our long-haul offering
by taking advantage of the capabilities of the 787s which we have and are
due to receive via our order book. Note that availability of aircraft financeis a key assumption of our business model.
Whilst managing this expansion, we must continue to adapt to changes in
consumer tastes and booking profiles, and we must continue to matchour capacity to consumer demand. Asset utilisation – of aircraft, cruise
ships and hotels – is critical to our financial success particularly when in a
growth phase.
There is a risk that we could be unsuccessful in maximising opportunities
to execute our expansion strategy. This could mean that we fail to achievesome of the initiatives we have embarked upon, which could result in us
falling short against the overall growth targets we have set for the business.

• The Executive Board is very focussed on the strategy and mindful of
the risks, so there is strong direction and commitment from the top.
• The Group Tourism Board plays an important role in coordinating,executing and monitoring the various growth initiatives.
• There are a number of initiatives underway to achieve growth which
reduces the risk through diversification.
• Each of the business teams tasked with achieving an element of thegrowth strategy are still required to maintain sound financial discipline.
The Group’s investment criteria and authorisation processes muststill be adhered to as we are not prepared to be reckless in the pursuitof growth.
• We continue to maintain strong relationships with the providers ofaircraft finance.
• Monitoring of overall market conditions continues to occur so thatplans can be adapted or contingency plans invoked if required.

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Risk report

Nature of Risk

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

Mitigating Factors

I N T E G R AT I O N & R E S T R U C T U R I N G O P P O R T U N I T I E S

Our key strategic rationale for TUI Group is to act ’as one’ wherever itmakes sense to do so, whilst maintaining local differences where thebenefit of that differentiation is greater than that of harmonisation.
There are a number of restructuring projects underway across theGroup as a result to enable us to achieve these opportunities. Furthermore our continuous review of our own businesses and competitors
means that we do have an active programme of business disposals(e. g. Travelopia in financial year 2017) and acquisitions with associatedintegration projects.

• Strong project management structures exist for all of the major
restructuring and disposal programmes which are underway to ensurethat they are managed effectively.
• Project reporting tool ensures enhanced visibility of the progress ofmajor projects as a matter of routine.
• Regular reporting by the major projects to the Executive Board toensure swift resolution of any issues or to enhance coordination
across the Group where required.

There is an inherent risk with any large restructuring or integration
programme that we face challenges in managing the complexities associated with further integrating our business, and reducing overlapping
activities in order to develop a more lean and streamlined operating
model.
If we are not successful in leveraging and optimising the identified
opportunities this could have a significant impact on our ability todeliver the identified benefits in line with expectations and enhanceshareholder value.
C O R P O R AT E & S O C I A L R E S P O N S I B I L I T Y

For TUI Group, economic, environmental and social sustainability is afundamental management principle and a cornerstone of our strategy
for continually enhancing the value of our Company. This is the way wecreate the conditions for long-term economic success and assume
responsibility for sustainable development in the tourism sector.
Our focus is to reduce the environmental impact of our holidays andpromote responsible social policies and outcomes both directly throughour own business and indirectly via our influence over our supply chain
partners, thereby creating positive change for people and communities
and being a pioneer of sustainable tourism across the world.
There is a risk that we are not successful in driving forecast social andenvironmental improvements across our operations, that our suppliers
do not uphold our corporate and social responsibility standards and we
fail to influence destinations to manage tourism more sustainably.
If we do not maximise our positive impact on destinations and minimise
the negative impact to the extent that our stakeholders expect, this
could result in a decline in stakeholder confidence, reputational damage,reduction in demand for our products and services and loss of competitive
advantage.

• Early adoption of EU Directive 2014/95/EU requiring increased disclosure of Corporate and Social Responsibility initiatives.
• Developed and launched in 2015 the ’Better Holidays, Better World’2020 sustainability strategy framework which includes specific targets
for key sustainability indicators.
• Established a dedicated sustainability team to work closely with thebusiness and other stakeholders to implement the sustainability
strategy.
• Operating the most carbon efficient airlines in Europe with continued
investment in new, more efficient aircraft (e. g. Boeing 787 Dreamliner & 737 MA X ) and cruise ships (e. g. the new Mein Schiff 1 & 2).
• Implemented an environmental management system with five of our
airlines having achieved ISO 14001 certification.
• Increased measures to influence accommodation suppliers to achieve
third party sustainability certification recognised by the Global
Sustainable Tourism Council (GSTC ).
• TUI Care Foundation expanded to focus on the achievement of 2020
target for charitable donations and sustainability projects, with particular emphasis on sustainable tourism, environmental protection
and the welfare of children.

42

Nature of Risk

Mitigating Factors

Furthermore, if TUI Group falls short of achieving its sustainable development targets and at the same time the objectives of the UN Paris
Climate Change Agreement (December 2015) are not met, this could
lead to sustained long-term damage to certain of the TUI Group’s current
and future destinations, which could also have a material adverse effecton demand for our products and services.
I N F O R M AT I O N S E C U R I T Y

Our responsibility is to protect the confidentiality, integrity and avail­ability of the data we have and the services we provide to our customers,
our employees, our suppliers and service delivery teams.
This is a dynamic risk due to increased global cyber-crime activity andnew regulations. At the same time our consolidation under the TUI
brand and our increasing dependence on online sales and customer
care channels (web / mobile) increases our exposure and susceptibility
to cyber-attacks and hacks.
If we do not ensure we have the appropriate level of security controls inplace across the Group, this could have a significant negative impact on
our key stakeholders, associated reputational damage and potential for
financial implications.

• Continued commitment from the Executive Board in support of key
initiatives to ensure all existing and future IT systems are secure by
design, that exposure to vulnerability is managed effectively, user
access is sufficiently controlled and colleagues are made aware of
information security risks through appropriate training.
• Launch of a company-wide Information Security awareness campaign
to promote secure behaviours amongst our colleagues. Overall goal is
to make information security part of everyone’s job.
• Continuous review and testing of all external devices and ongoing
monitoring of logs in order to identify any potential threats as andwhen they arise.
• Continuous improvement through lessons learned from real or
simulated cyber incidents.

BREXIT

With the UK government formally triggering Article 50 of the Treaty on
European Union of Lisbon on 29th March 2017, Brexit has become an
active principal risk facing TUI Group. Brexit has an impact both one­ xisting principal risks (e. g. Macroeconomic risks and Input Cost Volatility,
through the uncertainty it has introduced to prospects for future
growth rates in the UK economy and the sustained depreciation ofsterling since the referendum result in 2016) as well as introducing a
new class of principal risk due to the direct potential impact it could
have on specific areas of our business model.
Our main concern is whether or not all of our airlines would continue tohave access to EU airspace as now. If we were unable to continue to fly
intra- EU routes, such as from Germany to Spain, this would have asignificant operational and financial impact on TUI Group. Other areasof uncertainty include the status of our UK employees working in the
EU and vice versa, and the potential for customer visa requirements forholidays from the UK to the EU .

• The Group has established a Brexit Steering Committee to monitor
developments as the political negotiations take place, assess any
impacts on TUI Group’s business model and devise suitable mitigation
strategies.
• In addition we continue to lobby relevant UK and EU ministers,
officials and regulators to stress the continued importance of aliberalised and deregulated aviation market across Europe to protect
consumer choice in both regions.

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R I S K S W I T H N O I M PA C T O N U N D E R LY I N G E B I TA

Impairment risk related to the investment in container shipping(Hapag-Lloyd AG). During the current financial year, TUI Group disposedof all of its investment in the container shipping company, Hapag-Lloyd AG ,and therefore this risk no longer exists.
German trade tax risk. As noted in prior years, the German tax authorities have issued guidance on how certain items of expenditure shouldbe treated for the purposes of German trade tax. The Group continues
to disagree with the German tax authorities’ interpretation of thismatter and it is possible that the issue will have to be litigated throughthe German tax courts which could take a considerable amount of time
to bring it to a resolution. There was no change to this risk during the­financial year 2017, however the provision on the balance sheet at
30 September 2017 was increased to € 50 m (2016: € 44 m), primarily
due to the interest effects.
OVER ALL RISK A SSE SSMENT

With the UK government formally triggering Article 50 of the Treaty on
European Union of Lisbon on 29th March 2017, Brexit has become an
active principal risk facing TUI Group. Brexit has an impact both on
existing principal risks (e. g. Macroeconomic risks and Input Cost Volatility, through the uncertainty it has introduced to prospects for future
growth rates in the UK economy and the sustained depreciation of sterling
since the referendum result in 2016) as well as introducing a new classof principal risk due to the direct potential impact it could have on specificareas of our business model.
Our main concern is whether or not all of our airlines would continue tohave access to EU airspace as now. Other areas of uncertainty include
the status of our UK employees working in the EU and vice versa, andthe potential for customer visa requirements for holidays from the UK
to the EU. If we were unable to continue to fly intra- EU routes, such as
from Germany to Spain, this would have a significant operational andfinancial impact on TUI Group. It is for this reason that we currently giveBrexit the highest possible risk score using the impact and likelihood
assessment criteria detailed on page 33, with the expectation that thisscore will decline over time as either political negotiations lead toconfirmation of continued access to EU airspace, or as our mitigation
strategies begin to be implemented.
Macroeconomic risk we view as being materially unchanged compared
to last year, with Brexit and the UK election result in June continuing tocreate some degree of uncertainty over prospects for future growth
rates in the UK economy. The sustained depreciation of sterling sincelast year’s UK Brexit referendum has a cost impact through making
foreign denominated input costs in the UK business more expensive insterling terms. Whilst the standard hedging policy we follow meant that
the UK Source Market had already hedged a significant proportion of its
foreign currency requirements for the current financial year ahead of
the Brexit referendum, the unhedged portion resulted in higher costs
which impacted the UK business in the second half of this year. Assuming
the Pound Sterling does not strengthen, this will remain the casethrough to the Summer 2018 season. Normal business practice is toincrease holiday prices to offset these higher input costs and protect
margins, however competitive pressures may prevent prices from rising
to the full extent required. Whilst the business continues to focus
strongly on efficiency, which assists to offset against this we view the
input cost volatility risk as having increased compared to last year.
The other risk we see as having increased over the course of the current year is Information Security, of which cyber security is a major
component, due to increased global cyber-crime activity as highlighted
by well-publicised events such as the Wannacry incident. To address
this increasing risk we have launched a Group-wide Information Secur­
ity awareness campaign to promote secure behaviours amongst ourcolleagues. The overall goal is to make information security part ofeveryone’s job.
Destination disruption is an inherent risk to which all providers of holiday
and travel services are exposed. This disruption can take place in many
forms such as natural catastrophes (e. g. recent hurricane activity in the
Caribbean), outbreaks of diseases, social unrest, terrorist attacks andthe implications of war in countries close to our source markets anddestinations. General customer concerns over safety and security ineastern Mediterranean destinations (particularly Turkey) has continued
to depress demand across all our source markets for these destinations,although there has been some improvement in demand compared tolast year. Due to our geographic reach, we are able to offer our customers
alternative destinations such as Spain, Canary Islands, Cape Verde etc.
Despite this continued shift in demand, Turkey remains an important
destination for our Group. Our general policy in respect of destinations
remains to follow foreign office advice in each of our source markets
relating to non-essential travel to specific destinations. Overall, we consider this risk to be materially unchanged compared to the prior year.
Our brand change programme has seen further successful brand changes
in the current financial year in our Nordic and Belgian businesses andthe major brand transition in the UK&I of Thomson to TUI is now wellunderway in financial year 2018. Overall therefore we see this risk as
having declined over the year. Similarly the progress made with oursustainable development initiatives leads us to view the Corporate &Social Responsibility risk as having declined compared to last year.

44

Two risks have dropped out of our Principal Risk register compared tolast year. Achievement of our merger synergy targets means that thisprogramme has now ceased and therefore the Corporate Streamlining
risk drops out of our risk register completely. Similarly, we have successfully navigated our way through the initial period of post-merger
concern with regards to retaining key talent and we now have standardised processes in place for managing key talent in the Group, andtherefore Talent Management risk is viewed as now being a ‘Business As
Usual’ risk which is overseen by the Group HR team.
Finally, during the current financial year TUI Group disposed of all of its
investment in the container shipping company, Hapag-Lloyd AG , andtherefore the impairment risk highlighted in previous years no longer
exists.
Other than the items noted above, the Executive Board is of the opinion
that there has been no other significant change to the risk landscape of
the Group.
V I A B I L I T Y S TAT E M E N T

In accordance with provision C2.2 of the 2014 revision of the UK Corporate
Governance Code, the Executive Board has assessed the prospect of
the Company over a longer period than the twelve months required by
the ’Going Concern’ provision. The Executive Board considers annuallyand on a rolling-basis a three year strategic plan for the business as
outlined earlier in the ‘Strategic direction and risk appetite’ section.
The latest three year plan was approved in October 2017 and covers theperiod to 30 September 2020. A three year horizon is considered appropriate for a fast-moving competitive environment such as tourism, and
it is noted that the Group’s current € 1,535.0 m revolving credit limit,
which is used to manage the seasonality of the Group’s cash flows andliquidity, matures in July 2022 which is beyond the timeframe of thethree year horizon. The three year plan considers cash flows as well as
the financial covenants which the credit facility requires compliancewith. Key assumptions underpinning the three year plan and the associated cash flow forecast is that aircraft and cruise ship finance will continue
to be readily available, and that the terms of the UK leaving the EU aresuch that all of our airlines continue to have access to EU airspace as now.
The Executive Board has conducted a robust assessment of the principal
risks facing the company, including those that would threaten its businessmodel, future performance, solvency or liquidity. Sensitivity analysis isapplied to the cash flow to model the potential effects should certain
principal risks actually occur, individually or in unison. This includes
modelling the effects on the cash flow of significant disruption to amajor destination in the summer season.
Taking account of the company’s current position, principal risks andthe aforementioned sensitivity analysis, the Executive Board has areasonable expectation that the company will be able to continue inoperation and meet its liabilities as they fall due over the three year
period of the assessment.

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. D EFINITION AND ELEMENTS OF THE INTERNAL CONTROLAND RISK MANAGEMENT SYSTEM IN THE TUI GROUPThe TUI Group’s internal control system comprises all the principles,
processes and measures that are applied to secure effective, efficientand accurate accounting which is compliant with the necessary legal
requirements.
In the completed financial year, the TUI Group’s existing internal control
system was further developed, drawing on the internationally recognised framework of COSO (Committee of Sponsoring Organizations of
the Treadway Commission), which forms the conceptual basis for theinternal control system.
The TUI Group’s internal control system consists of internal controls
and the internal monitoring system. The Executive Board of TUI AG , inexercising its function of managing business operations, has entrusted
responsibility for the internal control system in the TUI Group to specificGroup functions.
The elements of the internal monitoring system in the TUI Group
comprise both measures integrated into processes and measures
performed independently. Besides manual process controls, e. g. the‘four-eyes principle’, another key element of the process-related measures are automated IT process controls. Process-related monitoring is
also secured by bodies such as the Risk Oversight Committee of TUI AG
and by specific Group functions.
The Supervisory Board of TUI AG , in particular its Audit Committee, as
well as the Group Auditing department at TUI AG are incorporated into
the TUI Group’s internal monitoring system through their audit activities
performed independently from business processes. On the basis ofsection 107 (3) of the German Stock Corporation Act, the Audit Committee of TUI AG deals primarily with the auditing of the annual financial
statements, monitoring the accounting process and the effectiveness of
the internal control and risk management system. In the Audit Committee Report the reliability of the financial reporting and the monitoringof the financial accounting process as well as the effectiveness of theinternal control and risk management system are described.
Audit Committee Report see from page 15

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Risk report

The Group’s auditors have oversight of the TUI Group’s control environment. The audit of the consolidated financial statements by the Groupauditor and the audit of the individual financial statements of Group
companies included in the consolidated financial statements, in particular,
constitute a key non-­process-related monitoring measure with regard
to Group accounting.

At their own discretion, TUI AG’s Group auditors select certain individual
financial statements from the financial statements entered in the HFM
reporting and consolidation system by the Group companies, which arethen reviewed for the purposes of auditing the consolidated financial
statements.
3 . S P E C I F I C R I S K S R E L AT E D T O G R O U P A C C O U N T I N G

In relation to Group accounting, the risk management system, introduced
as an Enterprise Risk Management System (ERM System) as a componentof the internal control system, also addresses the risk of misstatements
in Group bookkeeping and external reporting. Apart from operationalrisk 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 TUIGroup’s risk management system embraces the systematic early detection, management and monitoring of risks across the Group. A moredetailed explanation of the risk management system is provided in thesection on the Risk Governance Framework in the Risk Report.
2. USE OF IT SYSTEMS

Bookkeeping transactions are captured in the individual financial statements of TUI AG and of the subsidiaries of TUI AG , through local accounting systems such as SAP or Oracle. As part of the process of preparing
their individual financial statements, subsidiaries complete standardized
reporting packages in the Group’s Oracle Hyperion Financial Management 11.1.2.4 (HFM) reporting system. HFM is used as the uniform reporting and consolidation system throughout the Group so that no add­
itional interfaces exist for the preparation of the consolidated financial
statements.
All consolidation processes used to prepare the consolidated financial
statements of TUI AG , e. g. capital consolidation, assets and liabilities
consolidation and expenses and income elimination including at equity
measurement, are generated and fully documented in HFM . All elements
of TUI AG’s consolidated financial statements, including the disclosuresin the Notes, are developed from the HFM consolidation system. HFM
also provides various modules for evaluation purposes in order to prepare
complementary information to explain TUI AG’s consolidated financial
statements.
The HFM reporting and consolidation system has an in-built workflow
process whereby when businesses promote their data within the system,
to signal that their reporting package is complete, they are then locked
out from making any further changes to that data. This ensures data
integrity within the system and also facilitates a strong audit trail enablingchanges to a reporting package to be identified. This feature of the HFM
system has been checked and validated by the TUI AG Group Audit
department on several occasions since the system was introduced.

Specific risks related to Group accounting may arise, for example, fromunusual or complex business transactions, in particular at critical times
towards the end of the financial year. Business transactions not routinely processed also entail special 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 fromderivative financial instruments are outlined in the Notes to the consoli­
dated financial statements.
4 . K E Y R E G U L AT I O N A N D C O N T R O L A C T I V I T I E S T O E N S U R E
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 legal requirements and the
Articles of Association. This also ensures that assets and liabilities areproperly recognised, measured and presented in the consolidated­financial statements. The control operations also ensure that bookkeeping records provide reliable and comprehensive information.
Controls implemented to secure proper and reliable accounting include,
for instance, analysis of facts and developments on the basis of specificindicators. Separation of administrative, execution, settlement andauthorization functions and the implementation of these functions bydifferent persons reduces the potential for fraudulent operations.
Organisational measures also aim to capture any corporate or Groupwide restructuring or changes in sector business operations rapidly andappropriately in Group accounting. They also ensure, for instance, thatbookkeeping transactions are correctly recognised in the period inwhich they occur in the event of changes in the IT systems used by theaccounting departments of Group companies. The internal control
system likewise ensures that changes in the TUI Group’s economic orlegal environment are mapped and that new or amended accounting
standards are correctly applied.
The TUI Group’s accounting policies together with the International
Financial Reporting Standards (IFRS) in compliance with EU legislation,
govern the uniform accounting and measurement principles for theGerman and foreign companies included in TUI ’s consolidated financial
statements. They include general accounting principles and methods,
policies concerning the statement of financial position, income statement,
notes, management report, cash flow statement and segment reporting.

46

The TUI Group’s accounting policies also govern specific formal requirements for the consolidated financial statements. Besides defining thegroup of consolidated companies, they include detailed guidance on thereporting of financial information by those companies via the groupreporting system HFM on a monthly, quarterly and year end basis. TUI ’s
accounting policies also include, for instance, specific instructions on
the initiating, reconciling, accounting for and settlement of transactions
between group companies or determination of the fair value of certain
assets, especially goodwill.
At Group level, specific controls to ensure proper and reliable Groupaccounting include the analysis and, where necessary, correction of theindividual financial statements submitted by the Group companies, taking
account of the reports prepared by the auditors and meetings to discuss
the financial statements which involve both the auditors and local management. Any further content that requires adjusting can be isolated
and processed downstream.
The control mechanisms already established in the HFM consolidation
system minimize the risk of processing erroneous financial statements.
Certain parameters are determined at Group level and have to be applied
by Group companies. This includes parameters applicable to the measurement of pension provisions or other provisions and the interest

rates to be applied when cash flow models are used to calculate the fairvalue of certain assets. The central implementation of impairment tests
for goodwill recognized in the financial statements secures the applicationof uniform and standardized evaluation criteria.
5. DISCLAIMER

With the organisational, control and monitoring structures establishedby the TUI Group, the internal control and risk management systemenables company-specific facts to be captured, processed and recognized in full and properly presented in the Group’s accounts.
However, it lies in the very nature of the matter that discretionary
decision-making, faulty checks, criminal acts and other circumstances,in particular, cannot be ruled out and will restrict the efficiency andreliability of the internal control and risk management systems, so thateven Group-wide application of the systems cannot guarantee withabsolute certainty the accurate, complete and timely recording of facts
in the Group’s accounts.
Any statements made relate exclusively to TUI AG and to subsidiaries
according to IFRS 10 included in TUI AG’s consolidated financial statements.

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Risk Report, Overall assessment by the Executive Board and report on expected developments

OVER ALL A SSE SSMENT BY THE
E XECUTIVE BOARD AND REPORTON E XPEC TED DE VELOPMENTS
Actual business performance 2017 compared with
our forecast
In the third financial year following the merger, TUI Group’s per ­­form­
ance again exceeded our original forecast, despite a challenging­geopolitical framework. TUI Group’s underlying EBITA rose by 10.2 % to
€ 1,102.1 m in financial year 2017. On a constant currency basis for thereporting period and the prior year reference period, this equates to an
improvement of 12.0 %. In financial year 2017 we have thus met ourguidance, which envisaged an increase in our operating result of at least
10 % on a constant currency basis (financial year 2016).
Due to our sound operating performance and lower net one-off adjustments, the Group also delivered growth in its EBITA from continuing
operations, which climbed 14.3 % to € 1,026.5 m.
Turnover by TUI Group likewise outperformed expectations, up 11.7 %on the previous year on a constant currency basis. The Group’s net cash
capex and financial investments (excluding down payment on aircraft
orders) fell slightly below the target of € 1 bn euros at € 0.9 bn. The net
cash of € 0.6 bn reported as at year-end 2017 surpassed our last guidance, taking account of the cash inflows from the sale of Travelopia andthe remaining stake in Hapag-Lloyd AG . This was primarily due to a
positive development in working capital in Q4 of the period under review,which typically delivers strong turnover.

Expected changes in the economic framework
Expected development of gross domestic product
Var. %World
EurozoneGermany
FranceUK
US

Russia
Japan
China
India

2018

2017

3.7
1.9
1.8
1.8
1.5
2.3
1.6
0.7
6.5
7.4

3.6
2.1
2.0
1.6
1.7
2.2
1.8
1.5
6.8
6.7

Source: International Monetary Fund ( IMF ), World Economic Outlook, October 2017

M A C R O E C O N O M I C S I T U AT I O N

In the course of calendar year 2017, the growth trend of the global
economy continued to consolidate and is expected to remain strong forthe foreseeable future. The International Monetary Fund (IMF, World
Economic Outlook, October 2017) expects gross domestic product togrow by 3.6 % in 2017. For 2018, the IMF expects the global economy togrow by 3.7 %. For the first time in a long while, the economy is gaining
momentum across almost all major economies but will gradually slow
down in the course of the next two years.
MARKE T TREND IN TOURISM

UNWTO expects international tourism to continue growing globally inthis decade. For the next few years, average weighted growth of around
3 % per annum has been forecast (source: UNWTO, Tourism Highlights,
2017 edition). In the first six months of 2017, international arrivals grew
by 6.4 %. UNWTO expects growth of 3 % to 4 % for the full calendar year2017 (source: UNWTO, World Tourism Barometer, August 2017).
EFFECTS ON TUI GROUP

As the world’s leading tourism group, TUI Group depends on the development of consumer demand in the large source markets in which we
operate with our sales and marketing activities and hotel and cruises
brands. Our budget is based on the assumptions used as a basis by the
IMF to predict the future development of the global economy.

48

Apart from the development of consumer sentiment, political stability
in the destinations is a further crucial factor affecting demand forholiday products. In our view, our business model is sufficiently flexible
to compensate for the currently identifiable challenges.
The expected turnover growth assumed for our Source Markets in ourbudget for financial year 2018 is in line with UNWTO’s long-term forecast.
Our strategic focus is to create unified branding for our Sales & Marketing
activities, broaden our portfolio of Group hotels and expand our cruise
business.

U N D E R LY I N G E B I TATUI Group’s underlying EBITA in financial year 2018 is expected to growby at least 10 % at constant currency as we deliver our growth roadmap.
Risks relate to the development of customer numbers against various
social and political effects, which impact our customers’ booking behaviour as well as demand for Group hotels and cruise ships.
	See Business Model and strategy section from page 20
See Risk Report from page 30
ADJUSTMENTS

For financial year 2018, we expect purchase price allocations and net
one-off costs of around € 80 m, to be carried as adjustments.

Expected development of Group turnover andearnings

RO I C A N D E CO N O M I C VA LU E A D D E D
TUI GROUP

The translation of the income statements of foreign subsidiaries in ourconsolidated financial statements is based on average monthly exchange
rates. TUI Group generates a considerable proportion of consolidated
turnover and large earnings and cash flow contributions in non-euro
currencies, in particular £, $ and SEK . Taking account of the seasonality
in tourism, the development of these currencies against the euro in thecourse of the year therefore strongly impacts the financial indicators
carried in TUI Group’s consolidated financial statements. The commentson the expected development of our Group in financial year 2018 provided below are based on the assumption of constant currencies for thecompleted financial year 2017.

Expected development of Group turnover, underlying EBITA
and adjustments
Expected development vs. PY€ million

2017

2018*

Turnover
Underlying EBITA
Adjustments

18,5351,10276

around 3 % growthat least 10 % growth
approx. € 80 m cost* Variance year-on-year assuming constant foreign exchange rates are applied to the resultin the current and prior period and based on the current group structure; guidance relates
to continuing operations

TURNOVER

We expect turnover to grow by around 3 % in financial year 2018 atconstant currency, excluding cost inflation relating to currency movements. Further growth may result from passing on higher input costs toour customers.

Due to the enhanced operating result, we expect ROIC to improveslightly in financial year 2018; depending on the development of TUIGroup’s capital costs, this is also expected to result in an increase ineconomic value added.

Development in the segments infinancial year 2018
The expected development outlined below is based on current trading,our growth roadmap and the relative performance of our segments
during financial year 2017. Future development depends on demand in
our source markets and customer segments, input cost curves, as wellas the potential impact of exogenous events beyond our control such as
terrorism. Whilst these may influence the mix of segmental results compared with the outlook below, in our view, our balanced portfolio of
markets and destinations still leave us well placed to deliver underlying
EBITA growth of at least 10 % for TUI Group as a whole (at constantcurrency rates and based on the current Group structure).
HOTELS & RESORTS

Based on our expectations for the development of our hotel portfolio(including new hotels opening in the coming financial year and the annualisation of profits from hotels which opened in financial year 2017) as
well as the continued overall strong performance of our existing hotel
portfolio, we expect underlying EBITA growth of more than 10 % in
financial year 2018.

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Overall assessment by the Executive Board and report on expected developments

Based on the two planned cruise launches financial year 2018 (forTUI Cruises and Marella Cruises) and continued overall strong perform­
ance of the existing fleet, we expect underlying EBITA growth of morethan 10 % in financial year 2018.
SOURCE MARKETSWe have strong market leading positions in our Source Markets, andexpect a good portfolio result in financial year 2018 as a result of the
combination of further top line (market driven) growth and operational
efficiency. Based on these factors and current trading, we therefore
expect the Source Markets to deliver a performance broadly in line withGroup underlying EBITA guidance.

Expected development of financial position
Expected development of Group financial position
Expected development vs. PY

Net cash capex and investments
Net cash / net debt

49

Sustainable development

CRUISES€ millionC O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

2017

2018

1,071.9583.0

around € 1.2 bn
slightly negative

NET CAPEX AND INVESTMENTS

In the light of investment decisions already taken and projects in thepipeline, we expect TUI Group’s net funding requirements to be around€ 1.2 bn for financial year 2018. This includes expected down paymentson aircraft orders and proceeds from the sale of fixed assets. Capex
mainly relates to the launch of new production and booking systems for
our Sales & Marketing, maintenance and expansion of our hotel portfolio
and the acquisition of a cruise ship.
NET FINANCIAL POSITIONAt the balance sheet date, the Group’s net cash amounted to € 583.0 m.
Due to the planned increase in net investments, we expect TUI Group’s
net debt to be slightly negative at financial year-end 2018.

C L I M AT E P R O T E C T I O N A N D E M I S S I O N S

Greenhouse gas emissions and the impact of these emissions on climatechange pose one of the major global challenges for the tourism sector.
The goals we set ourselves in our sustainability strategy ‘Better Holidays,
Better World’, launched in September 2015, include operating Europe’s
most carbon-efficient airline by 2020 and defending this top position.
Specific carbon emissions (g CO 2 / PKM) are to be reduced by 10 % by2020. We also aim to reduce the carbon intensity of our global oper­
ations by 10 % by 2020 (against the baseline of 2014).

Overall Executive Board assessment of
TUI Group’s current situation and expecteddevelopment
At the date of preparation of the Management Report (11 December 2017), we uphold our positive assessment of TUI Group’s economic
situation and outlook for financial year 2018. With its finance profile,strong brand and services portfolio, TUI Group is well positioned in themarket. In the first few weeks of the new financial year 2018, the overallbusiness performance has matched expectations.
As against the prior year reference period, we expect TUI Group’s
underlying operating result to grow by at least 10 % year-on-year on aconstant currency basis, driven by improved operating performance inthe segments.
In the light of our growth roadmap, we have updated our medium-term
guidance, aiming to deliver at least 10 % underlying EBITA CAGR in thenext three financial years to 2020. Our long-term target for TUI Group’s
gross capex remains at 3 to 3.5 % of consolidated turnover.

Outlook for TUI AG
The future business performance of TUI AG is essentially subject to thesame factors as those impacting TUI Group. Due to the business ties
between TUI AG and its Group companies, the outlook, opportunities
and risks presented for TUI Group largely reflect the expectations
regarding TUI AG . The comments made for TUI Group therefore also
apply to TUI AG .

50

Opportunity Report
TUI Group’s opportunity management follows the Group strategy forcore business Tourism. Responsibility for systematically identifying andtaking up opportunities rests with the operational management of thesource markets and the TUI Hotels & Resorts and Cruises segments.
Market scenarios and critical success factors for the individual sectors
are analysed and assessed in the framework of the Group-wide planningand control process. The core task of the Group’s Executive Board is tosecure profitable growth for TUI Group by optimising the shareholding
portfolio and developing the Group structure over the long term.

Overall, TUI Group is well positioned to benefit from opportunities
resulting from the main trends in its markets.

OPPORTUNITIE S FROM THE DE VELOPMENT OF THE OVER ALL
FR AME WORK

Should the economy perform better than expected, TUI Group and its
segments would benefit from the resulting increase in demand in thetravel market. Moreover, changes in the competitive environment could
create opportunities for TUI Group in individual markets.
C O R P O R AT E S T R AT E G Y

We see opportunities for further organic growth in particular by expanding our hotel portfolio and cruise business. As market leader, we also
intend to benefit in the long term from demographic change and theresulting expected increase in demand for high-quality travel at an attract­ive price / performance ratio.
O P E R AT I O N A L O P P O R T U N I T I E S

We intend to improve our competitive position further by offering
unique product and further expanding controlled distribution in thesource markets, in particular online distribution.

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51Overall assessment by the Executive Board and Report on expected developments, Business review

BUSINESS RE VIE W
Why we do it – macroeconomic industry and market framework
Macroeconomic development

Key exchange rates and commodity prices

Development of gross domestic productExchange rate US Dollar

Var. %

2017

2016

3.6
2.1
2.0
1.6
1.7
2.2
1.8
1.5
6.8
6.7

3.2
1.8
1.9
1.2
1.8
1.5
– 0.2
1.0
6.7
7.1

$/€
World
EurozoneGermany
FranceUK
US

Russia
Japan
China
India

1.30

1.20

1.10

Source: International Monetary Fund ( IMF ), World Economic Outlook, October 2017

In calendar year 2017, the global upswing in economic activity gatheredstrength. In its outlook (IMF, World Economic Outlook, October 2017),
the International Monetary Fund projects global growth to rise to 3.6 %in 2017. In advanced economies, the growth pick-up was broad-based,with indicators suggesting a persistently positive baseline outlook. In theEurozone, the recovery gained momentum: higher employment, growing
order books and the positive business sentiment suggest that the momentum will remain intact.

2016

2017

Exchange rate Sterling
£/€
0.95

0.85

0.75

2016

2017

The exchange rate charts are presented on the basis of the indirect quotation format
customary in the foreign exchange market. If the exchange rate falls, the foreign currency
is appreciating against the euro. By contrast, if the exchange rate rises, the foreign­c urrency is depreciating against the euro.

52

Oil price

Market environment and competition in Tourism

Brent ($ / Barrel)

Since the merger between TUI AG and TUI Travel PLC in December 2014,
TUI Group has been the world’s leading tourism group. The developmentof the international leisure tourism market impacts all businesses in
TUI Group.

60

50

T O U R I S M R E M A I N S S TA B L E G R O W T H S E C T O R

40

30

2016

2017

TUI Group companies operate on a worldwide scale. This presents financial risks for TUI Group, arising from changes in exchange rates andcommodity prices. The essential financial transaction risks from operations relate to euros and US dollars. They mainly result from foreignexchange items in the individual Group companies, for instance aircraft
fuel and bunker oil invoices, ship handling costs or products and services
sourced by hotels. The parity of sterling against the euro is of relevancefor the translation of results generated in the UK market in TUI ’s consolidated financial statements. Following the UK vote for Brexit, the currency
fluctuations continued. They impacted the translation of results fromour UK business.
The average exchange rate of sterling against the euro fell considerably
in the course of the financial year under review but returned to 0.88
£ / €, i.e. roughly the level recorded at the beginning of the year, as at
30 September 2017. In financial year 2017, the average exchange rate of
the US dollar against the euro declined by around 5.4 % from 1.12 $ / €to 1.18 $ / €. Changes in commodity prices above all affect TUI Group
when procuring fuels such as aircraft fuel and bunker oil. The price ofBrent oil stood at $ 57.54 per barrel as at 30 September 2017, up byaround 13.1 % year-on-year.
In tourism, most risks relating to changes in exchange rates and pricerisks from fuel sourcing are hedged by derivatives. Information on
hedging strategies and risk management as well as financial transactions
and the scope of such transactions at the balance sheet date is provided
in the sections Financial Position and Risk Report in the Management
Report and the section Financial Instruments in the Notes to the consolidated financial statements.
	F inancial Position see from page 66, Risk Report see from page 30, Financial
Instruments see Notes page 209

According to the United Nations World Tourism Organization (UNWTO),
tourism comprises the activities of persons travelling to and staying inplaces outside their usual environment for not more than one consecutive
year for leisure, business and other purposes. The key tourism indicators
to measure market size are the number of international tourist arrivals,
and international tourism receipts. With international tourism receipts
amounting to $ 1,220 bn and international arrivals amounting to 1.24 bn
in 2016, the tourism industry remains one of the most important sectors
in the global economy, outpacing the growth of world trade in the past five
years. Over the past six decades, tourism has experienced continued
expansion and diversification to become one of the largest and fastest-­
growing economic sectors in the world. International tourist arrivals
worldwide are expected to increase by around 3 % a year between 2010
and 2030, reaching 1.8 bn per annum by 2030 (UNWTO Tourism Highlights 2017 Edition).

Change of international tourist arrivals vs. prior year
Var. %

2017*

2016

World
EuropeAsia and the Pacific
AmericasAfrikaMiddle East

+ 6.4
+ 7.7
+ 5.7
+ 3.0
+ 7.6
+ 8.9

+ 3.9
+ 2.1
+ 8.6
+ 3.6
+ 8.0
– 3.4

Source: UNW TO World Tourism Barometer, August 2017
* Period January till June

In the first half of calendar year 2017, the growth trend continued, withinternational tourist arrivals growing by 6.4 % during that period. This was
the strongest H1 increase in seven years. Travel for holidays, recreationand other forms of leisure accounted for just over half of all international
tourist arrivals (UNWTO, Tourism Highlights, 2017 Edition).
At plus 6.3 %, TUI Group customer numbers matched this growth trend
in financial year 2017, with all source markets reporting growth.
	Business performance in the source markets see page 61

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53Business review

Europe remained the largest and most mature tourism market in theworld, accounting for 49.9 % of international tourist arrivals and 36.7 %of tourism receipts in 2016. Five European countries (France, Spain,
Italy, the United Kingdom and Germany) figured in the top ten inter­national tourism destinations in 2016. Three of our main source markets –Germany, UK and France – were in the top five of all source markets
worldwide measured by international tourism spending.

International tourist arrivals and receipts

616

Europe

World

447

1,235

1,220
Asia andthe Pacific

304
313

AmericasMiddle East

193
199

58

367

54

308

Africa 58
35

international tourism receipts (in bn $)international tourist arrivals (in million)
Source: UNW TO , Tourism Highlights, 2017 Edition

Germany continues to be the third largest source market in the world
with international tourism expenditure of approximately $ 79.8 bn in 2016,
after China ($ 261.1 bn) and the US ($ 123.6 bn). In terms of expenditure
per capita, Germany ranks fourth globally, with approximately $ 946
spent by the average German tourist in 2016 (Source: UNWTO, Tourism
Highlights, 2017 Edition). Key operators in the German tourism market
are TUI Deutschland, Thomas Cook, DER Touristik, FTI and Aida Cruises(FVW, Dossier, Deutsche Veranstalter, December 2016).

The United Kingdom is the fourth largest source market in the world,with approximately $ 63.6 bn spent on tourism activities in 2016 and on
average $ 970 spent per capita over the same period (source: UNWTO,
Tourism Highlights, 2017 Edition). The British tourism market is characterised by a high degree of concentration around two key operators:
TUI Group and Thomas Cook.
France was the fifth largest source market in 2016, with international
tourism expenditure of approximately $ 40.5 bn (source: UNWTO, Tourism
Highlights, 2017 Edition). Thanks to the recent buying of Transat France,

54

TUI is now the leader on the French tourism market with its main tour
operator brands: Club Marmara and Club Lookea on the French Club
market, and Circuits Nouvelles Frontieres and Vacances Transat on the
packaged tours market. This buying is to enable TUI France to achieverobust profitability. The French tourism market has been highly fragmented in the past but has undergone a slow consolidation in recent months.
TUI France will continue to expand its market position and market
shares, while growing TUI brand awareness among French people. In 2016,
France remained the world’s top destination with 82.6 million arrivals,
despite a decline in international tourist arrivals of 2.2 %.
HOTEL MARKE T

Global hotel value sales reached € 470 bn at fixed exchange rate in 2016.
Over the period 2016 – 2022, hotel value sales are expected to register a
CAGR of 2.8 % at constant 2017 prices, according to Euromonitor International Travel 2018 edition. The hotel market is divided between business and leisure travel. A number of characteristics differentiate leisuretravel hotels from business hotels, including longer average lengths of stayfor guests in leisure hotels. Locations, amenities and service requirements also differ. From a demand perspective, the leisure hotel market
in Europe is divided into several smaller submarkets which cater to theindividual needs and demands of tourists. These submarkets include
premium, comfort, budget, family / apartment, and club or resort-style
hotels. Hotel companies may offer a variety of hotels for different submarkets, often defined by price range, star ratings, exclusivity, or available facilities.
Hotel operations can generally be divided into the following models:asset owners whose primary business is to own real estate assets;
brand owners and operators who typically manage hotel assets themselves or enter into franchising arrangements with independent operators
who, in turn, manage the hotel property assets; and independent operators combining the roles of asset owners, brand owners and operators
by managing diverse assets under different brands, often through franchise agreements.
The upper end of the leisure hotel market is characterised by a highdegree of sophistication and specialisation, with the assets managed bylarge international companies and investors. There are also many small,often family-run businesses, particularly in Europe, not quite so upscale
and with fewer financial resources. Most family-owned and operated
businesses are not branded. Given the variety of models for owning andoperating leisure hotels and the fragmented competition landscapewhich, at least in Europe, is not dominated by large hotel chains, conditions differ greatly between locations.
CRUISE MARKETThe global cruise industry generated an estimated revenue of around$ 39.6 bn in 2016 (Cruise Market Watch website, www.cruisemarketwatch.

com/market-share, September 2016). Overall, an estimated 24.7 million
guests undertook an ocean cruise worldwide in calendar year 2016. For
2017, their number is expected to total 25.8 million (CLIA , Year in Review
2016, CLIA , Cruises Industry Outlook 2017). The North American market
is by far the largest and most mature cruise market in the world, with astrong penetration rate of 3.6 % of the total population taking a cruise in2016 (Cruise Industry Source Market Report, CLIA 2016).
The European cruise markets recorded approximately 6.7 million European passengers in 2016, with penetration rates varying significantly
from country to country, but considerably lower overall (Mintel, Cruises −International, June 2016; CLIA Statistics & Markets, March 2017). In 2015,
the global cruise market grew by around 2.4 %.
Germany, the United Kingdom & Ireland and France are among the fivelargest cruise markets in Europe (CLIA Statistics & Markets, March 2017).
Germany is Europe’s largest cruise market, with 2.0 million passengers
in 2016. Germany has thus witnessed average passenger growth of 8.3 %over the period from 2011 to 2015. At 2.5 % in 2016, its penetration rate
was lower than in the United Kingdom & Ireland. The United Kingdom &Ireland is the second largest cruise market in Europe, with approximately 1.9 million cruise passengers in 2016. The market thus grew by 2.1 %on average over the period from 2011 to 2015. It shows the strongest
penetration rate in Europe: in 2016, 3.0 % of the total British population
took a cruise. (Mintel, Cruises – International, June 2016; Cruise Industry
Source Market Report, CLIA 2016).
The European cruise market is divided into submarkets that cater to avariety of customers: budget, discovery / expedition, premium and luxury.
Cruise operators utilise different cruise formats to target these submarkets and the specific demands of their customers. In addition to
traditional formats, operators offer club ship cruises and also more contemporary-style cruises in the premium submarket. As a cruise ship isoften perceived as a destination in itself, cruise companies, especiallyin the luxury and premium cruise submarkets, compete with otherdestinations such as leading hotels and resorts.

Brand
STRONG TUI BR AND

Our brand with the ‘smile’ – the smiling logo formed by the three lettersof our brand name TUI – stands for a consistent customer experience,
digital presence and competitive strength. In 2017, TUI and the previous
local power brand Thomson in the UK were among the best-known
travel brands in core European countries with a brand awareness rate ofalmost 90 %. The red ‘ TUI smile’ is a clear recognition feature and playsin the Champions League of international brands in almost all markets.

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55Business review

We are aiming to create one global branding and a consistent brandexperience in order to further leverage the appeal and strength of ourcore brands and tap the associated growth potential. To achieve that
goal, our core brand TUI is being rolled out in our European source
markets to replace the big local tour operator brands. Following the
successful rollout of the TUI brand in the Netherlands in 2016, the local
brands in Belgium and the Nordics were replaced by the TUI brand in2017, where TUI has also rapidly become one of the strongest travel
brands in terms of brand awareness and preference. In financial year
2017, the TUI brand was also rolled out in France. Brand migration in the
UK followed in October 2017.

In Germany, travel products have been offered under the TUI brand formore than 45 years. In a survey carried out in 2017, TUI was again rated
as Germany’s most trusted travel brand (Source: Reader’s Digest Trusted
Brands 2017).

Changes in the legal framework
In financial year 2017, there were no changes in the legal frameworkwith material impacts on TUI Group’s business performance.

Group earnings
Comments on the consolidated income statement
Financial year 2017 brought a markedly positive development in the TUIGroup’s earnings position. The operating result (underlying EBITA) of

TUI Group’s continuing operations improved by 10.2 % to € 1,102.1 m
in the period under review, or by 12.0 % year-on-year on a constantcurrency basis. This growth was driven in particular by the continued
good performance in the segments Hotels & Resorts and Cruises.

Income Statement of the TUI Group for the period from 1 Oct 2016 to 30 Sep 2017
€ million
TurnoverCost of sales
Gross profit
Administrative expenses
Other income
Other expenses
Financial income
Financial expenses
Share of result of joint ventures and associates
Earnings before income taxes
Income taxes
Result from continuing operations
Result from discontinued operations
Group profit for the year
Group profit for the year attributable to shareholders of TUI AG
Group profit for the year attributable to non-controlling interest

2017

2016

Var. %

18,535.0
16,535.5
1,999.5
1,255.8
12.5
1.9
229.3
156.2
252.3
1,079.7
168.8
910.9– 149.5
761.4
644.8
116.6

17,153.9
15,247.4
1,906.5
1,216.9
36.3
7.4
58.5
345.9
187.2
618.3
153.4
464.9
687.3
1,152.2
1,037.4
114.8

+ 8.1
+ 8.4
+ 4.9
+ 3.2
– 65.6– 74.3+ 292.0– 54.8+ 34.8+ 74.6+ 10.0+ 95.9n. a.
– 33.9– 37.8+ 1.6

56

Turnover and cost of sales
operating performance of Riu hotels and a higher profit contribution by
TUI Cruises.

Turnover2017

2016
restated

Var. %

679.0
815.0
16,143.2
6,601.5
6,039.5
3,502.2
677.0
18,314.2
220.8
18,535.0

618.6
703.1
14,997.2
6,564.4
5,562.9
2,869.9
669.3
16,988.2
165.7
17,153.9+ 9.8+ 15.9
+ 7.6
+ 0.6
+ 8.6
+ 22.0+ 1.2+ 7.8+ 33.3+ 8.1

19,156.5
829.0
19,364.0

17,153.9
2,321.6
19,475.5+ 11.7– 64.3– 0.6€ million
Hotels & Resorts
Cruises
Source Markets
Northern Region
Central Region
Western Region
Other Tourism
Tourism
All other segments
TUI Group
TUI Group at constantcurrency
Discontinued operations
Total

R E S U LT F R O M C O N T I N U I N G O P E R AT I O N S

In financial year 2017, turnover of TUI Group climbed by 8.1 % to € 18.5 bn.
On a constant currency basis, turnover grew by 11.7 % on a year-on-yearincrease in customer numbers of 6.3 % in the source markets. Turnoveris presented alongside the cost of sales, which was up 8.4 % in the period
under review.

The result from continuing operations improved by € 446.0 m to
€ 910.9 m in financial year 2017.
R E S U LT F R O M D I S C O N T I N U E D O P E R AT I O N

The result from discontinued operation shows the after-tax result ofTravelopia, classified as a discontinued operation, until it was sold. In
the prior year, this item also included in particular the gain on disposal
from the sale of Hotelbeds Group.
GROUP PROFITGroup profit decreased by € 390.8 m year-on-year to € 761.4 m in financial
year 2017.
S H A R E I N G R O U P P R O F I T AT T R I B U TA B L E T O T U I A G­S H A R E H O L D E R S

The share in Group profit attributable to the TUI AG shareholders declined
from € 1,037.4 m in the prior year to € 644.8 m in financial year 2017. On
a sound operating performance, the decline is attributable to the gain
on disposal from the sale of Hotelbeds Group included in the prioryear’s result.
NON-CONTROLLING INTERESTSGROSS PROFIT

Non-controlling interests in Group profit for the year totalled € 116.6 m.
They mainly related to RIUSA II Group.

Gross profit, i.e. the difference between turnover and the cost of sales,
increased by 4.9 % to around € 2.0 bn in financial year 2017.

EARNINGS PER SHAREA D M I N I S T R AT I V E E X P E N S E S

Administrative expenses rose by € 38.9 m year-on-year to € 1,255.8 m.

The interest in Group profit for the year attributable to TUI AG shareholders after deduction of non-controlling interests totalled € 644.8 m(previous year € 1,037.4 m) in 2017. Basic earnings per share therefore
amounted to € 1.10 (previous year € 1.78) in financial year 2017.

F I N A N C I A L R E S U LT

The financial result improved by € 360.5 m to € 73.1 m. The increase was
essentially due to the profit generated in the financial year under review
from the disposal of the remaining stake in Hapag-Lloyd AG .
S H A R E O F R E S U LT S O F J O I N T V E N T U R E S A N D A S S O C I AT E S

The result from joint ventures and associates comprises the proportionate net profit for the year of the companies measured at equity andwhere appropriate impairments of goodwill for these companies. In the
period under review, the at equity result totalled € 252.3 m. The significant increase of € 65.1 m partly resulted from the improvement in the

EBITA , underlying EBITA und underlying earnings
per share
Key indicators used to manage the TUI Group are EBITA and underlying
EBITA . We consider EBITA to be the most suitable performance indicatorfor explaining the development of the TUI Group’s operating performance.
Our definition of EBITA is earnings before net interest result, income tax
and impairment of goodwill excluding the result from the measurementof interest hedges.

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57Business review

Reconciliation to underlying EBITA
2017

2016

Var. %

EBITA

1,079.7– 172.4–
119.2
1,026.5

618.3
–
100.3
179.5
898.1

+ 74.6n. a.
n. a.
– 33.6+ 14.3Adjustments:
less: Gain on disposals
plus: Restructuring expense
plus: Expense from purchase price allocation
plus: Expense from other one-off items
Underlying EBITA

– 2.2
23.1
29.2
25.5
1,102.1

0.8
12.0
41.9
47.7
1,000.5

n. a.
+ 92.5– 30.3– 46.5+ 10.2€ million
Earnings before income taxes
plus: Profit on sale of financial investment in Container Shipping
plus: Loss on measurement of financial investment in Container Shipping
plus: Net Interest expense and expense from the measurement of interest hedges

Reported earnings (EBITA) of TUI Group rose by € 128.4 m to € 1,026.5 m
due to a strong operating performance in financial year 2017.

EBITA
2017

2016
restated

Var. %

353.7
255.6
456.3
309.6
67.3
79.4
15.7
1,081.3– 54.81,026.5– 22.1
1,004.4

301.5
190.9
498.8
362.7
64.0
72.1
– 2.9
988.3
– 90.2
898.1
14.7
912.8

+ 17.3+ 33.9– 8.5– 14.6+ 5.2+ 10.1
n. a.
+ 9.4+ 39.2+ 14.3n. a.
+ 10.0€ million
Hotels & Resorts
Cruises
Source Markets
Northern Region
Central Region
Western Region
Other Tourism
Tourism
All other segments
TUI Group
Discontinued operations
Total

In order to explain and evaluate the operating performance of the segments, earnings adjusted for special one-off effects (underlying EBITA)
are presented below. Underlying EBITA has been adjusted for gains on
disposal of financial investments, restructuring expenses according to
IAS 37, all effects from purchase price allocations, ancillary acquisition
costs and conditional purchase price payments and other expenses forand income from one-off items.
One-off items carried here include adjustments for income and expense
items that reflect amounts and frequencies of occurrence rendering anevaluation of the operating profitability of the segments and the Group

more difficult or causing distortions. These items include in particularmajor restructuring and integration expenses not meeting the criteria
of IAS 37, material expenses for litigation, gains and losses from thesale of aircraft and other material business transactions with a one-offcharacter.
TUI Group’s underlying EBITA rose by € 101.6 m to € 1,102.1 m in financial
year 2017.

Underlying EBITA€ million
Hotels & Resorts
Cruises
Source Markets
Northern Region
Central Region
Western Region
Other Tourism
Tourism
All other segments
TUI Group
TUI Group at constantcurrency
Discontinued operations
Total

2017

2016

Var. %

356.5
255.6
526.5
345.8
71.5
109.2
13.4
1,152.0– 49.91,102.1

303.8
190.9
554.3
383.1
85.1
86.1
7.9
1,056.9– 56.41,000.5+ 17.3+ 33.9– 5.0– 9.7– 16.0+ 26.8+ 69.6+ 9.0+ 11.5+ 10.2

1,120.7– 1.2
1,100.9

1,000.5
92.9
1,093.4+ 12.0n. a.
+ 0.7

In financial year 2017, adjustments worth € 25.8 m were carried for income, compared with adjustments on underlying expenses amounting
to € 72.2 m, without taking account of the expenses for purchase priceallocations. They mainly related to the following items and circumstances:

58

Pro forma underlying earnings per share TUI GroupGAINS ON DISPOSAL

In financial year 2017, gains on disposal worth € 2.2 m had to be adjusted
for. They related in particular to disposals of subsidiaries.

€ million
EBITA (underlying)

RESTRUC TURING COSTS

In financial year 2017, restructuring costs of € 23.1 m had to be adjusted
for. They included an amount of around € 24 m for the merger of TUI ’s
French tour operators following the acquisition of Transat. Adjustments
also included expenses worth around € 4 m for the merger of the Nordic
and UK airlines. Income resulted from the release of a restructuringprovision no longer required in Central Region.
E X P E N S E S F O R P U R C H A S E P R I C E A L L O C AT I O N S

In financial year 2017, expenses for purchase price allocations worth€ 29.2 m were adjusted for; they related in particular to scheduled amort­isation of intangible assets from acquisitions made in previous years.
ONE-OFF ITEMSNet expenses for one-off items of € 25.5 m included in particular an
amount of € 18 m relating to IT projects in Northern Region and around€ 8 m for the merger of the Nordic and UK airlines. Further expenses of€ 17 m related to reorganisation schemes in the regions and destination
agencies. An opposite effect resulted from the adjustment of € 13 m forthe release of a provision at Corsair no longer required in the financial
year under review.
P R O F O R M A U N D E R LY I N G E A R N I N G S P E R S H A R E

less: Net interest expense
Underlying profit before tax
Income taxes (underlying)
Underlying Group profit
Minority interest
Underlying Group profit attributable to
TUI shareholders of TUI AG
Number of shares (pro forma)
No. million
Pro forma underlying earnings per share

2017

2016

1,102.1– 119.2
982.9
196.6
786.3
116.6

1,000.5– 179.5
821.1
205.3
615.8
111.5

669.7
587.0
1.14

504.3
587.0
0.86

Reconciliation to EBITDA€ million

2017

2016

Var. %

EBITA

1,026.5

898.1+ 14.3464.4
1,490.9407.0
1,305.1+ 14.1+ 14.2

Amortisation (+) / writebacks (–) of other ­intangible
assets and depreciation (+) /write-backs (–) of property,
plant and equipment and­current assets
EBITDAThe table below presents TUI Group’s pro forma earnings per share toprovide a basis for comparison. The calculation is based on the issued
share capital at the balance sheet date. It therefore adjusts for the
impact of conversions of stock option plans during the year.

EBITDA and underlying EBITDA
Underlying EBITDA

EBITDA2017

2016
restated

Var. %

2017

2016
restated

Var. %

484.5
312.9
568.2
378.6
87.6
102.0
102.3
1,467.9
23.0
1,490.9– 22.1
1,468.8

396.5
236.8
614.4
430.3
86.3
97.9
58.2
1,306.0– 0.91,305.1
85.6
1,390.7+ 22.2+ 32.1– 7.5– 12.0+ 1.5+ 4.2+ 75.8+ 12.4n. a.
+ 14.2
n. a.
+ 5.6

485.2
312.9
619.3
402.7
89.8
126.8
100.0
1,517.4
24.3
1,541.7– 1.2
1,540.5

394.4
236.8
650.9
437.3
105.3
108.3
69.0
1,351.1
28.5
1,379.6
139.2
1,518.8+ 23.0+ 32.1– 4.9– 7.9– 14.7+ 17.1+ 44.9+ 12.3– 14.7+ 11.7n. a.
+ 1.4€ million
Hotels & Resorts
Cruises
Source Markets
Northern Region
Central Region
Western Region
Other Tourism
Tourism
All other segments
TUI Group
Discontinued operations
Total

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COMBINED MANAGE ME NT REPORTC O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

59Business review

Segmental performance
Current and future trading in Tourism
In Tourism, travel products are booked on a seasonal basis with different
lead times. The release of bookings for individual seasons takes place at
different points in time, depending on the design of the booking and re­ser­v ation systems in each source market. Moreover, load factor manage-

ment ensures that the tour operator capacity available for bookings isseasonally adjusted to actual and expected demand.
At the end of financial year 2017, current trading by source market for
Winter 2017 / 18 compared as follows with the previous year:

Current Trading*
Winter 2017 / 18

Var. %
Northern Region
UK & I
Memo: UK & I incl. Cruise
Nordics
Central Region
Germany
Western Region
Benelux
Total Source Markets
Memo: Total Source Markets incl. UK Cruise

Total
customers

Total

Revenue

A SP

Programme
sold

+6
+3
+7
+ 10
+7
+9
+3
+4
+6
+7

–
–4
–3
+7
+8
+9
–
+2
+3
+3

+6
+8
+ 10
+3
–1
+1
+3
+2
+3
+3

+ 63
+ 57
+ 59
+ 74
+ 64
+ 63
+ 65
+ 65
+ 63
+ 64

* These statistics are up to 3 December 2017, shown on a constant currency basis and relate to all customers whether risk or non-risk

For the 2018 Summer season, as usual for this point in the booking cycle,
only the UK is more than 20 % booked. UK booked revenue (excluding
Marella Cruises) is up 2 % and average selling prices up 4 % (November 2017).
Trading by the Hotels & Resorts segment largely mirrors customer volumes in the source markets, as a high proportion of the Group-owned
hotel beds are taken up by TUI tour operators. In the Cruises segment,
advance bookings were up year-on-year at the balance sheet date withsound demand levels, primarily due to continued fleet expansion andmodernisation by TUI Cruises and Marella Cruises in the period underreview.
Disclosures on current trading are regularly published on TUI ’s website
in the framework of TUI Group’s quarterly reporting.
See www.tuigroup.com/en-en/investors

60

Hotels & Resorts
Hotels & Resorts
2017

2016
restated

Var. %

1,366.2
679.0
356.5

1,278.4
618.6
303.8

+ 6.9
+ 9.8
+ 17.3362.0
39,163
17,942
3,115
2,859

303.8
37,306
17,3963,081
2,275+ 19.2
+ 5.0
+ 3.1
+ 1.1
+ 25.6

79
90
66
83

78
90
67
85

+1
–
–1
–3

63
64
91
112

60
60
90
92

+ 5.5
+ 6.0
+ 0.8
+ 22.5€ million
Total turnover
Turnover
Underlying EBITA
Underlying EBITA at constantcurrency
Capacity hotels total 1, 4 in ’000
Riu
RobinsonBlue DiamondOccupancy rate hotels total 2
in %, variance in % points
Riu
RobinsonBlue Diamond
Average revenue per bed
hotels total 3 in €Riu
RobinsonBlue Diamond

Turnover includes fully consolidated companies, all other KPI ’s incl. companies measured
at equity
1 Group owned or leased hotel beds multiplied by opening days per year
2 Occupied beds divided by capacity
3 Arrangement revenue divided by occupied beds
4 Previous year’s KPI s restatedHotels & Resorts delivered a significant increase in underlying EBITA
this year, driven by new hotel openings and a strong underlying trading
performance, with an increase in occupancy rate to 79 % and 6 % increase in average revenue per bed. Financial year 2017 also marks the
fourth consecutive year of increasing ROIC for Hotels & Resorts, to13.2 % (versus WACC 8.5 %). This demonstrates the attractiveness of
our portfolio of hotel and club brands, the strength of our distribution
capabilities, and our disciplined approach to investment.
• Overall, the increase in Hotels & Resorts earnings was driven bystrong performances in the Western Mediterranean and Caribbean,
as well as an improvement in earnings in Turkey and North Africa
where demand in general has been recovering. This includes theremoval of travel restrictions for Russian customers on travel toTurkey, as well as improved Source Market demand for Egypt. The
high level of hurricane activity in the Caribbean at the end of Financial
year 2017 resulted in damage to some hotels. However, taking into
account our insurance coverage, the hurricanes did not result in asignificant impact on the Hotels & Resorts result.

• The continued high occupancy rate demonstrates the strength of
our portfolio of brands and destinations, as well as the success of theintegrated model as a significant proportion of rooms are sold is via
our Source Markets. This also provides a significant de-risk whenintroducing new hotels.
• In line with our strategy of disciplined growth in own hotel content,
ten new hotels were opened this year, bringing the total since themerger to 28. Hotels were opened in Jamaica, St Lucia ,Tenerife,
Italy and Croatia by Riu, Blue Diamond and TUI Blue. In addition, twohotels in Germany and Austria were repositioned as TUI Blue.
• Riu continues to deliver a very high occupancy rate of 90 %, with anincrease in average revenue per bed of 6 %. Performance was particularly strong in Spain and Mexico, and the result also reflects the
opening of the Riu Reggae in Jamaica in November 2016. Robinson
delivered a 1 % increase in average revenue per bed and a stableearnings performance. Demand for Robinson clubs in Turkey (whichcomes mainly from our German customer base) continues to relatively subdued versus other destinations. Blue Diamond earnings
increased as a result of hotel openings in the Caribbean, with acontinued high level of occupancy despite these new openings.

CruiseCruises2017

2016
restated

Var. %

815.0
255.6

703.1
190.9

+ 15.9+ 33.9

263.5

190.9

+ 38.0

101.9
101.7
76.7

102.6
100.6
76.8

– 0.7
+ 1.1
–

4,483
2,720
349

3,482
2,081
355

+ 28.7+ 30.7
– 1.7

173
131
594

171
121
579

+ 1.2
+ 8.3
+ 2.6

€ million
Turnover1
Underlying EBITA
Underlying EBITA at constantcurrency
Occupany
in %, variance in % points
TUI Cruises
Marella Cruises 4
Hapag-Lloyd Cruises
Passenger days in ’000
TUI Cruises
Marella Cruises 4
Hapag-Lloyd Cruises
Average daily rates 2 in €TUI Cruises
Marella Cruises3, 4Hapag-Lloyd Cruises

1 No turnover is carried for TUI Cruises as the joint venture is consolidated at equity
2 Per day and passenger
3	Inclusive of transfers, flights and hotels due to the integrated nature of Marella Cruises,in £.
4 Thomson Cruises until October 2017

C O R P O R AT E G O V E R N A N C E

COMBINED MANAGE ME NT REPORTC O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

61Business review• Cruise delivered strong earnings growth as a result of new shiplaunches in Germany and UK , with continued high occupancy andaverage daily rates across the fleets. Overall, the segment delivered astrong ROIC performance of 19.9 % (versus WACC 5.25 %), reflecting ourequity participation in TUI Cruises as well as excellent performancesby our UK and Hapag-Lloyd Cruises subsidiaries.
• TUI Cruises (our joint venture with Royal Caribbean for the German
speaking market) delivered the first Winter of operations for Mein
Schiff 5 and launched Mein Schiff 6 in June 2017. Fleet and average
daily rate increased versus prior year, driven by the continued strengthof demand for TUI Cruises’ premium, all inclusive offering.
• Marella Cruises (our UK brand, previously Thomson Cruises) de­livered the first Winter of operations for the Marella Discovery andlaunched Marella Discovery 2 in May. Fleet occupancy and average
daily rate increased versus prior year, as we continue to deliver our
modernisation programme and expansion in line with the UK cruise
market.
• Hapag-Lloyd Cruises (our luxury and expedition brand) delivered astrong performance and increase in earnings, with increased average
daily rate and a good operational performance offsetting the lower
number of operating days.

Source Markets
Source Markets
2017

2016
restated

Var. %

16,143.2
526.5

14,997.2
554.3

+ 7.6
– 5.0

532.1

554.3

– 4.0

50

49

+1

8.59

8.56

+ 0.03

73

72

+1

46
20,18443
18,986+3+ 6.3€ million
Turnover
Underlying EBITA
Underlying EBITA at constantcurrency
Net Promoter Score1
in %, variance in % points
Customer satisfaction
holiday overall 2
Direct distribution3
in %, variance in % points
Online distribution4
in %, variance in % points
Customers in ’000

1	N PS is measured in customer satisfaction questionnaires completed post-holiday. It isbased on the question ‘On a scale of 0 to 10 where 10 is extremely likely and 0 is not at
all likely, how likely is it that you would recommend the brand to a friend, colleague or
relative?’ and is calculated by taking the percentage of promoters (9s and 10s) less thepercentage of detractors (0s through 6s)2	Customer satisfaction for holiday overall is measured in customer satisfaction questionnaires completed post-holiday, based on a customer rating on a scale of 0 to 10.
3 Share of sales via own channels (retails and online)
4 Share of online sales

Source Markets delivered a strong portfolio performance, thanks totheir geographic diversity, market leading positions, popular range ofholiday products and focus on efficiency. Having completed the TUI
rebrand in all major markets, we have grown customer volumes anddelivered higher levels of direct and online distribution, and will be able
to market the brand more efficiently in the future. We also continue toleverage our market leading distribution capability to both maximise
occupancy in TUI Group hotels and support strong relationships withthird party hoteliers.

62

Northern Region

Central Region
2017

2016

Var. %€ million
Turnover
Underlying EBITA
Underlying EBITA at constantcurrency
Direct distribution1
in %, variance in % points
Online distribution2
in %, variance in % points
Customers in ’000

2017

2016
restated

Var. %

6,039.5
71.5

5,562.9
85.1+ 8.6– 16.071.7

85.1– 15.7

49

47

+2

19
7,151

15
6,828

+4
+ 4.7

€ million
6,601.5345.8

6,564.4
383.1

+ 0.6
– 9.7

351.1

383.1

– 8.4

92

92

–

63
7,391

62
7,142

+1
+ 3.5

Turnover
Underlying EBITA
Underlying EBITA at constantcurrency
Direct distribution1
in %, variance in % points
Online distribution2
in %, variance in % points
Customers in ’000

1 Share of sales via own channels (retails and online)

1 Share of sales via own channels (retails and online)

2 Share of online sales

2 Share of online sales

Northern Region comprises TUI ’s sales and marketing subsidiaries in UK
and Nordics and joint ventures in Canada and Russia. Overall, Northern
Region delivered strong growth in turnover and customer volumes thisyear with continued high levels of direct and online distribution, despitea significant impact at the end of the financial year from repatriationand cancellation costs associated with the hurricanes in Florida and the
Caribbean.

Central Region comprises TUI ’s sales and marketing operations inGermany and Austria (operated as one market), Switzerland and­Poland. Turnover for the segment increased by 9 % in financial year 2017,
driven by higher volumes in all markets, and with an increase in direct
and online distribution.

• As expected, although UK demand for holidays abroad remains
strong, margins across the package holiday market are normalising,particularly as a result of the weaker Pound Sterling. This is reflected tosome extent in our financial year 2017 result. Nonetheless, our margins
remain healthy and we are well positioned competitively. TUI is theclear market leader with a strong net promoter score of 55, high levelsof direct (93 %) and online (59 %) distribution, and a highly integrated
and efficient business model.
• In Nordics, both turnover and earnings performance improved
compared with prior year. This was driven by a particularly strong
Summer, following the TUI rebrand and successful remix to destin­
ations such as Spain, Cyprus, Bulgaria and Croatia, as demand forTurkey continued to be more subdued. With a new management
team in place, Nordics’ operations are becoming more efficient,having implemented the same yield management system as UK thisyear, as well as delivering overhead savings.
• Earnings in Canada increased this year as a result of strong trading,including for Group hotels such as Blue Diamond and Riu. Earnings in
Russia decreased slightly due to the non-repeat of prior year provision
releases.

• Germany and Austria delivered 2 % increase in customer volumes
and further increase in market share, with a good performance andimprovement in trading margin particularly in the second half of theyear. Demand increased in particular for Greece, Spain, Egypt andlong haul, which helped to offset the continued subdued demand forTurkey in the year.
• As previously communicated this was offset by € 24 m impact fromthe sickness incident in TUI fly at the start of the year.
• We remain focussed on growing the proportion of direct and online
distribution in Germany, currently at 47 % and 18 % The increase indirect distribution, coupled with our ongoing cost savings programme,
have also benefitted the result this year.
• Switzerland and Poland both delivered a good performance this year,with an increase in customer volumes, turnover and earnings.
• The Central Region result also includes an adverse variance to prioryear of c. € 15 m following the Air Berlin insolvency, relating to receivables for aircraft and crew leased to Air Berlin in financial year 2017 on
which the latter defaulted.

C O R P O R AT E G O V E R N A N C E

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63

Business review

Western Region

Other Tourism
2017

2016

Var. %€ million
Turnover
Underlying EBITA
Underlying EBITA at constantcurrency
Direct distribution1
in %, variance in % points
Online distribution2
in %, variance in % points
Customers in ’000

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

Other Tourism
3,502.2
109.2

2,869.9
86.1+ 22.0+ 26.8

109.3

86.1

+ 26.9

71

70

+1

54
5,642

52
5,016

+2
+ 12.5

1 Share of sales via own channels (retails and online)
2 Share of online sales

Western Region comprises TUI ’s sales and marketing operations in
Benelux and France. Turnover for the segment increased by 22.0 % in
financial year 2017, driven by the acquisition of Transat’s French tour
operating business at the start of the financial year, as well as higher
volumes in Benelux. Direct and online distribution also increased, inpart aided by the TUI rebrand in all markets.
• Following the terrorist incident at Brussels Airport in 2016, Benelux
delivered a strong trading performance, particularly in the second
half. Having completed the TUI rebrand in Netherlands in 2016, theBelgium rebrand was completed in 2017. In addition, the airline operational issues experienced in Netherlands in the first half were dealt
with effectively ahead of the Summer, resulting in an improved
performance.
• In France, the integration of Transat’s operations is on track. Disappointingly, however, the French result overall has not improved
compared with prior year, mainly as a result of competitive pressuresin late Summer trading. Nonetheless, we anticipate that the syn­ergies from the Transat deal will be delivered in the next few years,
in line with our previously announced plans.

