After the success of the past six years, the first six months of 2001 were a difficult period, as previously announced, for
After the success of the past six years, the first six months of 2001 were a difficult period, as previously announced, for
In the second half of 2001 the Kuoni Group expects a result that will be only lightly below that of last year`s good second-half. This can be attributed above all to the high number of bookings in important markets like the UK, Switzerland and India as well as to a good second half-year for Incoming. The necessary steps to improve profitability in the problem markets of Scandinavia, Italy and the US have also been initiated, and the full effect of these should be felt in 2002.
Despite this promising second-half, the setback experienced in the first six months means that the figures for the year as a whole will not be as good as those of the previous year. While turnover will increase, excluding unforeseen events, to stabilise at just below CHF 4.5 billion, EBITA will probably decline by around a third in comparison with the previous year.
The Kuoni Group expects to be back on track for profitable and sustainable growth in 2002. In operational terms this means that profitability in the problem markets is set to show a clear improvement. In addition to this, the Group has decided, after a strategic review of all activities, to refocus its main business Tour Operating more consistently on the Kuoni core competency: the attractive premium and long-haul segment. A step in this direction was Kuoni`s successful withdrawal from the high-volume business in Austria with the sale of N-U-R Neckermann in July 2001. In Scandinavia, a sale is being considered as one possible option. In its home market Switzerland Kuoni, as market leader, will remain active in both the high-volume and premium areas.
Group turnover
Turnover increased in the first half of 2001 by CHF 226 million, or 13%, to CHF 1.972 billion (2000: CHF 1.746 billion), reflecting the complete takeover of what had previously been the 45%-owned subsidiary Apollo in Scandinavia as of 1 January 2001 and the inclusion of the US Incoming subsidiary T PRO, which had not been a part of the Group in the first half of 2000. However, the divestment in Austria, where Kuoni sold its 51% holding in N-U-R Neckermann to Thomas Cook, the German parent company of Neckermann, partially neutralized this growth. Overall, acquisitions resulted in turnover growth of 10.5%. The currency effect amounted to – 2.2%, while organic growth was 4.7%. The minority holding in TUI Suisse (49%) continues to be consolidated in accordance with the equity method. Its contribution to profit is shown under financial income.
Group EBITA
EBITA (earnings before interest, taxes and amortisation of goodwill) for the first half came to CHF – 2.5 million, down CHF 43.0 million or 106.2% from CHF 40.5 million in firsthalf 2000. As announced on 13 July, the bulk of this decline was attributable to a loss of CHF 30.0 million at the Scandinavian unit. In addition and as also previously reported, the abandoned IT project ACE (CHF – 7.8 million), the contraction in EBITA at Intrav in the US, which had previously been a major income generator, and the losses in Italy all had a negative impact.
Group profit
Reflecting the expansion strategy pursued in past years, amortisation of goodwill was up by 48.8% to CHF 27.9 million. The tax burden increased by almost CHF 25 million, or 153.1%, (2001: CHF 40.3 million; 2000: CHF 15.9 million), the most significant part of this resulting from a change in tax practice by the UK authorities. The financial result rose by CHF 50.9 million to CHF 69.7 million (2000: CHF 18.8 million). This is due to the sale of remaining securities holdings and to the proceeds from the sale of N-U-R Neckermann Austria. Overall, the various changes caused a drop in Group profit to CHF 2.9 million (2000: CHF 29.9 million; – 90.3%).
SBU Switzerland: still setting the pace
In spite of continuing strong competition in a domestic market characterized by weak growth, the Strategic Business Unit (SBU) Switzerland was able to improve on the record turnover of the previous year with growth of 9.9% to CHF 445 million (2000: CHF 405 million). The core unit Kuoni Reisen AG and the airline Edelweiss Air booked significant increases, as did the specialist operators Privat Safaris (East Africa), Manta Reisen (Indian Ocean, diving holidays) and Railtour Suisse (rail travel).
