2006 consolidated annual results of Kuoni Travel Holding Limited Print page

Kuoni celebrates a successful centennial year

Kuoni increased its annual turnover to a highly encouraging CHF 4 082 million in 2006. Switzerland’s biggest tourist travel corporation also crowned the year in which it marked the centenary of its foundation by posting a net result of CHF 116.7 million.

Highlights of 2006

“The Kuoni Group marked the hundredth anniversary of its foundation with a return to its old strengths,” said Group CEO Armin Meier in his comments on the favourable results reported by Kuoni for the 2006 financial year. Having sustained a CHF 42.0 million net loss for 2005, a result affected by extraordinary items, the Kuoni Group returned to black ink in its centennial year: the Group net result of CHF 116.7 million was a comfortably positive result. “This performance confirms to us that we are on the right track,” Armin Meier continued. The effectiveness of the adopted Group strategy was further underscored by the CHF 4 082 million in turnover for the year –  a 10.7% improvement that saw Kuoni again surpass the CHF 4 billion threshold and outpace both average sector growth and its own 3% growth of the previous year. Organic growth (i.e. net of acquisitions, divestments and currency effects) amounted to 7.9%.

To some extent, these encouraging results reflect a general economic upswing which has benefited the travel sector, too. “At the same time, though, we were faced with numerous challenges last year that our company met and mastered well,” Meier pointed out. Those challenges included bird flu, terrorist attacks in Turkey and drastically-tightened security precautions for air travellers. An unusually hot summer and soccer’s World Cup Finals in Germany also dampened the demand for long-haul leisure travel. “But exceptional circumstances are part and parcel of the tourist travel sector,” Meier observed. “And travellers and tour operators alike have learnt to live with these unpredictabilities.”

Gross profit for the Kuoni Group amounted to CHF 883.8 million, a 6.7% improvement on the CHF 828.0 million of 2005. Gross profit margin slipped from 22.5% to 21.6%, a decline attributable primarily to overcapacities in the Swiss market but also to the “mix effect” of above-average growth in the Group’s destination management business, which generates lower gross profit margins. The fact that gross profit still saw a year-on-year increase is due to the Group’s substantial volume growth.

In contrast to 2005, earnings before interest and taxes (EBIT) showed a year-on-year improvement, rising 1.1% to CHF 121.7 million. The encouraging return to EBIT growth was achieved despite extraordinary expense items such as expenditure on the Group’s centennial celebrations and organisational changes as well as depreciation on intangible assets relating to acquisitions.
Cash flow from operating activities stood at CHF 190.3 million, a 23.8% improvement on the CHF 153.7 million of 2005 which further strengthened the Kuoni Group’s cash position. Free cash flow was also increased, from CHF 120.5 million in 2005 to CHF 152.6 million. “The record net result and cash flow which we achieved for 2006 underline our excellent business position,” added Max E. Katz, Chief Financial Officer of the Kuoni Group.

In view of the favourable annual results, the Board of Directors will recommend to the General Meeting of Shareholders of April 18, 2007 that a dividend of CHF 3.00 per Registered Share A and CHF 15.00 per Registered Share B be paid for the 2006 financial year.
The Kuoni Group held cash and cash equivalents of CHF 604.2 million on December 31, 2006 (compared to CHF 620.8 million at the end of 2005). This amount included advance payments by customers totalling CHF 371.6 million (end of 2005: CHF 302.5 million). Despite acquisition funding, a CHF 42.1 million par value repayment and share buy backs, Kuoni still maintains a comfortable financial position with no net debt. The net cash position declined from the CHF 285.6 million at the end of 2005 to CHF 173.8 million.

The consolidated balance sheet showed equity of CHF 600.8 million on December 31, 2006, a 3.3% increase on the CHF 581.8 million shown at the end of the prior year. As a result of a further capital reduction and the start of the share buy back programme, the balance sheet equity ratio declined from 35.1% to 33.5% – still well above average for the industry and a reflection of Kuoni’s extremely sound balance-sheet health.

Results by Strategic Business Unit

Switzerland
After the turnover decline seen for the previous year, 2006 was largely a period of growth for Strategic Business Unit Switzerland. Total turnover for the year rose 15.8% from the CHF 847 million of 2005 to CHF 981 million, thanks first and foremost to organic growth in the long-haul segment, and also to the acquisition of Kontiki-Saga Reisen AG. Gross profit margin slipped from 28.7% to 25.4%. EBIT sustained a substantial decline, from the CHF 26.7 million of the prior year to CHF 13.6 million, as a result of overcapacities in the beach holiday segment and the initial losses at the Las Playitas Grand Resort on Fuerteventura which are to be expected with any hotel opening. Kuoni Switzerland has responded to these developments by reorganising its tour operating and effecting selective capacity adjustments for 2007. Construction continued as planned on the resized Las Playitas Grand Resort vacation facility throughout the year.

Scandinavia
Kuoni’s Swedish, Norwegian and Danish-based companies can look back on another successful business year. Turnover for Strategic Business Unit Scandinavia amounted to CHF 802 million, a 13.9% improvement on the CHF 704 million of the previous year. The result is all the more encouraging in view of the region’s fine summer weather and a reluctance among Danish customers to travel to Islamic countries following the domestic cartoon controversy. Gross profit margin suffered a slight decline from 22.9% to 21.8%; but the higher turnover volumes helped raise EBIT 19.3% from the CHF 24.4 million of 2005 to CHF 29.1 million.

