TUI TRAVEL PLC. Merger of First Choice Holidays PLC and the tourism businesses of TUI AG successfully completed on 3 September 2007

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1 TUI TRAVEL PLC 13 December 2007 Highlights RELEASE OF UNAUDITED PRO FORMA FINANCIAL INFORMATION Merger of First Choice Holidays PLC and the tourism businesses of TUI AG successfully completed on 3 September day strategic review is progressing well and the integration of the two leading UK franchises remains on track Current trading remains strong with the outlook encouraging for both Winter 2007/08 and Summer 2008 programmes; UK Mainstream revenues up 5% for Winter and up 11% for Summer Pro forma underlying operating profit up 5% at 287m (2006: 274m) which compares to a market consensus for September 2007 of 277m The Specialist sectors delivered 36% growth in underlying operating profit to 129m (2006: 95m) while Mainstream profitability as anticipated is down 12% to 162m (2006: 183m) due to cost and yield pressures in the UK and Germany Acquisition of seventeen niche high growth specialist businesses for a maximum total consideration of 227m (2006: sixteen acquisitions for maximum consideration of 160m); the acquisition pipeline remains strong Based on the current outlook, the Board remains confident that it will meet its expectations for the year ended 30 September 2008 Interim dividend of 5.9p per share recommended for 2007 Investor day scheduled for 29 January 2008 Peter Long, Chief Executive Officer of TUI Travel PLC, commented "As we approach the key booking period for both Winter and Summer 2008, we are encouraged by our performance to date and the ongoing level of demand for our portfolio of package and specialist holidays. The integration programme continues to advance as planned, with excellent progress made in the UK and across other businesses. We are confident that the combination of organic and acquisition led growth, coupled with the synergy benefits arising from integration, will deliver superior returns for our shareholders. Furthermore, by delivering both underlying growth and synergies, we are building a platform from which we can deliver sustainable long-term earnings and margin growth. 1

2 Change of Year End Following the creation, on 3 September 2007, of TUI Travel PLC via the merger of First Choice Holidays PLC and the tourism businesses of TUI AG ( TUI Tourism ), we now provide pro forma financial information for the new Group. This information is provided in order to reflect the change in financial year-end of all TUI Travel PLC s businesses. First Choice Holidays PLC and its subsidiaries ( First Choice ) have moved from a 31 October to a 30 September year-end and TUI Tourism has changed its year-end from 31 December to 30 September. As previously highlighted, pro forma financial information provided when the merger was announced on 19 March, and financial information provided in the prospectus, published on 29 June, was based on a simple aggregation of these businesses previous October and December year-ends. Accordingly, by combining existing forecasts for First Choice to October 2007 and TUI Tourism to December 2007 the market arrived at a consensus of 317m. The effect of changing the year-end for TUI Travel PLC to September reduces 2007 underlying operating profit by an estimated 30m to a pro forma underlying operating profit of 287m for the year ended 2007 (2006: 274m). The year-end harmonisation adjustment is primarily as a result of excluding the relevant months from the final calendar year quarter for 2007 for both businesses and replacing them with months from the final calendar year quarter for 2006 as follows: Impact of change of year-end on 2007 First Choice TUI EBITA Tourism Previous Year-end 31 Oct Dec m Market consensus Harmonisation adjustment Deduct month(s) in Q (Oct 07) (Oct 07) (Nov 07) (Dec 07) Add month(s) in Q Oct 06 Oct 06 Nov 06 Dec 06 ( 30m) Net impact New Year-end 30 Sept Sept m Pro forma This 30m reduction has principally arisen because the TUI Tourism Q result is significantly weaker than the consensus forecast Q performance, with the improvement primarily driven by the benefits from the TUI AG restructuring programme announced in December 2006, which are being realised in Q Financial Highlights Pro forma underlying operating profit up 5% at 287m (2006: 274m) Pro forma underlying operating margin flat year-on-year at 2.2% Pro forma underlying operating profit includes profit on the sale and leaseback of aircraft of 15m in 2007 and 20m in Excluding these gains results in underlying operating profit of 272m (2006: 254m). To the extent that profits of this nature arise from the asset management of aircraft in future periods, they will not be included in underlying operating profit. Pro forma underlying earnings per share of 16.0p (2006: 15.7p) 2

