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CEO Interview

Peter Rothwell, Kuoni posted a net loss for the 2012 financial year. What led to this result?

The net loss is due to exceptional charges relating the withdrawal from loss-making European tour operating activities. These charges came to CHF 48 million in 2012. In operational terms, we increased our earnings before amortisation (EBITA) by almost 6% to CHF 119.3 million. These are highest earnings for four years. 

What were your biggest challenges in 2012?

They included Kuoni’s ongoing change process, the further integration of GTA, general margin pressure in various business areas, and the difficult external economic conditions in the French market. We also decided to withdraw from several loss-making tour operating activities. By the end of 2012, we had managed to do this in Spain, the Netherlands, Russia, and at the beginning of March 2013 in Italy. In 2013, we will make exits from tour operating in Belgium, as well as from our online operation Octopustravel. By eliminating losses, all of these measures will have a positive effect on future operating results.

The proportion of total turnover accounted for by traditional tour operating business has fallen further in the wake of the exit from smaller European activities. Is it still worth investing in this type of business at all?

Yes. In Scandinavia, for example, we enjoy a strong position and operate as a successful tour operator through the Apollo brand. The Outbound Nordic Unit is one of Kuoni Group’s most important sources of earnings. In the UK and Switzerland, we also run a profitable tour operating business. By expanding our own network of retail shops in the UK, we responded to structural change and increased our direct sales.

The euro crisis and continuing turmoil in the Arab world, as well as the difficult economic conditions in India, were the most notable events in 2012 in terms of their impact on Kuoni’s business. Greece, Spain and Egypt are important travel destinations. Are you worried about further negative headlines emanating from these regions?

Thanks to the change process of recent years, one of the consequences of which is a strong position in Asia, Kuoni is less dependent on traditional tour operating business in Europe than it used to be. If there is less demand for a particular holiday destination, we are still going to be active in other parts of the world where business is operating normally. Kuoni is “asset light”, meaning that we own very few fixed assets, like aircraft and hotels, and have lower fixed costs. This also means we can react quickly in our day-to-day work to local changes. There was no tourism crisis in Greece or Spain, and even Egypt showed a recovery in 2012. Tourism was largely unaffected by the demon­strations. The infrastructure remained intact. But I understand negative headlines make consumers less willing to travel. It’s precisely at times like these that it’s important to have a reliable tour operator at your side. Nevertheless, stability – with no serious negative headlines for these destinations – remains important in 2013. The activities in India were less in the spotlight, but suffered from an economic downturn and from the sharp fall in the value of the rupee against all the major currencies in a very competitive environment. This and other influences had a negative effect on our businesses in this important growth market.

The whole world is talking about the internet and online booking. But in 2012 Kuoni announced the closure of its global hotel booking platform Octopustravel. Isn’t this an anomaly?

Kuoni is a world-leading online provider, parti­cularly of B2B destination services that our business partners buy, or sell on, from GTA’s databases. We are one of the leading global technology companies in this area. For example, we receive 57 million daily search queries on average through our databases every day. Octopustravel, on the other hand, was a global hotel booking platform for use directly by customers, like several others. It achieved positive growth but was not profitable. Millions have to be spent on marketing if you want to keep a global booking portal like this in the public’s consciousness. This doesn’t make financial sense for Kuoni in the medium or long term. We already knew this when we acquired GTA, of which Octopustravel was a part. In the meantime we have accumulated some valuable experience in this type of business, but we still continue to keep increasing the proportion of online sales in our well-known customer-facing brands like Kuoni and Apollo. In Outbound Nordic, this share stood at 57% in 2012. In Switzerland, the new platform X-Helvetictours.ch posted a pleasing increase in turnover with its dynamically packaged holidays. It’s wrong to believe that all holidays will in future only be booked online by the end customer. In the premium segment especially, where margins are higher, retail shops and personal advice are growing in importance. Booking platforms, like those run by GTA, give advisors worldwide access to the products.

How happy are you with the ongoing integration of GTA, the destinations services company you bought, into the Kuoni Group?

It’s been nearly two years since our largest acquisition when we bought GTA; the integration is going according to plan. We are also achieving the planned synergies. Group travel activities have been merged and now appear altogether under the new “Kuoni Group Travel Experts” brand. The business transacted through our hotel database “Kuoni Connect” has been integrated into GTA. In 2012, the GTS Division achieved organic growth of 11%. This would have been practically impos­sible without a professional, well-planned and well-executed integration process.

Visa services provider VFS Global grew very strongly in 2012, but earnings were down. How do you explain this to shareholders and investors?

VFS Global is a great success story. Since it was founded in 2001, it has processed 56 million visa applications. In 2012 alone, it processed 14.6 million, and during the year it also won the contract to handle visa applications for the Kingdom of Saudi Arabia, its largest single contract. VFS Global uses cutting edge technology and in terms of quality, security and data protection it enjoys an outstanding reputation. Growth also leads to higher costs in the investment phase. This is due mainly to the expansion of the company’s global presence. In 2012 alone, 282 new Visa Application Centres were opened in 41 countries. Experience tells us that income from high-margin additional services will follow once the business has established itself. In ad­di­tion, margins on new government contracts tend to be lower in the initial phase because many task orders have to be awarded to the provider offering the lowest price. Shareholders and investors judge VFS Global on its medium and long-term results, because its prospects for the future are good.

In recent years you have always emphasised the importance of the Asian market for Kuoni. Was your view confirmed in 2012?

40% of our turnover was generated outside Europe in 2012. We generated more than a quarter in the growing source markets of the Asia/Pacific region and the Middle East. The GTS Division, which is very active in these growth markets, achieved almost half of its turnover in these regions, and the Emerging Markets & Specialists Division almost 30%. 

What do you think your main role is as CEO of Kuoni in 2013?

We are aiming to achieve profits and positive cash flow from sustainable growth in the global travel market. I will keep working on this in 2013. We want to complete most of our multi-year transformation process, in which Kuoni has evolved from a traditional tour operator into a leading, global, broad-based travel services pro­vider. We will continue investing in growth areas, taking action to reduce losses, and encouraging innovation.

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