TUI Travel PLC Merger of First Choice Holidays PLC & TUI Travel Analyst Presentation 19 March 2007 Disclaimer
This presentation has been prepared solely for use at the presentation to analysts to be made on 19 March 2007. By attending the meeting where this presentation is made, or by reading the presentation slides, you agree to be bound by the following limitations. THIS PRESENTATION IS BEING SUPPLIED TO YOU SOLELY FOR YOUR INFORMATION AND FOR USE AT THE ANALYST PRESENTATION TO BE HELD IN CONNECTION WITH THE PROPOSED MERGER OF FIRST CHOICE HOLIDAYS AND TUI TRAVEL TO CREATE TUI TRAVEL PLC (the MERGER). THIS PRESENTATION AND ITS CONTENTS ARE CONFIDENTIAL AND MAY NOT BE FURTHER DISTRIBUTED OR PASSED ON TO ANY OTHER PERSON OR PUBLISHED OR REPRODUCED, IN WHOLE OR IN PART, BY ANY MEDIUM OR IN ANY FORM FOR ANY PURPOSE. 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This presentation is only directed at relevant persons and any investment or investment activity to which this presentation relates is only available to relevant persons or will be engaged in only with relevant persons. Other persons should not rely on or act upon this presentation or any of its contents. The information set out herein may be subject to updating, completion, revision and amendment and such information may change materially. No representation or warranty, express or implied, is or will be made by TUI Travel PLC, First Choice Holidays or TUI, their advisers or any other person as to the accuracy, completeness or fairness of the information or opinions contained in this presentation and any reliance you place on them will be at your sole risk. Without prejudice to the foregoing, none of TUI Travel PLC, First Choice Holidays, TUI, their associates, their advisers nor their representatives accept any liability whatsoever for any loss howsoever arising, directly or indirectly, from use of this presentation or its contents or otherwise arising in connection therewith. This presentation does not constitute or form part of, and should not be construed as, any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities or the solicitation of any vote or approval in any jurisdiction in connection with the Merger or otherwise, nor should it or any part of it form the basis of or be relied on in connection with, any contract or commitment whatsoever. This document is an advertisement and not a prospectus and no part of this communication should form the basis of, or be relied on, in connection with any contract or commitment or investment decision whatsoever. Certain statements in this presentation, particularly those regarding the expected timetable of the Merger, opportunities, synergies, performance, optimisation, costs and growth, constitute "forward-looking statements". These statements, which contain the words "anticipate", "believe", "intend", "estimate", "expect" and words of similar meaning, reflect the Directors' beliefs and expectations and are subject to risks and uncertainties that may cause actual results to differ materially. These risks and uncertainties include, among other factors, securing necessary governmental and other approvals, the satisfaction of the conditions of the Merger, changing business or other market conditions and prospects for growth. These and other factors could adversely affect the outcome and financial effects of the plans and events described herein. Forward looking statements are not guarantees of future performance. They have not been reviewed by the auditors of First Choice Holidays, TUI or TUI Travel. These forward looking statements are based on numerous assumptions regarding the present and future business strategies of such persons and the environment in which each will operate in the future. Investors are cautioned not to place undue reliance on the forward looking statements. All subsequent oral or written forward looking statements attributable to First Choice Holidays, TUI or TUI Travel or any of their respective members, directors, officers or employees or any persons acting on their behalf are expressly qualified in their entirety by the cautionary statement above. As a result, you are cautioned not to place undue reliance on such forward-looking statements. The Directors disclaim any obligation to update their view of such risks and uncertainties or to publicly announce the result of any revision to the forward-looking statements made herein, except where it would be required to do so under applicable law. Lazard & Co., Limited ("Lazard"), which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting exclusively for First Choice Holidays PLC in connection with the Merger and no-one else and will not be responsible to anyone other than First Choice Holidays PLC for providing the protections afforded to clients of Lazard or for providing advice in relation to the Merger, the content of this communication or any matter referred to herein. Deutsche Bank AG is authorised under German Banking Law (competent authority: BaFin - Federal Financial Supervising Authority) and with respect to UK commodity derivatives business by the Financial Services Authority; and is regulated by the Financial Services Authority for the conduct of UK business. Deutsche Bank AG is acting exclusively as financial adviser and broker to First Choice Holidays PLC and no one else in connection with the Merger and will not be responsible to anyone other than First Choice Holidays PLC for providing the protections afforded to clients of Deutsche Bank AG nor for providing advice in relation to the Merger, the content of this communication or any matter referred to herein. Morgan Stanley Bank AG is acting for TUI in connection with the Merger and no one else and will not be responsible to anyone other than TUI for providing the protections afforded to clients of Morgan Stanley Bank AG or for providing advice in relation to the Merger or any other matters referred to in this presentation.
