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Kuoni reports continued positive development

The Kuoni Group enjoyed a good start to 2004, with doubledigit growth in bookings increasing steadily up to the end of April…

The Kuoni Group enjoyed a good start to 2004, with doubledigit growth in bookings increasing steadily up to the end of April. Year-on-year groth rates declined as expected in May and June owing to the slight recovery witnessed in the same period last year. It is interesting to note that growth in bookings for the summer months was strongest at the start of the year, showing that consumers were once again booking well in advance. Kuoni Group CEO Hans Lerch commented: After two difficult years, the tourism business is picking up again. Thanks to its strong market position and rigorous cost management, Kuoni has been and continues to be in a position to benefit from this upswing in terms of both turnover and profit.

Turnover rose by 14.1% to CHF 1.572 billion (previous year: CHF 1.378 billion). This increase was attributable to organic growth of 17.2% and a positive currency effect of 1.6%, while the net effect of acquisitions and disposals was –4.7%. In addition to the Incoming & Asia division, the business units Scandinavia and France in particular contributed to strong internal growth.

The gross profit margin fell as expected to 22.5%(previous year: 28.6%). This decrease was mainly due to the disposal of the Business Travel division (BTI CE). On top of this, renegotiating contracts with service providers proved much more difficult than in the previous two years on account of the global increase in demand. For these two reasons, gross profit was down 10.3% in the first half of 2004 at CHF 353.7 million (previous year:

CHF 394.4 million), although organic growth was 7.3%.

Operating costs were reduced by CHF 65 million. Adjusted for acquisitions, disposals and currency effects, costs were up 1.8% at CHF 348.1 million, the main reason being higher marketing expenditure compared with last year. Earnings before interest, taxes and amortisation of goodwill (EBITA) jumped to CHF 5.6 million (previous year: CHF –18.7 million), with most of the increase supplied by Incoming & Asia and Switzerland. The EBITA margin improved to 0.4% (previous year: –1.4%).

In the traditionally weaker first half of the year, the Group posted a net result of CHF –12.9 million, up from CHF –44.1 million in the first half of last year. The increase resulted above all from improvements in the operating performance of the Kuoni Group. The financial result, boosted by income from the various disposals, also played a part. The balance sheet as at 30 June 2004 shows shareholders` equity of CHF 610.7 million (up 14.4% year-on-year from CHF 533.9 million) and a solid equity ratio of 31.1% (previous year: 27.2%).

Cash flow from operating activities rose very sharply year-on-year from CHF 1.4 million to CHF 102.1 million due to improved operating performance and higher advance payments from customers. Free cash flow totalled CHF 89.1 million.

Results by business area

SBU Switzerland

The Strategic Business Unit Switzerland achieved turnover of CHF 371 million (up 4.2% from the year-back figure of CHF 356 million) in the first six months of the year. Without the sale of the Greek subsidiaries, the increase would have been 7.5%. EBITA improved by 49% from CHF –15.3 million in the same period last year to CHF –7.8 million. Strict cost management and the implementation of the new sales strategy were mainly responsible for this operating improvement. The new sales strategy is aimed at eliminating location disadvantages, optimising the use of human resources and clearly positioning Kuoni and Helvetic Tours branches.

SBU Scandinavia

The Strategic Business Unit Scandinavia, including companies in Sweden, Norway and Denmark, performed well. Its turnover rose by 21.6% year-on-year from CHF 213 million to CHF 259 million. Its EBITA, however, fell 14.9% from CHF –4.7 million to CHF –5.4 million. The SBU`s results were boosted last year by extraordinary income from ad-hoc flight bookings; adjusted for this income, EBITA would have been CHF 6.3 million higher year-on-year. The Novair Airbus A330 now operating under a long-term agreement with Air Cubana is without any effect on results.

SBD Europe

The country units within the Strategic Business Division Europe achieved positive results in the first half of 2004. The SBD`s turnover rose 26.8% year-on-year from CHF 198 million to CHF 251 million. Although all the national companies posted higher EBITA than in the same period last year, the total EBITA figure declined from CHF –3.1 million to CHF –3.3 million. This decrease can be explained by the usual seasonal trend in the German retail business. Following the sale of the Business Travel division (BTI CE), the tourism unit Euro Lloyd Urlaubsreisen was integrated into the SBD Europe.

SBD United Kingdom & North America

The Strategic Business Division United Kingdom & North America saw a 13.7% year-onyear increase in turnover from CHF 343 million to CHF 390 million. Although operating profit improved slightly in the UK, divisional EBITA fell 2% to CHF 27.6 million (previous year: CHF 28.1 million). This was due to the continued unsatisfactory performance of the US subsidiary Intrav. Kuoni`s UK EBITA margin fell from a year-back figure of 10.8% to 10.0%, reflecting investments made in marketing and customer services in anticipation of a recovery in the first half of 2004. The full-year EBITA margin in the UK is expected to be back above 10%.

SBD Incoming & Asia

After the first half of 2003 was beset by generally known troublesome factors such as SARS, the Strategic Business Division Incoming & Asia`s turnover for the first six months of 2004 amounted to CHF 326 million, 63% higher than the year-back figure of CHF 200 million. EBITA rose sharply from CHF –13.6 million to CHF 2.6 million.

Outlook

The large number of early bookings resulted in a sharp rise in total bookings for the first half. Bookings in the tour operating business for the year to date (as at mid-August 2004)are thus up 21% year-on-year in Swiss francs. The strongest growth in bookings was recorded by the SBUs France (33%) and Scandinavia (32%), followed by United Kingdom (19%) and Switzerland (15%). However, it can be assumed that these growth rates will be lower in the second half of 2004 because business picked up again in the third quarter of 2003.

As long as the tourism industry is spared any extraordinary events, the Kuoni Group expects to post full-year turnover of at least CHF 3.5 billion and an EBIT margin of about 3.5% for 2004. The July result, which accounts for more than a third of the year`s EBITA, confirms this positive outlook.

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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