Kuoni reports strong growth in the first half of 2007 Print page

• Group turnover totalled CHF 2 027 million, a 15.6% improvement on the CHF 1 753 million of the prior-year period. Organic growth increased turnover by 5.1%, while acquisitions and currency movements added 7.9% and 2.6% respectively.
• Earnings before interest and taxes (EBIT) improved from the CHF 0.5 million of the prior-year period to CHF 5.7 million.
• Cash flow from operating activities remained broadly at prior-year levels at CHF 143.3 million. Free cash flow was improved from the CHF 128.4 million of the prior-year period to CHF 130.1 million.
• The Kuoni Group’s adopted strategy of growth in the specialist segment was further pursued with the acquisitions of Dorado Latin Tours (Switzerland), UTE Megapolus (Russia), CV Travel (UK) and Les Ateliers du Voyage (France).
• The transformation communicated in June 2007 will provide Kuoni with the best possible corporate organisation for its future business success.

Zurich, August 23, 2007 – Kuoni Travel Holding Ltd. achieved a further substantial 15.6% increase in its first-half turnover in 2007, raising it from the CHF 1 753 million of January-June 2006 to CHF 2 027 million. The increase reflects improved first-half turnover performances from all the various units of the Kuoni Group. The turnover result was further boosted by the net positive impact of currency movements (+2.6%) and acquisition activities (+7.9%).

The higher turnover helped raise gross profit by 14.8%, from the CHF 371.6 million of the prior year to CHF 426.6 million. Gross profit margin slipped slightly, from 21.2% to 21.0%.

Earnings before interest and taxes (EBIT) for the period amounted to CHF 5.7 million, compared to CHF 0.5 million for the first six months of 2006. The increase is attributable to results from acquisitions and to the positive net impact of currency movements. EBIT margin was raised from the 0.0% of the prior-year period to 0.3%.

Despite the improved operating performance, the CHF 3.5 million first-half net result for 2007 fell short of the CHF 8.1 million achieved for January-June 2006. This is because the prior-year result included the release of a CHF 10 million provision for taxes in the UK which was no longer required.
 

Cash flow from operating activities amounted to CHF 143.3 million, which compares with CHF 144.8 million for January-June 2006. Free cash flow stood at CHF 130.1 million, compared to CHF 128.4 million for the prior-year period.

The balance sheet showed total equity of CHF 558.5 million on June 30, 2007 (compared to CHF 600.8 million on December 31, 2006) and a sound equity ratio of 27.2% (compared to 33.5% at the end of last year). The change in the equity base was due largely to the CHF 44.5 million dividend distribution for the 2006 business year, to the share buyback programme (CHF 35.5 million) and to positive adjustments to the market values of financial instruments and currency translation effects totalling CHF 30.5 million. 


Results by Strategic Business Unit

Switzerland
Strategic Business Unit Switzerland reported a 5.5% increase in its turnover for the first half of 2007, raising it from the CHF 401 million of 2006 to CHF 423 million. In addition to the acquisition of Kontiki-Saga Reisen AG, the turnover result was buoyed by the top-class products of the Kuoni brand and a rise in sales via the unit’s own distribution channels. Results for Helvetic Tours and Reisen Netto remained below expectations. EBIT for the unit declined from the minus CHF 13.1 million of January-June 2006 to minus CHF 16.9 million. The EBIT decline was due primarily to a falloff in demand for inclusive-tour arrangements, a trend which also led to overcapacities in the unit’s own air travel business, despite a year-on-year reduction in overall seating capacity. The unit’s portfolio in the specialist segment was further expanded in the first-half period through the acquisition of Dorado Latin Tours AG, which specialises in travel arrangements to South America and the polar regions.

Scandinavia
Strategic Business Unit Scandinavia enhanced its first-half turnover performance in 2007: the CHF 404 million generated was a 15.8% improvement on the CHF 349 million of the prior-year period. Turnover for Norway showed particularly strong growth, and the unit’s Swedish operations also posted a favourable turnover result. EBIT for the unit rose accordingly, from the CHF 0.2 million of the prior-year period to CHF 2.9 million. The unit’s 2007 first-half results also include those of Shoestring, the innovative and high-potential project which offers customers both online booking facilities and a platform for sharing blogs, travel reports and video clips. 
  