3 Underlying Pro forma 1 results Pro forma results FY07 FY06 Change FY07 FY06 Revenue 12,840 12,180 +5% 12,840 12,180 Operating profit/(loss) % 56 (243) Profit/(loss) before tax = 18 (269) Basic EPS 16.0p 15.7p +2% 0.6p (34.3)p 1 The Group believes that underlying operating profit, underlying profit before tax and underlying earnings per share provide additional guidance to the pro forma measures on the underlying performance of the business during the financial year. Underlying profit before tax and underlying operating profit exclude separately disclosed items, amortisation of business combination intangibles, impairment of goodwill and taxation of profits of the Group s joint venture and associate. Underlying earnings exclude the same items net of tax and minority interests Detailed commentary on these results is included in the Business and Financial Review of this release but the highlights are as follows: As anticipated, Mainstream underlying operating profit was down 12% to 162m (2006: 183m) primarily as a result of significant cost pressures in the UK (Air Passenger Duty ( APD ) and fuel) that were not fully recovered from the customer and yield pressures in early Summer trading in the German market. The Nordics business delivered an excellent performance while Western Europe delivered an 18m turnaround in pro forma underlying earnings. The Specialist sectors pro forma underlying operating profit increased by 34m (up 36%) to 129m (2006: 95m). Acquisitions of niche specialist businesses with a maximum consideration of 227m were made during the year ( 151m cash paid during the year) with the acquisition pipeline remaining strong. Separately disclosed items of 173.8m (2006: 33.7m), further details of which are given in Note 4 of the pro forma financial information. Current Trading Since the trading update announced on 8 November, the Winter 2007/08 season has continued to trade well with customer demand for both package and specialist holidays encouraging. For Summer 2008, early indications are also positive, even though in a number of our source markets, brochures have only just gone on sale. Winter 2007/08 Trading for the Winter programmes has continued to track in line with our expectations, with all businesses now in the peak selling period for the season. As anticipated there has been a slight slowdown in the rate of sale over the last few weeks as a result of the exceptionally strong start to the season. However, most importantly, load factors are still ahead of the prior year in all key source markets. Winter 2007/08 y-o-y variation% Sales Customers Capacity MAINSTREAM Northern Europe First Choice UK Short-haul Medium-haul Long-haul First Choice UK TUI UK Short-haul Medium-haul Long-haul TUI UK UK Mainstream Total

4 TUI Nordic Northern Europe Total Central Europe TUI Germany TUI Austria TUI Switzerland TUI Central Europe - Total Western Europe TUI France TUI Belgium TUI Netherlands TUI Western Europe SPECIALIST ACTIVITY +7 n/a ODS These statistics are up to 2 December 2007 UK Mainstream trading remains strong with total sales up 5% on 5% lower volumes. As we previously announced, we have significantly reduced capacity within the short-haul segment within both brands, down by 30% in Thomson and down by 22% in First Choice, as we continue to reduce our participation in the short-haul segment, and primarily in the lossmaking scheduled city pair routes operated by Thomsonfly. Sales in TUI UK are 15% lower in short haul on lower volumes of 28%. Within First Choice, both medium haul and long haul continue to trade well with sales up 19% and 20% on higher volumes of 9% and 14% respectively, as consumer demand for Egypt, Cuba and Mexico remains strong. For the total UK programme, the load factor is four percentage points further sold than last year, with margins tracking ahead. The Nordic region has continued to benefit from the expansion of the higher margin long haul programme, where capacity is up 12%. Consumer demand for long haul destinations, such as Thailand, has driven sales growth of 16% on 12% higher volumes, with margins also ahead of last year. In both Central Europe and Western Europe, demand is encouraging with sales up 8% in each region on capacity that is marginally up. In the specialist sectors, Canada has continued to trade satisfactorily in a very difficult competitive environment, while demand for Activity Holidays and Online Destination Services has driven excellent growth with sales up 7% and 55% respectively. Summer 2008 Summer 2008 y-o-y variation% Sales Customers Capacity MAINSTREAM Northern Europe First Choice UK Short-haul Medium-haul Long-haul First Choice UK TUI UK Short-haul Medium-haul Long-haul TUI UK UK Mainstream Total

5 TUI Nordic Northern Europe Total Central Europe TUI - Germany TUI - Austria TUI - Switzerland TUI Central Europe - Total Western Europe TUI - France TUI - Belgium TUI Netherlands 2 n/a n/a - TUI Western Europe SPECIALIST ACTIVITY +11 n/a ODS These statistics are up to 2 December The TUI Netherlands Summer 2008 programme has just gone on sale and bookings are still in early stages Even though it remains very early in the booking cycle for Summer 2008, we are pleased with trading to date. Since the last trading update in early November, trading in the UK has continued to track in line with our expectations. As a result, load factors are four percentage points ahead of last year with the First Choice programme up four percentage points and the Thomson programme three percentage points ahead. As previously announced, we have scaled back significantly our short haul flying programme with total capacity down 25%, including a reduction of 30% in Thomson s short haul capacity. As a consequence, sales are down 4% on 13% lower volumes. The Nordic region summer programme continues to perform strongly with sales growth of 14% on higher volumes of 9%. The programme is now one percentage point further sold than last year, and despite ongoing cost pressures (primarily fuel), margins are ahead of last year. In Central Europe and Western Europe, bookings for Summer 2008 have only recently gone on sale, but in early trading we are pleased with the promising start. Sales are up 8% and 23% respectively. Outlook As we enter the key booking period for both Winter and Summer 2008, we are encouraged by our performance to date and the ongoing level of demand for our portfolio of package and specialist holidays. The integration programme continues to progress as planned, with excellent progress being made in the UK and across a number of other business lines. Based on the current outlook, the Board remains confident that it will meet its expectations for the current TUI Travel PLC financial period ending 30 September We firmly believe that the combination of organic and acquisition led growth, coupled with the synergy benefits arising from integration, will deliver superior returns for our shareholders. Furthermore, by achieving both growth and synergies, we are building a platform from which we can deliver sustainable long-term earnings and margin growth. 5

6 Conference Call A conference call for analysts will take place today at 9-00am (GMT). The dial-in arrangements for the call are as follows: Telephone: +44 (0) Participant Code: A presentation to accompany the conference call will be made available via our corporate website at 8-00 am (GMT). Please use the link below to access the slides: Please contact Kerry Gleeson (TUI Travel PLC Corporate Communications) on +44 (0) if you have any difficulty accessing either the conference call or supporting presentation. A recording of the conference call will be available until 3 January 2008 on: Telephone: +44 (0) Participant Code: # Enquiries: TUI Travel PLC Paul Bowtell, Chief Financial Officer Tel: Andy Jones, Director of Group Finance Tel: David Paterson, Head of Strategy & Investor Relations Tel: Lesley Allan, Corporate Communications Director Tel: Hudson Sandler Michael Sandler / Jessica Rouleau Tel:

7 BUSINESS AND FINANCIAL REVIEW Group Performance The Group has achieved pro forma underlying profit before tax of 249.3m (2006: 248.4m), with underlying operating profit up 5% at 287.0m (2006: 274.2m). As previously highlighted the effect of moving all businesses in the Group to a September year-end results in a reduction of underlying profit from the combination of the previous year-ends of October for First Choice and December for TUI Tourism. This is as a result of excluding the results from the three months of October, November and December 2007 and including the results from the three months of October, November and December 2006 in the case of TUI Tourism and excluding the results of October 2007 and including the results of October 2006 in the case of First Choice. This change has no impact on expectations for the 12 months to 30 September Group pro forma revenue rose 5% to 12,840m with the underlying operating margin remaining constant at 2.2%. Year ended 30 September Revenue 12,840m 12,180m Underlying operating profit 287.0m 274.2m Underlying profit before tax 249.3m 248.4m Operating profit/(loss) 56.1m (242.8)m Profit/(loss) before tax 18.4m (268.6)m Underlying basic earnings per share 16.0p 15.7p Basic earnings per share 0.6p (34.3)p A reconciliation of underlying profit before tax to profit/(loss) before tax is as follows: Underlying profit before tax Separately disclosed items (173.8) (33.7) Impairment of goodwill and amortisation of business combination (54.8) (480.1) intangible assets Taxation on profits of joint ventures and associates (2.3) (3.2) Profit/(loss) before tax 18.4 (268.6) Acquisitions remain an integral part of our strategy and we continue to see value-enhancing acquisitions as a driver of earnings growth going forward. This year we have made seventeen acquisitions for a maximum total consideration of 227m of which 151m has been paid during the year (2006: sixteen acquisitions for a maximum consideration of 160m of which 137m had been paid). The acquisition pipeline remains strong as we continue to identify opportunities which demonstrate excellent growth characteristics within niche segments of leisure travel, such as premium escorted tours, student travel, adventure holidays and online travel. 7

8 Segmental Performance The following financial information is presented on a pro forma basis. Mainstream Holidays Sector The Mainstream Holidays Sector consists of three divisions; The Northern Europe division comprises the distribution and tour operation businesses in the UK, Ireland and the Nordic countries as well as the following airlines: TUIfly Nordic, Thomsonfly and First Choice Airways. The Central Europe division comprises the distribution and tour operator businesses in Germany, Switzerland, Austria and the Eastern European markets as well as the operation of the TUIfly airline in Germany. The Western Europe division comprises the distribution and tour operation businesses in France, the Netherlands and Belgium as well as the following airlines: Corsairfly, Arkefly and Jetairfly, and a 40% share in Jet4you.com (Morocco). Mainstream Holidays Sector reported on underlying operating profit of 161.6m (2006: 182.8m), down 11.6% year-on-year, primarily due to cost pressures arising from the year on year increase in fuel and the doubling of APD in the UK. In addition, following the rebranding of the German airlines to TUIfly.com, a number of third party operators cancelled commitments with TUIfly.com for the peak summer season which adversely impacted margins. As a result, the operating margin for the sector is down thirty basis points to 1.5% (2006: 1.8%). Mainstream Holidays 2006/ /06 Change % Passengers ( 000) Northern Europe 9,399 9,295 +1% Central Europe 11,394 10,693 +7% Western Europe 4,589 4,358 +5% Total 25,382 24,346 +4% y-o-y variation Revenue per passenger Total Northern Europe +1% Central Europe -1% Western Europe +2% Total = Underlying operating profit () Northern Europe % Central Europe % Western Europe 0.6 (17.4) +103% Total % Underlying operating margin % Northern Europe 2.4% 3.1% -70bps Central Europe 1.1% 1.5% -40bps Western Europe 0.0% (0.9%) +90bps Total 1.5% 1.8% -30bps Controlled distribution % Northern Europe 77% 71% +6ppts Central Europe 48% 49% -1ppts Western Europe 51% 50% +1ppts Total 62% 60% +2ppts 8