2017

2016
restated

Var. %

677.0
13.4

669.3
7.9

+ 1.2
+ 69.617.8

7.9+ 125.3€ million
Turnover
Underlying EBITA
Underlying EBITA at constantcurrency

Other Tourism includes the turnover and profits of our Destination
Services business (which looks after TUI customers in resort), result for
the French scheduled airline Corsair, as well as the costs of central functions supporting the Tourism businesses.
• Destination Services’ turnover and earnings increased in the year,
due to good underlying trading and the final delivery of merger
synergies in the year. As the main contact in resort, Destination
Services are a key part of holiday experience for our Source Market
customers, and continue to improve their service and offering as aresult of our IT and CRM initiatives.

All Other Segments
All Other Segments
2017

2016
restated

Var. %

220.8– 49.9165.7– 56.4+ 33.3+ 11.5– 54.5– 56.4+ 3.4€ million
Turnover
Underlying EBITA
Underlying EBITA at constantcurrency• This segment comprises the business operations for new markets andin particular the central corporate functions and interim holdings of
TUI Group and the Group’s real estate companies.
• The reduction in cost in the year is driven by the final delivery ofcorporate streamlining merger synergies.

64

Net assets
Development of the Group’s asset structure€ million
Fixed assets
Non-current receivables
Non-current assets
Inventories
Current receivables
Cash and cash equivalents
Assets held for sale
Current assets
AssetsEquityLiabilities
Equity and liabilities

Structure of the Group’s non-current assets

30 Sep 201730 Sep 2016

Var. %€ million

9,067.0
800.6
9,867.6
110.2
1,682.0
2,516.1
9.6
4,317.9
14,185.5
3,533.7
10,651.8
14,185.5

8,345.0
786.8
9,131.8
105.2
2,218.2
2,072.9929.8
5,326.1
14,457.9
3,248.2
11,209.7
14,457.9

+ 8.7
+ 1.8
+ 8.1
+ 4.8
– 24.2+ 21.4– 99.0– 18.9
– 1.9
+ 8.8
– 5.0
– 1.9

Goodwill
Other intangible assets
Property, plant and equipment
Companies measured at equity
Financial assets available
for saleFixed assets
Receivables and assets
Deferred tax claims
Non-current receivables
Non-current assets

The Group’s balance sheet total decreased by 1.9 % as against 30 September 2016 to € 14.2 bn.

30 Sep 201730 Sep 2016

Var. %

2,889.5
548.1
4,253.7
1,306.2

2,853.5545.8
3,714.5
1,180.8

+ 1.3
+ 0.4
+ 14.5+ 10.669.5
9,067.0
476.9
323.7
800.6
9,867.6

50.4
8,345.0
442.1
344.7
786.8
9,131.8+ 37.9
+ 8.7
+ 7.9
– 6.1
+ 1.8
+ 8.1

Development of the Group’s non-current assets
GOODWILL

Vertical structural indicators
Non-current assets accounted for 69.6 % of total assets, compared with
63.2 % in the previous year. The capitalisation ratio (ratio of fixed assets
to total assets) increased from 57.7 % to 63.9 %.
Current assets accounted for 30.4 % of total assets, compared with
36.8 % in the previous year. The Group’s cash and cash equivalents increased by € 443.2 m year-on-year to € 2,516.1 m. They thus accounted
for 17.7 % of total assets, as against 14.3 % in the previous year.

Horizontal structural indicators
At the balance sheet date, the ratio of equity to non-current assets was
35.8 %, as against 35.6 % in the previous year. The ratio of equity to
fixed assets was 39.0 % (previous year 38.9 %). The ratio of equity plus
non-current financial liabilities to fixed assets was 58.4 %, comparedwith 56.9 % in the previous year.

Goodwill rose by € 36.0 m to € 2,889.5 m. The increase in the carrying
amount is essentially due to the acquisition of Transat’s French tour
operating business. An opposite effect was driven by the translation of
goodwill not managed in the TUI Group’s functional currency into euros.
In the period under review, no adjustments were required as a result of
impairment tests.
P R O P E R T Y, P L A N T A N D E Q U I P M E N T

Property, plant and equipment increased to € 4,253.7 m in the period
under review, primarily driven by the acquisition of the cruise ship
Marella Discovery 2, investments in hotel facilities, down payments on
aircraft orders and the delivery of two aircraft. Property, plant andequipment also comprised leased assets in which Group companies
held economic ownership. At the balance sheet date, these finance leases
had a carrying amount of € 1,158.1 m, down 5.8 % year-on-year.

C O R P O R AT E G O V E R N A N C E

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65

Business review

Development of property, plant and equipment€ million
Hotels incl. land
Other buildings and land
Aircraft
Cruise ships
Other plant, operating and­office quipment
Assets under construction,
payments on accounts
Total

C U R R E N T R E C E I VA B L E S

30 Sep 201730 Sep 2016

Var. %

1,040.8
165.1
1,207.2
860.1

978.9
155.4
1,202.0
674.3

+ 6.3
+ 6.2
+ 0.4
+ 27.6

361.2

335.5

+ 7.7

619.3
4,253.7

368.4
3,714.5+ 68.1+ 14.5C O M PA N I E S M E A S U R E D AT E Q U I T Y

Thirteen associated companies and 28 joint ventures were measured atequity. At € 1,306.2 m, their value increased by 10.6 % year-on-year asat the balance sheet date.

Structure of the Group’s current assets€ million
Inventories
Financial assets available
for sale
Trade accounts receivableand other assets*
Current tax assets
Current receivables
Cash and cash equivalents
Assets held for sale
Current assets

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

30 Sep 201730 Sep 2016

Var. %

110.2

105.2

+ 4.8

–

265.8

n. a.

1,583.3
98.7
1,682.0
2,516.1
9.6
4,317.9

1,864.7
87.7
2,218.2
2,072.9929.8
5,326.1– 15.1+ 12.5– 24.2+ 21.4– 99.0– 18.9Current receivables comprise trade accounts receivable and other receivables, current income tax assets and claims from derivative financial
instruments. At € 1,682.0 m, current receivables decreased by 24.2 %year-on-year.
C A S H A N D C A S H E Q U I VA L E N T S

At € 2,516.1 m, cash and cash equivalents increased by 21.4 % year-onyear.
ASSETS HELD FOR SALE

Assets held for sale decreased by € 920.2 m to € 9.6 m. The decline isprimarily attributable to the disposal of Travelopia.

Unrecognised assets
In the course of their business operations, Group companies used assetsof which they were not the economic owner according to the IASB rules.
Most of these assets were aircraft, hotel complexes or ships for which
operating leases, i. e. rental, lease or charter agreements, were concluded
under the terms and conditions customary in the sector.

Operating rental, lease and charter contracts€ million
AircraftHotel complexes
Travel agencies
Administrative buildings
Ships, Yachts and motor boats
Other
Total

30 Sep 201730 Sep 2016

Var. %

1,461.1
728.4
217.1
233.8
29.2
107.8
2,777.4

1,886.3
731.9
229.1
271.2
204.6
114.3
3,437.4– 22.5– 0.5– 5.2– 13.8– 85.7– 5.7– 19.2* Incl. receivables from derivative financial instruments

Development of the Group’s current assets
F I N A N C I A L A S S E T S AVA I L A B L E F O R S A L E

As at 30 September 2016, the financial assets available for sale comprised the remaining interests in Hapag-Lloyd AG . In the financial year
under review, TUI AG sold its stake in Hapag-Lloyd AG at a purchaseprice less costs of disposal of € 406.4 m. The resulting profit of € 172.4 m
is carried under Financial income.

Further explanations as well as the structure of the remaining terms of
the financial liabilities from operating rental, lease and charter agreements are provided in the section Other financial liabilities in the Notes
to the consolidated financial statements.
Information on other intangible, non-recognised assets in terms of brands,
customer and supplier relationships and organisational and process
benefits is provided in the section on TUI Group Corporate Profile; relationships with investors and capital markets are outlined in the section
TUI Share.
TUI Group Corporate Profile see page 20; TUI Share from page 91

66

Financial position of the Group
Principles and goals of financial management
PRINCIPLESLIMITING FINANCIAL RISKSTUI Group’s financial management is centrally operated by TUI AG ,The Group companies operate on a worldwide scale. This gives rise tofinancial risks for the TUI Group, mainly from changes in exchange rates,
commodity prices and interest rates.

which acts as the Group’s internal bank. Financial management covers all
Group companies in which TUI AG directly or indirectly holds an interestof more than 50 %. It is based on policies covering all cash flow-oriented
aspects of the Group’s business activities. In the framework of a cross-­national division of tasks within the organisation, TUI AG has outsourced
some of its financial activities to First Choice Holidays Finance Ltd, aBritish Group company. However, these financial activities are carriedout on a coordinated and centralised basis.
GOAL STUI ’s financial management goals include ensuring sufficient liquidity for
TUI AG and its subsidiaries and limiting financial risks from fluctuations

in currencies, commodity prices and interest rates.
LIQUIDIT Y SAFEGUARDSThe Group’s liquidity safeguards consist of two components:• In the course of the annual Group planning process, TUI draws up amulti-annual finance budget, from which long-term financing and refinancing requirements are derived. This information and financial
market observation to identify refinancing opportunities create a basis
for decision-making, enabling appropriate financing instruments forthe long-term funding of the Company to be adopted at an early stage.
• TUI uses syndicated credit facilities and bilateral bank loans as well as
its liquid funds to secure sufficient short-term cash reserves. Throughintra-Group cash pooling, the cash surpluses of individual Group
companies are used to finance the cash requirements of other Group
companies. Planning of bank transactions is based on a monthly rolling
liquidity planning system.

The key operating financial transaction risks relate to the euro, US dollar
and pound sterling and changing fuel prices. They mainly result from cost
items in foreign currencies held by individual Group companies, e. g. hotel
sourcing, aircraft fuel and bunker oil invoices or ship handling costs.
The Group has entered into derivative hedges in various foreign currencies in order to limit its exposure to risks from changes in exchange
rates for the hedged items. Changes in commodity prices affect the TUIGroup, in particular in procuring fuels such as aircraft fuel and bunker
oil. These price risks related to fuel procurement are largely hedged
with the aid of derivative instruments. Where price increases can bepassed on to customers due to contractual agreements, this is also
reflected in our hedging behaviour. In order to control risks related tochanges in interest rates arising on liquidity procurement in the international money and capital markets and investments of liquid funds,
the Group uses derivative interest hedges on a case-by-case basis aspart of its interest management system.
The use of derivative hedges is based on underlying transactions; thederivatives are not used for speculation purposes.
More detailed information on hedging strategies and risk management
as well as financial transactions and the scope of such transactions at thebalance sheet date is provided in the Risk Report and the section Financial instruments in the Notes to the consolidated financial statements.
See from page 30 and from page 209

C O R P O R AT E G O V E R N A N C E

67Business review

COMBINED MANAGE ME NT REPORTCapital structure

The equity ratio was 24.9 % (previous year 22.5 %). Equity and non-­current financial liabilities accounted for 37.3 % (previous year 32.9 %) of
the balance sheet total at the reporting date.

Capital structure of the Group€ million
Non-current assets
Current assets
AssetsSubscribed capital
Reserves including net profit
available for distribution
Non-controlling interest
EquityNon-current financial liabilities
Current provisions
Provisions
Non-current liabilities
Current financial liabilities
Financial liabilities
Other non-current financial­liabilities
Other current financial­liabilities
Other financial liabilities
Debt related to assets
held for sale
Liabilities

30 Sep 201730 Sep 2016

Var. %

9,867.6
4,317.9
14,185.5
1,501.6

9,131.8
5,326.1
14,457.9
1,500.7+ 8.1– 18.9– 1.9+ 0.1

1,438.1
594.0
3,533.7
1,896.1
382.6
2,278.7
1,761.2
171.9
1,933.1

1,174.4
573.1
3,248.2
2,213.3
415.4
2,628.7
1,503.4537.7
2,041.1+ 22.5+ 3.6+ 8.8– 14.3– 7.9– 13.3+ 17.1– 68.0
– 5.3

459.8

272.7

+ 68.6

5,980.2
6,440.0

5,794.9
6,067.6

+ 3.2
+ 6.1

–
14,185.5

472.3
14,457.9

n. a.
– 1.9

30 Sep 201730 Sep 2016

Var. %

Non-current capital
Non-current capital in relation
to balance sheet total%Equity ratio
%Equity and non-current­financial liabilities
Equity and non-current­financial liabilities in relation
to balance sheet total%Gearing%7,650.8

7,237.6+ 5.7€ million

53.9
24.9

50.1
22.5

+ 3.8*+ 2.4*

5,294.9

4,751.6+ 11.4

Bonds
Liabilites to banks
Liabilites from finance leases
Other financial liabilities
Financial liabilities

37.3
17.2

32.9
41.9

+ 4.4*– 24.7*

The gearing, i.e. the ratio of average net debt to average equity, moved
to 17.2 %, down from the previous year (41.9 %).
EQUITY

Composition of equity€ million
Subscribed capital
Capital reserves
Revenue reserves
Non-controlling interest
Equity30 Sep 201730 Sep 2016

Var. %

1,501.6
4,195.0– 2,756.9
594.0
3,533.7

1,500.7
4,192.2– 3,017.8
573.1
3,248.2

+ 0.1
+ 0.1
+ 8.6
+ 3.6
+ 8.8

Subscribed capital and the capital reserves rose slightly year-on-year.
The increase of 0.1 % each was driven by the issue of employee shares.
Revenue reserves rose by € 260.9 m to € – 2,756.9 m. Non-controllinginterests accounted for € 594.0 m of equity.
PROVISIONSCapital ratios€ millionC O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

Provisions mainly comprise provisions for pension obligations and provisions for typical operating risks classified as current or non-current,
depending on expected occurrence. At the balance sheet date, they accounted for a total of € 2,278.7 m, up by € 350.0 m or 13.3 % year-on-year.
FINANCIAL LIABILITIES* Percentage points

Overall, non-current capital decreased by 5.7 % to € 7,650.8 m. As a proportion of the balance sheet total, it amounted to 53.9 % (previous year
50.1 %).

Composition of liabilities
30 Sep 201730 Sep 2016

Var. %

295.8
381.3
1,226.5
29.5
1,933.1

306.5
410.8
1,231.7
92.1
2,041.1

– 3.5
– 7.2
– 0.4
– 68.0– 5.3

STRUCTURAL CHANGES IN FINANCIAL LIABILITIESThe Group’s financial liabilities decreased by a total of € 108.0 m to
€ 1,933.1 m. There were no significant changes in the structure of liabilities.

68

OVERVIE W OF TUI’S LISTED BONDS

The tables below list the maturities, nominal volumes and annual interest
coupons of listed bonds.

On 26 October 2016, TUI AG issued bonds with a nominal value of€ 300.0 m with a 5-year period to maturity. On 18 November 2016, theproceeds from this bond issuance were used to repay the five-yearbond issued in September 2014 with a nominal value of € 300.0 m.

Listed bonds

Issuance

Maturity

Amountinitial€ million

October 2016

October 2021

300.0

Capital measures
Senior Notes 2016 / 21

BANK LOANS AND OTHER LIABILITIE S FROM FINANCE LE ASE S

Apart from the bonds worth € 300.0 m, used for general corporate finan­cing, the Hotels & Resorts and Cruises segments, in particular, took out
separate bank loans, primarily in order to finance investments by thesecompanies. Most liabilities from finance lease contracts are attributable
to aircraft as well as one cruise ship.
More detailed information, in particular on the remaining terms, is provided under Financial liabilities in the Notes to the consolidated financial
statements.
See section on Financial liabilities in the Notes, page 202
OTHER FINANCIAL LIABILITIESOther liabilities totalled € 6,440.0 m, up by € 372.4 m or 6.1 % year-onyear.

Off-balance sheet financial instruments and key
credit facilitiesO P E R AT I N G L E A S E S

The development of operating rental, leasing and charter contracts ispresented in the section Net assets in the Management Report.
See page 65

More detailed explanations and information on the structure of the remaining terms of the associated financial liabilities are provided in thesection Other financial liabilities in the Notes to the consolidated financial statements. There were no contingent liabilities related to special-­
purpose vehicles.
S Y N D I C AT E D C R E D I T F A C I L I T I E S O F T U I A G

TUI AG signed a syndicated credit facility worth € 1.75 bn in September 2014. This syndicated credit facility is available for general corpor­
ate financing purposes (in particular in the winter months). It carries afloating interest rate which depends on the short-term interest ratelevel (EURIBOR or LIBOR) and TUI ’s credit rating plus a margin. The
bond was to mature in December 2020, but in the financial year underreview, its maturity was extended ahead of the due date to July 2022.

Amountoutstanding€ million

Interest rate
% p. a.

300.0

2.125

At the balance sheet date, an amount of € 115.9 m from this credit facility
had been taken up in the form of bank guarantees.
B I L AT E R A L G U A R A N T E E F A C I L I T I E S O F T U I A G W I T H­I N S U R A N C E C O M PA N I E S A N D B A N K S

TUI AG has concluded several bilateral guarantee facilities with various
insurance companies with a total volume of £ 92.5 m and € 130.0 m.
These guarantee facilities are required in the framework of the delivery
of tourism services in order to ensure that Group companies are able tomeet, in particular, the requirements of European oversight and regulatory authorities on the provision of guarantees and warranties. The
guarantees granted usually have a term of 12 to 18 months. They giverise to a commission in the form of a fixed percentage of the maximum
guarantee amount. At the balance sheet date, an amount of £ 32.9 m
and € 50.0 m from these guarantee facilities had been used.
TUI AG also concluded bilateral guarantee facilities with a total volumeof € 45.0 m with banks to provide bank guarantees in the framework ofordinary business operations. Some of the guarantees have a term of
several years. The guarantees granted give rise to a commission in theform of a fixed percentage of the maximum guarantee amount. At thebalance sheet date, an amount of € 15.5 m from these guarantee facilities
had been used.

Commitments from finance leases
The € 300.0 m bond from October 2016 and the credit and guarantee
facilities of TUI AG contain a number of obligations.
TUI AG has a duty to comply with certain financial covenants (as definedin the respective contracts) from its syndicated credit facility worth€ 1.75 bn and a number of bilateral guarantee lines. These require (a)compliance with an EBITDAR-to-net interest expense ratio measuring
TUI Group’s relative charge from the interest result and the lease andrental expenses; and (b) compliance with a net debt-to- EBITDA ratio,
calculating TUI Group’s relative charge from financial liabilities. The
EBITDAR-to-net interest expense ratio must have a coverage multipleof at least 1.5; net debt must not exceed 3.0 times EBITDA . The financial
covenants are determined every six months. They restrict, inter alia,

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69Business review

TUI ’s scope for encumbering or selling assets, acquiring other companies
or shareholdings, or effecting mergers.

typical of financing instruments of this type. Non-compliance withthese obligations awards the lenders the right to call in the facilities or
terminate the financing schemes for immediate repayment.

The bond worth € 300.0 m from October 2016 and the credit and guarantee facilities of TUI AG also contain additional contractual clauses

Ratings by Standard & Poor’s und Moody’s
TUI AG ratings

Standard & Poor’s
Moody’s

2017

Outlook

BB -

BB

Ba2

Ba2

stablestable

2012

2013

2014

2015

2016

B–
B3

B
B3

B+
B2

BB -

Ba3

In the light of improved metrics and a resilient business profile,Standard & Poor’s upgraded the corporate rating from ‘ BB –’ to ‘ BB ’ inFebruary 2017.
TUI AG’s bonds worth € 300.0 m from October 2016 are assigned a ‘ BB ’rating by Standard & Poor’s and a ‘Ba2’ rating by Moody’s. TUI AG’s
syndicated credit facility worth € 1.75 bn is assigned a ‘ BB ’ rating byStandard & Poor’s.

Financial stability targets
TUI considers a stable credit rating to be a prerequisite for the further

development of the business. In response to the structural improvements
resulting from the merger between TUI AG and TUI Travel and theoperating performance observed over the past few years and thestrengthening of the business model despite a challenging environment,
Standard & Poor’s lifted their TUI ratings. We are seeking further improvements in the rating so as to ensure better access to the debt capital
markets even in difficult macroeconomic situations, apart from achieving
better financing terms and conditions. The financial stability ratios wehave defined are leverage ratio and coverage ratio, based on the following
basic definitions:
Leverage ratio = (gross financial liabilities + discounted value of financial
commitments from lease, rental and leasing agreements + pension
provisions and similar obligations) / (reported EBITDA + long-term leasing
and rental expenses)
Coverage ratio = (reported EBITDA + long-term leasing and rental
expenses) / (net interest expense + ⅓ of long-term leasing and rental
expenses)

These basic definitions are subject to specific adjustments in order toreflect current circumstances. For the completed financial year, the­leverage ratio was 2.5(x), while the coverage ratio was 6.1(x). We aim toachieve a leverage ratio 3.00(x) to 2.25(x) and a coverage ratio 5.75(x) to6.75(x) for financial year 2018.

Interest and financing environment
In the period under review, short-term interest rates remained at anextremely low level compared with historical rates. In some currency
areas, the interest rate was even negative, with corresponding impacts on
returns from money market investments but also on reference interest
rates for floating-rate debt.
Quoted credit margins (CDS levels) for corporates in the sub-investment
trade area remained almost flat year-on-year. On overall weak demand
for CDS titles, quotations were on a very low level for TUI AG . Refinancing
options were available against the backdrop of the receptive capital
market environment, and TUI AG took advantage of this in October 2016
by issuing bonds worth € 300.0 m.
In the period under review, TUI also took advantage of the sound condition of the syndicated credit market in order to extend the maturity of
TUI AG’s syndicated credit facility worth € 1.75 bn to July 2022 ahead ofthe due date.
In addition to the bond issue of € 300.0 m refinancings of aircrafts in thecompleted financial year included one new Boeing B787-9 aircraft bymeans of finance lease based on a sale-and-lease-back agreement and
one used Boeing B737-800 aircraft with a bank loan.

70

Liquidity analysis
LIQUIDIT Y RESERVEIn the completed financial year, the TUI Group’s solvency was secured at
all times by means of cash inflows from operating activities, liquid
funds, and bilateral and syndicated credit agreements with banks.

Hapag-Lloyd AG amounted to € 406.4 m. The cash outflow for capital
expenditure related to property, plant and equipment and intangible
assets and the cash inflow for corresponding sales do not match theadditions and disposals shown in the development of fixed assets, asthese also include the non-cash investments and disposals.
NE T C A SH OUTFLOW FROM FINANCING AC TIVITIE S

At the balance sheet date, TUI AG , the parent company of TUI Group,
held cash and cash equivalents worth € 1,039.0 m.

In the period under review, the cash outflow from financing activities
increased by € 71.7 m year-on-year to € 733.8 m.

RESTRICTIONS OF THE TRANSFER OF LIQUID FUNDS

In October 2016, TUI AG recorded a cash inflow worth € 294.9 m from theissue of bonds. Other TUI Group companies took out financial liabilities
worth € 34.9 m. In the completed financial year, a cash outflow of€ 306.8 m was recorded for the redemption of a bond originally maturing
on 1 October 2019, cancelled by TUI AG . Further material cash outflows
resulted from the redemption of financing lease obligations (€ 97.8 m)
and other financial liabilities (€ 108.8 m) as well as interest payments(74.8 m) and dividend payments to TUI AG shareholders (368.2 m) andminority shareholders (€ 88.6 m).

At the balance sheet date, there were restrictions worth around € 0.3 bn
on the transfer of liquid funds within the Group that might significantly
impact the Group’s liquidity, such as restrictions on capital movements
and restrictions due to credit agreements concluded.
CHANGE OF CONTROL

Significant agreements taking effect in the event of a change of control
due to a takeover bid are outlined in the chapter on Information required
under takeover law.

Change in cash and cash equivalents

See chapter Information required under takeover law€ million

Cash flow statement
Summary cash flow statement€ million
Net cash inflow from operating activities
Net cash out- / inflow from investing activities
Net cash outflow from financing activities
Change in cash and cash equivalents withcash effects

2017

2016

+ 1,583.1– 687.7– 733.8+ 1,034.7+ 239.0– 662.1+ 161.6+ 611.6

The cash flow statement shows the flow of cash and cash equivalents withcash inflows and outflows presented separately for operating, investing
and financing activities. The effects of changes in the group of consolidated companies are eliminated.
N E T C A S H I N F L O W F R O M O P E R AT I N G A C T I V I T I E S

In the financial year under review, the cash inflow from operating activities
amounted to € 1,583.1 m (previous year € 1,034.7 m). The year-on-yearincrease was mainly driven by the positive operating performance andimprovements in the working capital as well as the one-off payment topension funds in the UK effected in the prior year.
NE T C A SH OU TFLOW/INFLOW FROM INVE S TING AC TIVITIE S

In the financial year under review, the cash outflow from investing activities including the payments received for the sale of Travelopia Groupand the remaining shares in Hapag-Lloyd AG totalled € 687.7 m (previous
year cash inflow of € 239.0 m). The cash outflow for capital expenditure
related to property, plant and equipment and financial investments
amounted to € 1,171.6 m. The cash inflow from the sale of the stake in

Cash and cash equivalents at the
beginning of period
Changes due to changes in exchange rates
Change in cash and cash equivalents due
to changes in the group of consolidated­companies
Cash changes
Cash and cash equivalents at the endof period

2017

2016

+ 2,403.6– 49.1+ 1,682.2+ 105.8–+ 161.6+ 4.0+ 611.6+ 2,516.1+ 2,403.6

Cash and cash equivalents comprise all liquid funds, i.e. cash in hand,bank balances and cheques.
The detailed cash flow statement and additional explanations are provided in the consolidated financial statements and in the section Notes
to the cash flow statement in the Notes to the consolidated financial
statements.
See page 140 and 223

Analysis of investments
The development of fixed assets, including property, plant and equipment, intangible assets and shareholdings and other investments ispresented in the section on Net assets in the Management Report.
Additional explanatory information is provided in the Notes to the consolidated financial statements.

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71

Business review

Reconciliation of capital expenditure

A D D I T I O N S T O P R O P E R T Y, P L A N T A N D E Q U I P M E N T

The table below lists the cash investments in intangible assets andproperty, plant and equipment. This indicator does not include financing
processes such as the taking out of loans and finance leases.

Net capex and investments€ million
Cash gross capex
Hotels & Resorts
Cruises
Source Markets
Northern Region
Central Region
Western Region
Other Tourism
Tourism
All other segments
TUI Group
Discontinued operations
Total
Net pre delivery payments on
aircraft
Financial investments
Divestments (without proceedsfrom Hotelbeds sale)
Net capex and investments

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

2017

2016

Var. %

223.0
281.4
111.8
58.5
22.3
31.0
115.2
731.4
41.2
772.6
28.6
801.2

262.3
45.6
93.7
51.5
20.6
21.6
101.0
502.6
20.8
523.4
82.2
605.6

– 15.0+ 517.1+ 19.3+ 13.6+ 8.3+ 43.5+ 14.1+ 45.5+ 98.1+ 47.6– 65.2+ 32.3

202.5
122.6

48.7
75.7

+ 315.8+ 62.0– 54.4
1,071.9– 95.2634.8+ 42.9+ 68.9Investments in other intangible assets and property, plant and equipment
totalled € 801.2 m in the period under review, up 32.3 % year-on-year.
In the period under review, investments mainly related to the acquisition
and renovation of Marella Discovery 2, the construction of hotels, inparticular in the Caribbean, Mexico and the Mediterranean, the launchand harmonisation of IT platforms and down payments on ordered aircraft. Investments were also effected for renovation and maintenance inall areas.
The table below shows a reconciliation of investments to additions to
TUI Group’s other intangible assets and property, plant and equipment.

€ million

2017

2016

Capital expenditure
Debt financed investments
Finance lease
Additions to the group of consolidated­companies
Additions to discontinued operations
Additions to other intangible assets andproperty, plant and equipment

801.2
136.0
247.8

605.6
315.5
91.8

– 28.6
3.5– 20.6–

1,159.9

992.3

Amortisation (+) / write-backs (–) of other intangible assets anddepreciation (+) / write-backs (–) of property, plant and equipment
and current assets€ million

2017

2016

Var. %

Hotels & Resorts
Cruises
Source Markets
Northern Region
Central Region
Western Region
Other Tourism
Tourism
All other segments
TUI Group
Discontinued operations
Total

130.8
57.3
111.9
69.0
20.3
22.6
86.6
386.6
77.8
464.4
–
464.4

95.0
45.9
115.7
67.6
22.3
25.8
61.1
317.7
89.3
407.0
70.9
477.9

+ 37.7+ 24.8
– 3.3
+ 2.1
– 9.0
– 12.4+ 41.7+ 21.7– 12.9+ 14.1n. a.
– 2.8

Investment obligations
ORDER COMMITMENTS

Due to agreements concluded in financial year 2017 or in prior years,
order commitments for investments totalled € 4,164.5 m; this total
includes an amount of € 733.0 m for scheduled deliveries in financial
year 2018.
At the balance sheet date, order commitments for aircraft comprised
74 planes (four B787s and 70 B737s), to be delivered by the end of
financial year 2023. Delivery of seven aircraft (five B737 Max and two
B787-9s) has been scheduled for financial year 2018.
More detailed information is provided in the section Other financial
liabilities in the Notes to the consolidated financial statements.

72

NON-FINANCIAL GROUPD E C L A R AT I O N
pursuant to the CSR Directive Implementation Act
For TUI Group, economic, environmental and social sustainability is afundamental management principle and a cornerstone of our strategy
for continually enhancing the value of our Company. This is the way
we create the conditions for long-term economic success and assume
responsibility for sustainable development in the tourism sector.
In the following section we report on sustainability issues which support
better understanding of our business’s operations, context and future
development, in line with recent CSR reporting legislation. In compliancewith Section 315b, paragraph 1, clause 3 German Commercial Code (HGB)
we also refer to relevant aspects of non-financial disclosure found inother parts of the Group management report.
In particular, we report on our risk management system and principles
risks linked with our business activities, business relations and services
in our Risk Report from page 30 on.

This non-financial Group statement has been reviewed by the Supervis­
ory Board with regard to aspects of legality, regularity and relevance.
Our reporting covers the United Nations Global Compact principles andwe have also started to review our activities against the United Nations
Sustainable Development Goals (SDG s). The goals are a helpful ’big
­picture’ way to view our impact and the contributions we make to abetter world.
	Sustainability reporting methodology document:
www.tuigroup.com/en-en/sustainability/reporting-downloads

Business modelTUI Group’s business model as defined in HGB section 289b is outlined
from page 20 in this report.

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73

Non-financial Group declaration

COMBINED MANAGE ME NT REPORT

Sustainability strategy and implementation
TUI Sustainability Strategy 2020

betterholidays
betterworld

Step
lightly

TUI Sustainability Strategy

2020
Reducing the environmental
impact of holidays

Makea difference

Creating positive change
for people and communities

Lead
the way
Pioneering sustainable tourism
across the world

Care
more
Building the best place to workwhere people are passionate about
what they do

Our ‘Better Holidays, Better World’ 2015 – 2020 strategy is built aroundthe following core pillars:• Step Lightly, where we commit to operate the most carbon-efficientairlines in Europe and cut the carbon intensity of our operations by
10 % by 2020.
• Make a Difference, where we commit to deliver 10 million ’greener
and fairer’* holidays per year by 2020, enabling more local people toshare in the benefits of tourism.
• Lead the Way, where we commit to invest € 10 m per year by 2020,
to support good causes and enhance the positive impacts of tourism,
using the TUI Care Foundation to support this work.
• Care More, where we commit to achieve a colleague engagementscore of over 80.
* M easured by the number of customers we take to hotels with credible sustainabilityc­ ertification – defined as those recognised or approved by the Global Sustainable Tourism
Council (GSTC ).

M AT E R I A L I T Y

TUI Group carried out a formal materiality assessment as part of devel-

oping the Better Holidays, Better World 2015 – 2020 strategy. Using
qualitative and quantitative methods, the business invited feedback froma wide range of stakeholders on the issues shown in the matrix below. In
addition to detailed interviews with top-tier stakeholders, the processincluded a shorter feedback mechanism asking participants from fiveEuropean markets to prioritise from a list of 24 material issues.

74

Stakeholder Survey

Safety & Crisis Management
Compliance
3 Social Responsibility for Employees
4 Child Protection
5 Climate Change
6 Guest Awareness
7 Waste8 Water
9 Development of Sustainable Products
10 Engagement in Destinations
11 Corporate Governance
12 Human Rights
13 Biodiversity
14 Energy
15 Sewage Treatment
16 Stakeholder Management
17 Landscape
18 Supply Chain
19 Diversity
20 Demographic Development
21 Innovation Management
22 Staff Development
23 Support of Education System
24 Fostering Art & Culture
1
2

RI S KHigh
1

Medium3.9
I NVO LVE ME NT BY T U I

2

3.5
Low

16

3.4

3.1

3.4

8

6
9

3

5

10

11

15

12
17

22

23

2.8

14

18
20 21

19

24

2.7

7

13

3.7

4.0

RELEVANCE FOR TUI

M A N A G I N G S U S TA I N A B I L I T Y

TUI Group has an experienced team of sustainability professionals,

working in close collaboration with senior management at Group and at
divisional level to help ensure that TUI ’s business and sustainability

4.3

4strategies are aligned. Our sustainability colleagues’ role is to drive uptake of more sustainable business practices across the TUI Group andalong its supply chain, and to advise the TUI Care Foundation on destin­
ation project proposals and implementation.

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75

Non-financial Group declaration

COMBINED MANAGE ME NT REPORTManaging sustainability-embedding

G RO U P E X E C U T I V E CO M M I T T E E

Minimum twice yearly agenda slot and update report

DIVISIONAL BOARDS

Regular update presentations
to these Boards as necessary

RISK OVERSIGHT
CO M M I T T E E

Annual update to this committee
and meetings with Group Risk
Department at regular intervals
to review risk registerGROUP
S U S TA I N A B I L I T Y C O M M I T T E E

S U S TA I N A B I L I T Y
WORKING GROUP

Minimum twice yearlymeeting of sustainablility
leads from source
markets and divisions(including TUI Airlines,
Group Product & Purchasing,
Cruise, Hotels & Resorts,
Destination Services,
Communication & External Affairs)

Video conference
calls eight times eachyear with sustainability
colleagues from themain divisions
and source market
tour operators

O P E R AT I O N A L W O R K I N G G R O U P S

Animal Welfare, Customer Sustainability Communications, Human Rights,
Sustainable Accommodation

S U S TA I N A B I L I T Y I N D I C E S

TUI AG is represented in the sustainability indexes FTSE4Good, STOXXGlobal ESG Leaders Index and on the Ethibel Investment Register. In
2017 TUI was included in the RobecoSam Sustainability Yearbook witha ‘Gold Class’ distinction. TUI AG has been recognised as a Leader by
CDP Climate Change for implementing current best practices on climatechange issues.

The environment
Respecting the environment in our products, services and processes isan essential feature of our quality standards. We place priority on climate
protection and resource efficiency. Conserving natural resources andmitigating negative environmental impacts is not only of interest to ourbusiness but also to the future success of travel and tourism.

We face additional environmental challenges at a local level. Fresh water,
for example, is likely to become increasingly scarce in the coming years
in some destinations – and the waste generated by tourism needs to be
managed to ensure it does not create a problem for destinations.
As a company with a substantial carbon footprint – a total of 7,556,457
tonnes of carbon dioxide in 2017 – we acknowledge the necessity totransition to a lower carbon economy and we will continue to strive to
reduce the carbon intensity of our operations. In the long term, combatingclimate change will be critical for our industry as a whole. We need tocontinue to sell quality holiday experiences, which rely on beautiful andbiodiverse destinations, thriving communities and stable weather systems. All of these are threatened by climate change.

76

Carbon dioxide emissions (CO2)
2017

2016

Var. %

6,115,492
507,230
815,582
29,511
15,38873,254
7,556,457

5,842,427
510,719686,791
32,617
17,75171,713
7,162,018

+ 4.7
– 0.7
+ 18.8– 9.5– 13.3
+ 2.1
+ 5.5

tons
Airlines & Aviation
Hotels
Cruises
Major Premises / Shops
Ground Transport
Scope 3 (Other)Group

In financial year 2017, TUI Group’s total emissions increased year-onyear in absolute terms, primarly due to growth in its airline and aviation
segment. The increase in absolute carbon emissions in Cruises of
18.8 % is mainly driven by launching additional vessels – Mein Schiff 6(operated by TUI Cruises) and Marella Discovery 2 (operated by Marella
Cruises, former Thomson Cruises). Furthermore the vessels Mein Schiff 5
and Marella Discovery were included for the full financial year.
Emissions from offices and retail shops declined, due energy efficiencies,
restructuring and divestment. Ground transport emissions declined significantly, driven by more efficient energy use and divestment in thespecialist businesses.

Energy usage by business area
MW hAirlines & Aviation
Hotels
Cruises
Major premises / shops
Ground transport
Total

Our carbon management programme covers aviation, hotels, cruise,
offices, retail shops and ground transport emissions.
• Our headline goal: We will operate Europe’s most carbon-efficientairlines and reduce the carbon intensity of our operations by 10 % by
2020.
C L I M AT E P R O T E C T I O N A N D R E S O U R C E E F F I C I E N C Y
BY TUI AIRLINE S

We already operate one of Europe’s most carbon-efficient airlines andwe aim to continuously improve. In the atmosfair Airline Index 2017 TUIAirways (former Thomson Airways) and TUIfly Germany ranked #1 and#2 most efficient charter airlines.
TUI Airlines have numerous measures in place to further enhance carbon

efficiency. Apart from the continuous renewal of our aircraft fleet, we have
implemented the following measures to support our efficiency goals:• Process optimisation, e. g. single-engine taxing in and out, acceleration
altitude reduction and wind uplinks• Weight reduction, e. g. introduction of carbon brakes and water uplift
optimisation• Flight planning optimisation, e. g. Alternate Distance Optimisationand Minimum Fuel Optimisation• Implementation of fuel management system to improve fuel analysis,
identify further opportunities and track savings

2017

TUI ’s airlines play a pioneering role in introducing environmental management systems based on the internationally recognised ISO 14001

24,940,489
1,420,438
3,077,062
91,422
61,69729,591,108

standard. In the period under review, each of our five tour operator
airlines and hence 95 % of our aircraft achieved ISO 14001 certification.

To expand the scope of TUI ’s environmental reporting we have included
a breakdown of energy usage by business area. Airlines and Aviation
represents more than 84 % of the total energy used.

TUI Aviation Environment & Fuel Team is responsible for an alignmentof the fuel and environment practices and activities, integrating theminto a single TUI Airlines operating policy, procedures and performancetools. The team drives best practice in fuel and environment management, providing end-to-end delivery of initiatives and projects in orderto deliver the TUI Group sustainability objectives.

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77Non-financial Group declaration

TUI Airlines – Fuel consumption and CO2 emissionsl / 100 rpk*t
kg / 100 rpk*

Specific fuel consumption
Carbon dioxide (CO 2) – total
Carbon dioxide (CO 2) – specific

2017

2016

Var. %

2.65
5,571,719
6.67

2.65
5,277,065
6.68

– 0.1
+ 5.6
– 0.1

* rpk=revenue passenger kilometer

TUI Airlines – Carbon intensity

TUI Airline fleet

Corsair International
TUI Airways
TUI fly Belgium
TUI fly Germany
TUI fly Netherlands
TUI fly Nordicg CO 2 / rpk*
g CO 2 / rpk*
g CO 2 / rpk*
g CO 2 / rpk*
g CO 2 / rpk*
g CO 2 / rpk*
g CO 2 / rpk*

2017

2016

Var. %

g CO 2e / rpk*

66.7
84.3
63.4
71.5
63.5
65.2
61.3

66.8
82.4
63.8
71.4
64.4
64.1
61.4

– 0.1
+ 2.3
– 0.6
+ 0.1
– 1.4
+ 1.7
– 0.2

67.4
85.1
64.0
72.2
64.1
65.9
62.0

* rpk=revenue passenger kilometer
We have requested PwC Netherlands to provide assurance on the carbon intensity metrics displayed in the table ‘ TUI Airlines – Carbon Intensity’ above. To read our airline carbon data
methodology document and PwC’s Assurance report in full, please visit www.tuigroup.com/en-en/sustainability/reporting-downloads

Relative carbon emissions across our airlines decreased by 0.1 % in the financial year 2017. As a scheduled longhaul operator Corsair International’s
payload consists of both passengers and cargo. Cargo transportation
results in higher fuel burn and carbon emissions as is reflected in Corsair’s
carbon intensity performance.

The ships are fitted with advanced emission purification systems, which
operate around the clock worldwide – not only in the designated special
emission control areas of the North and Baltic Seas, the English Channel
and North America but also in the other areas that TUI Cruises travels
to, such as the Mediterranean, Orient, Caribbean and Central America.

To enhance the information content, specific emissions are also shownin the form of CO 2 equivalents (CO 2e). Apart from carbon dioxide (CO 2),
they include the other five greenhouse gases impacting the climate aslisted in the Kyoto Protocol: methane (CH4), nitrous oxide (N2O), hydro-­
fluorocarbons (HFC s), perfluorocarbons (PFC s) and Sulphur hexafluoride(SF6).

In financial year 2017, TUI Cruises focussed on the issue of food waste
through the launch of a project supported by the industry initiative
Futouris entitled ‘Reduction of food waste on cruise ships’. The aim of
the pilot project is to make efforts to tackle the amount of food waste
within the cruise industry. During the project the causes of food waste on
board the TUI Cruises fleet will be identified and processes relevant for
reducing food waste will be optimised.

C L I M AT E P R O T E C T I O N A N D R E S O U R C E M A N A G E M E N T
IN CRUISES

In 2017, TUI Cruises launched Mein Schiff 6. The newbuild ships in the
fleet save fuel through a combination of the latest technologies. A
smart energy management system, efficient air conditioning, innovative
lighting controls and the use of waste heat from the engines all contributeto a significantly reduced carbon footprint.
	TUI Cruises Environment Report:
www.tuicruises.com/nachhaltigkeit/­umweltbericht/

Sulphur emissions from the newbuilds in the fleet are also up to 99 %lower thanks to new systems that treat exhaust fumes before releasing
them. Moreover, the average sulphur content of fuel was considerably
reduced year-on-year. In the period under review, it stood at 1.25 %.

Hapag-Lloyd Cruises continues to equip its vessels with new zodiacs.
These motor-driven rubber boats are equipped with Torqueedo electricmotors in order to reduce air and noise emissions. Hapag-Lloyd Cruises
is the first provider of expedition cruises to use this environmentallyfriendly technology. All Hapag-Lloyd Cruises ships have Tributyltin-freeunderwater coatings, seawater desalination systems for water treatment
purposes as well as a biological sewage treatment system for wastewater.
Waste is separated on board in an environmentally-friendly manner prior
to disposal on land by specialized companies in accordance with international regulations ( MARPOL).
Marella Cruises (former Thomson Cruises) has introduced a range of more
efficient procedures and technology including single engine running, or
drifting on passage, where speeds allow; so that the engines can run attheir most efficient speed and installing new equipment on board, fromthe laundry to air conditioning plant – cutting the demand for energy

78

produced by the ship. In the financial year 2017 the vessel MarellaDream retrofitted digital engine lubricating oil control units which leadto a decrease of 20 % lubricating oil consumption.

Cruises – carbon intensity

kg CO 2 / Cruise passenger night

2017

2016

Var. %

108.0

109.6

– 1.5

TUI ’s Product & Purchasing team carried out a full review of two recon-

structed and refurbished units in Croatia. The aim was to understandhow environmental and social sustainability considerations can be incorporated during planning, design, build and launch phases of refurbishment and newbuild projects as well as ongoing operations. The work
identified best practices to share with other accommodation partners
and highlighted areas for improvement in all future new-build or refurbishment projects.

Hotels – carbon intensity
In financial year 2017, relative carbon emissions in Cruises decreased by
1.5 % mainly driven by the on-going re-fleeting programme, more efficientenergy use and technological improvements.

kg CO 2 / guest night

To expand the scope of TUI ’s environmental reporting in Cruises weincluded waste and water KPIs for the period under review. Per Cruise
passenger night 14.7 litres of waste were measured and 161.8 litres offresh water consumed.

Relative carbon emissions across our TUI Hotels & Resorts and Inter­national Concepts decreased by 6.3 % due to a focus on effciency
measures.

C L I M AT E P R O T E C T I O N A N D R E S O U R C E M A N A G E M E N T
BY HOTEL S

Together with our hotel partners we constantly work on improving oursustainability performance. We have found that our most sustainably-­
managed hotels deliver higher quality and customer satisfaction.
We have included a sustainability clause in contracts with our accommodation suppliers outlining minimum expectations and the requirement towork towards credible sustainability certification recognised by the
Global Sustainable Tourism Council (GSTC ). TUI is supporting its hotel
partners by providing guidance and testing online tools to enable ourhotel partners to prepare for certifications.
TUI hotels were involved in numerous sustainability projects and initia-

2017

2016

Var. %

9.4

10.1

– 6.3

Effective waste management aims to conserve resources and reduce
environmental impacts and costs through recycling practices. Our
owned and partner hotels implement various measures to reduce
waste, for example through a stronger focus on local procurement andreducing packaging via buying in bulk. Per guest night 2.3 kg of waste
were measured in financial year 2017.

Hotels – relative water consumption*l / guest night

2017

2016

Var. %

531

544

– 2.3

* Includes water for domestic, pool and irrigation purposes

tives in 2017 including the following:
In March 2017 the ‘Il Castelfalfi – TUI Blue Selection’ was opened in
Tuscany – regenerating the historic Tuscan estate of Castelfalfi keeping
as much of the original architecture as possible while introducing modern
systems and technologies. The resort has installed a biomass plant,
which will consume about 3.5 tonnes of biomass each year from the hotel
and its grounds and is expected to reduce fuel requirements by 95 %,making the resort practically self-sufficient with only a small reserve offuel kept for emergencies.

Water is one of the most precious resources in the world. Beyond
measures to control usage, hotels are finding innovative ways to address
fresh water supply problems. For instance, desalination projects canmake a big impact in destinations where they are in operation.

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79Non-financial Group declaration

Social issues and destination collaboration
Tourism can be a real force for good, generating the transfer of wealth,promoting cultural understanding and tolerance. But we know thattravel and tourism can also have unintended negative consequences.
We rely on thriving communities to welcome our customers in destin­
ations. That means it’s important that the benefits of tourism reach thelocal community, in the form of jobs and educational opportunities andhuman rights are protected along our value chain.
• Our headline goal: We will deliver 10 m ’greener and fairer’ holidays ayear by 2020, enabling more local people to share in the benefits of
tourism
One of our key areas of focus is the hotel – the largest component of
the holiday experience. Our expectation of hotels that work with us isthat they will commit to social and environmental good practice.
Certification is central to our commitment to offer ’greener and fairer’
holidays. It is a credible way of showing whether our hotels go further
than others when it comes to social and environmental issues. We encourage our hotels to aim for certification that is GSTC (Global Sustainable Tourism Council) recognised and we are strong supporters of thecertification programme Travelife.

Greener and fairer holidays

Number of customer (millions)
staying at accommodations
certified to GSTC-recognised
standard
Number of hotels certified to
GSTC-recognised standard% of hotels certified to
GSTC-recognised standard( TUI Hotels)
Number of TUI Collection­excursions

2017

2016

Var. %

8.3

6.3+ 31.1

1,220

1,170

+ 4.3

76

74

+ 2*

1,024,000

846,000+ 21.07* Variance is given in percentage points

In financial year 2017, the number of customers staying in a hotel
which is certified according to a GSTC recognised standard increased by
31.1 % to 8.3 Mio. This increase reflects improved and adjusted reporting
processes, including the consolidation of Riu’s customer numbers fromnon-TUI tourism businesses, as well as the increase in the number ofaccommodation suppliers who achieved certification to GSTC-recognised
standards, by 4.3 % to 1,220 hotels.
DIALOGUE

TUI Collection is a set of exclusive excursions that have been developed
by TUI and tailored to give customers a true taste of the destination.

They were launched in 2014 and are now offered by the majority of our
tour operators. Each excursion in the Collection must be exclusive to
TUI and meet specific criteria for sustainability, showing that it is bringing
benefit to local people and minimising its impact on the environment.
Our customers went on 1,024,000 TUI Collection excursions in financial
year 2017, up 21 % on 2016.

Stakeholders in destinations have a significant role to play in sustainable
tourism management. We work closely with communities, local andnational governments, non-governmental organisations and trade associations to support the sustainable management of destinations.
T U I C A R E F O U N D AT I O N

We are involved in projects all around the world that support communities
and reduce negative environmental impacts. Where we can, we focus on
those destinations where we send the most customers and where webelieve we can make the greatest difference.
• Our headline goal: We will invest € 10 m per year by 2020, to support
good causes and enhance the positive impacts of tourism, using the
TUI Care Foundation to support this work	Read more about TUI Care Foundation in the Magazine, page 54 / 55 and on
www.tuicarefoundation.com

Within the financial year 2017 the independent TUI Care Foundation has
evolved its broader commitments and collaborated with destinations inthree specific areas: education and training initiatives for young people;
protection of the natural environment; and sustainable livelihoods inthriving destinations where local communities can benefit from tourism.
M U LT I - S TA K E H O L D E R D E S T I N AT I O N P R O J E C T S

During the last year, TUI Care Foundation through its implementation
partners has engaged with several community programmes in holiday
destinations such as Croatia and Cape Verde.

80Tourism in Croatia is growing rapidly and accounts for more than onefifth of annual GDP. To support the sustainable growth of tourism in
Croatia, TUI became part of a local stakeholder project that brought
together the Travel Foundation (a TUI Care Foundation partner), local
residents and industry partners in the Split-Dalmatia county, where two
refurbished four-star hotels have opened for Western European tourists.
To address local stakeholder concerns about the impact of redevelopment, a training programme was run to help 20 local businesses benefit
from the opportunity (of which the majority have made changes to theirproducts to meet hotel customer expectations). TUI colleagues participated in this project and further opportunities to align the hotels withlocal community needs are being explored.
In Cape Verde, tourism is extremely important to the economy, employing
38 % of the working population and accounting for 40 % of GDP. With
rapid growth, however, comes a challenge to protect the environment,
ensure that local businesses and communities can benefit from tourism
and help local entrepreneurs and craftspeople to offer authentic excursions and handicrafts to the influx of new guests. A Destination Council
was set up in 2013 by the Travel Foundation with the support of TUI, toallow organisations to work together to better manage tourism’s impacts.
TUI Care Foundation is now supporting specific projects relating to water,
waste, clean beaches and local crafts.
E MPOWE RING YOU TH IN MOROCCO

To generate future opportunities for young Moroccans and promote agreen way of mobility, TUI Care Foundation and Dutch NGO Pikala
joined forces in 2017. Pikala are working to train 90 young Moroccans tobecome bike tour guides in their home city, to gain in-depth knowledgeof bike mechanics and learn the basics of how to run their own bike tour
business eventually. During the project 36 of the participants will be
employed and a special focus will be put on including young women in
the program.

Investments into projects and good causes€ million
Amount raised for sustainability
projects / good causes

2017

2016

Var. %

7.3

6.6+ 10.0

The amount raised for sustainability projects and good causes reached€ 7.3 million in financial year 2017, an increase by 10.0 %. This increaseis largely due to the consolidation of Riu’s charitable contributions into
our reported figures in financial year 2017.

Human Rights
TUI Group respects all internationally proclaimed human rights as speci­

fied in the International Bill of Human Rights and expects the same ofour suppliers and business partners. Modern slavery and its components
of forced labour and human trafficking are of particular concern given
their egregious nature and increasing prevalence.
	Modern Slavery Act Statement on
http://www.tuigroup.com/en-en/sustainability/msa

In accordance with applicable law, conventions and regulation TUI iscommitted to respecting human rights throughout its worldwide operations. We have a number of policies and initiatives in place to monitor,
identify, mitigate and prevent human rights impacts in line with the UN
Guiding Principles on Business and Human Rights, and will take remedialaction where necessary.
In September 2014, TUI signed up to the UN Global Compact, committing
the Group to 10 universally accepted principles in the areas of humanrights, labour, environment and anticorruption. In 2012, TUI signed the
UN World Tourism Organisation’s (UNWTO) Global Code of Ethics– further underlining our commitment to respecting human rights.
We have established a working group on human rights, drawing on senior
management from major departments across our business to help withthe continuous process of analysing potential human rights risks. In
April 2017 TUI Group published the ‘Modern Slavery Act Statement’,
under the requirement of UK law.
C O D E S O F C O N D U C T A N D S U P P LY C H A I N

The employee Code of Conduct commits us to respect and observe
human rights. TUI Group employees are also encouraged to report any
wrongdoing to the ’Speak Up’ Line. All employees wherever they are in
the world have access to a confidential reporting channel which allows
them to report concerns about illegal or unethical behaviour directly toa group function free from reprisal. Employees are specifically encouraged to report concerns about, among other things, potential humanrights issues. Group Legal Compliance closely monitors the hotline andensures ongoing employee awareness through e-mails, newsletter updates, websites, e-learning and posters in prominent areas.
Our Supplier Code of Conduct sets out the minimum standards that we
expect from suppliers and their employees, sub-contractors, agentsand subsidiaries when working on our behalf. Among other things thecode includes guidance on human rights and labour laws, bribery andcorruption, environmental impacts and support for local communities. TUI
was the first major player in the Travel and Tourism sector to introduce
supplier codes of conduct in order to mandate standards and stipulaterequirements of third party business partners, ensuring their alignment
to TUI ’s expectations for responsible and ethical business practices.

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81Non-financial Group declaration

The TUI Supplier Code of Conduct prohibits the use of forced and involuntary labour and requires that suppliers do not:• employ anyone against their will;• traffic in persons or use any form of slave, forced or bonded labour;• require workers to surrender any government-issued identification,
passports, or work permits as a condition of employment; or• require workers to undergo excessive indebted labour: that is, where
workers are required to pay a fee in connection with obtaining employment, expenses associated with recruitment, processing, or placement of both direct and contract workers, Suppliers shall be responsible for payment of fees and expenses in excess of an affordable
portion of a worker’s salary (a guide being one month of the worker’s
anticipated net wages).
The Code also provides detail on the following areas; general rights ofworkers, child labour, child protection from sexual exploitation, trafficking,anti-discrimination, working times and remuneration.
The TUI tour operating businesses have incorporated environmental
and social requirements into contracts for our biggest supplier group –accommodation partners – Sustainability Requirements for Accommodation Suppliers. We have reviewed these requirements to make surethat they adequately cover human rights, in particular forced labourand human trafficking. These requirements are also outlined in ouragreements with contracted Destination Management Companies. We
are currently in the process of adapting these requirements for otherareas of our procurement.
We also require our hotel suppliers to implement credible sustainability
3rd party certifications recognised or approved by the Global Sustainable
Tourism Council (GSTC ). Schemes approved and / or recognised by GSTC
mandate the highest standards of human rights, child protection andsocial welfare in the tourism industry.
Travelife is the certification body we work most closely with and wewere involved in developing new, stricter criteria. One of the revisions
has been the inclusion of the principles of the Ethical Trading Base Codeto strengthen the human rights components of the audit process, including modern slavery aspects.
For more information on certified hotels see page 79
CHILD PROTEC TION TR AINING

We conduct regular child protection training for colleagues working for
TUI Destination Services to ensure they understand child protection
and how to react and proceed when an incident occurs. We are in theprocess of training specific groups of colleagues about human rights
and modern slavery, such as holiday representatives and purchasers
working in high risk destinations.

Child protection training
2017
Colleagues trained on child protection issues

2,585

All TUI Airways (former Thomson Airways) crew receive Vulnerable­Children & Trafficking Training during their inductions, where they learn
about how to spot trafficking and what to do. Other TUI airlines areplanning to roll out similar trainings.

Our employees
Qualified and engaged employees are a major prerequisite for TUI ’s
long-term success. One of the key elements of our global HR strategy,
therefore, is to attract and promote people with talent and to retain
them by offering attractive employment conditions.
It is our staff who breathe life into our corporate values ‘Trusted’,‘Unique’ and ‘Inspiring’. Alongside our vision and our customer promise,they form the basis for our attitudes and actions. In the completed financial year, we implemented a number of measures to embed our corporate
values further in our day-to-day activities.
Starting in the completed financial year, HR has been a fixed component
and strategic pillar of TUI Group’s sustainability strategy. Under theheading ‘Better Holidays, Better World’, TUI ’s sustainability efforts
comprise four major ambitions: Beside ‘step lightly’, ‘make a difference’and ‘lead the way’ now ‘care more’ is included.
Our strategic key areas in HR were already defined last year. In the period
under review, TUI continued to work consistently towards implementing
them. 15 strategic projects were initiated within the five key areas(Engagement, Leadership, People Development, Organisational Effectiveness and HR Function Development), including oneShare, Employer
Branding, Diversity@TUI , TUIgether and Global 60. So that we canmeasure the progress and success of these projects going forward, we
defined corresponding KPI s in the financial year and are currently
working on a reporting process. The goal is to report the current status
and longterm objectives of the projects to the Management and Supervisory Board as well as to formulate appropriate measures.
H R S T R AT E G Y P R O J E C T S
ONESHARE

oneShare offers employees in 18 European countries the opportunity
to subscribe to shares from a joint employee share programme, and thisoption will be rolled out globally in the long term. This far, there havebeen two separate stock programmes in the UK and Germany. In thewake of the launch, TUI offered its employees the opportunity to participate in the success of the company twice in the reporting period.
Overall, the rate of participation was 12.7 %, significantly exceeding our
expectation in the year the programme began. This shows that our employees are placing their trust in TUI ’s long-term future.

82

E MPLOYE R BR ANDING

D I V E R S I T Y@T U I

One of the projects developed as part of our HR strategy during therecent financial year was a new Employer Branding campaign. It will
successively be rolled out in a total of 14 markets. Germany was the firstsource market to fully implement the campaign in summer 2017. TUIGroup uses illustrations describing the future of travel for a uniform
employer brand. The redesigned branding presents TUI Group as an
ideal employer for anyone who wants to help shape the future of travel.
The motto of the new branding: ‘Our employees make us number one’.
A special focus in the redesigned branding was placed on digitalisation.
All the channels through which future job applicants can find out about
TUI Group vacancies have been revamped. Apart from conventional
advertisements in newspapers and magazines, they now include posters,social ads on Xing, LinkedIn, or Facebook.

One of the cornerstones of our Diversity activities is to increase theproportion of women in managerial functions. Group wide, the proportionof women in the overall headcount was almost flat year-on-year at 56.6 %on the balance sheet date. By contrast, women’s share of managerial
functions grew from 29.4 % to 34.1 %.
The proportion of women on our German supervisory bodies also continued to rise in the period under review. On 30 September 2017, womenaccounted overall for almost 40 % of members, up by around 2 percentage points year-on-year.

Proportion of WomenØ German Supervisory
BoardsExecutive Board
TUI AG

40 (38)17 (20)%60 (62)
In brackets: previous year

Group Executive
Committee

43 (44)%%83 (82)

EmployeesGroup

34 (29)17 (18)%83 (80)Managerial Positions
Group

66 (71)%57 (56)

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83Non-financial Group declaration

In Germany, advantage was taken of the self-commitment mechanism
provided for under the German Stock Corporation Act (AktG) and the
Act on Limited Liability Companies (GmbHG) to fix specific targets for
TUI AG , TUI Deutschland and TUI fly in financial year 2015. In financial

year 2017, implementation of these targets made good progress at almost
all levels, and nearly all targets were achieved.
	A lso see declaration in Corporate Governance Report on page 110

Proportion of women in managerial positions%

Target value
30 Jun 201730 Sep 201730 Sep 201635
1 female
18
24

35
1 female
10
22

50
25
36
39

50
20
36
40

50
25
38
39

30
20
30
40

33
0
43
42

25
0
40
44

33
0
43
41

30
20
30
40

30 Jun 2017

TUI AG

Supervisory Board
Executive Board
First management level ­below Executive Board
Second management level below Executive Board
TUI Deutschland
Supervisory Board
Executive Board
First management level ­below Executive Board
Second management level below Executive Board
TUI fly
Supervisory Board
Executive Board
First management level ­below Executive Board
Second management level below Executive Board

A further focus is on reconciliation of family and work life. TUI offers its
employees a number of attractive schemes to reconcile the demands ontheir professional and private lives. They include flexible working timemodels such as flexitime, part-time work, sabbaticals but also mobile
working. We also support our employees when they are caring for children
or other family members. All TUI ’s activities in this field are in line withlocal requirements and circumstances.
TUIGE THE R E MPLOYE E SURVE Y

A significant element of the HR strategy process and of our cultural integration is our employee survey ‘ TUIgether’, which was carried out in 16
languages in the period under review. The survey is an important indicator
where we stand, where we are good and where we should improvewith the aim to improve business performance and to make TUI an
even more attractive employer.
From an initial response rate of 66 % in 2015, which had already risen to
77 % in 2016, 78 % of all employees invited to take part submitted their
feedback in the completed financial year. We have thus moved closer toour goal of an 80 % response rate. The survey measures the Engage-

35
30
1 female at least 1 female
19
20
24
30

ment Index of TUI Group, which is 77 in this year’s cycle and therefore
steady compared to the previous year. It is also above the Kantar TNS
Global norm – our external survey provider – which is 71. This is particularly due to a clearly defined follow-up process, which is supported
and backed at all levels right through to management, and to the accompanying design of communication.
This year, seven new questions were added: which, together with 13
existing questions, will enable us to analyse the leadership style of TUIGroup’s managers going forward, and this year to set a baseline measure for our leadership model ‘ VIBE ’, which is currently being rolled out
across the Group.
GLOBAL 60

TUI aims to encourage more international careers and promote employeeswith international experience. To speed up the progress, within one year
60 TUI employees are given the opportunity to make their next career
move in another country and gain some experience there. This target
was exceeded in year one with 64 participants.

84

S TA F F I N D I C AT O R S

CENTRAL REGIONTUI Group’s total headcount was steady year-on-year. The movements

The headcount in Central Region was flat year-on-year at 10,276 as at thebalance sheet date. In Germany and Austria, staffing numbers remained
constant. While Switzerland reported a decline in its headcount, Poland
recorded higher staff numbers.

within the segments partly offset each other.

Personnel by segment

Hotels & Resorts
Cruises*
Northern Region
Central Region
Western Region
Other Tourism
Tourism
All other segments
TUI Group
Discontinued operations
Total

30 Sep 201730 Sep 2016
restated

Var. %

26,313316
14,196
10,276
6,523
7,228
64,852
1,725
66,577–
66,57724,363298
14,891
10,1835,631
6,131
61,497
1,744
63,241
3,538
66,779

+ 8.0
+ 6.0
– 4.7
+ 0.9
+ 15.8+ 17.9
+ 5.5
– 1.1
+ 5.3
n. a.
– 0.3

WESTERN REGION

The year-on-year increase in employee numbers in Western Region of
15.8 % to 6,523 was primarily due to the acquisition of Transat in France
and additional recruitment at the Belgian airline. Moreover, the headcount of the Dutch tour operator declined slightly.
OTHER TOURISM

The Other Tourism segment reported an increase in its headcount of
17.9 % to 7,228, mainly driven by TUI Destination Services and the increase in the headcount of TUI Service AG due to the organisationaltransfer of TUI Nordic staff. In IT, the number of employees was 554, up
27.6 % year-on-year due to the transfer and a general expansion of IT
employees.
ALL OTHER SEGMENTS* E xcludes TUI Cruises (JV ) employees. Cruises employees are primarily hired by externalcrew management agencies.

HOTELS & RESORTS

Due to the continued growth strategy in Hotels & Resorts, the headcountrose by 8.0 % to 26,313 employees. The launch of new hotel resorts andthe inclusion of additional destinations resulted in staff increases. Riu
Group reported an increase in its headcount of 12.2 % to 12,091. The
number of employees working for Robinson grew by 8.4 % to 3,888.
Moreover, the rollout of the TUI Blue brand continued in the period
under review. The number of employees working for Northern Hotels
grew slightly by 4.2 % to 9,597. On the other hand, the other hotels reported a decline in their headcount by 6.8 % to 737, primarily driven bystaff reductions in Turcotel Group in Turkey.
CRUISESThe headcount in the Cruises segment grew by 6.0 % year-on-year to316. The increase was primarily attributable to the new build projects inthe expedition segment and the build-up in staff numbers working forMarella Cruises.

All other segments remained virtually flat year-on-year at 1,725 employees. The headcount in the corporate centre rose by 23.4 % to 290, as
Group functions were combined and new functions were built up. By
contrast, the Head Office functions in UK cut its staffing levels by 18.5 %to 286. In Future Markets, the headcount was constant on the prior yearat 690.

Personnel by region*

Germany
Great Britain
Spain
Other EU
North and South America
Other regions
TUI Group
Discontinued operation
Total

30 Sep 201730 Sep 2016
restated

Var. %

10,274
13,354
9,607
20,911
4,535
7,896
66,577–
66,577

10,132
13,4098,967
19,933
3,768
7,032
63,241
3,538
66,779

+ 1.4
– 0.4
+ 7.1
+ 4.9
+ 20.4+ 12.3
+ 5.3
n. a.
– 0.3

NORTHERN REGION

Northern Region recorded a year-on-year decline in its headcount of
4.7 % to 14,196 as at the balance sheet date. It mainly resulted from theorganisational transfer of TUI Nordic staff to TUI Destination Services.
On the other hand, Retail and the UK airline reported slight increases instaff numbers.

* By domicile of company

As a global player, TUI Group and its employees operate in more than
100 destinations worldwide. The Group’s headcount in Europe accounted
for 81 % at the balance sheet date, with around 20 % of the total employed in the UK . The number of employees working in Germany
amounted to around 15 %, followed by Spain with around 14 %. The
increase in the number of employees working in North and South America, other regions and Spain is primarily due to the new openings andextensions of hotels in Hotels & Resorts. The increase reported for the
rest of Europe is attributable to the acquisition of Transat and theincrease in staffing numbers at the Belgian airline.

C O R P O R AT E G O V E R N A N C E

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85Non-financial Group declaration

Other employee indicators
TUI Group

30 Sep 201730 Sep 2016
restated

30 Sep 201730 Sep 2016
restated

66,577
56.6
34.1
17.3
26.2
30.0

66,779
56.0
29.4
18.8
28.8
33.1

10,274
68.4
33.9
37.9
47.8
14.2

10,132
68.5
32.8
36.4
46.2
15.6

5.1
30.1
26.4
23.7
14.7

5.3
30.1
27.1
23.9
13.6

3.1
20.1
22.9
30.8
23.1

2.9
20.0
24.2
31.5
21.4

54.0
14.9
20.8
8.3
2.0

54.3
15.8
20.2
7.6
2.1

33.6
12.8
30.8
17.9
4.9

33.0
13.3
31.9
17.0
4.8

–
–
–
–
–

–
–
–
–
–

571
79.0
5.6
193
73.1

569
79.3
5.7
183
70.5

in %
Employment structure
Number of employees
Employees, female
Females in managerial positions
Employees in part-time, total
Employees in part-time, female
Employees, fixed-term employment contract
Age structure
Employees up to 20 years
Employees 21 – 30 years
Employees 31 – 40 years
Employees 41 – 50 years
Employees more than 50 years
Company affiliation
up to 5 years
6 – 10 years
11 – 20 years
21 – 30 years
more than 30 years
Vocational training in Germany
Number of trainees
Trainees, female
Training rate
Number of trainees gained certification in financial year
Hiring rate

rates. Moreover, senior management have share options and are thus
able to benefit directly when the Company grows in value.

Personnel costs€ million
Wages and salaries
Social security contributions
Pension costs
Total

Germany

2017

2016

Var. %

1,896.4
298.9
161.7
2,357.0

1,846.7286.3
139.0
2,272.0

+ 2.7
+ 4.4
+ 16.3+ 3.7

The pay package offered by TUI Group is made up of various components,
reflecting the framework conditions in different countries and companies.
Depending on the function concerned, a fixed basic salary may go handin hand with variable components. TUI Group uses these variable factors
to honour individual performance and to enable employees to participate
in the Company’s strategic and long-term success. The pay package also
reflects the appropriateness of compensation and customary market

In the period under review, the TUI Group’s personnel costs increasedby 3.7 % to € 2,357.0 m. The year-on-year increase in expenses for wages
and salaries was mainly attributable to higher staff numbers in operatingareas, pay rises and higher expenses for restructuring measures associated with the acquisition of the French tour operator Transat.
OTHER HR ISSUESPENSION SCHEMES

Many TUI Group companies offer their employees pension schemes in theform of direct insurance contracts and individual or direct commitments
to build up a private pension, or they pay additional contributions topension schemes for their employees. In Germany, for instance, collective
contracts have been concluded. These schemes were devised to takeadvantage of fiscal and social security opportunities for employee-funded
company pension schemes through a direct insurance.

86

PA R T-T I M E E A R LY R E T I R E M E N T

M AT E R I A L R I S K S

To further increase the flexibility of their company HR and succession
planning, Group companies in Germany are able to make use of theopportunities provided under the German Part-Time Early Retirement
Act, enabling people to shift gradually from employment to retirement.
This opportunity is partly supported by current collective bargaining
contracts and company agreements, and is increasingly being taken up.
At the balance sheet date, € 9.4 m was provided through a capital investment model for the 210 employees working under part-time early retirement contracts in order to hedge their accrued assets against employer
insolvency.

