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2001 was an exceptionally turbulent year for the Kuoni Group. The difficulties encountered in the first six months were followed by an…
2001 was an exceptionally turbulent year for the
Overall results for 2001 were in line with the projections made last autumn, a result at least partly attributable to the groupwide cost reduction programme implemented in the last quarter.
* The total Group turnover of CHF 4,065 million was broadly in line with prior-year levels (CHF 4,113 million; ( 1.2%).
The first part of 2001 was dominated for the Kuoni Group by the acquisition-in-full of its Scandinavian-based Apollo subsidiary (in which it had previously held a minority shareholding) with effect from January 1, and the demanding reorganisation of these business activities. A further focus was provided by the restructuring of the Group`s Italian operations, where, following its acquisition in December of the 45% equity stake previously held by the Gastaldi Group, it is now the sole owner of the former Kuoni Gastaldi joint venture.
* EBITA before extraordinary provisions amounted to CHF 61.4 million (2000: CHF 174.7 million; ( 64.9%).
* As announced in autumn 2001, CHF 80.5 million was deducted from this amount in the form of a provision for onerous contracts arising from surplus flight capacity in Scandinavia, producing a negative EBITA of CHF ( 19.1 million for the year.
* Ordinary Group profit – before the above provision and impairments ( totalled CHF 10.6 million (2000: CHF 115.1 million; ( 90.8%).
* As announced in autumn 2001, goodwill impairments were effected for US, Scandinavian and Italian-based subsidiaries in the wake of September 11. These resulted in a CHF 203.3 million downward adjustment to balance-sheet goodwill. Further value adjustments of CHF 8.5 million were effected to investments and loans to non-consolidated minority holdings in the light of the same events.
* After deduction of these (non-cash-relevant) impairments and the provision mentioned above, the Group reported a loss for the year of CHF ( 281.7 million.
* The Board of Directors will recommend to the General Meeting of Shareholders of May 15, 2002 that no dividend be distributed for the 2001 business year. Booking volumes for the first few weeks of 2002 suggest that customers are rediscovering their desire to travel in all key markets. The restructuring of the subsidiaries in the USA, Scandinavia and Italy, which depressed 2001 results, is now largely complete. With the latest cost economy programmes in place, all the Group`s units are now excellently equipped to benefit from the recovery in demand. In view of this, and barring further exceptional events, the Kuoni Group is confident of substantially enhancing its business results in 2002.
After a promising beginning to the second half of the year, the terrorist attacks of September 11 brought global travel activity to a virtual halt. The various markets (and the Kuoni subsidiaries active therein) recovered from this collapse to varying degrees. Needless to say, travel to and from the key destination of the USA and, in the last quarter, to major Middle East vacation countries such as Egypt and the United Arab Emirates was particularly hard hit.
On a brighter note, Kuoni`s Swiss and UK subsidiaries made full use of their position as market leader to master the year-end crisis swiftly and with sizeable success. Kuoni Switzerland equalled its record EBITA of 2000, while Kuoni UK posted a new record result in local-currency terms. Further favourable trends were recorded for the promising Indian market. The Kuoni Group took advantage of the year-end market conditions to acquire Allied Tours, the number two in the US incoming sector, at the beginning of 2002, thereby establishing itself as the leader in this key market.
Group results in detail
Group turnover of CHF 4,065 million remained largely at prior-year levels (2000:
CHF 4,113 million; ( 1.2%). Some 83.9% of this amount was generated by the Kuoni Group`s core Leisure Travel business (2000: 82.7%). The proportion contributed by Incoming Services slipped slightly to 13.0%, while Business Travel`s contribution to overall Group turnover was unchanged at 4.6%.
EBITA (earnings before interest, taxes and amortisation of goodwill) stood at CHF ( 19.1 million. The Group`s first-ever negative EBITA result can be attributed to the CHF 80.5 million provision for the excess flight capacity offered by the Group`s Scandinavian-based Novair charter airline. The provision is intended to cover projected losses from such overcapacity up to the beginning of the 2005 summer season. There is currently no prospect of permanently resolving the problem of the carrier`s surplus Airbus A-330 before this date; Novair can lease out the aircraft to other airlines only for part of the time and at the market`s currently low leasing rates. Novair`s own lease agreement on the aircraft expires in autumn 2007.