9 Northern Europe The Northern Europe division generated underlying operating profit of 113.2m (2006: 139.7m), which was 19.0% lower than prior year, due to margin pressures in the UK from APD rises and losses incurred in the scheduled flying operation of Thomsonfly. Revenue was 2.7% up on the prior year due to a change in mix in travel products sold, with UK sales impacted by the growth of the lower price seat only and accommodation only businesses. UK UK profitability was down 31% to 78.2m (2006: 113.8m) as a result of significant cost pressures from the year on year increase in fuel prices and the UK government s decision to double APD, announced in December We were unable to fully recover the 33m increase in APD and the incremental year-on-year fuel costs of 33m from customers, and consequently, margins were adversely impacted for both the Winter and Summer programmes. Thomson, in line with its previous stated strategy, cut charter capacity back by 10% in 2006/07 as it sought to expand its participation in the component led independent travel segment by seeking to offer greater frequency within the flying timetable and a greater range of destinations. Despite broadly flat volumes, margins were down on the previous year as a result of yield pressures and the competitive environment in the first half of the year. As a result, the Thomsonfly scheduled flying operation contributed 27m of losses to the UK result. We have recently stated that we intend, where possible and within certain time constraints, to exit unprofitable lines of business and therefore expect these losses to be eliminated over a period of time. The UK business has continued to expand its differentiated content. We opened a new Holiday Village property in the Dominican Republic in Winter 2006/07 and in Egypt during Summer We are currently planning to open Holiday Villages in Cyprus, Portugal and Cozumel (Mexico) in Summer 2008 and a Thomson Sensatori product in Crete in May Following a capacity increase of 25% the First Choice long haul programme performed extremely well. An additional six re-configured Boeing 767s (2006: four) were added with Costa Rica, Mexico and the Dominican Republic proving popular with our customers. In total, the UK long-haul programme consisted of ten Boeing 767s and going forward, we are confident we can leverage our Boeing 787 order book (23 in total) to deliver sustainable earnings and margin growth. Controlled distribution across the business now stands at 78% (2006: 71%) as both Thomson and First Choice continue to benefit from investment in controlled distribution channels, most notably the web proposition and retail estate. 9

10 Northern Europe 2006/ /06 Change % Passengers ( 000) UK 7,895 7,827 +1% Ireland % Nordic 1,195 1,143 +5% Total 9,399 9,295 +1% y-o-y variation Revenue per passenger Total UK -1% Ireland +7% Nordic +14% Total +1% Revenue growth Total UK = Ireland +1% Nordic +19% Sub Total +2% Other Revenues +12% Total +3% Underlying operating profit/(loss) () UK % Ireland 1.2 (1.3) 192% Nordic % Total % Underlying operating margin % UK 2.0% 2.9% -90bps Ireland 1.1% -1.2% +230bps Nordic 5.2% 5.0% +20bps Total 2.4% 3.1% -70bps Controlled distribution % UK 78% 71% +6ppts Nordic 75% 70% +5ppts Total 77% 71% +6ppts Nordic Revenue in the Nordic region increased 19% year-on-year due to strong trading in Winter 2006/07, primarily as a result of an increase in higher margin long haul where capacity was up 25% for the season, particularly for Thailand which proved very popular with customers. This capacity increase was facilitated by the redeployment of a Boeing from Corsair that enabled the operation to commence operating direct flights to Thailand from November Despite higher fuel costs, the Nordic business grew underlying operating profit to 33.8m (2006: 27.2m) with operating margins up 20 basis points to 5.2%, as it continued to benefit from the growth in the long haul programme, controlled distribution and differentiated content. For the Summer 2007 programme, controlled distribution was up five percentage points to 77% with web sales accounting for 45% of all sales (up seven percentage points), while the differentiated Blue concept including hotels and holiday villages accounted for 32% of all product (up one percentage point). 10

11 Ireland Despite the challenging competitive environment within Ireland, the business delivered a turnaround in profitability to 1.2m versus a 1.3m operating loss in However, due to the EC competition ruling, this business was divested on 14 October Central Europe The Central Europe division generated underlying operating profit of 47.8m (2006: 60.5m), which was 21% lower than prior year, on revenue growth of 6% to 4,203m (2006: 3,979m). Profitability was primarily impacted by the competitive environment within the German flying sector, as both TUIfly.com load factors and margins were adversely impacted due to excess capacity in the market, and the impact of the TUIfly rebranding on a number of the airlines customers. Central Europe 2006/ /06 Change % Passengers ( 000) Germany 10,388 9,692 +7% Switzerland % Austria % Total 11,394 10,693 +7% y-o-y variation Revenue per passenger Total Germany -2% Switzerland +29% Austria +5% Total -1% Revenue growth Total Germany +5% Switzerland +46% Austria = Total +6% Underlying operating profit/(loss) () Germany % Switzerland % Austria (4.2) (0.4) n/a Total % Underlying operating margin % Germany 1.3% 1.7% -40bps Switzerland 1.5% 1.7% -20bps Austria (1.3%) (0.1%) -120bps Total 1.1% 1.5% -40bps Controlled distribution% 48% 49% -1ppts Germany Underlying operating profit in Germany was down 17.0% to 48.7m (2006: 58.4m) on revenue growth of 4% to 3,663m (2006: 3,506m). Despite volume growth of 7%, which was largely driven by the expansion of the scheduled flying operation, the business was unable to match the seat load factors achieved in 2006 following the decision to increase 11

12 capacity by four aircraft for Summer With this level of capacity in the market, pressures on yields resulted in a dilution of margin, particularly within April and May In addition, following the decision in early 2007 to rebrand the airlines under the single brand TUIfly.com, a number of third party tour operators who had airline seat commitments with TUIfly.com, handed back a significant number of seats which placed increased pressure on yields during the peak summer selling season. It is estimated that this return of seats cost the operation 14m. We have already announced that for the forthcoming Summer season, we will reduce capacity by seven aircraft. Switzerland & Austria Switzerland experienced a 13% year-on-year increase in passengers, following the introduction of the TUI Germany pricing and product model to the Swiss mainstream market. This led to strong consumer demand for TUI holidays. A number of competitors could not compete on price or content, and as a result margins were up with overall underlying profitability up 32% to 3.3m (2006: 2.5m). Austria experienced a decline in passengers and revenue in 2006/07 compared to the previous year. Demand was good for Egypt and Turkey but bookings for Spain declined year-on-year. The tour operator market in Austria as a whole was weak in 2006/07. Western Europe The Western Europe division generated underlying operating profits of 0.6m (2006: 17.4m loss), which represented an 18m turnaround in divisional profitability over the prior year. This was driven by an increase in underlying profitability in the Netherlands and Belgium. Western Europe 2006/ /06 Change % Passengers ( 000) France 1,577 1,577 = Netherlands 1,281 1,215 +5% Belgium 1,731 1, % Total 4,589 4,358 +5% y-o-y variation Revenue per passenger Total France +6% Netherlands -4% Belgium +6% Total +2% Revenue growth Total France +6% Netherlands +1% Belgium +17% Total +8% Underlying operating profit/(loss) () France (26.6) (26.7) = Netherlands 4.8 (2.8) +271% Belgium % Total 0.6 (17.4) +103% 12

