IMPORTANT NOTICE
This offering is only available to investors who are (1) qualified investors (within the meaning of Directive 2003/71/EC of the European Parliament and of the Council) and (2) Non-U.S. Persons (within the meaning of Regulation S under the Securities Act) or addressees outside the U.S.
IMPORTANT: You must read the following before continuing. The following applies to the
prospectus following this page (the ‘‘Prospectus’’), and you are therefore advised to read this carefully before reading, accessing or making any other use of the Prospectus. In accessing, reading or making use of the Prospectus, you agree to be bound by the following terms and conditions, including any modifications to them any time you receive any information from us as a result of such access.
THIS NOTICE AND THE PROSPECTUS IS NOT AN OFFER TO SELL SECURITIES AND NOT SOLICITING AN OFFER TO BUY THESE BONDS IN ANY JURSIDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED OR TO ANY PERSON OR ENTITY TO WHOM IT IS UNLAWFUL TO MAKE A SALE. IN PARTICULAR, THESE BONDS MAY NOT BE OFFERED TO THE PUBLIC IN A MEMBER STATE OF THE EUROPEAN ECONOMIC AREA PRIOR TO THE APPROVAL AND PUBLICATION OF THE FINAL PROSPECTUS BY A COMPETENT AUTHORITY OF A MEMBER STATE OF THE EUROPEAN ECONOMIC AREA AND, WHERE APPROPRIATE, NOTIFICATION PURSUANT TO ARTICLE 18 OF THE DIRECTIVE 2003/71/EC OF THE EUROPEAN PARLIAMENT AND THE COUNCIL (THE ‘‘DIRECTIVE’’) OR ANY RELEVANT IMPLEMENTING MEASURE, EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE PROSPECTUS REQUIREMEMTS OF THE DIRECTIVE OR/AND ANY RELEVANT IMPLEMENTING MEASURES, IN PARTICULAR TO QUALIFIED INVESTORS WITHIN THE MEANING OF THE DIRECTIVE. THIS PROSPECTUS IS INTENDED FOR THE RECIPIENT ONLY AND MUST NOT BE PASSED ON TO ANY THIRD PARTY.
NOTHING IN THIS NOTICE AND PROSPECTUS CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN THE UNITED STATES OR ANY OTHER JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE BONDS HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933 (THE ‘‘SECURITIES ACT’’), OR THE SECURITIES LAWS OF ANY STATE OF THE U.S. OR OTHER JURISDICTION AND THE BONDS MAY NOT BE OFFERED OR SOLD WITHIN THE U.S. OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT), EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIRE-MENTS OF THE SECURITIES ACT AND APPLICABLE STATE OR LOCAL SECURITIES LAWS.
THE FOLLOWING PROSPECTUS MAY NOT BE FORWARDED, PASSED ON, OR DISTRIBUTED TO ANY OTHER PERSON AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER, AND IN PARTICULAR, MAY NOT BE FORWARDED, PASSED ON OR DISTRIBUTED TO ANY U.S. PERSON OR TO ANY U.S. ADDRESS. ANY FORWARDING, PASSING ON, DISTRIBUTION OR REPRODUCTION OF THIS DOCUMENT IN WHOLE OR IN PART IS UNAUTHORIZED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIES ACT OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS.
CONFIRMATION OF YOUR REPRESENTATION: In order to be eligible to view this Prospectus or make an investment decision with respect to the Bonds, investors must be both (1) qualified investors (within the meaning of the Directive) and (2) a Non-U.S. Person (within the meaning of Regulation S under the Securities Act). The Prospectus has either been delivered to you physically at your request or has been sent to you electronically at your request and by receiving the Prospectus or accepting the electronic delivery and by accessing this Prospectus, you shall be deemed to have represented to us (1) that you and the customers that you represent are both (a) qualified investors (within the meaning of the Directive) and (b) a Non-U.S. Person (within the meaning of Regulation S under the Securities Act), and (2) if you have received this Prospectus by mail or electronic mail, the address or electronic mail address that you have given to us and to which this document has been delivered is not located in the U.S., its territories and possessions (including Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern
Mariana Islands), and (3) that you consent to delivery of such Prospectus by electronic transmission if you have received this document by e-mail.
You are reminded that this Prospectus has been delivered to you on the basis that you are a person into whose possession this Prospectus may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not, nor are you authorized to, deliver this Prospectus to any other person.
The materials relating to the offering do not constitute, and may not be used in connection with, an offer or solicitation in any place where offers or solicitations are not permitted by law. If a jurisdiction requires that the offering be made by a licensed broker or dealer in that jurisdiction, the offering shall be deemed to be made by the underwriters or such affiliate on behalf of the Issuer in such jurisdiction. Recipients of this Prospectus who intend to subscribe for or purchase the Bonds are reminded that any subscription or purchase may only be made on the basis of the information contained in the Prospectus. This Prospectus may only be communicated to persons in the United Kingdom in circumstances where Section 21(1) of the Financial Services and Markets Act 2000 does not apply to the Issuer.
By purchasing Bonds you will be deemed to have acknowledged that: ) You have reviewed this Prospectus;
) You have had an opportunity to request any additional information that you need from us; and ) The managers are not responsible for, and are not making any representation to you concerning, our
future performance or the accuracy or completeness of this Prospectus.
If this Prospectus has been sent to you in an electronic form, you are reminded that documents transmitted via this medium may be altered or changed during the process of electronic transmission and
consequently none of Citigroup Global Markets Limited, Deutsche Bank AG, London Branch, Bayerische Hypo- und Vereinsbank AG or The Royal Bank of Scotland plc, Commerzbank Aktiengesellschaft or WestLB AG, nor
any director, officer, employee or agent of Citigroup Global Markets Limited, Deutsche Bank AG, London Branch, Bayerische Hypo- und Vereinsbank AG or The Royal Bank of Scotland plc, nor any affiliate of any such
person accepts any liability or responsibility whatsoever in respect of any difference between the Preliminary Prospectus distributed to you in electronic format and the hard copy version available to you on request from Citigroup Global Markets Limited, Deutsche Bank AG, London Branch, Bayerische Hypo- und Vereinsbank AG or The Royal Bank of Scotland plc, Commerzbank Aktiengesellschaft or WestLB AG.
This notice and the Prospectus are for informational purposes only. They are not intended as an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any
transaction. All market prices, data and other information are not warranted as to completeness or accuracy and are subject to change without notice. Any comments or statements made herein do not necessarily reflect
those Citigroup Global Markets Limited, Deutsche Bank AG, London Branch, Bayerische Hypo- und Vereinsbank AG and The Royal Bank of Scotland plc, Commerzbank Aktiengesellschaft or WestLB AG, its subsidiaries and
PROSPECTUS NOT FOR DISTRIBUTION IN THE UNITED STATES
TUI AG
5300,000,000 Perpetual Subordinated Fixed to Floating Rate Bonds
TUI AG (the ‘‘Issuer’’) is offering 4300,000,000 aggregate principal amount of 8.625% perpetual subordinated fixed to floating rate bonds (the ‘‘Bonds’’).