As a consequence of the one-off costs incurred for the cancellation of the IT project ACE (CHF 4.9 million) EBITA fell despite the good trend of business by CHF 3.1 million to CHF – 6.7 million (2000: CHF – 3.6 million).
In the second half, which is traditionally stronger in terms of travel, turnover and profits, and in which Kuoni Switzerland and its subsidiaries are already registering a strong booking volume thanks to its position as market leader, the SBU Switzerland will be better able to absorb the additional costs. Barring unforeseen events, it expects a pleasing result for the year as a whole: an increase in turnover similar to that in the first half-year and a slight contraction in EBITA, although the latter will be less than the costs for ACE, the full amount of which has been charged to the first half-year.
SBU United Kingdom & North America: record in UK
Setback in US Turnover of the SBU United Kingdom & North America at CHF 516 million equalled the record level of the previous year (CHF 527 million; – 2.1%). The subsidiaries on the old and new continents experienced divergent trends. Kuoni UK remained on course for success and once again reported increased turnover. In contrast, the US subsidiary Intrav has still not been able to convince sufficient customers of the attraction of the alternative packages offered to replace the cancelled Concorde around-the-world trips. On balance the SBU achieved an EBITA of CHF 41.3 million (2000: CHF 51.5 million; – 19.8%).
The cost cutting programme introduced at Intrav and the increasing awareness of the new packages on offer will more than likely bear fruit in the coming year. Despite new record highs for the UK, for 2001 as a whole the SBU expects similar turnover to the previous year and a marginally lower EBITA.
SBU Europe: challenges in Scandinavia and Italy
The European subsidiaries in the leisure sector included in this SBU once again put in significantly different performances in the first half of 2001. France and the retail organisation in Austria continued to operate successfully. In Spain and the Netherlands the turnaround was confirmed. However, the difficulties in the problem markets of Scandinavia and, to a much lesser extent, Italy persisted.
In terms of turnover, with an increase of 27.6%, the SBU once again established itself as the Group`s largest unit (2001: CHF 591 million; 2000: CHF 463 million). Of this growth, 24.6% is the result of acquisition and divestment policies (takeover of 100% of the Scandinavian Apollo; sale of the 51% holding in N-U-R Neckermann in Austria), additional turnover of 6.0% was organically generated. The currency effect was negative at – 3.0%.
In contrast to this encouraging performance, EBITA was down CHF 24.9 million to CHF – 37.6 million (2000: CHF – 12.7 million; – 196.1%). As previously stated, this negative trend is almost exclusively attributable to the Scandinavian subsidiaries, Apollo in particular. Passenger traffic did indeed increase, but less sharply than in previous years and less than expected. The imprudent pre-payment policy towards suppliers of the previous owner, the lack of currency hedging for the summer season 2001 and the known problem of over-capacity of the charter airline Novair resulted in an EBITA loss of CHF 30.0 million.
The necessary corrective measures have already been implemented: the newly appointed CEO has increased system and processing efficiency, currencies for the winter season 2001/2 are hedged and the management continues to work intensively on the sale of the surplus Airbus A330, which is nonetheless taking time due to the current oversupply of these aircraft in the market. In addition the Kuoni Group is currently considering the sale of its Scandinavian subsidiaries as a strategic option. In Italy it was above all the costs of streamlining the ponderous sales structure – a project initiated by the new management – which affected the result.
In 2001 the SBU turnover will show double-digit growth, whilst EBITA will remain at a low level due to the losses in Scandinavia. A substantial improvement in the result is anticipated for 2002.
SBU Business Travel: excellent result
The SBU Business Travel can look back on a good first half. The SBU groups the business travel units in Germany, Austria, Switzerland, Liechtenstein and Hungary, which operate under the brand name BTI (Business Travel International) in association with the alliance of the same name. Net sales revenue rose by 4.2% to CHF 98 million in comparison with CHF 94 million in the previous year.