13 Western Europe 2006/ /06 Change % Underlying operating margin % France (3.2%) (3.4%) +20bps Netherlands 0.8% (0.5%) +130bps Belgium 3.5% 2.2% +130bps Total 0.0% (0.9%) +90bps Controlled distribution % France 62% 67% -5ppts Netherlands 49% 45% +4ppts Belgium 43% 38% +5ppts Total 51% 50% +1ppts France After a difficult 2006, Nouvelles Frontieres and Corsair have started to benefit from action taken in December 2006 to restructure the business and a recovery from the effects of the Chikungunya outbreak in La Reunion, which significantly impacted the trading result last year. La Reunion, one of the most important destinations for Corsair (which accounts for 20% of all airline volumes), has gradually recovered from the Chikungunya effect that heavily impacted the 2006 results. The restructuring programme, announced in December 2006 by TUI AG, is progressing in line with expectations. Rationalisation of the product offering and improvements in yield management and pricing policies have supported improved gross margin versus the prior year. Capacity has been reduced with the phasing out of one B , thereby reducing fleet capacity by 11% and reducing the cost base of the airline. Despite this lower seat capacity, through a more efficient flying programme, the business has kept volumes in line with As the benefits from the restructuring programme and the La Reunion recovery will be realised in October to December 2007, the 2006/07 result is broadly in line with the previous year leading to a 26.6m underlying operating loss (2006: 26.7m loss). In addition, 4.8m of one-off costs (2006: nil) relating to the settlement of a social security tax audit has been included within the 26.6m operating loss. Within the tour operator, growth in controlled distribution and differentiated content has also benefited margins. Online sales have grown significantly to 14% in 2006/07 (up from 9% in 2005/06), and the Paladien resort product has proved very popular. Two additional Paladien resorts were opened in 2007 and, these products now account for 46% of all tour operator content in Nouvelles Frontieres. As such, it is expected that the restructuring programme, coupled with the growth in controlled distribution and differentiated content, will continue to drive earnings improvement and accordingly we expect the business to break-even in the 2007/08 financial year. Netherlands Underlying operating profit was significantly higher at 4.8m (2006: 2.8m loss), on revenue growth of 1% to 588m (2006: 581m). Margins have benefited from the growth in controlled distribution and the growth in the long haul programme. Total volume growth of 5% was boosted by the expansion of the long haul programme with the business increasing its market share of this segment to 25% (2006: 21%). Web bookings rose in Summer 2007 to 9% (Summer 2006: 2%), while total controlled distribution rose to 49% for the year (2006: 45%). 13

14 Belgium Belgium has also benefited from the continued drive to increase share of controlled distribution and by remixing capacity from short haul to medium and long haul destinations. As a consequence, the business delivered underlying operating profit of 22.4m, up 85% from the previous year, on 17% revenue growth to 632m (2006: 541m). With two additional aircraft utilised in Summer 2007 (total fleet up to 12 aircraft), capacity was increased by 13%. This increase in capacity, which benefited margins, sought to expand the medium haul programme as a result of consumer demand for destinations such as Egypt and Turkey. Controlled distribution now stands at 43% (2006: 38%), with web sales now accounting for 22% of all holiday sales. The resulting savings in third party commissions and marketing costs have also driven higher margins. Specialist Holidays Sector The Specialist Holidays Sector operates a business model characterised by destination and lifestyle specialism, flexible accommodation and flying arrangements, and niche brands in each source market. The sector consists of three key segments: The Destination segment comprises a number of specialist brands across 11 source markets that have become market leaders to certain destinations out of the source markets in which they operate. This has been achieved by focusing on a relatively small number of destinations whilst establishing a breadth of product that is often exclusive and provides the customer with a range of experiences in the particular destination. Brands within this segment include Marmara, Turchese and Signature Vacations. The Premium segment consists of a portfolio of five brands, including Hayes & Jarvis, Sovereign, Citalia and Meon, and these specialise in premium leisure travel experiences, across a range of destinations in Europe, Asia and the Caribbean. The Lifestages segment consists of a portfolio of businesses, which focus on a particular customer demographic, such as the student travel and grey market, segments of the leisure travel market. Specialist Holidays 2006/ /06 Change % Passengers ( 000) Destination 1,785 1,697 +5% Premium = Lifestages % Total 2,073 1,991 +4% y-o-y variation % Revenue per passenger Total Destination -5% Premium -8% Lifestages +30% Total -3% Revenue growth Total Destination = Premium -8% Lifestages +26% Total +1% 14