The Bonds do not have a final maturity date. They are subject to redemption (in whole, but not in part) at their principal amount at the option of the Issuer (i) on January 30, 2013 or on any Floating Remuneration Payment Date (as defined in ‘‘Conditions of Issue — § 1 — Definitions and Interpretation’’) thereafter or (ii) at any time in case of a Change of Control (as defined in ‘‘Conditions of Issue — § 1 — Definitions and
Interpretation’’) or in case of a small outstanding principal amount. The Bonds are also subject to redemption (in whole, but not in part) at the option of the Issuer before January 30, 2013 (i) at their principal amount in case of a Gross-up Event (as defined in ‘‘Conditions of Issue — § 1 — Definitions and Interpretation’’) and (ii) at the greater of their principal amount and the Make-Whole Amount (as defined in ‘‘Conditions of Issue — § 5 — Redemption and Purchase’’) in case of a Tax Event (as defined in ‘‘Conditions of Issue — § 1 — Definitions and Interpretation’’) or in case of certain changes in the accounting treatment of the Bonds on the consolidated accounts of the Issuer (see ‘‘Conditions of Issue — § 5 — Redemption and Purchase’’).
The Bonds will bear remuneration (‘‘Remuneration’’) from December 9, 2005 at the rate of 8.625% per annum payable annually in arrears on January 30, of each year and for the first time on January 30, 2007 (the ‘‘Fixed Remuneration Payment Dates’’) up to the Fixed Remuneration Payment Date falling on January 30, 2013 and thereafter at the rate of 7.30% per annum over the European Interbank offered rate for three months deposits in Euro (‘‘EURIBOR’’) payable quarterly in arrears on January 30, April 30, July 30 and October 30 of each year (the ‘‘Floating Remuneration Payment Dates’’). The rate of Remuneration for any fixed or floating remuneration period will be increased by 5% per annum in the event of a Change of Control (as defined in ‘‘Conditions of Issue — § 1 — Definitions and Interpretation’’), unless the Bonds are redeemed. However, the Conditions of Issue provide that in certain circumstances accrued Remuneration will not be payable on the Fixed or Floating Remuneration Payment Date immediately following its accrual but will instead constitute Arrears of Remuneration (as defined in ‘‘Conditions of Issue — § 4 — Remuneration’’) that will not be payable until a later date unless the Issuer otherwise elects. Arrears of Remuneration will not themselves bear interest. Investors will always have a claim to receive a cash payment in respect of outstanding Arrears of Remuneration, however, the obligation of the Issuer to pay outstanding Arrears of Remuneration in certain circumstances is subject to the condition precedent that (i) the Issuer is using the cash proceeds from the issuance or sale of its shares (except for treasury shares which have been acquired against cash within a certain period of time) and/or the issuance of securities ranking junior or pari passu to the Bonds in an aggregate nominal amount of not more than 25% of the aggregate principal amount of the Bonds and (ii) that such raising of capital is possible for the Issuer according to German corporate law. The Bonds will be governed by the laws of the Federal Republic of Germany.
The obligations of the Issuer in respect of the Bonds are subordinated to the claims of all other creditors in insolvency, liquidation or similar proceedings and rank senior only to claims of the shareholders of the Issuer. However, in insolvency, liquidation or similar proceedings claims for payment of Arrears of Remuneration will rank pari passu with claims of the shareholders of the Issuer.
The Bonds have been rated B1 by Moody’s Investors Service Limited and B+ by Standard & Poors (the ‘‘Rating Agencies’’). A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning Rating Agency.
Application has been made to the Irish Financial Services Regulatory Authority (the ‘‘Regulatory Authority’’), as competent authority under Directive 2003/71/EC of the European Parliament and of the Council of November 4, 2003 (the ‘‘Prospectus Directive’’), for the Prospectus to be approved. Application has been made to the Irish Stock Exchange for the Bonds to be admitted to the Official List and trading on its regulated market.
Such approval relates only to the Bonds which are to be admitted to trading on the regulated market of Irish Stock Exchange or other regulated markets for the purposes of Directive 93/22/EEC or which are to be offered to the public in any Member State of the European Economic Area.
The Issuer will request the Regulatory Authority to provide the competent authorities in the Federal Republic of Germany, Austria, France, the United Kingdom of Great Britain and Northern Ireland and The Netherlands with a certificate of approval attesting that the Prospectus has been drawn up in accordance with Irish law which implements the Prospectus Directive into Irish law (‘‘Notification’’). The Issuer may request the Regulatory Authority to provide competent authorities in additional host Member States within the European Economic Area with a Notification.
Investing in the Bonds involves risks. See ‘‘Risk Factors’’ beginning on page 25.
The Bonds have not been, and will not be, registered under the United States Securities Act of 1933, as amended (the ‘‘Securities Act’’) and are subject to United States tax law requirements. The Bonds are being offered outside the United States by the Lead Managers (as defined in ‘‘Subscription and Sale’’) in accordance with Regulation S under the Securities Act (‘‘Regulation S’’), and may not be offered, sold or delivered within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.
Price: 100% plus accrued interest, if any, from the issue date.
The Bonds will be issued in bearer form in a denomination of 41,000. The Bonds will be made ready for delivery through Clearstream Banking AG, Frankfurt, on or about December 9, 2005, against payment in immediately available funds.
Lead Managers
Citigroup
Deutsche
HVB Corporates &
The Royal Bank of
Bank
Markets
Scotland
Co-Managers
Travel agencies
Tour operators
Airlines
Incoming agencies
Hotel companies
RESPONSIBILITY STATEMENT
The Issuer with its registered office in Hanover and Berlin, Germany accepts responsibility for the information contained in this Prospectus (the ‘‘Prospectus’’) and hereby declares that, having taken all reasonable care to ensure that such is the case, the information contained in this Prospectus is, to the best of its knowledge, in accordance with the facts and contains no omission likely to affect its import.
The Issuer further confirms that (i) this Prospectus contains all information with respect to the Issuer and the Group (as defined below) and to the Bonds which is material in the context of the issue and offering of the Bonds, including all information which, according to the particular nature of the Issuer and the Bonds is necessary to enable investors and their investment advisors to make an informed assessment of the assets and liabilities, financial position, profits and losses, and prospect of the Issuer and the Group and of the rights attached to the Bonds; (ii) the statements contained in this Prospectus relating to the Issuer, the Group and the Bonds are in every material respect true and accurate and not misleading; (iii) there are no other facts in relation to the Issuer, the Group or the Bonds the omission of which would, in the context of the issue and offering of the Bonds, make any statement in the Prospectus misleading in any material respect and (iv) reasonable enquiries have been made by the Issuer to ascertain such facts and to verify the accuracy of all such information and statements.
NOTICE
No person is authorized to give any information or to make any representations other than those contained in this Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by or on behalf of the Issuer or the managers set forth in the cover page (each a ‘‘Manager’’ and together the ‘‘Managers’’). Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Issuer or any or its affiliates since the date of this Prospectus, or that the information herein is correct at any time since its date.
An investment in the Bonds is suitable only for financially sophisticated investors who are capable of fully evaluating the risks involved in making such investments.
Prospective investors should satisfy themselves that they understand all of the risks associated with making investment in the Bonds. If a prospective investor is in any doubt whatsoever as to the risks involved in investing in the Bonds, he should consult professional advisers.
Prospective investors should inform themselves as to the legal requirements and tax consequences within the countries of their residence and domicile for the acquisition, holding or disposal of Bonds and any foreign exchange restrictions that might be relevant to them.
This Prospectus does not constitute an offer of Bonds or an invitation by or on behalf of the Issuer or the Lead Managers to purchase any Bonds. This Prospectus does not constitute, and may not be used for the purposes of, an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it is unlawful to make such offer solicitation.