1 Agenda
Transaction Overview Michael Frenzel, CEO TUI AG Chairman Designate TUI Travel PLC
Deal Rationale & Strategy Peter Long, CE First Choice Holidays PLC CEO Designate TUI Travel PLC
Financials & Synergies Paul Bowtell, Group FD First Choice Holidays PLC CFO Designate TUI Travel PLC
Current Trading & Conclusion Peter Long Q&A
2 Michael Frenzel, CEO TUI AG Chairman Designate of TUI Travel PLC
3 TUI Travel – Set for Growth and Profitability
A leading worldwide travel group operating in 20 source markets serving approximately 27 million customers per year in over 200 destinations Creating a position of Platform to leverage significant synergies strength enabling us to and economies of scale to deliver cost actively shape the future advantage in a competitive market place of the sector Participate in many growth segments of the leisure travel space
4 Overview of Transaction
Merger between TUI Travel and First Choice Holidays PLC to create TUI Travel PLC First Choice Holidays PLC shareholders will own 49% of TUI Travel PLC and TUI AG will own 51% Pro forma revenues of £12.1bn (€17.6bn), EBITDA of £569m (€831m) and EBITA of £340m (€497m) before central costs of c.£15m for First Choice Holidays PLC TUI AG will transfer €875m (approximately £600m) of net debt (including pension liabilities) to TUI Travel PLC Application for TUI Travel PLC’s shares to be listed on the Official List and traded on the London Stock Exchange. TUI Travel PLC to be headquartered in the UK Merger subject to competition clearance and First Choice Holidays PLC shareholder approval All of First Choice Holidays PLC and TUI’s tourism division, excluding certain hotel assets, is within the transaction scope Participation in component and specialist segments of the travel marketplace to offer sustainable growth c.£100m (c.€146m) of expected pre-tax synergies per annum to be realised within three years of completion
5 Balanced Management Structure – Experienced Team
TUI Travel PLC Chairman and Deputy-Chairman – Michael Frenzel, Chairman (Chief Executive of TUI AG) Non – Sir Mike Hodgkinson, Deputy-Chairman (Chairman, First Executive Choice Holidays PLC)
Executive Directors from both businesses – Peter Long – Chief Executive Officer First Choice Holidays – Peter Rothwell – Deputy CEO TUI – Paul Bowtell – Chief Financial Officer First Choice Holidays – Will Waggott – Group Commercial Director TUI – Christoph Mueller – Aviation Director TUI – Volker Böttcher – Managing Director, Central Europe TUI
Board will also consist of: – Eight other independent non-Executive Directors – One non-Executive Director from TUI AG (who is not considered independent)
6 Clear Signal to TUI Shareholders – Two-Pillar Strategy Confirmed
First Choice TUI Holidays Shareholders Shareholders TUI AG
Tourism Shipping
49% 51%
TUI Travel Hotels PLC
7 TUI Travel – Enhancing Shareholder Value
Clear and progressive strategy
Transparency and independent valuation of tourism activities through separate stock listing
Market leading management team for tourism business
Sustainable cost-cutting through synergies and efficient management structure
Platform for future growth: best structure to capture growth opportunities
8 Outstanding Opportunity in Global Travel & Leisure
Bringing together market leading brands
Exceptional combination of content and distribution capability
Ability to provide a full range of leisure travel needs
Cost advantage through synergies and economies of scale
Excellent management track record
Combination of sustainable growth opportunities and considerable synergies
9 Peter Long, CE First Choice Holidays PLC Chief Executive Officer Designate of TUI Travel PLC
10 Deal rationale
The leisure travel environment is changing rapidly
The combined business of First Choice Holidays and TUI Travel has a strong strategic fit
The TUI Travel business model can satisfy a full range of leisure travel needs
The deal provides the opportunity for – one of the world’s leading travel groups – sustainable growth in revenue and margins – delivery of synergies
A significant value creation opportunity
11 Deal rationale – the travel environment
How has the market Customer Trends The opportunities changed?
