For the first nine months Kuoni achieved turnover of CHF 3298 million, a 7.7% improvement on the same period last year (CHF 3063 million). Year-to-date EBITA stood at CHF 104.4 million (23.4% down on the CHF 136.3 million of 2000). Group profit amounted to CHF 67.5 million (a 28.7% decline on last year`s CHF 94.7 million). Pre-goodwill earnings1, however, were only 12.2% below prior-year levels (CHF 124.3 million) at CHF 109.1 million.
On a less encouraging note, the Group`s business environment has deteriorated dramatically since mid-September. The demand for vacations to key destinations and for incoming services has seen a substantial slump, and the company is also feeling the loss of airline commissions in the business travel sector. In view of this, Kuoni expects to post a year-on-year decline in turnover for the fourth quarter, a period which normally makes a substantial contribution (CHF 38.4 million in 2000) to EBITA for the year, and a negative operating result.
The projected fourth-quarter performance will have its impact on results for 2001 as a whole. Basically it is very difficult to say anything about future developments. From the present perspective, however, Kuoni expects to post annual turnover which is slightly below 2000 levels. Current estimates suggest that EBITA for the year would be down to some CHF 60 million, while Group profit may decline to around CHF 10 million. In addition, there will be goodwill impairments2 for the Group`s subsidiaries in the USA and Scandinavia and provisions for excess aircraft capacity in the Scandinavian market. However, neither of these factors will have an impact on overall liquidity in 2001.
The Kuoni Group`s balance sheet remains very solid. Cash at the end of September amounted to CHF 571.9 million, and shareholders` equity totalled CHF 954.0 million.
Group turnover
The prime contributors to the 7.7% increase in year-to-date turnover after nine months to CHF 3298 million (2000: CHF 3063 million) were Kuoni Switzerland, UK and India. The increase would have been even stronger had it not been for the events of September 11, which already had some impact, especially in the retailing and business travel sectors.
The increase in turnover includes the net impact of acquisitions and disposals since the beginning of the year: the acquisition of the remaining 55% holding in Apollo and the sale of the 51% equity stake in N-U-R Neckermann of Austria. In addition, turnover for the Group`s US-based incoming subsidiary T PRO was only included in prior-year results from July 1 onwards.
The net impact of acquisitions and disposals during 2001 accounted for 6,8 points of the 7.7% turnover increase. Currency movements accounted for -1,8 percentage points, while 2,7 percentage points are attributable to organic growth. The 49% minority holding in TUI Suisse continues to be consolidated using the equity method, with its contribution to Group earnings shown under the financial result.
Group EBITA and profit
Despite the sale of N-U-R-Neckermann, the Group posted an EBITA for the third quarter – the most important in the business year – that was a substantial 11.5% improvement on the already-excellent result for the prior-year period. Indeed, third-quarter EBITA for 2001 reached a new record high. All strategic business units contributed to this performance with the sole exception of Business Travel, where the adverse effects of September 11 were more immediately felt. Particularly encouraging were the third-quarter results posted by the Group`s Scandinavian subsidiaries, where the first benefits of the restructuring of processes and workflows in line with Kuoni corporate standards began to be felt. Intrav, the Group`s US subsidiary, also achieved its EBITA target, and presented a favourable result for the quarter.
In view of the above, the shortfall on prior-year EBITA results that had been recorded after six months was narrowed during the third quarter, and stood at minus 23.4% by the end of September. Total EBITA for the year to date amounted to CHF 104.4 million (compared to CHF 136.3 million for the prior-year period).
Goodwill amortisation and tax expenditure both showed substantial increases on the previous year. The CHF 68.5 million financial result (2000: CHF 24.4 million) includes income from the sale of the N-U-R Neckermann holding.
Group profit after nine months amounted to CHF 67.5 million (2000: CHF 94.7 million). Group profit thus remains 28.7% below prior-year levels.
Results by strategic business unit (SBU)
Having already posted a very good first-half performance, SBU Switzerland recorded an excellent set of results for its third and most important quarter of the year. Although retailing in particular sustained sizable sales declines in the wake of September 11, total turnover for the first nine months rose 7.9% to CHF 781 million (2000: CHF 724 million). EBITA improved by a substantial 7.2% to CHF 29.9 million (2000: CHF 27.9 million). The increases are due to buoyant demand for Kuoni`s and Edelweiss Air`s charter packages to the Mediterranean and overseas destinations, and to strong performances by specialist tour operators Manta Reisen and Railtour.
