Kuoni Group CEO Hans Lerch has this to say on the Group`s results for fiscal 2003…
Kuoni Group CEO Hans Lerch has this to say on the Group`s results for fiscal 2003: Following a slew of bad news, the travel industry was confronted with its biggest challenge in recent decades during 2003. The Kuoni Group performed well in a crisis-ridden environment and met its targets. We also succeeded in either maintaining or achieving operating profitability in every one of our Strategic Business Divisions. The Group is in good shape in terms of costs and structures, and current booking levels give us grounds to look to the future with rather more optimism.
The Kuoni group achieved further progress at the operating level in a number of markets in the last year. Following a promising start to the year in January and February, business virtually came to a standstill for a while in the second quarter as war broke out in Iraq and the SARS virus spread. Although bookings began to increase again in the autumn, the gains made in the fourth quarter were not sufficient to compensate for the slowdown suffered in the previous quarters.
Turnover was down from CHF 3.739 billion in 2002 to CHF 3.295 billion. The contributions made by Leisure Travel (81%), Incoming Services (14%) and Business Travel (5%) were barely changed relative to the prior year.
The Kuoni Group`s flexible business model allowed it to adapt capacities continually to shifts in demand. This, together with the consistent renegotiation of contracts with suppliers, resulted in an increase of 2.1 percentage points in the gross profit margin from 26.2% to 28.3%. This enabled us to limit the decline in gross profit to a 5% drop to CHF 931.5 million (2002: CHF 980.8 million).
In addition, operating costs were cut by a further CHF 31 million, resulting in EBITA (earnings before interest, taxes and amortisation of goodwill) of CHF 102.4 million, down from a yearback figure of CHF 120.7 million. The EBITA margin was more or less stable year-on-year at 3.1% (2002: 3.2%).
The net result increased from CHF 26.2 million to CHF 64.6 million, CHF 44.1 million of which consisted of the after-tax profit from the sale of the SBD Business Travel – BTI Central Europe.
Also due to the sale of the SBD Business Travel, pre-goodwill earnings (net profit before goodwill amortisation) rose from CHF 71.9 million to CHF 105.9 million. This equates to CHF 35.80 per registered B share, up from CHF 24.39 in 2002.
Since there was no change in the Group`s capital structure during the year, earnings per registered B share were up in line with the net result from CHF 8.90 to CHF 21.86. Our dividend policy entails distributing 30%-35% of the net result to shareholders. The Board of Directors therefore proposes a CHF 7 dividend per registered B share, up from CHF 3 in 2002, to the General Meeting of Shareholders, which takes place on 28 April 2004.
The Group`s liquid funds as at 31 December 2003 totalled CHF 616.7 million, up from CHF 595.1 million at the end of 2002. This figure includes advance payments from customers in the amount of CHF 256.2 million (2002: CHF 267.6 million). The Group balance sheet as at the end of 2003 shows shareholders` equity of CHF 612.9 million and an equity ratio of 33.3% (compared with prior-year figures of CHF 577.6 million and 29.5%), which represents a solid financial position by travel industry standards.
Cash flow from operating activities amounted to CHF 74.4 million in 2003, further bolstering the Group`s cash position. Both this cash position and the proceeds from the sale of BTI Central Europe are to be used to repay bank loans and the convertible bond maturing in February 2005. Capital expenditure will otherwise be focused on developing our existing markets through new product launches or strategic acquisitions in leisure travel. If no suitable purchases can be found, and if the market environment either remains stable or improves, various options for a payout to shareholders will be studied in 12 months` time.
Results by business area
Switzerland
The SBU Switzerland posted turnover down 13.4% from CHF 1.005 billion to CHF 870 million in 2003. Kuoni Travel Switzerland responded to sluggish demand with a strategic realignment of charter flight capacities. The downturn in Tour Operating was partially offset by a slight rise in the gross profit margin and a reduction in operating costs, resulting in EBITA of CHF 29.7 million (2002: CHF 40.5 million).
Scandinavia
Systematic restructuring – including structural adjustments, capacity management and targeted cost-cutting measures – paid off in 2003 as the SBU achieved a turnaround. Lower volumes caused turnover to fall 9.6% from CHF 554 million to CHF 501 million. Thanks to a higher gross profit margin, however, the EBITA figure rose from a CHF 14.2 million loss in 2002 to a CHF 9.0 million profit.
Europe
The SBD Europe put in a strong performance amid difficult conditions, increasing its turnover from CHF 486 million to CHF 488 million. Declining markets hit results in Spain, Italy and the Netherlands. The acquisition of Vacances Fabuleuses SA in France and the euro`s appreciation compensated for both this effect and the sale of Austrian company Allround Travel International. As a result of margin increases and rigorous cost control, EBITA more than doubled from the 2002 figure of CHF 3.9 million to CHF 8.3 million.
United Kingdom & North America
The SBD United Kingdom & North America suffered a 15.3% fall in turnover from CHF 893 million to CHF 756 million in 2003. This was due to the general reluctance of US customers to travel abroad and the negative impact of the weak British pound and US dollar, which lost a combined 6.5% versus the Swiss franc. The British Foreign Office`s travel advisories concerning seven of the UK operation`s top ten destinations were another significant negative factor.
Nevertheless, the SBD once again contributed the largest share of Kuoni Group earnings with EBITA of CHF 70.4 million (down 14.3% from
CHF 82.1 million in 2002). The SBU United Kingdom also managed to maintain its high EBITA margin of 11.5%.
Incoming & Asia
The Iraq war and SARS depressed the SBD Incoming & Asia`s results massively in the first half of 2003, causing full-year turnover to fall 14.8% from CHF 647 million to CHF 551 million in spite of a rapid recovery in the second half. Turnover was down 14.6% on average in the incoming markets (Europe, the USA and Africa). The SBU Asia saw its turnover fall 16.1%, with roughly two-thirds of the decrease attributable to negative currency effects. EBITA decreased from CHF 5.0 million in 2002 to CHF 2.6 million.
Business Travel
The SBD Business Travel`s turnover fell 13.5% from CHF 193 million to
CHF 167 million in 2003 due to ongoing economic weakness and the decline in travel activity.
The trend among airlines towards reducing the commission rates paid to travel agents, among other factors, pushed EBITA down to CHF 1.9 million (2002: CHF 21.9 million). The sale of this division (BTI Central Europe) to UK operator Hogg Robinson plc underscores the Kuoni Group`s strategic focus on leisure travel.
Outlook
Following two very difficult years for the global economy in general and the tourism industry in particular, there are signs that an upswing is on the way in 2004. This positive trend is clearly illustrated by a 15% year-on-year increase in Kuoni Group bookings as at 6 March 2004.
The sale of the SBD Business Travel – BTI Central Europe means that Kuoni is now fully focused on its core leisure travel franchise in line with its defined corporate strategy. In view of the continually evolving needs of our customers and possible shifts in demand at any time due to political or other events, a high degree of flexibility and responsiveness will be maintained as regards the product range, advisory capacity and services. Added to this approach, the Group`s clear focus on leisure travel and continuing emphasis on stringent cost management put it in an excellent position to secure further success going forward.
The Kuoni Group will release information on the further progress of its business on the following dates:
General Meeting of Shareholders 28 April 2004
Half-year results 20 August 2004
Nine-month results 9 November 2004
Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.