The offer, sale and delivery of the Bonds and the distribution of this Prospectus in certain jurisdictions is restricted by law. Persons into whose possession this Prospectus comes are required by the Issuer and the Lead Managers to inform themselves about and to observe any such restrictions. In particular, the Bonds have not been and will not be registered under the United States Securities Act of 1933, as amended (the
‘‘Securities Act’’) and are subject to U.S. tax law requirements. Subject to certain limited exceptions, the Bonds may not be offered, sold or delivered within the United States or to U.S. Persons (within the meaning of Regulation S of the Securities Act).
IN CONNECTION WITH THE ISSUE OF THE BONDS, CITIGROUP GLOBAL MARKETS
LIMITED (THE ‘‘STABILIZING MANAGER’’) (OR PERSONS ACTING ON ITS BEHALF) MAY OVER-ALLOT BONDS (PROVIDED THAT THE AGGREGATE PRINCIPAL AMOUNT OF THE BONDS ALLOTED DOES NOT EXCEED 105% OF THE AGGREGATE PRINCIPAL AMOUNT OF THE
SECURITIES) OR EFFECT TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE OF THE SECURITIES AT A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL. HOWEVER, THERE IS NO ASSURANCE THAT THE STABILIZING MANAGER (OR PERSONS ACTING ON ITS BEHALF) WILL UNDERTAKE STABILIZATION ACTION. ANY STABILIZATION ACTION MAY BEGIN AT ANY TIME ON OR AFTER THE DATE ON WHICH ADEQUATE PUBLIC DISCLOSURE OF THE FINAL TERMS OF THE OFFER OF THE BONDS IS MADE AND, IF BEGUN, MAY BE ENDED AT ANY TIME, BUT IT MUST END NO LATER THAN THE EARLIER OF 30 DAYS AFTER THE DATE OF THE RECEIPT OF THE PROCEEDS OF THE ISSUE BY THE ISSUER AND SIX MONTHS AFTER THE DATE OF THE ALLOTMENT OF THE BONDS.
FORWARD-LOOKING STATEMENTS
This Prospectus includes forward-looking statements. These forward-looking statements include, but are not limited to, all statements other than statements of historical facts contained in this Prospectus, including, without limitation, those regarding our future financial position and results of operations, our strategy, plans, objectives, goals and targets, future developments in the markets where we participate or are seeking to participate or anticipated regulatory changes in the markets in which we operate or intend to operate. In some cases, you can identify forward-looking statements by terminology such as ‘‘aim,’’ ‘‘anticipate,’’ ‘‘believe,’’ ‘‘continue,’’ ‘‘could,’’ ‘‘estimate,’’ ‘‘expect,’’ ‘‘forecast,’’ ‘‘in the future,’’ ‘‘intend,’’ ‘‘may,’’ ‘‘plan,’’ ‘‘potential,’’ ‘‘predict,’’ ‘‘project,’’ ‘‘should,’’ ‘‘will’’ or ‘‘would’’ or the negative of such terms or other comparable terminology.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and are based on numerous assumptions and that our actual results of operations, including our financial condition and liquidity and the development of the industry in which we operate, may differ materially from (and be more negative than) those made in, or suggested by, the forward-looking statements contained in this Prospectus. In addition, even if our results of operations, including our financial condition and liquidity and the development of the industry in which we operate, are consistent with the forward-looking statements contained in this Prospectus, those results or developments may not be indicative of results or developments in subsequent periods. Important factors that could cause these differences include, but are not limited to:
) general economic and political conditions affecting the tourism industry;
) adverse effects on our business arising from terrorist attacks or the threat of terrorism, outbreak of diseases and natural catastrophes;
) our ability to remain competitive in the markets for our products and services; ) changes in international legal, tax, administrative, regulatory or economic conditions; ) risks associated with our structure, the Bonds and our other indebtedness;
) the impact of exchange rate fluctuations;
) the impact of our acquisition of CP Ships Limited and the related acquisition financing; and ) other factors discussed in this Prospectus.
We urge you to read the sections of this Prospectus entitled ‘‘Risk Factors,’’ ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations of TUI,’’ ‘‘Industry Overview’’ and
‘‘Business’’ for a more complete discussion of the factors that could affect our future performance and the markets in which we operate. In light of these risks, uncertainties and assumptions, the forward-looking
events described in this Prospectus may not occur. We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information or future events or developments.
INDUSTRY AND MARKET DATA
In this Prospectus, we rely on and refer to information from public sources, market data, analyst reports and other publicly available information regarding the tourism industry and the container shipping industry or our estimations largely based upon public market data or data derived from public sources. To the extent that the information contained in this Prospectus was derived from publicly accessible sources or was otherwise provided by third parties, it is accurately reproduced and the respective source identified. Furthermore, to our knowledge and to the extent we could ascertain this from the information derived from public sources or from third parties, no facts have been omitted that would render the statements contained in this Prospectus incorrect or misleading. Although we believe that this information is reliable, we cannot guarantee the accuracy and completeness of the information, and we have not independently verified it.
PRESENTATION OF FINANCIAL INFORMATION OF TUI
Unless otherwise indicated, financial information in this Prospectus relating to TUI has been prepared in accordance with the accounting rules of the International Accounting Standards Board (‘‘IASB’’) — the International Financial Reporting Standards (‘‘IFRS’’) and the interpretations of the International Financial Reporting Interpretations Committee (‘‘IFRIC’’) — on the basis of the historical cost principle. The only deviation from the historical cost principle was the accounting method applied in measuring financial instruments. TUI prepares its financial statements in euro. IFRS differs in certain significant respects from Accounting Principles Generally Accepted in the United States (‘‘U.S. GAAP’’). For a discussion of certain significant differences between IFRS and U.S. GAAP, see ‘‘Summary of Certain Differences Between International Financial Reporting Standards and Accounting Principles Generally Accepted in the United States.’’
For reporting periods beginning on or after January 1, 2005, income and expenses from operations that qualify as discontinuing operations pursuant to IFRS 5, ‘‘Non-Current Assets Held for Sale and Discontinued Operations,’’ are shown in the line item ‘‘Result from discontinuing operations.’’ This line item also includes gains and losses recognized on disposal or on the measurement to fair value less costs to sell. The conversion right relating to the convertible bond issued by TUI AG in October 2003 no longer qualifies as an equity component pursuant to amended IAS 32, ‘‘Financial Instruments: Disclosure and Presentation,’’ and IAS 39, ‘‘Financial Instruments: Recognition and Measurement.’’ Instead, this conversion right is, for reporting periods beginning on or after January 1, 2005, shown as a derivative liability and is fair-valued at each balance sheet date, thereby affecting earnings. The amended IAS 32 and IAS 39 were applied retrospectively. IFRS 5 was applied retrospectively as required by the transition rules. For other accounting standards adopted effective January 1, 2005, please see ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations of TUI — Application of New Accounting Standards.’’
In addition, for reporting periods beginning on or after January 1, 2005, the airlines Hapag-Lloyd Express and Thomsonfly, which were formerly part of our other/consolidation division, are shown in our tourism division: Hapag-Lloyd Express as part of the Central Europe sector and Thomsonfly as part of the Northern Europe sector. The figures for the nine-month period ended and as at September 30, 2004 shown below have been restated accordingly. The figures for the financial years 2002, 2003 and 2004 shown below have not been restated accordingly and are therefore not directly comparable with the figures for the nine-month periods ended and as at September 30, 2004 and 2005.
