Exit from tour operating activities; Strategic initiatives to accelerate growth and profitability.
Following a strategic review, Kuoni’s Board of Directors and Group Executive Board have decided to focus the company’s activities on its core business as a service provider to the global travel industry and to governments. In its new set-up, Kuoni Group will be structured into three divisions, Global Travel Distribution (GTD), Global Travel Services (GTS) and VFS Global. These core businesses benefit from leading global positions and exposure to high growth markets. They already represent around 60% of Kuoni’s current consolidated turnover. Kuoni’s position as a unique service provider with a strong focus on Asia offers attractive opportunities to further drive growth and profitability by leveraging the Group’s scale, exploiting cross-selling opportunities and developing more new business. In particular, Kuoni will focus on markets with attractive, long-term growth potential such as Asia, the Middle East and Africa. The travel market environment is likely to remain fast-changing, requiring travel companies to choose distinct development priorities. Kuoni has therefore decided to focus its resources and to divest its tour operating activities. On a pro-forma basis, the new Kuoni Group employs approximately 8 000 people and generated a turnover of CHF 3.4 billion in 2014. Post-divestment, as a unique and clearly focused company, Kuoni Group aspires to become a leading service provider to the global travel industry and to grow significantly faster than the travel market as a whole.
Focus on services for the global travel industry
Scale advantages, state-of-the-art technology, a global footprint and differentiated product offerings are becoming increasingly important in the global travel industry. The Board of Directors and the Group Executive Board have therefore decided to focus Kuoni’s activities on the three core businesses in which it already has leading global market positions. All three divisions are well placed to benefit in particular from the rapidly increasing number of Asian travellers:
- Global Travel Distribution (GTD, previously FIT) is an industry pioneer and a highly experienced, leading global B2B wholesaler and provider of hotel accommodation and land services. It sells approximately 38 000 room nights per day online. Around 43% of its turnover is sourced from fast-growing Asia/Pacific, the Middle East and Africa markets.
- Global Travel Services (GTS; comprised of Group Travel Experts and Destination Management Specialists, [DMS]) sources and coordinates destination services – from accommodation, transportation, tours and activities, to venues and event management. GTS is the number one player in the growing group travel market and handles 50 000 leisure tours per year. GTS generates 60% of its turnover from Asia/Pacific source markets.
- VFS Global, the industry pioneer and global leader in travel-related business process outsourcing solutions, works for 45 governments, operates 1 400 Visa Application Centres in 117 countries and holds an estimated 50% market share of the global outsourced visa applications market. It generates almost 70% of its turnover from travellers from the Asia/Pacific region.
Three strategic initiatives to accelerate growth and improve profitability
Its reduced portfolio of activities will enable Kuoni – re-branded as Kuoni Group – to focus on three key strategic initiatives to accelerate growth:
- Kuoni Group will invest additional resources in Asia, the Middle East and Africa by leveraging its existing footprint and expanding its capabilities across all divisions.
- Kuoni Group will focus on enhancing its customer service and increasing efficiency by developing new technology platforms and further digitalising its businesses.
- The company aims to selectively expand its service offering and provide its existing services to a wider range of customer segments by utilising its cross-selling potential.
GTD as a business-to-business provider of accommodation and destination services will invest in developing innovative front-end sales solutions, explore new online distribution channels and offer services for online and offline travel agencies, tour operators and other intermediaries in all large travel markets around the world, with a particular focus on China, South Korea, Taiwan, Thailand and Indonesia. GTS as the leading destination service provider for people traveling in groups intends to significantly expand its presence in selected Asian markets by opening new offices, selectively partnering with leading market participants, and by focusing on digital distribution. VFS Global, as the number one service provider in the global outsourced visa application market, intends to expand into adjacent services, leveraging its innovative digitalisation technologies and existing network of more than 1 400 application centres in 117 countries.
Diverging performance of segments in 2014
While preliminary consolidated turnover of Kuoni in its current structure fell by -2.8% in the 2014 financial year to CHF 5 509 million (-0.1% organic), the three divisions which will represent Kuoni’s core business going forward showed a 1.1% increase in turnover to CHF 3 443 million (2.8% organic). Group Travel has seen a temporary slowdown in demand in the key Japanese market, which caused a 7.4% fall in turnover to CHF 873 million (-6.5% organic). The FIT business (future GTD), which provides accommodation and destination services, showed a 7.3% turnover increase to CHF 1 933 million (8.8% organic). Meanwhile, turnover at Outbound Nordic declined by -14.1% to CHF 844 million (-9.0% organic) and at Outbound Europe/Asia by -5.0% to CHF 1 343 million (-1.4% organic). The turnover of the DMS segment fell by -12.6% mainly due to geopolitical events to CHF 365 million (-9.0% organic). The VFS Global segment grew by 11.3% to CHF 272 million (14.2% organic). For full year 2014, Kuoni expects EBIT to be around CHF 85 million, with a net result of around CHF 66 million including accrued charges from the divestiture project. The full year results will be announced as previously stated on 17 March 2015.