Our success depends on our ability to attract and retain suitable skilled
experts and managers. Apart from the launch of a new Employer
Branding campaign, we are now extending our talent and performance
management approach ‘Great Place to Grow’ throughout the Group,
supported by the global IT solution ‘ TUI People’. These activities arerounded off by efforts to build our pipeline of leadership talent throughthe Group-wide International Graduate Leadership Programme and theprofessional development for managers by means of our establishedglobal programmes ‘Global High Performance Leadership’, ‘Horizons’and ‘Perspectives’. In addition, a variety of measures are implemented
at local level to develop employee and managerial skills.

E M P L O Y E E R E P R E S E N TAT I V E S

TUI attaches importance to national and international employee representative bodies. TUI has a large number of co-determination bodies,both at a company and supra-company level. They include local works
councils, company works councils and the Group works council. The
members of these bodies represent the interests of our Group’s employees in Germany. Through their statutory rights of participation andinitiative, they ensure representation of the interests of employees on
all issues and projects of relevance to staff members and compliancewith employee rights, e. g. during the implementation of restructuring
activities.

High-potential talents have to be identified and talent pools must be
built, even across national borders. Semi-annual succession planning
processes are in place for all critical business roles and key functions.
We also promote strong employee engagement and motivation throughemployee dialogue, career development plans and corresponding processes. In the run-up to the launch of ‘Great Place to Grow’ in Germany inthe forthcoming financial year, around 3,500 employees were invited toparticipate in face-to-face training sessions and accompanying e-learning
sessions in the period under review.
S E C U R I T Y, H E A LT H & S A F E T Y

The Group works council is the top-level body for representing the inter­
ests of employees in German companies in accordance with legislation
on industrial relations. In financial year 2017, it had 27 members from22 companies.
A major success for the Group was the judgment handed down by theEuropean Court of Justice on 18 July 2017 in the matter Erzberger ./.
TUI AG (CJEU case no. C-566 / 15). The reference for a preliminary ruling
had been made by the Berlin appellate court. The ECJ had been asked, atthe request of a TUI AG shareholder, to determine whether the German
Industrial Co-Determination Act was in conformity with EU law as thislaw only grants German Group employees the right to vote and stand asa candidate in elections of workers’ representatives to the Supervisory
Board, while employees working for the Group’s companies abroad are
deprived of these rights. After proceedings lasting almost two years,
the ECJ has endorsed TUI ’s legal interpretation. According to this ruling,
the German Industrial Co-Determination Act does not violate the principleof non-discrimination, nor does it constitute an inadmissible impediment
to their freedom of movement.
At a European level, TUI ’s Europe Forum ensures a proper process of
information and consultation on cross-border issues affecting the interests of employees in at least two member states of the European Economic Area. These above-mentioned bodies primarily serve the interestsof employees, but at least indirectly also serve the interests of theGroup and its companies, as co-determination contributes to the stability
and sustainability of entrepreneurial decisions and processes. In financial
year 2017, 43 employee representatives from 16 countries were delegatedto the Forum.

The Group Security, Health & Safety (Group SHS) was established in
mid-2016. The Group now has an SHS team in place that integrates andfurther develops all previous corporate mechanisms in the areas of
Security, Occupational Health & Safety. The focus is on a holistic, Groupwide safety concept for customers and employees. The team members
are experts in crisis and risk management with comprehensive experience
gained from working in security agencies or companies. This interdiscip­
linary diversity provides the basis for professional safety management
in line with needs and requirements. The development of this new
department continues.
The period under review saw the development and implementation ofstandardised, Group-wide frameworks such as guidelines, standard
processes and sample documents. They ensure fast and pertinent responses to safety-critical events and pro-active protection from risks.
Examples include guidelines for safety measures in Hotels & Resorts,
for business travel and for event and crisis management.
These frameworks are based on a holistic risk analysis, taking account of
natural phenomena, nature-related, social and political developments inthe destinations, health-related information as well as safety-relevant
information from government bodies, as a basis for providing advice,e. g. in the form of safety training sessions or advisory discussions,
measures or planning documents. Dialogue with scientific research institutions has been established, especially on nature-related situations,e. g. impacts of climate change.

C O R P O R AT E G O V E R N A N C E

COMBINED MANAGE ME NT REPORTC O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

87Non-financial Group declaration

The frameworks are applicable to TUI AG and to all companies majority-­
owned, directly or indirectly, by TUI AG , whether domestic or foreign
and to other shareholdings in each case insofar as management control
directly or indirectly lies with TUI AG . Shareholdings in which management control does not lie with TUI AG , including joint ventures, are recommended to implement the frameworks. As far as the Group Manualand supporting documents are referenced by contract, Group Manuals
can also apply to TUI contractors.
On this basis, the corporate bodies dealing with security and safety issues(e. g. in Destination Services) cooperate within a network coordinated byGroup SHS. This ensures coverage of the entire Group and a coordinatedapproach in safety-related issues tailored to the needs of the relevant
area.
Implementation of this safety level is ensured by regular advice andevaluation trips to the destinations in our Hotels & Resorts. In the period
under review, Group SHS carried out eight evaluation trips to destinations.
Apart from the safety audits firmly embedded in the quality assurance
system, we also launched security audits for Hotels & Resorts. Morethan 60 of these audits have meanwhile been implemented.
Apart from safety-related advice, training and awareness-building forour own staff plays a particularly important role. We offered relevant

training modules in Destination Services, in particular, and around
11,700 employees were trained in this manner.
The Group-wide processes for dealing with extreme situations during
event and crisis management were successfully applied, for instance, inconnection with the hurricanes in September and security-relevant
incidents such as the one in Barcelona at the end of August 2017. Apartfrom analysing the local situation, our event management mechanisms include compiling data on the number of guests and employees affected andtheir need for support as well as coordinating with local government
bodies, European bodies and other partners. 24 / 7 control centres form
the basis for fast and pertinent responses to critical events.
TUI Group’s protection concept integrates security, health & safety andcovers the entire process under our control, including journeys by ourcustomers.

Anti-corruption and anti-bribery / Compliance
Details of TUI Group’s anti-corruption and anti-bribery measures arepresented in the Corporate Governance section on Compliance frompage 112 in the present Annual Report.

88

A N N U A L F I N A N C I A L S TAT E M E N T S
OF TUI AG
Condensed version according to German Commercial Code (HGB )Earnings position of TUI AG

T U R N O V E R A N D O T H E R O P E R AT I N G I N C O M E

The annual financial statements of TUI AG were prepared in accordancewith the provisions of the German Commercial Code (HGB), taking
account of the complementary provisions of the German Stock Corpor­
ation Act (AktG), and audited by Deloitte GmbH Wirtschaftsprüfungsgesellschaft, Hanover. They are published in the electronic federal gazette.
The annual financial statements have been made permanently available
on the Internet at www.tuigroup.com and can be requested in print
from TUI AG .
In the present Annual Report, the Management Report of TUI AG has
been combined with the Management Report of TUI Group.

In the financial year under review, turnover resulted from the reclassification of income in the framework of the first-time application of the
Accounting Directive Implementation Act (BilRUG). Apart from effects
resulting from the first-time application of BilRUG , the decline in Other
operating income was mainly driven by a year-on-year decrease in gains
on exchange. This income was offset by expenses for exchange losses of asimilar amount, carried in Other operating expenses. Apart from the gains
on exchange, Other operating income primarily included income fromthe elimination of intercompany services, carried alongside expenses ofalmost the same amount passed on to TUI AG from other Group companies, also shown in Other operating expenses.
EXPENSES

Income statement of TUI AG€ million

2017

2016

Var. %

Turnover
Other operating income
Cost of materials
Personnel costs
Depreciation
Other operating expenses
Net income from investments
Write-downs of investments
Net interest
Taxes on income and profit
Profit after taxes
Other taxes
Net profit for the year

45.4
392.6
7.6
49.9
1.0
500.4
933.3
58.1
8.7
15.7
747.3
5.6
741.7

–
637.0
–
50.3
0.5
762.9
353.4
3.7
– 24.6
6.7
141.7
1.8
139.9

n. a.
– 38.4n. a.
– 0.8+ 100.0– 34.4+ 164.1
n. a.
n. a.
+ 134.3+ 427.4+ 211.1+ 430.2

The earnings position of TUI AG , the Group’s parent company, is primarily
determined by the appropriation of profits by its Group companies, either
directly associated with TUI AG via profit and loss transfer agreements
or distributing their profits to TUI AG based on relevant resolutions.

In the wake of the first-time application of BilRUG to financial year 2017,
the expenses carried alongside the turnover were carried under expenses
for purchased services.
Personnel costs declined slightly in financial year 2017. The decrease inpersonnel costs in this financial year was nearly offset by an increase in
expenses from transfers to pension provisions.
Other operating expenses mainly comprised the cost of financial andmonetary transactions, charges, fees, services, transfers to impairments,
other administrative costs as well as expenses for exchange losses and theintercompany elimination of services. Other operating expenses declined
in particular due to the decrease in expenses for exchange losses.
NE T INCOME FROM INVESTMENTS

In the financial year under review, TUI AG’s net income from investments
was driven by the distribution of profits by TUI Travel Ltd and TUI Cruises
GmbH and the profit transfer from TUI -Hapag Beteiligungs GmbH. Net
income from investments also included income from profit transfersfrom hotel companies and companies allocable to central operations. It
also comprised expenses for loss transfers from Group companies,
resulting in a corresponding reduction in net income from investments.
Loss transfers declined significantly year-on-year.

C O R P O R AT E G O V E R N A N C E

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

89

Annual financial statements of TUI AGCOMBINED MANAGE ME NT REPORTWRITE-DOWNS OF INVESTMENTS

FIXED ASSETSIn the period under review, write-downs of investments mainly related
to write-downs of a subsidiary allocated to central operations as well as
an investment in a Turkish hotel.

At the balance sheet date, fixed assets almost exclusively consisted ofinvestments. The increase in investments was mainly attributable to theacquisition of Canada Holdings Inc. and a Greek hotel company as wellas the issue of non-current loans to subsidiaries. An opposite effectwas driven by the repayment of the capital reserves of TUI Hapag-­
Beteiligungs GmbH.

I N T E R E S T R E S U LT

The interest result improved as a result of lower interest expenses driven
by the refinancing of bonds and lower use of the syndicated credit facility.
Interest income also rose due to an increase in non-current loans toGroup companies by TUI AG .
TA X E S

In the period under review, taxes related to income taxes and othertaxes. They did not include any deferred taxes.

CURRENT ASSETS

The increase in current assets of 13.6 % to € 2,683.4 m was mainly driven
by the increase in cash and cash equivalents, caused by dividend payments by subsidiaries and above all the sale of the stake in Hapag-Lloyd
Aktiengesellschaft.
Moreover, liquid funds were invested in short-term money market funds.

NET PROFIT FOR THE YEAR

For financial year 2017, TUI AG posted a net profit for the year of€ 741.7 m.

TUI AG’s equity increased by € 380.6 m to € 5,192.7 m. The subscribed
capital of TUI AG consists of no-par value shares, each representing an

Net assets of TUI AGTUI AG’s net assets and financial position as well as its balance sheet
structure reflect its function as the TUI Group’s parent company. Thebalance sheet total rose by 6.7 % to € 9.8 bn in financial year 2017.

Abbreviated balance sheet of TUI AG(financial statement according to German Commercial Code)€ million
Intangible assets / property,
plant and equipment
Investments
Fixed assets
Receivables / Trade securities
Cash and cash equivalents
Current assets
Prepaid expenses
AssetsEquitySpecial non-taxed items
Provisions
Bonds
Other liabilities
Liabilities
Liabilities

T U I A G ’ S C A P I TA L S T R U C T U R E
EQUITY

30 Sep 201730 Sep 2016

Var. %

19.4
7,078.9
7,098.3
1,644.4
1,039.0
2,683.4
0.7
9,782.4
5,192.7
0.1
462.5
300.0
3,827.1
4,127.1
9,782.4

17.5
6,784.8
6,802.3
1,724.4
637.0
2,361.4
0.8
9,164.5
4,812.1
0.1
480.8
306.7
3,564.8
3,871.5
9,164.5+ 10.9
+ 4.3
+ 4.4
– 4.6
+ 63.1+ 13.6– 12.5
+ 6.7
+ 7.9
–
– 3.8
– 2.2
+ 7.4
+ 6.6
+ 6.7

equal portion in the capital stock. The proportionate share in the capitalstock per share is around € 2.56. At the end of financial year 2017, thesubscribed capital of TUI AG rose due to the issue of employee shares. At
the end of the financial year under review, subscribed capital comprised
587,386,900 shares.
In financial year 2017, capital reserves rose by € 6.1 m due to the issue of
employee shares and share-based payments. Revenue reserves exclusively consisted of other revenue reserves. The Articles of Association
do not contain any provisions concerning the formation of reserves.
The profit for the year amounted to € 741.7 m. Taking account of the
profit carried forward of € 454.1 m, net profit available for distribution
totalled € 1,195.8 m. A proposal will be submitted to the Annual General
Meeting to use the net profit available for distribution for the financial
year under review to distribute a dividend of € 0.65 per no-par value
share and to carry the amount of € 814.0 m, remaining after deductionof the dividend total of € 381.8 m, forward on new account. The equity
ratio rose to 53.1 % (previous year 52.5 %) in financial year 2017.
PROVISIONS

Provisions decreased by € 18.3 m to € 462.5 m. They consisted of pension
provisions worth € 136.0 m (previous year € 134.8 m), tax provisions worth€ 196.1 m (previous year € 176.1 m) and other provisions worth € 130.4 m(previous year € 169.9 m).
While pension provisions remained largely flat year-on-year, tax provisions
increased versus the prior year. An opposite effect arose from the decline
in provisions for invoices outstanding, personnel costs and other risks.

90

LIABILITIESTUI ’s net financial position (cash and cash equivalents as well as market-

TUI AG’s liabilities totalled € 4,127.1 m, up by € 255.6 m or 6.6 %.

able securities less bonds) improved year-on-year, amounting to a clearly
positive position of € 1,138.8 m in the period under review.

In October 2016, TUI AG issued an unsecured bond worth € 300.0 m
maturing in October 2021. TUI AG used the proceeds from the issue of
this bond to cancel and repay a bond issued in September 2014 aheadof its maturity date.
The increase in liabilities was mainly driven by the transactions of the
TUI AG subsidiaries included in its cash pool.

C A P I TA L A U T H O R I S AT I O N R E S O L U T I O N S

Information on new or existing resolutions concerning capital authorisation, adopted by Annual General Meetings, is provided in the chapter on
Information Required under Takeover Law.

C O R P O R AT E G O V E R N A N C E

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91

Annual financial statements of TUI AG, TUI share

TUI SHARETUI share delivers significant outperformancepost-merger
Since the announcement of the merger with TUI Travel in June 2014,
the TUI share price has increased substantially. The share’s Total Shareholder Return ( TSR) has risen by a total of 36 % within that period,
clearly outperforming the FTSE 100 and DAX 30 indices. In a challenging
market environment characterised by macroeconomic and geopoliticalturbulence, TUI Group fully delivered the announced merger synergiesof € 100 m by the end of the completed financial year and successfullycompleted the disposal of all non-core businesses. Moreover, almost€ 1,175 m (incl. dividend proposal for the current financial year) worth of
dividends were distributed to TUI shareholders. Three and a half years
after the merger, the medium-term share price performance reflects TUI ’s
stronger post-merger integration and enhanced strategic positioning.

Following the dividend payment, TUI ’s share price showed higher overall
volatility until the end of June 2017, although on average it remainedlargely flat. During that time, the publication of operating results or
geopolitical events only triggered short-term price reactions.
The TUI share subsequently gained momentum again, benefiting inparticular from good quarterly results, a pleasing trading performanceand the successful disposal of the remaining stake in Hapag-Lloyd AG .
The share delivered a good performance throughout the period underreview. While TUI ’s Total Shareholder Return grew by around 19 %,FTSE 100 and DAX 30 grew by 11 % and 22 %, respectively. This demonstrates once again that we are very well positioned thanks to our differentiated portfolio, our growth strategy focused on hotels and cruises
and our integrated business model.

TUI share data

TUI share price continues to rise infinancial year 2017
The TUI share continued to deliver an overall pleasing performance infinancial year 2017. After starting off well, however, the TUI share wastemporarily unable to escape the challenging market environment. At
the end of October, it declined to its low for the financial year, reflecting,inter alia, the expectations regarding future monetary policies on bothsides of the Atlantic and lowered earnings guidances by other companies
in the travel sector. During that period, our share price performance
was also affected by the unexpectedly high number of TUI fly crew
members calling in sick, resulting in flight cancellations. Due to the very
good trading performance and quarterly results and the successful
disposal of Travelopia, however, the share price picked up again in thecourse of the year and delivered substantial growth by mid-February.

30 September 2017
TUAG 00
DE 000TUAG 000

WKN
ISIN

Stock exchange centres
Reuters / Bloomberg
Stock category
Capital stock
Number of shares
Market capitalisation
Market capitalisation

London, Xetra, Hannover
TUIG n.DE / TUI 1.GR (Frankfurt);
TUIT .L / TUI :LN (London)

€
bn €
bn £

Registered ordinary shares
1,501,630,765
587,386,900
8.4
7.4

92

TUI share price ( FINANCIAL YE AR 2017 )
in %
130

120

110

100

90

80
30 SEPTEMBER 2016

TUI (TSR)

DAX 3029 SEPTEMBER 2017

FTSE 100TUI Share price since the merger announcement of TUI AG with TUI Travel PLC
In %
160

140

120

100

80

60
24 JUNE 2014

TUI (TSR)

DAX 302015

FTSE 100

2016

29 SEPTEMBER 2017

C O R P O R AT E G O V E R N A N C E

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93

TUI share

Long-term development of the TUI share (Xetra)
€

2013

2014

2015

2016

2017

High
Low
Year-end share price

10.86
3.68
3.88

6.97
3.14
6.70

17.71
9.84
16.35

17.21
10.17
12.69

14.90
11.46
14.38

Quotations, indices and trading

Analyst recommendations

The TUI share has its primary listing in the Premium segment of theMain Market of the London Stock Exchange and is included in FTSE ’s UK
Index Series including FTSE 100, the UK ’s major share index. It also has
a secondary listing in the electronic trading system Xetra and at the
Hanover Stock Exchange.
TUI is also listed in the sustainability indices FTSE4Good, STOXX Global
ESG Leaders Index and Ethibel Investment Register. TUI has been recognised as a Leader by Carbon Disclosure Project (CDP) Climate Change

for implementing current best practices on climate change issues.
In financial year 2017 the average daily trading volume at the London
Stock Exchange was around 1.2 million shares, while around 0.6 million
shares were traded on Xetra. Across all trading platforms, the trading
volume in the UK amounted to around 2.8 million shares, with around
2.0 million shares traded in Germany. Both the sterling and the euro line
therefore recorded strong liquidity in trading by institutional and private
investors.

Analysts’ Recommendations ( 30 SEPTEMBER 2017 )

4
Sell

73
Buy

%

23
Hold

Analysis and recommendations by financial analysts are a key decision-­making factor for institutional and private investors. In the financial
year under review, more than 20 analysts regularly published studies on
TUI Group. In September 2017, 73 % of analysts issued a recommendationto ‘buy’ the TUI share, with 23 % recommending ‘hold’. One analyst­recommended ‘sell’.

94

Shareholder structure
Shareholder structure ( 30 SEPTEMBER 2017 )3
Riu Hotels S. A.

Geographical shareholder structure ( 30 SEPTEMBER 2017 )7

15

Private investors

North America

23

67

%

Alexey Mordashov

58

Institutional
investors

	The current shareholder structure and the voting right notifications pursuant
to section 26 of the German Securities Trading Act are available online at:www.tuigroup.com/en-en/investors/news

%

27
Other

EU

At the end of financial year 2017, around 77 % of TUI shares were in free
float. Around 7 % of all TUI shares were held by private shareholders,around 67 % by institutional investors and financial institutes andaround 26 % by strategic investors. Analysis of the shareholders showsthat over half of shares were held by investors from EU countries.

Dividend policy
Development of dividends and earnings of the TUI share
€

2013

2014

2015

2016

2017

Earnings per share
Dividend– 0.140.15+ 0.260.33+ 0.640.56+ 1.780.63+ 1.100.65

In the framework of the merger with TUI Travel, TUI Group defined a
dividend policy under which the dividend increases in line with thegrowth in underlying EBITA a constant currency. A proposal will therefore

be submitted to the Annual General Meeting to distribute a dividend of€ 0.65 per no-par value share to the shareholders for financial year 2017.

C O R P O R AT E G O V E R N A N C E

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95

TUI share

Investor Relations
Open and continuous dialogue and transparent communication form
the basis for our Investor Relations work with our private shareholders,institutional investors, equity and credit analysts and lenders. In thecompleted financial year, many discussions were held, centring on thegrowth strategy for the integrated tourism group and the developmentof business in the various segments, enabling stakeholders to make arealistic assessment of TUI Group’s future development. In this context,
TUI ’s management team sought dialogue with investors at roadshows
and conferences in London, Edinburgh, Frankfurt, Berlin, Munich,­Zurich, Lugano, Vienna, Milan, Madrid, Amsterdam, Brussels, Paris,
Oslo, Copenhagen, New York, Boston and Toronto. Questions fromanalysts and investors were also answered at the conference calls held
upon publication of interim reports and in the framework of analysts’
meetings.

TUI ’s Investor Relations team also makes every effort to engage in directcontact with private investors. TUI Group’s IR team sought dialogue

with this target group on many occasions, such as events organised byshareholder associations. Another key platform for exchanges with private
shareholders was the IR stall at TUI ’s Annual General Meeting. TUI alsouses its website to address its private investors with a broad range of
information. All IR conference calls and the Full year Review were likewise transmitted live and in full on the website.
	More details about Investor Relations online at: www.tuigroup.com/en-en/
investors

96

I N F O R M AT I O N R E Q U I R E D U N D E R
TA K E O V E R L A W
pursuant to sections 289 (4) and 315 (4) of the German Commercial Code(HGB ) and explanatory report
Composition of subscribed capital
The subscribed capital of TUI AG consists of no-par value shares, each
representing an equal share of the capital stock. As a proportion of thecapital stock, the value of each share is around € 2.56.
The subscribed capital of TUI AG , registered in the commercial registersof the district courts of Berlin-Charlottenburg and Hanover, consistedof 587,386,900 shares at the end of financial year 2017 (previous year
587,038,187 shares) and totalled € 1,501,630,765.46. Each share confers
one vote at the Annual General Meeting.

Shareholder structure ( 30 SEPTEMBER 2017 )3

7

Riu Hotels S. A.

Private investors

23

67

%

AlexeyMordashovInstitutional
investors

RE STRIC TIONS ON VOTING RIGHTS AND SHARE TR ANSFERS

The Executive Board of TUI AG is not aware of any restrictions on voting
rights or the transfer of shares.
EQUIT Y INTE RE ST S E XCE E DING 10 % OF THE VOTING RIGHT S

The Executive Board of TUI AG has been notified of the following direct
or indirect equity interests reaching or exceeding 10 % of the voting
rights:Alexey Mordashov, Russia, notified us on 15 December 2016 pursuant
to section 21 (1) of the German Securities Trading Act that the voting
shares in TUI AG , Hanover, Germany, attributable to him exceeded the
20 % threshold on 12 December 2016. As per that date, voting shares
totalling 20.01 % (or 117,484,579 voting rights) were attributable toAlexey Mordashov pursuant to section 22 (1) sentence 1 no. 1 of theGerman Securities Trading Act. On the basis of the notifications pursuant
to section 19 of the MAR , the voting shares in TUI AG attributable to him
amounted to 23.0 % as at 30 September 2017.

At the end of financial year 2017, around 77 % of TUI shares were in free
float. Around 7 % of all TUI shares were held by private shareholders,around 67 % by institutional investors and financial institutions, andaround 26 % by strategic investors. According to a shareholder analysis,over half of shares are held by investors in the European Union.

Shares with special rights conferring powers ofcontrol
No shares with special rights conferring powers of control have been
issued.

System of voting right control of any employee
share scheme where the control rights are notexercised directly by the employees
Where TUI AG grants shares to employees under its employee share
programme, the shares are directly transferred to the employees with alock-up period. Beneficiaries are free to directly exercise the control
rights to which employee shares entitle them, in just the same way asother shareholders, in line with legal requirements and the provisions of
the Articles of Association.

C O R P O R AT E G O V E R N A N C E

COMBINED MANAGE ME NT REPORTC O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

97Information required under takeover law

Appointment and removal of Executive Board
members and amendments to the Articles of
Association

Significant agreements taking effect in the eventof a change of control of the Company following a
takeover bid, and the resulting effects

The appointment and removal of Executive Board members is based on
sections 84 et seq. of the German Stock Corporation Act in combination
with section 31 of the German Codetermination Act. Amendments to
the Articles of Association are based on the provisions of sections
179 et seq. of the German Stock Corporation Act in combination withsection 24 of the Articles of Association of TUI AG .

Some of TUI AG’s outstanding financing instruments contain change ofcontrol clauses. A change of control occurs in particular if a third partly
directly or indirectly acquires control over at least 50 % or the majorityof the voting shares in TUI AG .

Powers of the Executive Board to issue or buy
back shares
The Annual General Meeting of 14 February 2017 authorised TUI AG’s
Executive Board to acquire own shares of up to 5 % of the capital stock.
The authorisation will expire on 13 August 2018. To date, the option toacquire own shares has not been used.
The Annual General Meeting of 9 February 2016 adopted a resolution
to create conditional capital of € 150.0 m for the issue of bonds. The
authorisation to issue bonds with conversion options or warrants as wellas profit-sharing rights and income bonds (with or without fixed terms)of up to a nominal amount of € 2.0 bn will expire on 8 February 2021.
The Annual General Meeting of 13 February 2013 adopted a resolution
to create authorised capital for the issue of employee shares worth€ 10.0 m. The Executive Board of TUI AG is authorised to use this approved
capital by 12 February 2018 in one or several transactions by issuing
employee shares against cash contribution. In the completed financial
year, 348,713 new employee shares were issued, so that the authorised
capital totalled around € 7.4 m at the balance sheet date.
The Annual General Meeting of 28 October 2014 adopted a resolution
to create authorised capital for the issue of new shares against cash
contribution worth € 18.0 m in order to be able to fulfil claims for shares
in TUI Travel granted by TUI Travel to its employees in the form of newshares in TUI AG . This authorisation is no longer required and will therefore be revoked ahead of its expiry date.
The Annual General Meeting of 9 February 2016 adopted a resolution
to create authorised capital for the issue of new registered sharesagainst cash contribution worth a maximum of € 150.0 m. The authorisation will expire on 8 February 2021.
The Annual General Meeting on 9 February 2016 also adopted a resolution
to create authorised capital for the issue of new shares of € 570.0 m
against cash contributions or contributions in kind. The issue of newshares against contributions in kind has been limited to € 300.0 m. The
authorisation will expire on 8 February 2021.

In the event of a change of control, the holders of the fixed-interest bondworth € 300.0 m issued in October 2016 must be offered a buyback. For
the syndicated credit line worth € 1.75 bn, of which € 115.9 m had beenused via bank guarantees as at the balance sheet date, a right of termination by the lenders has been agreed in the event of a change of control.
This also applies to several bilateral guarantee lines with a total volumeof £ 92.5 m, concluded with various insurance companies. At the balance
sheet date, an amount of 32.9 m pounds had been used. Beyond this,
there are no agreements in guarantee, leasing, option or other financial
contracts that might cause material early redemption obligations thatwould be of significant relevance for the Group’s liquidity.
Apart from the financing instruments mentioned above, a frameworkagreement between the Riu family and TUI AG includes a change ofcontrol clause. A change of control occurs if a shareholder group represents a predefined majority of AGM attendees or if one third of theshareholder representatives on the Supervisory Board are attributable
to a shareholder group. In the event of a change of control, the Riu
family is entitled to acquire at least 20 % and at most all shares held by
TUI in RIUSA II S.A.
A similar agreement concerning a change of control at TUI AG has beenconcluded with the El Chiaty Group. Here, too, a change of control occurs
if a shareholder group represents a predefined majority of AGM attendees
or if one third of the shareholder representatives on the Supervisory
Board are attributable to a shareholder group. In that case, the El Chiaty
Group is entitled to acquire at least 15 % and at most all shares held by
TUI in the joint hotel companies in Egypt and the United Arab Emirates.
A change of control agreement has also been concluded for the joint
venture TUI Cruises between Royal Caribbean Cruises Ltd and TUI AG
for the event that a change of control occurs in TUI AG . The agreement
gives the partner the right to demand termination of the joint venture
and to purchase the stake held by TUI AG at a price which is lower than
the selling price of their own stake.
Compensation agreements have not been concluded between the
Company and Executive Board members or employees in the event of atakeover bid.

Robinson Club Noonu in the Maldives is a new
addition to the TUI hotel portfolio. As we­e xpand our hotel business in the Indian Ocean
and South-East Asia, we are catering forboth European and Asian target groups. In
China especially, the travel-loving middle­classes are growing fast.
 EAD MORE ABOUT THE CHINESE GROWTH MARKETR
I N T H E M A G A Z I N E U N D E R ‘ N E W D E PA R T U R E S ’

C O R P O R AT E G O V E R N A N C E

Corporate Governance
100 Executive Board and S­ upervisory Board
103 Corporate Governance R­ eport103	Statement on Corporate Governance(as part of the Management Report)
116 Remuneration Report129	The new remuneration scheme for the­E xecutive Board as from financial year 2018

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

100

E XECUTIVE BOARD AND­S U P E R V I S O R Y B O A R D
Supervisory Board
Name

Function / Occupation

Location

Prof. Dr Klaus Mangold

Chairman of the Supervisory Board of TUI AG
Chairman of the Supervisory Board of Rothschild GmbH

StuttgartFrank Jakobi1

Deputy Chairman of the Supervisory Board of TUI AG
Travel Agent
Deputy Chairman fo the Supervisory Board of TUI AG

Hamburg

Hanover
Hamburg

Prof. Dr Edgar Ernst

Aircraft Captain
Regional Head of the Special Services Divisionof ver.di – Vereinte Dienstleistungsgewerkschaft
President of Deutsche Prüfstelle für Rechnungslegung (DPR )Wolfgang Flintermann1

Director Group Financial Accounting & Reporting, TUI AG

Großburgwedel

Angelika Gifford
Valerie Frances Gooding
Dr Dierk Hirschel1
Janis Kong

Vice President and General Manager DACH Microfocus GmbH
Member of supervisory bodies in different companies
Business unit manager of the trade-unition ver.di – Vereinte Dienstleistungsgewerkschaft
Member of supervisory bodies in different companies

Kranzberg
Weybridge
BerlinLondonPeter Long

Chairman Royal Mail Group PLC

LondonColine McConvilleMember of supervisory bodies in different companies

LondonAlexey Mordashov

Chairman Board of Directors of PAO Severstal

Moscow

Michael Pönipp1

Hotel Manager

Hanover

Carmen Riu Güell

Managing Director RIUSA II S.A.

Palma de Mallorca

Carola Schwirn1

Department Coordinator in the Transportation Division ofver.di – Vereinte Dienstleistungsgewerkschaft
Travel Agent
Travel AgentInternational Employee Relations Coordinator at TUI AG

BerlinSir Michael Hodgkinson

Andreas Barczewski1
Peter Bremme1

Anette Strempel1
Ortwin Strubelt1
Stefan Weinhofer1
1 Representative of the employees

2	Information refers to 30 September 2017 or date of resignation from the Supervisory

Board of TUI AG in financial year 2017.
3 Chairman
4 Deputy Chairman

LondonBonn

Hemmingen
Hamburg
Viennaa)		Membership in supervisory boards within the meaning of section 125 of the German
Stock Corporation Act (AktG)b)	
M embership in comparable German and non-German bodies of companies within themeaning of section 125 of the German Stock Corporation Act (AktG)C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

C O R P O R AT E G O V E R N A N C E

101

Executive Board and ­S upervisory Board

Initial Appointment

Appointed until AGM Other Board Memberships2

7 Jan 2010

2021

15 Aug 2007

2021

11 Dec 2014

2021

10 May 2006
2 Jul 2014a)Continental AG

Number of TUI AG shares(direct and indirect)2b) Alstom S.A.
Baiterek Holding JSC
Ernst & Young Global Ltd.
Rothschild GmbH 3

0

590
7,980

2021
2021

b) Keolis (UK ) Limited 3
Keolis Amey Docklands Ltd.
World Airport Partners GmbHa) TUI fly GmbH4a) TÜV Nord AG

9 Feb 2011

2021

a)

0

13 Jun 2016

2021

a)

26 Mar 201211 Dec 201416 Jan 201511 Dec 2014

2021
2020
2021
2020

a)
b)
a)
b)

9 Feb 2016

2021

b)

11 Dec 2014

2020

b)

9 Feb 2016

2021

b)

17 Apr 2013

2021

a)

14 Feb 2005

2021

b)

1 Aug 2014

2021

0

2 Jan 2009
3 Apr 2009
9 Feb 2016

2021
2021
2021

1,468
4,131
0

Deutsche Postbank AG
Metro AGVONOVIA SE 3 (interim)
Deutscher ReisepreisSicherungsverein VV aG
ProSiebenSat1 Media SE
Vodafone Group PLC
DZ -Bank AG
Bristol Airport Ltd.
Copenhagen Airport
Portmeirion Group PLC
Royal Mail Group PLC 3
Countrywide PLC
Fevertree Drinks PLC
Inchape PLC
AO “Severstal Management”3
OAO “Power Machines”3
TUI Deutschland GmbHMER -Pensionskasse VV aG.
Hotel San Francisco S.A.
Productores Hoteleros Reunidos S.A.

0
0

188
b) Rothschild & Co

South West Airports Ltd.
Roadis Transportation Holding S.L.U.

4,100
994
0
5,985

Parques Reunidos Servicios Centrales S.A.

10,317

Travis Perkins PLC

0

Nordgold S.E.

135,018,584
292

Riu Hotels S.A.
RIUSA II S.A.

b) TUI Austria Holding GmbH

19,854,616

102

Executive Board

Name

Department

Other Board Memberships1

Friedrich Joussen(Age 54)
Member of the Executive Board since
October 2012CEO of the Executive Board fromFebruary 2013
Joint-CEO since December 2014
CEO since February 2016
Current appointment until October 2020
Horst Baier(Age 60)
Member of the Executive Board sinceNovember 2007
Current appointment until November 2018
David Burling(Age 49)
Member of the Executive Board sinceJune 2015
Current appointment until May 2021

CEO

a)

Sixt SE 2

278,081

Financeb) RIUSA II S.A.2
TUI Canada Holdings Inc.
Sunwing Travel Group Inc.

40,717

Northern Region
Airlines
Hotel Purchasing

Thomson Travel Group (Holdings) Ltd
TUI Travel Overseas Holdings Ltd.
TUI Canada Holdings Inc.
TUI Northern Europe Ltd.
TUI Travel Group Management
Services Ltd.
TUI UK Transport Ltd.

16,300b) RIUSA II S.A.
TUI Spain S.A.
TUI Suisse Ltd.2

250b) TUI Nederland N.V.
TUI Belgium N.V.

12,545b) TUI Travel Holdings Ltd.
TUI Travel Ltd.
First Choice Holidays Ltd.
First Choice Holidays & Flights Ltd.
Sunwing Travel Group Inc.
First Choice Olympic Ltd.
TUI Sverige AB
TUI Travel Holdings
Sweden AB
TUI Nordic Holding AB
Sebastian Ebel
Central Regiona) TUI Deutschland GmbH 2(Age 54)
HotelsTUI Cruises GmbH
Member of the Executive Board since
Cruises
TUI fly GmbH 2
December 2014
TUI Destination Services
BRW Beteiligungs AG
Current appointment until November 2020
Eintracht Braunschweig
GmbH & Co KG 2
Eves Information Technology AG 2
Dr Elke EllerHR ,a) Nord LB(Age 55)
Labour Director
TUI Deutschland GmbH
Member of the Executive Board since
TUI fly GmbH
October 2015
Current appointment until October 2021
Frank Rosenberger
IT and New Marketsa) TUI Deutschland GmbH
(Age 49)
peakwork AG
Member of the Executive Board since
January 2017
Current appointment until December 20191	Information refers to 30 September 2017 or date of resignation from the Excecutive

Board in financial year 2017.
2 Chairman

Number of TUI AG
shares (direct andindirect)1a)		Membership in Supervisory Boards required by law within the meaning of section 125 of
the German Stock Corporation Act (AktG)b)		Membership in comparable Boards of domestic and foreign companies within themeaning of section 125 of the German Stock Corporation Act (AktG)C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

C O R P O R AT E G O V E R N A N C E

Executive Board and ­S upervisory Board, Corporate Governance R­ eport103

C O R P O R AT E G O V E R N A N C E­R E P O R T
Statement on Corporate Governance (as part of the Management Report)
The actions of TUI AG´s management and oversight bodies are determined by the principles of good and responsible corporate governance.

2. D eclaration of Compliance pursuant to
DTR 7.2 and LR 9.8.7R

The Executive Board and the Supervisory Board comprehensively discussed Corporate Governance issues in financial year 2017. In this chapter,the Executive Board and the Supervisory Board provide their report on
Corporate Governance in the Company pursuant to sub-section 3.10 of
the German Corporate Governance Code and section 289a of the German
Commercial Code (HGB) as well as Disclosure and Transparency Rule
(DTR) 7.2 and Listing Rule (LR) 9.8.7R.

At the time of the merger TUI AG had announced it would comply with
the UK Corporate Governance Code (the UK Code)1. D eclaration of Compliance pursuant to section
161 of the German Stock Corporation Act (AktG)
As a stock corporation company under German law, TUI AG’s Executive
Board and Supervisory Board are obliged to submit a declaration ofcompliance with the German Corporate Governance Code pursuant tosection 161 of the German Stock Corporation Act.
	w ww.dcgk.de/en/code.html

In December 2017, the Executive Board and the Supervisory Board
jointly submitted the declaration of compliance for 2017 pursuant tosection 161 of the German Stock Corporation Act. The declaration wasmade permanently accessible to the general public on TUI AG’s website
in December 2017.

	https://www.frc.org.uk/getattachment/ca7e94c4-b9a9-49e2-a824ad76a322873c/UK -Corporate-Governance-Code-April-2016.pdf

to the extent practicable. In many respects, the requirements of theGerman Code and the UK Code are similar. However, there are certain
aspects which are not compatible (in some cases due to the different
legal regimes for German and UK companies). Therefore some deviations
from best practice in the UK have been necessary.
Under the German Stock Corporation Act, the legislation applicable
to TUI AG , a two-tier board system is mandatory (see below section‘Functioning of the Executive and Supervisory Board’ on page 108). The
two-tier board structure is different to the UK unitary board structureon which the UK Code is based. Some of the principles of composition andoperation of the boards of a German stock corporation also differ fromthose of a UK company (for example, there is no Company Secretary).
For this reason, the Executive Board and the Supervisory Board have set
out below in which areas the UK Code is not complied with and explained
the reasons for the deviations. In addition, the Executive Board and theSupervisory Board have also explained those instances where they consider TUI AG not to be compliant with the UK Code in the literal sense butwhere it lives up to the spirit and meaning of the respective regulation.

	w ww.tuigroup.com/de-de/investoren/corporate-governanceW O R D I N G O F T H E D E C L A R AT I O N O F C O M P L I A N C E F O R 2 0 17

‘In accordance with section 161 of the German Stock Corporation Act,
the Executive Board and Supervisory Board of TUI AG hereby declare:
Since the last annual declaration of compliance was submitted in December 2016, the recommendations of the German Corporate Governance
Code in the version dated 5 May 2015 have been fully observed. The
recommendations of the Code in the version dated 7 February 2017
have been and will be fully observed since its entry into force.‘

Sub-headings refer to sections of the UK Code for ease of reference forinvestors.
Pursuant to DTR 7.2 and LR 9.8.7R, the Executive Board and the Supervisory Board therefore declare as follows:
W O R D I N G O F T H E U K C O R P O R AT E G O V E R N A N C E S TAT E M E N T‘Throughout the reporting period, TUI AG has complied with the provisions of the UK Code, including its main principles, except as set out
and explained below.

104

I D E N T I F I C AT I O N O F S E N I O R I N D E P E N D E N T D I R E C T O R( A1 . 2 , A 4 .1)

Under German law and the German Code, there is no concept of a ‘Senior
Independent Director’. Instead, shareholders may raise any issues at
the Annual General Meeting (AGM). In this forum, the Executive Boardand the Chairman of the Supervisory Board are available to address any
issues and are legally obliged to provide adequate responses.

The members of the Supervisory Board not considered to be independent
for the purposes of the UK Code are Carmen Riu Güell, Alexey Mordashov
and Peter Long.
In reaching its determination, the Supervisory Board has considered, inparticular, the factors set out below.
S H A R E H O L D E R A N D E M P L O Y E E R E P R E S E N TAT I V E S

Outside the AGM , shareholders may approach the Executive Board, inparticular the CEO or the CFO, or, for topics relating to Supervisory
Board matters, the Chairman of the Supervisory Board or any of his
Deputies. Sir Michael Hodgkinson, who was the Deputy Chairman andSenior Independent Director of TUI Travel PLC before the merger, wasre-elected as additional Deputy Chairman of the Supervisory Board ofTUI AG in February 2016 alongside Frank Jakobi (First Deputy Chairman who, under the German Co-­Determination Act, must be an Employee Representative).
DIVISION OF RESPONSIBILITIES – CHAIRMAN & CHIEF­E X E C U T I V E ( A 2 .1)

The separation of the roles of the Chairman of the Supervisory Board(Prof. Klaus Mangold) and the CEO (Friedrich Joussen) is clearly defined
under German law as part of the two-tier board structure. Therefore,
no further division of responsibilities is required and both the Executive
Board and the Supervisory Board consider that TUI AG lives up to thespirit and meaning of the UK Code.
I N D E P E N D E N C E O F S U P E R V I S O R Y B O A R D M E M B E R S ( B 1 .1)

Under the UK Code, the Board must identify in the annual report each
non-executive director it considers to be ‘independent’ for the purposesof the UK Code. Based on the responsibilities assigned to the Supervisory
Board by the German Stock Corporation Act, the members of the Supervisory Board are considered to be non-executive directors for the purposes of the UK Code. Under the UK Code, persons are ‘independent’ ifthey are independent in character and judgement and if there are no
relationships or circumstances which are likely to affect, or could appear
to affect, their judgement. TUI AG does not, however, extend its independence disclosures to employee representatives on the Supervisory Board(for a detailed explanation of shareholder and employee representatives
and the underlying considerations, please see below).
The Supervisory Board has determined that six of its nine shareholder
representative members (excluding the Chairman, as required by the
UK Code) are independent for the purposes of the UK Code. The shareholder representatives of the Supervisory Board considered to be independent are: Prof. Edgar Ernst, Valerie Gooding, Sir Michael Hodgkinson,
Janis Kong, Coline McConville and Angelika Gifford. The Chairman was
independent on election in 2011 and re-election in February 2016 andis still considered independent (Prof. Mangold also was independentwhen he was elected to the Supervisory Board in January 2010).

The Supervisory Board of TUI AG consists of ten members who areelected by shareholders at AGM (the ‘Shareholder Representatives’) andten members who represent the employees of TUI AG (the ‘Employee
Representatives’). This differs from UK practice where only those board
members representing major shareholders are typically referred to as‘Shareholder Representatives’ and are not considered independent­under the UK Code because of their link to a significant shareholder.
In TUI AG , only the shareholder representatives Carmen Riu Güell (Riu
Hotels, approx. 3.4 % of the voting rights) and Alexey Mordashov (approx.
23 % of the voting rights via Unifirm Ltd., majority controlled by himself)
are connected to significant shareholders or are shareholders themselves.
It should also be noted that joint ventures exist between TUI AG and bothRiu Hotels S. A. and TUI Russia & CIS (in which a majority controllinginterest is held by Mr Mordashov) (for further details see page 96 of theAnnual Report). Until his election to the S­ upervisory Board in February 2016, Peter Long was Joint- CEO of TUI AG from December 2014 to
February 2016. Prior to that, he was a member of the Executive Board
of TUI AG from 2007 and CEO of TUI Travel PLC . Therefore, neither Ms
Riu Güell nor Mr Mordashov nor Mr Long are considered independent
for the purposes of the UK Code.
Seven of the ten employee representatives of the Supervisory Board areelected by the employees of TUI Group entitled to vote. Three employee
representatives are nominated by a German trade union (ver.di).
Under the UK Code, directors who are or have been employees of theGroup in the last five years or who participate in the Group’s pension
arrangements would generally not be considered independent. In the UK ,directors with an employment relationship are normally current or former
executives. By contrast, under German law, employee representativesof the Supervisory Board must be employees of the Group, and mustbe elected by the employees without any involvement of the Executive
or Supervisory Boards. Furthermore, the employment contract of employee representatives may only be terminated in exceptional cases.
The employee representatives may also participate in Group pension
schemes as is normal for employees and in their capacity as employees.
Trade union representatives are nominated, and employed by, the tradeunion but are still classified as employee representatives. They can only
be removed from the Supervisory Board by their respective union andneither the Executive nor the Supervisory Board has any role in their
appointment or removal.

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Corporate Governance R­ eportHALF THE BOARD SHOULD BE INDEPENDENT NON-E XECUTIVEDIREC TOR S (B1. 2)

Since, for the purpose of the UK Code, only the shareholder represen­tatives on the Supervisory Board are taken into account, with six independent members (excluding the Chairman of the Supervisory Board)more than half of its members are considered independent.
N O M I N AT I O N C O M M I T T E E – C O M P O S I T I O N A N D­R E S P O N S I B I L I T I E S ( B 2 .1)

The role of the Nomination Committee in a typical UK company is fulfilled
in TUI AG by two Committees of the Supervisory Board:
Under the Rules of Procedure for the Supervisory Board and its Committees (which are equivalent to the Terms of Reference of a British
corporation) the Nomination Committee considers and proposes suitable
candidates as shareholder representatives to the Supervisory Board for
its election proposals to the AGM. The Presiding Committee determines
the requirements and remuneration for any new appointments to the
Executive Board and recommends suitable candidates to the Supervisory
Board. On that basis, the Supervisory Board appoints Executive Board
members. This approach is different from the UK where all director
appointments are approved by shareholders at the AGM .
However, as is common practice in Germany, at each AGM shareholders
are asked to decide whether they approve the actions of the Executive
Board and Supervisory Board members during the past financial year.
Since the AGM 2015, in the light of UK practice, TUI AG has changed its
procedure to allow a separate vote on each individual Executive Board
and Supervisory Board member, as it is customary in the UK . TUI AG­intends to continue this practice. Accordingly, the Supervisory Board
considers that TUI AG lives up to the spirit and meaning of the UK Codeto the extent practicable.
There is no requirement under German law or the German Corporate
Governance Code for the majority of the Nomination Committee members to be independent. Of the four members of the Nomination Committee, two are either significant shareholders themselves or associatedwith significant shareholders (Carmen Riu Güell and Alexey Mordashov) and therefore not independent for the purposes of the UK Code.
The remaining two members are Sir Michael Hodgkinson and Prof. Klaus
Mangold (Chairman) who are both independent. Therefore TUI AG is notcompliant with the UK Code which requires a majority of the Nomination
Committee to be independent. However, TUI AG considers that thecurrent membership of the Nomination Committee provides a strong andexperienced pre-selection of Supervisory Board shareholder representation members, while keeping the Committee to a manageable size.

A publication of the Rules of Procedure for the Supervisory Board, itscommittees (including the Audit Committee) and for the Executive Board
is not provided for under German law and the German Corporate Governance Code. Therefore TUI AG is not compliant with this provision of the
UK Code.
N O M I N AT I O N C O M M I T T E E S E C T I O N I N T H E A N N U A L
REPORT & ACCOUNTS (B2.4)

For the activities of the Nomination Committee, see page 13 which ispart of the Chairman’s letter to shareholders.
During the year, a personnel consultancy (Spencer Stuart) has beenused to search a Supervisory Board member as successor to the chairman of the Supervisory Board. This personnel consultancy has no further
connection to the company. Succession planning for management
members below Executive Board level is carried out by the Executive
Board. The Presiding Committee is responsible for succession planningfor the Executive Board.
TERMS & CONDITIONS OF APPOINTMENTS OF NON-E XECUTIVEDIREC TOR S (B3. 2)

The terms and conditions of Supervisory Board members’ appointments
follow the provisions of the German Stock Corporation Act and the
Articles of Association of TUI AG . The Articles of Association are available on the website at www.tuigroup.com/en-en/investors/corporate-­governance.
A D V I C E A N D S E R V I C E S O F T H E C O M PA N Y S E C R E TA R Y ( B 5 . 2 )There is no specific role of Company Secretary in German companies.
However, Executive and Supervisory Board members have access to theBoard Office of TUI AG if they need any advice or services. The Board
Office acts as an interface in corporate matters for the Executive andSupervisory Board members and is responsible for ensuring that therequisite processes and procedures are in place governing all Executive
and Supervisory Board meetings (i.e. preparation of agendas, minutingof meetings and ensuring compliance with German and UK law, as
appropriate, and with recommendations for corporate governance). The
Board Office also supports the Chairman, the CEO, the CFO and the
Chairmen of the Audit Committee and the Strategy Committee. Executive
and Supervisory Board members also have access to legal advice via theGroup Legal Director and the Board Office. The Supervisory Board canalso approach the Executive Board directly for specific advice on any
matters. Accordingly, the Executive Board and the Supervisory Board
consider that TUI AG lives up to the spirit and meaning of the UK Code.
B O A R D P E R F O R M A N C E E V A L U AT I O N ( B 6 )The performance of each individual Executive Board member is evaluatedannually by the Supervisory Board for the annual performance-based
remuneration. In this context, the Supervisory Board also reviews theindividual member’s overall performance as part of the Executive
Board. However, no external performance evaluation is done for the
Executive Board.

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It is not customary to conduct annual reviews of the Supervisory
Board’s efficiency. Each Supervisory Board member can give feedback
to the Chairman, the Deputy Chairmen or the Supervisory Board as awhole as and when appropriate or required.
External evaluation, which includes the work of the Chairman of theSupervisory Board, is performed by means of individual interviews andanonymous reviews. Executive Board members are invited to contributeto the process. Consolidated results are shared with the entire Supervisory Board and appropriate actions are suggested and discussed as
appropriate. The last external review of the Supervisory Board wasundertaken in 2015 by Board Consultants International. Board Consultants International has no other connection with TUI AG .
A N N U A L R E - E L E C T I O N B Y S H A R E H O L D E R S AT T H E A G M ( B 7.1)

None of the Executive or Supervisory Board members is re-electedannually. However, as noted above, in light of the UK Code and UK bestpractice, TUI AG voluntarily puts individual resolutions approving theactions of each Executive and Supervisory Board member to the AGM
resolving on the annual financial statements for the previous year.
TUI AG intends to continue this practice.
The end of appointment periods for Supervisory Board members are
dis­closed in the table from page 100. Current curricula vitae of all Executive and Supervisory Board members are published at www.tuigroup.com/
en-en/investors/corporate-­governance.
F A I R , B A L A N C E D A N D U N D E R S TA N D A B L E A N N U A L R E P O R T
A N D A C C O U N T S ( C1 .1)

In a German stock corporation the Executive Board is responsible fordrafting the Annual Report & Accounts (ARA). According to section 243 (2)of the German Commercial Act (HGB) the ARA must be clearly arranged
and should present a realistic picture of the Company’s economic situation. This is equivalent to the UK Code requirement for the ARA to be
fair, balanced and understandable. Although this assessment has notbeen delegated to the Audit Committee (C3.4), the Executive Board isconvinced that this ARA satisfies both requirements.

E S TA B L I S H M E N T A N D O P E R AT I O N O F R E M U N E R AT I O N­C O M M I T T E E ( D 2 ) , R E M U N E R AT I O N ( D 1)

In the German governance structure there is no separate Remuneration
Committee. The remuneration of the Executive Board is under involvement of the employee representatives monitored and agreed by theSupervisory Board based on recommendations from the Presiding
Committee, which is governed by the Supervisory Board Rules ofProcedure, as referred to above.
Supervisory Board remuneration and the remuneration of Board Committee members is governed by the Articles of Association as resolved
on by the shareholders at the AGM .
There are no clawback or malus provisions in the service contracts of
Executive Board members. Such provisions would be unusual (andprobably unenforceable) in Germany. However, there are different contractual and statutory provisions that may allow for a reduction or forfeiture of remuneration components or allow TUI AG to claim damages
from Executive Board members. First, the service contracts of Executive
Board members provide for forfeiture of the annual bonus and the LTIP
if TUI AG terminates the service contract for cause without notice before
the end of the one year performance period in the case of the annual
bonus or before the end of the respective performance period of theLTIP. Second, according to section 87 (2) German Stock Corporation Act(AktG) the Supervisory Board may, under certain exceptional circumstances, reduce Executive Board compensation in case of a deteriorationof the economic situation of TUI AG . Third, Executive Board members
may be liable for damages under the German Stock Corporation Act incase of a breach of their duties of care or fiduciary duties.
See the Directors’ Remuneration Report from page 116 for full details
on Executive and Supervisory Board member´s remuneration.
NOTICE PE RIODS FOR E XECUTIVE DIREC TOR S (D1.5)

In accordance with the customary practice in Germany members of the
Executive Board are appointed for a term of three to five years. This does
not comply with the UK Code recommendation which stipulates that
notice or contract periods should be set at one year or less. However, thecontracts include maximum limits on the amounts payable on termination.
See Remuneration Report from page 116

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Corporate Governance R­ eportD I A L O G U E W I T H S H A R E H O L D E R S ( E 1)

It was not common practice in German companies for Supervisory Board
members to make themselves available for meetings with major shareholders. However, the German Corporate Governance Code in the version
dated 7 February 2017 now stipulates in section 5.2 that the Chairmanof the Supervisory Board should be willing to meet with investors in an
appropriate manner to discuss Supervisory Board matters. Shareholders made use of this option in financial year 2017.
The table below provides an overview of all meetings with shareholders,in some of which also employees of Investor Relations participated.

Dialogue with shareholders
Date
October 2016

Meeting

Roadshow Brussels
Roadshow Paris
December 2016 Roadshow UK
January 2017
Commerzbank German Investment Seminar
Roadshow US
UniCredit / Kepler Cheuvreux German Corporate
Conference
February 2017
Roadshow Paris
March 2017
Barclays Select Leisure & Transport CorporateDay
April 2017
Morgan Stanley Roundtable
May 2017
BAML Investor Dinner London
Roadshow UK
Roadshow Frankfurt
Berenberg European Conference USA
Roadshow US
Roadshow Copenhagen
June 2017
Roadshow Oslo
Roadshow ZurichRoadshow Netherlands
dbAccess German, Swiss and Austrian­Conference
Goldman Sachs Travel & Leisure Symposium
Credit Suisse Leisure Sector Conference
Juli 2017
Governance Meetings
August 2017
MainFirst Travel and Transport Days
September 2017 Bernstein Strategic Decisions Conference
Berenberg & Goldman Sachs GCC Conference

Participants
HB
HB
FJ , HB
HB
HB
HB
HB
HB
HB
FJ , HB
FJ , HB
FJ , HB
HB
HB
HB
HB
HB
HB
HB
HB
HB
KM , SMH
HB
HB
HB

Key: Prof. Dr Klaus Mangold ( KM ), Sir Michael Hodgkinson (SMH ), Friedrich Joussen ( FJ ),Horst Baier ( HB )Key topics discussed at meetings between shareholders and Executive
Board members included:• Exogenous impacts on the business model• Growth strategy of the integrated tourism group• Business development in the individual company sectors
The Supervisory Board receives feedback from the Chairman and Deputy
Chairman (shareholder representative) and Executive Board members
following meetings with major shareholders or investors. Additionally, amonthly Investor Relations Report and event-driven assessments ofbrokers are forwarded to the Executive Board and the Supervisory
Board. They contain updates on the share price development, analyses
by sellers and feedback and assessments from investors.
The Executive Board and the Supervisory Board consider that TUI AG
lives up to the spirit and meaning of the UK Code.
A G M R E S O L U T I O N O N F I N A N C I A L S TAT E M E N T S A N D­C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S ( E 2 .1)

It is not common practice in Germany to pass a resolution at the AGM toapprove the financial statements and consolidated financial statements.
Therefore, this was not done at the AGM in 2017 and it is not intended
to do so at the AGM in 2018. However, as required by German law, the first
item on the agenda of TUI AG’s AGM is the presentation of the financial
statements and consolidated financial statements to the AGM . Under
this item, the Executive Board will explain the financial statements andconsolidated financial statements and the Chairman will explain, in particular, the report of the Supervisory Board (including this UK Corporate
Governance Statement). Shareholders will have the opportunity toraise questions. Questions are typically raised, as is normal in the AGMs
of German companies, and, as a general rule, answers must be provided
under German law.
This is the standard practice for a German company and is in full compliance with the German Code. While the lack of a resolution to approve
the Annual Report & Accounts is not in compliance with the UK Code,TUI AG considers that the arrangements afford shareholders with sufficient opportunity to raise any questions or concerns that they may havein relation to the Annual Report & Accounts, and to receive answers, in
the AGM . Accordingly, the Executive Board and the Supervisory Board
consider that TUI AG lives up to the spirit and meaning of the UK Codeto the extent practicable.
C I R C U L AT I O N O F A G M D O C U M E N TAT I O N T O S H A R E H O L D E R S(E2.4)The 2017 AGM of TUI AG was held on 14 February 2017. As required byGerman law, the notice convening TUI AG’s 2017 AGM (including theagenda and the voting proposals of the Executive Board and the Supervisory Board) was published in the Federal Gazette in Germany on
4 January 2017. Shareholders then had the right under German law torequest additional agenda items at any time up to 30 days before theAGM . In accordance with German practice, once this deadline had expired
the combined invitation and explanatory notes relating to the AGM were108

sent to shareholders on 19 January 2017, which was less than the
20 working days before the AGM recommended in the UK Code (butmore than the 21 days’ notice required by German law). However, in
addition to the original publication of the Invitation in the Federal
Gazette in Germany, the combined invitation and explanatory notes
relating to the AGM was published on TUI AG’s website on 4 January 2017. As no additional agenda items were requested by shareholders, this was in the same form as the final combined invitation andexplanatory notes relating to the AGM later sent to shareholders.
Furthermore, TUI AG´s Annual Report and Accounts for the financial
year ending 30 September 2016 was published on 8 December 2016,
significantly more than 20 working days before the 2017 AGM . Accordingly, the Executive Board and the Supervisory Board consider thatTUI AG lives up to the spirit and meaning of the UK Code requirements.
A similar timetable will be followed in relation to the 2018 AGM .“3. Further information on Corporate Governance
FUNC TIONING OF THE E XECUTIVE AND SUPERVISORY BOARDSTUI AG is a company under German law. One of the fundamental prin-ciples of German stock corporation law is the dual management system
involving two bodies, the Executive Board in charge of managing thecompany and the Supervisory Board in charge of monitoring the company. TUI AG’s Executive Board and Supervisory Board cooperate closely
and in a spirit of trust in managing and overseeing the Company, withstrict separation between the two bodies in terms of their membershipand competences. Both bodies are obliged to ensure the continued
existence of the Company and sustainable creation of added value inharmony with the principles of the social market economy.
TUI AG’s Executive Board comprised six members as at the closing date
30 September 2017. The Executive Board is responsible for managing
the Company’s business operations in the interests of the Company.
The allocation of functions and responsibilities to individual Board
members is presented in a separate section.
	For functions, see tables ‘Supervisory Board and Executive Board’ on page
100 et seq.

In accordance with the law and the Articles of Association, the Supervisory Board had 20 members at the balance sheet date, i. e. 30 September 2017. The Supervisory Board advises and oversees the Executive
Board in the management of the Company. It is involved in strategic andplanning decisions and all decisions of fundamental importance to theCompany. When the Executive Board takes decisions on major transactions, such as the annual budget, major acquisitions or divestments, it
is required by its terms of reference to seek the approval of the Supervisory Board. The Chairman of the Supervisory Board coordinates thework in the Supervisory Board, chairs its meetings and represents theconcerns of the body externally. The Supervisory Board and the Audit
Committee have adopted terms of reference for their own work. In the
run-up to the Supervisory Board meetings, the representatives ofshareholders and employees meet separately.

The Executive Board provides the Supervisory Board at regular meetingsand in writing with comprehensive, up-to-date information about thestrategy, the budget, business performance and the situation of theGroup, including risk management and compliance. The Executive Board
works on the basis of terms of reference issued by the Supervisory Board.
TUI AG has taken out a D&O insurance policy with an appropriate deduct-ible for all members of the Executive Board and Supervisory Board. The
deductible amounts to 10 % of the loss up to the amount of one and ahalf times the fixed annual compensation.
COMPOSITION OF THE SUPERVISORY BOARD

As at the balance sheet date, 30 September 2017, the Supervisory Board
of TUI AG comprised 20 members. The composition of the Supervisory
Board in financial year 2017 ensured that its members as a group had theknowledge, ability and expert experience required to properly complete
their tasks. The goals set by the Supervisory Board itself for its compos­
ition include in particular comprehensive industry knowledge, at least
five independent shareholder representatives, at least five memberswith international experience, and diversity (see also the diversity concepts for the Supervisory Board and the Executive Board from page 110of this report).
Twelve members of the Supervisory Board had considerable international
experience. Due to the different professional experiences of its members,
the composition of the Supervisory Board overall reflects a great diversityof relevant experience, ability and industry knowhow. None of the shareholder representatives on the Supervisory Board had any commercial
or personal relationship with the Company, its Executive Board or third
parties that might cause a material clash of interests. Seven shareholder
representatives are independent (including the Chairman of the Supervisory Board, who can be included in the count according to the German
Corporate Governance Code).
In accordance with the recommendations of the German Corporate
Governance Code, the original shareholder representatives were individually elected for five-year terms of office during elections to theSupervisory Board at the relevant General Meetings (October 2014,
February 2016). Only Prof. Klaus Mangold and Sir Michael Hodgkinson
were older than 68 years when they were elected as members of theSupervisory Board. In both cases, the Supervisory Board deemed it
appropriate to deviate from the regular age limit in order for the Company
to benefit from Prof. Klaus Mangold’s and Sir Michael Hodgkinson’s
extensive experience in order to complete the integration process andin order to ensure continuity. With Peter Long, a former member of the
Executive Board has been a Supervisory Board member since the Annual
General Meeting 2016 held on 9 February 2016.
COMMIT TEE S OF THE SUPERVISORY BOARD AND THEIR­C O M P O S I T I O N

At 30 September 2017, the balance sheet date, the Supervisory Board
had established four committees from among its members to support its
work: the Presiding Committee, the Audit Committee, the Nomination
Committee and the Strategy Committee. In addition, the Integration
Committee existed until December 2016.

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Corporate Governance R­ eportA Mediation Committee was furthermore established in accordancewith section 27 (3) of the German Co-Determination Act.
The Presiding Committee and Audit Committee have eight members
each, with an equal number of shareholder representatives (including therespective chairpersons of the committees) and employee representatives. The Presiding Committee prepares, in particular, the appointment
of Executive Board members, including the terms and conditions ofservice contracts and remuneration proposals. The Audit Committee’stask is to support the Supervisory Board in exercising its oversightfunction. The Chairman of the Audit Committee is an independent financial expert and has particular knowledge and experience in the applicationof accounting principles and internal control methods from his own professional practice.
The Nomination Committee consists exclusively of shareholder representa­
tives, in keeping with the recommendation in the German Corporate
Governance Code. The task of its four members is to suggest suitable
candidates for the Supervisory Board to propose to the Annual General
Meeting.
The Integration Committee was set up following the merger for two
years. Its responsibilities were to advise and supervise the Executive
Board during the integration process following the completion of themerger. The Integration Committee drafted recommendations for resolutions for the Supervisory Board, but had no authority to make decisions
on behalf of the Supervisory Board. It consisted of five shareholder
representatives and one employee representative. As planned, the Integration Committee had its last meeting in December 2016.

The Supervisory Board resolved, in keeping with section 111 (5) of theGerman Stock Corporation Act, that until 31 October 2020 one woman
is required to be a member of the Executive Board. This goal wasachieved in the reporting period with Dr Elke Eller’s membership in the
Executive Board.
In turn, the Executive Board resolved, in keeping with section 76 (4) of
the German Stock Corporation Act, that women should account for 20 %of executives at the level immediately below the Executive Board and 30 %at the level below this. Both targets were to be achieved by 30 June 2017.
For this reason, TUI AG has implemented various measures over the past
two years aimed at increasing the proportion of women on a long-termand sustainable basis. This includes, among other things, the promotionof women in talent programmes and specifically addressing them in the
recruitment process. As a result of these measures, the proportion of
women at TUI AG increased from 13 % to 19 % at the first managementlevel below the Executive Board and from 20 % to 24 % at the second
management level below the Executive Board as of 30 June 2017. At
these levels, however, staff turnover is very low. As a result, the proportionof women could only be increased slowly. Despite all the measures taken,
the suitability and qualification of candidates for filling vacant positions
are still of primary importance. In accordance with section 76 (4) of theGerman Stock Corporation Act (AktG), the Executive Board confirmed
the target figures for the proportion of women of 20 % at the firstmanagement level below the Executive Board and 30 % at the second
management level below the Executive Board, and decided that bothtargets should be achieved by 30 September 2020.
SHAREHOLDERS AND ANNUAL GENER AL MEE TINGTUI AG shareholders exercise their co-determination and monitoring

The Strategy Committee began its work after the Annual General Meeting2016. Its task is to comprehensively advise and oversee the Executive
Board in developing and implementing the corporate strategy. It prepares
the annual strategy offsite meeting for the Supervisory Board, but does
not have a mandate to take any decisions on behalf of the Supervisory
Board. It comprises five shareholder representatives and one employee
representative.
CONFLIC TS OF INTEREST

Executive and Supervisory Board members have a duty to act in TUI AG’s
best interests. In the completed financial year 2017, there were no conflicts of interest requiring disclosure to the Supervisory Board. None of
the Executive Board or Supervisory Board members has a board role ora consultancy contract with one of TUI ’s competitors.
S P E C I F I C AT I O N S P U R S U A N T T O S E C T I O N S 7 6 (4 ) , 111 ( 5 )O F T H E G E R M A N S T O C K C O R P O R AT I O N A C T

At least 30 % of the Supervisory Board members were women and at
least 30 % were men at the balance sheet date. The Supervisory Board
was therefore compliant with section 96 (2) sentence 1 of the German
Stock Corporation Act. Neither the shareholder nor the employee representatives on the Supervisory Board objected to overall compliancein accordance with section 96 (2) sentence 2 of the German Stock
Corporation Act.

rights at the Annual General Meeting, which takes place at least once ayear. The AGM takes decisions on all statutory matters, and these arebinding on all shareholders and the Company. For voting on resolutions,each share confers one vote.
All shareholders registering in due time are entitled to participate in the
Annual General Meeting. Shareholders who are not able to attend theAGM in person are entitled to have their voting rights exercised by abank, a shareholder association, one of the representatives provided by
TUI AG and acting on the shareholders’ behalf in accordance with theirinstructions, or some other proxy of their own choosing. Shareholders
also have the opportunity of authorising the representative provided by
TUI AG via the web in the run-up to the AGM . Shareholders can, moreover, register for electronic dispatch of the AGM documents.
The invitation to the AGM and the reports and information required forvoting are published in accordance with the provisions of the German
Stock Corporation Act and provided in German and English on TUI AG’s
website. During the AGM , the presentations by the chairman of theSupervisory Board and the Executive Board members can be followed
live over the Internet.
RISK MANAGEMENTGood corporate governance entails the responsible handling of commercial risks. The Executive Board of TUI AG and the management of the110

TUI Group have comprehensive general and company-specific reportingand monitoring systems available to identify, assess and manage theserisks. These systems are continually developed, adjusted to matchchanges in overall conditions and reviewed by the auditors. The Executive
Board regularly informs the Supervisory Board about existing risks andchanges to these risks. The Audit Committee deals in particular with
monitoring the accounting process, including reporting, the effectivenessof the internal control and risk management systems and the internal
auditing system, compliance and audit of the annual financial statements.

More detailed information about risk management in the TUI Group ispresented in the Risk Report. It also contains the report on the accounting-related internal control and risk management system requiredin accordance with the German Commercial Code (sections 289 (5), 315(2) no. 5 HGB).
Risk Report see page 30
T R A N S PA R E N C Y

TUI provides immediate, regular and up-to-date information about theGroup’s economic situation and new developments to capital market
participants and the interested public. The Annual Report and the Interim
Reports are published within the applicable timeframes. The Company
publishes press releases and ad hoc announcements, if required, on
topical events and any new developments. Moreover, the company website at www.tuigroup.com provides comprehensive information on TUIGroup and the TUI share.