TUI’s unaudited interim financial statements for the nine months ended and as at September 30, 2004 and 2005, which may be found beginning on page F-2, were prepared by TUI in accordance with IFRS.
Certain numerical figures set out in this Prospectus, including financial data presented in millions and percentages describing market shares, have been subject to rounding adjustments and, as a result, the totals of the data in this Prospectus may vary slightly from the actual arithmetic totals of such information.
PRESENTATION OF FINANCIAL INFORMATION OF CP SHIPS
Unless otherwise indicated, financial information relating to CP Ships contained in this Prospectus has been prepared on the basis of Canadian generally accepted accounting principles (‘‘Canadian GAAP’’). Canadian GAAP differs in certain significant respects from IFRS. The Company has made no attempt to reconcile Canadian GAAP financial information contained in this document to IFRS. For a discussion of certain significant differences between Canadian GAAP and IFRS, see ‘‘Summary of Certain Differences Between International Financial Reporting Standards and Accounting Principles Generally Accepted in Canada.’’
The financial information for CP Ships for the three years ended and as at December 31, 2004 contained in this Prospectus has been extracted without adjustment from CP Ships’ audited financial statements
contained in its Forms 6-K filed with the U.S. SEC on March 25, 2005 and April 1, 2005. The unaudited interim financial information for CP Ships for the nine month period ended and as at September 30, 2004 and 2005 has been extracted without adjustments from CP Ships’ financial statements contained in its Form 6-K filed with the U.S. SEC on November 15, 2004 and November 8, 2005, respectively.
CP Ships prepares its financial statements in U.S. dollars. For convenience, certain financial and other information relating to CP Ships presented in U.S. dollars has been converted into euro at the exchange rate of US$1.21 to 41.00, as calculated from the noon buying rate of the Federal Reserve Bank of New York for the euro on September 30, 2005. The use of this exchange rate is not meant to suggest that the euro amounts actually represent the converted U.S. dollar amounts or that such U.S. dollar amounts could have been actually converted into euro at any particular rate, if at all. See ‘‘Currency Presentation and Exchange Rates.’’
CURRENCY PRESENTATION AND EXCHANGE RATES
In this Prospectus
) ‘‘CAD’’ and ‘‘Canadian dollars’’ mean the lawful currency of Canada;
) ‘4’’ and ‘‘euro’’ mean the single currency of the participating Member States in the Third Stage of European Economic and Monetary Union of the Treaty Establishing the European Community, as amended from time to time;
) ‘‘US$’’ and ‘‘U.S. dollars’’ mean U.S. dollars, the lawful currency of the United States; and ) ‘£’’ and ‘‘pound(s) sterling’’ mean the British pound sterling.
The following chart shows for the period from January 1, 2000, through November 28, 2005, the period end, average, high and low noon buying rates in the City of New York for cable transfers of euro as certified for customs purposes by the Federal Reserve Bank of New York expressed as U.S. dollars per 41.00.
U.S. Dollars per 51.00
Year Period End Average(1) High Low
2000 ***************************************************** 0.94 0.92 1.03 0.83 2001 ***************************************************** 0.89 0.90 0.95 0.84 2002 ***************************************************** 1.05 0.95 1.05 0.86 2003 ***************************************************** 1.26 1.14 1.26 1.04 2004 ***************************************************** 1.35 1.25 1.36 1.20 2005 (through November 28, 2005)**************************** 1.18 1.25 1.35 1.17
Month May 2005************************************************* 1.24 1.27 1.29 1.24 June 2005************************************************* 1.21 1.22 1.23 1.20 July 2005 ************************************************* 1.21 1.20 1.22 1.19 August 2005*********************************************** 1.23 1.23 1.24 1.21 September 2005******************************************** 1.21 1.22 1.25 1.20 October 2005********************************************** 1.20 1.20 1.21 1.19
November 2005 (through November 28, 2005)******************* 1.18 1.18 1.21 1.17
(1) The average rate of exchange based on the daily noon buying rates in the City of New York for cable transfers of euro as certified for customs purposes by the Federal Reserve Bank of New York for each applicable period.
As calculated from the noon buying rates of the Federal Reserve Bank of New York for the euro on November 28, 2005, the exchange rate for U.S. dollars was US$1.18 = 41.00.
The above rates may differ from the actual rates used in the preparation of the consolidated financial statements and other financial information appearing in this Prospectus. Our inclusion of these exchange rates is not meant to suggest that the U.S. dollar amounts actually represent such euro amounts or that such amounts could have been converted into euro at any particular rate, if at all.
WHERE YOU CAN FIND MORE INFORMATION ABOUT CP SHIPS
CP Ships is registered with the U.S. SEC. CP Ships files annual reports on Form 40-F and furnishes periodic reports on Form 6-K to the U.S. SEC. You can find additional information about CP Ships in these reports. You may obtain copies of reports filed by CP Ships with the U.S. SEC from the website maintained by the U.S. SEC at http://www.sec.gov.
TABLE OF CONTENTS
Page
RESPONSIBILITY STATEMENT ******************************************************** i
NOTICE ***************************************************************************** i
FORWARD-LOOKING STATEMENTS**************************************************** ii
INDUSTRY AND MARKET DATA******************************************************* iii
PRESENTATION OF FINANCIAL INFORMATION OF TUI********************************** iii
PRESENTATION OF FINANCIAL INFORMATION OF CP SHIPS **************************** iv
CURRENCY PRESENTATION AND EXCHANGE RATES*********************************** iv
WHERE YOU CAN FIND MORE INFORMATION ABOUT CP SHIPS ************************ v
SUMMARY ************************************************************************** 1
RISK FACTORS ********************************************************************** 82
CONDITIONS OF ISSUE*************************************************************** 96
USE OF PROCEEDS******************************************************************* 123 CAPITALIZATION ******************************************************************** 123
SELECTED CONSOLIDATED FINANCIAL DATA ***************************************** 126
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF TUI************************************************************ 135
INDUSTRY OVERVIEW *************************************************************** 191
BUSINESS*************************************************************************** 196
REGULATORY MATTERS ************************************************************* 237
GENERAL INFORMATION ON THE ISSUER********************************************* 243
MANAGEMENT ********************************************************************** 245
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS************************ 250
DESCRIPTION OF OTHER INDEBTEDNESS ********************************************* 251
INDEPENDENT AUDITORS************************************************************ 257
CREDIT RATINGS******************************************************************** 258 SUMMARY OF CERTAIN DIFFERENCES BETWEEN INTERNATIONAL FINANCIAL
REPORTING STANDARDS AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
THE UNITED STATES*************************************************************** 259 SUMMARY OF CERTAIN DIFFERENCES BETWEEN INTERNATIONAL FINANCIAL
REPORTING STANDARDS AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
CANADA************************************************************************** 268 TAXATION*************************************************************************** 271
SUBSCRIPTION AND SALE************************************************************ 274
GENERAL INFORMATION************************************************************* 278
SUMMARY
The following constitutes the summary (the ‘‘Summary’’) of the essential characteristics of and risks associated with the Issuer and the Bonds. This Summary should be read as an introduction to this Prospectus. It does not purport to be complete and is taken from, and is qualified in its entirety by, the remainder of this Prospectus. Any decision by an investor to invest in the Bonds should be based on consideration of this Prospectus as a whole. Where a claim relating to the information contained in this Prospectus is brought before a court, the plaintiff investor might, under the national legislation of such court, have to bear the costs of translating the Prospectus before the legal proceedings are initiated. Civil liability attaches to those persons who have tabled this Summary including any translation thereof, and applied for its notification, but only if the Summary is misleading, inaccurate or inconsistent when read together with the other parts of this Prospectus.
