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Kuoni raises turnover and generates high free cash flow
The tourist travel sector faced a number of developments and events over which it had no control or influence in the first nine months of 2006. These included the threat of bird flu, terrorist attacks in Turkey and heightened security in London.

The Kuoni Group achieved sizeable organic growth in the period concerned. Kuoni also further expanded its already-strong position in the premium and specialist segments through a number of significant selective acquisitions which it made during the period:

Avontuur.nu of the Netherlands, from January 2006

Distant Frontiers of India, from June 2006

Kontiki of Switzerland, from July 2006

Asian Trails, which is active in seven Southeast Asian countries, from October 2006

Journeys of Distinction of the UK, from October 2006

Kirker Holidays of the UK, from October 2006

These acquisitions, which are all fully in line with overall Kuoni Group strategy, represent additional annualised turnover of some CHF 290 million. On average, and excluding the synergies generated through their acquisition, the EBIT margins achieved by these companies are more than twice as high as that of the Kuoni Group. The new acquisitions
should thus make a substantial contribution to future Group profitability.

“By acquiring these specialist companies in growth regions and exclusive market segments, we can effect a further sizeable increase in our shareholder value,” Group CEO Armin Meier confirms. Kuoni Travel Holding Ltd. increased its turnover for the first nine months of the year by 9.8% in 2006, from the CHF 2 790 million of the prior-year period to CHF 3 062 million. Of this 9.8% increase, 8.4 percentage points were attributable to organic growth, +0.8 percentage points to currency movements, +3.3 percentage points to acquisitions and -2.7 percentage points to divestments. Gross profit was increased 5.9% to CHF 649.6 million (prior-year period: CHF 613.6 million). Gross profit margin slipped from 22.0% to 21.2%. Operating expenses rose 5.3% from the CHF 533.2 million of the prior-year period to CHF 561.3 million, owing largely to the expansion of Kuoni’s Asian business activities.

The successful launch of new Kuoni premium products in India and favourable business trends in Europe and Africa in the destination management segment helped raise earnings before interest and taxes (EBIT) 9.8% to CHF 88.3 million (2005: CHF 80.4 million). The increase is all the more encouraging in that exceptional expenses were incurred during the period through restructuring activities and Kuoni’s centennial celebrations.

The EBIT margin of 2.9% was unchanged from the prior-year period. The balance sheet on September 30, 2006 showed equity of CHF 604 million (up 3.8% from the CHF 582 million of December 31, 2005) and a sound equity ratio of 32.3% (compared to 35.1% at the end of 2005). Cash flow from operating activities amounted to CHF 205 million (prior year: CHF 192 million),
while free cash flow totalled CHF 177 million (2005: CHF 169 million).

Third-quarter results

The Kuoni Group generated total turnover of CHF 1 309 million for the third quarter of 2006, an increase of 7.9% on the CHF 1 213 million reported for the same period last year. Of the overall 7.9% increase, 5.9 percentage points were attributable to organic growth, +0.5 percentage points to currency movements and +1.5 percentage points to the net impact of acquisitions and divestments.

Gross profit totalled CHF 278 million, a 1.5% increase on the CHF 274 million of the prior-year period. While July beach holidays had already shown high booking levels at the beginning of the year, the excitement surrounding soccer’s World Cup finals and the warm July weather dampened consumers’ desire to travel in August and September. The decline in demand prompted price cuts in the beach holiday segment and overcapacity in the market as a whole, a trend which also extended to the Kuoni Group’s Edelweiss Air and Novair airlines. The low demand for travel to Turkey and Egypt led to further overcapacities, which had their own dampening effect on price levels.

As a result of these trends, gross profit margin for the third-quarter period slipped from its prior-year level of 22.6% to 21.2%, while earnings before interest and taxes (EBIT) declined 7.8% from the CHF 95.2 million of 2005 to CHF 87.8 million. EBIT margin decreased from 7.8% to 6.7%, and net profit was reduced from the CHF 84.9 million of the prior-year period to CHF 78.6 million.

Strategic Business Unit Switzerland achieved turnover of CHF 323 million in the third quarter of 2006, a 16.2% improvement on the CHF 278 million of the prior-year period. The increase was due largely to a sizeable rise in turnover from the unit’s specialist subsidiaries.

Strategic Business Unit Scandinavia also raised its third-quarter turnover: the CHF 287 million generated for 2006 was 13.4% up on the CHF 253 million reported last year. Strategic Business Unit Europe increased its turnover for the period by 8.8%, from the CHF 215 million of 2005 to CHF 234 million. Third-quarter turnover for Strategic Business Unit United Kingdom declined 2.8% year-on-year, from CHF 212 million to CHF 172 million. The unit’s prior-year turnover result includes CHF 35 million from its US-based Intrav subsidiary, which was sold at the end of 2005. But results for the unit were further (and particularly) affected by the more complex travel formalities imposed in the wake of the thwarted terrorist attack via London Heathrow Airport, and by a decline in demand for travel to Sri Lanka.

Strategic Business Unit Asia & Destination Management posted third-quarter turnover of CHF 314 million, an encouraging 15.0% improvement on last year’s CHF 273 million. The unit benefited to an above-average extent from the strong demand for travel to Europe and Africa and from the buoyant economic conditions in the Asia region.

Outlook

Booking levels on November 12, 2006 for the Kuoni Group’s tour operating business were 10% above their 2005 equivalents. Bookings are particularly encouraging for the Christmas period, with travel arrangements to the Maldives, Thailand and South and East Africa proving especially popular. Booking trends for 2007, while still low, are also an encouraging 14% above their prior-year equivalents.

For 2006 as a whole, the Kuoni Group expects to report total turnover of more than CHF 4 billion and an EBIT result that is largely in line with 2005 levels. Group net profit is likely to amount to over CHF 100 million. Theodore Koumelis - Tuesday, November 14, 2006