Kuoni posted further strong results for 2007, the first year of its second century. With turnover growth of 15.1% and a record net result of CHF 136.3 million, the Kuoni Group successfully maintained its favourable overall development.

Highlights of 2007

• Kuoni raised its turnover 15.1% from the CHF 4 082 million of 2006 to CHF 4 699 million, including year-on-year organic growth of 6.1%.
• Earnings before interest and taxes (EBIT) were increased 15.3% from CHF 121.7 million to CHF 140.2 million. The EBIT result includes costs incurred by year-end in the current transformation process, investments in the internet project Shoestring, and a rise in the acquisition-related amortisation of intangible assets.
• The net result for the year of CHF 136.3 million was a 16.8% improvement on 2006 CHF 116.7 million and was the highest ever recorded by the Kuoni Group. Earnings per registered share B was increased by 19.3% from CHF 39.02 to CHF 46.54.
• Cash flow from operating activities amounted to a record high CHF 256.9 million (compared to CHF 190.3 million for 2006). Free cash flow was increased from the CHF 152.6 million of the prior year to CHF 208.4 million.
• Kuoni Economic Profit (KEP) totalled CHF 58.5 million, a 21.6% improvement on 2006. Return on invested capital (ROIC) was raised from the 16.1% of the prior year to 16.4%.
• The Board of Directors will propose to the Annual General Meeting of Shareholders of April 18, 2008 that a dividend of CHF 17.00 per registered share B be distributed for the 2007 business year.
• The consolidated balance sheet showed equity of CHF 636 million on December 31, 2007 (compared to CHF 601 million on December 31, 2006). The year-end balance sheet equity ratio stood at 32.2% (2006: 33.5%).
• Kuoni continued to pursue its policy of adding premium and specialist tour operators to the group, and made five further acquisitions in this segment in the course of 2007.
• Groupwide booking levels in the tour operating business as of March 10, 2008 were 12% above prior-year equivalents in Swiss franc terms, a further reflection of the positive overall development of the Kuoni Group.

“By posting record results, Kuoni has made an excellent start into its second century,” says Max E. Katz, CFO and Speaker for the Group Executive Board, commenting on the Kuoni Group’s 2007 annual results. “Once again, and working in a business environment that is seeing tremendous pressure on margins, our Group achieved further tangible growth that was well above the overall market average,” Katz continues. The CHF 4 699 million turnover for the year includes organic growth of 6.1%. Acquisitions accounted for 6.6% of the overall 15.1% year-on-year turnover increase, while the remainder derived from the net positive impact of currency movements (2.4%).

The encouraging turnover development was partly supported by the favourable overall economic climate and at the same time, 2007 remained largely free of any exceptional circumstances or events. Kuoni made the most of these beneficial conditions, not only in its day-to-day business but also to push ahead with a number of major internal projects. The
undertaking initiated in the course of the year to transform the existing country-based organisation into one based on three strategic business divisions bundles similar activities, processes, competencies and brands more effectively and thereby creates sizeable synergic benefits. Selective ranges of measures were also taken in response to the continuing difficulties in the Swiss and UK markets, and have already delivered their first tangible results.

Gross profit for the Kuoni Group amounted to CHF 1 042 million, a 17.8% improvement on the CHF 884 million of 2006. Gross profit margin increased as well, rising from 21.6% to 22.2% as a result of a positive mix-effect.

Earnings before interest and taxes (EBIT) also showed positive trends, and rose to CHF 140.2 million for the year. The EBIT result includes CHF 7 million in transformation process costs incurred by year-end, CHF 7.9 million of investment in the internet project Shoestring and a rise in the acquisition-driven amortisation of intangible assets of CHF 12.5 million. Cash flow from operating activities increased from the CHF 190.3 million of 2006 to a record CHF 256.9 million. Free cash flow was also highly encouraging, rising 36.6% to CHF 208.4 million.

In view of these favourable results, the Board of Directors will propose to the Annual General Meeting of Shareholders of April 18, 2008 that a dividend of CHF 3.40 per registered share A and CHF 17.00 per registered share B be distributed for the 2007 business year.