Despite additional costs associated with the cancellation of the IT project ACE, which also affected this SBU, and with the build-up of the new business TRX Europe, EBITA increased slightly by 1.1%, including currency effects by as much as 3.3%, to reach CHF 11.8 million (2000: CHF 11.7 million). Improvements in all national units contributed to this record.
This excellent result underscores the SBU`s ability to successfully hold its ground during the transition from an exclusively agency business to a consultancy business. For the year as a whole, barring unforeseen events, a similarly good result is anticipated.
SBU Incoming & Asia: hesitant start
Following the record results of the previous year, the performance of Incoming in the traditionally weak first half was less successful. On the one hand, the high dollar put the dampers on foreign travel to and from important markets, and on the other hand, the passion plays in Oberammergau had given Incoming Services in Europe an exceptionally strong year in 2000. In contrast Kuoni India, which like P&O travel in Hong Kong also belongs to this SBU, continued to operate very successfully.
Turnover for the SBU showed an acquisition-driven gain of 25.3%. After the inclusion of the US subsidiary T PRO acquired in July 2000, it earned CHF 322 million (2000: CHF 257 million). EBITA fell by CHF 2.6 million due to the weaker sales in Incoming Europe and the US, coming in at CHF 68,000 (2000: CHF 2.7 million; – 97.5%). In the second, more important, half of the year, a recovery in sales is becoming apparent and barring unforeseen circumstances the EBITA will be only slightly below that of the previous year.
Group: higher costs
The costs for management of the Group rose by CHF 2.3 million to CHF 11.4 million (2000: CHF 9.2 million). The increase is attributable, as reported in June, to the departure of the Chairman of the Board of Directors, and will level out towards the end of the year.
Outlook 2001 and 2002: return to higher profitability
After the difficulties of the first half-year, the Kuoni Group anticipates a result only slightly below last year`s good result in the second half-year and providing nothing unforeseen occurs. This expectation is based partly on the absence of one-off costs which dragged down the result in the first half, and partly on the excellent bookings reported by the major tour-operating units, above all Switzerland and the UK, but also the units Business Travel and Incoming & Asia, for the second half, which is the peak travel period. Additionally, the turnaround in Spain and the Netherlands appears complete: both will report profits.
The full-year result for 2001 will not match that of the previous year as a result of the loss in the first six months and the challenges presented in Sweden, Italy and the US. Group turnover should rise to almost CHF 4.5 billion. EBITA, however, will be almost a third less than the previous year`s record level. It is anticipated that Group profit will halve, assuming that there are neither book losses out of sales of holdings nor goodwill impairments at subsidiary companies.
The Kuoni Group is confident that 2002 will see a complete recovery. The foundations have been laid: in operational terms the corrective measures undertaken in Scandinavia, the US, and Italy will almost certainly lead to a substantial improvement in profitability.
Following the withdrawal from the Austrian mass market, on the grounds that it is not a core business, the Group has a much clearer strategic focus on the premium and long-haul business in Tour Operating, which offers much better margins. It is in this segment as well as in broad diversification across the three strategic business areas – Tour Operating, Business Travel and Incoming Services – that the Kuoni Group continues to see the most important factors for success with a view to sustainable and profitable growth and the creation of value for all stakeholders.
Balance sheet: very solid
The Group balance sheet as at 30 June 2001 continues to show a very solid picture: shareholders` equity of CHF 946.9 million and an equity ratio of 36.1%. Cash and cash equivalents and deposits with a residual term exceeding 90 days stood at CHF 600.0 million at mid-year, against customer pre-payments of CHF 494.1 million. We currently have virtually no securities investments in the balance sheet.
Consolidation principles
The Kuoni Group accounts are produced in accordance with International Accounting Standards (IAS) on the basis of historical cost accounting. The consolidation and valuation principles have been applied unchanged. Group turnover comprises net sales revenue from the tour operating business as well as commissions received from the leisure and business travel retailing.
Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.