The scheduled dates for the principal regular events and publications– such as the AGM , Annual Report and Interim Reports – are set out ina financial calendar. The calendar is published well in advance and madepermanently accessible to the public on TUI AG’s website.
DIREC TORS’ DE ALINGSThe Company was informed by Alexey Mordashov (via Sungrebe Ltd.
and Unifirm Ltd.), Peter Long and David Burling of notifiable purchaseand sale transactions of TUI AG shares or related financial instruments
by directors (directors’ dealings or managers’ transactions) concerning
financial year 2017. Details are provided on the Company’s website.
Purchase and sales transactions by members of the boards were governed by the TUI Share Dealing Code, adopted by the Executive Board,alongside corresponding statutory provisions. The TUI Share Dealing
Code stipulates above all an obligation to receive a permission fortransactions with TUI AG’s financial instruments.
ACCOUNTING AND AUDITINGTUI AG prepares its consolidated financial statements and consolidated
interim financial statements in accordance with the provisions of theInternational Financial Reporting Standards (IFRS) as applicable in theEuropean Union. The statutory annual financial statements of TUI AG ,which form the basis for the dividend payment, are prepared in accordance with the German Commercial Code (HGB). The consolidated financial
statements are prepared by the Executive Board, audited by the auditors
and approved by the Supervisory Board. The interim report is discussed

between the Audit Committee and the Executive Board prior to publication. The consolidated financial statements and the financial statements of TUI AG were audited by Deloitte GmbH Wirtschafts­
prüfungsgesellschaft, Hannover, the auditors elected by the 2017 Annual
General Meeting. The audit was based on German auditing rules, taking
account of the generally accepted auditing standards issued by theGerman Auditors’ Institute as well as the International Standards on
Auditing. It also covered the risk detection system and the compliancewith reporting requirements on corporate governance pursuant tosection 161 of the German Stock Corporation Act and Listing Rule 9.8.10.
See audit opinion by the auditors on page 242

The condensed consolidated interim financial statement and management report as at 31 March 2017 was reviewed by the auditors.
In add­ition, a contractual agreement was concluded with the auditors to
the effect that the auditors will immediately inform the Supervisory
Board of any grounds for disqualification or partiality as well as of all
findings and events of importance arising during the performance of
the audit. There were no grounds to provide such information in theframework of the audit of financial year 2017.

Diversity concepts for the composition of the
Executive Board and Supervisory Boards
DIVERSIT Y CONCEPT FOR THE COMPOSITION OF THE
E XECUTIVE BOARD

The diversity concept for the composition of the Executive Board takes
into account the following diversity aspects:(a) Age	As a rule, the employment contracts of members of the Executive
Board end once the standard retirement age for statutory retirement insurance has been reached (currently 67).
(b) Gender
The Executive Board should include one woman.
(c) Educational / professional background	The necessity for a variety of educational and professional backgrounds already arises from the obligation to manage the company
in accordance with the law, the company’s articles of associationand its terms of reference. In addition, the Executive Board as awhole, through its individual members, should possess the following
essential background qualities:• management experience, some of which ideally has been acquired
abroad, and intercultural competence for successful management
and motivation of global teams

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Corporate Governance R­ eport• in-depth practical experience in stakeholder dialogue (i.e. withmanagers and employees, including their representative bodies,with shareholders and the public)• experience in IT management and an understanding of digitalisationof vertically integrated value chains• profound experience in value-driven, KPI -based strategy development and implementation and corporate governance• profound knowledge of the intricacies and requirements of thecapital market (shareholder management)• knowledge of accounting and financial management (controlling,financing)• in-depth understanding of and experience with change management.
GOAL S OF THE DIVERSIT Y CONCEPT FOR THE COMPOSITION
OF THE E XECUTIVE BOARD

The standard retirement age on the one hand enables incumbent members of the Executive Board to contribute their professional and life
experience for the good of the company for as long a time as possible.
On the other hand, adherence to the standard retirement age is intended
to promote regular rejuvenation of the board.
Inclusion of both genders in Executive Board work is on the one handan expression of the conviction of the Supervisory Board that
mixed-gender teams lead to the same or better outcomes as teams withrepresentation from only one gender. But it is also the logical continuationof the gender diversity measures implemented by the Executive Board
within the wider company, which aim to increase the proportion of
women in leadership roles. These measures are only to be applied andimplemented in a credible manner if the Executive Board does not consist
solely of male members (‘proof of concept’).
A variety of professional and educational backgrounds is necessary on
the one hand to properly address the tasks and obligations of thelaw, the company’s articles of association and its terms of reference. In
addition, it is the view of the Supervisory Board that they are a guarantee of ensuring diverse perspectives on the challenges and associatedapproaches to overcoming them that are faced in the day-to-day workof the company. International management experience is of particularimportance. Without such skill and experience with integrating, leading
and motivating global teams, it is impossible to take into consideration
the different cultural backgrounds of managerial staff and the workforce as a whole.
M E T H O D O F I M P L E M E N TAT I O N O F T H E D I V E R S I T Y C O N C E P T
FOR THE COMPOSITION OF THE E XECUTIVE BOARD

A key aspect of applying the diversity concept to the composition of the
Executive Board is inclusion of the Supervisory Board within the cor­porate organisation, as is prescribed by law, the company’s articles ofassociation and its terms of reference. This ensures the Supervisory
Board is familiar with the strategic, economic and actual situation of thecompany.

In its role as overseer of the management of the Executive Board, theSupervisory Board of TUI AG makes decisions on the allocation ofbusiness responsibilities within the Executive Board, appointments tothe Executive Board and thus also workforce and succession planningwithin the Executive Board. As part of that workforce and succession
planning, the Presiding Committee or the Supervisory Board itself regularly meets with the Executive Board or its members to discuss suitableinternal succession candidates for Executive Board positions (emergency,
medium-term and long-term scenarios). As part of these Supervisory
Board and Committee meetings, or in preparation for them, membersof the Supervisory Board have the opportunity to meet up with so-calledhigh potentials within the Group in a professional and personal setting.
The Presiding Committee and Supervisory Board make their own deliberations about these matters and also discuss them in the absence of
the Executive Board. This includes evaluation and possible inclusion of
external candidates for Executive Board positions in the selection process.
In all of these deliberations, the above-mentioned diversity aspects of
Executive Board appointments play a part in the decision-making of theSupervisory Board. The Supervisory Board also asks the Executive
Board to report twice a year on current progress and implementation offamily-friendly concepts (e. g. flexible work times and locations via, forinstance, video- conferencing, part-time options, cultural change) andconcrete measures for promotion of women (e. g. at least one woman on
the final shortlist for any new or replacement appointments to roles
within the senior leadership team).
R E S U LT S A C H I E V E D I N F I N A N C I A L Y E A R 2 0 17

With effect from 1 January 2017, Mr Frank Rosenberger was appointed (deputy) member of the Executive Board. The Supervisory Board
resolved on 12 May 2017 a three-year extension of the appointmentof Mr Sebastian Ebel. In addition, the appointments of Dr Elke Eller
and Mr David Burling were extended for a further three years each by
the respective Supervisory Board resolutions and the signing of thecorresponding contracts in December 2017 (see overview of the Executive
Board on page 102). It is the view of the Supervisory Board that
Mr Rosenberger, Mr Ebel, Mr Burling and Dr Eller, by virtue of theirdiverse professional histories and individual backgrounds, will contributeto the diversity of the Executive Board. For anyone interested in further
information, the CVs of these and all other members of the Executive
Board are available on the company website, as well as further details
communicated about the appointment decisions of the Supervisory
Board.

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DIVERSIT Y CONCEPT FOR THE COMPOSITION OF THE
SUPERVISORY BOARD

M E T H O D O F I M P L E M E N TAT I O N O F T H E D I V E R S I T Y C O N C E P T
FOR THE SUPERVISORY BOARD

The diversity concept for the composition of the Supervisory Board
takes into account the following diversity aspects: The terms of reference of the Supervisory Board of TUI AG stipulate a standard age limitof 68 for elections to the Supervisory Board. Furthermore, the Supervisory Board has determined a standard limit for membership of theSupervisory Board in accordance with the recommendation in point
5.4.1.(3) of the German Corporate Governance Code. As well as the statutory gender quota (section 96(2)(1) of the German Stock Corporation
Act, (AktG) the Supervisory Board has set itself further goals in relation
to its composition. These include e. g. the kind of international characterand sector experience that diverse educational and professional backgrounds provide. Application of the law about the codeterminationrights of employees also contributes greatly to ensuring diverse educational and professional backgrounds within the Supervisory Board ofTUI AG .

Implementation of the goals pursued by the diversity concept is assured
by the anchoring of its key components in law and in the company’s
terms of reference as well as the requirement for a Declaration of­Compliance in accordance with section 161 of the German Stock Corpor­
ation Act (AktG) on Corporate Governance within the company. As far
as the shareholder side of the Supervisory Board is concerned, theNomination Committee ensures that the binding and voluntary targets
for the composition of the Supervisory Board are met. As part of regularly conducted efficiency audits, the Supervisory Board also undertakes
a self-evaluation process, which includes aspects of its composition.

GOAL S OF THE DIVERSIT Y CONCEPT FOR THE COMPOSITION
OF THE SUPERVISORY BOARD

The Supervisory Board is convinced that the diversity of its own composition sends an important signal both inside and outside the company.
The age limit and standard membership term have the goal on the one
hand of finding and retaining suitable candidates. Members of theboard must possess sufficient professional experience and personal
suitability for the position and have the necessary time available to perform the role. After familiarisation with the business model and thepeculiarities of a vertically integrated company, the Supervisory Board
considers the stability of board composition in the sense of continuityof corporate development to be equally important. On the other hand,
the Supervisory Board should be looking at new approaches and new
ideas on a regular basis, in order to further the continual developmentof the company and the business model. The Supervisory Board considers the age limit and standard membership term to be worthwhile
instruments for achieving both goals.
Other goals in relation to composition (including international characterand sector experience) reflect the demands placed on the advisory andoversight body and its role within a globally active Group of companies
operating in a challenging competitive environment. Multicultural andinternational experience of corporate integration is equally as import­
ant for this as knowledge of the value drivers and success levers of thesector. In all of this, the effect and cultural features of the so-calledstakeholder approach of a social market economy must be taken into
account, which is also ensured on the Supervisory Board by the codetermination of employee representatives.

R E S U LT S A C H I E V E D I N F I N A N C I A L Y E A R 2 0 17

In the current financial year, no changes have been made to the diversity
concept or the composition of the Supervisory Board. In accordancewith the recommendation in point 5.4.1 (2) of the German Corporate
Governance Code (version dated 7 February 2017) the Supervisory
Board in its resolution of 14 September 2017 issued a competency profile
for the composition of the board as a whole.
From the point of view of the Supervisory Board, there is currently nofurther need for action in relation to diversity. On the shareholder side,both genders are equally represented, (50:50), and in terms of theboard as whole, the proportion of women of 35 % is in excess of thestatutory quota. With six different nationalities represented on the­Supervisory Board, its composition can be described as international.
The diversity of professional and educational backgrounds of the individual members of the board is also evident from the yearly updated
CVs of Supervisory Board members published on the corporate website.

Anti-corruption and anti-bribery / Compliance
TUI Group’s Compliance Management System is a fundamental compon­

ent in our commitment to entrepreneurial, environmental and socially
responsible operations and management. It is underlined by ourmembership in the UN Global Compact and therefore forms an indispensable part of TUI Group’s corporate culture and our corporate
governance activities.
The strategic goal of TUI Group’s Compliance Management System is toprevent misconduct and avoid liability risks for the Company, its legal
representatives, executives and employees and protect the reputationof the Company.

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Corporate Governance R­ eportCOMPLIANCE MANAGEMENT SYSTEMTUI Group’s Compliance Management System is based on a risk man-agement approach and is built around three pillars: prevention, discovery

and response, which, in turn, comprise a large number of internal measures and processes.

Compliance Management Processes
PREVENTION• Compliance Policies and Group Policies• Compliance Training• Compliance Communication• Compliance Information• Compliance Risk Identification andRisk Assessment

EXPOSURE• Reporting• Leads• Investigations

TUI Group’s Compliance Management System focuses on the legal
sub-areas anti-corruption, competition and anti-trust law, data protection, export controls and anti-money laundering. It defines the related
pilot and standard operation of the Compliance Management Systemand the documentation of the roles, responsibilities and processes inthese areas.

The Compliance Management System applies to TUI AG and all German
and foreign companies in which TUI AG directly or indirectly holds aninterest of more than 50 % as well as other stakes directly or indirectly
controlled by TUI AG (so-called ’managed Group companies’). Implementation of the Compliance Management System is recommended forinvestments not controlled by TUI AG (so-called ’non-managed Group
companies’).
In financial year 2016, TUI Group’s Compliance Management System
was subjected to a design audit by a leading auditing firm in accordancewith auditing standard PS 980 published by the German Institute of
Auditors. The audit confirmed that TUI Group’s Compliance Management
System has been designed to meet the requirements of that certification
standard. In the run-up to the audit, the Group-wide Compliance Management System had been readjusted and compliance processes had been
harmonised across the Group.
COMPLIANCE STRUC TURE

TUI Group’s Compliance structure supports those responsible in thetask of communicating the values and rules and anchoring them in theGroup. It ensures that Compliance requirements are implemented
throughout the Group in different countries and cultures. TUI Group’s
decentralised Compliance structure includes Head Compliance Officers
whose role is to implement and support the requirements of Group
Legal Compliance. Under the aegis of the Chief Legal Compliance Officer,
Group Legal Compliance work with the decentralised Compliance Officers
to perform the following tasks at different management levels:

RE AC TION

• Implementation of Process Controls• Exchange with Management andlocal Compliance Officers• Disciplinary Measures• Raising awareness of Compliance and the technical issues allocatedto Legal Compliance• Achieving the goals of the Code of Conduct and the Compliance Rules• Providing training• Advising managers and employees• Securing the necessary exchange of information• Monitoring national and international legislative initiatives• Providing regular quarterly reports to the Board and annual reports
to the Audit Committee of the Supervisory Board
In addition, the Group has a Compliance Committee headed by the CFO
and consisting of the HR Director, the Heads of Group External Affairs
and Communications, Chief Legal Compliance Officer, Group Audit andrepresentatives of the Group Works Council and the TUI Europe Forum.
The committee meets on a regular basis as well as ad hoc in order tomonitor implementation of the Compliance Management System andobtain reports about key indicators in this area.
C O M P L I A N C E C U LT U R E

The Compliance culture forms the basis for an appropriate, effective
Compliance Management System. It reflects management’s fundamental
attitude and conduct and the role of the supervisory body. It is expressedin our corporate value ’Trusted’, appealing to our employees’ personal
responsibility and their honesty and sincerity in handling customers,
stakeholders and employees.
C O D E O F C O N D U C T/ S U P P L I E R S ’ C O D E O F C O N D U C T

The Code of Conduct, drawn up for the entire TUI Group, is a further
embodiment of our Compliance culture and enshrines guiding principles
for everyone to follow, from the Board members, executives and senior
management to every Group employee. It defines minimum standards
aimed at assisting our employees in their everyday work and providing
orientation in conflict situations. TUI ’s Code of Conduct covers anti-­
corruption, avoiding conflicts of interest and handling invitations andgifts appropriately.

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The Suppliers’ Code of Conduct forms the counterpart to TUI ’s Codeof Conduct. It details our ethical, social and legal expectations of ourbusiness partners.

P R E PA R AT I O N S F O R T H E E U G E N E R A L D ATA P R O T E C T I O N
R E G U L AT I O N ( G D P R )Moreover, business partners are required by contract to observe allnational and international anti-corruption laws applicable to the supplier
relationship. This places our business relationship with our partners ona solid legal and social basis.

In the run-up to the EU GDPR , data protection, which was already a key
priority for TUI Group, was intensified further in the financial year underreview. Many measures were initiated, e. g. the structured coordinationof all data protection specialist functions within the Company and theappointment of Data Protection Officers in nearly all relevant TUI Group
companies (data protection governance).

COMPLIANCE RULESCOMPLIANCE TR AINING

In addition, the principles set out in the Code of Conduct are detailed invarious policies and rules reflecting the legal requirements. This is supported by our Group-wide policy management, developing the standards
for Group-wide policies and coordinating incorporation of the relevantinternal stakeholder groups, e. g. other departments or the works council.
This approach is designed to provide TUI Group with a set of policies
which are as complete and comprehensible as possible without seeking
overregulation. TUI Group’s Compliance Rules offer guidance on appropriate conduct regarding gifts and invitations, data protection and compliance with trade sanctions. All groups of employees have thus beenacquainted with policies of relevance to their everyday work.

Compliance training is a key element of TUI ’s Compliance Management
System, with its focus on preventing misconduct, and a crucial component
of TUI Group’s Compliance culture. It is carried out according to a gradedconcept: managers and staff at TUI have all benefited from face-to-faceteaching and online programmes. This enables all our executives andemployees to acquaint themselves with Compliance and the underlying
corporate values, regardless of their position in the company hierarchy
and their geographical location. In the completed financial year, the online
training programme was extended to include a refresher course on
TUI ’s Code of Conduct, which has since been rolled out in the Group
companies. In addition, TUI companies and sectors offered training
schemes with their own specific focus, e. g. anti-corruption or appropriate
handling of gifts and invitations, to raise awareness of the challenges
they might face.

C O M P L I A N C E R I S K A N A LY S I S

In the financial year under review, the Compliance Programme focusedon various issues including anti-corruption measures, protecting free
and fair competition, data protection and the handling of trade sanctions
including anti-money laundering. A software is used, above all for theabove topics, to facilitate risk identification based on self-disclosure by
TUI Group companies, with risks evaluated according to likelihood of
occurrence and potential damage (including reputational damage). The
results of the self-assessment are discussed with the companies affected
and are included in a Group-wide risk evaluation process. The results ofthe compliance risk identification process are used to derive corres­
ponding risk-minimising measures, which are included in the annual
plan of Group Legal Compliance and agreed with the relevant bodies.
Monitoring of the implementation of the measures is automated.
Risk analysis and prevention also includes the annual survey among
1,570 legal representatives and executives of TUI Group to identify potential clashes of interests. In the framework of the survey, they have toprovide information on any interests held in TUI Group competitors or key
business partners as well as other issues of relevance to Compliance.
The survey carried out in the financial year under review was completed
by 98.3 % of the respondents. No indications were found suggestingthat there were any conflicts of interests.

WHISTLEBLOWER SYSTEM

In agreement with various stakeholder groups TUI offers its managers
and employees a Group-wide whistleblower system to enable serious
infringements of the corporate values anchored in TUI ’s Code of Conduct
to be reported anonymously and without reprisals. This whistleblowing
system is currently available to staff in 47 countries. All reports arefollowed up in the interests of all stakeholders and the Company. Our
top priority is to ensure confidentiality and handle information discreetly.
Any incidents resulting from the use of the whistleblower system arereviewed by Group Legal Compliance in conjunction with Group Audit.
Infringements are fully investigated in the interests of all our staff and
the Company itself.
In the completed financial year, a total of 57 reports were received throughthe SpeakUp Line. Apart from the SpeakUp Line, employees also used
the opportuity to directly report infringements to their line managers
or the Compliance contact in charge. A further 33 reports were received
through these channels. They were followed up whenever there were any
indications suggesting potential infringements of internal policies or thelaw. Out of the 90 reports submitted in total, 49 cases initially involved
a suspected Compliance infringement, causing further investigations
which in 16 cases resulted in disciplinary measures all the way to termin­
ations of employment contracts.

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Corporate Governance R­ eport115

In the financial year under review, there were no infringements of a severe
nature that would have given rise to a publication of such infringement.

ist and wanted persons lists. In the event of a match, we launch a rangeof measures, in extreme cases terminating the business relationship.

B U S I N E S S PA R T N E R R E V I E W ( D U E D I L I G E N C E P R O C E S S E S )In financial year 2017, we used this process to check around 26,500 business partners against Compliance criteria. The screening software initiallyflagged 1,258 of these business partners as potential ’hits’ as their names
were identical with or similar to names included in sanctions lists. These
potential ’hits’ were then further investigated. Ultimately, the businessorganisation cooperating with the corresponding business associates
was informed in two cases, and in one case the business relationshipwas terminated.

The risk analysis carried out by Compliance shows that there is a risk ofactive and passive corruption because we operate in countries with ahigh corruption index. Moreover, the risk of TUI business partners being
subject to trade sanctions or similar sanctions lists cannot be ruled out.
TUI Group therefore carries out software-based screenings of selectedbusiness partners at regular intervals. The process involves checking thenames of the business partners against international sanctions, terror-

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Remuneration Report
A. Introduction
The remuneration report outlines the remuneration of the membersof the Executive Board of TUI AG as well as the remuneration of themembers of its Supervisory Board in accordance with the articles ofassociation. The remuneration report is based, in particular, on therecommendations of the German Corporate Governance Code (GCGC ),the requirements of the German Commercial Code (Handelsgesetzbuch)and the German Stock Corporation Act (Aktiengesetz) and, to the extent
practicable, the requirements of the UK Corporate Governance Code
(UK- CGC ).
TUI AG is a German stock corporation that is also listed on the London
Stock Exchange (LSE ). Where mandatory provisions regarding the governance of or legal requirements for a German stock corporation areaffected, these are disclosed in this report and placed in context with
the UK- CGC , as required.

B. Remuneration of the Executive Board
I . 	A P P R O V A L O F T H E R E M U N E R AT I O N S C H E M E B Y­S H A R E H O L D E R S

A new remuneration scheme was proposed for Executive Board members
in financial year 2010 and approved by the shareholders of TUI AG at theAnnual General Meeting on 17 February 2010. The scheme is designed tocreate incentives for sustained growth and robust financial performancein the TUI Group.

• Ability to be competitive on the market for highly qualified Executive
Board members• Appropriateness and conformity with tasks, responsibilities andsuccess of each individual Executive Board member, including in therelevant environment of comparable international firms, and taking
into account standard practice at other major German companies• Tying a material portion of total remuneration to the achievement of
ambitious, long-term performance targets• Appropriate correlation between the levels of fixed remunerationand performance-based remuneration• Appropriateness in horizontal and vertical comparison (see page 126)
The remuneration scheme does not contain any malus or clawback
terms. This position will continue to be monitored.
I I I . 	R E M U N E R AT I O N O F T H E E X E C U T I V E B O A R D I N F I N A N C I A L
Y E A R 2 0 17

In financial year 2017, the remuneration for the members of the Executive Board comprises: (1) a fixed remuneration; (2) an annual performance-based remuneration (Jahreserfolgsvergütung – JEV ); (3) virtual
shares of TUI AG in accordance with the Long-Term Incentive Plan (LTIP);(4) fringe benefits; (5) pension entitlements; and (6) a potential additional
remuneration in cash or in virtual shares (additional remuneration).
Details are set out below:
1.

Although common practice at many of the companies applying the UKCGC , the shareholders of TUI AG do not vote on the remuneration policy
on an annual basis. This also reflects the practice at most German stock
corporations and is in compliance with the German Stock Corporation Act.
II.

F I X E D R E M U N E R AT I O N

Purpose and link to company strategy
Highly-qualified Executive Board members who are needed to develop
and implement company strategy are to be attracted and retained.

GENER AL PRINCIPLES

Following a recommendation from the Presiding Committee, the Supervisory Board determines in accordance with section 87(1) sentence 1
German Stock Corporation Act the remuneration of the individual
Executive Board members. It also regularly reviews the remuneration
scheme for the Executive Board.

The remuneration should be commensurate with the abilities, experienceand tasks of the individual Executive Board member.

	For further remits of the Presiding Committee, please see the report of theSupervisory Board from page 12

In determining the fixed remuneration the Supervisory Board takes into
account, in particular, the relevant general principles.

The following principles, in particular, are taken into account in this regard:

The fixed remuneration is paid in twelve equal instalments at the end ofeach month. If the service agreement begins or ends in the course of
the financial year relevant for payment of the remuneration, the fixedannual remuneration will be paid pro rata for that year.

• Clarity and transparency• Economic position, performance and sustainable development of thecompany• Tying shareholder interest to value increase and distribution of profits(e. g. total shareholder return indicator) with corresponding incentives
for Executive Board members

Procedure

The remuneration is generally reviewed when service agreements of
Executive Board members are extended, and can be adjusted or revisedfor the term of the new service agreement. A review of the remuneration

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C O R P O R AT E G O V E R N A N C E

can also take place during the term of a service agreement in particular
if there is a change with respect to the tasks or responsibility of an
Executive Board member.

2.

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Corporate Governance R­ eportA N N U A L P E R F O R M A N C E - B A S E D R E M U N E R AT I O N ( J E V )The value resulting from the multiplication of the target amount by the
degree of target achievement for the reported group EBITA and thediscretionary multiplier will be paid out in cash in the month in which
the Supervisory Board approves the annual accounts of TUI AG for therespective financial year. If the service agreement begins or ends in thecourse of the relevant financial year, the claims for payment of the JEV
will generally be pro rata.

Purpose and link to company strategy
Cap
The JEV is intended to motivate Executive Board members to achieve
ambitious and challenging financial, operational and strategic targets
throughout the financial year. The targets are reflective of the company
strategy and aimed at increasing corporate value.

The JEV is capped annually and individually for each Executive Board
member; for the figures, see the table on page 121.

ProcedureIn accordance with section 87(1) sentence 3 German Stock Corporation
Act, the Supervisory Board is entitled to limit the amount of the JEV toallow for extraordinary circumstances (e. g. takeover of the company,
sale of parts of the company, uncovering of hidden reserves, external
influences).

The JEV is calculated on the basis of a group performance indicator andthe individual performance of the Executive Board member. The perform­
ance reference period is the financial year of TUI AG .
An individual target amount (Target Amount) is agreed for each Executive
Board member in their service agreement. Since 1 October 2010 theperformance target has been the reported earnings before interest, tax
and amortisation of goodwill (Reported Group EBITA). The target value
for the one-year performance reference period for the reported group
EBITA performance target is set each year by the Supervisory Board.
To measure performance, the target value will be compared with thecorresponding actual value of the reported group EBITA as reported in
the audited consolidated accounts of TUI AG to be prepared in accordancewith the accounting rules in force at the time. The degree of target
achievement is determined as follows:• If the actual value of the reported group EBITA achieved is below thetarget value by 50 % or more, this is equivalent to a target achievementof 0 %• If the value achieved corresponds to the target value, this is equivalent
to a target achievement of 100 %• If the value achieved exceeds the target value by 50 % or more, thisis equivalent to a target achievement of 187.5 %Between 50 % below target value and target value, linear interpolation
between 0 % and 100 % will be used to determine the degree of target
achievement. Between target value and 50 % above target value, linear
interpolation between 100 % and 187.5 % will be used to determine thedegree of target achievement. The degree of target achievement will be
rounded to two decimal places, as is customary in commercial practice.
At the discretion of the Supervisory Board, the degree of target
achievement for the performance target can be multiplied by a factor of
between 0.8 and 1.2, based on the Executive Board member’s achievement of individual performance targets and other performance indicatorssuch as customer satisfaction and / or employee satisfaction metrics.

3 . 	V I R T U A L S H A R E S A C C O R D I N G T O T H E L O N G -T E R M­I N C E N T I V E P L A N ( LT I P )3 .1 C A L C U L AT I O N M E T H O D

Purpose and link to company strategy
The long-term objective is to increase corporate and shareholder value
by defining ambitious goals that are closely linked to the company’s
earnings, share price performance and dividends.

Procedure
The LTIP is a performance share plan based on virtual shares and isassessed over a period of four years (Performance Reference Period).
Virtual shares are granted in annual tranches,
For Executive Board members, an individual target amount (Target
Amount) is agreed in the service agreement. At the beginning of eachfinancial year a provisional number of virtual shares, commensuratewith the target amount, will be set. This will constitute the basis for thedetermination of the final performance-based payment for the tranchein question at the end of the respective performance reference period. To
set this number, the target amount will be divided by the average Xetra
price of TUI AG shares over the 20 trading days prior to the beginning of
the performance reference period (1 October of each year). The claim
to a payment only arises upon expiry of the performance reference
period and depends on whether or not the respective performance target
is achieved.
The performance target for determining the amount of the final payout
at the end of the performance reference period is the development of
the total shareholder return ( TSR) of TUI AG relative to the development

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of the TSR of the Dow Jones Stoxx 600 Travel & Leisure (Index), whereby the ranking of the TUI AG TSR in relation to the index companies will
be monitored over the entire performance reference period. The TSR isthe aggregate of all share price increases plus the gross dividends paid
over the performance reference period. Data from a reputable data
provider (e. g. Bloomberg, Thomson Reuters) will be used for the purposeof establishing the TSR values for TUI AG and the index. The reference
for the purpose of determining the rankings is the composition of theindex on the last day of the performance reference period. The values forcompanies that were not listed over the entire performance reference
period will be factored in on a pro rata basis. The level of target achievement is established as follows depending on the ranking of the TSR
of TUI AG relative to the TSR values of the index companies over the
performance reference period:• a TSR value of TUI AG equivalent to the bottom and second to bottom
value of the index corresponds to a target achievement of 0 %• a TSR value of TUI AG equivalent to the third to bottom value of theindex corresponds to a target achievement of 25 %• a TSR value of TUI AG equivalent to the median of the index corres­
ponds to a target achievement of 100 %• a TSR value of TUI AG equivalent to the third to top, second to top or
top value of the index corresponds to a target achievement of 175 %For performance between the third to bottom and the third to top rank,
linear interpolation will be used to determine the level of target achievement at between 25 % and 175 %. The degree of target achievement
will be rounded to two decimal places, as is customary in commercial
practice.
To determine the final number of virtual shares, the degree of target
achievement will be multiplied by the provisional number of virtual shareson the final day of the performance reference period. The payout isdetermined by multiplying the final number of virtual shares by theaverage Xetra price of TUI AG shares over the 20 trading days prior to
the end of the performance reference period (30 September of eachyear). The payout which is calculated in this way will be due in the monthof the approval of the annual accounts of TUI AG for the fourth financial
year of the performance reference period and is paid out in cash. If theservice agreement begins or ends in the course of the financial year
relevant for the grant of the LTIP, the claims for payment of the same
will generally be pro rata.

Cap
The LTIP is capped annually and individually for each Executive Board
member; for the figures, see the table on page 121.

3 . 2 	D E V E L O P M E N T O F A G G R E G AT E V I R T U A L S H A R E S O F­C U R R E N T E X E C U T I V E B O A R D M E M B E R S I N F I N A N C I A L
Y E A R 2 0 17

On 30 September 2017, former Executive Board members held no virtual
shares in TUI AG (previous year: no virtual shares) that were granted
after the merger of TUI AG and TUI Travel PLC ( TUI Travel) in December
2014 (the Merger).

NumberGranting in financial year 2017Friedrich Joussen
Horst BaierDavid Burling
Sebastian Ebel
Dr Elke Eller
Frank Rosenberger
Decrease in financial year 2017*Friedrich Joussen
Horst Baier

119,741
54,61240,45340,45333,981
18,20456,16453,743* D ecrease corresponds to amounts paid for LTIP -tranches that ended in financial
year 2017 (see table on remuneration paid acc. to DCGK )3 . 3 	E X P E N D I T U R E F O R T H E LT I P O F C U R R E N T E X E C U T I V E
BOARD MEMBERS ACC . TO IFRS 2

Expenditure for granting of virtual shares in financial year 2017acc. to IFRS 2€ ’000Friedrich Joussen
Horst BaierDavid Burling
Sebastian Ebel
Dr Elke Eller
Frank Rosenberger
Total

Part of total
expenditure
FY 2017

Part of total
expenditureF Y 2016

1,830.0
495.1
296.2
381.3
252.4
238.3
3,493.2

4,364.9
2,954.4
418.2
608.8
242.8
8,589.1

The table shows the individual amounts of the total expenditure arisingfrom the addition to the provisions to be formed pro rata acc. to IFRS 2
for all of the LTIP tranches to be granted during the term of the respective service agreements. Acc. to IFRS 2, there are provisions totalling€ 8,585.0 thousand (previous year: € 6,693.1 thousand) to cover entitlements under TUI AG’s LTIP for current Executive Board members.
Acc. to the German Commercial Code, there are provisions totalling€ 4,625.8 thousand (previous year: € 3,299.2 thousand) for LTIP tranches
currently in the lock-up period.

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

C O R P O R AT E G O V E R N A N C E

There are liabilities in accordance with IFRS and the German Commercial
Code totalling € 1,604.6 thousand (previous year: € 1,896.0 thousand).
4.

119

Corporate Governance R­ eportFRINGE BENEFITS

Purpose and link to company strategy

Amount
The value of the company car, free holidays and insurance benefits
received annually by an individual Executive Board member normally does
not exceed € 150.0 thousand. The fringe benefits are taken into accountwithin the scope of the maximum remuneration listed on page 121.

Fringe benefits offered should be competitive on the market for highly
qualified Executive Board members.

Procedure

5.
5 .1

PENSION BENEFITSO P E R AT I N G P R I N C I P L E S

Purpose and link to company strategy
Executive Board members receive the following fringe benefits:• Reimbursement of business travel expenses in accordance withTUI AG’s applicable general business travel guidelines• Twice a year, free of charge, a holiday from within the World of TUI
range, without any limitation as to tour operator, type of holiday,
category or price. Spouses / partners are granted a 50 % discount on
the catalogue price for the aforementioned vacations, and children stillin education or training a 100 % discount. Apart from that, a reductionof 75 % (spouses / partners children still in education or training 50 %)is granted for flights• A suitable company car with driver or alternatively a car allowance of€ 1.5 thousand gross per month• Insurance cover is provided in line with the agreements applicable inGermany and the United Kingdom. This is offered as follows:
TUI AG provides insurance cover for accidents to the customary extent

for Mr Joussen, Dr Eller, Mr Baier, Mr Ebel and Mr Rosenberger and will
pay the corresponding insurance contributions for the terms of theirservice agreements. The coverage amounts to € 1,500.0 thousand fordeath and € 3,000.0 thousand for disablement. Furthermore, Mr Joussen,
Dr Eller, Mr Baier, Mr Ebel and Mr Rosenberger receive an allowance
towards health and long-term care insurance in the amount payable if
the respective Executive Board member were an employee, but nomore than half of each insurance premium.
Insofar as this is permitted by law, Mr Burling will remain a beneficiary,at the expense of TUI AG , of the UK term life, vocational disability andhealth insurance programmes.
TUI AG also takes out criminal law protection insurance that provides

cover for the Executive Board members regarding criminal and misdemeanour proceedings, if these proceedings are based on an act or a
failure to act in the exercise of their duties for TUI AG . TUI AG also takesout a suitable financial liability insurance policy (D&O insurance) coveragefor the Executive Board members to cover possible claims brought under
private law on the basis of statutory liability provisions against one ormore of the Executive Board members by a third party or the company
for damages for a breach of duty committed in the exercise of theirduties. The D&O insurance provides for a deductible of 10 % of thedamage up to 150 % of the fixed annual remuneration.

Highly-qualified Executive Board members who are needed to develop
and implement company strategy are to be acquired and retained.
The pension benefits should be competitive on the market for highly
qualified Executive Board members and should provide them with acorresponding level of benefits in their retirement.

Procedure
Benefits in the form of pensions are paid to former Executive Board
members if they reach the predefined age limit or are permanently incapacitated. The Executive Board members are not entitled to receive
transition payments upon leaving the Executive Board, with the exceptionof Mr Ebel who has an acquired right to receive transition payments
under a legacy contract.
With regard to pension entitlements, different principles apply to
Mr Joussen, Dr Eller, Mr Baier, Mr Ebel and Mr Rosenberger on the one
hand and Mr Burling on the other hand due to the legacy systems inGermany and the UK .
Mr Joussen, Dr Eller, Mr Baier, Mr Ebel and Mr Rosenberger are entitledto pensions according to the pension commitments granted to Executive
Board members of TUI AG ( TUI AG Pension Scheme). These Executive
Board members receive, on an annual basis, a contractually agreed
amount that is paid into an existing pension account for the respective
Executive Board member. The contributions to the company pension
scheme of Mr Joussen, Dr Eller, Mr Baier and Mr Ebel carry an interest
rate established in the pension commitment. The interest rate stands at
5 % p.a. The annual interest for Mr Rosenberger’s contributions to thecompany pension scheme is established by the company at its reasonablediscretion in such a way that it does not exceed 5 %. The beneficiary
may choose between a one-off payment, payment by instalments or
pension payments. The amounts agreed on in the service agreementsof the aforementioned Executive Board members are:120

• Mr Joussen: € 454.5 thousand per year. Mr Joussen becomes eligible
for payment of the pension upon reaching the age of 62• Dr Eller: € 230.0 thousand per year. Dr Eller becomes eligible forpayment of the pension upon reaching the age of 63• Mr Baier: € 267.75 thousand per year. Mr Baier becomes eligible forpayment of the pension upon reaching the age of 60• Mr Ebel: € 207.0 thousand per year. Mr Ebel becomes eligible forpayment of the pension upon reaching the age of 62• Mr Rosenberger: € 112.5 thousand per year in financial year 2017.
This amount takes into account Mr Rosenberger having taken up officeon 1 January 2017. Mr Rosenberger becomes eligible for payment of
the pension upon reaching the age of 63

will, should the respective Executive Board member die, receive anorphan’s pension, paid no longer than until they reach the age of 27 atthe latest. Children who have lost one parent will receive 20 % of thepension, and those who have lost both parents will receive 25 %. This
claim is subject to the prerequisite that the child meets the requirements set out in section 32(3), (4), sentence 1 nos. 1 to 3 and (5) German
Income Tax Act (Einkommensteuergesetz).

Should Mr Joussen, Dr Eller, Mr Baier, Mr Ebel and Mr Rosenberger retire
from TUI AG before the normal retirement date due to an ongoing occupational disability, they will receive an occupational disability pension
until they are able to work again, but at most until they reach the normal
retirement date.

5 . 2 	P E N S I O N P R O V I S I O N S F O R T H E C U R R E N T E X E C U T I V E
BOARD MEMBERS UNDER THE TUI AG PENSION­C O M M I T M E N T S

Under certain circumstances, spouses, partners or cohabitants of the
Executive Board members will, should the respective Executive Board
member die, receive a survivor’s pension worth 60 % of the pension for
their lifetime or until remarriage. Children of Executive Board members

Mr Burling receives a fixed annual amount of € 225.0 thousand paid out
in cash for his pension.

At 30 September 2017, pension obligations for current Executive Board
members totalled € 19,731.2 thousand (previous year balance sheet date:€ 19,055.8 thousand) according to IAS 19. This includes € 4,501.3 thousand (previous year balance sheet date: € 5,317.8 thousand) for claims
earned by Mr Ebel during the course of his work for the TUI Group up
until 31 August 2006. The remaining claims can be broken down as follows:

Pension of current Executive Board members below TUI AG Pension scheme
Addition to / reversal frompension provision€ ’000Friedrich Joussen
Horst BaierSebastian Ebel
Dr Elke Eller
Frank Rosenberger
Total

According to commercial law provisions, the pension obligations for
current Executive Board members amounted to € 15,738.4 thousand(previous year balance sheet date: € 13,404.8 thousand); this includes€ 2,925.0 thousand (previous year balance sheet date: € 2,659.6 thousand)for claims earned by Mr Ebel during the course of his work for the TUIGroup up until 31 August 2006.
Where the above table shows a corresponding amount, the pension
obligations for beneficiaries are funded via the conclusion of pledged
reinsurance policies.

Net present value

2017

2016

30 Sep 201730 Sep 2016

200.0
89.7
118.7
277.6
805.9
1,491.9

1,130.2
966.8
490.7
435.6
0.0
3,023.3

3,206.9
9,109.8
1,394.1
713.2
805.9
15,229.9

3,006.9
9,020.1
1,275.4435.6
0.0
13,738.0

6 . 	P O T E N T I A L A D D I T I O N A L R E M U N E R AT I O N I N C A S H O R I N
V I R T U A L S H A R E S ( A D D I T I O N A L R E M U N E R AT I O N )Purpose and link to company strategy
The additional remuneration is intended to compensate exceptional
performance by Executive Board members.

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

C O R P O R AT E G O V E R N A N C E

121Corporate Governance R­ eport

ProcedureCap

The Supervisory Board may grant additional remuneration in cash orin virtual shares in the case of special circumstances or exceptional
performance such as an extraordinarily heavy workload due to major
projects like transactions or the long-term takeover of other Executive
Board departments, in the case of special successes in connection withthe strategic further development of the business model as well as
successful crisis management. The Supervisory Board determines
whether and in what amount such additional remuneration will be paid.

The additional remuneration is capped annually and individually for each
Executive Board member; for the figures, see table below.

7.

R E M U N E R AT I O N C A P S

The following caps apply to the remuneration (remuneration components
and total remuneration) payable to Executive Board members for a financial year:

Remuneration caps
€ ’000Friedrich Joussen
Horst BaierDavid Burling
Sebastian Ebel
Dr Elke Eller
Frank Rosenberger1

Fixed remuneration2

JE V

LTIP

Additional
remuneration

Maximum total
remuneration3

1,100.0
740.0
600.0
680.0
680.0
500.0

2,070.0
1,012.5
900.0
720.0
675.0
630.0

4,440.0
2,025.0
1,500.0
1,500.0
1,260.0
900.0

920.0
450.0
400.0
320.0
300.0
280.0

7,500.0
4,200.03,450.0
3,380.0
3,100.0
1,875.0

1 Full-year values (12 months), possibly pro rated caps: see table on p. 123
2 Fixed amount, no cap applied
3 Contractually agreed cap for total remuneration (incl. fixed remuneration, JE V , LTIP, pension, additional remuneration and fringe benefits)

I V. 	PAY M E N T S I N C A S E O F P R E M AT U R E D E PA R T U R E O F A N
E XECUTIVE BOARD MEMBER

The payments to be made to an Executive Board member on the premature termination of his service agreement without good cause havein principle been limited in the service agreements of Messrs. Joussen
and Baier to an amount equal to twice their annual remuneration. It has
been agreed in the service agreements of Dr Eller, Mr Ebel, Mr Burlingand Mr Rosenberger that payments to be made on the premature termination of their Executive Board membership without good cause may
not – in the case of premature termination during the first year after
the coming into force of the service agreement – exceed an amountequal to twice their annual remuneration and – in the case of prematuretermination after the end of the first year of the service agreement – anamount equal to their annual remuneration (severance pay cap). Payments upon premature termination shall not cover more than the remaining term of the service agreement for any member of the Executive
Board. The severance pay cap is calculated on the basis of the target
direct remuneration (fixed remuneration, target JEV and target LTIP)
for the last expired financial year and, if relevant, the expected target
direct compensation for the current financial year. If the service agreement is terminated extraordinarily without notice, no payments will bemade to Executive Board members.
In cases of premature termination of the service agreement, the annual
performance-based remuneration (JEV ) and payments according to the
LTIP will be managed as follows:• JEV• If the company terminates the service agreement without notice
before the end of the one-year performance reference period forgood cause attributable to the beneficiary or if the beneficiary
terminates the service agreement without good cause, the claim
to the JEV for the performance reference period in question will
be forfeited and no alternative remuneration or compensation will
be paid.
• In all other cases of premature termination of the service agreement
before the end of the one-year performance reference period, theJEV will be paid on a pro rata basis.
• LTIP :• If the company terminates the service agreement without notice
before the end of the respective performance reference period
for good cause attributable to the Executive Board member, or if
the Executive Board member terminates the service agreement
without good cause, all claims under the LTIP will lapse for all
tranches not yet paid and no alternative remuneration or compensation will be paid.
• If the service agreement ends before the expiry of the performancereference period for other reasons, the claims under the LTIP will
be maintained for tranches not yet paid. The tranche of the current
financial year will be reduced on a pro rata basis. The payout will
be calculated in the same way as in the case of a continuation of
the service agreement.

122

The service agreements of the Executive Board members do not containchange of control clauses.
V. 	O T H E R PAY M E N T S / B E N E F I T S F O R E X E C U T I V E B O A R D
M E M B E R S W H O L E F T T H E B O A R D I N F I N A N C I A L Y E A R 2 0 17

No members left the Executive Board of TUI AG in financial year 2017,
so no benefits were granted or paid out.
V I . 	P E N S I O N PAY M E N T S M A D E T O PA S T E X E C U T I V E B O A R D
MEMBERSIn financial year 2017, the pension payments to former Executive Board
members and their surviving dependants totaled € 13,497.1 thousand(previous year: € 4,933.2 thousand).

Pension provisions for former members of the Executive Board andtheir dependants amounted as at the balance sheet date to € 64,683.5
thousand (previous year: € 78,976.5 thousand) as measured according
to IAS 19, not including Mr Ebel’s claims in the amount of € 4,501.3 thousand (previous year: € 5,317.7 thousand) which he earned before 31 August 2006 during the course of his work for the TUI Group.
According to commercial law provisions, the pension obligations for former members of the Executive Board and their dependants amounted
to € 55,074.1 thousand (previous year: € 62,846.3 thousand), not including
Mr Ebel’s claims in the amount of € 2,925.0 thousand (previous year:€ 2,659.6 thousand) which he earned before 31 August 2006 during thecourse of his work for the TUI Group.

V I I . O V E R V I E W : I N D I V I D U A L R E M U N E R AT I O N O F E X E C U T I V E B O A R D M E M B E R S
1 . 	I N D I V I D U A L R E M U N E R AT I O N O F E X E C U T I V E B O A R D M E M B E R S F O R F I N A N C I A L Y E A R 2 0 17
( P U R S U A N T T O S E C T I O N 3 14 (1) , N O . 6 ( A ) G E R M A N C O M M E R C I A L C O D E )Remuneration of individual Executive Board members granted by TUI AG for financial year 2017(acc. to section 314, paragraph 6 lit a of the German Commercial Code)€ ’000Friedrich Joussen
Horst BaierDavid Burling
Sebastian Ebel2
Dr Elke Eller
Frank Rosenberger3
Total
Previous year4

Fixed remuneration1

JE V

Additional
remuneration

LTIP 5

Total
2017

Total
2016

1,232.3
760.0
707.9
698.0
714.3
416.4
4,528.8
4,942.8

1,096.0
536.1
476.5
381.2
357.4
250.2
3,097.4
3,319.2

920.0
450.0
400.0
320.0
300.0
210.0
2,600.0
2,569.6

0.0
0.0
0.0
1,500.0
0.0
1,389.5
2,889.5
1,269.9

3,248.3
1,746.1
1,584.4
2,899.2
1,371.6
2,266.0
13,115.7
12,101.5

3,035.6
1,890.5
1,463.9
1,355.5
2,552.3
0.0

1 Incl. fringe benefits (without insurances under Group coverage).
2 Disclosure of LTIP due to prolongation of service agreement until 30 November 2020
3 Pro rated disclosure of all remuneration components from 1 January 2017
4 Previous year’s values include remuneration of Peter Long and William Waggott
5 Based on share price of the TUI AG share as at 4 October 2016 this corresponds for Mr Ebel to 116,369 virtual shares and for Mr Rosenberger to 107,797 virtual shares.

For the purpose of setting the discretionary multiplier of between 0.8
and 1.2 used to calculate the JEV (procedure description see page 117)and the additional remuneration (procedure description see page 120)
the Supervisory Board exercises its discretion within the framework of
the service agreements of the members of the Executive Board.
The basis for the Supervisory Board’s decision regarding the discretionary
multiplier for calculating the JEV was, among other things, the level of
employee satisfaction (engagement index on Group level) determined aspart of the TUIgether employee survey for the financial year 2017, which,compared with the previous financial year, remained at a consistently
high level with a higher response rate. This outcome can be attributed
to the fact that the members of the Executive Board have consistently
implemented and achieved their own packages of measures defined on
the basis of the results from the previous year, and have also steadily
advanced the implementation of the measures through the managementlevel below the Executive Board. In addition to that, the Supervisory

Board also took into account, among other things, the successful introduction of the Global 60 Initiative that encourages employees to follow
an international career, the huge progress in delivering a Group airline
platform, and the promising efforts to initiate a solution for the German
airline. The successful completion of the cultural integration as well as therealisation of synergies as a result of the merger were taken into accountin the Supervisory Board’s decision to set the discretionary multiplier at
1.1 when calculating the JEV for each member of the Executive Board.
In terms of the additional remuneration, the Supervisory Board con­sidered the exceptional achievements of each and every member of the
Executive Board, especially in light of the geopolitical challenges. The
successful management of the shift in demand from the eastern to thewestern Mediterranean due to, inter alia, the consistently low level ofbookings for Turkey and coupled with a significant increase in hotel prices
there, is the result of an excellent board performance. Moreover, management succeeded in compensating the Brexit-related slowdown in bookings

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

C O R P O R AT E G O V E R N A N C E

123

Corporate Governance R­ eportand the price hike resulting from the depreciation of the British poundin the UK source market by means of extraordinarily good results inother source markets and in particular the hotels and resorts, andcruise business units. Last but not least, the Supervisory Board’s decision
recognizes the clear rise in the stock price in the period under review
which is the result of, among other things, the perception in the capital
markets of TUI AG’s business model as being stable and robust owing to
the consistent and highly successful expansion of its content portal aswell as the sound financing.
The LTIP amount disclosed in the table headed ‘Individual Remunerationof Executive Board members for the financial year 2017’ corresponds
to the fair value at grant date (acc. to IFRS 2). This amount takes into
account all allocations accumulated over the entire contract period. The
table of the ‘remuneration awarded’ according to the GCGC shows theamount allocated in the respective financial year.

2.

As in the prior year, the members of the Executive Board did not receive
any loans or advances in financial year 2017.
Dr Eller received € 12.1 thousand from Nord / LB for her activities –which were approved by the Supervisory Board during her Executive
Board membership in financial year 2017 – in supervisory boards orcomparable domestic and foreign corporate supervisory bodies to be
set up in accordance with section 125 German Stock Corporation Act,
which activities were not carried out on the basis of a shareholding of
TUI AG in the companies concerned. Mr Joussen acquired a claim for€ 27.9 thousand for his seat on the supervisory board of SIXT SE in financial year 2017 that will become due and payable following the end of
SIXT SE ’s financial year. This remuneration was not counted towards the
remuneration paid to her by TUI AG as an Executive Board member.
Pursuant to 4.2.5, attachment tables 1 and 2 GCGC , the two tables
below (remuneration awarded and remuneration paid) show the benefits
granted by TUI AG and the payments received.

R E M U N E R AT I O N A W A R D E DRemuneration awardedFriedrich Joussen
CEO ,since 14 February 20131

Horst Baier
CFO ,since 8 November 2007

2016

2017

2017 (min.)2017 (max.)

2016

2017

2017 (min.)2017 (max.)

LTIP
LTIP (2016 – 2019)

1,100.0
45.4
1,145.4920.0
920.0
1,494.8
1,494.8

1,100.0
132.3
1,232.3
920.0
920.0
1,494.8

1,100.0
132.3
1,232.3–––

1,100.0
132.3
1,232.3
2,070.0920.0
4,440.0

740.0
20.0
760.0
450.0
450.0
681.8

740.0
20.0
760.0
–
–
–

740.0
20.0
760.0
1,012.5450.0
2,025.0

LTIP (2017 – 2020)
Total
Pension / service costs2
Total remuneration3

4,480.2
726.0
5,206.2

1,494.8
4,567.1
625.7
5,192.8–
1,232.3
625.7
1,858.0

4,440.0
8,662.3625.7
7,500.0

803.0
18.7
821.7
450.0
450.0
681.8
681.8
–
2,403.5
22.3
2,425.8681.8
2,341.8–
2,341.8

–
760.0
–
760.0

2,025.0
4,247.5–
4,200.0€ ’000
Fixed remuneration
Fringe benefits
Total
JE V

Additional remuneration

124

Remuneration awardedDavid Burling
Member of the Executive Board,since 1 June 2015
€ ’000
Fixed remuneration
Fringe benefits
Total
JE V

Additional remuneration
LTIP
LTIP (2016 – 2019)
LTIP (2017 – 2020)

Total
Pension / service costs2
Total remuneration3

Sebastian Ebel
Member of the Executive Board,since 12 December 2014

2016

2017

2017 (min.)2017 (max.)

2016

2017

2017 (min.)2017 (max.)

600.0
42.1
642.1
400.0
400.0
505.0
505.0
–
1,947.1
225.0
2,172.1

600.0
107.9
707.9
400.0
400.0
505.0

600.0
107.9
707.9
–
–
–

600.0
107.9
707.9
900.0
400.0
1,500.0

680.0
18.0
698.0
320.0
320.0
505.0

680.0
18.0
698.0
–
–
–

680.0
18.0
698.0
720.0
320.0
1,500.0505.0
2,012.9225.0
2,237.9

–
707.9
225.0
932.9

1,500.0
3,507.9225.03,450.0

680.0
18.0
698.0
320.0
320.0
505.0
505.0
–
1,843.0
328.5
2,171.5

505.0
1,843.0
286.1
2,129.1

–
698.0
286.1
984.1

1,500.0
3,238.0
286.1
3,380.0

Remuneration awarded
Dr Elke Eller
Member of the Executive Board / Labour Director,
since 15 October 2015
€ ’000
Fixed remuneration
Fringe benefits
Total
JE V

Additional remuneration
LTIP
LTIP (2016 – 2019)
LTIP (2017 – 2020)

Total
Pension / service costs2
Total remuneration3

2016

2017

2017 (min.)2017 (max.)

654.2
23.8
678.0
288.6
300.0
408.1
408.1
–
1,674.8405.0
2,079.8

680.0
34.3
714.3
300.0
300.0
424.2

680.0
34.3
714.3
–
–
–

424.2
1,738.5345.1
2,083.6

–
714.3
345.1
1,059.4

Frank Rosenberger
Deputy member of the Executive Board,since 1 January 20172017

2017 (min.)2017 (max.)

680.0
34.3
714.3
675.0
300.0
1,260.0

375.0
41.4
416.4
210.0
210.0
227.3

375.0
41.4
416.4

375.0
41.4
416.4
472.5
210.0
675.0

1,260.0
2,949.3
345.1
3,100.0

227.3
1,063.6382.6
1,446.2

–
416.4
382.6
799.0

675.0
1,773.9382.6
1,406.3

2016

1 Joint- CEO until 9 February 2016; member of the Executive Board since 15 October 2012
2 For Mr Joussen, Mr Baier, Mr Ebel, Mrs Dr Eller and Mr Rosenberger service acosts acc. to IA S 19; for Mr Burling payment for pension contribution
3 When contractually agreed cap for total remuneration to be paid is exceeded, LTIP is reduced proportionally.

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

C O R P O R AT E G O V E R N A N C E

3.

125

Corporate Governance R­ eportR E M U N E R AT I O N PA I D

Remuneration paid
Friedrich Joussen
CEO ,since 14 February 20131€ ’000
Fixed remuneration
Fringe benefits
Total
JE V

Additional remuneration
LTIP

Cash deferral (F Y 2014)
LTIP (2013 – 2016)
LTIP (2014 – 2017)
Others
Total
Pension / service costs2
Total remuneration

Horst Baier
CFO ,since 8 November 2007

David Burling
Member of the Executive Board,since 1 June 2015

2016

2017

2016

2017

2016

2017

1,100.0
45.4
1,145.4
970.2
920.0
820.0

1,100.0
132.3
1,232.3
1,096.0
920.0
820.0

803.0
18.7
821.7
474.6
450.0
1,220.2
144.2
1,076.0

740.0
20.0
760.0
536.1
450.0
784.6

600.0
42.1
642.1
421.8
400.0

600.0
107.9
707.9
476.5
400.0

1,463.9
225.0
1,688.9

1,584.4
225.0
1,809.4820.0–
3,855.6
726.0
4,581.6

820.0–
4,068.3
625.7
4,694.0784.6
2,966.5
22.3
2,988.8

2,530.7–
2,530.7

Remuneration paid
Sebastian Ebel
Member of the Executive Board,since 12 December 2014

Dr Elke Eller
Member of the Executive Board /Labour Director,
since 15 October 2015

Frank Rosenberger
Deputy member of the
Executive Board,since 1 January 2017

€ ’000

2016

2017

2016

2017

Fixed remuneration
Fringe benefits
Total

680.0
18.0
698.0
337.5
320.0

680.0
18.0
698.0
381.2
320.0

654.2
23.8
678.0
304.4
300.0

680.0
34.3
714.3
357.4
300.0

375.0
41.4
416.4
250.2
210.0

1,355.5
328.5
1,684.0

1,399.2
286.1
1,685.3

1,282.4
405.0
1,687.4

1,371.6
345.1
1,716.7

876.5
382.6
1,259.1

JE V

Additional remuneration

2016

2017

LTIP

Cash deferral (F Y 2014)
LTIP (2013 – 2016)
LTIP (2014 – 2017)
Others
Total
Pension / service costs2
Total remuneration

1 Joint CEO until 9 February 2016; member of the Executive Board since 15 October 2012
2 For Mr Joussen, Mr Baier, Mr Ebel, Mrs Dr Eller and Mr Rosenberger service costs acc. to IA S 19; for Mr Burling payments for pension contribution

126

The remuneration paid for the last expired financial year shows the LTIP
cash payment for the performance reference period ‘ LTIP 2014 – 2017’
for Mr Joussen and Mr Baier.
In his service agreement of 30 July 2012, a contractual advance paymentof € 1,280.0 thousand was agreed with and paid to Mr Joussen for the
performance reference period ‘ LTIP 2014 – 2017’. The payment was deducted from the entitlement for the entire performance reference period‘ LTIP 2014 – 2017’ that actually arose upon expiry of financial year 2017.
In this respect, only the remaining difference of € 820 thousand isshown in the aforementioned table as remuneration paid.
V I I . 	R E V I E W O F A P P R O P R I AT E N E S S O F T H E R E M U N E R AT I O N
AND PENSIONS OF E XECUTIVE BOARD MEMBERS

Following the end of financial year 2017, the Supervisory Board carriedout the annual review of the remuneration and pensions of Executive
Board members for financial year 2017. It concluded that these are appropriate in accordance with section 87(1) German Stock Corporation Act.
The Supervisory Board also regularly makes use of external advisors
when assessing the appropriateness of the remuneration and pensionsof Executive Board members. This involves, firstly, assessing from an outside perspective the level and structure of the remuneration of Executive
Board members in relation to the remuneration of senior management
and the workforce as a whole (vertical comparison). In addition to a status
quo review, the vertical comparison also takes into account how thisrelationship changes over time. Secondly, the remuneration level andstructure are assessed on the basis of a positioning of TUI AG in a peer
market made up of a combination of DAX and MDAX companies that are
similar to TUI AG in terms of size and complexity of business (horizontal
comparison). In addition to the fixed remuneration, the horizontal comparison also covers the short- and long-term remuneration components
as well as the amount of company pension. For financial year 2017, theSupervisory Board commissioned the consultancy company hkp GroupAG to prepare an expert report on the appropriateness of the remuneration level for Executive Board members. The partner of hkp Group AG
commissioned by the Supervisory Board and responsible for carryingout the assessment is independent of the Executive Board of TUI AG
and the company. The finding of the external advisor supported thejudgment of the Supervisory Board that the level of remuneration of
Executive Board members complies with section 87(1) German Stock
Corporation Act as well as the recommendations of the GCGC .

Purpose and link to company strategy
Highly-qualified Supervisory Board members are to be acquired andretained.

Procedure
Besides reimbursement of their expenses, the members of the Super­visory Board receive a fixed remuneration of € 90.0 thousand per financial
year, payable upon completion of the financial year. The chairman shallreceive three times, and his deputies twice, the fixed remuneration of aSupervisory Board member.
An additional fixed remuneration of € 42.0 thousand is paid for membership of committees (e. g. the presiding committee, the audit committee,
the strategy committee and the integration committee that was dissolvedin December 2016, but not the nomination committee). The chairman of
the audit committee shall receive three times, and the chairman of thestrategy committee twice, this remuneration. This remuneration is also
paid out at the end of the respective financial year.
The members of the Supervisory Board receive no further remuneration
components and no fringe benefits. In all cases the remuneration relates
to a full financial year. For parts of a financial year and for short financial
years the remuneration shall be paid on a pro rata basis.
The members of the Supervisory Board and the committees receive anattendance fee of € 1.0 thousand per meeting, regardless of the form
the meeting takes.
Moreover, the members of the Supervisory Board are included in any
financial liability insurance policy (D&O insurance) taken out in an appropriate amount by the company in its own interests. The relevant insurance
premiums are paid by the company. In line with the recommendation of
the GCGC , there is a deductible for which the Supervisory Board members
can take out their own private insurance.

Cap
There is no need to set a cap because the remuneration for the Supervisory Board members consists solely of fixed components.

V I I I . R E M U N E R AT I O N O F T H E S U P E R V I S O R Y B O A R D

The provisions and remuneration of members of the Supervisory Board
follow from section 18 of TUI AG’s Articles of Association, which havebeen made permanently accessible to the public on the internet. The
remuneration of the Supervisory Board is reviewed at appropriate intervals. In this regard the expected time required for the relevant duties
and experience in companies of a similar size, industry and complexity
are taken into account.

On 9 February 2016 the Annual General Meeting of TUI AG passed a
resolution to change the remuneration of the Supervisory Board to
fixed remuneration only as well as to adjust the amount of the fixed
remuneration components. The new remuneration model applied retroactively as of 1 October 2015, which meant that the variable remuneration
granted in accordance with the provisions of the articles of association
applicable until 9 February 2016 and based on the long-term success ofthe company was no longer paid. This variable remuneration was based on
the average undiluted earnings per share (EPS) carried in the consolidated

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

C O R P O R AT E G O V E R N A N C E

127

Corporate Governance R­ eportfinancial statements for the respective last three financial years. At thetime of redemption, the members of the Supervisory Board were still
entitled to the long-term remuneration granted in financial years 2014
and 2015 because of the three-year vesting period. These entitlements
were redeemed on the basis of EPS planned values for financial years 2016
and 2017. Reducing the remuneration of the members of the Supervisory
Board for past and current financial years is not permitted under stock
corporation law. For this reason it needed / needs to be checked, also uponcompletion of financial years 2016 and 2017, whether this has takenplace with the change to the remuneration model by taking the EPS
planned value for the relevant financial years as a basis. If using the EPS
values actually achieved were to lead to higher long-term incentives thantaking into account the planned values, the corresponding difference is
to be paid to the relevant members of the Supervisory Board upon theclose of the Annual General Meeting that will vote on the ratification of
the acts of the Supervisory Board for the respective financial year.
For the remuneration component granted in financial year 2014, it was
found that, upon the close of the Annual General Meeting 2017, theactual EPS value of financial year 2016, € 1.78, was above the EPS
planned value of € 0.81 taken as a basis for the redemption. The resulting
difference was paid to the relevant members of the Supervisory Board
accordingly and is shown in the following tables. Upon the close of theAnnual General Meeting 2018 it will be determined whether, for thevariable remuneration component granted in financial year 2015, a difference will have to be paid to the relevant members of the Supervisory
Board based on the comparison of EPS planned values and actual EPS
values of financial years 2016 and 2017.

In addition, regarding the remuneration granted in financial year 2016, it
will be reviewed – upon the close of the Annual General Meeting 2019 –whether applying the remuneration model valid until 9 February 2016
would have resulted in higher remuneration than applying the newmodel did. If this is the case, the corresponding difference has to be
paid to the members of the Supervisory Board upon the close of theAnnual General Meeting 2019.
I X . 	R E M U N E R AT I O N O F T H E S U P E R V I S O R Y B O A R D
AS A WHOLE

Remuneration of the Supervisory Board€ ’000
Fixed remuneration
Long-term variable remuneration
Remuneration for committee memberships
Attendance fee
Remuneration for TUI AG Supervisory Board
mandateRemuneration for Supervisory Board
mandates in the Group
Total

2017

2016

2,160.0
176.1
1,096.2
321.0

2,141.8
1,108.7
1,166.6283.0

3,753.3

4,700.1

41.4
3,794.7

20.5
4,720.6

In addition, travel and other expenses totalling € 507.6 thousand (previous
year: € 461.0 thousand) were reimbursed. Total remuneration of theSupervisory Board members, including reimbursement of travel andother expenses, thus amounted to € 4,302.2 thousand (previous year:€ 5,181.6 thousand).

128

X.

R E M U N E R AT I O N O F I N D I V I D U A L S U P E R V I S O R Y B O A R D M E M B E R S F O R F I N A N C I A L Y E A R 2 0 17

Remuneration of individual Supervisory Board members for financial year 2017

€ ’000Prof. Dr Klaus Mangold (Chairman)
Frank Jakobi (Deputy Chairman)
Sir Michael Hodgkinson (Deputy Chairman)
Andreas BarczewskiPeter Bremme
Prof. Dr Edgar Ernst
Wolfgang Flintermann
Angelika Gifford
Valerie Gooding
Dr Dierk HirschelJanis KongPeter Long
Coline McConville
Alexey Mordashov
Michael Pönipp
Carmen Riu Güell
Carola Schwirn
Anette Strempel
Ortwin Strubelt
Stefan Weinhofer
Total

Fixed
remuneration

Ex-postadjustment oflong-term
variable
remuneration

270.0
180.0
180.0
90.0
90.0
90.0
90.0
90.0
90.0
90.0
90.0
90.0
90.0
90.0
90.0
90.0
90.0
90.0
90.0
90.0
2,160.0

Apart from the work performed by the employees’ representatives
pursuant to their contracts, none of the members of the Supervisory
Board provided any personal services such as consultation or agency
services for TUI AG or its subsidiaries in financial year 2017 and thus did
not receive any additional remuneration arising out of this.

46.2
21.5
15.4
11.5
15.4

15.4
8.8
11.1
15.4
15.4
176.1

Remuneration
for committee
memberships
133.7
91.7
49.7
42.0
42.0
133.7
0.0
42.0
49.7
42.0
42.0
84.0
49.7
84.0
42.0
42.0
0.0
42.0
84.0
0.0
1,096.2

Remunerationfor Supervisory
Board
mandates in
the Group
Attendance fee
33.0
23.0
18.0
16.0
14.0
17.0
8.0
13.0
13.0
15.0
15.0
13.0
15.0
20.0
16.0
17.0
8.0
16.0
24.0
7.0
321.0

23.0

18.4

41.4

Total
482.9
316.2
247.7
186.3
157.5
256.1
98.0
145.0
152.7
147.0
147.0
187.0
154.7
194.0
181.8
157.8
109.1
163.4
213.4
97.0
3,794.7

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

C O R P O R AT E G O V E R N A N C E

129Corporate Governance R­ eport

The new remuneration scheme for the Executive Board as fromfinancial year 2018
A. Background
Over recent years shareholders and proxy advisors – in particular fromthe UK – have repeatedly commented on the existing remuneration
scheme for the Executive Board of TUI AG (existing remuneration scheme).
They expressed the view, inter alia, that the target achievement corridors
for variable remuneration (JEV and LTIP) were not ambitious enough.
The discretionary elements and decisions anchored in the existing remuneration scheme allegedly lacked traceability and transparency.
Although the existing remuneration scheme meets all statutory requirements and also results in appropriate compensation, the Supervisory
Board believes, following the successful integration of TUI AG and former
TUI Travel PLC , that the time has come to take the next step. The comments and requests from our – in some cases longstanding – UK shareholders and proxy advisors to revise the existing remuneration scheme
are largely shaped by the environment of the Anglo-Saxon judicial area.
As a result, the aforementioned positions reflect the recommendationsof the UK- CGK and a different market practice as applied in the UK .
Against this background and in view of current developments in how
remuneration is structured in Germany, the Supervisory Board ofTUI AG has unanimously adopted a new remuneration scheme for the
Executive Board of TUI AG (new remuneration scheme), which it believes
takes both perspectives into account. It shall apply retroactively witheffect from the beginning of financial year 2018 to all Executive Board
members with whom a new service agreement has been concluded on
account of the changes to the remuneration scheme.

B. Key remuneration components and changes
In the following the key components of the new remuneration schemeand the changes to the existing remuneration scheme will be described.
I . 	M O R E T R A N S PA R E N T D E S I G N O F D I S C R E T I O N A R Y­D E C I S I O N S A N D N O M O R E D I S C R E T I O N A R Y B O N U S E S

The new remuneration scheme does away entirely with the Supervisory
Board’s previous option of granting additional remuneration on a discretionary basis (re. the option under the existing remuneration scheme:see p. 120 of the Annual Report).
As before, the JEV depends on an individual performance factor in addition to target achievement in respect to group performance indicators(see below [B. III. 1. and IV. 1.]). Under the new remuneration scheme;
the Supervisory Board shall determine the individual performance factor
for the JEV for each Executive Board member (0.8 to 1:2) based on theachievement of three target categories: In addition to individual performance targets, this includes targets for the overall performance of the
Executive Board and stakeholder targets. The Supervisory Board will

establish the targets from these three categories and their relative
weighting for each Executive Board member and financial year.
II.

F I X E D R E M U N E R AT I O N

The structure of fixed remuneration will remain unchanged.
I I I . 	N E W G R O U P P E R F O R M A N C E I N D I C AT O R S F O R V A R I A B L E
R E M U N E R AT I O N

The annual variable remuneration (JEV ) and multi-annual variable
remuneration (LTIP) will take additional stakeholder relevant groupperformance indicators into account and there will be changes to per­formance criteria used so far.
1.