New owners for Kuoni’s tour operating activities
Kuoni’s tour operating activities offer outbound leisure travel from European and Asian source markets including a variety of tailor-made, individual and packaged holidays, predominantly to local end-consumers. Kuoni operates under a range of premium and specialist brands and is well known and trusted due to its long-standing experience and significant expertise in the travel sector. Kuoni ranks among the top five tour operators in Europe and has a well-established presence in Hong Kong and India. In spite of this position, Kuoni’s outbound business faces increasing challenges from changing market conditions. In consideration of the fundamental changes in the industry and the unique position of Kuoni Group as a leading service provider to the global travel industry, the Board of Directors and Group Executive Board have decided to focus the company’s resources on those core activities in which Kuoni already enjoys a leading market position with attractive prospects. Kuoni has therefore decided to exit the tour operating businesses.
This exit from the tour operating business includes Kuoni Switzerland, UK, Benelux, Hong Kong/China and India as well as operations in Scandinavia/Finland. This affects approximately 3 800 people in total and business that generated turnover of CHF 2.2 billion in 2014. Kuoni firmly believes that the outbound business can be better developed under new ownership, potentially leveraging scale or specific local strengths. Kuoni will seek assurance about the continuation of the existing business locations and the continued employment of staff.
The exit from the tour operating business will not have any impact on customers or their current and future bookings. All units will continue to deliver their expert services to the accustomed standards of quality and reliability. Kuoni intends to find new owners in the course of 2015.
A unique and clearly focused company with market-beating growth aspirations
Kuoni Group will become a focused and clearly positioned player in the global travel industry, and will have attractive growth prospects. It aspires to grow significantly faster than the global travel markets, which according to UNWTO will expand by 3.8% annually, and it will continue to generate strong cash flow. Kuoni Group will build on robust financial foundations, which will support the implementation of its growth strategy in the emerging travel markets of Asia, the Middle East and Africa. Proceeds from the sale of the tour operating businesses will mainly be invested to further develop the group’s core business and strengthen its leading global market positions. On a pro-forma basis, the new Kuoni Group employed approximately 8 000 people and generated revenues of CHF 3.4 billion in 2014. Mid-term targets for the new set-up will be issued together with the full year results announcement on 17 March 2015. Net Result 2015 is expected to be negatively impacted by divestiture charges of approximately CHF 25 million, while the proceeds from divestiture are expected to be generated more likely in 2016.
Kuoni’s Board of Directors intends to maintain the dividend pay-out ratio of 40-45% of the net result attributable to shareholders, excluding non-recurring items from the divestment process.
Following the decision to refocus Kuoni’s activities, responsibilities within the company’s Group Executive Board have been adjusted with immediate effect as follows: Peter Meier (CEO), Thomas Peyer (CFO), Ivan Walter (Global Travel Distribution), Rolf Schafroth (Global Travel Services) and Zubin Karkaria (VFS Global). In addition, Rolf Schafroth will continue to lead Kuoni’s outbound activities.
Heinz Karrer, Chairman Kuoni Group.
Chairman Heinz Karrer said: “Kuoni Group’s new strategic direction will transform the company into a unique, clearly positioned player in the global travel industry. The new group focus will lead to a win-win situation for customers, employees, shareholders and partners alike.”
Peter Meier, CEO Kuoni Group.
CEO Peter Meier said: “We are committed to further developing our core business and to rapidly and sustainably growing our core business as a leading service provider for the global travel industry. We will offer our customers, partners and suppliers attractive and competitive services and solutions that allow them to provide their clients with a smooth travel experience.”
Preliminary Turnover for the 2014 Financial Year
|
CHF million (unaudited) |
1.1-31.12.2014 |
1.1.-31.12.2013 |
Change in % nominal |
Change in % organic1) |
|
Group Travel |
873 |
943 |
-7.4 |
-6.5 |
|
FIT (Fully Independent Traveller) |
1 933 |
1 802 |
7.3 |
8.8 |
|
Outbound Nordic |
844 |
982 |
-14.1 |
-9.0 |
|
Outbound Europe/Asia |
1 343 |
1 414 |
-5.0 |
-1.4 |
|
Destination Management Specialists |
365 |
417 |
-12.6 |
-9.0 |
|
VFS Global |
272 |
244 |
11.3 |
14.2 |
|
Less turnover elimination between segments |
-121 |
-133 |
|
|
|
Total |
5 509 |
5 669 |
-2.8 |
-0.1 |
1) adjusted for currency fluctuations and acquisitions/divestments.
Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.
