Kuoni: Business environment still very challenging – In profit after summer quarter Donnerstag, 06. November 2014 - 06:39

First nine months of 2014

• Organic turnover development of +0.5%
• Positive operating earnings:
  EBITA of CHF 92.4 million (2013¹: CHF 107.0 million) EBIT of CHF 65.0 million (2013¹: CHF 79.0 million)

• Significant increase in net profit: CHF 52.5 million (2013¹: CHF 1.5 million)
• More than 10 million hotel room nights booked in FIT, +6.9%
• Positive earnings trend for tour operators in Outbound Europe/Asia
• Significant increase in earnings at visa services provider VFS Global
• Strong free cash flow: CHF 132.7 million (2013: CHF 166.8 million)

3rd quarter 2014

• Organic turnover growth of +1.5%.
• FIT posted strong growth in Asia, North America and the Middle East
• Average sales prices stabilised in Outbound Nordic
• Significant increase in earnings at visa services provider VFS Global

Outlook for 2014

• Global business environment remains very demanding
• Outlook for full year confirmed

Key figures

^{1 excluding the effect of Swiss pension plan changes amounting to CHF 34.2 million}

Peter Meier, CEO of Kuoni Group, made the following comments on the results:

“The FIT business posted positive growth, with hotel room nights booked topping the 10 million mark after nine months for the first time. The market situation in Scandinavia remains difficult, though we have managed to stabilise average sales prices. Visa services provider VFS Global reported healthy growth and achieved a significant improvement in operating results. The business environment hasn’t changed much in recent months and remains very challenging.”

Current trading 2014

As of 2 November 2014, changes in booking levels and turnover at the different business units compared with the equivalent prior-year period were as follows, in Swiss franc (CHF) and local currency (LC) terms:

Outlook 2014

The global business environment remains very demanding. For the 2014 financial year as a whole, Kuoni Group expects operating earnings (EBIT) in the range of CHF 85-95 million and net profit at around the previous year’s level. This confirms the earnings expectations communicated on 21 August 2014.

Kuoni Group figures

Kuoni Group generated turnover of CHF 4 245 million in the first nine months of 2014 (2013: CHF 4 387 million). Organic turnover growth came to +0.5%. FIT and VFS Global  recorded positive organic growth of 7.0% and 16.2% respectively, while lower turnover was posted at Group Travel, Outbound Nordic and Destination Management Specialists. The net effect of acquisitions/divestments came to -1.3% owing to the exit from loss-making European tour operating activities in the previous year. Currency fluctuations had a -2.4% effect on the presentation currency.

Gross profit came to CHF 761 million (2013: CHF 825 million). The gross profit margin came to 17.9% (2013: 18.8%). This reduction is due primarily to the performance of Group Travel, Outbound Nordic and Destination Management Specialists. Outbound Europe/Asia and VFS Global saw their gross profit margins increase.

Earnings before amortisation (EBITA) came to CHF 92.4 million (2013 adjusted¹:  CHF 107.0 million). EBIT came to CHF 65.0 million (2013 adjusted¹: CHF 79.0 million).

Net profit improved to CHF 52.5 million (2013 adjusted²: CHF 1.5 million). The costs of CHF 47.5 million associated with withdrawal from loss-making European tour operating activities in the previous year mainly affected the financial result in 2013.

Cash flow from operating activities came to CHF 145.4 million (2013: CHF 194.2 million). Free cash flow stood at CHF 132.7 million (2013: CHF 166.8 million).

Kuoni Group's equity at 30 September 2014 came to CHF 787 million (31.12.2013: 
CHF 779 million). The equity ratio stood at 28.7% (31.12.2013: 32.6%).

As per 30 September 2014, the Kuoni Group employed 11 774 employees (FTE) (2013: 11 574 FTE). While staff numbers had been reduced in most units, the numbers increased in the growth businesses FIT and VFS Global.

3rd quarter 2014

Turnover increased to CHF 1 766 million (2013: CHF 1 747 million). Organic growth came to +1.5%. This rise is due to higher turnover from FIT, Outbound Europe/Asia and VFS Global.

The gross profit margin came to 17.9% (2013: 19.3%).

Operating earnings before amortisation (EBITA) came to CHF 91.2 million (2013: CHF 106.2 million). Operating earnings (EBIT) stood at CHF 82.1 million (2013: CHF 97.0 million). Outbound Europe/Asia and VFS Global generated higher operating earnings.