In this Prospectus, except where the context otherwise requires, references to ‘‘TUI AG,’’ the ‘‘Issuer’’ and the ‘‘Company’’ refer to TUI AG; references to ‘‘CP Ships’’ refer to CP Ships Limited and its
consolidated subsidiaries; and references to ‘‘TUI,’’ ‘‘we,’’ ‘‘us,’’ ‘‘our’’ and other similar terms refer to TUI AG and its subsidiaries on a consolidated basis, excluding CP Ships prior to October 25, 2005 and including CP Ships thereafter (the ‘‘Group’’).
Words and expressions defined in Conditions of Issue below shall have the same meanings in this section.
Overview
We have two core business divisions: tourism and shipping. In terms of turnover, we are the largest fully integrated tourism group in Europe. We are the market leader in Germany, the United Kingdom and France, Europe’s three largest countries in terms of population, as well as a leading tourism group in nine other European countries. Our shipping division consists primarily of our container shipping companies Hapag-Lloyd Container Line and the recently acquired CP Ships. Including CP Ships, we are now among the five largest container shipping companies in the world by capacity. Our shipping division also operates a cruise line business, Hapag-Lloyd Kreuzfahrten.
We believe our tourism and shipping divisions are well positioned to reap benefits from the expected growth, based on industry forecasts, in the tourism and container shipping industries.
Tourism
Our tourism services cover everything from the sale of travel products and services through our own and third-party travel agencies, the bundling of component products into holiday packages, branding and
marketing, the transportation of customers on our own and contracted aircraft, the provision of services at holiday destinations and the accommodation of guests in our own and contracted hotels. While most of our tourism business has historically been generated through our integrated package tour business, we now also offer flight- and accommodation-only travel products in response to a trend among customers in recent years of purchasing separately the individual components of a holiday, particularly over the internet.
With a fully integrated business model, our tourism division operates at all major stages of the tourism value chain:
) Retail sales. We believe we are the largest distributor of package holidays in Europe based on number of travel agencies, with 3,399 travel agencies in our source markets. We also distribute our products through independent travel agencies and direct sales channels, such as internet sites and travel television.
) Tour operators. Our tour operators in Europe sold approximately 18.4 million travel packages in 2004, approximately seven million of which were sold through our own distribution channels and approximately 11 million through third-party distribution channels.
) Air transportation. In 2004, our own airlines flew 22.6 million passengers (based on one-way trips) who had purchased one of our tour packages or flight-only products. We flew approximately 65% of our package holiday customers on our own airlines, with the remainder flying on third-party airlines. Based on total passenger kilometers flown, our combined aircraft fleet was the fourth largest airline in Europe and the fifteenth largest worldwide (Source: Airline Business, August 2005. The Airline Rankings, Passenger Analysis).
) Destination services. Our destination services are provided by 41 incoming agencies at major destination areas in 25 countries.
) Hotels. We owned, leased or managed a portfolio of 285 hotels and 162,800 beds worldwide as of September 30, 2005. At the end of 2004, we were the 12th largest hotel chain in the world based on number of hotels and bed capacity. (Source: Hotels Magazine, Industry Survey, July 2005). This portfolio of hotels covered approximately 15% of our required capacity in 2004. In the 2004 summer season, the average occupancy rate for our hotels managed by TUI Hotels & Resorts was
approximately 82%, with the majority of guests attributable to our package holidays.
We operate our tourism business under our group-wide tourism umbrella brand, ‘‘World of TUI,’’ and currently own and use more than 80 local and international brands in marketing our various activities at each stage of the value chain.
The strategic benefits of our fully integrated business model include our ability to provide our key European source markets with a wide array of holiday products ranging from all-inclusive package holidays to flight- and accommodation-only products. Our multi-channel distribution network includes travel agencies, franchise outlets, internet sales channels, call centers and television travel channels. Through this network, we are able to initially funnel our tourism products into own tour operators, airlines and hotels and only
subsequently into flight and hotel capacity that we purchase from third parties. At each stage of the tourism value chain, we aim to own less than the total capacity needed to meet our customer demand and to satisfy excess demand through contracting with third parties. This allows us to employ sophisticated yield
management and pricing systems to maximize the utilization and productivity of our assets. Thereby, we maintain consistently high levels of capacity utilization in our own airlines and hotels. Our presence at all major stages of the tourism value chain also allows us to ensure our product quality, to maintain broad customer recognition and to protect the good reputation of our brands.
In the 12 months ended September 30, 2005, our tourism division’s turnover was approximately
414.0 billion, and its EBITDA was approximately 4685.3 million. In the year ended December 31, 2004, our tourism division’s turnover was approximately 413.1 billion, and its EBITDA was approximately
4673.3 million.
Shipping
Since the beginning of 2005, our former logistics business division has been focused solely on shipping. Our shipping division consists primarily of our container shipping companies Hapag-Lloyd Container Line and the recently acquired CP Ships. At the core of our shipping business is the transportation of goods (predominantly dry goods) in containers as efficiently as possible from their point of origin to their final destination. We offer both comprehensive door-to-door container shipment services and port-to-port shipping services on a worldwide basis, as well as a variety of other combined services.
Our shipping companies, Hapag-Lloyd Container Line and CP Ships, operate fleets that primarily travel east and west along the volume-intensive shipping routes between Europe, Asia and North America, as well as to Latin America and Australasia. With the addition of CP Ships, our shipping division now has a fleet of 136 modern ships, with another 16 ships on order. Our combined fleet has an average age of approximately 8.1 years (weighted by capacity) and a capacity of approximately 409,945 twenty-foot equivalent units, or TEUs. Hapag-Lloyd Container Line’s and CP Ships’ fleets have a similar ownership structure, with approximately 63% of Hapag-Lloyd Container Line’s and approximately 58% of CP Ships’ fleet owned or
leased under long-term charter as of September 30, 2005. Hapag-Lloyd Container Line is represented by 268 offices and agents in 95 countries. Hapag-Lloyd Container Line is a member of the Grand Alliance, currently the world’s largest container shipping consortium, and recently entered into an agreement with members of The New World Alliance and other members of the Grand Alliance to cooperate on key trade lanes beginning in the first quarter of 2006, subject to regulatory approval. CP Ships has operational headquarters in Montreal, Canada; Tampa, Florida, United States and Gatwick, United Kingdom. We intend to integrate the business operations of CP Ships in whole or in part into the Grand Alliance at a date to be determined at a later stage in the integration process and subject to any necessary regulatory approval. An important part of our shipping division’s business model is our so-called blueprint organizational model and its fully integrated and highly efficient global IT network. The blueprint organizational model is based on a fully integrated global IT network and includes a standardized platform that links all of Hapag-Lloyd Container Line’s offices, headquarters, branches and distribution offices. We believe that through the planned integration of CP Ships, we will be able to use our blueprint organizational model and our industry leading IT-systems across a broader fleet and routing network and thereby will improve efficiency in our combined shipping businesses.