Europe
Strategic Business Unit Europe also achieved a further improvement in its turnover for the first half-year, with a double-digit percentage increase from the CHF 271 million of 2006 to CHF 302 million. Kuoni Spain posted particularly impressive turnover growth. EBIT for the unit was improved from the minus CHF 3.8 million of the prior-year period to minus CHF 2.2 million, despite the investments made by Kuoni Benelux in developing the Belgian market.    
   

United Kingdom
Strategic Business Unit United Kingdom also reported higher first-half turnover in 2007: the CHF 360 million generated for the period was a 12.9% increase on the CHF 319 million of the previous year. This result was strongly influenced by Kuoni UK’s existing and newly-acquired specialist operators, whose first-half performances exceeded expectations. In its classic tour operating, however, the unit sustained turnover declines. EBIT for the period stood at CHF 22.9 million, a slight improvement on the CHF 22.7 million of January-June 2006. With the acquisition of CV Travel, Kuoni UK continued its expansion in the high-end segment during the first-half period.
 
Asia & Destination Management
Strategic Business Unit Asia & Destination Management followed the strong growth achieved over the past few years with a further sizeable 30.5% increase in its first-half turnover volume, which rose from the CHF 443 million of 2006 to CHF 578 million. Buoyant demand produced especially strong year-on-year growth in the Indian incoming market. The expansion of the activities of Visa Facilitation Services (VFS) also had a positive effect on the unit’s turnover result. Despite the costs entailed in expanding VFS’s operations, EBIT was also increased for the period, rising from the CHF 8.5 million of 2006 to CHF 9.8 million. The unit’s destination management activities, which continue to see sizeable expansion and are of key strategic importance to the Kuoni Group, made a significant contribution to the improved EBIT result, with the Asian Trails business posting a particularly strong performance.

Personnel news

• Roberto Luna, Managing Director of Business Unit Switzerland, will leave Kuoni at the end of August. After 20 years in which he has held various functions within Kuoni Switzerland, he has decided that now is an appropriate time to seek a new professional challenge. Stefan Leser, Head of Strategic Business Division (SBD) Smart and a member of the Group Executive Board, will assume responsibility for Kuoni Switzerland on September 1. The Group Executive Board offers Roberto Luna its warmest thanks for all his service and commitment to Kuoni. In his 20 years with the company, he has made a vital contribution to securing the strong position that Kuoni continues to enjoy in the Swiss leisure travel market.

• Dr. Lucio Pompeo has been named as the Kuoni Group’s new Head of Corporate Development. He assumes his duties on September 1. Pompeo, who is 43, previously served with McKinsey for 15 years, the last of them as a principal in the transport sector, during which he gained extensive experience of the international travel and tourism industry. In his new Kuoni capacity, in which he reports directly to Group CEO Armin Meier, he will bear overall responsibility for developing groupwide strategy within the various divisions.

Realignment progress to date

As announced in June, the Kuoni Group is adopting a new corporate structure which reflects current industry trends and should position it even better as a leading provider in the consolidating leisure travel market. Under the new structure, the previous country-based organisation is being superseded by three strategic business divisions: SBD Style (brand and service-focused products), SBD Smart (excellent-value-for-money vacations) and SBD Destinations (local country-specific arrangements). This bundling and strengthening of brands within the Group which share the same business credentials will enable Kuoni to align its products and services even more closely to market and customer needs.    

Two months in, the transformation is proceeding according to plan. The total costs of the transformation are expected to amount to a low double-digit million-franc amount, and will largely be incurred in the second half of 2007 and the first half of 2008. The Group’s reporting structures will be realigned to the new organisation from 2009 onwards. This will also be the first year in which the new structure is adopted for all financial reporting, together with prior-year comparisons.       
 

Outlook

Booking levels on August 19, 2007 for the Kuoni Group’s tour operating business were 13% above their 2006 equivalents in Swiss-franc terms. Year-on-year booking trends for key business units:

Group EBIT for July, which accounts for over a third of total EBIT for the year, was largely in line with the highly favourable result achieved for July 2006, strengthening Kuoni’s confident outlook for 2007 as a whole. While prospects are promising in booking-level terms, however, precise full-year projections remain difficult to make, given the markets’ present volatility. 


Key dates ahead

The Kuoni Group will be reporting on its further business performance on the following dates:
Nine-month results       November 13, 2007
2007 annual results      March 13, 2008

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 (condensed)