JEV

The JEV will remain a variable remuneration related to the respective
financial year. In future, the JEV will include three group performanceindicators as opposed to previously one (Reported Group EBITA).
1 .1 	E A R N I N G S B E F O R E TA X E S ( E B T ) R E P L A C E S R E P O R T E D
G R O U P E B I TA

The previous group performance indicator Reported Group EBITA will
be replaced by EBT on a constant currency basis with a weighting of
50 %. This change in group performance indicators permits inclusion of
the net financial result in the calculation. The adjustment for currency
effects makes it possible to measure the actual management perform­
ance without distortion from currency-induced translation effects.
1 . 2 	R E T U R N O N I N V E S T E D C A P I TA L ( R O I C ) A S A D D I T I O N A L
G R O U P P E R F O R M A N C E I N D I C AT O R

The newly introduced group performance indicator ROIC will be includedin the JEV with a weighting of 25 %. The Reported Group EBITA and theaverage invested interest-bearing capital for the financial year will beweighed against each other to establish the ROIC of the TUI Group used
to calculate the JEV. By applying the average assessment previously usedin the Annual Report, seasonal fluctuations and differences in capitalintensity of the business model specific segments of TUI AG can betaken into account and a return on equity target can be included in theannual variable remuneration.
1 . 3 	C A S H F L O W A S A N A D D I T I O N A L G R O U P P E R F O R M A N C E
I N D I C AT O R

A cash flow component will also be included in the calculation as a thirdgroup performance indicator with a weighting of 25 %. For this purposethe cash flow will be determined using a simplified method, which isbased on the management cash flow calculation and covers the liquidity
parameters directly controlled by the Executive Board (depreciation,
Working Capital, income from investments and dividends, net investments) on the basis of Reported Group EBITA , which will also be adjusted
for foreign exchange effects for this purpose.

130

2.

LT I P

The LTIP shall remain a multi-annual variable remuneration on the basisof virtual shares of TUI AG with a four-year performance reference period.
2 .1 	E A R N I N G S P E R S H A R E ( E P S ) A S A N A D D I T I O N A L G R O U P
P E R F O R M A N C E I N D I C AT O R

In future the LTIP will take into account average EPS development p. a.
as an additional group performance indicator, which will be included witha weighting of 50 %. Average assessment over the four-year performancereference period is based on pro forma underlying earnings per sharefrom continuing operations, as already reported in the Annual Report.
2 . 2 	R E L AT I V E T O TA L S H A R E H O L D E R R E T U R N ( T S R ) W I T H­A LT E R E D R A N K I N G

In future, a percentile ranking will be applied to the TSR which has alreadybeen relevant so far. The relative TSR will be included with a weightingof 50 %.

2.
2 .1

LT I PR E L AT I V E T S R

Where TUI AG achieves a percentile below the median value of therelevant benchmark group, the TSR target shall be factored into the
LTIP at 0 %. A percentile on the median shall be deemed to correspondto a target achievement of 100 %. Where the percentile is equivalent to
the maximum value 175 % of the TSR target is deemed to be achieved.
2.2

EPS

If, during the four-year performance reference period, the EPS increases
by less than 3 % p.a. in relation to the value of the last financial year
before commencement of the performance reference period, this shallcorrespond to a target achievement of 0 %. An average increase p. a. of
3 % corresponds to a target achievement of 25 %. The maximum target
achievement of 175 % is reached in the event of an average increase p. a.
of 10 %.
2.3

CAP

I V. 	A M B I T I O U S TA R G E T A C H I E V E M E N T S T R U C T U R E F O R­V A R I A B L E R E M U N E R AT I O N ( J E V A N D LT I P ) / C A P P I N G­M A X I M U M TA R G E T A C H I E V E M E N T

The maximum LTIP payment is limited to 240 % of the individual target
amount per performance reference period (previously 300 %).

The target achievement corridors for the group performance indicatorsin the variable remuneration components JEV and LTIP will be more
ambitious than before.

V.

1.
1 .1

V I . 	PAY M E N T S I N C A S E O F P R E M AT U R E T E R M I N AT I O N O F­E X E C U T I V E B O A R D M E M B E R S H I P

JEV
EBT

The EBT component of the JEV must reach a threshold of at least 90 %of the earnings target (on a constant currency basis) (equals target
achievement of 50 %), in order to be relevant for bonus purposes. Anything in excess of 110 % (on a constant currency basis) of the earnings
target (corresponds to a target achievement of 180 %) is not included.

F R I N G E B E N E F I T S A N D C O M PA N Y C A R

The fringe benefits granted so far as well as the provisions on company
cars shall essentially remain unchanged.

The provisions governing payments to Executive Board members in caseof premature termination of Executive Board membership shall remainunchanged.
VII. PENSION BENEFITSPrevious pension commitments shall be continued unchanged.
1. 2

ROIC

The ROIC component of the JEV will only be included in the JEV where
the return on investment is no more than 3 % points below the definedtarget (corresponds to a target achievement of 50 %). In order to reachmaximum target achievement of 180 % the target must be exceeded by
3 % points or more.
1.3

C ASH FLOW

The cash flow component of the JEV must reach a threshold of at least
90 % of the liquidity target (adjusted for foreign exchange effects)(corresponds to a target achievement of 50 %), in order to be relevant
for bonus purposes. Anything in excess of 110 % of the liquidity target(corresponds to a target achievement of 180 %) is not included.
1.4

CAP

The annual JEV is limited to 180 % (before taking the individual per­formance factor into account).

C. Suggestions not implemented in the new­remuneration scheme
I.

CL AWBACK OR MALUS PROVISIONSThe Supervisory Board generally acknowledges stakeholders’ desire to
introduce clawback or malus provisions that permit an adjustment ofvariable remuneration.
However, such provisions are still largely uncommon within the German
judicial area. They only recently became mandatory for certain financial
institutions. So far it has yet to be clarified at the highest judicial level
which principles (e. g. transparency and appropriateness of clawback /malus criteria) need to be satisfied by clawback and malus provisions inorder for them to be valid and enforceable.
The Supervisory Board has therefore refrained from introducing clawback
and malus clauses under the new remuneration scheme. It will also review
in future whether clawback and malus clauses are to be included in the
remuneration scheme for the Executive Board.

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

C O R P O R AT E G O V E R N A N C E

II.

Corporate Governance R­ eportSHARE OWNERSHIP REQUIREMENTS

The new remuneration scheme does not provide for any obligation toacquire company shares. Not least due to the limited time frame fortrading in TUI financial instruments, the Supervisory Board believes­voluntary solutions to be preferable. In order to protect the capital market
but also its corporate bodies and staff, TUI AG is bound by trading bansthat are far stricter than those prescribed by law (e. g. four regularclosed periods of up to 60 days, application of a restrictive TUI Share
Dealing Manual). Recent cases demonstrate how difficult it is to determine a legally permissible and economically viable time for the acquisitionof shares. Many Executive Board members of TUI AG voluntarily hold arelevant number of company shares.

D. Procedure
The Chairman of the Supervisory Board of TUI AG guided and managed
drafting of the new remuneration scheme. The many stakeholder interests were incorporated into the process in a number of ways. The
Supervisory Board Chairman and his Deputy Chairman (Sir Michael
Hodgkinson) discussed suggestions from shareholders with large institu-

131

tional investors at numerous meetings over the course of recent years.
Members of the Supervisory Board with longstanding expertise as chairpersons or members of remuneration committees and / or non-executive
directors in companies in the UK and other English-speaking countries
played an important part in designing the new remuneration scheme.
The chairman of the audit committee, with his expertise in performanceindicators, and employee representatives on the Supervisory Board’s
executive committee were also involved. External remuneration and legal
advisors introduced their suggestions into the process and reviewed thescheme. The external remuneration advisors conducted simulations of
remuneration scenarios for the past and the future. Proposals from Execu­
tive Board members on the new remuneration scheme were intensely
debated and appropriately considered by the Supervisory Board. The
new service agreements will be concluded on 12 December 2017 and­retroactively take effect on 1 October 2017. They were the subject ofintense discussion with the Executive Board members.
The Supervisory Board and the Executive Board will present the new
remuneration scheme to the Annual General Meeting 2018 for approval.
The new remuneration scheme will also be described in the invitation to
the Annual General Meeting 2018 in detail.

Norway. It takes an experienced captain to­navigate a cruise liner through a fjord. Before
deckhands can take the helm, they must
­qualify for their mariner’s licence. TUI Cruises
has been training assistant deck officers
since 2017. The trainees are just starting out
on a nautical career.
 E A D M O R E A B O U T T R A I N I N G AT T U I C R U I S E SRI N T H E M A G A Z I N E U N D E R ‘ S E T T I N G CO U R S E ’

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

Consolidated Financial Statements
and Notes
134	 C O N S O L I D AT E D F I N A N C I A L­S TAT E M E N T S

134	Income statement
134 Earnings per share
135 Statement of comprehensive income
136 Financial position
138 Statement of changes in Group equity
140 Cash flow statement

141 N O T E S
141	Principles and methods underlying theConsolidated Financial Statements
160 Segment reporting
166 Notes to the consolidated income statement
173	Notes on the consolidated statement of­financial position
223 Notes on the cash flow statement
224 Other notes
241 Responsibility ­statement by management242 Independent auditor’s report
250 Forward-looking statements

134

C O N S O L I D AT E D F I N A N C I A LS TAT E M E N T S
Income statement of the TUI Group for the period from 1 Oct 2016 to 30 Sep 2017
Notes

2017

2016

(1)
(2)

(9)
(10)

18,535.0
16,535.5
1,999.5
1,255.8
12.5
1.9
229.3
156.2
252.3
1,079.7
168.8
910.9– 149.5
761.4
644.8
116.6

17,153.9
15,247.4
1,906.5
1,216.9
36.3
7.4
58.5
345.9
187.2
618.3
153.4
464.9
687.3
1,152.2
1,037.4
114.8

Notes

2017

2016

Basic earnings per sharefrom continuing operations
from discontinued operations

(11)

1.10
1.36
– 0.26

1.78
0.61
1.17

Diluted earnings per sharefrom continuing operations
from discontinued operations

(11)

1.10
1.36
– 0.26

1.77
0.60
1.17

€ million
TurnoverCost of sales
Gross profit
Administrative expenses
Other income
Other expenses
Financial income
Financial expenses
Share of result of joint ventures and associates
Earnings before income taxes
Income taxes
Result from continuing operations
Result from discontinued operations
Group profit
Group profit attributable to shareholders of TUI AG
Group profit attributable to non-controlling interest

(2)
(3)
(4)
(5)
(6)
(7)
(8)

Earnings per share€C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

135

Income statement, Earnings per share, Statement of comprehensive income

Statement of comprehensive income of TUI Group for the period from 1 Oct 2016 to 30 Sep 2017
€ million
Group profit
Remeasurements of defined benefit obligations and related fund assets
Income tax related to items that will not be reclassified
Items that will not be reclassified to profit or loss
Foreign exchange differences
Foreign exchange differences outside profit or loss
Reclassification / adjustments
Financial instruments available for sale
Changes in the fair value
Reclassification / adjustments
Cash flow hedges
Changes in the fair value
Reclassification / adjustments
Changes in the measurement of joint ventures and associates
Changes in the measurement outside profit or loss
Reclassification / adjustments
Income tax related to items that may be reclassified
Items that may be reclassified to profit or loss
Other comprehensive income
Total comprehensive income
attributable to shareholders of TUI AG
attributable to non-controlling interest
Allocation of share of shareholders of TUI AG of total
comprehensive income
Continuing operations
Discontinued operations

Notes

(12)

(12)

2017

2016

761.4
280.7
– 66.9213.8– 17.9– 89.371.4– 31.8147.8– 179.6– 263.6– 635.4
371.8
19.3
28.0
– 8.7
46.9
– 247.1– 33.3
728.1
620.0
108.1

1,152.2– 593.3
157.9– 435.4
52.4
32.7
19.7
31.8
31.8
–
546.1
505.7
40.4
– 32.0– 32.0–– 80.9517.4
82.0
1,234.2
1,141.8
92.4

705.7– 85.7

404.2
737.6

136

Financial position of the TUI Group as at 30 Sep 2017
€ million
AssetsGoodwill
Other intangible assets
Property, plant and equipment
Investments in joint ventures and associates
Financial assets available for sale
Trade receivables and other assets
Touristic payments on account
Derivative financial instruments
Deferred tax assets
Non-current assets
Inventories
Financial assets available for sale
Trade receivables and other assets
Touristic payments on account
Derivative financial instruments
Income tax assets
Cash and cash equivalents
Assets held for sale
Current assets
Total assets

Notes

30 Sep 201730 Sep 2016

(13)
(14)
(15)
(16)
(17), (38)(18), (38)
(19)
(38)
(20)

2,889.5
548.1
4,253.7
1,306.2
69.5
211.8
185.2
79.9
323.7
9,867.6

2,853.5545.8
3,714.5
1,180.8
50.4
156.5
158.8
126.8
344.7
9,131.8(21)(17), (38)(18), (38)
(19)
(38)
(20)
(22), (38)
(23)

110.2
–
794.5
573.4
215.4
98.7
2,516.1
9.6
4,317.9
14,185.5

105.2
265.8
754.7
565.4
544.6
87.7
2,072.9929.8
5,326.1
14,457.9

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

137

Financial position

Financial position of the TUI Group as at 30 Sep 2017
€ million
Equity and liabilities
Subscribed capital
Capital reserves
Revenue reserves
Equity before non-controlling interest
Non-controlling interest
EquityPension provisions and similar obligations
Other provisions
Non-current provisions
Financial liabilities
Derivative financial instruments
Income tax liabilities
Deferred tax liabilities
Other liabilities
Non-current liabilities
Non-current provisions and liabilities
Pension provisions and similar obligations
Other provisions
Current provisions
Financial liabilities
Trade payables
Touristic advance payments received
Derivative financial instruments
Income tax liabilities
Other liabilities
Current liabilities
Liabilities related to assets held for sale
Current provisions and liabilities
Total provisions and liabilities

Notes

30 Sep 201730 Sep 2016

(24)
(25)
(26)

1,501.6
4,195.0– 2,756.9
2,939.7594.0
3,533.7

1,500.7
4,192.2– 3,017.8
2,675.1
573.1
3,248.2

1,094.7
801.4
1,896.1
1,761.2
50.4
150.2
109.0
150.2
2,221.0
4,117.1

1,410.3803.0
2,213.3
1,503.4
27.5
22.2
62.9
160.1
1,776.1
3,989.4

32.7
349.9
382.6
171.9
2,653.3
2,446.4
217.2
65.3
598.0
6,152.1–
6,534.7
14,185.5

40.6
374.8
415.4
537.7
2,476.9
2,301.3
249.6
196.0
571.1
6,332.6472.3
7,220.3
14,457.9

(28)

(29)
(30)
(31), (38)
(38)
(20)
(32), (38)

(29)
(30)
(31), (38)
(38)
(38)
(32), (38)
(33)

138

Statement of changes in Group equity of the TUI Group for the period from 1 Oct 2016 to 30 Sep 2017

€ million
Balance as at 1 Oct 2015
Dividends
Share-based payment schemes
Issue of employee shares
Acquisition of own shares
Deconsolidation
Effects on the acquisition of non-controlling interests
Group profit
Foreign exchange differences
Financial instruments available for sale
Cash flow hedges
Remeasurements of defined benefit obligations and related fund assets
Changes in the measurement of joint ventures and associates
Taxes attributable to other comprehensive income
Other comprehensive income
Total comprehensive income
Balance as at 30 Sep 2016
Dividends
Share based payment schemes
Issue of employee shares
Acquisition of own shares
Disposal of own shares
Deconsolidation
Group profit
Foreign exchange differences
Financial Instruments available for sale
Cash flow hedges
Remeasurements of defined benefit obligations and related fund assets
Changes in the measurement of companies measured at equity
Taxes attributable to other comprehensive income
Other comprehensive income
Total comprehensive income
Balance as at 30 Sep 2017

Subscribed
capital(24)

Capital reserves(25)

1,499.6
–
–
1.1
–
–
–
–
–
–
–
–
–
–
–
–
1,500.7
–
–
0.9
–
–
–
–
–
–
–
–
–
–
–
–
1,501.6

4,187.7
–
–
4.5
–
–
–
–
–
–
–
–
–
–
–
–
4,192.2
–
–
2.8
–
–
–
–
–
–
–
–
–
–
–
–
4,195.0

Other revenue
reserves

Foreign­exchange­differences– 2,460.4– 327.0
4.3–– 56.3–– 6.9
1,037.4
61.0––– 593.3– 32.0157.9– 406.4
631.0– 2,215.3– 368.2– 1.0–– 22.3
32.4
1.8
644.8
132.2
–
–
280.7
19.3
– 66.9365.3
1,010.1– 1,562.5– 1,129.2
–
–
–
–
–
–
–
34.0
–
–
–
–
–
34.0
34.0
– 1,095.2
–
–
–
–
–
–
–
– 142.4–––––– 142.4– 142.4– 1,237.6

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

139Statement of changes in Group equity

Financial­instruments­available for sale

Cash flow­hedges

Revaluation­reserve

Revenue­reserves
(26)

–
–
–
–
–
–
–
–
–
31.8
–
–
–
–
31.8
31.8
31.8
–
–
–
–
–
–
–
–
– 31.8––––– 31.8– 31.8–– 204.1
–
–
–
–
–
–
–
– 19.4–545.8––– 80.8
445.6
445.6
241.5
–
–
–
–
–
–
–
2.8
–
– 263.5––
46.9– 213.8– 213.8
27.7

19.8
–
–
–
–
0.2
–
–
– 0.6
–
–
–
–
–
– 0.6
– 0.6
19.4
–
–
–
–
–
– 1.8
–
– 2.1
–
–
–
–
–
– 2.1
– 2.1
15.5

– 3,773.9– 327.0
4.3–– 56.30.2– 6.9
1,037.4
75.0
31.8
545.8
– 593.3– 32.077.1
104.4
1,141.8– 3,017.8– 368.2– 1.0–– 22.3
32.4
–
644.8
– 9.5
– 31.8– 263.5
280.7
19.3– 20.0– 24.8620.0– 2,756.9

Equity before
non-controlling­interest

1,913.4– 327.0
4.3
5.6– 56.30.2– 6.9
1,037.4
75.0
31.8
545.8
– 593.3– 32.077.1
104.4
1,141.8
2,675.1– 368.2– 1.0
3.7– 22.3
32.4
–
644.8
– 9.5
– 31.8– 263.5
280.7
19.3– 20.0– 24.8620.0
2,939.7

Non-controllinginterest
(28)

Total

503.9
– 13.6–––– 10.00.4
114.8– 22.6
–
0.3
–
–
– 0.1
– 22.492.4
573.1– 87.2
–
–
–
–
–
116.6
– 8.4
–
– 0.1
–
–
–
– 8.5
108.1
594.0

2,417.3– 340.6
4.3
5.6– 56.3– 9.8– 6.5
1,152.2
52.4
31.8
546.1
– 593.3– 32.077.0
82.0
1,234.2
3,248.2– 455.4– 1.0
3.7– 22.332.4–
761.4– 17.9– 31.8– 263.6
280.7
19.3– 20.0– 33.3728.1
3,533.7

140

Cash flow statement€ million
Group profit
Depreciation, amortisation and impairment (+) / write-backs (–)
Other non-cash expenses (+) / income (–)
Interest expenses
Dividends from joint ventures and associates
Profit (–) / loss (+) from disposals of non-current assets
Increase (–) / decrease (+) in inventories
Increase (–) / decrease (+) in receivables and other assets
Increase (+) / decrease (–) in provisions
Increase (+) / decrease (–) in liabilities (excl. financial liabilities)
Cash inflow from operating activities
Payments received from disposals of property, plant and equipment
and intangible assets
Payments from disposals of consolidated companies(less disposals of cash and cash equivalents due to divestments)
Payments received from the disposals of other non-current assets
Payments made for investments in property, plant and equipment
and intangible assets
Payments made for investments in consolidated companies(less cash and cash equivalents received due to acquisitions)Payments made for investments in other non-current assets
Cash outflow / inflow from investing activities
Payments made for acquisition of own shares
Payments received from the issuance of employee shares
Payments made for interest increase in consolidated companies
Dividend payments

Notes

2017

2016

Var.

(40)

761.4
517.8
– 239.6
141.8
118.2– 100.7– 18.5169.5– 84.6317.8
1,583.1

1,152.2
578.5– 164.6
202.3
82.2– 802.5– 9.5
324.7– 234.2– 94.4
1,034.7– 390.8– 60.7– 75.0– 60.5+ 36.0+ 701.8– 9.0– 155.2+ 149.6+ 412.2+ 548.4

79.5

115.3

– 35.8– 14.3
418.7

876.7
12.1

– 891.0+ 406.6– 1,049.0– 697.4– 351.6– 66.0– 56.6– 687.7– 22.33.7–– 10.5– 57.2239.0– 56.22.0– 8.0– 55.5+ 0.6– 926.7+ 33.9+ 1.7+ 8.0– 368.2– 88.6– 327.0– 14.1– 41.2– 74.5329.8– 513.4– 74.8– 733.8
161.6

108.8
– 275.3– 92.3– 662.1
611.6+ 221.0– 238.1+ 17.5– 71.7– 450.0

2,403.6

1,682.2+ 721.4– 49.1105.8– 154.9–
161.6
2,516.1
–

4.0
611.6
2,403.6
330.7

– 4.0
– 450.0+ 112.5– 330.7(41)

TUI AG

subsidiaries to non-controlling interest
Payments received from the issue of bonds and the raisingof financial liabilities
Payments made for redemption of loans and financial liabilities
Interest paid
Cash outflow from financing activities
Net change in cash and cash equivalents
Development of cash and cash equivalents
Cash and cash equivalents at beginning of period
Change in cash and cash equivalents due to exchange rate
­fluctuations
Change in cash and cash equivalents due to changes in the group of
consolidated companies
Net change in cash and cash equivalents
Cash and cash equivalents at end of periodof which included in the balance sheet as assets held for sale

(42)

(43)

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

Cash flow statement

NOTE S

Principles and methods underlying the Consolidated Financial Statements

NOTE S
Principles and methods underlying theConsolidated Financial Statements
GeneralThe TUI Group with its major subsidiaries and shareholdings operates in tourism.
TUI AG , based in Karl-Wiechert-Allee 4, Hanover is the TUI Group’s parent company and a listed corporation under German
law. The Company is registered in the commercial registers of the district courts of Berlin-Charlottenburg (HRB 321)
and Hanover (HRB 6580). The shares in the company are traded on the London Stock Exchange and the Hanover andFrankfurt Stock Exchanges.

These consolidated financial statements of TUI AG were prepared for the financial year 2017 comprising the period
from 1 October 2016 to 30 September 2017. Where any of TUI ’s subsidiaries have different financial years, financial
statements were prepared as at 30 September in order to include these subsidiaries in TUI AG’s consolidated financial
statements.
The Executive Board and the Supervisory Board have submitted a Declaration of Compliance with the German Corporate
Governance Code required pursuant to section 161 of the German Stock Corporation Act (AktG) and made it permanently
available to the general public on the Company’s website (www.tuigroup.com).
The consolidated financial statements are prepared in euros. Unless stated otherwise, all amounts are indicated inmillion euros (€m).
The consolidated financial statements were approved for publication by TUI AG’s Executive Board on 11 December 2017.

Accounting principles
D E C L A R AT I O N O F C O M P L I A N C E

Pursuant to Regulation EEC No. 1606/2002 of the European Parliament and Council, TUI AG’s consolidated financial
statements as at 30 September 2017 were prepared in accordance with the International Financial Reporting Standards(IFRS) as applicable in the European Union. Moreover, the commercial-law provisions listed in section 315a (1) of theGerman Commercial Code (HGB) were also observed in preparing the consolidated financial statements.
The accounting and measurement methods and the explanatory information and Notes to these annual financial statements for financial year 2017 are generally consistent with those followed in preparing the previous consolidated financial
statements for financial year 2016.

141

142

N E W LY A P P L I E D S TA N D A R D S

Since the beginning of the financial year 2017 the following standards amended or newly issued by the IASB became
mandatorily applicable for the first time to TUI Group:

Newly applied standards in financial year 2017
Standard

Applicable
from

IFRS 11
Accounting for Acquisitionsof Interests in Joint­Operations

1 Jan 2016

IAS 16 & IAS 38

1 Jan 2016

Clarification of Acceptable
Methods of Depreciation
and Amortisation
IAS 16 & IAS 41

1 Jan 2016

Agriculture: Bearer Plants

Various
Improvements to
IFRS (2012– 2014)
IAS 1
Disclosure Initiative

1 Jan 2016

1 Jan 2016

Amendments
The amendments specify how to account for the acquisition of an interest in a Joint
Operation that constitutes a ‘business’ (as defined in IFRS 3). Accordingly, the acquirer has
to measure identifiable assets and liabilities at fair value, recognise acquisition-related
costs as expenses, recognise deferred tax assets and liabilities and capitalise any residual
amounts as goodwill. Furthermore, the disclosure requirements of IFRS 3 apply. The
amendments are to be applied prospectively.
The amendment clarifies when a method of depreciation or amortisation based on revenue
may be appropriate. According to it, depreciation of an item of property, plant andequipment based on revenue generated by using the asset is not appropriate, amortisation
based on revenue for intangible assets only in exceptional cases. The amendments are tobe applied prospectively.
Bearer plants that bear biological assets for more than one period without being an
agricultural product themselves, such as grape vines or olive trees, have this far beenmeasured at fair value. In future, bearer plants will be treated as property, plant andequipment in scope of IA S 16 and are to be measured at amortised cost. By contrast, theproduce growing on bearer plants will continue to be measured at fair value in accordancewith IA S 41.
The amendments from the Annual Improvements Project comprise changes to four standards: IA S 19, IA S 34, IFRS 5 and IFRS 7. The amendments introduce minor changes to thecontent as well as clarifications regarding recognition, presentation and measurement.
The amendments address the application of materiality when presenting the components
of financial statements. The standard no longer prescribes a particular order of the notes
so that the order of the notes may reflect the individual relevance for the company. The
amendments clarify that immaterial disclosures are not required. This also applies if
disclosure is required by another standard. Furthermore, the presentation of an entity’s
share of other comprehensive income of equity-accounted associates and joint ventures inthe statement of comprehensive income is clarified.

Impact on financial­statements
No material impact

No impact

No impact

No material impact

No material impact

Going concern reporting according to the UK Corporate Governance CodeThe Executive Board remains satisfied with the Group’s funding and liquidity position. At 30 September 2017, the main
sources of debt funding included:• an external revolving credit facility of € 1,535.0 m maturing in July 2022, used to manage the seasonality of theGroup’s cash flows and liquidity,• 2016 / 21 bonds with a nominal value of € 300.0 m, issued by TUI AG , maturing in October 2021,• € 1,226.5 m of finance lease obligations, and• bank liabilities of € 381.3 m, primarily for loans used to acquire property, plant and equipment.
The credit facility requires compliance with certain financial covenants, which were fully complied with at the balance
sheet date.

NOTE S

Principles and methods underlying the Consolidated Financial Statements

In accordance with provision C1.3 of the UK Corporate Governance Code, the Executive Board confirms that it considers
it appropriate to adopt the going concern basis of accounting in preparing the financial statements.

Principles and methods of consolidation
PRINCIPLES

The consolidated financial statements include all significant subsidiaries directly or indirectly controlled by TUI AG .
Control exists where TUI AG has power over the relevant activities, is exposed to variable returns or has rights to thereturns, and has the ability to affect those variable returns through its power over the investee.
As a rule, the control is exercised by means of a direct or indirect majority of voting rights. If the TUI Group holds lessthan the majority of voting rights in a shareholding, it may exercise control due to contractual agreements or similararrangements.
In assessing control, the existence and effect of potential voting rights that are currently exercisable or convertible aretaken into account. Consolidation of subsidiaries starts from the date TUI gains control. When TUI ceases to control thecorresponding companies, they are removed from the group of consolidated companies.
The consolidated financial statements are prepared from the separate or single-entity financial statements of TUI AG
and its subsidiaries, drawn up on the basis of uniform accounting, measurement and consolidation methods and usuallyaudited or reviewed by auditors.
Associates for which the TUI Group is able to exert significant influence over the financial and operating policy decisions
within these companies are accounted for using the equity method. As a rule, significant influence is assumed if TUI AG
directly or indirectly holds voting rights of 20 to less than 50 per cent.
Stakes in joint ventures are also measured using the equity method. A joint venture is a company managed jointly by
the TUI Group with one or several partners based on a contractual agreement, in which the parties that jointly exercise
control have rights to the company’s net assets. Joint ventures also include companies in which the TUI Group holds
a majority or minority of voting rights but in which decisions about the relevant activities may only be taken on an
unanimous basis due to contractual agreements.
The dates as of which associates and joint ventures are included in or removed from the group of companies measured
at equity are determined in a manner consistent with that applied to subsidiaries. At equity measurement in each caseis based on the last annual financial statements available or the interim financial statements as at 30 September if
the balance sheet dates differ from TUI AG’s balance sheet date. This affects 34 companies with a financial year from
1 January to 31 December and two companies with a financial year from 1 April to 31 March of the following year.

143

144

G R O U P O F C O N S O L I D AT E D C O M PA N I E S

In financial year 2017, the consolidated financial statements included a total of 259 subsidiaries. The table below presentschanges in the number of companies since 1 October 2016.

Development of the group of consolidated companies*
and the Group companies measured at equity

Balance at 30 Sep 2016
Additions
Incorporation
Acquisition
Disposals
Liquidation
Sale
MergerTermination of business operations
Balance at 30 Sep 2017

Consolidated
subsidiaries

Associates

Joint ventures

417
9
6
3
167
21
134
7
5
259

13
–
–
–
–
–
–
–
–
13

27
2
–
2
1
–
–
1
–
28

* Excl. TUI AGTUI AG’s direct and indirect subsidiaries, associates and joint ventures are listed under Other Notes – TUI Group Shareholdings.

58 subsidiaries were not included in the consolidated financial statements. Even when taken together, these companies
are of minor significance to the presentation of a true and fair view of the financial position and performance of the Group.
The effects of the changes in the group of consolidated companies in financial year 2017 on financial years 2017 and2016 are outlined below. While the value of companies deconsolidated in financial year 2017 posted in the statement offinancial position is carried as per the closing date for the previous period, items in the income statement are also shownfor financial year 2017 due to prorated effects. Developments already reported in the items Result from discontinued
operations, Assets held for sale or Liabilities related to assets held for sale are not included in the tables below but are
shown in the section on ‘Discontinued operations’.

Impact of changes in the group of consolidated companies on the statement of financial position
Additions€ million
Non-current assets
Current assets
Current other liabilities

Disposals

30 Sep 201730 Sep 2016

74.3
9.0
51.3

6.0
0.3
0.2

NOTE S

145

Principles and methods underlying the Consolidated Financial Statements

Impact of changes in the group of consolidated companies
on the consolidated income statement
Additions

Disposals€ million

2017

2017

2016

Turnover with third parties
Cost of sales and administrative expenses
Other income / other expenses
Share of result of joint ventures and associates
Earnings before income taxes
Income taxes
Group profit

424.5
427.2
1.3
– 1.4
– 2.8
–
– 2.8

–
–
0.4
–
0.4
–
0.4

1.5
1.3
–
–
0.2
–
0.2

Acquisitions – divestments – discontinued operations
ACQUISITIONS

In financial year 2017, the trade and assets of 20 travel agencies were acquired. Further, TUI acquired 99.99 % of theshares in French tour operator Transat France S.A., Ivry-sur-Seine, France (Transat) on 31 October 2016. The aim of theacquisition is to increase market presence in France. The acquisition included the purchase of the majority stakes inTransat Développement SAS , Ivry-sur-Seine, France, and in Tourgreece Tourism Enterprise A.E., Athens, Greece. The
latter was sold again by the reporting date. The consideration transferred by TUI Group for all acquisitions consists
exclusively of cash and totals € 64.0 m for Transat and € 3.9 m for the travel agencies.
The difference of € 74.9 m, including € 72.2 m for Transat, between the consideration transferred and the acquired, revalued
net assets was carried as goodwill. This goodwill essentially contributes to future earnings and cost savings potential.

Statement of financial position of Transat Group as at the date of first-time consolidation€ million
Other intangible assets
Property, plant and equipment
Fixed assets
Trade receivables
Other assets
Cash and cash equivalents
Deferred tax liabilities
Other provisions
Other Liabilities
EquityFair value at date offirst-time consolidation
19.2
8.0
27.2
18.7
14.2
17.7
6.7
5.8
73.5
– 8.2

At the time of acquisition, the gross amount of trade receivables amounted to € 19.2 m, the value adjustments to€ 0.5 m. The gross amount of other assets amounted to € 17.2 m, the value adjustment to € 3.0 m.

146

Measurement of the acquired assets and liabilities in the framework of the purchase price allocation for the acquisitionof Transat Group was completed in financial year 2017.
From November 2016 to September 2017, Transat generated turnover of € 422.4 m and a profit contribution of € 0.3 m.
If Transat had already been consolidated on 1 October 2016, TUI Group’s turnover would have been € 26.1 m higher andthe after-tax result € 1.2 m lower in the reporting period.
In the present financial statements, the purchase price allocations for the 18 travel agencies acquired in financial year
2016 and for Aeolos Group were finalised within the twelve-month period provided under IFRS 3 without a major impact
on the consolidated statement of financial position.
DIVESTMENTS

The divestment of Specialist Group is explained in the section on Discontinued operations. The effects of further divestments on TUI Group’s net assets, financial position and results of operations were not material.
D I S C O N T I N U E D O P E R AT I O N S

The result from discontinued operations includes subsequent expenses of € 2.0 m and income of € 6.7 m as well as income taxes of € 2.5 m from discontinued operations sold in the prior year.
In the prior year, the result from discontinued operations comprised the result of Hotelbeds Group, sold on 12 September 2016, and LateRooms Group, sold on 6 October 2015.
In the prior year, TUI AG had decided to sell the Specialist Group as there was limited linkage to TUI Group’s remaining
business and thus very little potential for integration into the Group’s strategy. In the reporting period, the Specialist Group
only comprised the tour operators combined under the Travelopia brand, offering in particular expedition travel, luxury
tours, sporting events, student travel and sailing trips. The language schools business was sold in financial year 2016.
The sale of Travelopia to Kohlberg Kravis Roberts & Co. L.P. was completed on 15 June 2017. The result from the saleis calculated as follows:

Result from the sale of the Specialist Group€ million

2017

Purchase price444.6

Carrying amount of net assets sold
Reclassification of fx differences
Reclassifications of hedging reserves
Costs of disposal, additional charges and guarantees
Profit on sale

– 441.7– 71.1– 2.0– 15.1– 85.3The purchase price comprises the cash received for the shares in the companies of Travelopia as well as the price fortwo loans granted to Travelopia.
The result from the discontinued operation Specialist Group generated until the date of disposal is reported separatelyfrom the income and expenses of continuing operations in the consolidated income statement, shown in a separate line
as ‘Result from discontinued operations’. As the Specialist Group was already classified as discontinued operation in theprior year, there is no restatement of the prior year income statement.

NOTE S147

Principles and methods underlying the Consolidated Financial Statements

Income statement of the discontinued operation Specialist Group€ million
TurnoverCost of sales
Gross profit
Administrative expenses
Other income
Other expenses
Impairment of goodwill
Financial income
Financial expenses
Earnings before income taxes from the discontinued operation Specialist Group
Income taxes
Operating result from the discontinued operation Specialist Group
Result from the sale of the discontinued operation Specialist Group
Result from the discontinued operation Specialist Group	Result from the discontinued operation Specialist Group attributable
to shareholders of TUI AG
	Result from the discontinued operation Specialist Group attributable tonon-controlling ­interest

2017

2016

829.0
738.0
91.0
98.6
0.1
0.2
47.4
0.2
1.2
– 56.1
10.3– 66.4– 85.3– 151.7

1,371.4
1,217.1
154.3
177.0
7.0
20.7
–
0.6
1.1
– 36.9– 2.7– 34.2–– 34.2– 151.7– 34.1–– 0.1

While the prior-year reference period comprised the full financial year, the income statement for the completed financial
year only comprises the period until 15 June 2017. The turnover generated in the prior-year reference period comprises
the turnover from language travel until the date of disposal of these activities and the turnover generated in connection
with the rugby and cricket world championships held last year. The carve-out of Travelopia from TUI Group’s distribution
activities resulted in a further decrease in turnover in the financial year. The overall cost of sales declined accordingly.
On the other hand, turnover from sailing trips in particular increased. A further improvement in the result was driven
by the suspension of depreciation since 30 September 2016 in line with IFRS 5.
The measurement of the discontinued operation with the agreed purchase price less costs of disposal as at 31 March 2017
leaded to an impairment of € 47.4 m, shown in the income statement of the Specialist Group as impairment of goodwill.
The consolidated cash flow statement shows the cash flows of the overall Group including the discontinued operations.
The table below provides a separate presentation of the cash flows of the discontinued operation Specialist Group.
Cash flows from intercompany relationships, in particular financing schemes, dividends, business transfers and sales ofcompanies, are not taken into account. The cash outflow from investing activities includes the cash of € 423.6 m, which
was held by the Specialist Group on disposal.

Condensed cash flow statement of the discontinued operation Specialist Group€ million
Cash inflow from operating activities
Cash outflow from investing activities
Cash outflow from financing activities

2017

2016

55.9
– 453.1– 4.2

42.1– 80.6– 3.9

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F O R E I G N E X C H A N G E T R A N S L AT I O NTransactions in foreign currencies are translated into the functional currency at the foreign exchange rates at the dateof the transaction. Any gains and losses resulting from the execution of such transactions and the translation of monetary
assets and liabilities denominated in foreign currencies at the foreign exchange rate at the date of the transaction are shownin the income statement, with the exception of gains and losses to be recognised in equity as qualifying cash flow hedges.
The annual financial statements of companies are prepared in the respective functional currency. The functional currencyof a company is the currency of the primary economic environment in which the company operates. With the exceptionof a small number of companies, the functional currencies of all subsidiaries correspond to the currency of the countryof incorporation of the respective subsidiary.
Where subsidiaries prepare their financial statements in functional currencies other than the Euro, being the Group’sreporting currency, the assets, liabilities and notes to the statement of financial position are translated at the rate ofexchange applicable at the balance sheet date (closing rate). Goodwill allocated to these companies and adjustments ofthe fair value arising on the acquisition of a foreign company are treated as assets and liabilities of the foreign company
and also translated at the rate of exchange applicable at the balance sheet date. The items of the income statement andhence the result for the year shown in the income statement are translated at the average rate of the month in which
the respective transaction takes place.
Differences arising on the translation of the annual financial statements of foreign subsidiaries are reported outside
profit and loss and separately shown as foreign exchange differences in the consolidated statement of changes in equity.
When a foreign company or operation is sold, any foreign exchange differences previously included in equity outside
profit and loss are recognised as a gain or loss from disposal in the income statement through profit and loss.
Translation differences relating to non-monetary items with changes in their fair values eliminated through profit andloss (e. g. equity instruments measured at their fair value through profit and loss) are included in the income statement.
In contrast, translation differences for non-monetary items with changes in their fair values taken to equity (e. g. equity
instruments classified as available for sale) are included in revenue reserves.
The TUI Group did not hold any subsidiaries operating in hyperinflationary economies in the completed financial year,
nor in the previous year.
The translation of the financial statements of foreign companies measured at equity follows the same principles foradjusting carrying amounts and translating goodwill as those used for consolidated subsidiaries.
N E T I N V E S T M E N T I N A F O R E I G N O P E R AT I O N

Monetary items receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely
in the foreseeable future, essentially constitute part of a net investment in this foreign operation. Foreign exchange
differences from the translation of these monetary items are recognised in other comprehensive income. TUI Group has
granted loans of this type in particular to hotel companies in Turkey and North Africa.

NOTE S

149

Principles and methods underlying the Consolidated Financial Statements

Exchange rates of currencies of relevance to the TUI Group
Closing rate

Annual average rate

1 € equivalent

30 Sep 201730 Sep 2016

2017

2016

Sterling
US dollar
Swiss franc
Swedish krona

0.88
1.18
1.15
9.65

0.86
1.12
1.09
9.62

0.87
1.07
1.08
9.69

0.78
1.11
1.09
9.35

C O N S O L I D AT I O N M E T H O D S

The recognition of the net assets of acquired businesses is based on the acquisition method. Accordingly all identifiable
assets and all liabilities assumed are measured at fair value as of the acquisition date. Subsequently, the consideration
for the stake is measured at fair value and eliminated against the acquiree’s revalued equity attributable to the acquired
share. As in the prior year, the option to measure the non-controlling interests at their fair value (full goodwill method)
was not used.
Any excess of acquisition costs over net assets acquired is capitalised as goodwill and recognised as an asset for theacquired subsidiary in accordance with IFRS 3. Any negative goodwill is recognised immediately in profit and loss andpresented as other income.
When additional shares are purchased after obtaining control, the difference between the purchase price and the carrying
amount of the stakes acquired is recognised directly in equity. The effects from sales of stakes not entailing a loss ofcontrol are also recognised directly in equity. By contrast, when control is obtained or lost, gains or losses are recognised
in profit and loss. In the case of business combination achieved in stages (where the acquirer held an equity interest
before he obtained control), the equity stake previously held in the acquired company is revalued at the fair value applic­able at the acquisition date and the resulting gain or loss is recognised in profit or loss. For transactions involving a lossof control, the profit or loss does not only comprise the difference between the carrying amounts of the disposed stakes
and the consideration received but also the result from the revaluation of the remaining shares.
On loss of control of a subsidiary the gain or loss on derecognition will be calculated as the difference of the fair valueof the consideration plus the fair value of any investment retained in the former subsidiary less the share of the bookvalue of the net assets of the subsidiary. Any gains or losses previously recognised in equity from currency translationsor the valuation of financial assets and liabilities will be reclassified to the income statement. When a subsidiary is sold,
any goodwill allocated to the respective subsidiary is taken into account in the calculation of the profit or loss of disposal.
The Group’s associates and joint ventures are measured at equity and included at the cost to purchase as at the acquisition
date. The Group’s stake in associates and joint ventures includes the goodwill arising from the respective acquisition.
The Group’s share in profits and losses of associates and joint ventures is carried in the income statement as from thedate of acquisition (Share of result from joint ventures and associates), while the Group’s share in the total other comprehensive income is shown in its revenue reserves. The accumulated changes arising after the acquisition are shown inthe carrying amount of the shareholding. When the share in the loss of an associated company or joint venture equals
or exceeds the Group’s original stake in this company, including other unsecured receivables, no further losses arerecognised. Any losses exceeding that stake are only recognised to the extent that obligations have been assumed or
payments have been made for the associated company or joint venture.

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Where the accounting and measurement methods applied by associates and joint ventures differ from the uniform
accounting rules applied in the Group, the differences are adjusted.
Intercompany receivables and payables or provisions are eliminated, as are intercompany turnover, other income andthe corresponding expenses. Intercompany results from intercompany deliveries and services are reversed throughprofit and loss, taking account of deferred taxes. However, intercompany losses are an indicator that an asset may be
impaired. Intercompany profits from transactions with companies measured at equity are eliminated in relation to theGroup’s stake in the company. Intercompany profits from transactions with companies measured at equity are eliminatedin relation to the Group’s stake in the companies unless these intercompany profits result from the usual deliveries
effected or services rendered between Group companies. Intercompany transactions are provided at arm’s length.

Accounting and measurement methods
The consolidated financial statements were prepared according to the historical cost principle, with the exception ofcertain financial instruments such as financial assets and derivatives held for trading or available for sale as well as plan
assets from externally funded defined-benefit obligations held at fair value at the balance sheet date.
The financial statements of the consolidated subsidiaries are prepared in accordance with uniform accounting andmeasurement principles. The amounts recognised in the consolidated financial statements are not determined by tax
regulations but solely by the commercial presentation of the financial position and performance as set out in therules of the IASB.
TURNOVER RECOGNITION

Turnover and other income is recognised upon delivery of the service or assets and hence upon transfer of the risk.
The commission fees received by travel agencies for package tours are recognised once the travel agencies have performed their contractual obligations towards the tour operator. As a rule, this condition is met upon payment by thecustomers or, at the latest, at the date of departure. The services of tour operators mainly consist in organising andcoordinating package tours. Turnover from the organisation of tours is therefore recognised in full when the customer
departs. Turnover from individual travel modules booked by the customer directly with airlines, hotel companies orincoming agencies is recognised when the customers use the services concerned. Income from non-completed cruises isrecognised according to the proportion of contract performance at the balance sheet date. The percentage of completionis determined as the ratio between travel days completed by the balance sheet date and overall travel days.
G O O D W I L L A N D O T H E R I N TA N G I B L E A S S E T S

Acquired intangible assets are carried at cost. Internally-generated intangible assets are capitalised at cost where an
inflow of future economic benefits for the Group is probable and can be reliably measured. The cost to produce comprises direct costs and directly allocable overheads. Intangible assets with a finite service life are amortised over the
expected useful life.
Intangible assets acquired as a result of business combinations, such as customer base or trademark rights, are included
at their fair value as at the date of acquisition and are amortised on a straight-line basis.

NOTE S

151

Principles and methods underlying the Consolidated Financial Statements

Useful lives of intangible assets
Useful lives
Brands, licences and other rights
Transport- and leasing contracts
Computer Software
Customer base as at acquisiton date

15 to 20 years
12 to 20 years
3 to 10 years
7 to 15 years

If there are any events or indications suggesting potential impairment, the amortised carrying amount of the intangible
asset is compared with the recoverable amount. Any losses in value going beyond wear-and-tear depreciation are taken
into account through the recognition of impairment charges.
Depending on the functional area of the intangible asset, amortisation and impairment charges are included under costof sales or administrative expenses.
Intangible assets with indefinite useful lives are not amortised but are tested for impairment at least annually. In addition,
impairment tests are conducted if there are any events or indications suggesting potential impairment. The TUI Group’s
intangible assets with an indefinite useful life consist exclusively of goodwill.
Impairment tests for goodwill are conducted on the basis of cash generating units.
Impairment charges are recognised where the carrying amount of the tested units plus the allocated goodwill exceeds
the recoverable amount. The recoverable amount is the higher of fair value less costs of disposal and the present valueof future cash flows based on continued use (value in use). The fair value less costs of disposal corresponds to theamount that could be generated between knowledgeable, willing, independent business partners after deduction of thecosts of disposal.
Impairment of goodwill is shown separately in the consolidated income statement.
P R O P E R T Y, P L A N T A N D E Q U I P M E N T

Property, plant and equipment are measured at amortised cost. The costs to purchase include costs to bring the asset toa working condition. The costs to produce are determined on the basis of direct costs and directly attributable indirect
costs and depreciation.
Borrowing costs directly associated with the acquisition, construction or production of qualifying assets are included in
the costs to acquire or produce these assets until the assets are ready for their intended use.
To the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset, the underlying
capitalisation rate is determined on the basis of the specific borrowing cost; in all other cases the weighted average ofthe borrowing costs applicable to the borrowings outstanding is applied.

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Depreciation of property, plant and equipment is based on the straight-line method, based on the customary useful
lives. The useful economic lives are as follows:

Useful lives of property, plant and equipment
Useful lives
Hotel buildings
Other buildings
Cruise ships
AircraftFuselages and engines
Engine overhaul
Major overhaul
Spare parts
Operating and business equipment

30 to 40 years
25 to 50 years
30 to 40 years
22 to 25 years
depending on intervals, up to 12 years
depending on intervals, up to 12 years
up to 12 years
3 to 10 years

Moreover, the level of depreciation is determined by the residual values recoverable at the end of the useful life of anasset. The residual value assumed in first-time recognition for cruise ships and hotel complexes is up to 35 % of theacquisition costs. The determination of the depreciation of aircraft fuselages and aircraft engines in first-time recognitionis based on a residual value of a maxium of 5 % of the cost of acquisition. The payments made under a power by thehour arrangement relating to maintenance overhauls are capitalised as PPE under construction up to a maintenanceevent at which point the cost is transferred to the appropriate PPE category.
Both the useful lives and residual values are reviewed on an annual basis when preparing the Group financial statements.
The review of the residual values is based on comparable assets at the end of their useful lives as at the current point
in time. Any adjustments required are recognised as a correction of depreciation over the remaining useful life of theasset. The adjustment of depreciation is recognised retrospectively for the entire financial year in which the review has
taken place. Where the review results in an increase in the residual value so that it exceeds the remaining net carrying
amount of the asset, depreciation is suspended. In this case, the amounts are not written back.
Any losses in value going beyond wear-and-tear depreciation are taken into account through the recognition of impairment
losses. If there are any events or indications suggesting impairment, the required impairment test is performed tocompare the carrying amount of an asset with the recoverable amount.
Investment grants received are shown as reductions in the costs to purchase or produce items of property, plant orequipment where these grants are directly allocable to individual items. Where a direct allocation of grants is not possible,
the grants and subsidies received are included as deferred income under other liabilities and reversed in accordancewith the use of the investment project.
LEASESFINANCE LEASESIn accordance with IAS 17, leased property, plant and equipment in which the TUI Group assumes substantially all therisks and rewards of ownership is capitalised. Capitalisation is based on the fair value of the asset or the present valueof the minimum lease payments, if lower. Depreciation is charged over the useful life or the lease term, if shorter, on
the basis of the depreciation method applicable to comparable purchased or manufactured assets. Every lease payment
is broken down into an interest portion and a redemption portion so as to produce a constant periodic rate of intereston the remaining balance of the liability. The interest portion is disclosed in the income statement through profit or loss.

NOTE S

Principles and methods underlying the Consolidated Financial Statements

FINANCIAL INSTRUMENTS

Financial instruments are contractual rights or obligations that will lead to an inflow or outflow of financial assets or theissue of equity rights. They also comprise derivative rights or obligations derived from primary assets.
In accordance with IAS 39, financial instruments are broken down into financial assets or liabilities to be measured at fairvalue through profit and loss, loans and receivables, financial assets available for sale, financial assets held to maturity
and other financial liabilities measured at amortised cost using the effective interest method (financial liabilities atamortised cost).
In terms of financial instruments measured at fair value through profit and loss, the TUI Group holds derivative financial
instruments mainly to be classified as held for trading as they do not meet the criteria as hedges in the framework of ahedging relationship according to IAS 39. The fair value option is not exercised. In addition, the TUI Group holds financial
assets in the loans and receivables and available for sale categories. However, the present financial statements do notinclude any financial assets held to maturity.
In financial year 2017 as well as in the prior year, no significant reclassifications were made within the individual measurement categories.
PRIMARY FINANCIAL A SSE TS AND FINANCIAL LIABILITIE S

Primary financial assets are recognised at the value as at the trading date on which the Group commits to buy the asset.
Primary financial assets are classified as loans and receivables or as financial assets available for sale when recognised
for the first time. Loans and receivables as well as financial assets available for sale are initially recognised at fair value
plus transaction costs.
Where objective information indicates that impairment charges are required, e. g. substantial financial difficulties of thecounterparty, payment delays or adverse changes in regional industry conditions expected to impact the solvency of
the Group’s borrowers in the light of past experience, impairment charges are recognised at an amount corresponding to
the expected loss. Impairment charges and reversals of impairment charges are included under cost of sales, administrative
expenses or financial expenses, depending on the nature of the transaction.
Financial assets available for sale are non-derivative financial assets either individually expressly assigned to this categoryor not allocable to any other category of financial assets. Within the TUI Group, they consist of investments in affiliated,
non-consolidated subsidiaries, trade investments and other securities. They are allocated to non-current assets unlessmanagement intends to sell them within twelve months of the balance sheet date.
Financial assets available for sale are measured at their fair value upon initial recognition. Changes in the fair value areincluded directly in equity until the disposal of the assets. If there is objective evidence of impairment, an impairment
loss is taken through profit and loss. Objective evidence may, in particular, be substantial financial difficulties of thecounterparty and significant changes in the technological, market, legal or economic environment.
Moreover, for equity instruments held, a significant or prolonged decline in the fair value below its cost is also objective
evidence of impairment. The TUI Group concludes that a significant decline exists if the fair value falls by more than
20 % below cost. A decline is assessed as prolonged if the fair value remains below cost for more than twelve months.
In the event of subsequent reversal of the impairment, the impairment included in profit or loss is not reversed for equity
instruments but recognised in other comprehensive income. Where a listed market price in an active market is notavailable for shares held in companies and other methods to determine an objective market value are not applicable,
these equity instruments are measured at cost.

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As a matter of principle, the foreign exchange differences resulting from the translation of trade accounts payable arereported as a correction of the cost of sales. Foreign exchange differences from the translation of liabilities not resulting
from normal operating processes are reported under other income / other expenses, financial expenses / income oradministrative expenses, depending on the nature of the underlying liability.
A derecognition of assets is primarily recognised as at the date on which the rights for payments from the asset expire
or are transferred and therefore as at the date essentially all risks and rewards of ownership are transferred.
Primary financial liabilities are included in the consolidated statement of financial position if an obligation exists totransfer cash and cash equivalents or other financial assets to another party. First-time recognition of a primary liability
is recognised at its fair value. For loans taken out, the nominal amount received is reduced by discounts obtained andborrowing costs paid. In the framework of follow-up measurement, primary financial liabilities are measured at amortised
cost based on the effective interest method.
D E R I V AT I V E F I N A N C I A L I N S T R U M E N T S A N D H E D G I N G

At initial measurement, derivative financial instruments are measured at the fair value attributable to them on the datethe contract is entered into. Subsequent re-measurement is also recognised at the fair value applicable at the respectivebalance sheet date. Where derivative financial instruments are not part in the framework of IAS 39 of a hedge in connection
with hedge accounting, they are classified as held for trading.
The method used to recognise profits and losses depends on whether the derivative financial instrument has beenclassified as a hedge and on the type of underlying hedged item. Changes in the fair values of derivative financial
instruments are recognised in profit and loss unless they are classified as a hedge in accordance with IAS 39. If they areclassified as an effective hedge in accordance with IAS 39, the transaction is recognised as a hedge.
The TUI Group applies the hedge accounting provisions relating to hedging of balance sheet items and future cash flows.
Depending on the nature of the underlying transaction, the Group classifies derivative financial instruments either asfair value hedges against exposure to changes in the fair value of assets or liabilities or as cash flow hedges against
variability in cash flows from highly probable future transactions.
Upon conclusion of the transaction, the Group documents the hedge relationship between the hedge and the underlying
item, the risk management goal and the underlying strategy. In addition, a record is kept of the assessment, both at the
beginning of the hedge relationship and on a continual basis, as to whether the derivatives used for the hedge arehighly effective in compensating for the changes in the fair values or cash flows of the underlying transactions.
Changes in the fair value of derivatives used as fair value hedges for the recognised assets or liabilities are recognised
through profit and loss. Moreover, the carrying amounts of the underlying transactions are adjusted through profit andloss for the gains or losses resulting from the hedged risk.
The effective portion of changes in the fair value of derivatives forming cash flow hedges is recognised in equity. Any
ineffective portion of such changes in the fair value, by contrast, is recognised immediately in the income statement
through profit and loss. Amounts taken to equity are reclassified to the income statement and included as income or
expenses in the period in which the hedged item has an effect on results.

NOTE S

Principles and methods underlying the Consolidated Financial Statements

If a hedge expires, is sold or no longer meets the criteria of IAS 39 for hedge accounting, the cumulative gain or loss
remains in equity and is only recognised in the income statement through profit and loss when the originally hedged
future transaction occurs. If the future transaction is no longer expected to take place, the cumulative gains or losses
recognised directly in equity are recognised immediately through profit and loss.
INVENTORIE S

The measurement method applied to similar inventory items is the weighted average cost formula.
C A S H A N D C A S H E Q U I VA L E N T S

Cash and cash equivalents comprise cash, call deposits, other current highly liquid financial assets with an original termof a maximum of three months and current accounts. Overdrawn current accounts are shown as liabilities to banks
under current financial liabilities.
EQUITY

Ordinary shares are classified as equity. Costs directly allocable to the issue of new shares or conversion options aretaken to equity on a net after-tax basis as a deduction from the issuance proceeds.
OWN SHARESThe group’s holdings in its own equity instruments are shown as deductions from shareholders’ equity at cost, including
directly attributable transaction costs. No gain or loss is recognised in the income statement on the purchase or sale ofshares. Any difference between the proceeds from sale and the original cost are taken to reserves.
PENSION PROVISIONSThe pension provision recognised for defined benefit plans corresponds to the net present value of the defined benefit
obligations (DBOs) as at the balance sheet date less the fair value of the plan assets. If the value of the plan assets
exceeds the value of the DBO, the excess amount is shown within other assets. Measurement of such an asset is limited to
the net present value of the value in use in the form of reimbursements from the plan or reductions in future contribution
payments. The DBOs are calculated annually by independent actuaries using the projected unit credit method.
For defined contribution plans, the Group pays contributions to public or private pension insurance plans on the basisof a statutory or contractual obligation or on a voluntary basis. The Group does not have any further payment obligations
on top of the payment of the contributions. The contributions are recognised under staff costs when they fall due.
OTHER PROVISIONSOther provisions are formed when the Group has a current legal or constructive obligation as a result of a past event,where in addition it is probable that assets will be impacted by the settlement of the obligation and the level of theprovision can be reliably determined.
Where a large number of similar obligations exist, the probability of a charge over assets is determined on the basis of
this group of obligations. A provision is also recognised if the probability of a charge over assets is low in relation to anindividual obligation contained in this group.
Provisions are measured at the present value of the expected expenses, taking account of a pre-tax interest rate, reflecting
current market assessments of the time value of money and the risks specific to the liability. Risks already taken into
account in estimating future cash flows do not affect the discount rate. Increases in provisions due to accretion of interest
are recognised as interest expenses through profit or loss.
D E F E R R E D TA X E S

Expected tax savings from the use of tax losses carried forward assessed as recoverable in the future are recognised asdeferred tax assets. Regardless of the unlimited ability to carry German tax losses forward which continues to exist, theannual utilisation is limited by the minimum taxation. Foreign tax losses carried forward frequently have to be usedwithin a given country-specific time limit and are subject to restrictions concerning the use of these losses carried forward
for profits on ordinary activities, which are taken into account accordingly in the measurement.

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Income tax is directly charged or credited to equity if the tax relates to items directly credited or charged to equity inthe same period or some other period.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against
which the temporary difference or an unused tax loss can be utilised.
Deferred taxes are measured at the tax rates and tax provisions applicable at the balance sheet date or adopted by law
and expected to be applicable at the date of recognition of the deferred tax asset or the payment of the deferred tax
liability.
C U R R E N T I N C O M E TA X E SDeferred and current income tax liabilities are offset against the corresponding tax assets if they exist in the same fiscal
territory and have the same nature and maturity.
S H A R E - B A S E D PAY M E N T S

All share-based payment schemes in the Group are cash-settled or equity-settled.
For cash-settled transactions, the resulting liability for the Group is charged to expenses at its fair value as at the dateof the performance of the service by the beneficiary. Until settlement of the liability, the fair value of the liability is
re-measured at every closing date and all changes in the fair value are recognised through profit and loss.
For equity-settled transactions the fair value of the awards granted is recognised under staff costs with a corresponding
direct increase in equity. The fair value is determined at the point when the awards are granted and spread over thevesting period during which the employees become entitled to the awards. The method for the calculation of the granted
awards is described in Note 37.

NOTE S

Principles and methods underlying the Consolidated Financial Statements

SUMMARY OF SELEC TED ACCOUNTING AND ME A SUREMENT ME THODSThe table below lists the key accounting and measurement methods used by the TUI Group.

Summary of selected measurement bases
Item in the statement of financial position
AssetsGoodwill
Other intangible assets with definite useful lives
Property, plant & equipment
Joint ventures an associates
Financial assets
Loans and receivables
Held to maturity
Held for trading / Derivatives
Available for sale
Inventory
Trade and other receivables
Cash and cash equivalents
Assets held for sale
Liabilities and Provisions
Loans and borrowings
Provision for pensions
Other provisions
Financial liabilities
Non-derivative financial liabilities
Derivative financial liabilities
Payables, trade and other liabilities

Measurement base

At cost (subsequent measurement: impairment test)
At amortised cost
At amortised cost
At the Group's share of the net assets of the joint ventures andassociates
At amortised cost
Not applicableAt fair value
Fair value (with gains or losses recognised within other comprehensive
income) or at cost
Lower of cost and net realisable value
At amortised cost
At costLower of cost and fair value less cost of disposal

At amortised cost
Projected unit credit method
Present value of the settlement amountAt amortised cost
At fair value
At amortised cost

Key estimates and judgements
The presentation of the assets, liabilities, provisions and contingent liabilities shown in the consolidated financial
statements is based on estimates and judgements. Any uncertainties are appropriately taken into account in determining
the values.
All estimates and judgements are based on the conditions and assessments as at the balance sheet date. In evaluating thefuture development of business, reasonable assumptions were made regarding the expected future economic environment
in the business areas and regions in which the Group operates.
Estimates and judgements that may have a material impact on the amounts reported as assets and liabilities in the TUIGroup are mainly related to the following balance sheet-related facts and circumstances:• Establishment of assumptions for impairment tests, in particular for goodwill,• Determination of the fair values for acquisitions of companies and determination of the useful lives of acquired
intangible assets,• Determination of useful lives and residual carrying amounts of property, plant and equipment,• Determination of actuarial assumptions to measure pension obligations,• Recognition and measurement of other provisions,• Recoverability of future tax savings from tax losses carried forward and tax-deductible temporary differences

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• Measurement of tax risks• Recoverable amounts of touristic prepayments.
Despite careful preparation of the estimates, actual results may differ from the estimate. In such cases, the assumptions
and the carrying amounts of the assets and liabilities concerned, if necessary, are adjusted accordingly. As a matter ofprinciple, changes in estimates are taken into account in the financial year in which the changes have occurred and in
future periods.
GOODWILL

The goodwill reported as at 30 September 2017 has a carrying amount of € 2,889.5 m (previous year € 2,853.5 m). The
determination of the recoverable amount of a Cash Generating Unit (CGU) for the annual impairment test requires
estimates and judgement with regard to the methodology used and the assumptions, which may have a considerable
effect on the recoverable amount and the level of a potential impairment. They relate, in particular, to the weighted
average cost of capital ( WACC ) after income taxes, used as the discounting basis, the growth rate in perpetuity and theforecasts for future cash flows including the underlying budget assumptions based on corporate planning. Changes inthese assumptions may have a substantial impact on the recoverable amount and the level of a potential impairment.
A C Q U I S I T I O N O F C O M PA N I E S A N D I N TA N G I B L E A S S E T S

In accounting for business combinations, the identifiable assets, liabilities and contingent liabilities acquired have to bemeasured at their fair values. In this context, cash flow-based methods are regularly used. Depending on the assumptions
underlying such methods, different results may be produced. In particular, some judgement is required in estimating the
economic useful lives of intangible assets and determining the fair values of contingent liabilities.
Detailed information on acquisitions of companies or useful lives of intangible assets is provided in the section‘Acquisitions – divestments – discontinued operation’ in the note on ‘Principles and methods of consolidation’ and in
the section on ‘Goodwill and other intangible assets’ of the note ‘Accounting and measurement methods’.
P R O P E R T Y, P L A N T A N D E Q U I P M E N T

The measurement of wear-and-tear to property, plant and equipment items entails estimates. The carrying amount ofproperty, plant and equipment as at 30 September 2017 totals € 4,253.7 m (previous year € 3,714.5 m). In order to review
the amounts carried, an evaluation is carried out on a regular basis to assess whether there are any indications of apotential impairment. These indications relate to a number of areas and factors, e. g. the market-related or technicalenvironment but also physical condition. If any such indication exists, management must estimate the recoverable
amount on the basis of expected cash flows and appropriate interest rates. Further, essential estimates and judgements
include the definition of economic useful lives and the residual values of items of property, plant and equipment which
may be recovered.
More detailed information on the useful lives and residual values of property, plant and equipment items is provided in
the section ‘Property, plant and equipment’ in the note ‘Accounting and measurement methods’.
PENSION PROVISIONSAs at 30 September 2017, the carrying amount of provisions for pensions and similar obligations totals € 1,127.4 m(previous year € 1,450.9 m). For those pension plans where the plan assets exceed the obligation, other assets amounting
to € 57.0 m are shown as at 30 September 2017 (prior year € 36.2 m).

NOTE S

Principles and methods underlying the Consolidated Financial Statements

In order to determine the obligations under defined benefit pension schemes, actuarial calculations are used which relyon underlying assumptions concerning life expectancy and the discount rate.
At the balance sheet date, the fair value of the plan assets totals € 2,631.3 m (previous year € 2,740.0 m). As assets
classified as plan assets are never available for short-term sale, the fair values of these plan assets may change significantly up to the realisation date.
Detailed information on actuarial assumptions is provided under Note 29.
OTHER PROVISIONSAs at 30 September 2017, other provisions of € 1,151.3 m (previous year € 1,177.8 m) are reported. When recognising andmeasuring provisions, assumptions are required about probability of occurrence, maturity and level of risk.
Determining whether a current obligation exists is usually based on review by internal or external experts. The amountof provision is based on expected expenses, and is either calculated by assessing the specific case in the light of empiricalvalues, outcomes from comparable circumstances, or else estimated by experts. Due to the uncertainties associatedwith assessment, actual expenses may deviate from estimates so that unexpected charges may result.
More detailed information on other provisions is provided in the Notes to the statement of financial position in Note 30.
D E F E R R E D TA X A S S E T S

As at 30 September 2017, deferred tax assets totalling € 323.7 m (previous year € 344.7 m) were recognised. Prior tooffsetting against deferred tax liabilities, deferred tax assets total € 646.5 m, included an amount of € 198.1 m (previous
year € 211.5 m) for recognised losses carried forward. The assessment of the recoverability of deferred tax assets is basedon the ability of the respective Group company to generate sufficient taxable income. TUI therefore assesses at every
balance sheet date whether the recoverability of expected future tax savings is sufficiently probable in order to recognisedeferred tax assets. The assessment is based on various factors including internal forecasts regarding the future tax
asset situation of the Group company. If the assessment of the recoverability of future deferred tax assets changes,
impairment charges may be recognised, if necessary, on the deferred tax assets.
More detailed information on deferred tax assets is available in the Notes to the statement of financial position in Note 20.
I N C O M E TA X E S

The Group is liable to pay income taxes in various countries. Key estimates are required when determining income tax
liabilities, including the probability, the timing and the size of any amounts that may become payable. For certain transactions and calculations the final tax charge cannot be determined during the ordinary course of business. After taking
appropriate external advice, the Group makes provisions or discloses contingencies for uncertain tax positions based on
the probable or possible level of additional taxes that might be incurred. The level of obligations for expected tax audits
is based on an estimation of whether and to what extent additional income taxes will be due. Judgements are corrected,
if necessary, in the period in which the final tax charge is determined.
R E C O V E R A B L E A M O U N T S O F T O U R I S T I C P R E PAY M E N T S

At 30 September 2017, the carrying amount of touristic prepayments totals € 758.6 m (previous year € 724.2 m). The
assessment of the recoverable amounts of touristic prepayments made to hoteliers requires judgement about the volume
of future trading with hoteliers and the credit worthiness of those hoteliers. To assess the recoverability of touristic
prepayments, TUI considers the financial strength of those hoteliers, the quality of the hotels as well as the demand foreach hotel and the relevant destination during the past and in coming seasons.

159

160

C H A N G E S I N E S T I M AT E S

Until the end of financial year 2016, new aircraft and engines were depreciated to a projected residual value in line withmarket terms over a period of up to 18 years.
In the framework of an adjusted fleet strategy, the expected useful lives of aircraft and engines used by TUI Group havechanged. Aircraft and engines will therefore be depreciated over a period of up to 25 years to a residual value of a
maximum of 5 per cent, depending on the aircraft type, with effect from 1 October 2016.
In line with IAS 8, the adjustment of the useful lives and associated residual values was carried out on a prospective
basis as the revision of an accounting estimate. Retroactive changes of prior reporting periods were therefore notrecognised.
Due to the revision of the accounting estimate relating to useful lives, scheduled depreciation declined by € 20.3 m infinancial year 2017. In line with the Group’s plans, the adjustments of useful lives and residual values will result in a
decline in depreciation of around € 25 m in the next three financial years.

Segment reporting
Notes on the segments
The identification of operating segments is based on the internal organisational and reporting structure primarily built
around the different products and services as well as a geographical structure within the TUI Group. Allocation of individualorganisational entities to operating segments is exclusively based on economic criteria, irrespective of the participation
structure under company law. The segments are independently managed by those in charge, who regularly receive
separate financial information for each segment. They regularly report to the Group Executive Committee, which consistsof six Executive Board members and six other executives. The legally binding decision regarding the use of resources istaken by the Executive Board. The TUI Group Executive Board has therefore been identified as the Chief Operating
Decision Maker (CODM) in accordance with IFRS 8.
The Northern Region segment comprises the tour operators and airlines in the UK , Ireland and the Nordic countries andthe stake in the tour operation business of the Canadian company Sunwing as well as the joint venture TUI Russia. This
segment also includes the tour operators Crystal Ski and TUI Lakes & Mountains, formerly Thomson Lakes & Mountains,which play a major role in securing the load factor for our aircraft fleet in the UK , especially in winter. The hotel operator
Blue Diamond Hotels & Resorts Inc., St Michael, Barbados, which had also been carried under this segment in the prioryear, was integrated into the Hotels & Resorts segment in the reporting period and is now carried under that segment.
Moreover, the UK cruise business Marella Cruises, formerly Thomson Cruises, was transferred from the Northern Region
segment to the Cruises segment in financial year 2017. The prior year’s numbers have been restated to reflect thechanges in the segments.
The Central Region segment comprises the tour operators and airlines in Germany and tour operators in Austria,
Poland and Switzerland.
The Western Region segment comprises the tour operators and airlines in Belgium and the Netherlands and tour operators
in France.