With the acquisition of CP Ships, we have significantly improved our shipping division’s strategic position in the global container shipping market. We are now one of the five largest container shipping companies in the world by capacity. Our combined container shipping division is also the largest transatlantic container shipping company in terms of capacity and one of the market leaders on further significant trade routes, including Europe-Asia routes and Transpacific routes (Source: Global Insight, May 2005). The addition of CP Ships’ fleet will enable us to significantly enhance our flexibility in a market characterized by scarce shipping capacity by deploying the right ship with the right capacity on each route. We expect to achieve considerable synergies from the successful integration of CP Ships, which we believe will significantly improve our earnings structure and potential.
Our cruise line operates cruises in the premium market segment, mainly for customers from German-speaking Europe.
In the 12 months ended September 30, 2005, our shipping division’s turnover (which excluded CP Ships) was approximately 43.0 billion, and its EBITDA was approximately 4402.5 million. In the year ended December 31, 2004 the turnover generated by our shipping business (as part of our logistics division) was approximately 42.7 billion, and its EBITDA was approximately 4388.5 million. In the same period, CP Ships’ turnover was approximately US$3.7 billion (43.1 billion), and its EBITDA was approximately US$248 million (4205 million).
Reorganization Program and Divestitures
As part of our strategy of focusing on our core businesses of tourism and shipping, we have been divesting our industrial operations since 1997. We have sold our German steel operations, our coal mining business, our plant and building engineering businesses, our shipyard and our crude oil and natural gas businesses. We have also completely divested our former special logistics sector, although the sale of VTG AG’s remaining rail and tank container logistics business is subject to antitrust clearance, which we expect to receive in December 2005. We plan to sell our remaining non-core businesses, including our steel trading activities in the United States and our remaining industrial activities in Germany, as and when conditions are appropriate. We have used, and intend to continue to use, the proceeds from divestments primarily to reduce our indebtedness.
Recent Developments
Acquisition of CP Ships
On September 1, 2005, TUI AG, through a wholly-owned indirect subsidiary, launched a cash tender offer to purchase all of the issued and outstanding shares of CP Ships for US$21.50 per share. CP Ships is a container shipping company incorporated under the laws of the province of New Brunswick, Canada. On October 25, 2005, we purchased approximately 89% of CP Ships’ issued and outstanding shares for an aggregate purchase price in the amount equal to approximately US$1.8 billion (41.5 billion). We intend to
acquire the remaining outstanding shares of CP Ships by the end of 2005 pursuant to a statutory merger, which is referred to as an amalgamation under Canadian law. The total purchase price for all outstanding and issued shares of CP Ships is expected to be approximately US$2.0 billion (41.7 billion). Subsequent to the completion of the statutory merger, we intend to de-list CP Ships’ shares from the Toronto Stock Exchange and the New York Stock Exchange.
As of September 30, 2005, CP Ships operated a fleet of 80 ships and 432,000 containers. In 2004, CP Ships had approximately 25,000 customers and shipped a total of approximately 2.3 million TEUs. In the nine months ended September 30, 2005, CP Ships’ turnover was approximately US$3.1 billion (42.6 billion), and its EBITDA was approximately US$236 million (4195 million). In the year ended December 31, 2004, its turnover was approximately US$3.7 billion (43.1 billion) and its EBITDA was approximately
US$248 million (4205 million), compared to approximately US$3.1 billion (42.6 billion) and approximately US$221 million (4174 million), respectively, in the previous year.
CP Ships acquisition financing
We financed the acquisition of the approximately 89% of CP Ships’ issued and outstanding shares using proceeds in the amount of 4510 million from a bridge financing facility and with proceeds in the amount of 4981 million raised through a rights offering by TUI AG in September 2005. We intend to repay the outstanding balance of the bridge financing facility with a portion of the net proceeds of this offering and of a parallel offering (the ‘‘Senior Notes Offering’’) of aggregate principal amount of 41,000 million Senior Fixed Rate Notes and Senior Floating Rate Notes (together, the ‘‘Senior Notes’’). For more information on the parallel offering of the Senior Notes Offering, see ‘‘Description of Other Indebtedness.’’
Competitive Strengths
We believe that one of our Group’s strengths is our strong and experienced management team. Our management team’s many years of combined experience has encompassed many periods of change in our Group, including stages of expansion, integration and cost reduction. Our management team’s strengths are evident in our successful transformation over the last eight years from an industrial conglomerate to a group focused on tourism and shipping through a number of successfully integrated acquisitions and a series of strategic disposals.
In addition, we believe the following strengths set us apart from our competitors in our tourism and our shipping businesses:
Tourism
We are the largest fully integrated European tourism group by turnover and have an extensive
distribution network in the key European source markets. With turnover of 413.1 billion in 2004, we were
the largest fully integrated tourism group in Europe:
Largest European Tourism Groups
Turnover Tourism Group 2004 (billions of 5) TUI******************************************************************* 13.1 Thomas Cook*********************************************************** 7.5(1) My Travel************************************************************** 4.9(1) Rewe****************************************************************** 4.2(1) First Choice ************************************************************ 3.5(1) Kuoni ***************************************************************** 2.3(1) Club Med************************************************************** 1.6(1) Alltours**************************************************************** 1.3(2) Hotelplan*************************************************************** 1.2(1)
(1) According to the 2004 annual reports of the relevant company. (2) fvw documentation, May 28, 2005.
By turnover, we are the leading tour operator in Germany, the United Kingdom and France, Europe’s three largest countries in terms of population, and hold leading market positions in nine other European countries:
Market Position by Turnover
Source Market Position Source Market Position
Germany(1) ******************* # 1 Belgium(5)******************** # 2
United Kingdom(2)************* # 1 Sweden(3) ******************** # 2
France(3) ********************* # 1 Norway(6) ******************** # 2
Netherlands(4)***************** # 1 Denmark(6) ******************* # 2
Ireland(6)********************* # 1 Finland(6)********************* # 2
Austria(5)********************* # 1 Switzerland(5) # 3
(1) Source: fvw Deutsche Veranstalter 2004. (2) Source: Nielsen Travel Track (for summer 2004). (3) Source: L’echo touristique, October 2004. (4) Source: DIT Reisemanagement, August 2004. (5) Source: fvw Europ¨aische Veranstalter 2004. (6) Source: our estimates.
We benefit from our market-leading position in several ways. Our market-leading position enables us to secure attractive terms from third-party suppliers of air transportation, hotels and destination services. It also gives us a greater ability to detect changes in market conditions as they start and thereby to respond rapidly to changes in market demand.
We believe that our extensive distribution and tour operator network, comprising our tour operators, our own and third-party travel agencies, as well as our increasingly significant activities in direct sales, such as the internet, call centers and travel television, represents a competitive advantage as it contributes to our brand recognition and enables us to reach a large number of potential customers. Our distribution network also enables us to gain an in-depth understanding of market trends and customer preferences in each of our European source markets and increases our ability to sell our broad product offerings.
We own or control a major part of the aircraft and hotel assets that are fundamental to our business.
We believe our ownership or control of a major part of the aircraft and hotel assets that are fundamental to our business, together with our market-leading position, enables us to monitor more effectively the utilization of our flight and hotel capacities, through, among other things, our ability to provide our customers exclusive access to our hotels. In addition, our ownership and/or control of these assets makes us well positioned to adapt to the increase in customer demand for modular products in the tourism industry and to take full advantage of the margin-generating potential at each stage of the tourism value chain.