Despite the adverse currency variance GBP versus CHF the SBU United Kingdom & North America equalled last year`s record sales, reporting a turnover of CHF 808 million for the year to date (compared to CHF 809 million for the prior-year period). However, the performances of the two country units suffered very different fortunes. The UK once again exceeded expectations and produced a new record nine-months result in sterling terms. Despite negative currency variances of 4.6%, the EBITA of CHF 65.0 million almost matched last year`s total of CHF 66.7 million. The costs of the loss of the Sri Lanka business during the third quarter and the post-September-11 impact could largely be compensated by excellent trading results both at Kuoni`s core tour operations and at Voyages Jules Verne. Intrav in the USA had a positive nine-months EBITA result of over CHF 4 million, despite its poor first-half results and the immediate and severe impact of September 11. This is, of course, significantly below the levels of the previous year, due to the loss of USD 4.9 million in profit contributions from Concorde operations during the first half of 2001. The combined SBU United Kingdom & North America EBITA of CHF 71.0 million (2000: CHF 84.8 million) continues to represent the largest SBU contribution to Group EBITA results.
With year-to-date turnover of CHF 1009 million (2000: CHF 868 million), SBU Europe is the biggest of the Group`s units in sales terms. Around half of the unit`s total turnover comes from its Scandinavian subsidiaries. SBU Europe also posted the biggest year-on-year increase in turnover – 16.2% – for the first nine months. Despite positive contributions from France, Austria and the Netherlands, however, the unit recorded a negative EBITA for the period of minus CHF 12.0 million (2000: CHF +1.0 million). The prime cause of this negative result was the CHF 18.7 million loss suffered in Scandinavia. But, following a deeply disappointing first half, and thanks to process restructuring and rigorous cost management, the unit`s Scandinavian operations did experience an excellent third quarter whose EBITA of CHF 11.3 million was substantially above budgeted expectations. On a further encouraging note, the reorganisation of the distribution structures in the unit`s Italian operations is in the process of being completed.
Year-to-date results for SBU Business Travel already felt the first repercussions of the events of September 11 and the current upheavals in the Swiss air transport sector. Net turnover, which had been up on 2001 at mid-year, now stands at prior-year levels at CHF 137 million. With the loss of bookings and sales commissions for Swissair business, operating results declined by almost one-third. EBITA for the unit amounted to CHF 10.2 million (2000: CHF 14.5 million).
SBU Incoming & Asia raised its year-to-date turnover to CHF 597 million (2000: CHF 548 million). In addition to the first-time inclusion for the full nine-month period of turnover from T PRO, the US subsidiary acquired on July 1, 2000, the successes of the unit`s Indian and Kenyan subsidiaries contributed to this 8.9% turnover increase. Year-to-date EBITA declined 4.7% to CHF 20.2 million (2000: CHF 21.2 million) in the wake of the falloff in traffic to and from the USA.
Outlook for 2001 full year
Despite the excellent results achieved for the third quarter, the Kuoni Group expects results for the fourth quarter – and thus for 2001 as a whole – to be substantially below its mid-year predictions, as a result of the developments since September 11.
Demand is down throughout the industry. Several key business areas for Kuoni – vacations to the United Arab Emirates, Egypt and overseas destinations, as well as incoming services – have been hit particularly hard. Travel from the USA, and thus Intrav`s business, has virtually dried up. In view of the current global surfeit of airline seats, reducing the Group`s own overcapacity in Scandinavia is proving more difficult than ever. Kuoni is pursuing its efforts to turn around the situation in Scandinavia.
The Kuoni Group has responded to the deterioration in market conditions since September 11 with a strict cost management programme. In addition to a thorough analysis of all business processes, this includes a temporary freeze on all recruitment, advertising and investment. Some 500 positions have been eliminated group wide, most of them through natural attrition. The US-based companies, which have been particularly hard hit, have introduced short-time working for their remaining personnel. However, the impact of the measures taken will be felt in 2002 only. Kuoni and Apollo continue to pursue all the options for disposing of the Airbus A330, which is surplus to requirements for the Group`s Scandinavian operations.
From the present perspective, the Group expects to record an annual turnover result which is slightly below prior-year levels. EBITA for the year will not exceed some CHF 60 million, and Group profit is expected to amount to around CHF 10 million. The Group will also incur goodwill impairments for its subsidiaries in the USA and Scandinavia, and will need to make provisions for its aircraft overcapacity in Scandinavia, though neither of these measures will impact adversely on its overall liquidity position in 2001.
In view of the current political and economic uncertainties, it is not possible to make any reliable predictions of business trends. The Kuoni Group assumes, from its present perspective, that customers will rediscover their desire to travel once the current global uncertainties have been allayed. In the meantime, the Group has made all the requisite preparations to enable it to respond flexibly to future upturns or downturns in demand.
Balance sheet
The Kuoni Group continues to base its business operations on a very solid balance sheet. Liquid funds totalled CHF 571.9 million at the end of September 2001, and shareholders` equity stood at CHF 954.0 million. The Group also has unused credit facilities in excess of CHF 100 million at its disposal.
Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.