NOTE S

Principles and methods underlying the Consolidated Financial Statements, Segment reporting

The Hotels & Resorts segment comprises all Group-owned hotels and hotel shareholdings of TUI Group.
The Cruises segment consists of Hapag-Lloyd Cruises and the joint venture TUI Cruises as well as the British cruise
business Marella Cruises.
The Other Tourism segment comprises the French scheduled airline Corsair, the incoming agencies and, in particular,
central tourism functions such as the TUI Group’s aviation management and information technology.
Apart from the above segments forming the Tourism business, the recognised items also include ‘All other segments’.
This segment comprises the business operations for new markets and in particular the central corporate functions andinterim holdings of TUI Group and the Group’s real estate companies.
In the financial year 2017, discontinued operations include the turnover and profit contributions of Specialist Group
until it was sold on 15 June 2017. In the prior year, this item had also included Hotelbeds Group and LateRooms Group.
For more detailed explanations of discontinued operations, we refer to the section Discontinued operations in the note‘Acquisitions – Divestments – Discontinued Operations’.

Notes to the segment data
The selection of segment data presented is based on the regular internal reporting of segmented financial indicators
to the Executive Board. Segment reporting discloses in particular the performance indicators EBITA and underlying
EBITA , since these indicators are used for value-oriented corporate management and thus represent the consolidated
performance indicator within the meaning of IFRS 8.
The TUI Group defines EBITA as earnings before interest, income taxes and goodwill impairment. EBITA includes
amortisation of other intangible assets. EBITA does not include measurement effects from interest hedges and the
proportionate result and measurement effects from container shipping, as the stake in Hapag-Lloyd AG , held until its
sale on 10 July 2017, is a financial investment and not an operative stake from TUI AG’s perspective.
In contrast to EBITA , the underlying EBITA has been adjusted for gains on disposal of financial investments, expenses inconnection with restructuring measures according to IAS 37, all effects of purchase price allocations, ancillary acquisition
cost and conditional purchase price payments and other expenses for and income from one-off items. The one-off
items carried as adjustments are income and expense items impacting or distorting the assessment of the operating
profitability of the segments and the Group due to their level and frequency. These one-off items include major restructuring and integration expenses not meeting the criteria of IAS 37, major expenses for litigation, profit and loss from thesale of aircraft and other material business transactions of a one-off nature.
Alongside this indicator, segment reporting is extended to include EBITDA and EBITDAR . In the TUI Group EBITDA isdefined as earnings before interest, income taxes, goodwill impairment and amortisation and write-ups of other intangible
assets, depreciation and write-ups of property, plant and equipment, investments and current assets. The amounts ofamortisation and depreciation represent the net balance including write-backs. For the reconciliation from EBITDA tothe indicator EBITDAR , long-term leasing and rental expenses are eliminated.
Internal and external turnover, depreciation and amortisation, impairment on other intangible assets (excluding goodwill),
property, plant and equipment and investments as well as the share of result of joint ventures and associates are likewise
shown for each segment, as these amounts are included when measuring EBITA . As a rule, inter-segment business
transactions are based on the arm’s length principle, as applied in transactions with third parties. No single externalcustomer accounts for 10 % or more of turnover.

161

162

Assets and liabilities per segment are not included in the reporting to the Executive Board and are therefore not shownin segment reporting. The only asset-related segmental indicator reported to the Executive Board is capital expenditure,
which therefore is also disclosed in the segment reporting. The amounts shown represent cash capital expenditure on
intangible assets and property, plant and equipment in line with the indicator reported internally. Financing transactions
such as financing loans and finance lease agreements are not included in this indicator. Therefore the amount of thecapital expenditure does not coincide with the additions to intangible assets and property, plant and equipment in the
fixed assets and intangible assets movements. A reconciliation of the investments is presented in a separate table.
Depreciation, amortisation, impairment and write-backs relate to non-current and current assets that are split geographically and do not include goodwill impairment.
The non-current assets, which are split geographically, contain other intangible assets, property, plant and equipment
and other non-current assets that do not meet the definition of financial instruments.

Segment indicators
Turnover by segment
2017
Group

Total

External
restatedGroup
restated

Total
restated

679.0
815.0
6,601.5
6,039.5
3,502.2
677.0–
18,314.2
220.8–
18,535.0
829.0
19,364.0

687.2
0.1
35.2
22.8
35.6
314.4
– 1,049.7
45.6
55.0– 100.6
0.0–
0.0

1,366.2
815.1
6,636.7
6,062.3
3,537.8991.4– 1,049.7
18,359.8
275.8– 100.6
18,535.0
829.0
19,364.0

618.6
703.1
6,564.4
5,562.9
2,869.9
669.3–
16,988.2
165.7–
17,153.9
2,321.6
19,475.5

659.8
0.4
50.5
43.1
18.9
292.8
– 995.8
69.7
44.1– 113.8
–
108.9
108.9

1,278.4
703.5
6,614.9
5,606.0
2,888.8
962.1– 995.8
17,057.9
209.8– 113.8
17,153.9
2,430.5
19,584.4€ million
Hotels & Resorts
Cruises
Northern Region
Central Region
Western Region
Other Tourism
Consolidation
Tourism
All other segments
Consolidation
Continuing operations
Discontinued operations
Total

2016

External

NOTE S

163

Segment reporting

EBITA and underlying EBITA by segment
Underlying EBITA

EBITA

2017

2016
restated

2017

2016
restated

353.7
255.6
309.6
67.3
79.4
15.7
1,081.3– 54.81,026.5– 22.1
1,004.4

301.5
190.9
362.7
64.0
72.1
– 2.9
988.3
– 90.2
898.1
14.7
912.8

356.5
255.6
345.8
71.5
109.2
13.4
1,152.0– 49.91,102.1– 1.2
1,100.9

303.8
190.9
383.1
85.1
86.1
7.9
1,056.9– 56.41,000.5
92.9
1,093.4€ million
Hotels & Resorts
Cruises
Northern Region
Central Region
Western Region
Other Tourism
Tourism
All other segments
Continuing operations
Discontinued operations
Total

In order to enhance comparability, EBITA from the discontinued operations does not include the result from the sale ofHotelbeds Group in financial year 2016 or the sale of the Specialist Group in the completed financial year.

Reconciliation to earnings before income taxes of the continuing
operations of the TUI Group€ million
Underlying EBITA of continuing operations
Result on disposal*
Restructuring expense*
Expense from purchase price allocation*
Expense from other one-off items*
EBITA of continuing operations
Profit on sale of financial investment in Container Shipping
Loss on measurement of financial investment in Container Shipping
Net interest expense and expense from measurement of interest hedges
Earnings before income taxes of continuing operations* For a description of the adjustments please refer to the management report page 58

2017

2016

1,102.1
2.2– 23.1– 29.2– 25.5
1,026.5
172.4–– 119.2
1,079.7

1,000.5– 0.8– 12.0– 41.9– 47.7898.1–– 100.3– 179.5
618.3

164

EBITDA and EBITDAR by segment
EBITDAEBITDAR2017

2016
restated

2017

2016
restated

2017

2016
restated

484.5
312.9
378.6
87.6
102.0
102.3
–
1,467.9
23.0–
1,490.9– 22.1
1,468.8

396.5
236.8
430.3
86.3
97.9
58.2
–
1,306.0– 0.9–1,305.1
85.6
1,390.7

117.4
57.0
332.3
145.8
175.2
37.5
– 5.0
860.2
377.1
– 487.3
750.0
38.8
788.8

110.1
39.8
338.3
147.8
153.5
40.3
– 7.5
822.3
376.8
– 454.7
744.4
65.1
809.5

601.9
369.9
710.9
233.4
277.2
139.8
– 5.0
2,328.1
400.1– 487.3
2,240.9
16.7
2,257.6

506.6
276.6
768.6
234.1
251.4
98.5
– 7.5
2,128.3375.9– 454.7
2,049.5150.7
2,200.2€ million
Hotels & Resorts
Cruises
Northern Region
Central Region
Western Region
Other Tourism
Consolidation
Tourism
All other segments
Consolidation
Continuing operations
Discontinued operations
Total

Long-term leasing and rental
expenses

Other segmental information
Amortisation (+), depreciation (+), impairment (+) andwrite-backs (–) of other­intangible assets, property,
plant and equipment, investments and current assets

Thereof amortisation /depreciation of intangible
assets and property,
plantand equipment

2017

2016
restated

2017

2016
restated

2017

2016
restated

130.8
57.3
69.0
20.3
22.6
86.6
386.6
77.8
464.4
–
464.4

95.0
45.9
67.6
22.3
25.8
61.1
317.7
89.3
407.0
70.9
477.9

36.4
–
11.2
0.3
–
25.2
73.1
–
73.1
–
73.1

2.3
–
–
–
6.4
7.8
16.5
0.8
17.3
16.4
33.7

98.5
57.3
64.5
21.7
22.2
61.4
325.6
77.4
403.0
–
403.0

93.1
45.9
68.7
22.2
19.2
53.3
302.4
88.3
390.7
54.0
444.7

€ million
Hotels & Resorts
Cruises
Northern Region
Central Region
Western Region
Other Tourism
Tourism
All other segments
Continuing operations
Discontinued operations
Total

Thereof impairment (+)
of intangible assets
and property, plantand equipment

NOTE S

165

Segment reporting

Other segmental information
Share of result of joint­ventures and associates
2017

2016
restated

2017

2016
restated

91.2
135.9
13.2
3.7
0.4
7.9
252.3
–
252.3
–
252.3

74.1
100.1
6.0
3.1
0.6
3.3
187.2
–
187.2
0.3
187.5

223.0
281.4
58.5
22.3
31.0
115.2
731.4
41.2
772.6
28.6
801.2

262.3
45.6
51.5
20.6
21.6
101.0
502.6
20.8
523.4
82.2
605.6

€ million
Hotels & Resorts
Cruises
Northern Region
Central Region
Western Region
Other Tourism
Tourism
All other segments
Continuing operations
Discontinued operations
Total

Capital expenditure

Reconciliation of capital expenditure€ million
Capital expenditure
Finance leases
Advance payments
Additions to discontinued operations
Other non-cash changes
Additions to other intangible assets and property, plant and equipment

2017

2016

801.2
136.0
247.8
– 28.6
3.5
1,159.9

605.6
315.5
91.8
– 20.6–992.3

Key figures by region
External turnover by­customer location€ million
Germany
Great Britain
Spain
Other Europe
North and South America
Rest of the world
Total

Thereof external
turnover fromdiscontinued ­operations

Non-current assets

Thereof non-current
assets fromdiscontinued ­operations

2017

2016

2017

2016

2017

2016

2017

2016

5,513.8
5,983.6
147.2
6,861.0
591.1
267.3
19,364.0

5,125.4
6,356.6
232.3
6,276.1
1,038.6
477.2
19,506.2

9.0
316.0
0.9
62.2
372.3
68.6
829.0

87.2
641.8
112.6
342.8
835.8
301.4
2,321.6720.9
2,340.3
479.7
522.4
449.9
490.2
5,003.4615.2
2,000.3
470.0
456.3
401.5
488.3
4,431.6

–
–
–
–
–
–
–

0.3
178.0
–
55.7
71.5
48.2
353.7

166

Notes to the consolidated income statement
TUI Group’s financial position showed considerable growth in financial year 2017. The growth was primarily driven by
the continued sound business performance of Northern Region, Hotels & Resorts and Cruises. However, Group profit
declined year-on-year as losses from the sale of Travelopia Group had to be carried in the completed financial year,
while high profits on disposal from the sale of Hotelbeds Group were recognised last year.

(1) TurnoverGroup turnover is mainly generated from tourism services. A breakdown of turnover by segment and region is shown
under segment reporting.

(2) Cost of sales and administrative expenses
Cost of sales relates to the expenses incurred in the provision of tourism services. In addition to the expenses for personnel,
depreciation, amortisation, rental and leasing, it includes in particular all costs incurred by the Group in connection withthe procurement and delivery of airline services, hotel accommodation, cruises and distribution costs.
Administrative expenses comprise all expenses incurred in connection with activities by the administrative functions
and break down as follows:

Administrative expenses€ million
Staff cost
Rental and leasing expenses
Depreciation, amortisation and impairment
Others
Total

2017

2016

710.9
62.5
92.6
389.8
1,255.8

697.6
60.5
64.3
394.5
1,216.9

The cost of sales and administrative expenses include the following expenses for personnel, depreciation / amortisation,
rent and leasing:Staff costs€ million
Wages and salaries
Social security contributions
Pension costs
Total

2017

2016

1,896.4
298.9
161.7
2,357.0

1,846.7286.3
139.0
2,272.0

Pension costs include service cost for defined benefit obligations and contributions to defined contribution pension
schemes.

NOTE S

167

Notes to the consolidated income statement

The year-on-year increase in staff costs in financial year 2017 mainly results from salary increases and a higher numberof employees in operating areas. It also reflects restructuring expenses incurred in connection with the acquisition of
the French tour operator Transat.
The average annual headcount (excluding trainees) evolved as follows:

Average annual headcount in the financial year (excl. trainees)

Hotels & Resorts
Cruises
Northern Region
Central Region
Western Region
Other Tourism
Tourism
All other segments
TUI Group
Discontinued operations
Total

2017

2016
restated

21,987
312
14,166
10,175
6,119
5,742
58,501
1,760
60,261
1,741
62,002

20,877290
14,474
10,281
5,370
5,340
56,632
1,598
58,23010,41068,640

The average annual headcount was in contrast to the prior year calculated this year on a quarterly headcount basis.

Depreciation / amortisation / impairment€ million

2017

2016

Depreciation and amortisation of other intangible assets and property, plant and equipment
Impairment of other intangible assets and property, plant and equipment
Total

403.0
73.1
476.1

390.7
17.3
408.0

The increase in depreciation and amortisation is driven by the acquisition of a cruise ship in the prior year and investments
in hotels and software. The additional depreciation resulting from the acquisition of aircraft was offset by adjustments
to the useful lives of aircraft in the completed financial year.
Impairment charges related to hotels, especially due to damage by hurricanes in the Caribbean, impairment of softwareand other property, plant and equipment of Tenuta di Castelfalfi S.p.A.
In the prior year, impairment charges on property, plant and equipment mainly related to impairment of brands andsoftware.

Rental and leasing expenses€ million

2017

2016

Rental and leasing expenses

838.5

817.0

Where rental and leasing expenses for operating leases are directly related to revenue-generating activities, these expenses
are shown within cost of sales. However, where rental and leasing expenses are incurred in respect of administrativebuildings, they are shown under administrative expenses.

168(3) Other income
In financial year 2017, other income results from the sale of two subsidiaries and an investment. Income was also
generated from the sale of commercial real estate owned by Preussag Immobilien GmbH, Salzgitter, the sale of aircraft
spare parts not required, and the sale of vehicles owned by incoming agencies.
Other income recognised in the prior year mainly resulted from the sale of a Riu Group hotel, from the sale of a joint
venture and from the sale of the cruise ship Island Escape. Income was also generated from the sale of plots of commercial
real estate owned by Preussag Immobilien GmbH, Salzgitter, and from the sale of vehicles owned by incoming agencies.

(4) Financial income
Financial income€ million

2017

2016

Bank interest income
Other interest and similar income
Income from the measurement of hedges
Interest income
Income from investments
Income from the measurement of other financial instruments
Foreign exchange gains on financial instruments
Total

11.0
8.5
2.2
21.7
175.9
30.6
1.1
229.3

7.9
11.6
1.0
20.5
2.4
4.1
31.5
58.5

The increase in financial income by € 170.8 m to € 229.3 m is mainly due to the disposal of the remaining stake inHapag-Lloyd AG . Details regarding that transaction are presented under Note 17.

(5) Financial expenses
Financial expenses€ million

2017

2016

Bank interest payable on loans and overdrafts
Finance lease charges
Net interest expenses from defined benefit pension plans
Unwinding of discount on provisions
Other interest and similar expenses
Expenses relating to the measurement of hedges
Interest expenses
Expenses relating to the measurement of the investment in Hapag-Lloyd AG
Expenses relating to the measurement of other financial instruments
Foreign exchange losses on financial instruments
Total

10.2
46.2
15.7
3.7
57.2
7.9
140.9
–
5.0
10.3
156.2

14.5
36.2
27.6
6.7
102.5
12.5
200.0
100.3
4.0
41.6
345.9

NOTE S

169

Notes to the consolidated income statement

The decline in financial expenses in financial year 2017 mainly results from the impairment of the investment in
Hapag-Lloyd AG amounting to € 100.3 m in the previous year. This impairment resulted from the fair value measurementof the investment over the course of the year at the closing price of the Hapag-Lloyd share as of March 31, 2016 on theprincipal market Xetra of € 16.10 per share (Level 1 valuation). The subsequent increase in the fair value due to the increasein the price of the Hapag-Lloyd share was recognized directly in equity in accordance with IAS 39 until the shares were
sold. For more detailed information, we refer to the comments in Note 17 ‘Financial assets available for sale’.
Other interest and similar expenses declined by € 45.3 m to € 57.2 m, primarily from the refinancing of the bonds issued
in 2014 and lower utilisation of non-current credit facilities. For more detailed information, we refer to Note 31.
In addition, expenses on financial instruments due to changes in foreign exchange rates fell by € 31.3 m to € 10.3 m.

(6) Share of result of joint ventures and associates
The share of result of joint ventures and associates of € 252.3 m (previous year € 187.2 m) comprises the net profit for
the year attributable to the associated companies and joint ventures.
For the development of the results of the material associates and joint ventures please refer to Note 16 ‘Investments injoint ventures and associates’.

(7) Income taxes
As in the prior year, the German TUI Group companies have to pay trade tax of 15.7 % and corporation tax of 15.0 %plus a 5.5 % solidarity surcharge on corporation tax.
The calculation of foreign income taxes is based on the laws and provisions applicable in the individual countries. The
income tax rates applied to foreign companies vary from 0.0 % to 39.0 %.

Breakdown of income taxes€ million

2017

2016

Current tax expensein Germany
abroadDeferred tax expense / income
Total

17.3
115.9
35.6
168.8

39.5
125.1
– 11.2153.4

170

In financial year 2016, current income tax expenses in Germany reflected the reassessment of the trade tax risk in hotel
purchasing, which resulted in tax expenses of € 35.1 m related to prior periods in the prior year reference period. The
deferred tax expenses in the completed financial year largely arose abroad, outside of Germany. Current tax income
related to prior periods amounts to € 4.6 m (previous year tax expense of € 9.9 m) in financial year 2017.
In financial year 2017, total income taxes of € 168.8 (previous year € 153.4 m) are derived as follows from an ‘expected’income tax expense that would have arisen if the statutory income tax rate of parent company TUI AG (aggregate income
tax rate) had been applied to earnings before tax.

Reconciliation of expected to actual income taxes€ million
Earnings before income taxes
Expected income tax (current year 31.5 %, previous year 31.5 %)Variation from the difference between actual and expected tax rates
Changes in tax rates and tax law
Income not taxable
Expenses not deductible
Effects from loss carryforwards
Temporary differences for which no deferred taxes were recognised
Deferred and current income tax relating to other periods (net)Other differences
Income taxes

2017

2016

1,079.7
340.1– 61.9– 1.5– 207.5
102.7– 16.4
– 4.4
20.2
– 2.5
168.8

618.3
194.8
– 27.0– 26.1– 114.6
101.8
31.3
– 1.0
– 11.1
5.3
153.4

The increase in income not taxable primarily results from the tax-free sale of the shares in the participation in Hapag
Llyod AG and the year-on-year increase in the equity result.

(8) Result from discontinued operation
The result from discontinued operations shows the after-tax result of the Specialist Group including the result from
disposal until it was sold on 15 June 2017. It also includes net income from the discontinued operations sold in theprior year worth € 2.2 m. In the prior year, this item had included the after-tax results of Hotelbeds Group and
LateRooms Group. For further information, please refer to the section Discontinued operations in the chapter on
Acquisitions – Divestments – Discontinued operations.

(9) Group profit attributable to shareholders of TUI AG
In financial year 2017, the share in Group profit attributable to TUI AG shareholders declined from € 1,037.4 m in theprior year to € 644.8 m. The decline is primarily due to the proceeds from the sale of the Hotelbeds Group the previous year.

(10) Group profit attributable to non-controlling interest
In the Hotels & Resorts segment, the Group profit attributable to non-controlling interest primarily relates to RIUSA IIGroup with € 115.5 m (previous year € 110.7 m).

NOTE S

171

Notes to the consolidated income statement(11) Earnings per share
In accordance with IAS 33, basic earnings per share are calculated by dividing the Group profit for the year attributable
to TUI AG shareholders by the weighted average number of registered shares outstanding during the financial year.
The average number of shares is derived from the total number of shares at the beginning of the financial year
(587,038,187 shares) and the employee shares issued on a pro rata temporis basis (15,328 new shares). The prorated effectof the own shares held by an employee benefit trust of 2,643,389 shares was deducted.

Earnings per share

Group profit for the year attributable to shareholders of TUI AG 
€ million= Adjusted Group profit for the year attributable to shareholders of TUI AG 
€ million
Weighted average number of shares
Basic earnings per share€– Basic earnings per share from continuing operations€– Basic earnings per share from discontinued operations
€

2017

2016

644.8
644.8
584,410,126
1.10
1.36
– 0.26

1,037.4
1,037.4
584,118,509
1.78
0.61
1.17

2017

2016

644.8
584,410,126
52,514584,462,640
1.10
1.36
– 0.26

1,037.4
584,118,509
1,522,934
585,641,443
1.77
0.60
1.17

Diluted Earnings per share

Adjusted Group profit for the year attributable to shareholders of TUI AG 
€ million
Weighted average number of shares
Diluting effect from assumed exercise of share awards
Weighted average number of shares (diluted)
Diluted earnings per share€– Diluted earnings per share from continuing operations€– Diluted earnings per share from discontinued operations€As a rule, a dilution of earnings per share occurs when the average number of shares increases due to the addition of
the issue of potential shares from conversion options. In the completed financial year, these effects resulted from
employee shares. The share-based remuneration plans from prior years have fully expired.

172(12) Taxes attributable to other comprehensive income
Tax effects relating to other comprehensive income
2017

2016

€ million

Gross

Tax effect

Net

Gross

Tax effectNet

Foreign exchange differences
Available for sale financial­instruments
Cash flow hedges
Remeasurements of benefit­obligations and related fund assets
Changes in the measurement ofcompanies measured at equity
outside profit or loss
Other comprehensive income– 17.9–– 17.9

52.4

–

52.4

– 31.8– 263.6–
46.9– 31.8– 216.7

31.8
546.1

–
– 80.9

31.8
465.2

280.7

– 66.9213.8– 593.3

157.9– 435.4

19.3– 13.3–– 20.019.3– 33.3– 32.05.0–
77.0– 32.082.0

In addition, deferred income tax worth € – 11.5 m (previous year € – 11.4 m) and corporate income tax worth € – 2.6 m(previous year € 2.0 m) were generated in the reporting period and recognised directly in equity.

NOTE S

173

Notes to the consolidated income statement, Notes on the consolidated statement of financial position

Notes on the consolidated statement of financial position(13) Goodwill
Goodwill
2017

2016

Historical cost
Balance as at 1 Oct
Exchange differences
Additions
Reclassification as assets held for sale
Balance as at 30 Sep

3,286.7– 42.574.9–
3,319.1

3,678.8– 234.3
9.2– 167.0
3,286.7

Impairment
Balance as at 1 Oct
Exchange differences
Reclassification as assets held for sale
Balance as at 30 Sep– 433.2
3.6–– 429.6– 458.4
25.0
0.2– 433.2

Carrying amounts as at 30 Sep

2,889.5

2,853.5€ million

The increase in the carrying amount is mainly attributable to the acquisition of Transat France S.A. Detailed informationon the acquisitions is presented in the section on Consolidation principles and methods. A reduction was caused by thetranslation of goodwill not carried in TUI Group’s reporting currency into euros.
In accordance with IAS 21, goodwill allocated to the individual segments and sectors was recognised in the functional
currency of the subsidiaries and subsequently translated when preparing the consolidated financial statements. As withthe treatment of other differences from the translation of annual financial statements of foreign subsidiaries, differences
due to exchange rate fluctuations between the exchange rate at the date of acquisition of the subsidiary and the exchange
rate at the balance sheet date are taken directly to equity and disclosed as a separate item. In financial year 2017,
a decrease in the carrying amount of goodwill of € 38.9 m (previous year decrease of € 209.3 m) resulted from foreignexchange differences.

174

The following table presents a breakdown of goodwill by cash generating unit (CGU) at carrying amounts:

Goodwill per cash generating unit
€ million
Northern Region
Central Region
Western Region
Destination Services
Riu
Marella Cruises
Other
Total

30 Sep 201730 Sep 2016

1,217.0
510.2
411.2
86.0
351.7
289.2
24.2
2,889.5

1,545.1
507.7
338.8
94.3
351.7
–
15.9
2,853.5

The hotel company Blue Diamond Hotels & Resorts Inc., St Michael, Barbados, which was carried in the Northern Region
segment in the prior year, was integrated into and is now carried in the Hotels & Resorts segment in the completed financial
year. Moreover, the British cruise business Marella Cruises was reclassified from the Northern Region segment to the
Cruises segment in financial year 2017. Accordingly, the prorated goodwill was transferred to these businesses from
Northern Region.
In the financial year, goodwill was tested for impairment at the level of CGUs as at 30 June 2017.
For all CGUs, the recoverable amount was determined on the basis of fair value less costs of disposal. The fair value wasdetermined by means of discounting the expected cash inflows. This was based on the Q4 forecast for the financial year
and on the medium-term plan for the entity under review, prepared as at 30 September 2017, following deduction ofincome tax payments. Budgeted turnover and EBITA margins are based on empirical values from prior financial years andexpectations with regard to the future development of the market.
The discount rates are calculated as the weighted average cost of capital, taking account of country-specific risks of the
CGU and based on external capital market information. The cost of equity included in the determination reflects thereturn expected by investors. The cost of borrowing is derived from the long-term financing terms of comparable
companies in the peer group.
The table below provides an overview of the parameters underlying the determination of the fair values per CGU. It
shows the timeframe for the cash flow forecast, the growth rates used to extrapolate the cash flow forecast, thediscount rates and the relevant valuation hierarchy according to IFRS 13. The table lists the CGUs to which goodwill has
been allocated. The below stated EBITA margin p.a. is adjusted for reasonable discounts for centrally incurred cost. The
prior year’s negative EBITA p.a. margin related to a new business segment being established.

NOTE S

175

Notes on the consolidated statement of financial position

Assumptions for calculation of fair value in financial year 2017
Planning­period inyears
Northern Region
Central Region
Western Region
Destination Services
RIU

Marella Cruises
Other

3.25
3.25
3.25
3.25
3.25
3.25
3.25

Growth rate
revenues EBITA -­Margin
in % p. a.
in % p. a.
5.6
4.5
6.4
5.5
4.9
11.7
17.3 to 79.1

Growth rate afterplanning period in %WACC in %

Level

1.0
1.0
1.0
1.0
1.0
1.0
1.0

5.25
5.25
5.25
5.25
6.25
5.25
6.25 to 7.00

3
3
3
3
3
3
3

Growth rate afterplanning period in %WACC in %

Level

0.5
0.5
0.5
0.5
0.5
0.5

6.75
6.75
6.75
6.75
5.75
5.75

3
3
3
3
3
3

3.9
1.1
3.0
8.8
33.1
17.5
3.7 to 19.7

Assumptions for calculation of fair value in financial year 2016
Planning­period inyears
Northern Region
Central Region
Western Region
Destination Services
RIU

Other

3.25
3.25
3.25
3.25
3.25
3.25

Growth rate
revenues EBITA -­Margin
in % p. a.
in % p. a.
(restated)(restated)
10.7
7.9
7.8
5.0
3.7
24.4 to 93.1

6.1
1.1
2.8
6.1
26.3
– 4.7 to + 15.7

Goodwill was tested for impairment as at 30 June 2017. The test did not result in a requirement to recognise any further
impairment. Neither an increase in WACC by 50 basis points nor a reduction by 50 basis points in the growth rate after thedetailed planning period would have led to an impairment of goodwill. The same applies to a reduction of the discounted
free cash flow in the growth rate of perpetuity of 10 %.

176(14) Other intangible assets
The development of the line items of other intangible assets in financial year 2017 is shown in the following table.

Other intangible assets
Computer software*acquiredTransport
and leasing
contracts

Customerbase

Intangible assets inthe course of­construction andPayments on­account*

223.5– 20.0––110.5– 10.4

255.6
– 6.5

0.5
–

1,861.0– 127.5

0.7
146.7– 104.5– 408.5– 128.3
686.4
– 2.0

–
6.1
– 4.6
– 33.6
128.8
300.2
– 6.2

–
–
–
–
–
–
– 6.4

–
–
–
– 7.1
–
93.0
– 1.5

0.4
0.3
– 1.6
– 199.0
–
49.2
– 0.5

–
2.5
–
–
– 0.5
2.5
3.0

1.1
155.6
– 110.7– 648.2–
1,131.3– 13.6

8.1
1.3
– 2.2
– 0.1
– 309.3
382.2

0.2
11.0
– 7.1
48.1
–
346.2

0.2
16.6
– 5.1
20.8
247.0
273.1

–
–
–
–
–
91.5

11.3
–
– 1.2
–
–
58.8

0.9
100.6
– 9.2
– 70.0
62.3
90.1

20.7
129.5
– 24.8– 1.2–
1,241.9

Amortisation and impairment
Balance as at 1 Oct 2015
Exchange differences
Amortisation for the current year
Impairment for the current year
Disposals
Reclassification as assets held for sale
Rebookings
Balance as at 30 Sep 2016
Exchange differences
Amortisation for the current year
Impairment for the current year
Disposals
Reclassifications
Balance as at 30 Sep 2017

– 658.4
43.6– 74.1– 22.9
100.0
210.1
11.0
– 390.7– 0.5– 16.0–1.2
159.1– 246.9– 106.0
6.6– 31.4
– 8.0
4.3
19.5
– 6.3
– 121.3
1.2– 37.8– 27.37.0–– 178.2

–
–
–
–
–
–
–
–
1.8
– 35.0– 0.3
4.0– 159.1– 188.6– 44.5
5.4
– 4.7
–
–
5.2
– 4.7
– 43.3
1.0
– 4.5
–
–
–
– 46.8– 140.6
4.0– 11.1
–
1.6
115.9
–
– 30.2
0.4
– 4.8
–
1.3
–
– 33.3

–
–
–
–
–
–
–
–
– 0.2
–
– 9.0
9.2
–
–

– 949.5
59.6– 121.3– 30.9
105.9
350.7
–
– 585.5
3.7– 98.1– 36.6
22.7–– 693.8

Carrying amounts as at 30 Sep 2016
Carrying amounts as at 30 Sep 2017

295.7
135.3

178.9
168.0

–
84.5

49.7
44.7

19.0
25.5

2.5
90.1

545.8
548.1

€ million
Historical cost
Balance as at 1 Oct 2015
Exchange differences
Additions due to changes in the group of
consolidated companies
Additions
Disposals
Reclassification as assets held for sale
Rebookings
Balance as at 30 Sep 2016
Exchange differences
Additions due to changes in the groupof consolidated companies
Additions
Disposals
Rebookings
Reclassifications
Balance as at 30 Sep 2017

Brands,l­ icenses andother rights*

internallygenerated

1,270.9– 90.6Total* T he acquired computer software, which was previously reported within brands, licences and other rights, will from now on be presented together
with the internally generated computer software. In addition the intangible assets under construction are no longer reported as part of brands,­licences and other rights but will be presented together with the payments on accounts. The opening balances have been reallocate accordingly.

NOTE S

Notes on the consolidated statement of financial position

Internally-generated computer software consists of computer programs for tourism applications exclusively used internally by the Group.
Transport contracts relate to landing rights at airports in the UK purchased and measured during the acquisition of First
Choice Holidays Plc in 2007.
The lease contracts relate to intangible assets from the measurement of aircraft leases in connection with the acquisitionof First Choice Holidays Plc in 2007. The assets are amortised in line with the length of the lease.
Payments on account made totalled € 1.9 m as at 30 September 2017.
The year-on-year changes also include the changes relating to Specialist Group, which was only classified as a discontinued
operation according to IFRS 5 as at the end of financial year 2016.
Additions to consolidation mainly relate to the acquisition of Transat France S.A. For details, refer to the section on
Acquisitions.
In financial year 2017, a financial software was partly impaired and an Internet platform in the Northern Region segment
was fully impaired.
The prior year’s impairment charges related to brands of the Specialist Group and of the Western Region segment
as well as software in the Specialist Group and a module of an Internet platform in the Other tourism segment.

177

178

(15) Property, plant and equipment
The table below presents the development of the individual items of property, plant and equipment in financial year 2017.

Property, plant and equipment

Hotels incl. land

Other buildings
and landAircraft

Historical cost
Balance as at 1 Oct 2015
Exchange differences
Additions due to changes in the group of consolidated companies
Additions
Disposals
Reclassification as assets held for sale
Reclassifications
Balance as at 30 Sep 2016
Exchange differences
Additions due to changes in the group of consolidated companies
Additions
Disposals
Reclassification as assets held for sale
Reclassifications
Balance as at 30 Sep 2017

1,401.5– 32.5
–
48.1
– 5.6
–
25.4
1,436.9– 19.0
15.8
51.8
– 4.9
– 21.192.8
1,552.3

281.5– 17.6–55.8– 25.7– 67.3
4.7
231.4
– 0.7
4.9
15.2
– 3.5
– 0.7
– 5.9
240.7

1,734.4– 24.1–145.4– 43.4– 5.7
28.5
1,835.1– 68.0–182.1– 29.5– 57.615.7
1,877.8

Depreciation and impairment
Balance as at 1 Oct 2015
Exchange differences
Depreciation for the current year
Impairment for the current year
Disposals
Reclassification as assets held for sale
Reclassifications
Balance as at 30 Sep 2016
Exchange differences
Depreciation for the current year
Impairment for the current year
Disposals
Reclassification as assets held for sale
Reclassifications
Balance as at 30 Sep 2017

– 430.3
10.4– 37.7
–
4.4
–
– 4.8
– 458.0
3.7– 45.6– 19.9
4.7
10.6
– 7.0
– 511.5– 111.3
– 0.9
– 5.7
– 1.3
17.4
28.4
– 2.6
– 76.0
0.7
– 4.2
– 8.0
2.9
–
9.0
– 75.6– 568.4
21.0– 123.4
–
37.7
0.6
– 0.6
– 633.1– 9.7– 107.9
–
27.0
53.1
–
– 670.6

Carrying amounts as at 30 Sep 2016
Carrying amounts as at 30 Sep 2017

978.9
1,040.8

155.4
165.1

1,202.0
1,207.2€ million* N ow also comprises the assets formerly shown in column Machinery and fixtures. By the end of the prior financial year the accumulated historicalcosts amounted to € 304.6 m, the depreciation and impairment to € 220.1 m

NOTE S

179

Notes on the consolidated statement of financial position

Cruise ships

Other plant,o­ perating and­office equipment*

Assets under­construction

Payments
on accountTotal

1,110.1– 61.5–228.0– 156.2– 246.0
20.1
894.5– 16.6
–
8.4
– 4.7
0.2
247.6
1,129.4

1,283.8– 29.3
1.6
103.6– 113.3– 90.8– 16.81,138.8– 24.1
3.4
101.3– 56.5– 0.5
32.9
1,195.3

55.0
– 2.8
–
157.7
– 1.7
– 2.0
– 48.1
158.1
25.7
–
376.8
–
–
– 366.7
193.9

175.8
– 9.2
–
98.1
– 43.1–– 11.5210.1– 21.0–294.8– 45.5–– 13.2425.2

6,042.1– 177.0
1.6
836.7– 389.0– 411.8
2.3
5,904.9– 123.7
24.1
1,030.4– 144.6– 79.7
3.2
6,614.6– 403.4
14.1– 58.7
–
144.8
82.7
0.3
– 220.2
2.7– 56.4–
4.6––– 269.3– 891.9
19.8– 98.1
– 1.4
107.2
56.0
5.1
– 803.3
16.3– 90.8
– 8.5
54.1
0.4
– 2.3
– 834.1

–
–
–
–
–
–
0.2
0.2
–
–
–
–
–
–
0.2

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

– 2,405.3
64.4– 323.6
– 2.7
311.5
167.7
– 2.4
– 2,190.4
13.7– 304.9– 36.4
93.3
64.1
– 0.3
– 2,360.9

674.3
860.1

335.5
361.2

158.3
194.1

210.1
425.2

3,714.5
4,253.7

180

The additions from changes in the group of consolidated companies mainly relate to the acquisition of Transat France
S.A. For details, please refer to the section on Acquisitions.
In the financial year, advance payments worth € 33.2 m were made for the acquisition of cruise ships, with € 252.4 m
worth of advance payments (previous year € 91.8 m) on the acquisition of aircraft.
In the reporting period, the cruise ship Marella Discovery 2 was added at a carrying amount of € 228.6 m, initially as
assets under construction. Following its commissioning, the cruise ship was reclassified accordingly. In the prior year,
the amount carried for cruise ships included an amount of € 182.9 m for the introduction of Marella Discovery. Bothships are used in the segment cruises. Further additions to assets under construction include an amount of € 92.1 m(previous year € 100.9 m) for investments in hotels in the Hotels & Resorts segment.
In the reporting period, two aircraft have been capitalised at an amount of in total € 145.6 m.
In the course of the year, two hotel complexes were reclassified to assets held for sale. One hotel was sold before theend of the financial year. Moreover, an aircraft was classified as held for sale and reclassified accordingly.
In financial year 2017, borrowing costs of € 4.0 m (previous year € 2.1 m) were capitalised. The capitalisation rate ofcapitalised borrowing costs is 3.75 % p.a. for financial year 2017 and 3.25 % p.a. for the prior year.
The impairment charges include an amount of € 21.3 m for hotel facilities in the Caribbean hit by hurricanes. These
impairment charges went hand in hand with insurance claims recognized within trade receivables and other assets.
Further impairment charges of € 15.0 m were recognised for impairment of buildings and technical equipment at
Tenuta di Castelfalfi S.p.A. in the Hotels & Resorts segment.
The carrying amount of property, plant and equipment subject to ownership restrictions or pledged as collateral totalled€ 553.8 m (previous year € 613.1 m).
FINANCE LEASES

Property, plant and equipment also comprise leased assets in which Group subsidiaries have assumed the risks andrewards of ownership of the assets (finance leases).

Composition of finance leased assets
Net carrying amounts€ million
Other buildings and land
Aircraft
Cruise ships
Other plant, operating and office equipment
Total

30 Sep 201730 Sep 2016

16.4
906.6
209.0
26.1
1,158.1

14.8
955.0
232.5
27.7
1,230.0

The leasing contracts for aircraft include repurchase options for the lessee at fixed residual values.
Total payment obligations resulting from future lease payments total € 1,420.6 m (previous year € 1,450.1 m). Group
companies have not granted any guarantees for the residual values of the leased assets, as in the prior year.

NOTE S

181

Notes on the consolidated statement of financial position

Reconciliation of future lease payments to liabilities from finance leases
30 Sep 201730 Sep 2016

Remaining term

€ million
Total future lease payments
Interest portion
Liabilities from finance leases

Remaining term

up to 1 year

1– 5 years

more than
5 years

Total

up to 1 year

1– 5 years

more than
5 years

Total

128.2
32.0
96.2

513.1
107.8
405.3

779.4
54.4
725.0

1,420.7
194.2
1,226.5

125.7
33.5
92.2

462.4
113.4
349.0

862.0
71.5
790.5

1,450.1
218.4
1,231.7(16) Investments in joint ventures and associates
The table below presents all joint arrangements and associates of relevance to TUI Group. All joint arrangements andassociates are listed as TUI Group Shareholdings in Note 49. All joint arrangements are joint ventures. There are no joint
operations within the meaning of IFRS 11.

Significant associates and joint ventures
Capital share in %Name and headquarter of company
Associates
Sunwing Travel Group Inc.,
Toronto, Canada
Joint ventures
Riu Hotels S.A.,
Palma de Mallorca, SpainTUI Cruises GmbH,
Hamburg, Germany
Togebi Holdings Limited,Nicosia, Cyprus

Voting rights share in %Nature of business

30 Sep 201730 Sep 2016

30 Sep 201730 Sep 2016

Tour operator &Hotel operator

49.0

49.0

25.0

25.0

Hotel operator

49.0

49.0

49.0

49.0

Cruise ship operator

50.0

50.0

50.0

50.0

Tour operator

25.0

25.0

25.0

25.0

All companies presented above are measured at equity.
The financial year of Sunwing Travel Group Inc., Toronto / Canada (Sunwing) corresponds to TUI Group’s financial year.
The financial years of the joint ventures listed above deviate from TUI Group’s financial year, ending on 31 December of
any one year. In order to update the at equity measurement as at TUI Group’s balance sheet date, interim financial
statements for the period ending 30 September are prepared for these companies.
S I G N I F I C A N T A S S O C I AT E S

In 2009, Sunwing entered into a partnership with TUI Group. Sunwing is a vertically integrated travel company comprising tour operation, an airline and retail shops. Since the transfer of the hotel operation and development company Blue
Diamond Hotels & Resorts Inc., St Michael / Barbados, to Sunwing in September 2016, Sunwing has also included thehotel operation business with a chain of luxury beach resorts and hotels in the Caribbean and Mexico. Sunwing’s hotel
operation business is carried in the Hotels & Resorts segment, while the tour operation business is carried in the Northern Region segment. The company has different classes of shares. TUI Group holds 25 % of the voting shares.

182

SIGNIFICANT JOINT VENTURES

Riu Hotels S.A. is a hotel company owning and operating hotels in the 4- to 5-star segments. The hotels of the company
established in 1976 are mainly located in Spain and Central America.
TUI Cruises is a joint venture with the US shipping line Royal Caribbean Cruises Ltd established in 2008. The Hamburg-based
company offers German-speaking cruises for the premium market. Since the launch of Mein Schiff 6 in June 2017, TUI
Cruises has operated six cruise ships.

Togebi Holdings Limited ( TUI Russia) is a joint venture between TUI and Oscrivia Limited, a subsidiary of Unifirm Limited.
Unifirm Limited is a subsidiary of OOO Sever Group, owned by a large shareholder and Supervisory Board member of
TUI AG . The business purpose of this joint venture, established in 2009, is to develop the tour operation business, inparticular in Russia and Ukraine. The company owns tour operation subsidiaries and retail chains in these countries. In
the prior year, contractual agreements on the reorganisation of the equity of TUI Russia were concluded with Oscrivia
Limited. The parties agreed a capital increase in which TUI Group participated by paying a net amount of USD 3 m, while
Oscrivia Limited paid a net amount of USD 17 m. TUI Group’s share in TUI Russia declined from 49 % to 25 % and Oscrivia
Limited increased its share to 75 %. Existing loans and guarantees of the shareholders were adjusted to reflect the newstakes. Furthermore, the joint venture agreement was amended to reflect the new voting rights proportions. The relevant
activities of TUI Russia continue to be jointly determined by TUI Group and Oscrivia Limited, so that TUI Russia remains
classified as a joint venture.
F I N A N C I A L I N F O R M AT I O N O N A S S O C I AT E S A N D J O I N T V E N T U R E S

The tables below present summarised financial information for the significant associates and joint ventures of theGroup. The amounts shown reflect the full amounts presented in the consolidated financial statements of the relevant
associates and joint ventures (100 %); they do not represent TUI Group’s share of those amounts.

Combined financial information of material associates
Sunwing Travel Group Inc.,­Toronto, Canada
30 Sep 2017 /2017

30 Sep 2016 /2016

Non-current assets
Current assets
Non-current provisions and liabilities
Current provisions and liabilities

1,061.9
471.9
570.4
511.7

736.5
491.5
386.3
421.9

Revenues
Profit / loss*
Other comprehensive income
Total comprehensive income

2,022.6
67.7– 35.831.9

1,432.6
11.6
4.5
16.1

€ million* Solely from continuing operations

NOTE S

183

Notes on the consolidated statement of financial position

Combined financial information of material joint ventures
Riu Hotels S. A.,
Palma de Mallorca, SpainTUI Cruises GmbH,
Hamburg, Germany

Togebi Holdings Limited,­Nicosia, Cypres

30 Sep 2017 /2017

30 Sep 2016 /2016

30 Sep 2017 /2017

30 Sep 2016 /2016

30 Sep 2017 /2017

30 Sep 2016 /2016

Non-current assets
Current assets
thereof cash and cash equivalents
Non-current provisions and liabilities
thereof financial liabilities
Current provisions and liabilities
thereof financial liabilities

757.1
129.8
67.4
18.1
5.6
106.4
42.3

739.8
79.5
26.8
13.3
9.0
148.3
82.2

2,542.5
193.7
109.4
1,393.0
1,392.5
657.6
200.0

2,049.0
193.1
105.5
1,143.4
1,142.7
519.2
92.1

3.5
57.1
10.7
102.0
102.0
75.1
49.3

3.9
27.1
3.4
117.3
114.6
27.2
18.6

TurnoverDepreciation / amortisation of intangible assets and­property, plant and equipment
Interest income
Interest expenses
Income taxes
Profit / loss*
Other comprehensive income
Total comprehensive income

316.7

305.7

1,052.5

807.3

259.8

129.5

22.7
0.3
0.8
32.3
105.5
25.1
130.6

21.1
0.2
1.7
36.7
92.5
– 36.4
56.1

71.8
–
32.3
– 0.1
271.8
14.0
285.8

58.1
–
16.2
0.3
200.2
– 37.8
162.4

1.5
–
5.3
–
– 10.5–– 10.5

1.3
–
4.7
0.1
9.2
–
9.2

€ million* Solely from continuing operations

In financial year 2017, TUI Group received dividends of € 90.0 m from TUI Cruises and € 12.7 m from Riu Hotels. In total,
dividends of € 117.5 m (previous year € 79.4 m, including € 12.2 m from Riu Hotels and € 60.0 m from TUI Cruises) were
paid by joint ventures to TUI Group. In financial year 2017, TUI Group did not receive any dividends from Sunwing TravelGroup, as in the prior year. In total, TUI Group received dividends of € 2.0 m from its associates (previous year € 1.1 m).
In addition to TUI Group’s significant associates and joint ventures, TUI AG has interests in other associates and joint
ventures measured at equity, which individually are not considered to be of material significance. The tables below
provide information on TUI Group’s share of the earnings figures shown for the major associates and joint ventures aswell as the aggregated amount of the share of profit / loss, other comprehensive income and total comprehensive
income for the immaterial associates and joint ventures.

Share of financial information of material and other associates
Sunwing Travel Group Inc.,­Toronto, Canada€ million

Other immaterial
associates

Associates Total

2017

2016

2017

2016

2017

2016

33.2
– 17.5
15.7

5.7
4.5
10.2

2.5
– 2.8
– 0.3

19.5
–
19.5

35.7
– 20.3
15.4

25.2
4.5
29.7

TUI ’s share ofProfit / loss
Other comprehensive income
Total comprehensive income

184

Share of financial information of material and other joint ventures
Riu Hotels S. A.,
Palma de Mallorca, Spain€ million

TUI Cruises GmbH,­Hamburg, Germany

Togebi Holdings Limited,Nicosia, Cypres

Other immaterial
joint ventures

Joint ventures Total

2017

2016

2017

2016

2017

2016

2017

2016

2017

2016

51.7

45.3

135.9

100.1

–

–

29.0

16.6

216.6

162.0

12.4

– 18.1

7.0– 18.7––– 45.2–– 25.8– 36.8

64.1

27.2

142.9

81.4

–

–

– 16.2

16.6

190.8

125.2

TUI ’s share ofProfit / loss
Other comprehensive
incomeTotal comprehensive
incomeNet assets of the material associates
Sunwing Travel Group
Inc., T­ oronto, Canada€ million
Net assets as at 1 Oct 2015
Profit / loss
Other comprehensive income
Dividends
Capital increase
Foreign exchange effects
Consolidation effects
Net assets as at 30 Sep 2016
Profit / loss
Other comprehensive income
Dividends
Capital increase
Foreign exchange effects
Consolidation effects
Net assets as at 30 Sep 2017

201.4
11.6
9.2
–
–
0.9
196.7
419.8
67.7
– 9.3
–
–
– 26.6–451.6

Reconciliation to the carrying amount of the associates in the Group balance sheet€ million
Share of TUI in % as at 30 Sep 2016
TUI ’s share of the net assets as at 30 Sep 2016

Goodwill as at 30 Sep 2016
Carrying value as at 30 Sep 2016
Share of TUI in % as at 30 Sep 2017
TUI ’s share of the net assets as at 30 Sep 2017
Goodwill as at 30 Sep 2017
Carrying value as at 30 Sep 2017

Sunwing Travel Group
Inc., T­ oronto, Canada

Other immaterial­associates

Associates total

49.0
205.7
51.3
257.0

–
50.9
4.0
54.9

–
256.6
55.3
311.9

49.0
221.3
51.4
272.7

–
49.3
4.0
53.3

–
270.6
55.4
326.0

NOTE S

185

Notes on the consolidated statement of financial position

Net assets of the material joint ventures
Riu Hotels S. A., Palmade Mallorca, Spain€ million
Net assets as at 1 Oct 2015
Profit / loss
Other comprehensive income
Dividends
Capital increase
Foreign exchange effects
Net assets as at 30 Sep 2016
Profit / loss
Other comprehensive income
Dividends
Capital increase
Foreign exchange effects
Net assets as at 30 Sep 2017

TUI Cruises GmbH,
Togebi Holdings
Hamburg, Germany L­ imited, Nicosia, Cypres

637.7
92.5
– 36.4– 25.0–– 12.5
656.3
105.5
38.2
– 26.0–– 13.0
761.0

536.8
200.2
– 37.8– 120.0
–
–
579.2
271.9
14.3
– 180.0––
685.4– 168.5
9.2
– 0.2
–
48.3
– 2.3
– 113.5– 10.5–––
7.5– 116.5

Reconciliation to the carrying amount of the joint ventures in the Group balance sheet€ million

Riu Hotels S. A., Palmade Mallorca, Spain

Share of TUI in % as at 30 Sep 2016
TUI ’s share of the net assets as at
30 Sep 2016
Unrecognised share of losses
Goodwill as at 30 Sep 2016
Carrying value as at 30 Sep 2016
Share of TUI in % as at 30 Sep 2017
TUI ’s share of the net assets as at
30 Sep 2017
Unrecognised share of losses
Goodwill as at 30 Sep 2017
Carrying value as at 30 Sep 2017

TUI Cruises GmbH,
Togebi Holdings
Hamburg, Germany ­Limited, Nicosia, Cypres

Other immaterial
joint ventures

Joint ventures total

49.0

50.0

25.0

–

–

321.6
–
1.7
323.3

289.6
–
–
289.6

– 28.4
6.5
21.9
–

228.4
–
27.6
256.0

811.2
6.5
51.2
868.9

49.0

50.0

25.0

–

–

372.9
–
1.7
374.6

342.7
–
–
342.7

– 29.2
8.5
20.7
–

246.5
–
16.4
262.9

932.9
8.5
38.8
980.2

UNRECOGNISED LOSSE S BY JOINT VENTURE S

Unrecognised accumulated losses increased by € 2.0 m to € 8.5 m. They relate to the joint venture TUI Russia, operating
in source markets Russia and Ukraine. Due to the recognition of prorated losses in previous years, the carrying amountof the joint venture was already fully written off in financial year 2014. Recognition of further losses would have reduced
the carrying amount of the joint ventures to below zero.
R I S K S A S S O C I AT E D W I T H T H E S TA K E S I N A S S O C I AT E S A N D J O I N T V E N T U R E SContingent liabilities of € 33.9 m (previous year € 0.0 m) existed in respect of associates as at 30 September 2017,with contingent liabilities of € 73.2 m (previous year € 106.2 m) in respect of joint ventures. Moreover, financial liabilities
from investments of € 613.2 m (previous year € 613.2 m) and from lease, charter and rental agreements worth€ 56.2 m (previous year € 8.4 m) are in place in respect of joint ventures.

186(17) Financial assets available for saleFinancial assets available for sale
30 Sep 2017

€ million
Shares in non-consolidated Group companies
Investments
Other securities
Total

Remainingterm morethan 1 year
2.0
55.3
12.2
69.5

30 Sep 2016

Total

Remainingterm morethan 1 year

Total

2.0
55.3
12.2
69.5

2.1
36.3
12.0
50.4

2.1
302.1
12.0
316.2

In the completed financial year, TUI AG sold its remaining stake in Hapag-Lloyd AG (previous year € 265.8 m) at a purchaseprice less costs of disposal of € 406.4 m. On derecognition the cumulative positive changes in the stake’s fair value since
31 March 2016 previously recognised in other comprehensive income of € 179.6 m (thereof previous year € 31.8 m)
were reclassified to profit or loss in accordance with IAS 39. The resulting profit on disposal of € 172.4 m is carried underfinancial income.
There was no impairment of available for sale financial assets to be included in financial expenses in the consolidated
income statement for the reporting period (previous year € 101.0 m). In the prior year, the fair value measurement of
the stake at the closing rate of the Hapag-Lloyd AG share as at 31 March 2016 in the principal market Xetra of € 16.10
per share resulted in impairment charges totalling € 100.3 m (level-1 measurment).

(18) Trade receivables and other assets
Trade receivables and other assets
30 Sep 2017

€ million
Trade receivables
Advances and loans
Other receivables and assets
Total

Remainingterm morethan 1 year
0.0
97.9
113.9
211.8

30 Sep 2016

Total

Remainingterm morethan 1 year

Total

431.4
142.7
432.2
1,006.3

0.0
61.7
94.8
156.5

429.5
107.8
373.9
911.2

NOTE S

187

Notes on the consolidated statement of financial position

Ageing structure of the financial instruments included in trade receivables and other assetsof which not impaired andoverdue in the following periods
Carrying
amount of­financial­instrumentsof which not
impaired but
overdueless than
30 days

Balance as at 30 Sep 2017
Trade receivables
Advances and loans
Other receivables and assets
Total

431.4
142.3
171.4
745.1

159.3
19.1
25.6
204.0

112.3
19.0
6.1
137.4

30.5
–
9.9
40.4

12.0
–
1.7
13.7

4.5
0.1
7.9
12.5

Balance as at 30 Sep 2016
Trade receivables
Advances and loans
Other receivables and assets
Total

429.5
75.5
184.7
689.7

176.0
18.5
21.2
215.7

119.3
17.4
11.4
148.1

24.3
0.1
2.7
27.1

15.7
–
1.1
16.8

16.7
1.0
6.0
23.7

€ million

betweenbetween
30 and 90 91 and 180
days
days

more than
180 days

For financial assets which are neither past due nor impaired, TUI Group assumes that the counter party has a good
credit standing.
As at 30 September 2017, trade accounts receivable and other receivables worth € 76.0 (previous year € 62.7 m) wereimpaired. The table below provides a maturity analysis of impairment.

Ageing structure of impairment of financial instruments included in trade receivables and other assets
30 Sep 2017
€ million
Trade receivables and other assets
Not overdue
Overdue up to 30 days
Overdue 30 – 90 days
Overdue 90 – 180 days
Overdue more than 180 days
Total

30 Sep 2016

Gross value

Impairment

Net value

Gross value

Impairment

Net value

559.4
151.1
48.5
15.7
46.4
821.1

18.3
13.7
8.1
2.0
33.9
76.0

541.1
137.4
40.4
13.7
12.5
745.1

478.8
149.9
30.1
18.8
74.8
752.4

4.8
1.8
3.0
2.0
51.1
62.7

474.0
148.1
27.1
16.8
23.7
689.7

188

Impairment of trade receivables and other assets developed as follows:

Impairment on assets of the trade receivables and other assets category according to IFRS 7€ million

2017

2016

Balance at the beginning of period
Additions
Disposals
Other changes
Balance at the end of period

62.7
26.4
12.4
– 0.7
76.0

99.7
10.5
23.1
– 24.462.7

As in the previous year, in financial year 2017, no material cash inflow was recorded from impaired interest-bearing tradereceivables and other assets.

(19) Touristic payments on accountTouristic payments on account mainly relate to customary advance payments on future tourism services, in particularadvance payments made by tour operators for future hotel services.

(20) Deferred and income tax assets
Individual items of deferred tax assets and liabilities recognised in the financial position
30 Sep 2017
€ million
Finance lease transactions
Recognition and measurement differences for property, plant andequipment and other non-current assets
Recognition differences for receivables and other assets
Measurement of financial instruments
Measurement of pension provisions
Recognition and measurement differences for other provisions
Other transactions
Capitalised tax savings from recoverable losses carried forward
Netting of deferred tax assets and liabilities
Balance sheet amount

30 Sep 2016

Asset

Liability

Asset

Liability

2.2

–

2.2

–

50.6
60.5
22.3
183.3
71.2
58.3
198.1
– 322.8
323.7

210.1
114.8
22.5
5.6
17.0
61.8
–
– 322.8
109.0

67.6
23.1
21.4
253.5
63.1
85.1
211.5
– 382.8
344.7

231.9
62.4
64.5
0.1
32.0
54.8
–
– 382.8
62.9

Deferred tax assets include an amount of € 311.6 m (previous year € 328.7 m) expected to be realised after more thantwelve months. Deferred tax liabilities include an amount of € 57.3 m (previous year € 49.2 m) expected to be realised
after more than twelve months.
No deferred tax assets are recognised for deductible temporary differences of € 315.7 m (previous year € 157.3 m).

NOTE S

189

Notes on the consolidated statement of financial position

No deferred tax liabilities are carried for temporary differences of € 58.6 m (previous year € 58.6 m) between the net
assets of subsidiaries and the respective taxable carrying amounts of subsidiaries since these temporary differences are
not expected to be reversed in the near future.

Recognised losses carried forward and time limits for non-recognised losses carried forward€ million
Recognised losses carried forward
Non-recognised losses carried forward
of which losses carried forward forfeitable within one yearof which losses carried forward forfeitable within 2 to 5 years	of which losses carried forward forfeitable within more than 5 years(excluding non-forfeitable loss carryforwards)
Non-forfeitable losses carried forward
Total unused losses carried forward

30 Sep 201730 Sep 2016

998.2
4,654.5
3.8
89.8

1,041.0
4,654.5
4.4
83.0–
4,560.9
5,652.7

1.8
4,565.3
5,695.5

Losses carried forward for German companies comprise the cumulative amount of trade tax and corporation tax as wellas interest carried forward in relation to the German interest barrier. Potential tax savings totalling € 900.1 m (previous
year € 981.7 m) were not capitalised since the underlying losses carried forward are unlikely to be utilised within theplanning period.
In financial year 2017, the use of losses carried forward previously assessed as non-recoverable and for which no deferred
tax asset had been recognised as at 30 September 2016 led to tax reductions of € 0.4 m (previous year € 10.7 m). As in
the prior year, no tax reductions were realised by means of losses carried back.

Development of deferred tax assets from losses carried forward€ million

2017

2016

Capitalised tax savings at the beginning of the year
Use of losses carried forward
Capitalisation of tax savings from tax losses carried forward
Write-down of capitalised tax savings from tax losses carried forward
Reclassification to discontinued operation
Exchange adjustments and other items
Capitalised tax savings at financial year-end

211.5– 38.7
27.9
– 2.9
–
0.3
198.1

239.4
– 15.36.7– 13.7
– 4.8
– 0.8
211.5

Capitalised deferred tax assets from temporary differences and losses carried forward that are assessed as recoverableof € 4.0 m (previous year € 4.9 m) are covered by expected future taxable income even for companies that generated
losses in the reporting period or the prior year.

190(21) Inventories
Inventories€ million
Airline spares and operating equipment
Real estate for sale
Consumables used in hotels
Other inventories
Total

30 Sep 201730 Sep 2016

32.1
33.4
17.2
27.5
110.2

24.9
39.0
16.1
25.2
105.2

In financial year 2017, inventories of € 541.1 m (previous year € 552.8 m) were recognised as an expense.

(22) Cash and cash equivalents
Cash and cash equivalents€ million
Bank deposits
Cash in hand and cheques
Total

30 Sep 201730 Sep 2016

2,486.1
30.0
2,516.1

2,037.6
35.3
2,072.9

At 30 September 2017, cash and cash equivalents of € 261.0 m were subject to restrictions (previous year € 128.6 m).
On 30 September 2016, TUI AG entered into an agreement to close the gap between the obligations and the fund assets
of defined benefit pension plans in the UK in the long run. At the balance sheet date an amount of € 142.9 m is deposited as
security on a bank account. Until their disposal in financial year 2017, the shares in Hapag-Lloyd AG held by TUI AG wereassigned as collateral. TUI Group can only use that cash and cash equivalents if it presents alternative collateral.
Further, an amount of € 116.5 m (previous year € 116.4 m) was deposited with a Belgian subsidiary without acknowledgement of debt by the Belgian tax authorities in financial year 2013 respect of long-standing litigation over VAT refunds
for the years 2001 to 2011. The purpose was to suspend the accrual of interest for both parties. In order to collateralisea potential repayment, the Belgian government was granted a bank guarantee. Due to the bank guarantee, TUI ’s ability
to dispose of the cash and cash equivalents has been restricted. The other restrictions relate to cash and cash equivalents
to be deposited due to legal or regulatory requirements.

NOTE S

191

Notes on the consolidated statement of financial position(23) Assets held for sale
Assets held for sale€ million
Property and hotel facilities
Aircraft and engines
Discontinued Operation Specialist Group
Other assets
Total

30 Sep 201730 Sep 2016

5.0
4.6
–
–
9.6

–
–
928.9
0.9
929.8

In the prior year, the Specialist Group segment was reclassified to assets held for sale as a discontinued operation. The
sale took place on 15 June 2017. For further information, reference is made to the section ‘Discontinued operations’.

(24) Subscribed capital
The fully paid subscribed capital of TUI AG consists of no-par value shares, each representing an identical share in thecapital stock. The proportionate share in the capital stock per no-par value share is around € 2.56. As the capital stock
consists of registered shares, the owners are listed by name in the share register.
The subscribed capital of TUI AG has been registered in the commercial registers of the district courts of Berlin-­Charlottenburg and Hanover. In the financial year, it rose by a total of 348,713 employee shares. It thus comprised
587,386,900 shares (previous year 587,038,187 shares) as at the end of the financial year. It rose by € 0.9 m to € 1,501.6 m.
As at 30 September 2017, no TUI AG shares were held by the Employee Benefit Trust of TUI Travel Limited (previous
year 2,664,194), as these were entirely sold during the financial year.
The Annual General Meeting on 14 February 2017 authorised the Executive Board of TUI AG to acquire own shares of
up to 5 % of the capital stock. The authorisation will expire on 13 August 2018. The authorisation to acquire own shares
has not been used to date.
C O N D I T I O N A L C A P I TA L

The Annual General Meeting on 9 February 2016 had created conditional capital of € 150.0 m and authorised the Company
to issue bonds. The conditional capital authorisation to acquire bonds with conversion or option rights and profit participation (with or without a fixed maturity) is limited to a nominal amount of € 2.0 bn and expires on 8 February 2021.
Overall, TUI AG had total conditional capital of € 150.0 m as at 30 September 2017, unchanged to the prior financial year end.
A U T H O R I S E D C A P I TA L

The Annual General Meeting on 13 February 2013 resolved to create additional authorised capital of € 10.0 m for theissue of employee shares. The Executive Board of TUI AG has been authorised to use this authorised capital in one orseveral transactions to issue employee shares against cash contribution by 12 February 2018. 348,713 new employee
shares were issued in the completed financial year so that authorised capital totals around € 7.4 m at balance sheet date.
The General Meeting on 28 October 2014 resolved to create authorised capital to issue new shares against non-cash
contribution of € 18.0 m in order to be able to service TUI Travel PLC share awards granted by TUI Travel PLC to its
employees with new shares in TUI AG . The authorisation for this authorised capital has not been used to date and will
be revoked ahead of its expiry date as no outstanding share awards remain.

192

The Annual General Meeting on 9 February 2016 resolved an authorisation to issue new registered shares against cash
contribution for up to a maximum of € 150.0 m. This authorisation will expire on 8 February 2021.
The Annual General Meeting on 9 February 2016 also resolved to create authorised capital for the issue of new sharesagainst cash or non-cash contribution of up to € 570.0 m. The issue of new shares against non-cash contribution islimited to a maximum of € 300.0 m. The authorisation for this authorised capital will expire on 8 February 2021.
On the balance sheet date, the accumulated authorised capital that had not yet been taken up amounted to € 745.4 m(previous year € 746.3 m).

(25) Capital reserves
The capital reserves comprise transfers of premiums. They also comprise amounts entitling the holders to acquire
shares in TUI AG in respect of bonds issued with conversion options and warrants. Premiums from the issue of shares
due to the exercise of conversion options and warrants are also transferred to the capital reserve.
Capital reserves rose by € 2.8 m (previous year € 4.5 m) due to the issue of employee shares in the completed financial year.

(26) Revenue reserves
In financial year 2017, TUI AG paid a dividend of € 0.63 per no-par value share to its shareholders; the total amount paid
was € 368.2 m (previous year € 327.0 m). The share of non-controlling interests declined by € 87.2 m in financial year 2017
due to the issue of dividends (previous year € 13.6 m). The year-on-year variation is essentially based on the payment
of dividends to non-Group shareholders of RIUSA II S.A. of € 87.0 m.
The ongoing measurement of existing equity-settled stock option plans resulted in a decrease in equity of € 1.0 m in thereporting period. Disclosures on these long-term incentive programmes are outlined in the note on ‘Share-based
payments in accordance with IFRS 2’ in Note 37.
Further, the Employee Benefit Trust of TUI Travel Ltd acquired shares in TUI AG in the first half of 2017 in order to usethem for its stock option plans. The shares held by the Employee Benefit Trust were fully sold in the second half of theyear. As the amounts paid and received were offset against revenue reserves as an acquisition or sale of own shares,
equity rose by a total of € 10.1 m.
In the previous year, non-controlling interests were acquired for a consideration of € 6.5 m. The carrying amount ofthese interests was € 0.4 m. This is essentially attributable to the acquisition of non-controlling interests in Atraveo
GmbH, Düsseldorf.
Foreign exchange differences comprise differences from the translation of the financial statements of foreign subsidiaries
as well as differences from the translation of goodwill denominated in foreign currencies. They also comprise reclassification
amounts totalling €– 71.1 m to be recognised through profit or loss from the sale of Specialist Group in the completed
financial year.
Movements of € – 31.8 m in financial instruments available for sale carried outside profit and loss comprise the increasein value from a rise in Hapag-Lloyd’s share price and the subsequent full sale of these shares in financial year 2017. Moredetailed information on the development of fair values is presented in the section ‘Financial assets available for sale’ inNote 17.

NOTE S

Notes on the consolidated statement of financial position

The proportion of gains and losses from hedges used as effective hedges of future cash flows is carried directly in equity at€ 263.6 m (pre-tax). A reversal of this provision through profit and loss takes place in the same period in which the hedged
item has an effect on profit and loss or is no longer assessed as probable. The significant decrease in financial year 2017is primarily attributable to changes in exchange rates and fuel prices.
The revaluation of pension obligations (in particular actuarial gains and losses) is also carried directly in equity.
The revaluation reserve formed in accordance with IAS 27 (old version) in the framework of step acquisitions ofcompanies is retained until the date of deconsolidation of the company concerned. The sale of the Specialist Group
resulted in a reclassification of an amount of € 1.8 m to other revenue reserves.

(27) Use of Group profit available for distribution
In accordance with the German Stock Corporation Act, the Annual General Meeting decides the use of the profit available
for distribution carried in TUI AG’s commercial-law annual financial statements. TUI AG’s profit for the year amounts to€ 741.7 m (previous year € 139.9 m). Taking account of profit carried forward of € 454.1 m (previous year € 682.4 m),
TUI AG’s profit available for distribution totals € 1,195.8 m (previous year € 822.3 m). A proposal will be submitted to theAnnual General Meeting to use the profit available for distribution for the financial year to pay a dividend of € 0.65 per
no-par value share and carry the amount of € 814.0 m remaining after deduction of the dividend total of € 381.8 m forward
on account. The final dividend total will depend on the number of dividend-bearing no-par value shares at the date on which
the resolution regarding the use of Group profit available for distribution is adopted by the Annual General Meeting.

(28) Non-controlling interest
Non-controlling interests mainly relate to RIUSA II S.A. based in Palma de Mallorca, Spain. TUI ’s capital share in thishotel operator stands at 50.0 %, as in the prior year.
The financial year of RIUSA II S.A. ends on 31 December and thus deviates from TUI Group’s financial year. This reporting
date was fixed when the company was founded. In order to include the RIUSA II Group in TUI Group’s consolidated
financial statements as at 30 September, the RIUSA II Group prepares sub-group financial statements as at 30 September, the balance sheet date.
RIUSA II Group, allocated to the Hotels & Resorts segment, operates owned and leased hotels and hotels operated undermanagement contracts in tourism destinations of TUI Group. Due to the contractual agreements between the shareholders and the framework agreements with TUI Group as well as the considerable importance of tour operation for the
economic success of RIUSA II Group, TUI Group is able to exercise a controlling influence on decisions about the most
relevant activities and consequently the amount of returns. TUI Group is subject to variable returns from RIUSA II Group,in particular due to dividend payments and fluctuations in the value of the stake itself. RIUSA II Group is therefore fully
consolidated although TUI Group only holds a 50 % equity stake.

The table below provides summarised financial information on RIUSA II S.A., Palma de Mallorca, Spain – the subsidiary
for which material non-controlling interests exist. It presents the consolidated financial statements of the sub-group.

