Underlying profit before tax for the year was £319.7m (2007: £222.8m). The tax charge on these profits was £89.5m (2007: £62.4m) representing an effective tax rate of 28.0% (2007: 28.0%). Based on the current structure of the business and existing local taxation rates and legislation, it is expected that the underlying tax rate will remain at a level of around 28% going forward.

Reported loss before tax for the year was £266.6m (2007: profit £18.4m). The tax credit on these losses was £0.1m (2007: charge £11.5m) representing an effective tax rate of nil (2007: 62.5%). This rate differs from the underlying effective tax rate due to the non-deductibility for tax purposes of the goodwill impairment on TUIfly and certain separately disclosed items, as well as not recognising deferred tax assets on certain losses due to uncertainty as to the timing of their utilisation.

The cash tax rate is expected to be lower than the income statement tax rate as we utilise our deferred tax assets. In the coming year, we envisage a cash tax rate of approximately 17% of underlying profit before tax.

Earnings per share

Underlying basic earnings per share was 20.4p (2007 underlying pro forma: 14.4p), an improvement of 42%. Basic loss per share was (24.4p) (2007 pro forma: earnings per share 0.6p; 2007 statutory: earnings per share 6.4p).

Dividends

The Board is recommending a final dividend of 6.9p per share. On 18 March 2008, the Board recommended an interim dividend of 2.8p per share, making a full year dividend of 9.7p per share. This represents a payout ratio of 48%. The final dividend will be paid on 6 April 2009 to holders of relevant shares on the register at 13 March 2009.

The Group’s policy is to maintain underlying dividend cover at around two times. We intend to continue to operate a dividend re-investment plan as an alternative to receiving a cash dividend.

Cash and Liquidity

The net debt position (cash and cash equivalents less loans, overdrafts and finance leases) at the year end was £136.6m (2007: £237.4m). This consisted of £1,129.8m of cash and £99.3m of current interest-bearing loans and liabilities and £1,167.1m of non-current interest-bearing loans and liabilities.

The reduction in net debt has arisen primarily due to cash generated from operating activities and the proceeds of sale and leaseback transactions, partially offset by our acquisition programme. In June, the Group entered into a sale and leaseback transaction of 19 owned aircraft for proceeds of $526m. This transaction enabled the Group to further increase the flexibility of the business model while securing access to modern and fuel-efficient aircraft such as the Boeing 737-800 NG. The disposal proceeds were used to pay down debt.

The Board remains satisfied with the Group’s funding and liquidity position. Fixed charges cover and the ratio of net debt to EBITDA, which we believe to be the most useful measures of cash generation and gearing, as well as being the main basis for covenants in our credit facilities, were 2.04x and 0.2x respectively at the year end (2007: 2.07x and 0.5x respectively). Fixed charges cover is defined as earnings before interest, tax, depreciation, amortisation and operating lease rentals charge (EBITDAR) divided by net interest plus operating lease rentals. EBITDA is defined as earnings before interest, tax, depreciation and amortisation.

We have two main sources of debt funding, both of which have a number of years remaining before maturity – these include the shareholder loan from TUI AG which is €1.0bn and matures in January 2011, and our £770m revolving credit facility which matures in August 2012. Accordingly, we remain satisfied with our facilities.
 
Pensions

The Group operates a number of defined benefit pension schemes, both funded and unfunded, in the UK, Germany and other European countries. At 30 September 2008, the net pension deficit was £253.1m (2007: £292.9m). An analysis of the principal schemes and the key valuation and actuarial assumptions applied is set out in Note 5 to the consolidated financial statements.

Accounting Policies

There have been no changes in accounting policies during this financial year. The Group continues to monitor the potential impact and timing of changes to International Financial Reporting Standards.

Treasury Policies

The Board has established a framework to ensure that the Group has adequate policies, procedures and controls to successfully manage the financial risks that it faces. These form part of the Group’s Risk Management Framework.

The key financial risks faced by the Group are in relation to foreign currency, interest rate, fuel price and liquidity. Group Treasury has implemented individual treasury policies to cover specific risks faced by each business unit. The procedures stipulate the levels of authority applied to dealing and approve the financial instruments that may be used to manage these exposures. All significant treasury transactions on behalf of the businesses are undertaken and executed by Group Treasury. Transactions are undertaken only to hedge underlying exposures. Financial instruments are not traded, nor are speculative positions taken. Further details are set out in Note 25 to the consolidated financial statements.