The Kuoni Group held cash and cash equivalents of CHF 609 million on December 31, 2007 (compared to CHF 604 million at the end of 2006). This amount included advance payments by customers totalling CHF 451 million (end of 2006: CHF 372 million). Despite acquisition funding and share buybacks totalling CHF 73.7 million, Kuoni still maintains a comfortable financial position with no net debt, and had a net cash position of CHF 89 million at yearend (which compares to a net cash position of CHF 174 million at the end of 2006).

The consolidated balance sheet showed equity of CHF 636 million on December 31, 2007, a 5.8% increase on the CHF 601 million shown at the end of the prior year. With the share buyback programme completed in the course of the year, the balance sheet equity ratio declined from 33.5% to 32.2% – still above the industry average.

Results by Strategic Business Unit

Switzerland [1]

While Kuoni Switzerland’s specialist subsidiaries posted favourable results for 2007, the inclusive-tour segment under the Helvetic Tours brand felt the pressure on margins in Kuoni’s home Swiss market. In response to these trends, a restructuring programme was initiated that has seen Helvetic Tours repositioned for 2008. A satisfactory solution was also found to the capacity utilisation issue at Edelweiss Air, through a new strategic partnership with Swiss International Air Lines that will further provide Kuoni with additional access to new customers in new markets. Strategic Business Unit Switzerland generated turnover of CHF 1 001 million for the year, a 2.7% improvement on the CHF 975 million of 2006. Gross profit margin slipped slightly from 25.0% to 24.8%; but the year saw a return to EBIT growth, with the CHF 20.2 million recorded a 9.2% improvement on the CHF 18.5 million of the prior year.

Scandinavia

Strategic Business Unit Scandinavia posted another record result for the year, with all its subsidiaries reporting double-digit percentage turnover growth. As a result of the increases, Kuoni is now the second-biggest leisure travel company in Norway and Denmark, and [1] Excluding the Las Playitas site, whose results are shown under Corporate. The relevant prior-year figures have been adjusted accordingly.

substantially consolidated its number-three position in the Swedish market. The purchase of Danish company Falk Lauritsen was also added to the Kuoni Scandinavia portfolio in the course of the year, Kuoni's biggest acquisition of 2007 in turnover terms. Strategic Business Unit Scandinavia recorded turnover of CHF 992 million for the year, a 23.7% improvement on the CHF 802 million of the prior year. Kuoni Norway made the biggest contribution to the turnover increase. Gross profit margin stood at 21.5%, compared to 21.8% for the previous year. EBIT rose 53.3% on the strength of the turnover increase, from the CHF 29.1 million of 2006 to CHF 44.6 million.

The Kuoni Group expanded into the rapidly-growing Russian market in the course of 2007, acquiring an 80% holding in specialist operator UTE Megapolus. The year also saw the innovative internet based business model of the subsidiary Shoestring extended to the UK, German, Italian and Spanish markets. Shoestring offers soft-adventure travel experiences, distributes its products exclusively online and enables its customers to maintain active dialogues with one another via the community platforms of its various websites.

Europe

Kuoni’s Strategic Business Unit Europe also developed well, with most Units except Austria reporting to a large extent double-digit percentage growth in turnover terms. At Kuoni France the upward trend was further assisted by the acquisition of Les Ateliers du Voyage, a premium provider in the long-haul segment. Strategic Business Unit Europe as a whole generated turnover of CHF 752 million for the year, a 12.4% improvement on the CHF 669 million of 2006. Gross profit margin remained largely unchanged at 20.0% (prior year: 20.1%), while EBIT showed a 10.3% year-on-year improvement, rising from CHF 19.4 million to CHF 21.4 million.

United Kingdom

Strategic Business Unit United Kingdom halted its recent turnover decline: the CHF 770 million recorded for the year was a tangible increase on the CHF 698 million of 2006. The Unit’s new specialist brands including (from mid-year onwards) the newly-acquired CV Travel made substantial contributions to the improved turnover result. At the same time, however, the various purchases entailed sizeable amortisation of intangible assets of CHF 7.9 mio (prior year: CHF 2.4 million). This in turn affected the EBIT result, which declined from CHF 52.9 million to CHF 44.1 million. The newly-appointed top management initiated a number of actions in the second half-year that will deliver a significant EBIT improvement in the medium term.