Goodwill amortisation was increased by 41.7% to CHF 57.2 million (2000: CHF 40.3 million). The increase is due primarily to the first-time consolidation of Apollo.
The goodwill impairments of CHF 203.3 million derive from a revaluation of the book values of the subsidiaries in the USA (Intrav and T PRO), Scandinavia (Apollo, Novair, Alletiders and Dane Tours) and Italy (Kuoni Gastaldi). The adjustments were required mainly following the negative trends triggered by the events of September 11.
The sizeable rise in the financial result – the CHF 57.6 million recorded was a 105.0% increase on the CHF 28.1 million of 2000 – includes, in addition to interest income and interest costs, the income from the sale of the Group`s 51% holding in N-U-R Neckermann of Austria and the expenditure on the 49% minority holding in TUI Suisse. The securities held at the beginning of the year were sold at a favourable moment to help finance the full Apollo acquisition.
Investments and loans to non-consolidated minority holdings were impaired by CHF 8.5 million.
Taxes rose 24.8% to CHF 60.8 million (2000: CHF 48.7 million). The increase is attributable to the fiscally unfavourable distribution of the profits achieved among the various markets, and to a tax-related provision for the profits on the N-U-R Neckermann sale.
The non-cash-relevant goodwill impairments and value adjustments combined with the provision for onerous contracts at Novair produced a Group loss of CHF ( 281.7 million for the year, or CHF – 95.74 per registered share B. In view of the Group`s policy of distributing 30% to 35% of Group profit in the form of a dividend to shareholders, the Board of Directors will recommend to the General Meeting of Shareholders of May 15, 2002 that no dividend be paid for the 2001 business year (a dividend of CHF 12 per share was paid in 2000).
Ordinary pre-goodwill earnings declined to CHF 67.7 million (2000: CHF 155.5 million; ( 56.5%), or CHF 23.02 per registered share B. Cash flow amounted to CHF 82.6 million (2000: CHF 198.5 million).
Results by division
The Kuoni Group has realigned its financial reporting to its new organisational structure with its five strategic business divisions. In view of their importance, separate reports have also been provided for the Swiss and Scandinavian strategic business units, which together form the Switzerland & Scandinavia strategic business division.
Switzerland
The Swiss unit made use of its position as market leader to cope with the crisis faster than the market as a whole and post an outstanding annual result. Despite extraordinary write-offs for the ACE IT project in the first half-year and an adverse fourth-quarter market environment, Kuoni Switzerland equalled its record 2000 results.
Kuoni Travel Ltd., the Edelweiss Air charter airline, specialist tour operators Manta Reisen, Privat Safaris, Railtour and Rotunda Tours, the Popularis and PRS distribution organisations and the Greek incoming agencies combined to generate a new record turnover of CHF 1,058 million. The 2.2% increase on the previous year (CHF 1,035 million) consisted solely of organic growth, with no acquisitions.
The unit`s EBITA of CHF 46.2 million was only ( 2.9% below the record CHF 47.6 million of 2000. Its EBITA margin remained stable at a favourable 4.4%.
Scandinavia
Turnover for the Scandinavian group of companies trebled to CHF 623 million in 2001 (2000: CHF 191 million; + 226.2%) following the first-time consolidation of its Apollo subsidiary. In addition to Apollo, which is active in Sweden, Norway and Denmark and operates its own charter airline, Novair, the unit comprises the Danish tour operators Alletiders and Dane Tours. The problems with Apollo`s business processes in the first half-year – which have already been discussed at length and have now been resolved – and the overcapacity at Novair produced a first-half negative EBITA of CHF ( 30 million. By year-end, the negative EBITA amounted to CHF (50.4 million (2000, excluding Apollo: CHF (8.8 million). To this must be added the CHF 80.5 million provision for Novair`s surplus Airbus A-330.
With key reorganisational measures completed at Apollo and capacity now matched more closely to market demand, the unit expects to see a substantial improvement in its results in 2002.
Europe
The Europe strategic business division comprises the Group`s tour operators in France, Italy, the Netherlands and Spain, which are largely active in the long-haul segment, along with its Austrian retailing organisation. The division saw a steep decline in its turnover for the year to CHF 569 million (2000: CHF 970 million). This is mainly attributable to the disposal of N-U-R Neckermann of Austria at the start of the year.