Europe
While the previous year had been one of consolidation, Strategic Business Unit Europe returned to growth in 2006. The annual turnover of CHF 669 million was a 12.2% improvement on the CHF 596 million of 2005. The increase reflects the recovery of business to Southeast Asia and strong demand in Spain and the Netherlands (not least at newly-acquired Avontuur). Less dynamic trends were seen in business to the USA, where travel volumes declined in the face of stricter security formalities. Demand was also more muted for travel to Islamic countries. With the higher business volumes and a gross profit margin that was up in all markets, EBIT was substantially improved from CHF 14.5 million to CHF 19.4 million, a year-on-year increase of 33.8%.

United Kingdom
Strategic Business Unit United Kingdom reported a 9.4% fall in its turnover for the year, from the CHF 770 million of 2005 to CHF 698 million. The decline was due partly to the sale of Intrav, the unit’s former US-based subsidiary, effective December 31, 2005; but turnover was also depressed by the more complex travel formalities imposed after the thwarted terrorist attack via London Heathrow Airport. Kuoni UK also felt the effects of diminished demand for travel to the Middle East. Despite these adversities, the gross profit of CHF 130.2 million was a slight improvement on the CHF 124.5 million of the previous year. With Intrav’s losses eliminated, EBIT also increased from CHF 49.2 million to CHF 52.9 million, a year-on-year improvement of 7.5%.

Asia & Destination Management
Once again, Strategic Business Unit Asia & Destination Management posted above-average growth for the year: the turnover of CHF 1 013 million was an outstanding 21.9% up on the CHF 831 million of 2005. The result is all the more encouraging in that the modest demand for travel to the USA, especially in the French and Italian markets, was more than offset by growth elsewhere. Gross profit margin was slightly down, from 20.2% to 19.3%; but the CHF 34.6 million EBIT result was a 25.4% improvement on the CHF 27.6 million of the previous year.

Acquisitions

Kuoni continued to pursue its strategy of selective acquisitions in 2006. The strategy is designed to further consolidate premium and specialist operators under the Kuoni roof.
The acquisition of Dutch-based Avontuur.nu Topholding B.V. by Kuoni Travel Nederland B.V. strengthened Kuoni’s position in the internet and call-centre direct sales fields.
By purchasing Distant Frontiers Pvt. Ltd., one of India’s leading destination management companies, Kuoni has further reinforced its already-strong position in the individual and incentive travel segments within the Indian market.

Kuoni acquired Kontiki-Saga Reisen AG, the Swiss market leader for travel to Northern Europe, in mid-2006. The company and its well-established brand will enable Kuoni to develop its position in this attractive niche market.

Two further acquisitions continued Kuoni’s UK expansion. Holiday Supplies Ltd. (with its Journeys of Distinction brand) and Kirker Holidays strengthen Kuoni UK’s position in both the premium guided tour segment and the short-break and tailored-travel fields.

And with Asian Trails Holding Ltd., Kuoni acquired one of Southeast Asia’s leading destination management companies. The acquisition is a major step in further developing Kuoni’s rapidly-growing inbound activities in the Asian market.

Outlook

“We are confident about 2007,” says Group CEO Armin Meier. The present economic buoyancy looks set to persist throughout the year, or should only weaken slightly at the most. The positive economic trends that are expected for the main markets will have a beneficial effect on the travel sector, too; and the increased purchasing power in many countries will raise demand for products in the higher price segments.

Kuoni’s optimism for 2007 is further strengthened by the trends seen in the first few weeks of the year: booking levels as at March 10, 2007 for the Kuoni Group’s tour operating business were 16% above their prior-year equivalents in Swiss-franc terms.

Year-on-year booking trends for key Kuoni entities:

Kuoni’s confidence for the 2007 business year is also based on a number of internal factors. The Kuoni business model, with its low vertical integration, keeps business risk to a minimum and offers maximum flexibility of response. And once again in 2006, Kuoni pursued its strategy of selective acquisitions of premium and specialist providers with sizeable success. With turnover of more than CHF 4 billion, the Kuoni Group is big enough to remain an independent player in the tourist travel sector. By further enhancing its processes and making greater use of the synergies within the Kuoni Group, it is also in excellent shape to compete within its chosen field. Kuoni intends to take full and consistent advantage of all market opportunities in 2007, too. Activities here will include further developing its internet sales business, which continues to show strong and dynamic growth and offers attractive direct distribution options.

Kuoni aims to continue to grow at above the market rate and to further increase its earnings power and potential. And with its clear focus on the premium segment, its strong positioning in growth markets, its flexible product portfolio that is carefully aligned to individual travel needs, its rigorous cost management and its targeted promotion and development of new direct sales channels, Kuoni is ideally equipped to achieve these ambitious objectives.

Agenda for 2007

The Kuoni Group will be providing information on its further business performance on the following dates:
General Meeting of Shareholders April 18, 2007
Half-year results   August 23, 2007
Nine-month results   November 13, 2007

Disclaimer

If we comment on forecasts or expectations in this announcement or if our statements relate to the future, these statements may be associated with known and unknown risks and uncertainties. Actual outcomes and developments may, therefore, deviate significantly from the expectations and assumptions expressed. In addition, the performance of financial markets and exchange rates as well as national and international law amendments, particularly with regard to tax regulations, may have an influence. Except as provided by law, the company assumes no obligation to update future statements.

Income Statement

Balance Sheet

Cash Flow Statement

Changes in Equity

Breakdown of Turnover and EBIT by Strategic Business Unit