193

194

Summarised financial information on RIUSA II S.A., Palma de Mallorca, Spain*
30 Sep 2017 /2017

30 Sep 2016 /2016

Current assets
Non-current assets
Current liabiities
Non-current liabilities

272.7
1,400.8
110.1
29.3

336.3
1,296.5
113.9
22.1

Revenues
Profit / loss
Other comprehensive income

852.5
231.0
– 19.8796.1
221.4– 42.4

Cash inflow / outflow from operating activities
Cash inflow / outflow from investing activities
Cash inflow / outflow from financing activities

251.7– 147.5– 181.7

292.4– 166.8– 85.6

Accumulated non-controlling interest
Profit / loss attributable to non-controlling interest
Dividends attributable to non-controlling interest

591.2
115.5
87.0

572.6
110.7
11.0

€ million* Consolidated Subgroup(29) Pension provisions and similar obligations
A number of defined contribution and defined benefit pension plans are operated for Group employees. Pension obligations
vary, reflecting the different legal, fiscal and economic conditions in each country of operation, and usually depend on
employees’ length of service and pay levels.
All defined contribution plans are funded by the payment of contributions to external insurance companies or funds.
German employees enjoy benefits from a statutory defined contribution plan paying pensions as a function of employees’
income and the contributions paid in. Several additional industry pension organisations exist for TUI Group companies.
Once the contributions to the state-run pension plans and private pension insurance organisations have been paid, theCompany has no further payment obligations. One major private pension fund is Aegon Levensverzekering N.V., operating
the defined contribution pension plans for the main Dutch subsidiaries of TUI Group. Contributions paid are expensed
for the respective period. In the reporting period, the expenses for all defined contribution plans totalled € 85.4 m (previous year € 81.9 m).
Apart from these defined contribution pension plans, the TUI Group operates defined benefit plans, which usually entail
the formation of provisions within the Company or investments in funds outside the Company.
Within this group, MER-Pensionskasse VVaG, a private pension fund in which German companies of the tourism industry
are organised, represents a multi-employer plan classified as a defined benefit plan. In accordance with the statues ofthe plan, the plan participants and the employers pay salary-based contributions into the plan. There are no further
obligations pursuant to the statutes of the plan; an additional funding obligation of the participating companies is explicitly
excluded. The paid-in contributions are invested in accordance with the policies of the pension plan unless they are usedin the short term to deliver benefits. As the investments are pooled and are not kept separately for each participating
employer, an allocation of plan assets to individual participating employers is not possible. The investment risk and themortality risk are jointly shared by all plan participants. Moreover, the pension fund does not provide any information
to participating companies that would allow the allocation of any over- or underfunding or TUI ’s participation in theplan. For this reason, accounting for the plan in accordance with the requirements of IAS 19 is not possible, and the plan istherefore classed as a defined contribution plan. In the reporting period, contributions to MER-Pensionskasse VvaG
totalled € 5.9 m (previous year € 5.9 m). For the next financial year, contributions are expected to remain at that level.

NOTE S

195

Notes on the consolidated statement of financial position

TUI Group’s major pension plans recognised as defined benefit plans exist in Germany and the UK . By far the largest
pension plans are operated by the Group’s tour operators in the UK . They accounted for 72.6 % (previous year 73.5 %)of TUI Group’s total obligations at the balance sheet date. German plans account for a further 22.5 % (previous year
22.5 %).

In the UK , the following major pension plans linking pension payments to final salary and length of service are operated.
The final remuneration to be taken into account is capped.

Material defined benefit plans in Great Britain
Scheme name

StatusBAL Scheme

closedclosedclosedTUI UK Scheme
TAPS Scheme

Almost all defined benefit plans in the UK are funded externally. Under UK law, the employer is obliged to ensure sufficientfunding so that plan assets cover the pension payments to be made and the administrative costs of the funds. The
pension funds are managed by independent trustees. The trustees comprise independent members but also beneficiariesof the plan and employer representatives. The trustees are responsible for the investment of fund assets, taking accountof the interests of plan members, but they also negotiate the level of the contributions to the fund to be paid by theemployers, which constitute minimum contributions to the funds. To that end, actuarial valuations are made every three
years by actuaries commissioned by the trustees. The annual contributions to be paid to the funds in order to cover any
shortfalls were last defined in September 2016. On top of a fixed annual contribution, a certain percentage of the pensionable remuneration of plan members has to be paid into the plan.
By contrast, defined benefit plans in Germany are unfunded. The company assumes the obligation for payments ofcompany pensions when the beneficiaries reach the legal retirement age. The amount of the pension paid usually depends
on the remuneration received by the staff members at the retirement date. Pension obligations usually include surviving
dependants’ benefits and invalidity benefits.

Material defined benefit plans in Germany
Scheme name

StatusVersorgungsordnung TUI AG
Versorgungsordnung Hapag-Lloyd Fluggesellschaft GmbH
Versorgungsordnung TUI Deutschland GmbH
Versorgungsordnung TUI Beteiligungs GmbH
Versorgungsordnung Preussag Immobilien GmbH

open
open
closedclosedclosedIn the reporting period, defined benefit pension obligations created total expenses of € 90.0 m.

196

Pension costs for defined benefit obligations€ million

2017

2016

Current service cost for employee service in the period
Curtailment gains
Net interest on the net defined benefit liability
Past service cost
Total

76.3
1.8
15.7
– 0.2
90.0

57.1
–
27.6
– 1.7
83.0

Provisions for pension obligations are established for benefits payable in the form of retirement, invalidity and surviving
dependants’ benefits. Provisions are exclusively formed for defined benefit schemes under which the Company guarantees
employees a specific pension level, including arrangements for early retirement and temporary assistance benefits.

Defined benefit obligation recognised on the balance sheet€ million
Present value of funded obligations
Fair value of external plan assets
Deficit of funded plans
Present value of unfunded pension obligations
Defined benefit obligation recognised on the balance sheetof which
Overfunded plans in Other assets
Provisions for pensions and similar obligationsof which currentof which non-current

30 Sep 2017
Total

30 Sep 2016
Total

2,892.3
2,631.3
261.0
809.4
1,070.4

3,249.9
2,740.0
509.9
904.8
1,414.7

57.0
1,127.4
32.7
1,094.736.2
1,450.940.6
1,410.3

For funded pension plans, the provision carried only covers the shortfall in coverage between plan assets and the present
value of benefit obligations.
Where plan assets exceed funded pension obligations, taking account of a difference due to past service cost, and whereat the same time there is an entitlement to reimbursement or reduction of future contributions to the fund, the excess
is recognised in conformity with the cap defined by IAS 19. As at 30 September 2017, other assets include excesses of€ 57.0 m (previous year € 36.2 m).

NOTE S

197

Notes on the consolidated statement of financial position

Development of defined benefit obligations€ million
Balance as at 1 Oct 2016
Current service cost
Past service cost
Curtailments and settlements
Interest expense (+) / interest income (–)
Pensions paid
Contributions paid by employer
Contributions paid by employees
Remeasurements
due to changes in financial assumptions
due to changes in demographic assumptions
due to experience adjustments
due to return on plan assets not included in group profit for the year
Exchange differences
Other changes
Balance as at 30 Sep 2017

Present valueof obligation

Fair value ofplan assets

Total

4,154.7
76.3
– 0.2
– 6.3
79.0
– 152.6–
1.4– 405.2– 289.2– 1.0– 115.0–– 78.332.9
3,701.7– 2,740.0––
4.5– 63.3118.9– 107.6
– 1.4
124.5
–
–
–
124.5
62.2
– 29.1– 2,631.3

1,414.7
76.3
– 0.2
– 1.8
15.7
– 33.7– 107.6–– 280.7– 289.2– 1.0– 115.0
124.5– 16.13.8
1,070.4

Present valueof obligation

Fair value ofplan assets

Total

3,498.6
57.1
– 1.7
–
110.2
– 163.6–
1.7
1,076.8
1,083.3
– 1.1
– 5.4
–
– 420.8– 3.6
4,154.7– 2,366.9–––– 82.6128.3– 300.2– 1.7– 483.5–––– 483.5363.8
2.8– 2,740.0

1,131.7
57.1
– 1.7
–
27.6
– 35.3– 300.2–
593.3
1,083.3– 1.1– 5.5– 483.4– 57.0– 0.8
1,414.7

Development of defined benefit obligations€ million
Balance as at 1 Oct 2015
Current service cost
Past service cost
Curtailments and settlements
Interest expense (+) / interest income (–)
Pensions paid
Contributions paid by employer
Contributions paid by employees
Remeasurements
due to changes in financial assumptions
due to changes in demographic assumptions
due to experience adjustments
due to return on plan assets not included in group profit for the year
Exchange differences
Other changes
Balance as at 30 Sep 2016

In the reporting period, the present value of the pension obligations decreased by € 453.0 m to € 3,701.7 m, mainly due
to the increase in interest rates in the Eurozone and the UK .

198

The Group’s fund assets decreased by € 108.7 m in the same period and is split into asset categories as shown in thetable below.

Composition of fund assets at the balance sheet date
30 Sep 2017
Quoted market pricein an active market€ million
Fair value of fund assets at end of periodof which equitiesof which government bondsof which corporate bondsof which liability driven investmentsof absolute return bondsof which propertyof which growth fundsof which insurance policiesof which insurance linked securitiesof which loansof which cashof which other

30 Sep 2016
Quoted market pricein an active market

yes

no

yes

no

1,981.3
346.8
41.9
216.4
707.3
517.4
108.9
–
–
–
–
–
42.6

650.0
–
–
–
–
–
14.9
143.1
119.7
136.0
180.7
30.0
25.6

1,734.6
727.5
104.9
301.8
489.2
–
100.7
–
–
–
–
–
10.5

1,005.4
–
–
–
–
–
7.5
83.3
137.2
65.6
–
585.2
126.6

At the balance sheet date, as in the prior year, fund assets did not comprise any direct investments in financial instruments
issued by TUI AG or its consolidated subsidiaries or any property owned by the Group. For funded plans, investmentsin passive index tracker funds may entail a proportionate investment in Group-owned financial instruments.
Pension obligations are measured on the basis of actuarial calculations based on country-specific parameters andassumptions. The obligations under defined benefit plans are calculated on the basis of the internationally accepted
projected unit credit method, taking account of expected future increases in salaries and pensions.

Actuarial assumptions
30 Sep 2017
Percentage p.a.
Discount rate
Projected future salary increases
Projected future pension increases

Germany

Great Britain

Other countries

1.8
2.5
1.8

2.6
2.8
3.4

1.3
1.3
1.2

30 Sep 2016
Percentage p.a.
Discount rate
Projected future salary increases
Projected future pension increases

Germany

Great Britain

Other countries

1.0
2.5
1.8

2.3
2.7
3.6

1.4
1.4
1.3

NOTE S

199

Notes on the consolidated statement of financial position

The interest rate applicable in discounting the provision for pensions is based on an index for corporate bonds adjusted
for securities already downgraded and under observation by rating agencies as well as subordinate bonds in order tomeet the criterion for high quality bonds (rated AA or higher) required under IAS 19. In order to cover a correspondingly
broad market, an index partly based on shorter-term bonds is used (e. g. iBoxx € Corporates AA 7-10 for the Eurozone).
The resulting yield structure is extrapolated on the basis of the yield curves for almost risk-free bonds, taking accountof an appropriate risk mark-up reflecting the term of the obligation.
Apart from the parameters described above, a further key assumption relates to life expectancy. In Germany, the Heubeckreference tables 2005 G are used to determine life expectancy, as in the prior year. In the UK , the S1NxA base tables
are used, adjusted to future expected increases on the basis of the Continuous Mortality Investigation (CMI) 2015. The
pension in payment escalation formulae depend primarily on the pension plan concerned. Apart from fixed rates ofincrease, there are also a number of inflation-linked pension adjustment mechanisms in different countries.
Changes in the key actuarial assumptions mentioned above would lead to the changes in defined benefit obligations
presented below. The methodology used to determine sensitivity corresponds to the method used to calculate thedefined benefit obligation. The assumptions were amended in isolation each time; actual interdependencies between
the assumptions were not taken into account. The effect of the increase in life expectancy by one year is calculated bymeans of a reduction in mortality due to the use of the Heubeck tables 2005 G for pension plans in Germany. In the UK ,an extra year is added to the life expectancy determined on the basis of the mortality tables.

Sensitivity of the defined benefit obligation due to changed actuarial assumptions
30 Sep 2017
€ million
Discount rate
Salary increase
Pension increase
Life expectancy

30 Sep 2016

+ 50 Basis points– 50 Basis points+ 50 Basis points– 50 Basis points– 320.8+ 26.9+ 106.9+ 1 year+ 142.3+ 368.2– 25.6– 109.6– 415.5+ 32.2+ 144.8+ 1 year+ 172.9+ 484.7– 30.7– 137.3––

The weighted average duration of the defined benefit obligations totalled 19.5 years (previous year 21.7 years) for theoverall Group. In the UK , the weighted duration was 20.7 years (previous year 23.5 years), while it stood at 16.0 years(previous year 16.6 years) in Germany.
Fund assets are determined on the basis of the fair values of the funds invested as at 30 September 2017. The interest
rate used to determine the interest income from the assets of external funds is identical with the discount rate used forthe defined benefit obligation.
For the forthcoming financial year, the companies of TUI Group are expected to contribute around € 183.1 m (previous
year € 109.6 m) to pension funds and pay pensions worth € 32.7 m (previous year € 40.6 m) for unfunded plans. The
year-on-year increase is primarily driven by a one-off payment of £ 50.0 m agreed with the trustees to reduce the existing
coverage shortfall. For funded plans, payments to the recipients are fully made from fund assets so that TUI Group
does not record a cash outflow as a result.
TUI Group’s defined benefit plans entail various risks; some of which may have a substantial effect on the Company.

200

INVESTMENT RISK

The investment risk plays a major role, in particular for the large funded plans in the UK . Although shares usually outperform bonds in terms of producing higher returns, they also entail stronger volatility of balance sheet items and therisk of short-term shortfalls in coverage. In order to limit this risk, the trustees have built a balanced investment portfolio
to limit the concentration of risks.
I N T E R E S T R AT E R I S K

The interest rate influences in particular unfunded schemes in Germany as a decline in interest rates leads to an increasein the defined benefit obligations. Accordingly, an increase in the interest rate leads to a reduction in the defined benefit
obligations. Funded plans are less strongly affected by this development as the performance of the interest-bearing
assets included in plan assets regularly dampens the effects.
I N F L AT I O N R I S K

An increase in the inflation rate normally increases the obligation in pension schemes linked to the final salary of beneficiaries as inflation causes an increase in the projected salary increases. At the same time, inflation-based pension
increases included in the plan also rise. The inflation risk is reduced through the use of caps and collars. Moreover, thelarge pension funds in the UK hold inflation-linked assets, which also partly reduce the risk from a significant rise ininflation.
LONGE VIT Y RISK

An increasing life expectancy increases the expected benefit duration of the pension obligation. This risk is counteredby using regularly updated mortality data in calculating the present values of the obligation.
CURRENCY RISKFor the TUI Group, the pension schemes entail a currency risk as most pension schemes are operated in the UK and
therefore denominated in sterling. The risk is limited as the currency effects on the obligation and the assets partly
offset each other. The currency risk only relates to the excess of pension obligations over plan assets.

(30) Other provisions
Development of provisions in the financial year 2017

€ million
Maintenance provisions
Risks from onerous contracts
Restructuring provisions
Provisions for other personnel costs
Provisions for other taxes
Provisions for environmental protection
Provisions for Litigation
Miscellaneous provisions
Other provisions

Balance as Changes with noat 30 Sep
effect on profit
2016
and loss*
613.6
31.0
24.0
35.6
32.5
41.7
79.3
320.1
1,177.8

– 6.8
1.8
– 0.6
–
– 2.2
–
11.0
4.5
7.7

Usage

Reversal

Additions

Balance as
at 30 Sep
2017

83.9
3.8
14.6
10.3
0.5
1.6
19.1
118.1
251.9

27.2
3.3
11.2
–
0.1
3.9
15.7
38.0
99.4

119.7
17.9
30.2
15.5
5.5
7.7
25.5
95.1
317.1

615.4
43.6
27.8
40.8
35.2
43.9
81.0
263.6
1,151.3* Reclassifications, transfers, exchange differences and changes in the group of consolidated companies.

Provisions for external maintenance primarily relate to contractual maintenance, overhaul and repair requirements foraircraft, engines and other specific components arising from aircraft operating lease contracts. Measurement of theseprovisions is based on the expected cost of the next maintenance event, estimated on the basis of current prices, expected
price increases and manufacturers’ data sheets. In line with the terms of the individual contracts and the aircraft model
concerned, additions are recognised on a prorated basis in relation to flight hours, the number of flights or the lengthof the complete maintenance cycle.

NOTE S

201

Notes on the consolidated statement of financial position

Provisions for onerous contracts principally relate to unfavourable lease contracts. The increase in financial year 2017
is mainly driven by aircraft leases.
Restructuring provisions comprise severance payments to employees and payments for the early termination of leaseagreements. They primarily relate to restructuring projects in France and the UK for which detailed, formal restructuring
plans have been drawn up and communicated to the parties concerned. The restructuring provisions included at thebalance sheet date of € 27.8 m (previous year € 24.0 m) largely relate to benefits for employees in connection with thetermination of employment contracts.
Provisions for personnel costs comprise provisions for jubilee benefits and provisions for cash-settled share-based
payment schemes in accordance with IFRS 2. Information on these long-term incentive programmes is presented under
Note 37 in the section ‘Share-based payments in accordance with IFRS 2’.
Provisions for environmental protection measures primarily relate to statutory obligations to remediate sites contaminatedwith legacy waste from former mining and metallurgical activities.
Provisions for litigation are established in relation to existing lawsuits. Taken individually, none of the lawsuits has asignificant influence on TUI Group’s economic position.
Changes in other provisions outside profit and loss primarily relate to changes in the group of consolidated companies,
foreign exchange differences and reclassifications within other provisions.
Where the difference between the present value and the settlement value of a provision is material for the measurementof a non-current provision as at the balance sheet date, the provision is recognised at its present value in accordancewith IAS 37. The discount rate to be applied should take account the specific risks of the provision and of future priceincreases. This criterion applies to some items contained in TUI Group’s other provisions. Additions to other provisions
comprise an interest portion of € 3.7 m (previous year € 6.7 m), recognised as an interest expense.

Terms to maturity of other provisions
30 Sep 2017

€ million
Maintenance provisions
Risks from onerous contracts
Restructuring provisions
Provisions for other personnel costs
Provisions for other taxes
Provisions for environmental protection
Provisions for litigation
Miscellaneous provisions
Other provisions

Remainingterm morethan 1 year
523.5
13.4
0.2
23.7
28.6
39.4
55.8
116.8
801.4

30 Sep 2016

Total

Remainingterm morethan 1 year

Total

615.4
43.6
27.8
40.8
35.2
43.9
81.0
263.6
1,151.3

534.8
18.2
–
24.3
24.3
37.6
51.1
112.7
803.0

613.6
31.0
24.0
35.6
32.5
41.7
79.3
320.1
1,177.8

202(31) Financial liabilities
Financial liabilities
30 Sep 201730 Sep 2016

Remaining term
€ million
Bonds
Liabilities to banks
Liabilities from finance leases
Other financial liabilities
Total

Remaining term

up to 1 year

1– 5 years

more than
5 years

Total

up to 1 year

1– 5 years

more than
5 years

Total

–
46.2
96.2
29.5
171.9

295.8
180.4
405.3
–
881.5

–
154.7
725.0
–
879.7

295.8
381.3
1,226.5
29.5
1,933.1

306.5
47.0
92.2
92.0
537.7

–
169.4
349.0
0.1
518.5

–
194.4
790.5
–
984.9

306.5
410.8
1,231.7
92.1
2,041.1

Non-current financial liabilities increased year-on-year by € 257.8 m to € 1,761.2 m as at the balance sheet date. Thisdecline was mainly driven by the issuance of a bond with a carrying amount of € 295.8 m in October 2016.
Current financial liabilities declined by € 365.8 m to € 171.9 m year-on-year as at 30 September 2017. The decrease is
primarily attributable to the redemption of a bond issued in September 2014 with a carrying amount of € 306.5 m.

Fair values and carrying amounts of the bonds issued 30 Sep 201730 Sep 2017

€ million

IssuerNominalvalue
initial2014 / 19 bond2016 / 21 bond
Total

TUI AGTUI AG–
300.0

Nominal­value­outstanding

Interest rate
% p. a.

–
300.0

4.500
2.125

30 Sep 2016

Stockmarketvalue

Carrying
amountStock­market­valueCarrying
amount

–
314.0
314.0

–
295.8
295.8

308.3
–
308.3

306.5
–
306.5

The fixed-interest bond with a nominal value of € 300.0 m issued in October 2016 has a coupon of 2.125 % p. a. The bondwill mature on 26 October 2021. It can be redeemed ahead of its maturity date any time at its value as at the redemption
date. In addition, a 100 % redemption option exists as per 26 July 2021.

NOTE S

203

Notes on the consolidated statement of financial position(32) Other liabilities
Other liabilities
30 Sep 2017
Remaining term
€ million
Other liabilities relating to employees
Other liabilities relating to social security
Other liabilities relating to other taxes
Other miscellaneous liabilities
Deferred income
Other liabilities

30 Sep 2016
Remaining term

up to 1 year

1– 5 years

Total

up to 1 year

1– 5 years

Total

238.7
49.4
26.6
239.4
43.9
598.0

22.8
–
–
44.0
83.4
150.2

261.5
49.4
26.6
283.4
127.3
748.2

237.8
45.7
27.8
221.7
38.1
571.1

17.1
–
–
69.9
73.1
160.1

254.9
45.7
27.8
291.6
111.2
731.2

(33) Liabilities related to assets held for saleIn the prior year, the liabilities of the discontinued operation Specialist Group were presented in this line. For moredetailed information, reference is made to the section ‘Discontinued operations’.

(34) Contingent liabilities
As at 30 September 2017, contingent liabilities amounted to € 156.1 m (previous year € 326.1 m). Contingent liabilities
are reported at an amount representing the best estimate of the potential expenditure that would be required to meetthe potential obligation as at the balance sheet date. Contingent liabilities decreased by € 170.0 m year-on-year. This
primarily resulted from the repayment by Hapag-Lloyd AG of a bank loan guaranteed by TUI . Contingent liabilities as at
30 September 2017 are mainly attributable to the granting of guarantees for the benefit of cruise and hotel activities.

(35) Litigation
TUI AG and its subsidiaries are involved in several pending or foreseeable court or arbitration proceedings, which do nothave a significant impact on their economic position as at 30 September 2017 or future periods. This also applies toactions claiming warranty, repayment or any other compensation in connection with the divestment of subsidiaries andbusiness units over the past few years. As in previous years, the Group recognised adequate provisions, partly coveredby expected insurance benefits, to cover all financial charges from court or arbitration proceedings.

204(36) Other financial commitments
Financial commitments from operating lease and rental contracts
30 Sep 201730 Sep 2016

Remaining term
€ million
AircraftHotel complexes
Travel agencies
Administrative­buildings
Ships, Yachts and­Motorboats
Other
Total

up to
1 year

1– 5 years 5– 10 years

Remaining term

more than
10 years

Total

up to
1 year

1– 5 years 5– 10 years

more than
10 years

Total

365.2
237.9
62.8

866.2
413.6
117.3

229.7
66.9
28.7

–
10.0
8.3

1,461.1
728.4
217.1

391.7
242.3
67.9

1,125.7
411.9
124.8

368.9
67.7
30.4

–
10.0
6.0

1,886.3
731.9
229.1

37.2

102.1

54.2

40.3

233.8

43.4

108.7

64.7

54.4

271.2

27.1
20.3
750.5

2.1
27.4
1,528.7

–
8.7
388.2

–
51.4
110.0

29.2
107.8
2,777.4

99.6
22.5
867.4

104.7
26.1
1,901.9

0.3
8.9
540.9

–
56.8
127.2

204.6
114.3
3,437.4

The commitments from lease, rental and charter agreements exclusively relate to leases that do not transfer all risks
and rewards of ownership of the assets to the TUI Group companies in accordance with IFRS rules (operating leases).
The average basic lease term is around 9 years.
The decrease in liabilities as against 30 September 2016 results above all from lower lease obligations for aircraft. Higher
lease obligations due to the commissioning of new aircraft were more than offset by the lease payments made in thefinancial year. The lease obligations for ships, yachts and motor boats are down year-on-year as the obligations weresignificantly reduced due to the sale of Travelopia. A further decline was driven by foreign exchange effects for liabilities
denominated in foreign currencies.

Order commitments in respect of capital expenditure and other financial commitments
30 Sep 201730 Sep 2016

Remaining term
€ million
Order commitments in respect of­capital expenditure
Other financial commitments
Total

Remaining term

up to 1 year

1– 5 years

more than
5 years

Total

up to 1 year

1– 5 years

more than
5 years

Total

733.0
49.6
782.6

2,769.4
46.3
2,815.7

662.1
–
662.1

4,164.5
95.9
4,260.4

657.1
68.1
725.2

2,929.7
45.9
2,975.6

1,199.9–
1,199.9

4,786.7114.0
4,900.7

As at 30 September 2017, order commitments in respect of capital expenditure relating almost exclusively to Tourism
declined by € 622.2 m year-on-year. This was due to various factors including the delivery of Marella Discovery and an
aircraft. Further declines resulted from additional down payments for aircraft and aircraft equipment as well as foreignexchange effects for liabilities denominated in non-functional currencies, which were partly offset by new ordercommitments for aircraft.

(37) Share-based payments in accordance with IFRS 2
As at 30 September 2017, all existing awards except oneShare are recognized as cash-settled share-based payment schemes.
The following share-based payment schemes are in effect within TUI Group as at 30 September 2017.

NOTE S

205

Notes on the consolidated statement of financial position

M U LT I - A N N U A L B O N U S PAY M E N T ( M E V )The long-term incentive programme for Board members is based on phantom shares. In each financial year, a new periodof performance measurements commences, spanning the current plus the following three financial years. As a result,each performance measurement period has a general term of four years. All Board members have their individual target
amount defined in their service contract. This is translated at the beginning of each performance measurement period
into phantom shares based on the average price of TUI AG shares (‘preliminary number of phantom shares’). The average
share price is calculated based on the share prices during the 20 days prior to the beginning of any financial year. The
entitlement under the long-term incentive programme arises upon completion of the four-year performance period.
Upon the completion of the four-year performance period, the preliminary number of phantom shares is multiplied by
the degree of target achievement. This degree is determined by the rank achieved by TUI AG when comparing the total
shareholder return ( TSR) of companies listed in the ‘Dow Jones Stoxx 600 Travel & Leisure’ index. The rank is subsequently translated into a percentage, which is the degree of target achievement. If the degree of target achievement isless than 25 %, no preliminary phantom shares are remunerated. If the degree of target achievement exceeds 25 %, itis multiplied by the number of preliminary phantom shares granted, subject to a cap of 175 %. At the end of the four-year
performance period, the number of phantom shares determined in this way is multiplied by the average price (20 tradingdays) of TUI AG shares, and the resulting amount is paid out in cash. The maximum amount payable under the long-term
incentive programme has been capped for each individual.
If the conditions mentioned above are met, upon expiry of the performance period, the awards are automatically exercised.
If the conditions are not met, the awards are forfeited. The service period will be restricted to the end of the employment
period if plan participants leave the Company, as long as employment is not terminated due to a significant reason
within the sphere of responsibility of the participant or by the participant without cause.
PERFORMANCE SHARE PL AN (PSP)The PSP details the share-based payments for entitled Group executives who are not part of the Board. The scheme
conditions are harmonized with the Multi-Annual bonus plan of the Board members with the notable exception of a threeyear performance period instead of four years. Target amounts and grant frequency are subject to individual contractual
agreements.
Since MEV and PSP follow common scheme principles, the following development of awarded phantom shares under
the programs are shown on a aggregated basis.

Development of phantom shares awarded

Balance as at 30 Sep 2015
Phantom shares awarded
Phantom shares exercised
Phantom shares forfeited
Measurement results
Balance as at 30 Sep 2016
Phantom shares awarded
Phantom shares exercised
Phantom shares forfeited
Measurement results
Balance as at 30 Sep 2017

Number ofsharesPresent value€ million

730,841
254,023– 322,613––
662,251
931,575– 219,368– 117,604–
1,256,854

12.0
3.8
– 4.0
–
– 3.6
8.2
11.7
– 3.2
– 1.5
3.1
18.3

206

E MPLOYE E SHARE PROGR AM ‘ONE SHARE ’Eligible employees can acquire TUI AG shares under preferential conditions when participating in the oneShare program.
The preferential conditions include a discount on ‘investment’ shares bought during a twelve month investment period
plus one ‘matching’ share per three held investment shares, after a lock up period of two years. Investment shares are
created via capital increase, while matching shares are bought on the open market. Eligible employees decide once a
year about their participation in oneShare. In the financal year 2017, two oneShare tranches commenced, the first witha short investment period of four months, the second with a regularised twelve month period. Going forward, one
tranche will be commenced per annum.
Since investment and matching shares are equity instruments of TUI AG , oneShare is accounted for as an equity-settled
share-based payment scheme in line with IFRS 2. Once all eligible employees have decided upon or against their yearlyparticpiation, the fair value of the equity instrument granted is calculated one time on the basis of the proportional
shares price at grant date taking into consideration the discounted estimated dividends.
The development of acquired investment and estimated matching shares, as well as the parameters used for the calculationof the fair value are as follows:

Overview oneShare tranches

Investment period
Matching date
Acquired investment shares
Forfeited investment shares
Initially estimated matching shares
Forfeited matching shares
Share price at grant dateFair value: Discount per investment share
recognised estimated dividendFair value: matching share
recognised discounted estimated dividend

in €
in €
in €
in €
in €

Tranche 1(2017 / 3)

Tranche 2(2017 / 7)

1 Apr 2017 –31 Jul 201730 Sep 2019349,941
1,228
116,647
409
12.99
2.60
–
11.65
1.34

1 Aug 2017 –31 Jul 2018
30 Sep 2020
53,097–
17,699
–
13.27
2.02
0.63
11.15
2.11

Total

–
–
403,038
1,228
134,346
409
–
–
–
–
–

C L O S E D S H A R E - B A S E D PAY M E N T S C H E M E S

The following share-based payment schemes are closed, no new awards are granted. Awards made in the past remain
valid and will vest according to the respective plan conditions.
TUI AG STOCK OPTION PL AN

The stock option plan for entitled Group executives below Board level was closed during financial year 2016. The lasttranche was granted in February 2016 and will vest in February 2018.
Bonuses were granted to Group executives entitled to receive a bonus; the bonuses were translated into phantom
shares in TUI AG on the basis of an average share price. The phantom shares were calculated on the basis of Groupearnings before interest, taxes and amortisation of goodwill (EBITA). The translation into phantom shares was based on
the average share price of the TUI share on the 20 trading days following the Supervisory Board meeting at which theannual financial statements were approved. The number of phantom shares granted in a financial year was, therefore,
only determined in the subsequent year. Following a lock-up period of two years, the individual beneficiaries are free toexercise their right to cash payment from this bonus within three years. Following significant corporate news, the entitlements have to be exercised within defined timeframes. The lock-up period is not applicable if a beneficiary leaves theCompany; in that case, the entitlements have to be exercised in the next time window. The level of the cash payment
depends on the average share price of the TUI share over a period of 20 trading days after the exercise date. There are
no absolute or relative return or share price targets. A cap has been agreed for exceptional, unforeseen developments.

NOTE S

Notes on the consolidated statement of financial position

Since the strike price is € 0.00 and the incentive programme does not entail a vesting period, the fair value corresponds
to the intrinsic value and hence the market price at the balance sheet date. Accordingly, the fair value of the obligation
is determined by multiplying the number of phantom shares with the share price at the respective reporting date.
From the stock option plan which closed during the financial year 2016, as at 30 September 2017 153,760 share options
are outstanding, thereof 61,008 share options (valued at € 0.9 m) have vested. Since the plan is closed, no new grants
were made, 298,040 options were exercised (total value of € 3.9 m) and no options were forfeited.
S H A R E - B A S E D PAY M E N T S C H E M E S O F F O R M E R T U I T R A V E L P L C

The three principal schemes below were all closed to new participants during the financial year 2016. The last two
tranches will vest in December 2017 and December 2018 with cash settlement.
The share option awards of these remuneration schemes will only vest if the average annual return on invested capital(ROIC ) is at least equal to the average weighted average cost of capital ( WACC ) over a period of three years. If thiscondition is fulfilled, the number of vesting awards is determined as a function of the fulfilment of the following
performance conditions.
PERFORMANCE SHARE PL AN (PSP)Up to 50 % of these awards granted will vest based on growth in the Group’s reported earnings per share (EPS) relative
to the UK Retail Price Index. Up to 25 % of the awards will vest based on the Group’s total shareholder return ( TSR)
performance relative to an average of the TSR performance of an index of other capital market-orientated travel andtourism companies. Likewise, up to 25 % of the awards vest if the Group’s average return on invested capital (ROIC )meets predefined targets.
DEFERRED ANNUAL BONUS SCHEME (DABS)

The awards granted under this scheme vest upon completion of a three-year period at the earliest. Up to 50 % of the
granted awards will vest based on growth in earnings per share (EPS) relative to the UK Retail Price Index (RPI). 25 % of
the awards will vest based on total shareholder return ( TSR) performance relative to the TSR performance of othercapital market-oriented travel and tourism companies. Likewise, up to 25 % of the awards will vest if the average returnon invested capital (ROIC ) meets certain targets.
D E F E R R E D A N N U A L B O N U S L O N G -T E R M I N C E N T I V E S C H E M E ( D A B L I S )The Deferred Annual Bonus Long-Term Incentive Scheme (DABLIS), for executive staff (except for the Executive Board)requires a 25 % conversion of any annual variable compensation into share options. Some eligible staff have been
awarded further (matching) share option awards as additional bonuses. Matching share options are limited to four times
the converted amount. The earliest point for the share options to be eligible for release is at the end of a three-year
period. Up to 50 % of the awards will vest based on achievement of certain EBITA targets. Up to 25 % of awards will vest
based on the earnings per share (EPS) performance relative to the UK Retail Price Index and up to 25 % based on the
total shareholder return ( TSR) performance in relation to the TSR performance of other capital market-oriented travel
and tourism companies.

207

208

The development of awards granted under DABS , DABLIS and the closed PSP of the former TUI Travel PLC schemes is
as follows:

Development of phantom shares options awarded

Balance as at 30 Sep 2015
Phantom share options awarded
Phantom share options exercised
Phantom share options forfeited
Measurement results
Balance as at 30 Sep 2016
Phantom share options awarded
Phantom share options exercised
Phantom share options forfeited
Measurement results
Balance as at 30 Sep 2017

Numberof shares

Present value€ million

1,604,386
829,786
402,039292,200–
1,739,933–
171,351
210,912–
1,357,670

26.7
13.5
6.5
4.8
– 6.7
22.2
–
2.2
2.7
2.2
19.5

All other outstanding equity-settled awards of subsidiaries were compensated during the financial year 2017.

Development of share options granted
Number of shares
Balance as at 30 Sep 2015
Granted during the financial year
Exercised during the financial year
Forfeited during the financial year
Balance as at 30 Sep 2016
Granted during the financial year
Exercised during the financial year
Forfeited during the financial year
Balance as at 30 Sep 2017

5,026,498–
3,208,179
677,243
1,141,076–
924,247
216,829–

The weighted average TUI AG share price was € 12.32 at exercise date (previous year € 14.76).
A C C O U N T I N G F O R S H A R E - B A S E D PAY M E N T S C H E M E S

As at 30 September 2017, all existing awards except oneShare are recognized as cash-settled share-based payment
schemes and are granted with an exercise price of € 0.00. The personnel expense is recognized upon actual delivery ofservice according to IFRS 2 and is, therefore, spread over a period of time. According to IFRS 2, all contractually granted
entitlements have to be accounted for, irrespective of whether and when they are actually awarded. Accordingly, phantom
shares granted in the past are charged on a pro rata basis upon actual delivery of service.
In the financial year 2017, personnel expenses due to cash-settled share-based payment schemes of € 11.1 m (previous
year € 14.1 m) were recognised through profit and loss.
As at 30 September 2017 provisions relating to entitlements under these long-term incentive programmes totaled€ 32.9 m and further € 1.6 m were included as liabilities (previous year provisions of € 25.9 m and € 1.9 m liabilities).

NOTE S

Notes on the consolidated statement of financial position

In financial year 2017, personnel expenses due to equity-settled share-based payment schemes of € 1.9 m (previous
year € 6.2 m) were recognised through profit and loss.

(38) Financial instruments
RISKS AND RISK MANAGEMENTRISK MANAGEMENT PRINCIPLE S

Due to the nature of its business operations, the TUI Group is exposed to various financial risks, including market risks(consisting of currency risks, interest rate risks and market price risks), credit risks and liquidity risks.
In accordance with the Group’s financial goals, financial risks have to be mitigated. In order to achieve this, policies andprocedures have been developed to manage risk associated with financial transactions undertaken.
The rules, responsibilities and processes as well as limits for transactions and risk positions have been defined in policies.
The trading, processing and control have been segregated in functional and organisational terms. Compliance with thepolicies and limits is continually monitored. All hedges by the TUI Group are consistently based on recognised or forecasted
underlying transactions. Standard software is used for assessing, monitoring, reporting, documenting and reviewing theeffectiveness of the hedging relationships for the hedges entered into. In this context, the fair values of all derivative
financial instruments determined on the basis of the Group’s own systems are regularly compared with the fair value
confirmations from the external counterparties. The processes, the methods applied and the organisation of risk
management are reviewed for compliance with the relevant regulations on at least an annual basis by the internal audit
department and external auditors.
Within the TUI Group, financial risks primarily arise from cash flows in foreign currencies, fuel requirements (jet fuel andbunker oil) and financing via the money and capital markets. In order to limit the risks from changes in exchange rates,
market prices and interest rates for underlying transactions, the TUI Group uses over-the-counter derivative financial
instruments. These are primarily fixed-price transactions. In addition, the TUI Group also uses options and structured
products. Use of derivative financial instruments is confined to internally fixed limits and other policies. The transactions
are concluded on an arm’s length basis with counterparties operating in the financial sector, whose counterparty risk isregularly monitored. Foreign exchange translation risks from the consolidation of Group companies not preparing theiraccounts in euros are not hedged.
MARKET RISK

Market risks result in fluctuations in earnings, equity and cash flows. In order to limit or eliminate these risks, the TUIGroup has developed various hedging strategies, including the use of derivative financial instruments.
IFRS 7 requires the presentation of a sensitivity analysis showing the effects of hypothetical changes in relevant market

risk variables on profit or loss and equity. The effects for the period are determined by relating the hypothetical changes
in risk variables to the portfolio of primary and derivative financial instruments as at the balance sheet date. It is assured
that the portfolio of financial instruments as at the balance sheet date is representative for the entire financial year.
The analyses of the TUI Group’s risk reduction activities outlined below and the amounts determined using sensitivity
analyses represent hypothetical and thus uncertain risks. Due to unforeseeable developments in the global financial
markets, actual results may deviate substantially from the disclosures provided. The risk analysis methods used mustnot be considered a projection of future events or losses, since the TUI Group is also exposed to risks of a non-financial
or non-quantifiable nature. These risks primarily include sovereign, business and legal risks not covered by the following
presentation of risks.

209

210

CURRENCY RISKThe business operations of the TUI Group’s companies generate payments or receipts denominated in foreign currencies,
which are not always matched by payments or receipts with equivalent terms in the same currency. Using potential
netting effects (netting of payments made and received in the same currency with identical or similar terms), the TUIGroup enters into appropriate hedges with external counterparties in order to protect its profit margin from exchange
rate-related fluctuations.
Within the TUI Group, risks from exchange rate fluctuations are hedged, with the largest hedging volumes relating to US
dollars, euros and pound sterling. The Eurozone limits the currency risk from transactions in the key tourist destinations
to Group companies whose functional currency is not the euro. The tourism business operations are mainly affected bychanges in the value of the US dollar and the euro, the latter predominantly affecting the TUI tour operators in the UK
and the Nordic countries. In tourism operations, payments in US dollars primarily relate to the procurement of services
in non-European destinations, purchases of jet and ship fuel and aircraft and cruise ship purchases or charter.
The tourism companies use financial derivatives to hedge their planned foreign exchange requirements. They aim to cover
80 % to 100 % of the planned currency requirements at the beginning of the tourism season. In this regard, account istaken of the different risk profiles of the TUI Group companies. The hedged currency volumes are adjusted in line withchanges in planned requirements based on reporting by business units.
Currency risks within the meaning of IFRS 7 arise from primary and derivative monetary financial instruments issued ina currency other than the functional currency of a company. Exchange rate-related differences from the translation offinancial statements into the Group’s presentation currency are not taken into account. Taking account of the different
functional currencies within the TUI Group, the sensitivity analyses of the currencies identified as relevant risk variables
are presented below. A 10 % strengthening or weakening of the respective functional currencies, primarily euro andpound sterling, against the other currencies would cause the following effects on the revaluation reserve and earnings
after income tax:

Sensitivity analysis – currency risk
30 Sep 201730 Sep 2016

€ million
Variable: Foreign exchange rate
Exchange rates of key currencies€ / US dollar
Revaluation reserve
Earnings after income taxes
Pound sterling / €Revaluation reserve
Earnings after income taxes
Pound sterling / US dollar
Revaluation reserve
Earnings after income taxes€ / Swedish krona
Revaluation reserve
Earnings after income taxes+ 10 %– 10 %+ 10 %– 10 %– 108.3– 2.3+ 109.4+ 0.9– 123.4– 6.5+ 124.0+ 6.7+ 197.4– 8.9– 190.9– 2.2+ 176.0– 8.4– 176.0+ 3.5– 138.9+ 18.8+ 133.4– 13.3– 114.3+ 10.0+ 114.3– 10.0+ 31.7–– 31.7
–

– 0.7
–

+ 0.7
–

I N T E R E S T R AT E R I S K

The TUI Group is exposed to interest rate risks from floating-rate primary and derivative financial instruments. Where
interest-driven cash flows of floating-rate primary financial instruments are converted into fixed cash flows using derivative
hedges, they are not exposed to an interest rate risk. No interest rate risk exists for fixed-interest financial instruments
carried at amortised cost.

NOTE S

211

Notes on the consolidated statement of financial position

Changes in market interest rates mainly impact floating-rate primary financial instruments and derivative financial instruments entered into in order to reduce interest-induced cashflow fluctuations.
The table below presents the equity and earnings effects of an assumed increase or decrease in the market interest rateof 50 base points as at the balance sheet date.

Sensitivity analysis – interest rate risk
30 Sep 201730 Sep 2016

€ million
Variable: Interest rate level for floatinginterest-bearing debt
Revaluation reserve
Earnings after income taxes+ 50 basis
points– 50 basis
points+ 50 basis
points– 50 basis
points

+ 2.9
+ 2.4

– 2.9
– 2.4

–
+ 2.6

–
– 2.6

FUEL PRICE RISKDue to the nature of its business operations, the TUI Group is exposed to market price risks from the purchase of fuel,both for the aircraft fleet and the cruise ships.
The tourism companies use financial derivatives to hedge their exposure to market price risks for the planned consumptionof fuel. At the beginning of the touristic season the target hedging ratio is at least 80 %. The different risk profiles of
the Group companies operating in different source markets are taken into account, including the possibility of levying
fuel surcharges. The hedging volumes are adjusted for changes in planned consumption as identified by the Group
companies.
If the commodity prices, which underlie the fuel price hedges, increase or decrease by 10 % on the balance sheet date,the impact on equity and on earnings after income taxes would be as shown in the table below.

Sensitivity analysis – fuel price risk
30 Sep 201730 Sep 2016

€ million
Variable: Fuel prices for aircraft and ships+ 10 %– 10 %+ 10 %– 10 %

Revaluation reserve
Earnings after income taxes+ 84.1– 0.2– 83.9+ 0.2+ 81.2– 0.3– 80.8–OTHER PRICE RISKS

Apart from the financial risks that may result from changes in exchange rates, commodity prices and interest rates, theTUI Group is not exposed to significant price risks at the balance sheet date.
CREDIT RISKThe credit risk in non-derivative financial instruments results from the risk of counterparties defaulting on theircontractual payment obligations.
Maximum credit risk exposure corresponds to the total of the recognised carrying amounts of the financial assets(including derivative financial instruments with positive market values). It also relates to the granting of financial
guarantees for the discharge of liabilities. Details concerning the guarantees at the balance sheet date are presented in
Note 22. Where legally enforceable, financial assets and liabilities are netted. Credit risks are reviewed closely on conclusionof the contract and continually monitored thereafter in order to swiftly respond to potential impairment in a counterparty’s solvency. Responsibility for handling the credit risk is held by the Group company holding the receivable.

212

Since the TUI Group operates in many different business areas and regions, significant credit risk concentrations ofreceivables from and loans to specific debtors or groups of debtors are not to be expected. A significant concentrationof credit risks related to specific countries is not to be expected either. As in the previous year, at the balance sheet date,there is no material collateral held, or other credit enhancements that reduce the maximum credit risk. Collateral heldin the prior period relates exclusively to financial assets of the category Trade receivable and other assets. The collateralmainly comprises collateral for financial receivables granted and maturing in more than one year and / or with a volume
of more than € 1 m. Rights in rem, directly enforceable guarantees, bank guarantees and comfort letters are used ascollateral.
Identifiable credit risks of individual receivables are subject to provisions for bad debts. In addition, portfolios are impaired
based on observed values. An analysis of the aging structure of the category Trade receivables and other assets ispresented in Note 18.
Credit management also covers the TUI Group’s derivative financial instruments. The maximum credit risk for derivative
financial instruments entered into is limited to the total of all positive market values of these instruments since in theevent of counterparty default asset losses would only be incurred up to that amount. Since derivative financial instruments
are concluded with different debtors, credit risk exposure is reduced. The specific credit risks of individual counterparties
are taken into account in determining the fair values of derivative financial instruments. In addition, the counterparty
risk is continually monitored and controlled using internal bank limits.
LIQUIDITY RISK

Liquidity risks arise from the TUI Group being unable to meet its short term financial obligations and the resulting increases in funding costs. TUI has established an internal liquidity management system to secure TUI Group’s liquidity
at all times and consistently comply with contractual payment obligations. To that end, TUI Group’s liquidity management system uses the opportunities of physical and virtual cash pooling for more efficient liquidity pooling. It also uses
credit lines to compensate the seasonal fluctuations in liquidity resulting from the tourism business. The core credit
facility is a syndicated revolving credit facility with banks with a volume of € 1,535 m as a cash line.
As in the previous year, no material assets were deposited as collateral for liabilities. Moreover, the Group companies
participating in the cash pool are jointly and severally liable for financial liabilities from cash pooling agreements.
The tables provided below list the contractually agreed (undiscounted) cash flows of all primary financial liabilities andderivative financial instruments as at the balance sheet date. Planned payments for future new liabilities were not taken
into account. Where financial liabilities have a floating interest rate, the forward interest rates fixed at the balance sheet
date were used to determine future interest payments. Financial liabilities cancellable at any time are allocated to theearliest maturity band.

NOTE S

213

Notes on the consolidated statement of financial position

Cash flow of financial instruments – financial liabilities (30 Sep 2017)
Cash outflow until 30 Sep
up to 1 year
€ million
Financial liabilities
Bonds
Liabilities to banks
Liabilities from finance leases
Other financial liabilities
Trade payables
Other liabilities

1 – 2 years

2 – 5 years

more than 5 years

repaymentinterest

repaymentinterest

repaymentinterest

repaymentinterest–– 46.2– 96.2– 29.5– 2,653.3– 185.5– 6.4– 11.6– 32.0– 0.1–– 28.6–– 42.2– 100.2––– 20.7– 6.4– 10.3– 32.5–––– 300.0– 138.2– 305.1––– 22.2– 19.3– 22.6– 75.3––––– 154.7– 725.0––––– 10.4– 54.4–––

Cash flow of financial instruments – financial liabilities (30 Sep 2016)
Cash outflow until 30 Sep
up to 1 year
€ million
Financial liabilities
Bonds
Liabilities to banks
Liabilities from finance leases
Other financial liabilities
Trade payables
Other liabilities

1 – 2 years

2 – 5 years

repaymentinterest

repaymentinterest

repaymentinterest

repaymentinterest–– 47.0– 92.2– 92.0– 2,476.9– 175.7– 13.5– 12.0– 33.5– 0.1–– 19.8–– 47.6– 91.2
– 0.1
–
– 8.4

– 13.5– 12.4– 31.6–––– 300.0– 121.8– 257.8–––– 20.3– 32.2– 81.8––––– 194.4– 790.5––––– 31.6– 71.5–––

Cash flow of derivative financial instruments (30 Sep 2017)
Cash in- / outflow until 30 Sep€ million
Derivative financial instruments
Hedging transactions – inflows
Hedging transactions – outflows
Other derivative financial instruments – inflows
Other derivative financial instruments – outflows

more than 5 years

up to 1 year

1 – 2 years

2 – 5 years

more than
5 years+ 6,449.2– 6,487.6+ 1,108.9– 1,108.2+ 1,621.7– 1,602.5+ 127.0– 123.2+ 196.3– 198.8+ 12.2– 12.2

–
– 0.7
–
–

214

Cash flow of derivative financial instruments (30 Sep 2016)
Cash in- / outflow until 30 Sep€ million
Derivative financial instruments
Hedging transactions – inflows
Hedging transactions – outflows
Other derivative financial instruments – inflows
Other derivative financial instruments – outflows

up to 1 year

1 – 2 years

2 – 5 years

more than
5 years+ 7,362.3– 7,062.0+ 1,688.0– 1,714.5+ 1,587.1– 1,531.3+ 44.4– 43.0+ 345.3– 316.0
+ 0.7
– 0.8

–
–
–
–

D E R I V AT I V E F I N A N C I A L I N S T R U M E N T S A N D H E D G E S
S T R AT E G Y A N D G O A L S

In accordance with the TUI Group’s policy, derivatives are allowed to be used if they are based on underlying recognised
assets or liabilities, firm commitments or forecasted transactions. Hedge accounting based on the rules of IAS 39 isapplied to forecasted transactions. In the completed financial year, hedges consisted of cash flow hedges.
Derivative financial instruments in the form of fixed-price transactions and options as well as structured products areused to limit currency, interest rate and fuel risks.
C ASH FLOW HEDGES

As at 30 September 2017, hedges existed to manage cash flows in foreign currencies with maturities of up to four years(previous year up to five years). The fuel price hedges had terms of up to four years (previous year up to four years).
Hedges to protect variable interest payment obligations have terms of up to fourteen years (previous year none).
In accounting for cash flow hedges, the effective portion of the cumulative change in market value is carried in therevaluation reserve outside profit and loss until the hedged item occurs. It is carried in the income statement throughprofit and loss when the hedged item is executed. In the completed financial year, income of € 371.8 m (previous year
income of € 40.4 m) for currency hedges and derivative financial instruments used as price hedges were carried in thecost of sales. As in the previous year, there was no result from interest hedges. Expenses of € 4.5 m (previous year
income of € 1.6 m) was carried for the ineffective portion of the cash flow hedges.

Nominal amounts of derivative financial instruments used
30 Sep 2017
Remaining term
€ million
Interest rate hedges
Caps
Swaps
Currency hedges
Forwards
Options
Structured instruments
Commodity hedges
Swaps
Options

30 Sep 2016
Remaining term

up to 1 year

more than
1 yearTotal

up to 1 year

more than
1 year

Total

150.0
–

115.6
255.4

265.6
255.4

–
–

150.0
25.2

150.0
25.2

7,010.8–
113.5

1,854.6––

8,865.4–
113.5

8,924.1–
63.0

2,006.3–
10.9

10,930.4
–
73.9

754.3
19.9

407.9
–

1,162.2
19.9

779.9
20.7

476.6
–

1,256.5
20.7

NOTE S

215

Notes on the consolidated statement of financial position

The nominal amounts correspond to the total of all purchase or sale amounts or the contract values of the transactions.
F A I R V A L U E S O F D E R I V AT I V E F I N A N C I A L I N S T R U M E N T S

The fair values of derivative financial instruments generally correspond to the market value. The market price determined
for all derivative financial instruments is the price that would be received to sell an asset or paid to transfer a liability inan orderly transaction between market participants at the measurement date. A description of the determination of the fairvalues of derivative financial instruments is provided with the classification of financial instruments measured at fair value.

Positive and negative fair values of derivative financial instruments shown as receivables or liabilities
30 Sep 2017
€ million
Cash flow hedges for
currency risks
other market price risksinterest rate risks
Hedging
Other derivative financial instruments
Total

30 Sep 2016

Receivables

Liabilities

Receivables

Liabilities

168.6
91.2
–
259.8
35.5
295.3

217.4
11.1
0.7
229.2
38.4
267.6

480.7
59.0
–
539.7
131.7
671.4

104.0
115.0
–
219.0
58.1
277.1

Financial instruments which are entered into in order to hedge a risk position according to operational criteria but do
not meet the criteria of IAS 39 to qualify for hedge accounting are shown as other derivative financial instruments. They
include foreign currency transactions entered into in order to hedge against foreign exchange-exposure to changes inthe value of balance sheet items and foreign exchange fluctuations from future expenses in Tourism.
FINANCIAL INSTRUMENTS – ADDITIONAL DISCLOSURESC A R RY I N G A M O U N T S A N D FA I R VA LU E S

Where financial instruments are listed in an active market, e. g. shares held and bonds issued, the fair value or market
value is the respective quotation in this market at the balance sheet date. For over-the-counter bonds, liabilities tobanks, promissory notes and other non-current financial liabilities, the fair value is determined as the present value of
future cash flows, taking account of yield curves and the respective credit spread, which depends on the credit rating.
Due to the short remaining terms of cash and cash equivalents, current trade receivables and other assets, current
trade payables and other payables, the carrying amounts are taken as realistic estimates of the fair value.
The fair values of non-current trade receivables and other assets correspond to the present values of the cash flows
associated with the assets, taking account of current interest parameters which reflect market- and counter­partyrelated changes in terms and expectations. There are no financial investments held to maturity.

216

Carrying amounts and fair values according to classes and measurement categories as at 30 Sep 2017
Category under IA S 39

€ million
AssetsAvailable for sale financial assets
Trade receivables and other­assets
Derivative financial instruments
Hedging	Other derivative financial­instruments
Cash and cash equivalents
Liabilities
Financial liabilities
Trade payables
Derivative financial instruments
Hedging	Other derivative financial­instruments
Other liabilities

Fair value with
Fair value
no effect on through profit
and lossAt cost profit and loss

Values­according to
IA S 17(­leases)

Carrying
amount of­financial­instruments

Fair value offinancial­instruments

Carrying
amountAt amortised
cost

69.5

–

43.5

26.0

–

–

69.5

69.5

1,006.3

745.1

–

–

–

–

745.1

745.1

259.8

–

–

259.8

–

–

259.8

259.8

35.5
2,516.1–
2,516.1

–
–

–
–

35.5
–

–
–

35.5
2,516.1

35.5
2,516.1

1,933.1
2,653.3

706.6
2,652.4

–
–

–
–

–
–

1,226.5–

706.6
2,652.4

714.0
2,652.4

229.2

–

–

229.2

–

–

229.2

229.2

38.4
748.2

–
95.2

–
–

–
–

38.4
–

–
–

38.4
95.2

38.4
95.2

NOTE S

217

Notes on the consolidated statement of financial position

Carrying amounts and fair values according to classes and measurement categories as at 30 Sep 2016
Category under IA S 39

€ million
AssetsAvailable for sale financial assets
Trade receivables and other assets
Derivative financial instruments
Hedging	Other derivative financial­instruments
Cash and cash equivalents
Liabilities
Financial liabilities
Trade payables
Derivative financial instruments
Hedging	Other derivative financial­instruments
Other liabilities

Fair value with
Fair value
no effect on through profit
and lossAt cost profit and loss

Values­according to
IA S 17(­leases)

Carrying
amount of­financial­instruments

Fair value offinancial­instruments

Carrying
amountAt amortised
cost

316.2
911.2

–
689.7

44.4
–

271.8
–

–
–

–
–

316.2
689.7

316.2
689.7

539.7

–

–

539.7

–

–

539.7

539.7

131.7
2,072.9–
2,072.9

–
–

–
–

131.7
–

–
–

131.7
2,072.9

131.7
2,072.9

2,041.1
2,476.9809.4
2,476.4

–
–

–
–

–
–

1,231.8–809.4
2,476.4

818.0
2,476.4

219.0

–

–

219.0

–

–

219.0

219.0

58.1
731.2

–
134.2

–
–

–
–

58.1
–

–
–

58.1
134.2

58.1
134.2

The financial investments classified as financial assets available for sale include an amount of € 43.5 m (previous year
€ 44.4 m) for stakes in partnerships and corporations for which an active market does not exist. The fair value of these
non-listed stakes is not determined using a measurement model since the future cash flows cannot be reliably determined.
The stakes are carried at acquisition cost. In the reporting period and in the previous year, there were no major disposals
of stakes in partnerships and corporations measured at acquisition cost. The TUI Group does not intend to sell orderecognise the stakes in these partnerships and corporations in the near future.

Aggregation according to measurement categories under IAS 39 as at 30 Sep 2017
Fair value€ million
Loans and receivables
Financial assets
available for sale
held for trading
Financial liabilities
at amortised costheld for trading

At amortisedcostwith no effecton profit and through profit
loss
and lossAt costCarrying
amountTotal

Fair value

3,261.2–––

3,261.2

3,261.2

–
–

43.5
–

26.0
–

–
35.5

69.5
35.5

69.5
35.5

3,454.2
–

–
–

–
–

–
38.4

3,454.2
38.4

3,461.6
38.4

218

Aggregation according to measurement categories under IAS 39 as at 30 Sep 2016
Fair value€ million
Loans and receivables
Financial assets
available for sale
held for trading
Financial liabilities
at amortised costheld for trading

At amortisedcostwith no effecton profit and through profit
loss
and lossAt costCarrying
amountTotal

Fair value

2,762.6–––

2,762.6

2,762.6

–
–

44.4
–

271.8
–

–
131.7

316.2
131.7

316.2
131.7

3,420.0
–

–
–

–
–

–
58.1

3,420.0
58.1

3,428.6
58.1

FA I R VA LU E M E A S U R E M E N T

The table below presents the fair values of recurring, non-recurring and other financial instruments measured at fairvalue in line with the underlying measurement level. The individual measurement levels have been defined as follows inline with the inputs:• Level 1: (unadjusted) quoted prices in active markets for identical assets or liabilities.
• Level 2: inputs for the measurement other than quoted market prices included within Level 1 that are observable inthe market for the asset or liability, either directly (as quoted prices) or indirectly (derivable from quoted prices).
• Level 3: inputs for the measurement of the asset or liability not based on observable market data.

Classification of fair value measurement of financial instruments as of 30 Sep 2017
Fair value hierarchy€ million

Total

Level 1

Level 2

Level 3

AssetsAvailable for sale financial assets
Derivative financial instruments
Hedging transactions
Other derivative financial instruments

26.0

–

20.1

5.9

259.8
35.5

–
–

259.8
35.5

–
–

Liabilities
Derivative financial instruments
Hedging transactions
Other derivative financial instruments

229.2
38.4

–
–

229.2
38.4

–
–

NOTE S

219

Notes on the consolidated statement of financial position

Classification of fair value measurement of financial instruments as of 30 September 2016
Fair value hierarchy€ million
AssetsAvailable for sale financial assets
Derivative financial instruments
Hedging transactions
Other derivative financial instruments
Liabilities
Derivative financial instruments
Hedging transactions
Other derivative financial instruments

Total

Level 1

Level 2

Level 3

271.8

265.8

–

6.0

539.7
131.7

–
–

539.7
131.7

–
–

219.0
58.1

–
–

219.0
58.1

–
–

At the end of every reporting period, TUI Group checks whether there are any reasons for reclassification to or fromone of the measurement levels. Financial assets and financial liabilities are generally transferred out of Level 1 into
Level 2 if the liquidity and trading activity no longer indicate an active market. The opposite situation applies to potential
transfers out of Level 2 into Level 1. In the reporting period, there were no transfers between Level 1 and Level 2.
Reclassifications from Level 3 to Level 2 or Level 1 are effected if observable market price quotations become available
for the asset or liability concerned. TUI Group records transfers to and out of Level 3 as at the date of the obligating
event or occasion triggering the transfer. There were no transfers from or to level 3 in the reporting period.
The stake in Hapag-Lloyd AG listed in Level 1 in the financial year 2016 was fully sold on 10 July 2017.
LEVEL 1 FINANCIAL INSTRUMENTS

The fair value of financial instruments for which an active market exists is based on quoted prices at the reporting date.
An active market exists if quoted prices are readily and regularly available from an exchange, dealer, broker, pricing
service or regulatory agency and these prices represent actual and regularly occurring market transactions on an arm’s
length basis. These financial instruments are classified as Level 1. The fair values correspond to the nominal amounts
multiplied by the quoted prices at the reporting date. Level 1 financial instruments primarily comprise shares in listedcompanies classified as available for sale and bonds issued classified as financial liabilities at amortised cost.
LEVEL 2 FINANCIAL INSTRUMENTS:

The fair values of financial instruments not traded in an active market, e. g. over-the-counter (OTC ) derivatives, aredetermined by means of valuation techniques. These valuation techniques make maximum use of observable market
data and minimise the use of Group-specific assumptions. If all essential inputs for the determination of the fair valueof an instrument are observable, the instrument is classified as Level 2.
If one or several key inputs are not based on observable market data, the instrument is classified as Level 3.

220

The following specific valuation techniques are used to measure financial instruments:• For over-the-counter bonds, liabilities to banks, promissory notes and other non-current financial liabilities, the fairvalue is determined as the present value of future cash flows, taking account of yield curves and the respective
credit spread, which depends on the credit rating• The fair value of over-the-counter derivatives is determined by means of appropriate calculation methods, e. g. bydiscounting the expected future cash flows. The forward prices of forward transactions are based on the spot or cash
prices, taking account of forward premiums and discounts. The calculation of the fair values of options concluded for
currency options is based on the Black & Scholes model and the Turnbull & Wakeman model for optional fuel hedges.
The fair values determined on the basis of the Group’s own systems are periodically compared with fair value confirmations of the external counterparties.
• Other valuation techniques, e. g. discounting future cash flows, are used to determine the fair values of other financial
instruments.
LEVEL 3 FINANCIAL INSTRUMENTS:

The table below presents the fair values of the financial instruments measured at fair value on a recurring basis, classified
as Level 3:

Financial assets measured at fair value in level 3€ million

Available for sale­financial assets

Balance as at 1 October 2015
Disposalsconversion
Total gains or losses for the period
recognised througt profit or loss
recogniseed in other comprehensive income
Balance as at 30 September 2016

340.7

Balance as at 1 October 2016
Total gains or losses for the period
recognised througt profit or loss
recognised in other comprehensive income
Balance as at 30 September 2017

6.0
– 0.1
–
– 0.1
5.9

334.9
0.2
0.2
–
6.0

Further information on Level 3 is not presented for materiality reasons.
E F F E C T S O N R E S U LT S

The effects of the measurement of financial assets available for sale outside profit and loss and the effective portionsof changes in fair values of derivatives designated as cash flow hedges are listed in the statement of changes in equity.

NOTE S

221

Notes on the consolidated statement of financial position

The net results of the financial instruments by measurement category according to IAS 39 are as follows:

Net results of financial instruments
2017€ million

2016

from
­interest

other net
results

net result

from­interest

other net
results

net result

– 2.7
–
– 2.5
– 22.2– 27.4

332.8
173.3
20.0
– 50.5
475.6

330.1
173.3
17.5
– 72.7
448.2

– 6.4
–
– 0.6
– 44.2– 51.2263.1– 99.2– 9.2– 25.5129.2

256.7– 99.2– 9.8– 69.778.0

Loans and receivables
Available for sale financial assets
Financial assets and liabilities held for trading
Financial liabilities at amortised costTotal

In addition to interest income and interest expenses, the other net result of available-for-sale financial assets mainly
consists of the result from participations, capital gains and losses, the effects of the fair value measurement and value
adjustments. Details on the sale of the shares in Hapag-Lloyd AG are listed under Note 17.
Financial instruments measured at fair value outside profit and loss did not give rise to any commission expenses infinancial year 2017, just as in the previous year.
NETTING

The following financial assets and liabilities are subject to contractual netting arrangements:

Offsetting – financial assets
Related amounts not set off
in the balance sheet€ million
Financial assets as at 30 Sep 17
Derivative financial assets
Cash and cash equivalents
Financial assets as at 30 Sep 16
Derivative financial assets
Cash and cash equivalents

Gross Amountsof financial­assets

Gross amounts of­financial ­liabilities
set off

Net amounts of financial­assets presented in the­balance sheet

Financial­liabilities

Cash Collateral
received

Net
Amount295.3
6,222.3–
3,706.2295.3
2,516.1

87.5
–

–
–

207.8
2,516.1

671.4
4,917.8–
2,844.9671.4
2,072.9

277.1
–

–
–

394.3
2,072.9

222

Offsetting – financial assets
Related amounts not set off
in the balance sheet€ million
Financial liabilities as at 30 Sep 17
Derivative financial liabilities
Financial liabilities
Financial liabilities as at 30 Sep 16
Derivative financial liabilities
Financial liabilities

Gross Amountsof financial­assets

Gross amounts of­financial ­liabilities
set off

Net amounts of financial­liabilities presented in thebalance sheet

Financial­assets

Cash Collateral
grantedNet
Amount267.6
5,639.3–
3,706.2

267.6
1,933.1

87.5
–

–
–

180.1
1,933.1

277.1
4,886.0–
2,844.9277.1
2,041.1

277.1
–

–
–

–
2,041.1

Financial assets and financial liabilities are only netted in the balance sheet if a legally enforceable right to netting exists
and the Company intends to settle on a net basis.
The contracts for financial instruments are based on standardised master agreements for financial derivatives (including
ISDA Master Agreement, German master agreement for financial derivatives), creating a conditional right to netting

contingent on defined future events. Under the contractual agreements all derivatives contracted with the corresponding
counterparty with positive or negative fair values are netted in that case, resulting in a net receivable or payable in theamount of the balance. As this conditional right to netting is not enforceable in the course of ordinary business
transactions, the derivative financial assets and liabilities are carried at their gross amounts in the balance sheet at thereporting date.
Financial assets and liabilities in the framework of the cash pooling scheme are shown on a net basis if there is a rightto netting in ordinary business transactions and the Group intends to settle on a net basis.

(39) Capital risk management
One of the key performance indicators in the framework of capital risk management is the IFRS -based gearing, i.e. therelationship between the Group’s net debt and Group equity. From a risk perspective, a balanced relation between net
debt and equity is sought.
In order to exert active control over the capital structure, the TUI Group’s management may change dividend payments
to the shareholders, repay capital to the shareholders, issue new shares or issue hybrid capital. The management may
also sell assets in order to reduce Group debt.

Gearing calculation€ million
Average financial debt
Average cash and cash equivalent
Average Group net debt
Average Group equity
Gearing%

2017

2016

2,032.6
1,506.3
526.3
3,055.6
17.2

2,396.3
1,425.8
970.5
2,314.8
41.9

NOTE S

Notes on the consolidated statement of financial position, Notes on the cash flow statement

Notes on the cash flow statement
The cash flow statement shows the flow of cash and cash equivalents on the basis of a separate presentation of cash
inflows and outflows from operating, investing and financing activities. The effects of changes in the group of consolidated companies are eliminated. The cash flows are shown for continuing operations and the discontinued operation.
In the reporting period, cash and cash equivalents rose by € 112.5 m to € 2,516.1 m. The item Assets held for sale does
not include any cash or cash equivalents.

(40) Cash inflow from operating activities
Based on the Group result after tax, the cash flow from operating activities is derived using the indirect method. In thecompleted financial year, the cash inflow from operating activities amounted to € 1,583.1 m (previous year € 1,034.7 m).
In the reporting period, the cash inflow included interest of € 17.7 m and dividends of € 121.7 m. Income tax payments
resulted in a cash outflow of € 146.1 m. By contrast, tax payments of € 2.5 m on the gains on disposal from the sale ofHotelbeds Group in the prior year were carried under cash outflows from investing activities.

(41) Cash outflow / inflow from investing activities
In financial year 2017, the cash outflow from investing activities totalled € 687.7 m (previous year € 239.0 m inflow). The
cash flow from investing activities includes a cash outflow for capital expenditure related to property, plant and equipment
and intangible assets of € 1,049.0 m, including € 4.0 m for interest capitalised as borrowing costs. The Group also recorded
a cash inflow of € 79.5 m from the sale of property, plant and equipment and intangible assets. The item also includes
a cash outflow of € 122.6 m in connection with the acquisition of consolidated companies and the acquisition and capitalincrease of joint ventures as well as a stake in a technology provider for tourism. The Group recorded a cash inflow of€ 11.7 m from the sale of joint ventures in prior years. In the reporting period, the sale of Travelopia Group and the redemption of financial liabilities by the acquirer resulted in a cash inflow after deduction of income tax payments andconsultancy costs and after deduction of the cash and cash equivalents of the consolidated companies sold (€ 423.6 m)of € 4.3 m. A part of the expenses (€– 23.0 m) in connection with the sale of Hotelbeds Group in the prior year were only
payable in the current financial year. The sale of another three consolidated and one non-consolidated companies
caused a cash inflow of € 5.0 m for TUI Group after deduction of cash and cash equivalents (€ 0.4 m). The Group recorded
a cash inflow of € 406.4 m from the sale of shares in Hapag-Lloyd AG in the reporting period.