Flexibility and choice •fewer 7 / 14 night packages •differentiate and specialise •growth in independent travel •scale up to drive economies •growth in low cost carriers •large airline content
Life experiences not just •change in demographics •build a specialist portfolio of materialism •demand for different travel activity and experiential holidays experiences •invest in long haul proposition •focus on health, environment, culture and learning •growth in long haul
24 / 7 access to content and •high web penetration •multi-channel strategy increasing web awareness •price transparency •build brands that can compete •self selection / DIY online •increase component offering
12 Deal rationale – strategic fit
First Choice TUI Competitive Key Strengths TUI Travel Holidays Travel PLC Positioning
156 aircraft, 8 source markets – Flight Only Competing effectively with LCCs 9 Pan European airline
Access to a bedbank of +25,000 Competing effectively with online Bed Bank hotels across +900 leisure 9 9 intermediaries
ent destinations t Access to 6 Holiday Villages, 23
Con Exclusive / Differentiated 9 9 B787 order book and 21 Driving earlier bookings and higher margins Robinson hotels
96 specialist brands across 7 Satisfying changing customer demands Specialist & Niche 9 segments through higher margin products
Dynamic packaging, controlled Providing flexibility and choice to consumer Web Led Distribution 9 9 distribution at lower cost l e Over 200 brands, strong Optimising tour operating and specialist Brands 9 9 customer awareness brands online to drive loyalty and margins
Flexible aircraft & retail leasing, Leveraging economies of scale and synergies
siness Mod Flexible Business Model 9 low operational gearing to derive cost advantage Distribution & Bu £700m spend over past 10 years, Building leadership positions in fragmented Acquisitions 9 value creation niche markets
13 Deal Rationale – TUI Travel Business Model
Choice of Product Flexibility for the Customer
C Self Selection o Flights Individual Components m Online p Bed-bank o Self Selection n C C Dynamic Packaging e Car hire, transfers, U O n excursions S N t T T Traditional Packages Retail O E S Differentiated p M N e Exclusive c E T Exclusive / Differentiated Holidays i R a Added Value l i Expertise Call Centre s Tailor Made Holidays t Scarce Assets
Providing choice and flexibility for the customer
14 Deal Rationale – Delivering Growth
Objective Value Driver
- increase aircraft utilisation Enhanced margin opportunity - optimise yield - flight only and packages with combined management Content - operate flexible fleet profile expertise - leverage market for leisure hotels 1% = c.£100m EBITA - optimise specialist brand margins
- optimise specialist brand margins - increase controlled distribution Specialist products distributed Distribution - maximise web sales & content in new source markets - build strong brand awareness & loyalty - reduce cost of acquisition
Cost - deliver synergies c.£100m synergies Competitiveness - increase procurement capability c.1% margin
- consolidate fragmented markets - build leadership positions in niche segments at higher Acquisitions Acquisition-led value creation margins - deliver First Choice Holidays track record
15 Paul Bowtell, Group FD of First Choice Holidays PLC Chief Financial Officer Designate of TUI Travel PLC
16 Financial Highlights
Pro forma revenues of £12.1bn (€17.6bn), EBITDA of £569m (€831m) and EBITA of £340m (€497m) before central costs of c.£15m for First Choice Holidays PLC
TUI AG will transfer €875m (approximately £600m) of net debt (including pension liabilities) to TUI Travel PLC
Operating assets transferred include: – TUI Travel airline fleet and First Choice Holidays airline fleet – retail estate of both parties – yachts and boats of First Choice Holidays’ marine business – TUI Travel UK cruising ships – First Choice Holidays expedition cruising ships
Significant margin opportunity
Cost base benefits through synergies and economies of scale
17 Key Financials
First TUI First TUI Travel Based on FY06 Choice TUI Travel Travel Choice TUI Travel PLC Holidays PLC Holidays
£m £m £m €m €m €m
Revenue 2,715 9,368 12,083 3,964 13,678 17,642
EBITDA 194 375 569 283 548 831
EBITA 150 190 340 219 278 497
Operating margin (%) 5.5% 2.0% 2.8% 5.5% 2.0% 2.8%
Customers (m pa) 4.9 21.9 26.8
No of Retail Outlets 409 1,650 2,059
No of Aircraft 34 122(1) 156
Employees 15,318 32,811 48,129
Controlled Dist - UK 70% 85% n / a
Note: First Choice Financial Year End 31 October 2006; First Choice EBITDA and EBITA figures before central costs of c.£15m; TUI Travel Financial Year End 31 December 2006
(1) As at year end 2006, includes 2 aircrafts leased to third parties 18 Synergy Benefits
Cost advantage arising from significant synergy benefits
Anticipated cost synergies of c.£100m (c.€146m) per annum – 29% of 2006 proforma EBITA (before central costs for First Choice Holidays) and 0.8% of 2006 proforma revenues (unaudited) – annual run rate to be achieved within three years of completion
Cost synergies to arise from – economies of scale of combined operations – consolidation of operations
Synergies mainly in the UK but benefits available across Europe
Potential revenue synergies offer further upside
c.£100m excludes existing TUI restructuring programme and its associated benefits 19 Key Areas for Synergies
Airline flight planning and operating costs
Streamlined distribution (front office IT, development costs, retail shops)
Consolidation of retail, call centre and administrative facilities
Reduced marketing and commercial costs
Destination cost efficiencies
Higher internet traffic and lower acquisition costs
Yield improvement (Mainstream and airline)
20 Expected Timetable to Completion
19 March 2007 Transaction announcement Conditional on anti-trust approval
Posting of circular to First Choice Holidays shareholders Expected June and TUI Travel PLC prospectus
Formal filing shortly EU competition Earliest possible clearance - May approval Strong argument for clearance in Phase I
Scheme of arrangement (acquisition of First Choice Holidays by TUI Court meeting Travel PLC) and EGM Expected July
Completion Completion expected August / September
21 Peter Long, CE First Choice Holidays PLC Chief Executive Officer Designate of TUI Travel PLC
22 Current Trading
First Choice Holidays
AGM statement – 7 March 2007
– mainstream rate of sale improving but the UK remains a challenging market
– specialist businesses enjoying an excellent start to the Summer 2007 season
TUI Travel
Annual results – 19 March 2007
– excellent start to summer season 2007 with revenue increase of +4.7% and customer numbers +7.2%
– Germany and Nordic countries showing strong growth with UK and Ireland slower
23 Conclusion Brand Leadership 9 Management Track Record 9
Brand Leadership + Management Leadership
= MARGIN LEADERSHIP
A Long Term Growth Story
24 Questions & Answers
25