15 Specialist Holidays 2006/ /06 Change % Underlying operating profit () Destination % Premium % Lifestages % Total % Underlying operating margin % Total 4.5% 3.5% +100bps The Sector delivered 31.8% growth in underlying operating profit to 47.2m (2006: 35.8m), with operating margin up 100 basis points to 4.5%. This was primarily driven by a strong performance in a number of key brands within the Destination segment, primarily Marmara, Turchese and Nazar (within the Nordic region) as the businesses continued to benefit from strong consumer demand for the portfolio of differentiated and destination-led travel experiences. Demand for eastern Mediterranean and North Africa destinations continued to grow with Marmara and Turchese particularly benefiting from differentiated content within these destinations. In addition, the segment benefited from the closure of Marmara Belgium and Marmara Portugal, following poor performance in previous years, which contributed 1.2m benefit to the operating result. We have undertaken a strategic review of the position of the Nazar Switzerland business and as a result, from April 2008, Nazar will no longer operate in Switzerland and the specialist Pegasos product will from Summer 2008 be available through our leading TUI Switzerland brand. Canada, also operating within this segment, performed strongly across all the regions of the country despite a very competitive environment. This performance was achieved as, we were able to successfully to manage capacity despite weakened demand during the early part of the season with minimal impact upon profitability. The Premium segment, primarily operating in the UK source market, delivered a good performance despite tough trading conditions, primarily within the premium short-haul segment. Direct distribution now stands at 47% (up eight percentage points) as the group evolves into a direct sell model, while retaining the support of in-house retail agents. Lifestages, consisting of North American student travel and our Independent Vacations business (Your Man Tours and Europe Express) has performed well. Results have been driven by strong organic growth in the educational travel segment and the annualisation of a number of acquisitions within the student travel segment. Activity Holidays Sector This Sector operates in three market segments, Marine, Adventure and Experiential. The Marine division includes First Choice Marine, which operates the market leading yacht-chartering brands of Sunsail and The Moorings, in addition to Sunsail Clubs and Inland Waterways (Crown Blue Line and Connoisseur). The Adventure division consists of a portfolio of 17 adventure travel businesses, including Quark Expedition Cruising, Exodus, and Peregrine. The Experiential segment consists of six brands, including Travcoa and TCS, that operate specialist escorted tours offering cultural and luxury escorted travel experiences for the US source market. 15

16 Activity Holidays 2006/ /06 Change % y-o-y variation Total revenue growth Total Marine +20% Adventure +23% Experiential = Total +18% Underlying operating profit () Marine % Adventure % Experiential (1.5) (0.1) n/a Total % Underlying operating margin % Total 7.7% 6.3% +140bps The Sector delivered 44.2% growth in underlying operating profit to 32.3m (2006: 22.4m), with operating margin up 140 basis points to 7.7%. The sector benefited from a combination of strong organic and acquisition-led growth within the portfolio. Within the Marine division, the integration of The Moorings and Sunsail Yachts delivered a 5m synergy benefit in line with expectations. Sunsail Clubs performed satisfactorily in a challenging trading environment. Le Boat (previously reported as Inland Waterways) delivered a strong performance, boosted by growth in occupancy levels to 61% (2006: 56%) and controlled distribution, to 48% (2006: 44%). The Adventure division performed well with profits up 21% to 16.6m (2006: 13.7m). This results from a combination of strong organic and acquisition led growth, with operating margins at 8%. Consumer demand remains high within this segment, with many of our businesses very much focused on driving improved trip fill to drive incremental margin. In North America, our Experiential businesses have performed satisfactorily. The 2006/07 result is impacted by the annualisation of a number of acquisitions made in Winter 2005, and the subsequent inclusion of losses within the 2007 result. Online Destination Services The Online Destination Services Sector consists of market-leading incoming agencies that provide services such as guest assistance, transfers, excursions and roundtrips to the group and third party tour operators and their clients. This Sector also sells accommodation online to both consumers and businesses through a number of B2C and B2B brands (e.g. Hotelbeds, Bedsonline, Hotelopia, LateRooms.com) and provides specialised services to cruise lines and the management of meetings and incentives activities for corporate clients. Online Destination Services 2006/ /06 Change % Bednights ( 000) Hotelbeds 9,212 7, % Bedsonline 5,654 4, % Hotelopia 2,318 2, % LateRooms 1,445 - n/a Total 18,629 13, % 16