(42) Cash outflow from financing activities
The cash outflow from financing activities totals € 733.8 m (previous year € 662.1 m). The amounts drawn from the external
revolving credit facility to manage the seasonality of the Group’s cash flows and liquidity in the completed financial year
have meanwhile been fully repaid. In October 2016, TUI AG recorded a cash inflow of € 294.9 m from the issue of a bond.
Other TUI Group companies took out further financial liabilities worth € 34.9 m. In September 2014, TUI AG had issued
an unsecured bond maturing on 1 October 2019. This bond was cancelled as at 18 November 2016. An amount of€ 306.8 m was spent to redeem this bond. A further cash outflow of € 206.6 m related to the redemption of other financial liabilities, including € 97.8 m for finance lease obligations. An amount of € 74.8 m was used for interest payments, whilea cash outflow of € 368.2 m related to dividend payments to TUI AG shareholders and a further outflow of € 88.6 m
related to dividend payments to minority shareholders. The Employee Benefit Trust of TUI Travel Ltd acquired TUI AG
shares worth € 22.3 m to be used for stock option plans. A cash inflow of € 3.7 m related to the issue of employee shares.

223

224

(43) Development of cash and cash equivalents
Cash and cash equivalents comprise all liquid funds, i.e. cash in hand, bank balances and cheques.
The change in cash and cash equivalents driven by changes in the group of consolidated companies shows the increasein the Group’s cash and cash equivalents triggered by the merger of a previously non-consolidated with a consolidated
company.

Other notes(44) Services of the auditors of the consolidated financial statements
TUI AG’s consolidated financial statements have been audited by Deloitte GmbH Wirtschaftsprüfungsgesellschaft for
the first time in the current year following the election of the auditors effected at the Annual General Meeting of
14 February 2017. Dr Hendrik Nardmann is the auditor in charge. In the prior year and for the review of the interim
financial statements as at 31 December 2016, PricewaterhouseCoopers AG Wirtschaftsprüfungsgesellschaft had been
TUI AG’s auditors. Total expenses for the services provided by the auditors of the consolidated financial statements infinancial year 2017 are as follows:

Services of the auditors of the consolidated financial statements
2017

2016
restated

2.9
2.9
1.1
–
1.1
–
0.1
0.1
4.1

3.0
3.0
2.5
0.1
2.6
0.7
0.2
0.9
6.5

€ million
Audit fees for TUI AG and subsidiaries in Germany
Audit fees
Review of interim financial statements
Other audit related services
Other certification and measurement services
Consulting fees
Tax advisor services
Other services
Total(45) Remuneration of Executive and Supervisory Board members acc. to § 314 HGB
In the completed financial year, the remuneration paid to Executive Board members totalled € 3,794.7 thousand (previous
year € 4,720.6 thousand).
Pension payments for former Executive Board members or their surviving dependants totalled € 13,497.1 thousand(previous year € 4,933.2 thousand) in the completed financial year. Pension obligations for former Executive Board
members and their surviving dependants amounted to € 64,683.5 thousand (previous year € 78,976.5 thousand) at thebalance sheet date.
Disclosures of the relevant amounts for individual Board members and further details on the remuneration system areprovided in the Remuneration Report included in the Management Report.

NOTE S

225

Notes on the cash flow statement, Other notes(46) Use of exemption provision
The following German subsidiaries fully included in consolidation made use of the exemption provision in accordancewith section 264 (3) of the German Commercial Code (HGB):

Use of exemption provisions

Atraveo GmbH, Düsseldorf
Berge & Meer Touristik GmbH, Rengsdorf
DEFAG Beteiligungsverwaltungs GmbH I, Hanover
DEFAG Beteiligungsverwaltungs GmbH III , Hanover
FOX -TOURS Reisen GmbH, Rengsdorf
Hapag-Lloyd Executive GmbH, Langenhagen
Hapag-Lloyd Kreuzfahrten GmbH, Hamburg
Last-Minute-Restplatzreisen GmbH, Baden-Baden
Leibniz Service GmbH, HanoverL’tur tourismus Aktiengesellschaft, Baden-Baden
MEDICO Flugreisen GmbH, Baden-Baden
MSN 1359 GmbH, HanoverPreussag Beteiligungsverwaltungs GmbH IX , Hanover
ProTel Gesellschaft für Kommunikation mbH, Rengsdorf
Robinson Club GmbH, Hanover
TC V Touristik-Computerverwaltungs GmbH, Baden-Baden
TIC S GmbH Touristische Internet und Call Center Services,
Baden-Baden

TUI 4 U GmbH, Bremen
TUI aqtiv GmbH, Hanover
TUI Aviation GmbH, Hanover
TUI Beteiligungs GmbH, Hanover
TUI Business Services GmbH, Hanover
TUI Customer Operations GmbH, Hanover
TUI Deutschland GmbH, Hanover
TUI Group Services GmbH, Hanover
TUI -Hapag Beteiligungs GmbH, Hanover
TUI Hotel Betriebsgesellschaft mbH, Hanover
TUI Immobilien Services GmbH, Hanover
TUI InfoTec GmbH, Hanover
TUI Leisure Travel Service GmbH, Neuss
TUI Magic Life GmbH, Hanover
TUI fly GmbH, Langenhagen
TUI fly Vermarktungs GmbH, Hanover

Wolters Reisen GmbH, Stuhr(47) Related parties
Apart from the subsidiaries included in the consolidated financial statements, TUI AG , in carrying out its ordinary businessactivities, maintains indirect or direct relationships with related parties. Related parties controlled by the TUI Group or
over which the TUI Group is able to exercise a significant influence are shown in the list of shareholdings published in
the Federal Gazette (www.bundesanzeiger.de). Apart from pure equity investments, related parties also include companies
that supply goods or provide services for TUI Group companies.
Financial obligations from order commitments vis-à-vis related parties primarily relate to the purchasing of hotel services.
TUI Group also has obligations of € 613.2 m (previous year € 613.2 m) from order commitments vis-à-vis the relatedcompany TUI Cruises, resulting from finance leases for cruise ships. In addition, there are obligations of € 56.2 m (previous
year € 8.4 m) from rental and lease agreements.

226

Transactions with related parties€ million
Services provided by the GroupManagement and consultancy services
Sales of tourism services
Other services
Total
Services received by the GroupIn the framework of rental and leasing agreements
Purchase of hotel services
Distribution services
Other services
Total

2017

2016

104.2
79.2
0.7
184.1

93.2
62.2
1.3
156.7

46.6
253.1
8.0
11.3
319.0

33.2
224.8
8.8
9.0
275.8

2017

2016

0.7
92.0
28.8
62.6
184.1

0.5
72.9
29.7
53.6
156.7

6.6
264.2
34.5
13.7
319.0

6.1
224.1
34.3
11.3
275.8

Transactions with related parties€ million
Services provided by the Group to
non-consolidated Group companies
joint venturesassociates
other related parties
Total
Services received by the Group from
non-consolidated Group companies
joint venturesassociates
other related parties
Total

Transactions with joint ventures and associates are primarily effected in the Tourism segment. They relate in particular
to the tourism services of the hotel companies used by the Group’s tour operators.
All transactions with related parties were executed on an arm’s length basis, applying international comparable uncontrolled
price methods in accordance with IAS 24.

NOTE S

227

Other notes

Receivables against related parties€ million
Trade receivables from
non-consolidated Group companies
joint venturesassociates
other related parties
Total
Advances and loans to
non-consolidated Group companies
joint venturesassociates
Total
Payments on account tojoint ventures
Total
Other receivables from
non-consolidated Group companies
joint venturesassociates
Total

30 Sep 201730 Sep 2016

2.2
18.8
4.9
0.3
26.2

1.7
10.4
3.9
0.5
16.5

0.3
4.2
6.8
11.3

17.8
3.2
5.6
26.6

21.2
21.2

0.4
0.4

1.5
3.8
1.6
6.9

1.6
3.3
2.9
7.8

30 Sep 201730 Sep 2016

–
36.2
4.1
0.1
40.4

1.0
23.0
2.5
0.1
26.6

6.7
175.7
182.4

6.6
192.1
198.7

5.7
13.7
1.9
7.9
29.2

7.5
13.5
5.6
8.5
35.1

Payables due to related parties€ million
Trade payables due tonon-consolidated Group companies
joint venturesassociates
other related parties
Total
Financial liabilities due tonon-consolidated Group companies
joint ventures
Total
Other liabilities due tonon-consolidated Group companies
joint venturesassociates
key management personnel
Total

228

Liabilities to joint ventures included liabilities from finance leases of € 168.4 m (previous year € 184.1 m).
The share of result of associates and joint ventures is shown separately by segment in segment reporting.
The Russian entrepreneur Alexey Mordashov, CEO of OOO Severgroup, has been a member of TUI AG’s Supervisory
Board since February 2016 and held 23.0 % of the shares in TUI AG as at the balance sheet date.
At the balance sheet date, the joint venture Riu Hotels S.A. holds 3.4 % of the shares in TUI AG . Luis Riu Güell andCarmen Riu Güell (a member of TUI AG’s Supervisory Board) hold 51 % of the shares in Riu Hotels S.A.
A family member of a Supervisory Board member was employed by TUI . Remuneration corresponded to TUI ’s internal
remuneration policies and was in line with the customary remuneration for persons in comparable positions.
In accordance with IAS 24, key management functions within the Group, the Executive Board and the Supervisory Board
are related parties whose remuneration has to be listed separately.

Remuneration of Executive and Supervisory Board€ million

2017

2016

Short-term benefits
Post-employment benefits
Other long-term benefits (share-based payments)
Termination benefits
Total

13.5
1.5
3.5
–
18.5

14.4
3.0
8.6
6.6
32.6

Post-employment benefits are transfers to or reversals of pension provisions for Executive Board members active inthe reporting period. The expenses mentioned do not meet the definition of remuneration for Executive and Supervisory
Board members under German accounting rules.
Pension provisions for active Executive Board members total € 19.7 m (previous year € 19.1 m) as at the balance sheet
date.
In addition, provisions and payables of € 10.2 m (previous year € 8.6 m) are recognised relating to the long-term
incentive programme.

NOTE S

229

Other notes(48) International Financial Reporting Standards (IFRS ) not yet applied
New standards endorsed by the EU, but applicable after 30 Sep 2017
Standard

Applicablefrom

Amendments to IAS 7
Disclosure Initiative

1 Jan 2017

Amendments to IAS 12
Recognition ofDeferred Tax Assets
for Unrealised Losses
IFRS 9Financial Instruments

1 Jan 2017

Amendments

Expected impact onfinancial position & performance

The amendments will enable users of financial statements to better evaluate changes in­liabilities arising from financing activities. An entity is required to disclose additional­information about cash flows and non-cash changes in liabilities, for which cashflows
are classified as financing activities in the statement of cashflows.
The amendment clarifies the accounting of deferred tax assets for unrealised losses
from available for sale financial assets.

TUI expects the amendments toresult in additional disclosures.

1 Jan 2018

The new standard replaces current the IA S 39 guidance on classification and measurement of financial assets and introduces new rules for hedge accounting. The existing­impairment rules are being superseded by a new model based on expected credit losses.

IFRS 15
Revenue fromContracts with
Customers

1 Jan 2018

IFRS 15 combines and supersedes the guidance on revenue recognition comprised in

TUI is currently assessing thee­ ffects on the Group’s financial
position & performance. The
likely effects are explained below.
IFRS 15 and the clarifications to
IFRS 15 may significantly affect
the Group’s financial position &performance. The possible­effects are explained below.

Clarifications to
IFRS 15
Revenue fromContracts with
Customers
IFRS 16
Leases

1 Jan 2018

1 Jan 2019

various standards and interpretations so far. It establishes a single, comprehensive
framework for revenue recognition, to be applied across industries and for all categories
of revenue transactions, specifying which amount of revenue and at which point intime or over which time period revenue is to be recognised. IFRS 15 replaces, amongst
others, IA S 18 Revenue and IA S 11 Construction Contracts.
The amendments comprise clarifications of the guidance on identifying performanceobligations, the principal versus agent assessment (i.e., gross vs. net revenue presentation) as well as the accounting for revenue from licences at a ’point in time’ or ’over time’.
In addition, it introduces practical expedients to simplify first-time adoption.

Not material

IFRS 15 and the clarifications to
IFRS 15 may significantly affect

the Group’s financial position &performance. The possible­effects are explained below.
IFRS 16 replaces the current IA S 17 and its interpretations. For lessees, there is no longer The new standard will have­significant effects on thethe requirement to classify into finance and operating leases. Instead all leases areGroup’s financial position &­accounted for according to the so-called ’Rights of Use’ approach. In the statement of­performance. The likely effects
financial position a lessee is to recognise an asset for the right to use the leased item
and a liability for the future lease payments. There are optional exemptions for short-term are explained below.
leases (< 12 months) and so-called small-ticket leases. For lessors, the accounting stays
largely unchanged. Lessors will continue to classify leases in accordance with the criteriatransfered from IA S 17. In addition, IFRS 16 includes several other new requirements, inparticular a new definition of a lease, on sale and leaseback transactions and the accounting for subleases.

230

I F R S 15

The Group-wide project to analyse the effects and the implementation of IFRS 15 ‘Revenue From Contracts with Customers’
has not yet been completed. Within the scope of the project the contracts with customers within the businesses arebeing analysed using the five step model in IFRS 15. In order to determine the adjustments on transition and gather the
information needed to collate the new disclosures data extracts were made from the relevant reservation-, bookingand accounting systems as per the year-end date. The evaluation and analysis of those data extracts has not been
completed yet. A reliable quantification of the effects on TUI ’s financial position and performance is therefore not
yet possible. The new requirements will generally influence the following facts and circumstances, depending on thespecific case:• Revenue recognition at the tour operator: Depending on the specific contract terms, the tour operation businesscurrently primarily recognises revenue as at the start date of a journey. The new rules will result in period-related
revenue recognition for some business models.
• Change fees: Revenue from rebooking travel services will no longer be recognised when the change service occurs.
Instead such fees will be recognised as a contract liability and recognised at the point in time or over time when theservice is provided.
• Travel agency commission: The assessment of the question whether the Group’s own travel agencies should recognisecommissions earned at an earlier point in time is currently expected to not result in changes.
• Principal vs. agent: In assessing whether TUI provides services on its own account (gross revenue) or on behalf of athird party (net revenue), the new criteria will result in net revenue recognition in some tour operating businessmodels.
• Disclosures in the notes: The new requirements will result in a substantial extension of the qualitative and quantitative
disclosures.
In addition the further analysis, in particular of IT systems, to implement IFRS 15 within the accounting related processes
and systems is ongoing. Building up on the results of thereof, the decision about the transition method on first-time
application of IFRS 15 will be made. TUI will first apply the new standard from 1 October 2018.
IFRS 9In a Group-wide project, TUI is assessing the impact of the application of IFRS 9 Financial Instruments on the Group’s
consolidated financial statements. We currently expect the following effects:• There will be no significant impact on measurement base resulting from the reclassification of financial assets basedon the business model for managing those financial assets and the related contractual cash flows. The financial assets
currently carried at amortised cost satisfy the conditions for classification at amortised cost under IFRS 9.
• For the equity instruments currently classified as financial assets available for sale, an election to classify as at fairvalue through other comprehensive income option (FVTOCI) is available.
• Due to the transition from the incurred loss model to the new expected loss model impairment charges will have tobe recognised in profit or loss earlier in the future. For the majority of its financial assets, TUI is able to use the simplified
model, in which all expected losses are considered at initial recognition.
• Recognition of financial liabilities will not be affected. The new rules only relate to the recognition of financial liabilities
for which the fair value option is elected. The Group does not make use of that option.
• The new hedge accounting requirements will give TUI the opportunity to align the accounting for hedge relationships
even more closely with the Group’s economic risk management. While the Group has yet to carry out a detailed
assessment of the existing hedging relationship as at the transition date, it appears as if the current hedge relationships qualify as continuing hedge relationships upon the first-time application of IFRS 9. TUI therefore expects no
impact on the accounting for hedge relationships. Subject to the adaption of our treasury management systems
being completed in time, we intend to not make use of the choice offered on transition to IFRS 9 to continue to apply
the hedge accounting requirements of IAS 39.

NOTE S

Other notes

A reliable estimate of the quantitative impact is not yet possible at this stage. The initial application of IFRS 9 from
1 October 2018 will be done retrospectivel, except for the new hedge accounting requirements which are to be applied
prospectively. The reclassification of the carrying amounts and loss allowances on transition from IAS 39 to IFRS 9 are
to be presented in a reconciliation. TUI intends to make use of the election to not restate the prior year comparatives
on transition.
Contrary to this the new hedge accounting requirements need to be applied prospectively as a matter of principle.
Notwithstanding this principle, according to the transition requirements TUI will need to apply the requirements retrospectively regarding the accounting for the time value of options, where the inner value was designated to be thehedging instrument, when the hedge relationship existed on 1 October 2017 or during financial year 2018.
I F R S 16

IFRS 16, in particular its new lessee accounting requirements, will have a significant impact on all parts of the consolidated

financial statements and the presentation of the Group’s financial position and performance:• Statement of financial position: This far, payments for operating leases had to be disclosed in the notes only. In the
future, in principle rights and obligations arising from all leases must be recognised as rights of use and lease liabilities
in the statement of financial position. The right of use asset is initially recognised at the present value of future lease
payments plus initial direct costs and is subsequently depreciated over the lease term. The lease liability is initiallymeasured at the present value of the lease payments to be made during the term of the lease. Following initialrecognition, the carrying amount will be increased for the effective interest and reduced by the payments made. Dueto the existing obligations from operating leases presented in note 36, TUI expects a material increase in leaseliabilities and fixed assets as at the date of first application. The equity ratio will decline as a result of this balance
sheet extension. The material increase in lease liabilities will cause a corresponding increase in net financial liabilities.
• Income Statement: In future, a lessee will recognise depreciation expense on the right of use assets and interest
expenses from unwinding the discount on lease liabilities instead of lease expenses. This change will result in asignificant improvement in key performance indicators EBITDA or EBITA and a moderate improvement in EBIT.
• Cashflow statement: The payments that represent repayment of principal or interest portion of a lease liability will
be included in cashflows from financing activities. Only such payments under leases that are either excluded fromthe measurement of the lease liability or, where TUI makes use of the respective exemptions, for short-term leases
and small-ticket leases will be allocated to cashflows from operating activities. This change in presentation incomparison to current recognition of operating lease expenses will result in an increase in cashflows from operating
activities and a decrease in cashflows from financing activities.
• Notes: The new requirements will result in expanded disclosures for lessees and lessors in comparison to IAS 17.
TUI has launched a Group-wide project to assess the impact and to implement the new requirements. A reliable estimateof their quantitative effects is not possible, primarily due to the large number of external and internal leases, prior tocompletion of the ongoing impact assessment and decisions about the use of recognition and measurement choices.
TUI intends to apply the new requirements modified retrospectively and effective 1 October 2019. The Group has achoice to make use of several practical expedients on transition, and no decisions have yet been taken on how to exercise
these. Upon first-time application, the cumulative adjustment on transition will be recognised in equity. The prior year
comparatives for financial year 2019, which precedes the date of first-time application, will not be restated.

231

232

No decision has yet been taken by the European Union about recognition of the following changes and new standards.

New standards and interpretations not yet endorsed by the EU and applicable after 30 Sep 2017
Standard
Amendments to IFRS 2Classification and­Measurement of­Share-based Paymenttransactions
Amendments to IAS 40
Transfer of
Investment Property
Various
Improvements to
IFRS (2014 – 2016)
IFRIC 22
Foreign Currency­Transactions and­Advance Consideration
Amendments to
IAS 28Long-term Interests
in Associates andJoint Ventures
Amendments to
IFRS 9Prepayment Featureswith Negative
Compensation
IFRIC 23

Uncertainty over Income
Tax Treatments

Applicablefrom

Amendments

Expected impact onfinancial position & performance

1 Jan 2018

The amendments clarify the accounting for certain share based payment transactions.

Not material

1 Jan 2018

The amendments set out the conditions, according to which property under construcNot materialtion or development, which was previously classified as inventory, could be transferred
to investment property in case of an evident change in use (and reversal).
1.1.2017
The various amendments from the annual improvement project 2014 – 2016 affect minor Not material(IFRS 12) and changes to IFRS 12, IA S 28 and IFRS 1. The effective date for the mandatory adoption of
1.1.2018
the amendments to IA S 28 and IFRS 1 is 1.1.2018. Voluntary early adoption is permitted.
(IA S 28)
1 Jan 2018
The interpretation clarifies the exchange rate to be used when an entity has received or No impact as the current
paid advance consideration in a foreign currency. The date of transaction for the purpose ­accounting is in line withof determining the exchange rate to use on initial recognition of the related asset, expense the new interpretation.
or income is the date on which the entity initally recognises the advance consideration.
1 Jan 2019
The amendments clarify that the impairment rules of IFRS 9 apply to long-term interests TUI is currently reviewing
in associates and joint ventures that, in substance, form part of the net investment in
the amendments and does not
the associate or joint venture to which the equity method is applied. Nevertheless, (as a expect any material impacts.
second step) these long-term interests will have to be taken into account when the IA S 28
loss allocations are trued-up to the value of the long-term interests.
1 Jan 2019
The amendments serve to enable entities applying IFRS 9 that hold debt instruments with TUI is reviewing the amendmentsa prepayment feature under which a party receives or pays a reasonable compensation and currently does not expect any
in the event of early termination of the contract to measure these instruments at amor- material impacts.
tised cost or at fair value through other comprehensive income. Until the effective dateof the amendments, such instruments have to be measured at fair value through profit
or loss.
1 Jan 2019
The interpretation complements the rules of IA S 12 on the accounting for actual and
TUI will review the impacts ofdeferred taxes to clarify the accounting for uncertainties over income tax treatments
the interpretation on the consoliand transactions by taxation authorities or fiscal courts.
dated financial statements in duetime. We currently do not expect
any material impacts.

TUI is not affected by the Amendments to IFRS 4 ‘Applying IFRS 9 with IFRS 4’ published on 12 September 2016 andadopted into European law on 3 November 2017 for first-time application from 1 January 2021, nor by the new IFRS 17 –‘Insurance Contracts’ published by the IASB on 18 May 2017.

NOTE S

233

Other notes(49) T UI Group Shareholdings
CompanyCountry

Consolidated companies
Tourism" MAGIC LIFE " Assets AG , Vienna
Absolut Holding Limited, Luqa
Adehy Limited, Dublin
Advent Insurance PCC Limited, Qormi
Aeolos Malta Ltd., Pieta
Aeolos Travel LLP, Nicosia
AMP Management Limited, Crawley
Anse Marcel Riusa II SNC , Paris
Arccac Eurl, Bourg St. Maurice
atraveo GmbH, Düsseldorf
Berge & Meer Touristik GmbH, Rengsdorf
Boomerang-Reisen GmbH, Trier
Boomerang-Reisen Vermögensverwaltungs GmbH, Trier
Brunalp SARL , Venosc
BU RIUSA II EOOD , Sofia
Cabotel-Hoteleria e Turismo Lda., Santiago
Callers-Pegasus Pension Trustee Limited, CrawleyClub Hotel C V SA , Santa MariaClub Hôtel Management Tunisia SARL , Djerba
Corsair S.A., Rungis
Crystal Holidays, Inc, Wilmington (Delaware)
Daidalos Hotel- und Touristikunternehmen A.E., Athens
Dominicanotel S.A., Puerto Plata
Egyptian Germany Co. for Hotels (L.T.D), Cairo
Elena SL , Palma de Mallorca
Entreprises Hotelières et Touristiques PALADIEN Lena Mary A.E., Argolis
Europa 2 Ltd, Valletta
Explorers Travel Club Limited, Crawley
Falcon Leisure Group (Overseas) Limited, CrawleyFirst Choice (Turkey) Limited, CrawleyFirst Choice Airways Limited, London
First Choice Holiday Hypermarkets Limited, CrawleyFirst Choice Holidays & Flights Limited, CrawleyFirst Choice Land (Ireland) Limited, Dublin
First Choice Travel Shops (SW ) Limited, CrawleyFirst Choice Travel Shops Limited, Crawley
Follow Coordinate Hotels Portugal Unipessoal Lda, Albufeira Freguesia
FOX -TOURS Reisen GmbH, Rengsdorf
Fritidsresor Tours & Travels India Pvt Ltd, Bardez, Goa
GE AFOND Número Dos Fuerteventura S.A., Las Palmas, Gran Canaria
GE AFOND Número Uno Lanzarote S.A., Las Palmas, Gran Canaria
Groupement Touristique International S.A.S., Lille
Hannibal Tour SA , Tunis
Hapag-Lloyd (Bahamas) Ltd., Nassau
Hapag-Lloyd Kreuzfahrten GmbH, Hamburg
Hellenic EFS Hotel Management E.P.E., Athens
Holiday Center S.A., Cala Serena / Cala d’Or
Holidays Services S.A., Agadir

Austria
Malta
IrelandMalta
Malta
CyprusUnited Kingdom
FranceFranceGermany
Germany
Germany
Germany
FranceBulgaria
Cape Verde
United Kingdom
Cape VerdeTunisia
FranceUnited States
GreeceDominican Republic
Egypt
Spain
GreeceMalta
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
IrelandUnited Kingdom
United Kingdom
Portugal
Germany
India
Spain
Spain
FranceTunisia
BahamasGermany
GreeceSpain
MoroccoCapital share in %

100
99.9
100
100
100
100
100
100
100
100
100
100
75
100
100
100
100
100
100
100
100
89.8
100
66.6
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100

234

CompanyCountry

Horizon Midlands (Properties) Limited, Crawley
Iberotel International A.S., Antalya
Iberotel Otelcilik A.S., Istanbul
Imperial Cruising Company SARL , Heliopolis-Cairo
Inter Hotel SARL , Tunis
Itaria Limited, Nicosia
Jandia Playa S.A., Morro Jable / Fuerteventura
Jetair Real Estate N.V., Brussels
JNB (Bristol) Limited, Crawley
Kras B.V., Ammerzoden
Label Tour EURL , Levallois Perret
Lapter Eurl, Macot La Plagne
Last-Minute-Restplatzreisen GmbH, Baden-Baden
Lodges & Mountain Hotels SARL , Notre Dame de Bellecombe, Savoie
L' TUR Suisse AG , Dübendorf / ZH
l'tur tourismus Aktiengesellschaft, Baden-Baden
Lunn Poly Limited, Crawley
Magic Hotels SA , Tunis
Magic Life Egypt for Hotels LLC , Sharm el Sheikh
Magic Life Greece Tourist Enterprises E.P.E., Athens
Magic Tourism International S.A., Tunis
Medico Flugreisen GmbH, Baden-Baden
Morvik EURL , Bourg Saint Maurice
MX RIUSA II S.A. de C.V., Cabo San Lucas
Nazar Nordic AB , Malmö
Nordotel S.A., San Bartolomé de Tirajana
Nouvelles Frontières Senegal S.R.L., Dakar
Ocean College LLC , Sharm el Sheikh
Ocean Ventures for Hotels and Tourism Services SAE , Sharm el Sheikh
Orion Airways Limited, Crawley
PATS N.V., Oostende
Petit Palais Srl, Valtournenche
Preussag Beteiligungsverwaltungs GmbH IX , Hanover
Professor Kohts Vei 108 A S , Stabekk
PR omeociones y Edificaciones Chiclana S.A., Palma de Mallorca
ProTel Gesellschaft für Kommunikation mbH, Rengsdorf
Puerto Plata Caribe Beach S.A., Puerto Plata
RC Clubhotel Cyprus Limited, Limassol
RCHM S.A.S., Agadir
Rideway Investment Limited, London
Riu Jamaicotel Ltd., Negril
Riu Le Morne Ltd, Port Louis
RIUSA II S.A., Palma de Mallorca
RIUSA NED B.V., Amsterdam
ROBINSON AUSTRIA Clubhotel GmbH, Villach-Landskron
Robinson Club GmbH, Hanover
Robinson Club Italia S.p.A., Marina di Ugento
Robinson Club Maldives Private Limited, Malé
Robinson Clubhotel Turizm Ltd. Sti., Istanbul
Robinson Hoteles España S.A., Cala d’Or
Robinson Hotels Portugal S.A., Vila Nova de Cacela
Robinson Otelcilik A.S., Istanbul
Saint Martin RIUSA II SA S , Basse Terre

United Kingdom
TurkeyTurkeyEgypt
Tunisia
CyprusSpain
Belgium
United Kingdom
Netherlands
FranceFranceGermany
FranceSwitzerland
Germany
United Kingdom
Tunisia
Egypt
GreeceTunisia
Germany
FranceMexicoSwedenSpain
Senegal
Egypt
Egypt
United Kingdom
Belgium
Italy
Germany
NorwaySpain
Germany
Dominican Republic
CyprusMoroccoUnited Kingdom
Jamaica
Mauritius
Spain
Netherlands
Austria
Germany
Italy
Maldives
TurkeySpain
Portugal
TurkeyFrance* Controlling influence

Capital share in %
100
100
100
90
100
100
100
100
100
100
100
100
100
100
99.5
100
100
100
100
100
100
100
100
100
100
100
100
100
98
100
100
100
100
100
100
100
100
100
100
100
100
100
50*
100
100
100
100
100
100
100
67
100
100

NOTE S

235

Other notes

CompanyCountry

SER AC Travel GmbH, Zermatt

Switzerland
United Kingdom
MoroccoMorocco

100
100
100
100

FranceMorocco100
100

Morocco100

Egypt
United Kingdom
CanadaDenmark
GreeceIrelandUnited Kingdom
TurkeyGermany
Italy
Italy
Netherlands
Belgium
Italy
United Kingdom
Austria
Guernsey
United Kingdom

84.1
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100

Germany
FranceGermany
Portugal
United Kingdom
Germany
United Kingdom
Italy
TurkeyCyprus
Switzerland
Germany
Belgium
Netherlands
United Kingdom
Germany
Austria
Belgium
Belgium
Austria
Bulgaria
Country of Curaçao
Germany
Denmark

100
100
100
100
100
83.5
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100

Skymead Leasing Limited, Crawley
Société d'Exploitation du Paladien Marrakech SA , Marrakech
Société d'Investissement Aérien S.A., Casablanca
Société d'Investissement et d'Exploration du Paladien de Calcatoggio(SIEPAC ), Montreuil
Société d'investissement hotelier Almoravides S.A., Marrakech
Société Marocaine pour le Developpement des Transports­Touristiques S.A., Agadir
Sons of South Sinai for Tourism Services and Supplies SAE ,Sharm el SheikhSpecialist Holidays Group Limited, Crawley
Specialist Holidays, Inc., Mississauga, Ontario
Star Tour Holding A/S, Copenhagen
Stella Polaris Creta A.E., Heraklion
STIVA RII Ltd., Dublin
Sunshine Cruises Limited, Crawley
Tantur Turizm Seyahat A.S., Istanbul
TC V Touristik-Computerverwaltungs GmbH, Baden-Baden
TdC Agricoltura Società agricola a r.l., Florence
TdC Amministrazione S.r.l., Florence
Tec4Jets B.V., Rijswijk ZH
Tec4Jets NV, Oostende
Tenuta di Castelfalfi S.p.A., FlorenceThomson Airways Limited, Crawley
Thomson Reisen GmbH, St. JohannThomson Services Limited, St. Peter Port
Thomson Travel Group (Holdings) Limited, Crawley
TIC S GmbH Touristische Internet und Call Center Services,­Baden-Baden
Tigdiv Eurl, Tignes
TLT Reisebüro GmbH, Hanover
Transfar - Agencia de Viagens e Turismo Lda., Faro
Travel Choice Limited, Crawley
travel-Ba.Sys GmbH & Co KG , Mülheim an der Ruhr
Tropical Places Limited, Crawley
T T Hotels Italia S.R.L., Rome
T T Hotels Turkey Otel Hizmetleri Turizm ve ticaret A S , Antalya
TUI (Cyprus) Limited, Nicosia
TUI (Suisse) AG , Zurich
TUI 4 U GmbH, Bremen
TUI Airlines Belgium N.V., Oostende
TUI Airlines Nederland B.V., Rijswijk
TUI Airways Limited, Crawley
TUI aqtiv GmbH, Hanover
TUI Austria Holding GmbH, Vienna
TUI Belgium NV, Oostende
TUI Belgium Retail N.V., Zaventem
TUI BLUE AT GmbH, Bad Erlach
TUI Bulgaria EOOD , Varna
TUI Curaçao N.V., Curaçao
TUI Customer Operations GmbH, Hanover
TUI Danmark A/S, Copenhagen

Capital share in %

236

CompanyCountry

TUI Denmark Holding A/S, Copenhagen
TUI Deutschland GmbH, Hanover

Tunisie Investment Services Holding S.A., Tunis
Tunisie Voyages S.A., Tunis
Tunisotel S.A.R.L., Tunis
Turcotel Turizm A.S., Istanbul
Turkuaz Insaat Turizm A.S., Ankara
Ultramar Express Transport S.A., Palma de Mallorca
Wolters Reisen GmbH, Stuhr
WonderCruises AB , Stockholm
WonderHolding AB , Stockholm
Xidias Coaches Limited, Larnaca

Denmark
Germany
Dominican Republic
United States
Spain
FinlandFranceGreeceSpain
Germany
Germany
Germany
Germany
MexicoNetherlands
Netherlands
SwedenNorwayUnited Kingdom
NorwayAustria
United Kingdom
PolandPolandPortugal
Austria
Switzerland
Switzerland
SwedenIreland
Belgium
United Kingdom
SwedenItaly
United Kingdom
United Kingdom
United Kingdom
Germany
SwedenGermany
Tunisia
Tunisia
Tunisia
TurkeyTurkeySpain
Germany
SwedenSwedenCyprus

100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
74.9
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
51

All other segments
Absolut Insurance Limited, St. Peter Port

Guernsey100

TUI Dominicana SA S , Higuey
TUI DS USA , Inc, Wilmington (Delaware)
TUI España Turismo SL , Barcelona
TUI Finland Oy Ab, Helsinki
TUI France SA S , Nanterre
TUI Hellas Travel Tourism and Airline A.E., Athens
TUI Holding Spain S.L., Barcelona
TUI Hotel Betriebsgesellschaft mbH, Hanover
TUI InfoTec GmbH, Hanover
TUI Leisure Travel Special Tours GmbH, Hanover
TUI Magic Life GmbH, Hanover
TUI Mexicana SA de C V, Mexico
TUI Nederland Holding N.V., Rijswijk
TUI Nederland N.V., Rijswijk
TUI Nordic Holding AB , Stockholm
TUI Norge A S , Stabekk
TUI Northern Europe Limited, Crawley
TUI Norway Holding A S , Stabekk
TUI Österreich GmbH, Vienna
TUI Pension Scheme (UK ) Limited, Crawley
TUI Poland Dystrybucja Sp. z o.o., Warsaw
TUI Poland Sp. z o.o., Warsaw
TUI PORTUGAL - Agencia de Viagens e Turismo S.A., Faro
TUI Reisecenter Austria Business Travel GmbH, Vienna
TUI Service AG , Altendorf
TUI Suisse Retail AG , Zurich
TUI Sverige AB , Stockholm
TUI Travel (Ireland) Limited, Dublin
TUI Travel Distribution N.V., Oostende
TUI Travel Group Solutions Limited, Crawley
TUI Travel Holdings Sweden AB , Stockholm
TUI UK Italia Srl, TurinTUI UK Limited, Crawley
TUI UK Retail Limited, Crawley
TUI UK Transport Limited, Crawley
TUI fly GmbH, Langenhagen
TUI fly Nordic AB , Stockholm
TUI fly Vermarktungs GmbH, Hanover

Capital share in %

NOTE S

237

Other notes

CompanyCountry

Asiarooms Pte Ltd, Singapore
B.D.S Destination Services Tours, Cairo
Canada Maritime Services Limited, Crawley
Canadian Pacific (UK ) Limited, Crawley
Cast Agencies Europe Limited, Crawley
Cheqqer B.V., Rijswijk
CP Ships (Bermuda) Ltd., Hamilton
CP Ships (UK ) Limited, Crawley
CP Ships Ltd., Saint JohnDEFAG Beteiligungsverwaltungs GmbH I, Hanover
DEFAG Beteiligungsverwaltungs GmbH III , HanoverFirst Choice Holidays Finance Limited, CrawleyFirst Choice Holidays Limited, CrawleyFirst Choice Leisure Limited, CrawleyFirst Choice Olympic Limited, CrawleyFirst Choice Overseas Holdings Limited, CrawleyFirst Choice USA , Crawley
Hapag-Lloyd Executive GmbH, Langenhagen
I Viaggi del Turchese S.r.l., Fidenza
Jetset Group Holding (Brazil) Limited, Crawley
Jetset Group Holding (UK ) Limited, Crawley
Jetset Group Holding Limited, Crawley
Leibniz-Service GmbH, Hanover
Mala Pronta Viagens e Turismo Ltda., Curitiba
Manufacturer's Serialnumber 852 Limited, Dublin
MSN 1359 GmbH, Hanover
Paradise Hotels Management Company LLC , Cairo
PM Peiner Maschinen GmbH, Hanover
Sovereign Tour Operations Limited, Crawley
Thomson Airways Trustee Limited, Crawley
TUI Ambassador Tours Unipessoal Lda, Lisbon
TUI Aviation GmbH, Hanover
TUI Beteiligungs GmbH, Hanover
TUI Brasil Operadora e Agencia de Viagens LTDA , Curitiba
TUI Business Services GmbH, Hanover
TUI Canada Holdings, Inc, Toronto
TUI Chile Operador y Agencia de Viajes SpA, Santiago
TUI China Travel CO . Ltd., Peking
TUI Colombia Operadora y Agencia de Viajes SA S , Bogota
TUI Group Fleet Finance Limited, LutonTUI Group Services GmbH, Hanover
TUI Group UK Healthcare Limited, Crawley
TUI Group UK Trustee Limited, Crawley
TUI Immobilien Services GmbH, Hanover
TUI India Private Limited, New Delhi
TUI Leisure Travel Service GmbH, Neuss
TUI LTE Viajes S.A de C.V, Mexico CityTUI Spain, SLU , Madrid
TUI Travel Amber E&W LLP, Crawley
TUI Travel Amber Limited, Edinburgh
TUI Travel Aviation Finance Limited, Crawley
TUI Travel Common Investment Fund Trustee Limited, Crawley
TUI Travel Group Management Services Limited, Crawley

Singapore
Egypt
United Kingdom
United Kingdom
United Kingdom
Netherlands
BermudaUnited Kingdom
CanadaGermany
Germany
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Germany
Italy
United Kingdom
United Kingdom
United Kingdom
Germany
BrazilIrelandGermany
Egypt
Germany
United Kingdom
United Kingdom
Portugal
Germany
Germany
BrazilGermany
CanadaChile
China
Colombia
United Kingdom
Germany
United Kingdom
United Kingdom
Germany
India
Germany
MexicoSpain
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom

Capital share in %
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
75
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100

238

CompanyCountry

TUI Travel Holdings Limited, Crawley
TUI Travel Limited, Crawley

TUI -Hapag Beteiligungs GmbH, Hanover

United Kingdom
United Kingdom
United Kingdom
United Kingdom
Germany

100
100
100
100
100

Non-consolidated Group companies
Tourism"Schwerin Plus" Touristik-Service GmbH, Schwerin
Aeolos Limited, Nicosia
Airline Consultancy Services S.A.R.L., Casablanca
Ambassador Tours S.A., Barcelona
AMCP S.a.r.l., Montreuil
Atora GmbH i.L., Kiel
Best4Concept GmbH, Rengsdorf
Boomerang - Solutions GmbH, Trier
Boomerang Reisen - Pacific Tours AG , Zurich
FIRST Reisebüro Güttler GmbH & Co. KG , Dormagen
FIRST Reisebüro Güttler Verwaltungs GmbH, Hanover
FIRST Travel GmbH, HanoverGebeco Verwaltungsgesellschaft mbH, Kiel
HANSE ATIC TOURS Reisedienst GmbH, Hamburg
Hapag-Lloyd Reisebüro Hagen GmbH & Co. KG , HanoverHapag-Lloyd Reisebüro Hagen Verwaltungs GmbH, Hanover
Hotel Club du Carbet S.A., Montreuil
HV Finance S.A.S., Levallois-Perret
Ikaros Travel A.E.(i.L.), Heraklion
Loc Vacances S.A.R.L., Chartres de Bretagne
L' TUR Polska Sp.z o.o., Stettin
L' TUR S.A.R.L., Schiltigheim
Lunn Poly (Jersey) Limited, St. Helier
Magic Life GmbH, Vienna
Magyar TUI Utazásszervezö, Kereskedelmi és Szolgáltató Kft., Budapest
N.S.E. Travel and Tourism A.E. (i.L.), Athens
NE A Synora Hotels Limited (Hinitsa Beach), Porto Heli Argolide
New Eden S.A., Marrakech
NOF Sociedade Imobiliaria, Lda, Lisboa
Nouvelles Frontières Burkina Faso EURL , Ouagadougou
Nouvelles Frontières Tereso EURL , Grand Bassam
Nouvelles Frontières Togo S.R.L.(i.L), Lome
Reisefalke GmbH, Vienna
Résidence Hôtelière Les Pins SARL (i.L.), Montreuil
RIUSA Brasil Empreendimentos Ltda., Igarassu (Pernambuco)
Societe de Gestion du resort Al Baraka, Marrakech
STAR TOURS Reisedienst GmbH, Hamburg
TLT Urlaubsreisen GmbH, Hanover
Transat Développement SA S , Ivri-sur-Seine
travel-Ba.Sys Beteiligungs GmbH, Mülheim an der Ruhr
Trendturc Turizm Otelcilik ve Ticaret A.S., Istanbul
TUI 4 U Poland sp.zo.o., Warsaw
TUI d.o.o., Maribor
TUI Magyarország Utazasi Iroda Kft., Budapest
TUI Reisecenter GmbH, Salzburg

Germany
CyprusMoroccoSpain
FranceGermany
Germany
Germany
Switzerland
Germany
Germany
Germany
Germany
Germany
Germany
Germany
FranceFranceGreeceFrancePolandFranceJerseyAustria
Hungary
GreeceGreeceMoroccoPortugal
Burkina Faso
Ivory Coast
Togo
Austria
FranceBrazilMoroccoGermany
Germany
FranceGermany
TurkeyPolandSlovenia
Hungary
Austria

80
100
100
100
100
100
100
95
100
75.1
75
100
50.2
100
70
70
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
99
60
100
99
100
100
100
100
83.5
100
100
100
100
100

TUI Travel Nominee Limited, Crawley
TUI Travel Overseas Holdings Limited, Crawley

Capital share in %

NOTE S

239

Other notes

CompanyCountry

TUI ReiseCenter Slovensko s.r.o., Bratislava
TUIF ly Academy Brussels, Zaventem

Slovakia (Slovak Republic)
Belgium
FranceFrance

100
100
100
100

Germany
Spain
United Kingdom
Germany
United Kingdom

100
51
100
100
100

Italy
United Kingdom
FranceGermany

100
100
100
100

Germany
Sri Lanka
Sri Lanka
Austria
GreeceCyprusTurkeyCyprusGermany
Egypt
MoroccoEgypt
Turkey

25.2
40
50
50
50
49.9
50
33.3
50
50
35
50
50

Germany
Spain
IsraelBelgium
Germany
CyprusUnited Arab Emirates
Egypt
Egypt
Croatia
PanamaUnited Arab Emirates
Germany
Spain
Egypt
Egypt
CanadaGermany
MoroccoMorocco

50.1
50
50
25
25.2
45
50
51
50
33.3
50
40
25.1
49
50
50
49
50
34
30

V.P.M. SA , Levallois Perret
VPM Antilles S.R.L., Levallois Perret
All other segments
Bergbau Goslar GmbH, Goslar
l'tur ultimo minuto S.A., Palma de Mallorca
Mango Event Management Limited, London
Preussag Beteiligungsverwaltungs GmbH XIV, Hanover
Real Travel Ltd, Crawley
Società Consortile a r.l. Tutela dei Viaggiatori i Viaggi del Turchese,­Fidenza (Pr)Sportsworld Holdings Limited, Crawley
Student City S.a.r.l., ParisTUI Insurance Services GmbH, Hanover
Joint ventures and associates
Tourism.BOSYS SOF T WARE GMBH , Hamburg
Ahungalla Resorts Limited, Colombo
Aitken Spence Travels (Private) Limited, Colombo
alps & cities 4ever GmbH, Vienna
Atlantica Hellas A.E., Rhodos
Atlantica Hotels and Resorts Limited, Lemesos
Bartu Turizm Yatirimlari Anonim Sirketi, Istanbul
Daktari Travel & Tours Ltd., Limassol
DER Reisecenter TUI GmbH, Berlin
ENC for touristic Projects Company S.A.E., Sharm el Sheikh
Etapex, S.A., Agadir
Fanara Residence for Hotels S.A.E., Sharm el Sheikh
GBH Turizm Sanayi Isletmecilik ve Ticaret A.S., Istanbul
Gebeco Gesellschaft für internationale Begegnung und Cooperation
mbH & Co. KG , Kiel
GRUPOTEL DOS S.A., Can Picafort
Holiday Travel (Israel) Limited, Airport City
Hydrant Refuelling System NV, Brussels
InteRes Gesellschaft für Informationstechnologie mbH, Darmstadt
Interyachting Limited, Limassol
Jaz Hospitality Services DMCC , Dubai
Jaz Hotels & Resorts S.A.E., Cairo
Kamarayat Nabq Company for Hotels S.A.E., Sharm el Sheikh
Karisma Hotels Adriatic d.o.o., Zagreb
Karisma Hotels Caribbean S.A., Panama
Nakheel Riu Deira Islands Hotel F Z CO , Dubai
Raiffeisen-Tours RT-Reisen GmbH, Burghausen
Riu Hotels S.A., Palma de Mallorca
Sharm El Maya Touristic Hotels Co. S.A.E., Cairo
Sun Oasis for Hotels Company S.A.E., Hurghada
Sunwing Travel Group, Inc, Toronto
Teckcenter Reisebüro GmbH, Kirchheim unter Teck
Tikida Bay S.A., Agadir
TIKIDA DUNE S S.A., Agadir

Capital share in %

240

CompanyCountry

Capital share in %Tikida Palmeraie S.A., Marrakech
Togebi Holdings Limited, Nicosia
Travco Group Holding S.A.E., Cairo
TR AVEL S tar GmbH, Hanover
TUI Cruises GmbH, Hamburg
UK Hotel Holdings F ZC L.L.C., Fujairah
Vitya Holding Co. Ltd., Takua, Phang Nga Province

MoroccoCyprusEgypt
Germany
Germany
United Arab Emirates
Thailand

33.3
25
50
50
50
50
47.5

All other segments
ACCON -RVS Accounting & Consulting GmbH, Berlin

Germany

50

NOTE S

241

Other notes, Responsibility ­s tatement by managementRESPONSIBILIT Y­S TAT E M E N T
BY MANAGEMENT
To the best of our knowledge, and in accordance with the applicable reporting principles, the consolidated financial
statements give a true and fair view of the net assets, financial position and results of operations of the Group, and theGroup Management Report includes a fair review of the development and performance of the business and the position of
the Group, together with a description of the principal opportunities and risks associated with the expected developmentof the Group.

Hanover, 11 December 2017
The Executive Board

Friedrich Joussen

Horst BaierSebastian Ebel

Dr Elke Eller

David Burling

242

INDEPENDENTAUDITOR ’S REPORTTo TUI AG , Berlin and Hanover

Report on the audit of the consolidated financial statements
and the combined management report
Audit opinions
We have audited the consolidated financial statements of TUI AG , Berlin and Hanover, and its subsidiaries (the Group),
which comprise the consolidated balance sheet as at 30 September 2017, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash
flow statement for the financial year from 1 October 2016 to 30 September 2017 as well as the Notes to the consolidated
financial statements, including a summary of significant accounting policies. In addition, we have audited the combined
management report of TUI AG , Berlin and Hanover, for the financial year from 1 October 2016 to 30 September 2017. In
conformity with the German legal regulations, we have not audited the section ‘Corporate Governance Report / Declaration
on Corporate Governance’ contained in the combined management report with regard to their content. Furthermore,
we have not audited the section ‘Non-financial Group declaration’ in the combined management report.
In our opinion, based on our knowledge obtained during the audit,• the accompanying consolidated financial statements comply with the International Financial Reporting Standards(IFRS) as adopted by the EU and the supplementary German legal regulations to be applied in accordance with
Section 315a German Commerial Code (HGB) in all material respects and give a true and fair view of the Group’s net
assets and financial position as at 30 September 2017 as well as its results of operations for the financial year from
1 October 2016 to 30 September 2017 in accordance with these requirements and• the accompanying combined management report as a whole provides a suitable view of the Group’s position. In allmaterial respects, this combined management report is consistent with the consolidated financial statements, complies
with the German legal requirements and suitably presents the opportunities and risks of future development. Our
audit opinion on the combined management report does not extend to the contents of the above-mentioned section‘Corporate Governance Report / Declaration on Corporate Governance’ or of the section ‘Non-financial Groupdeclaration’.
Pursuant with Section 322 (3) Sentence 1 German Commercial Code (HGB), we state that our audit has not led to any
reservations with respect to the propriety of the consolidated financial statements and the combined management
report.

Basis for the audit opinions
We conducted our audit of the consolidated financial statements and the Group management report in accordance with
Section 317 German Commercial Code (HGB) and the EU Audit Regulation (No. 537 / 2014; hereinafter ‘ EU Audit
Regulation’) and German generally accepted standards for the audit of financial statements promulgated by the Instituteof Public Auditors in Germany [Institut der Wirtschaftsprüfer (IDW )]. We have conducted the audit of the consolidated
financial statements also in accordance with International Standards on Auditing (ISA). Our responsibilities under theseIndependent auditor’s reportrequirements, principles and standards are further described in the section ‘Auditor’s responsibility for the audit of theconsolidated financial statements and the combined management report’ of our report. We are independent of theGroup companies in accordance with European and German commercial law and rules of professional conduct and wehave fulfilled our other ethical responsibilities applicable in Germany in accordance with these requirements. In addition,
pursuant to Article 10 (2) lit. f EU Audit Regulation, we declare that we have not provided any prohibited non-audit
services pursuant to Article 5 (1) EU Audit Regulation. We believe that the audit evidence we have obtained is sufficientand appropriate to provide a basis for our audit opinions on the consolidated financial statements and combined
management report.

Key audit matters in the audit of the consolidated financial statements
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of theconsolidated financial statements for the financial year from 1 October 2016 to 30 September 2017. These matters wereaddressed in the context of our audit of the consolidated financial statements as a whole and in forming our audit
opinion thereon; but we do not provide a separate opinion on these matters.
In the following we present the key audit matters in our view:
1
2
3
4
5
6
7

Recoverability of goodwill
Recoverability of hotel prepayments
Recoverability of deferred tax assets
Specific provisions
Accounting for the acquisition of Transat France S.A.
Sale of the shares in the Travelopia Group companies
EBITA adjustments

Our presentation of these key audit matters has been structured as follows:C

Description of the issue (including reference to associated disclosures in the consolidated financial statements),
Auditor’s response.
If necessary important conclusion.

1

Recoverability of goodwill

A
B

DESCRIPTION OF THE ISSUEIn TUI AG’s consolidated financial statements as at 30 September 2017, goodwill totalling € 2,889.5 million is reported underthe balance sheet item ‘Goodwill’. Goodwill is subject at least once a year, on 30 June of the financial year, to a test of
its recoverability (known as an impairment test). Measurement is by means of a valuation model based on the Discounted
Cash Flow method. The result of this valuation depends to a great extent on the estimate of future cash inflows by theManagement Board and also on the discount rate used. The valuation is accordingly fraught with considerable uncertainty.
Against this background, we believe that this issue is of particular importance within the framework of our audit.
The Company’s disclosures on goodwill are contained in section (13) of the Notes to the consolidated financial statements.
AUDITOR’S RE SPONSE

We investigated the process for performing the impairment test of goodwill and conducted an audit of the accountingr­elevant controls contained therein. Specifically, we convinced ourselves of the appropriateness of the future cash inflows
used in the calculation. To do so, among other things we compared these figures with the current budgets contained in
the three-year plan adopted by the Management Board and approved by the Supervisory Board, and checked it against
general and industry-specific market expectations. Since even relatively small changes in the discount rate can have amaterial effect on the amount of the business value determined in this way, we also focused on examining the parameters
used to determine the discount rate used, including the Weighted Average Cost of Capital, and analysed the calculation

243

244

algorithm. Owing to the material significance of goodwill and the fact that the valuation also depends on macroeconomic
conditions which are beyond the control of the Company, we also assessed the sensitivity analyses prepared by theCompany for the cash-generating units with low excess cover (carrying amount compared to present value).

2

Recoverability of hotel prepayments

DESCRIPTION OF THE ISSUE

Prepayments to hotels amounting to € 309.5 million are recognised under the balance sheet item ‘Touristic payments
on account’ in TUI AG’s consolidated financial statements as at 30 September 2017.
In our opinion, this is a key audit matter, as the measurement of this significant item is based to a large extent on estimatesand assumptions made by the Management Board.
The Company’s disclosures on Touristic payments on account are contained in section (19) of the Notes to the consolidated
financial statements.
AUDITOR’S RE SPONSE

We investigated the process of evaluating hotel prepayments and carried out an audit of the accounting-relevant controls
contained therein. In the knowledge that there is an increased risk of misstatements in financial reporting with estimatedvalues and that the valuation decisions of the Management Board have a direct and significant effect on the consolidated
net income, we have assessed the appropriateness of the valuations by comparing these values with historical values
and using the contractual bases presented to us. We assessed the recoverability of hotel prepayments against thebackground of current developments in Turkey and North Africa. For this we took into account, among other things,
the repayment schedules agreed with the hoteliers concerned, the options for offsetting against future overnightaccommodation and the framework agreements concluded.

3

Recoverability of deferred tax assets

DESCRIPTION OF THE ISSUETUI AG’s consolidated financial statements as at 30 September 2017 report deferred tax assets totalling € 323.7 million

under the balance sheet item ‘Deferred income tax assets’. Recoverability of the deferred tax assets recognised ismeasured by means of forecasts about the future earnings situation.
In our opinion, this is a key audit matter because it depends to a large extent on estimates and assumptions made by
the Management Board and is fraught with uncertainties.
The Company’s disclosures on deferred tax assets are contained in the Notes to the consolidated financial statements
under ‘Accounting policies’ and in Section (20).
AUDITOR’S RE SPONSE

We involved our own tax specialists in our audit of tax issues. With their support we assessed the internal processes andcontrols established for recording tax issues. We assessed the recoverability of deferred tax assets on the basis of internal
forecasts on the future taxable income situation of TUI AG and its major subsidiaries. In this context, we referred to theplanning prepared by the Management Board and assessed the appropriateness of the planning basis used. Amongother things, these were examined in the light of general and industry-specific market expectations.

Independent auditor’s report4

Specific provisions

DESCRIPTION OF THE ISSUE

Provisions for aircraft maintenance amounting to € 615.4 million and provisions for onerous hotel lease contracts
amounting to € 2.5 million are disclosed under the balance sheet item ‘Other provisions’ in TUI AG’s consolidated financial
statements as at 30 September 2017. Furthermore, provisions for pensions and similar obligations amounting to€ 1,127.4 million were recognized as at 30 September 2017. In our opinion, these are key audit matters, as the recognition
and measurement of these significant items are based to a large extent on estimates and assumptions made by theManagement Board.
The Company’s disclosures on provisions are contained in sections (29) and (30) and in the disclosures on accounting
and valuation methods in the Notes to the consolidated financial statements.
AUDITOR’S RE SPONSE

We investigated the process of recognising and measuring specific provisions and carried out an audit of the accounting-­
relevant controls contained therein. In the knowledge that there is an increased risk of misstatements in financial reportingwith estimated values and that the valuation decisions of the Management Board have a direct and significant effect on
consolidated net income, we assessed the appropriateness of the valuations by comparing these values with historicalvalues and using the contractual bases presented to us.
Among other things we• assessed the valuation of the provision for onerous hotel leasing contracts, in particular for hotels in Turkey. We did this,among other things, on the basis of the contracts concluded and the Company’s profit planning for the individual
hotels;• analysed the calculation of the expected costs of aircraft maintenance. This was done on the basis of Group-wide
maintenance contracts, price increases expected on the basis of external market forecasts and the discount rates
applied, supported by our own analyses;• assessed the appropriateness of the valuation parameters used to calculate the pension provisions. Among otherthings we did this by comparing them with market data and including the expertise of our internal pension valuation
specialists.

5

Accounting for the acquisition of Transat France S.A.

DESCRIPTION OF THE ISSUE

As at 31 October 2016, TUI acquired 99.99 % of the shares in the tour operator Transat France S.A. (and all its
subsidiaries) at a purchase price of € 64.0 million. A period of twelve months from the date of acquisition, i. e. until theend of October 2017, is available for carrying out the final allocation of the purchase price to the acquired assets andliabilities. The purchase price allocation was completed by the end of September 2017. In our view, the accounting
treatment of the acquisition of Transat France S.A. is a key audit matter, since the identification of the acquired assets
and liabilities, their recognition and also their measurement are based to a large extent on estimates and assumptions
made by the Management Board.
The company’s disclosures on the acquisition of Transat France S.A. are included in the ‘Acquisitions’ section of theNotes to the consolidated financial statements.
AUDITOR’S RE SPONSE

We examined the allocation of the purchase price to the assets and liabilities acquired. For this, we availed ourselves ofthe expertise of our internal specialists on the topic of accounting for business combinations and assessed the assumptions
made in identifying as well as valuing the assets and liabilities, for example by comparing them with market-related
data. We scrutinised the calculation models used and, with regard to the planning calculations used, reconciled themwith general and industry-specific market expectations.

245

246

6

Sale of the shares in the Travelopia companies

DESCRIPTION OF THE ISSUE

In the financial year 2015 / 16, the Company decided to sell its shares in the companies belonging to the Travelopia Group.
For this reason, the companies in the Travelopia Group were categorised as at 30 September 2016 as a disposal group(IFRS 5) and classified as a discontinued operation. The Travelopia companies were sold and deconsolidated with effectfrom 15 June 2017. The sale of Travelopia Group resulted in a loss of € 151,7 million which consists of the current resultof the period until 15 June 2017 of € – 66,4 million, thereof impairment of goodwill amounting to € 47,4 million, and ofan overall disposal loss of € – 85,3 million. In our view, the accounting treatment of the disposal is a key audit matter,
since the contractual agreements are complex and the impact on the TUI Group are material.
The Company’s disclosures on the disposal of its shares in Travelopia are contained in the ‘Discontinued operations’section of the Notes to the consolidated financial statements.
AUDITOR’S RE SPONSE

As part of the audit of the proper accounting treatment of the sale of the shares in the companies belonging to theTravelopia Group, we examined, among other things, the foundations in company law and the provisions of the underlying
sales contract.
In this connection, we examined the fulfilment of the criteria for classification as a disposal group (IFRS 5) during the year,
the resulting effects on the valuation of the assets and liabilities, the requirements for classification as a discontinued
operation and the deconsolidation of the Travelopia Group.

7 
E BITA adjustments

DESCRIPTION OF THE ISSUE

For steering and analysis purposes, the TUI Group uses operational Earnings Before Interest, Taxes and Amortisation(EBITA), adjusted for special effects. Adjustments to the EBITA of continuing operations of € 75.6 million leading toan increase in EBITA compared to unadjusted EBITA are shown in TUI AG’s consolidated financial statements as at
30 September 2017. The adjusted EBITA are used by the Management Board as a significant financial performance indicator
in its communications with the capital market.
The adjustments to EBITA were a key audit matter, as they are made on the basis of TUI AG’s internal accounting regulations
and there is a risk that the Management Board may exercise its discretionary powers one-sidedly.
The Company’s disclosures on the adjustments to EBITA and the calculation thereof are presented in the ‘Notes tosegment data’ in the segment reporting in the Notes to the consolidated financial statements.
AUDITOR’S RE SPONSE

We analysed the calculation of the adjusted EBITA and took a critical look at the identification of special effects andnon-operating earnings influences.
At the same time, we examined, on the basis of the findings of our audit and the information provided by the Management
Board, whether the adjustments made were carried out in accordance with the definition and procedure described in
the notes to the segment reporting.
O T H E R I N F O R M AT I O N

The Management Board is also responsible for the other information. This other information includes:

Independent auditor’s report• the non-financial statement,• the Corporate Governance Report / Declaration on Corporate Governance, the assurance pursuant to Section 297 (2)Sentence 4 HGB in relation to the consolidated financial statements and the assurance pursuant to Section 315 (1)Sentence 5 HGB in relation to the combined group management report, and• the remaining parts of the annual report, with the exception of the audited consolidated financial statements and the
combined management report.
Our audit opinions on the consolidated financial statements and on the combined management report do not extend
to cover the other information, and accordingly we do not issue an audit opinion or any other form of assurance conclusion
thereon.
In connection with our audit, our responsibility is to read the other information and, in doing so, to consider whether
the other information• is materially inconsistent with the consolidated financial statements, the combined management report or our
knowledge obtained in the audit, or• otherwise appears to be substantially misstated.
R E S P O N S I B I L I T Y O F T H E M A N A G E M E N T A N D S U P E R V I S O R Y B O A R D S F O R T H E C O N S O L I D AT E D F I N A N C I A LS TAT E M E N T S A N D T H E C O M B I N E D M A N A G E M E N T R E P O R T

The Management Board is responsible for the preparation of consolidated financial statements which comply with IFRS ,as adopted by the EU, and the supplementary requirements of German legal regulations pursuant to Section 315a (1)German Commercial Code (HGB) in all material respects, so that the consolidated financial statements give a true andfair view of the net assets, financial position and results of operations of the Group in accordance with these requirements.
In addition, the Management Board is responsible for the internal controls they have identified as necessary in orderto enable the preparation of consolidated financial statements that are free from material misstatements, whether
intentional or unintentional.
In preparing the consolidated financial statements, the Management Board is responsible for assessing the Group’s
ability to continue as a going concern. Furthermore, it has the responsibility to disclose matters related to going concern,
as applicable. In addition, it is responsible for using the going concern basis of accounting, unless the intention is toliquidate the Group or to cease operations or there is no realistic alternative but to do so.
In addition, the Management Board is responsible for the preparation of the combined management report, which as awhole provides a suitable view of the Group’s situation, is consistent with the consolidated financial statements in allmaterial respects, complies with the German legal regulations and suitably presents the opportunities and risks of future
development. Furthermore, the Management Board is responsible for such arrangements and measures (systems)
which it has deemed necessary in order to enable the preparation of a combined management report in accordance with
the German legal regulations to be applied and to furnish sufficient and appropriate evidence for the statements in the
combined management report.
The Supervisory Board is responsible for overseeing the Group’s financial reporting process for the preparation of theconsolidated financial statements and the combined management report.
A U D I T O R ’ S R E S P O N S I B I L I T Y F O R T H E A U D I T O F T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S A N D
THE COMBINED MANAGEMENT REPORTOur objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole arefree from material misstatements, whether due to fraud or error, and whether the combined management report as awhole provides an appropriate view of the Group’s position and, in all material respects, is consistent with the consolidated
financial statements and with the findings of the audit, is in accordance with the German legal regulations, and appropriately presents the opportunities and risks of future development, as well to issue an auditor’s report that includes
our audit opinions on the consolidated financial statements and the combined management report.

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Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
Section 317 German Commercial Code (HGB) and EU Audit Regulation and German generally accepted standards forthe audit of financial statements promulgated by the Institute of Public Auditors in Germany (IDW ) and subject tosupplementary compliance with ISA will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these consolidated financial statements and the
combined management report.
As part of an audit, we exercise professional judgement and maintain professional scepticism. We also
• identify and assess the risks of material misstatements in the consolidated financial statements and the combined
management report, whether due to fraud or error, design and perform audit procedures responsive to those risks,and obtain audit evidence that is sufficient and appropriate to provide a basis for our audit opinions. The risk of notdetecting a material misstatement resulting from fraud is higher than one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• obtain an understanding of internal control relevant to the audit of the consolidated financial statements and thearrangements and measures relevant to the audit of the combined management report in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of these systems.
• evaluate the appropriateness of the accounting policies used by the Management Board and the reasonableness ofaccounting estimates and related disclosures made by the Management Board.
• conclude on the appropriateness of the Management Board’s use of the going-concern basis of accounting and,based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions thatmight cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that there is a material
uncertainty, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated
financial statements and the combined management report, or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However,
future events or conditions may cause the Group to cease to continue as a going concern.
• evaluate the overall presentation, structure and content of the consolidated financial statements, including thedisclosures, and whether the consolidated financial statements represent the underlying transactions and events ina manner that the consolidated financial statements give a true and fair view of the net assets and financial position
as well as the results of operations of the Group in accordance with IFRS as adopted by the EU and the supplementary
requirements of German law pursuant to Section 315a (1) German Commercial Code (HGB).
• obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities
within the Group to express opinions on the consolidated financial statements and the combined management report.
We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible
for our audit opinions.
• evaluate the consistency of the combined management report with the consolidated financial statements, its legal
consistency and the view it provided of the Group’s position.
• perform audit procedures on the forward-looking information presented by the Management Board in the combined
management report. On the basis of sufficient appropriate audit evidence, we particularly evaluate the significant
assumptions underlying the forward-looking information by the Management Board’s and evaluate the correct
derivation of the forward-looking information from these assumptions. We do not issue an independent opinion on
the forward-looking information or on the underlying assumptions. There is a significant, unavoidable risk that future
events will differ materially from the forward-looking information.
We communicate with those charged with governance, among other matters, the planned scope and timing of the audit
and also significant audit findings, including any deficiencies in internal control which we identify during our audit.

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Independent auditor’s report

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements
regarding independence, and communicate with them all relationships and other matters that may reasonably bethought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of mostsignificance in the audit of the consolidated financial statements of the current reporting period and are therefore the
key audit matters. We describe these matters in the auditor’s report, unless law or regulation precludes public disclosure
about the matter.

Other legal an regulatory Requirements
Other information pursuant to Article 10 EU Audit Regulation
We were appointed by the annual general meeting on 14 February 2017 to audit the financial statements. We were
engaged by the Supervisory Board on 27 February / 19 March 2017 and on 11 / 24 September 2017. We have been engaged
as the auditors the consolidated financial statements of TUI AG , Berlin and Hanover, since the financial year 2016 / 17.
We confirm that the audit opinions contained in this auditor’s report are consistent with the additional report to theaudit committee pursuant to Article 11 EU Audit Regulation (‘Prüfungsbericht’).

Review of the Management Board’s declaration of compliance with the
UK Corporate Governance CodePursuant to Section 9.8.10 (1 and 2) of the Listing Rules in the United Kingdom, we were engaged to review Management’s
statement pursuant to Section 9.8.6R (6) of the Listing Rules in the United Kingdom that relate to provisions C.1.1, C.2.1,
C.2.3 and C.3.1 to C.3.8 of the UK Corporate Goverance Code and Management’s statement pursuant to Section 9.8.6R (3)of the Listing Rules in the United Kingdom in the financial year 2016 / 17, or, in the case of deviations, the explanations
given. We have nothing to report in this regard.

Responsible auditor
The auditor responsible for the audit is Dr Hendrik Nardmann.

Hanover, 11 December 2017
Deloitte GmbH
Wirtschaftsprüfungsgesellschaft

SchenkGerman Public Auditor

Dr Nardmann
German Public Auditor

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FORWARD -LOOKINGS TAT E M E N T S
The annual report, in particular the report on expected developments included in the management report,
includes various forecasts and expectations as well as statements relating to the future development of the
TUI Group and TUI AG . These statements are based on assumptions and estimates and may entail known
and unknown risks and uncertainties. Actual development and results as well as the financial and asset
situation may therefore differ substantially from the expectations and assumptions made. This may be due
to market fluctuations, the development of world market prices for commodities, of financial markets andexchange rates, amendments to national and international legislation and provision or fundamental changes
in the economic and political environment. TUI does not intend to and does not undertake an obligation
to update or revise any forward-looking statements to adapt them to events or developments after the
publication of this annual report.

Financial calender
13 D E C E M B E R 2 0 17
Annual Report 2017
13 F E B R U A R Y 2 0 18
Annual General Meeting 2018
13 F E B R U A R Y 2 0 18
Quarterly Statement Q1 2018
28 MARCH 2018
Trading update
9 M AY 2 0 18
Half-Year Financial Report H1 2018
AUGUST 2018
Quarterly Statement Q3 2018
DECE MBE R 2018
Annual Report 2018

PUBLISHED BY
TUI AG

Karl-Wiechert-Allee 430625 Hanover, Germany
Tel.: + 49 511 566-00
Fax: + 49 511 566-1901
www.tuigroup.com
CONCEPT AND DESIGN
3st kommunikation, Mainz, Germany
PHOTOGR APHY
Christian Wyrwa (p. 9); Michael Neuhaus (p. 18 – 19);
Robinson Club GmbH (cover photo, p. 98 – 99);
Rüdiger Nehmzow (p. 3, 6 – 7); TUI Cruises (p. 132 – 133)
PRINTER
Kunst- und Werbedruck, Bad Oeynhausen, Germany

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print production
The Annual Report of TUI Group, and the financial statements of TUI AG are alsoavailable online: http://annualreport2017.tuigroup.com
This report was published on 13 December 2017.
The German version is legally binding. The Company cannot be held responsible forany misunderstandings or misinterpretation arising from this translation.

TUI AG
Karl-Wiechert-Allee 430625 Hanover, Germany