^{1 excluding the effect of Swiss pension plan changes amounting to CHF 34.2 million}

Kuoni Group figures

Income Statement (condensed)

Breakdown of turnover

Breakdown of operating earnings bevor amortisation (EBITA)

^{1 excluding the effect of Swiss pension plan changes amounting to CHF 34.2 million
2 excluding the effect of Swiss pension plan changes and a curtailment of CHF 41.3 million} 

Breakdown of operating earnings (EBIT)

Group Travel

Turnover came to CHF 697 million (2013: CHF 756 million). The organic decline of -7% can be attributed primarily to lower demand in Japan (new consumer tax, devaluation of the yen) and Indonesia. Meanwhile, the booking trend in Taiwan, South Korea, India and Hong Kong was positive. The competitive environment became tougher owing to temporary reduced demand. A lower gross profit margin was accepted as the price of maintaining a leading position in the most important markets. Operating earnings before amortisation (EBITA) came to CHF 14.5 million (2013¹: CHF 24.7 million). Operating earnings (EBIT) stood at CHF 11.1 million (2013¹: CHF 21.3 million). The number of room nights booked fell by 3.9% to 2.5 million.

FIT (Fully Independent Traveller)

This business saw turnover rise to CHF 1 444 million (2013: CHF 1 379 million). For the first time ever, more than 10 million hotel room nights were booked in the first nine months, an increase of 6.9% on the previous year. In Asia (ex-Japan) growth was +21%. The organic growth of +7.0% was achieved mainly in Asia, North America, Central and Southern Europe and the Middle East/Africa. Initiatives to boost sales led to greater demand and a lower gross profit margin. Operating earnings were affected by the cost of updating e-commerce platforms and higher staff costs resulting from the growth strategy. Operating earnings before amortisation (EBITA) came to CHF 50.8 million (2013¹: CHF 54.6 million). Operating earnings (EBIT) stood at CHF 34.9 million (2013¹: CHF 38.5 million).

^{1 excluding the effect of Swiss pension plan changes 
2 excluding the effect of Swiss pension plan changes and a curtailment of CHF 41.3 million}

Outbound Nordic

This business was heavily affected by the challenging market environment. In addition, demand was reduced as a result of geopolitical events (political unrest in Egypt and Thailand), negative currency changes, and very good spring and summer weather in Scandinavia. Excess flight capacity lowered the level of achievable prices and gross profit margins. Average sales prices were stabilised recently. Outbound Nordic generated turnover of CHF 689 million in the first nine months of 2014 (2013: CHF 789 million). Earnings before amortisation (EBITA) fell to CHF -11.5 million (2013: CHF 26.7 million). EBIT went down to CHF -12.2 million (2013: CHF 26.0 million). A negative operating result is still expected for the year as a whole, followed by an improvement in 2015.

Outbound Europe/Asia

Tour operating activities saw operating earnings go up again. Results for the key summer quarter were good. In the Swiss market in particular, rainy summer weather helped to boost demand and earnings. Activities in India and China / Hong Kong also generated improved earnings. Despite travel warnings for important destinations in Kenya and Thailand, results in the UK market matched the prior year’s.
Turnover in the first nine months of 2014 stood at CHF 1 033 million (2013: 
CHF 1 099 million). Earnings before amortisation (EBITA) improved significantly to CHF 14.7 million (2013¹: CHF -1.0 million). EBIT came to CHF 10.1 million (2013¹: CHF -5.8 million).

Destination Management Specialists

The Destination Management Specialist in East Africa continued to suffer as a result of the travel warnings issued for Kenya by many governments. Customer fears about the Ebola virus also led to lower demand. The unit in the Middle East faced a highly competitive market environment, resulting in lower turnover, gross profit margins and earnings. Political turmoil in Thailand also pushed down demand in the winter and spring months. 
Destinations in India and the USA fared better, but not well enough to compensate for the reductions in East Africa and the Middle East. Turnover at the Destination Management Specialists unit fell to CHF 262 million (2013: CHF 284 million). Earnings before amortisation (EBITA) came to CHF -13.6 million (2013: CHF -0.8 million). EBIT stood at CHF -16.4 million (2013: CHF -3.8 million).

^{1 excluding effect of change to Swiss pension plan}

VFS Global

The visa services provider continued to perform very well, achieving higher turnover and operating earnings. Turnover went up by 12.2% to CHF 202 million (2013: CHF 180 million). Earnings before amortisation (EBITA) and EBIT increased to CHF 43.4 million (2013: CHF 31.0 million), a rise of 40.0%. During the first nine months of 2014, VFS Global processed 14.3 million visa applications – as many as in the same period of 2013. Activities in the Ukraine and Russia in particular declined significantly, but this was offset by the increase in applications from Asia. A total of 81 new application centres were opened around the world in the third quarter of 2014. At the end of September 2014, VFS Global was operating 1 396 application centres in 117 countries.

The joint venture for Saudi Arabian visa services continued expanding its application centres. Expansion was delayed in West Africa owing to the Ebola situation there.