We were the 12th largest hotel chain in the world based on number of hotels and bed capacity at the end of 2004 (Source: Hotels Magazine, Industry Survey, July 2005). We owned, leased or managed 162,800 beds in 285 hotels as of September 30, 2005. Through our worldwide hotel network, we are present in 28
countries with a significant share of four and five star hotels that offer differentiated products and services to their customers, such as golf, wellness and family activities.
Based on total passenger kilometers flown, our combined aircraft fleet is the fourth largest airline in Europe and the fifteenth largest worldwide (Source: Airline Business, August 2005. The Airline Rankings, Passenger Analysis). As of October 1, 2005, we operated 122 aircraft and leased out another three aircraft to third parties. Our modern fleet has an average age of 10.1 years. In restructuring our fleet in recent years to include predominantly Boeing aircraft, we believe we have positioned our fleet to offer further potential for reducing operational, maintenance and servicing costs.
We have strong brand recognition and customer loyalty in the tourism industry. We believe the strength of our brands throughout our tourism source markets in Europe and at our destination markets provides us with an important advantage over our competitors. In a 2004 survey, we were rated as the most trusted travel brand in Germany (Source: Reader’s Digest Trusted Brand in 2004). With our approximately 80 local and international brands in our source markets and our umbrella brand, ‘‘World of TUI,’’ we believe customers perceive us to be a quality provider of superior services. This strength, coupled with the stability of our local brands, ensures a high rate of customer recognition. We also believe that the consistent quality of our product offerings, in particular of our hotels, promotes customer confidence and loyalty in our local markets.
Our fully integrated business model gives us operating advantages. We have created a fully integrated
business model for our tourism business through a combination of owned capacity and flexible sourcing of third-party capacity and believe that our presence at each stage of the tourism value chain is well balanced. This business model enables us to use dynamic product pricing and capacity management techniques to maximize the passenger load factor of our airlines and the occupancy rates of our hotels as market environments change. In addition, this business model allows us to exploit synergies at each stage of the value chain and ensure the overall quality of our product offerings.
We offer an extensive range of holiday products. We offer a broad range of products, including
holiday packages for the premium market segment as well as standard medium-priced and reasonably priced holiday packages and discount offers. We also provide modular products, such as flight-only or
accommodation-only products. The broad range of our product offerings permits us to sell various types of travel and tourism products in a number of price ranges depending on customer preferences. This facilitates greater market penetration and enables us to react promptly to changes in demand by channeling our resources to popular products. Our broad range of products also helps to ensure that we are not overly dependent on any single source market, destination (except for Spain) or brand, which we believe reduces some of the risks to our business and our turnover.
Shipping
Our combined container shipping business is now a top-five global container shipping company and
benefits from our membership in the Grand Alliance. With the acquisition of CP Ships, we have
significantly improved our shipping division’s strategic position in the global container shipping market. We are now one of the five largest container shipping companies in the world by capacity. Our combined container shipping division is also the largest transatlantic container shipping company in terms of capacity and one of the market leaders on further significant trade routes, including Europe-Asia routes and
Transpacific routes (Source: Global Insight, May 2005). Hapag-Lloyd Container Line is a member of the Grand Alliance, and we intend to integrate the business operations of CP Ships in whole or in part into the Grand Alliance at a date to be determined at a later stage in the integration process and subject to any necessary regulatory approval. The Grand Alliance is currently the world’s largest container shipping alliance in terms of aggregate container capacity, operating primarily east and west along the major shipping routes between Europe, Asia and North America as well as to Latin America. In addition, Hapag-Lloyd Container Line recently entered into an agreement with members of the New World Alliance and other members of the Grand Alliance to cooperate on key trade lanes beginning in the first quarter of 2006, subject to regulatory approval. Alliances, which are based on highly developed cooperation agreements, involve the sharing of container vessel capacity among alliance members, including across multiple shipping regions in some circumstances. The sharing of capacity among alliance members enables the individual container shipping companies to offer their customers more frequent service covering a wider geographic area than they would be able to offer with their own fleet of ships.
We operate a profitable container shipping business that generates above-average market growth rates
with a strong and diversified customer base. Hapag-Lloyd Container Line and CP Ships have a strong track
record of profitability over many years. We believe that Hapag-Lloyd Container Line and CP Ships are among the few container shipping companies that were able to maintain their profitability during the most recent downturn in the container shipping industry. Hapag-Lloyd Container Line’s average annual growth rate
in 2002 to 2004 was 14.2%, which was above the industry average growth rate of 10.6% (Source: Global Insight, May 2005). CP Ships average annual growth rate in the same period was 7.0%. We also believe that we have a strong and diversified customer base. In 2004, Hapag-Lloyd Container Line had approximately 20,000 customers, including freight forwarders, retailers, trading companies and manufacturers. Its top 15 customers accounted for approximately 30% of its total business volume in 2004. With the addition of CP Ships to our container shipping business, we have acquired CP Ships’ highly complementary and diversified customer base, which included approximately 25,000 customers in 2004, of which the top ten represented approximately 9% of CP Ships’ total business volume in 2004.
We expect significant improvements to our shipping division’s earnings structure and potential by
realizing considerable synergies from the acquisition and integration of CP Ships. We expect to realize
considerable synergies from the acquisition and integration of CP Ships and believe that we thereby will be able to improve significantly our earnings structure and potential. We believe Hapag-Lloyd Container Line and CP Ships represent a good fit with respect to their offered routes, services, customer base and regional coverage. We also believe these synergies will allow us to strengthen our worldwide presence, enhance the attractiveness of our product offerings for globally operating customers and expand our existing customer base. In addition, Hapag-Lloyd Container Line’s and CP Ships’ fleets of container ships are complementary with respect to size of the ships and ownership structure and we believe that with the addition of CP Ships’ fleet we will significantly enhance our flexibility in a market characterized by scarce capacity by deploying the ship with the suitable capacity on each route. Further, we expect through the integration of CP Ships to strengthen our distribution network and unify the existing organizational functions and business processes at Hapag-Lloyd Container Line and CP Ships and thereby increase our organizational efficiency and reduce overhead costs.
We have high levels of efficiency and operational performance due to our globally standardized
organizational structures and fully integrated IT systems. We believe our blueprint organizational model
provides our shipping division with significant advantages over our competitors. The blueprint organizational model is based on a fully integrated and highly efficient global IT network and includes a standardized platform that links all of Hapag-Lloyd Container Line’s offices, headquarters, branches and distribution offices. We believe that our container shipping business benefits from the cost, load and operational synergies provided by our state-of-the-art standardized network management system and the uniform operational procedures and organizational structures in each of our shipping regions. In particular, this network management system provides us with real-time information to assess, at the point of sale, the load
contribution levels that may be achieved by an individual transaction, after taking into account the costs of any relocation of empty containers, inland transportation costs and network costs arising from the transaction. Among other things, this system enables us to more efficiently manage shipments of empty containers caused by structural imbalances in shipping trade routes. Through the integration of operational and financial information, we have increased Hapag-Lloyd Container Line’s efficiency and its operating performance. We believe that through the integration of CP Ships we will be able to use our blueprint organizational model and our industry leading IT-systems across a broader fleet and routing network to increase the efficiency of our combined shipping businesses.