17 Online Destination Services 2006/ /06 Change % y-o-y variation TTV per bednight Total Hotelbeds +11% Bedsonline +3% Hotelopia +3% LateRooms - Total +6% Underlying operating profit () Total % Underlying operating margin % Total 10.8% 10.2% +60bps The Sector delivered underlying operating profit growth of 35% to 49.1m (2006: 36.3m). The online businesses delivered strong organic growth with recent acquisitions in the online segment contributing 5.9m earnings growth. Operating margins for the sector now stand at 10.8%, up 60 basis points. This has been achieved as the online business is now starting to leverage its fixed cost and infrastructure base to drive incremental margin. We have continued to experience significant growth in all our online routes to market with total online transaction value growing to 405.5m, up 36% on the prior year. Hotelbeds, the brand that provides accommodation content online to independent tour operators, achieved growth of 42.2% in total transaction value ( TTV ) and has benefited from the successful integration of the Pacific World group of companies (acquired in August 2006). This business, based in the Asia Pacific, has a significant bed bank throughout China and South East Asia. Bedsonline, which services independent travel agents, delivered total transaction value of 149.1m (2006: 107.4m). It also benefited from strong demand from travel agents for content primarily within short-haul destinations. Our B2C routes to market performed well with Hotelopia growing total transaction value by 13% to 62.6m. It has continued to benefit from strategic alliances with a number of companies, such as easyjet, Spanair and BBVA. For example, in summer 2007, Hotelopia launched a dynamic packaging offering with easyjet through their portal. We have been delighted with the performance of LateRooms.com since we acquired the business in December LateRooms.com is a leading online price comparator and seller of late availability hotel rooms (with particular focus on less than 24 hours), which sold 1.4 million room nights on total transaction value of 106.4m in Operating within a niche, specialist segment of the online market (i.e. late availability), it primarily provides independent hotels the opportunity to distribute late availability hotel stock. Based on a low overhead business model with no inventory risk, it has the ability to create high margins, strong growth and cash generation. It primarily operates in the UK but is expanding into Europe and North America with the planned launch of laterooms.es and laterooms.ca. Acquisitions In line with its acquisition strategy, TUI Travel PLC has made a number of acquisitions in the year ended 30 September 2007 within high growth niche segments of the leisure travel market. For the year ended 30 September 2007, the group acquired seventeen businesses for a maximum total consideration of 226.8m. By way of comparison, in the year ended 30 September 2006, we made sixteen acquisitions with a maximum aggregate consideration of 160m of which 137m was paid in

18 We have acquired businesses within the online, activity, premium escorted tours and student travel segments of the market: Within Online Destination Services, we have strengthened our position further in the B2C route to market with the acquisition of two leading branded accommodation retailers. In December 2006, we acquired LateRooms.com, a leading online price comparator and seller of late availability hotel rooms (with particular focus on less than 24 hours) operating primarily in the UK market, but seeking organic expansion into new European and North American markets. In September 2007, we acquired asiarooms.com, a leading online B2C provider of Asian hotel accommodation. Asiarooms.com has established itself as a significant online retailer of accommodation by applying leading edge technology and web capabilities in one of the fastest growing travel markets. These acquisitions add to our growing position in the Asia Pacific region and online accommodation market and build upon the group s bedbank distribution capability where we continue to see excellent growth and margin opportunities for the Group going forward. In the Activity Holidays Sector, we have acquired eight companies. Within the premium North American escorted tours segment, we acquired Starquest, an operator of themed luxury travel adventures by private jet, and we are now the clear market leader within this high-growth segment of the US travel market. Within adventure travel, we acquired seven other companies operating within niche segments, particularly expedition polar cruising and soft adventure travel, all of which operate at double-digit margins within a fast growing area of the marketplace. Going forward, we are looking to further develop our participation within these segments. Within North American Student Travel, we made four acquisitions in the educational travel segment. These acquisitions will maintain our position at the forefront of the fragmented and high growth group performance segment of the student travel marketplace in the US. Within the Mainstream Sector, we acquired an online car broker and an online independent package holiday review site. These businesses will further enable us to meet the needs of the travel consumer for flexibility and choice in their holiday decisionmaking. The acquisition pipeline remains strong as we continue to target travel companies, notably within the Asia Pacific region, online, activity and North American student travel segments that exhibit excellent growth characteristics and the ability to generate premium margins, high earnings growth and strong cash flow. Company Description Date Country Maximum Cash paid consideration Mainstream Holidays Sector Holidays Uncovered Package holiday review September 2007 UK 2.5m 2.5m website MicronNexus Online car broker September 2007 Germany 0.7m 0.7m Specialist Holidays Sector Young Explorers Educational tours January 2007 Canada 0.8m 0.8m KSA Events Splashline New Horizons Tour & Travel World Class Vacations operator High school group sports tours Leisure holidays to Austrian student market Student travel in Group performance market Student travel in Group performance market April 2007 USA 3.0m 1.7m May 2007 Austria 2.6m - September 2007 USA 2.5m 1.5m September 2007 USA 4.5m 3.0m 18