At the EBITA level, the division recorded a loss of CHF ( 18.3 million (2000: CHF 5.5 million profit). The marked deterioration compared to prior-year results is due partly to the restructuring of the complex Italian distribution organisation, which depressed results by CHF 6.3 million, and partly to the slump in fourth-quarter demand for travel to the USA and Egypt. Both countries feature especially prominently in the portfolios of Kuoni France and Kuoni Gastaldi, the division`s two biggest companies.
The Netherlands` Special Traffic unit achieved its turnaround in 2001 despite a difficult market environment – thanks in no small part to its diversification into African business through the acquisition of African Holidays in the course of the year. The small Spanish unit and the Austrian tour operator business also performed well.
United Kingdom & North America
Despite the paralysis of the US travel market in the fourth quarter, the United Kingdom & North America strategic business division suffered only a slight (and largely currency-movement-induced) ( 5.6% decline in turnover for the year.
Total turnover for the division – which includes Kuoni UK, the US-based Intrav subsidiary and the Group`s Caribbean hotels – amounted to CHF 1,030 million (2000: CHF 1,091 million).
The division`s EBITA decline was more substantial at ( 19.4%, a result due largely to the slump in demand in the US after September 11. But at CHF 86.0 million (2000: CHF 106.7 million), the division again made the biggest contribution to Group EBITA results and achieved a remarkable EBITA margin of 8.4%.
The encouraging divisional results can be ascribed primarily to a strong performance from Kuoni UK. Once again, the Group`s British subsidiary coped better with a difficult market environment than its competitors, and set new turnover and EBITA records in local-currency terms. On the US front, Intrav responded to the changed market conditions with a series of new products focusing largely on intra-US destinations such as Hawaii. The new products have generated sizeable booking volumes in the first weeks of 2002.
Incoming & Asia
Turnover for the Incoming & Asia strategic business division slipped slightly to CHF 642 million (2000: CHF 675 million; ( 4.9%). With Incoming Europe and the T PRO US subsidiary hit particularly hard by the collapse of business to and from the USA, the division`s EBITA declined from CHF 21.7 million to CHF 8.9 million (( 59.0%). On a brighter note, business for the division`s Kenyan, Hong Kong and Indian companies showed encouraging trends, with Kuoni India in particular posting strong results.
Business Travel
Turnover – which also corresponds to gross profit in this division – remained stable for Business Travel. The division, which trades under the BTI brand in Central Europe, posted a turnover of CHF 186 million (2000: CHF 184 million; + 1.1%) on total invoiced sales of CHF 1.9 billion.
EBITA fell ( 44.8% to CHF 10.6 million (2000: CHF 19.2 million). The decline was due partly to the fact that business travel volume slipped slightly in the third quarter and slumped dramatically in the fourth, and partly to upheavals among the division`s major airline partners, especially Swissair. The division also made key investments for the future during the year, establishing the TRX service centre.
Outlook for 2002
With the sector generating most of its revenue in the second six months, demand in the first few weeks of the tourist industry year traditionally offers few indications of overall annual performance. But the first signs in 2002 have been encouraging. Consumers` taste for travel, which had been singularly lacking in both the business and the leisure travel sector at the end of 2001, seems to be returning to all key markets.
Kuoni Switzerland published its 2002 summer catalogues earlier than its competitors, and is currently benefiting particularly from this revival in demand. Booking volumes in the UK are also encouraging. But, as in Switzerland, the UK is seeing a move towards short-term bookings – a phenomenon not previously observed in this market sector. The Scandinavian market has now achieved a better balance between production and demand. And business travel bookings have also returned to the levels seen in summer 2001.
Barring further terrorist attacks or other exceptional events, the Kuoni Group expects business overall to continue its return to normal levels by the summer months. Due to the sound foundation now laid through the restructuring and cost
economy programmes it has conducted in all its markets over the past few months, and due to its wide range of activities and its broad regional spread, the Group is optimistic about its future performance.
Vicky is the co-founder of TravelDailyNews Media Network where she is the Editor-in Chief. She is also responsible for the daily operation and the financial policy. She holds a Bachelor's degree in Tourism Business Administration from the Technical University of Athens and a Master in Business Administration (MBA) from the University of Wales. She has many years of both academic and industrial experience within the travel industry. She has written/edited numerous articles in various tourism magazines.