Strategy
Our primary goals are to expand our tourism business, grow our container shipping business, complete our divestment program and improve our financial risk profile. In terms of financing, we intend to reduce debt and to achieve an investment grade status in the medium term.
Tourism
The business strategy for our tourism division includes the following key elements:
) Expand our tourism business. We intend to capitalize on our strong brands and market positions to expand our tourism business, both in absolute terms and in terms of market share. Our growth strategy reflects our forecast that the European tourism market is returning to sustainable historically
average growth rates, after the economic and political disruptions that impacted the market in 2002 and 2003. Following a strong recovery in 2004, we expect growth in the European tourism market to be between 4% and 5% in 2005. Our growth strategy also reflects our belief that the quality of our products, the strength of our business model, our ability to react to new market trends at early stages of their development, such as the growing demand for modular travel products, and our active involvement in the development of these trends will enable us to exceed the overall market growth rate, both in our existing European source markets and in selected new source markets, such as the emerging markets of Eastern Europe, including Russia, Hungary, Slovenia and Slovakia, and Asia, including China and India. As part of the same strategy, we may divest assets or business units where appropriate returns cannot be earned in the foreseeable future. As part of our focus on owning the critical assets of our tourism business, we intend to expand our airline fleet and hotel portfolio to meet our business needs and to continue to consider both business and portfolio acquisitions if and when appropriate opportunities arise.
) Exploit synergies and cost efficiencies across our markets and products. We intend to take advantage of remaining synergy and efficiency opportunities to further optimize our operational procedures and integrate our tourism businesses at each stage of the value chain. In this context, we intend to continue to reorganize and tighten operational procedures to extend best practices and skills across all our source markets. We have started to integrate and optimize our maintenance,
administration, IT network management and purchasing functions and have completed this process for our airlines by establishing a centralized airline management to ensure maximum utilization of our airlines’ capacities. We intend to further integrate administration and capacity contracting for our hotel and destination services to achieve cost efficiencies and further optimize our occupancy rates. ) Continue to leverage the benefits of our fully integrated business model and wide distribution
network. We intend to continue to develop our fully integrated business model to take advantage of
new developments in the tourism industry in order to ensure the continued attractiveness of our core products and to attain high utilization of our own flight and hotel capacity. For example, we are taking steps to leverage our involvement at all stages of the value chain to offer alternatives to package holidays and thereby actively participate in the growth of new market segments. We now offer individual modular holiday products, such as flights and hotel accommodations, that customers can combine according to their individual requirements and that are sold at current prices. As part of our fully integrated business model, we aim, at each stage of the tourism value chain, to own less than the total capacity we need and to satisfy excess demand by contracting with third parties for the supply of the additional capacity that we need. For example, we sell more holiday trips than we have seats available on our own aircraft, and our aircraft carry more people than we can accommodate in our own hotels. This strategy helps us to maximize the utilization of our own capacity at each stage of the value chain and provides us considerable flexibility in making contractual arrangements for additional capacity with third parties. In addition, through our multi-channel distribution network, we are able to initially funnel our tourism products into own tour operators, airlines and hotels and only subsequently into flight and hotel capacity that we purchase from third parties.
) Identify new trends and exploit developments in the tourism industry. The travel and tourism industry is changing rapidly. Recent trends are not only providing travelers new options but also providing industry participants with new opportunities. Recent trends include the growing customer demand for modular products, the growth of low-cost air carriers and the increasing availability of tourism information over the internet. We intend to continue to develop our business model to take advantage of new developments and to ensure the sustained desirability of our core product offerings. For example, we are taking steps to leverage our involvement at all stages of the value chain to offer alternatives to package holidays, including offering modular, flight-only or accommodation-only products. This is facilitating our participation in the growth of new market segments, in particular in the flight-only air travel business. The recent growth of the flight-only air-travel business is partly attributable to the trend among customers of making their own hotel accommodation arrangements, particularly for travel to Spain. We believe that the boundaries in the airline industry between charter
flights, scheduled flights and low-cost flights are becoming less pronounced. In response thereto, we no longer operate Hapag-Lloyd Express and Thomsonfly as a single-seat business, but now include them as part of our fully integrated business model under common management with our traditional airlines, providing capacity to our tour operators while continuing to expand their single-seat business. We intend further to align the activities of our airlines with each other to benefit from the generally high passenger load factors in the charter flight sector and the cost advantages of some of our own airlines. We believe that we can promote new products more effectively and profitably than non-integrated competitors through our presence at each stage of the value chain. We also believe that we can further improve the distribution advantages associated with our market leading position, the availability of our own flights and accommodations, our brand strength and the cost benefits of our fully integrated business model. We are also further increasing our presence in fast-growing direct distribution channels, such as the internet, by offering our core products, such as package holidays, through these channels and by using these channels to market, individually and directly, our products at each stage of the value chain. Our participation in direct distribution channels provides us with the most effective means to market the excess capacity of our own hotels and airplanes.
Shipping
Our business strategy for our shipping division is to continue to grow our container shipping business both internally and externally. We are pursuing a growth strategy for our container shipping business that aims to take advantage of the expected growth in shipping volumes and the favorable global economic environment in the shipping industry, while, at the same time, preserving our flexibility to manage our capacity effectively in periods of slower growth or decline in the industry. We intend, in particular, to take advantage of the current growth potential by increasing our ship and container capacities and by expanding our services on intra-Asian and intra-European routes and on routes connecting Asia, Europe and North America. With the acquisition of CP Ships, we have added to our existing routes a strong regional distribution network in the Americas and Australasia and intend to expand our global presence and our existing customer base. To maintain a relatively high degree of flexibility and to be able to adjust capacity as necessary in our container shipping business, we intend to maintain the ownership structure of Hapag-Lloyd Container Line’s and CP Ships’ fleets and to continue to rely on shorter-term ship charters for a significant portion of our capacity requirements. We also plan to strengthen our distribution network and to unify the existing organizational functions and business processes at Hapag-Lloyd Container Line and CP Ships to achieve significant cost savings through the integration of CP Ships into our shipping division.
In order to apply this growth strategy for our shipping division, we are planning to implement the following measures:
) Continue to expand our fleet and customer base. We intend to increase our recently expanded fleet from 136 to 152 ships by purchasing or leasing new container ships with 4,250 and 8,750 TEU capacities. We intend to continue our container shipping business’s organic growth by further expanding the strong and diversified customer base Hapag-Lloyd Container Line and CP Ships have established over several decades. We also intend to rely on the strong Hapag-Lloyd Container Line brand, which represents a long tradition of customer service and expertise in the shipping industry to maintain our current customer mix of freight forwarders and industrial and trade customers. To further expand Hapag-Lloyd Container Line’s and CP Ships’ combined customer base, we will continue to offer high-quality service, placing significant emphasis on reliability and the regular flow of information to customers, as the timely delivery of goods and parts is of critical importance for many of our customers, who are dependent on timely and accurate information regarding shipments in planning their own business processes.
) Integrate CP Ships into our organizational structure and continue to improve our IT systems. We plan to integrate CP Ships into Hapag-Lloyd Container Line’s globally standardized blueprint
organizational structure and fully integrated IT system to improve CP Ship’s efficiency and operating performance. Hapag-Lloyd Container Line’s organizational structure and fully integrated IT system provide us with real-time operational and financial information. This enables us to maintain and