19 Company Description Date Country Maximum consideration Activity Holidays Sector Western Xposure i-to-i iexplore Quark Expeditions Hannibal Marco Polo Australian Sports Tours Adventure travel operator Provider of meaningful travel experiences Premium adventure travel internet portal Expedition cruising specialist Danish adventure business Group sports tours for the Australian market Cash paid February 2007 Australia 2.4m 0.9m February 2007 UK 20.6m 3.0m February 2007 USA 4.6m 2.0m April 2007 USA 9.8m 7.6m May 2007 Denmark 10.0m 10.0m July 2007 Australia 10.5m 3.3m Ski Alpine Schools skiing business August 2007 UK 1.3m 1.0m Starquest Expeditions Online Destination Services LateRooms.com Asiarooms.com Round the world experiential business Seller of late availability hotel accommodation Online retailer of accommodation September 2007 USA 24.5m 16.9m December 2006 UK 103.2m 83.7m September 2007 Singapore 23.3m 12.3m TOTAL 226.8m 150.9m Acquisitions in the year are shown in the table above. Of the maximum consideration, 150.9m was paid during the year. A further 75.9m will be paid as deferred and contingent consideration. In addition, 2.5m of acquisition expenses was incurred bringing the total expected consideration to 229.3m. The cash flow effect of these acquisitions includes the cash consideration paid in the year of 150.9m, deferred and contingent consideration of 10.1m relating to prior year acquisitions that was paid in the year, acquisition expenses of 2.5m and the cash acquired of 25.8m, net of proceeds of 2.5m from the disposal of the Group s interest in Hays Travel, resulting in a total net cash outflow for the year of 135.2m (2006: 115.8m). The net assets of all the subsidiaries acquired during the year have been consolidated in the Group s balance sheet at 30 September Max Paid Max Paid Acquisitions in the year Amounts paid in the year Deferred & contingent consideration arising Acquisition expenses paid in the year Total consideration Cash acquired with acquisitions (25.8) (40.0) Cash paid relating to prior year acquisitions Proceeds from disposal of Hays Travel Net cash outflow in the year relating to acquisitions Since the start of the new year we have acquired two further businesses. In the Activity Sector we have acquired CHS Tour Services GMbH. Based in Austria and operating principally as HTS Total Ski (formerly Hourmont Total Ski) it is the leading operator of UK school ski holidays to Austria. In the year ended 31 October 2006 CHS had gross assets of 4.1m. In our Online Destination Services Sector we have acquired Cruiselink II Ltd a shore side cruise handling business based on the East coast of the USA which handles services for a number of the large cruise companies in the ports of Manhattan, Brooklyn and Bayonne. In the year ended 31 December 2006 Cruiselink had gross assets of $1.1m. 19

20 Taxation The Group profit before tax is 18.4m (2006: 268.6m loss). The Group tax charge on this profit was 11.5m (2006: 112.2m), representing an effective tax rate of 62.5% (2006: -41.8%). The effective tax rates in 2007 and 2006 are high as tax relief is not available on goodwill impairment and certain separately disclosed items. The Group underlying effective tax rate, being tax on underlying profit before tax, is 28.3%. Based on the current structure of the business following merger completion, existing local taxation rates and legislation (and known future changes), it is expected that the underlying effective tax rate on ongoing activities (before intangible amortisation) will be approximately 28% going forward. Earnings per share Underlying basic earnings per ordinary share was 16.0p (2006: 15.7p using underlying effective tax rate of 28.3%), an improvement of 2%. This was primarily due to the higher level of tax paid in Dividends The Board recommends an interim dividend per ordinary share of 5.9p. The Group will look to maintain underlying dividend cover at just over two times. The Company intends to continue to operate a dividend re-investment plan as an alternative to the full cash dividend. Cash and liquidity The net debt position (cash and cash equivalents less loans, overdrafts and finance leases) at the year-end was 532.3m (2006: 629.4m). This consisted of 1,958.7m of cash and 2,260.0 of current interest-bearing loans and liabilities and on non-current interestbearing loans and liabilities. The pensions liability at the year-end was 313.7m (2006: 534.9m). The Board is fully satisfied that the Group has access to sufficient facilities to fund both the working capital and the investment requirements (maintenance, development and acquisition) of the Group going forward. 20

21 Pro Forma Group income statement (unaudited) for the years ended 30 September Revenue 2 12, ,180.3 Cost of sales (11,800.4) (11,142.9) Gross profit 1, ,037.4 Note Administrative expenses (993.9) (1,289.7) Share of profits of joint ventures and associates Operating profit/(loss) (242.8) Analysed as: Underlying operating profit Separately disclosed items 4 (173.8) (33.7) Impairment and amortisation of goodwill and business combination intangible assets (54.8) (480.1) Taxation on profits of joint venture and associate (2.3) (3.2) 56.1 (242.8) Financial income Financial expenses (185.1) (145.9) Net financing expenses (37.7) (25.8) Profit/(loss) before tax 18.4 (268.6) Taxation (11.5) (112.2) Profit/(loss) for the year (380.8) Attributable to: Ordinary shareholders 6.6 (383.5) Minority interests Profit/(loss) for the year 6.9 (380.8) Non GAAP measures Reconciliation of underlying operating profit to underlying earnings Underlying operating profit Net financing expenses (37.7) (25.8) Underlying profit before tax

22 Pro Forma Group balance sheet (unaudited) at 30 September Non-current assets Note Intangible assets 7 2, ,463.4 Property, plant and equipment 8 1, ,522.7 Investments in joint venture and associate Other investments available for sale Trade and other receivables Derivative financial instruments 4.4 Deferred tax assets , ,720.9 Current assets Inventories Other investments available for sale Trade and other receivables 10 2, ,084.1 Derivative financial instruments Cash and cash equivalents 12 1, ,160.0 Assets classified as held for sale , ,327.9 Total assets 9, ,048.8 Current liabilities Interest-bearing loans and borrowings 12 (2,260.0) (1,218.5) Employee benefits 15 (2.9) (3.6) Derivative financial instruments (142.7) (62.5) Trade and other payables 13 (3,753.6) (3,246.0) Provisions (138.6) (109.7) Income tax payable (38.1) (73.0) Liabilities classified as held for sale (18.8) (25.9) (6,354.7) (4,739.2) Non-current liabilities Interest-bearing loans and borrowings 12 (231.0) (570.9) Employee benefits 15 (310.8) (531.3) Trade and other payables 14 (110.3) (90.2) Derivative financial instruments (19.9) Provisions (136.4) (154.7) Deferred tax liabilities (120.7) (141.8) (929.1) (1,488.9) Total liabilities (7,283.8) (6,228.1) Net assets 1, ,820.7 Total equity 1, ,