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Kuoni posts a solid performance in a difficult environment

Business for the first half of 2005 was strongly influenced by the continuing effects of the Asian tsunami disaster at the end of the previous year…

Business for the first half of 2005 was strongly influenced by the continuing effects of the Asian tsunami disaster at the end of the previous year. With 17% of its turnover generated in the regions affected, Kuoni has felt the repercussions of the disaster more than other major European tour operators. The subsequent cancellations and booking declines resulted in underutilisation of both Kuoni`s own and bought-in flight capacities. And this – as predicted at the Annual General Meeting in April 2005 – has re-duced EBITA results by some CHF 20 to 25 million. In an environment so marked by unexpected events, the Kuoni Group delivered a favourable performance, comments Armin Meier, Chief Executive Officer of the Kuoni Group.

The first-half turnover of CHF 1 577 million was a 0.3% improvement on the CHF 1 572 million of the prior-year period. Organic growth added 0.9%, the net negative impact of currency movements reduced turnover by -0.9% and the net effect of acquisitions and di-vestments2 added 0.3% to the overall turnover result.

Gross profit margin slipped from the 22.5% posted for the first half of 2004 to 21.5%, though 0.3% of this decline is due to the sale of Kuoni`s German retail business. Gross profit margin was also adversely affected by the turnover declines following the Asian tsunami disaster. Gross profit fell 4% to CHF 339.7 million (prior year: CHF 353.7 mil-lion).

Operating costs rose by CHF 6.4 million. The increase was due in particular to the expan-sion of activities in the Asian market. Earnings before interest, taxes and amortisation of goodwill (EBITA) were reduced as a result of the adverse effects of the Asian tsunami disaster to CHF -14.8 million (prior year: CHF 5.6 million). The EBITA margin declined from the 0.4% of the prior-year period to -0.9%.

The net result for the traditionally weaker first six months was 44.2% up, improving from the CHF -12.9 million of first-half 2004 to CHF -7.2 million. Key contributors here in-cluded the cessation of goodwill amortisation in accordance with IFRS accounting stan-dards and a substantially improved financial result.

The consolidated balance sheet showed shareholders` equity of CHF 724.6 million on 30 June 2005 (31 December 2004: CHF 658.5 million) and a solid equity ratio of 37.4% (31 December 2004: 36.2%). The strengthened equity base is the result of net recognised gains on financial instruments and positive translation differences. The par value repayment of 8 July 2005 approved by the 2005 Annual General Meeting will have its balance-sheet im-pact in the second half-year.

Cash flow from operating activities amounted to an encouraging CHF 106 million (prior year: CHF 102.1 million). Free cash flow totalled CHF 92 million for the period.

2 Acquisitions and divestments: the purchase of Royal Hansa Cruises Netherlands and the business activities of CIT-Frantour SA, and the sale of Kuoni Reisen GmbH Deutschland and the Caribbean hotels.

Results by business area

Switzerland

In a still-difficult market environment, Strategic Business Unit Switzerland generated turnover of CHF 339 million for the first six months of 2005, an 8.6% decline on the CHF 371 million of the prior-year period. While the Kuoni brand saw positive trends, re-sults were less encouraging for Reisen Netto and Helvetic Tours. EBITA declined 66.7% from the CHF -7.8 million of the prior-year period to CHF -13.0 million. The Kuoni Group acquired all the business activities of CIT-Frantour SA effective 30 April 2005.

Scandinavia

Strategic Business Unit Scandinavia reported a positive trend in its first-half turnover, which, at CHF 300 million, was a 15.8% improvement on the CHF 259 million of the prior year. Sweden made the biggest contribution, exceeding its prior-year turnover by 11.7%. Norway raised its first-half turnover by as much as 41.4% year-on-year, while turnover for Denmark was 4.4% above the prior-year period. First-half EBITA for Scandinavia de-clined from the CHF -5.4 million of the prior year to CHF -7.0 million. Sweden suffered most from the effects of the Asian tsunami disaster, while Kuoni`s Scandinavian airline incurred extraordinary expenditure amounting to CHF 4 million.

Europe

First-half results for the country organisations within Strategic Business Division Europe were largely in line with prior-year levels. Total turnover showed a minimal 0.4% rise to CHF 252 million. Once again, the greatest turnover contribution came from Kuoni France. First-half EBITA for the division declined from the CHF -3.3 million of the prior-year period to CHF -3.9 million. The Kuoni Group sold Kuoni Reisen GmbH, domiciled in Friedrichshafen (Germany), effective 1 January 2005.

United Kingdom & North America

Turnover for Strategic Business Division United Kingdom & North America amounted to CHF 354 million for the first six months of 2005, a 9.2% decline on the CHF 390 million of the prior-year period. While operating results were improved in North America, EBITA for the division declined 32.6% year-on-year from CHF 27.6 million to CHF 18.6 million. The reduction is due to the turnover losses following the Asian tsunami in the Maldives, Sri Lanka and Thailand, which are all long-established leading Kuoni UK destinations.

Incoming & Asia

Strategic Business Division Incoming & Asia increased its first-half turnover by 9.5% in 2005, from the CHF 326 million of the prior-year period to CHF 357 million. In view of the further expansion of the Group`s Asian business, first-half EBITA for the division declined 30.8% from CHF 2.6 million to CHF 1.8 million.

Second-half developments and outlook

By 14 August 2005, Swiss-franc booking levels for the Kuoni Group`s tour operating business were 1% up on their prior-year equivalent. Year-on-year booking levels for the key business areas were as follows:

Switzerland -12%
United Kingdom -11%
France +1%
Scandinavia +21%

Kuoni opened its second Chinese office – in Shanghai – on 18 August. Having opened its first representative office in Beijing in mid-March 2005, Kuoni thus continues to pursue its growth strategy in the Asian market.

The strategic reappraisal of Intrav, the Kuoni Group`s US-based subsidiary, is continuing according to plan, and should be completed by year-end. All options, including a possible sale, are being considered in terms of their value-adding potential. This will enable Kuoni to assess the continued value of its investments by the end of the year.

In view of the exceptional events in the tourism sector in the year to date, it is difficult to predict business results for 2005 as a whole. We are confident, however, that the present recovery will continue, especially in those regions which were adversely affected by the Asian tsunami disaster in the first half of the year. The fact that July 2005 exceeded our expectations in both turnover and EBITA terms gives additional cause for confidence in the weeks and months ahead.

Co-Founder & Managing Editor - TravelDailyNews Media Network

Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.

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