Asia & Destination Management

Strategic Business Unit Asia & Destination Management posted another impressive set of results. The CHF 1 273 million turnover for the year was a 25.7% increase on the CHF 1 013 million of 2006; gross profit margin rose substantially to 21.5%; and the EBIT result of CHF 48.3 million was a sizeable 39.6% improvement on the CHF 34.6 million of the prior year. Alongside its successful core travel business, Kuoni India substantially expanded its VFS Global visa and residence-permit issuing services in 2007, establishing an extensive network of more than 200 offices in 39 countries. Kuoni’s activities in the Chinese market saw a clear expansion of its premium-segment programme (in preference to its volume business). These endeavours had an immediate impact: the CHF 68 million turnover for the year was a 19.5% improvement on 2006. All the SBU’s destination management units reported improved results; and Destination Management Europe should gain further impetus in 2008 from its role as official accommodation agency for UEFA’s European soccer championships.

Acquisitions

In addition to its organic growth, Kuoni made further major purchases within its focus premium and specialist travel segment in the course of 2007. All the companies acquired were specifically selected for their ability to complement the existing product portfolio and expand the Kuoni Group’s presence and profile in geographical terms.

The year’s first acquisition, in April, was of Dorado Latin Tours. The Swiss-based specialist has been offering high-end travel arrangements to South America from Colombia to Tierra del Fuego along with marine expeditions for seven years now. CV Travel, which was established in 1972, has been supplementing Kuoni UK’s luxury travel range since July 2007. The company offers luxury villa rentals in Europe, North Africa and the Caribbean under its “CV” brand.

French-based Les Ateliers du Voyage was also acquired in July. The company specialises in luxury travel arrangements that are tailored to the wishes and needs of a highly discerning clientele.

The Kuoni Group also strengthened its position in Denmark in 2007 through the August acquisition of Falk Lauritsen. The specialist company is excellently positioned in its home market, where it offers travel arrangements to Spain, Greece, Turkey, Egypt and the Caribbean.

With its 80% holding in the UTE Megapolus Group, which it acquired at the end of August, Kuoni marked its first expansion into the rapidly-growing Russian travel market. UTE Megapolus offers exclusive skiing vacations in the Alps, together with beach holidays in Greece and Croatia.

Outlook

“Our performance in the first few weeks of 2008 gives us grounds for cautious optimism about the year as a whole,” says Max E. Katz. “The international financial markets do harbour uncertainties that could adversely affect the general economic mood in some of our markets,” he adds. “But with our broad business presence, the risks here are well spread in both geographical and segment terms.” Experience tells us that Kuoni’s premium business is more resilient to economic downturns than the inclusive-tour segment. In addition, increased purchasing power in a number of countries has also raised the demand for higher-end travel products.

The positive prognoses are based on encouraging booking figures for the first few weeks of 2008: booking levels as at March 10, 2008 for the Kuoni Group’s tour operating business were 12% above their prior-year equivalents in Swiss-franc terms. Year-on-year booking trends for key Kuoni entities:

Switzerland +8%
Scandinavia +41%
France +12%
United Kingdom -6% (in GBP + 6%)
India +27%

Kuoni’s confident projection for 2008 is also based on a number of strategic considerations. The Kuoni business model, with its low vertical integration, has been further enhanced (and the associated business risks have thus been further reduced) through the new strategic partnership concluded with Swiss International Air Lines. And the consistent strategy of making selective acquisitions of premium and specialist providers permits further strategic
expansion within profitable market niches. With turnover of CHF 4.7 billion, the Kuoni Group is also strong enough to remain an independent business. The current transformation of the corporate organisation, and the greater exploitation of intragroup synergies that the new structure facilitates, will further sharpen Kuoni’s competitive edge. And the continued development of the internet business, with its dynamic growth and its attractive direct distribution options, should help further strengthen the Kuoni Group’s earnings power and enable it to continue to grow at above-market rates.

[1] Excluding the Las Playitas site, whose results are shown under Corporate. The relevant prior-year figures have been adjusted accordingly.