1. Exchange rates
The following exchange rates were used for the Groupʼs most important currencies:
2. Discontinued operations
On 19 June 2015, Kuoni Group signed an agreement with the REWE Group for the sale of the European tour operating businesses. This agreement included all of the tour operators, specialists and travel agencies run by Kuoni Groupʼs units in Switzerland, the United Kingdom, Scandinavia/Finland and Benelux. The purchase price amounted to CHF 125.1 million. The transaction was completed on 11 September 2015 (closing).
On 7 August 2015, Kuoni Group signed an agreement with Fairfax/Thomas Cook for the sale of the tour operating business in Hong Kong and India as well as the inbound business activities in India. The transaction relating to the tour operating in Hong Kong was completed on 9 November 2015 and relating to the activities in India on 16 December 2015. The purchase price amounted to CHF 80.1 million.
When the transactions were closed, the respective currency translation losses (CTA) were also reclassified from equity to net result from discontinued operations. For the Year 2015, the reclassified currency translation losses from discontinued operations came to CHF 219.7 million.
The comparative figures of the consolidated income statement were restated to show the discontinued operations separately from the continuing operations.
Net result from discontinued operations:
Effects from the disposal of the tour operating business and the inbound business activities in India on the statement of financial position and the statement of cash flows:
3. Segment reporting
Following a strategic review, Kuoni Groupʼs Board of Directors and Group Executive Board decided to focus the companyʼs activities on its core business as a service provider to the global travel industry and to governments. In January 2015, the Kuoni Group announced the plan to sell its tour operating activities. Kuoni Group will focus on the three divisions:
- Global Travel Distribution (GTD), previously FIT (Fully Independent Traveller)
- Global Travel Services (GTS), previously Group Travel and Destination Management Specialists
- VFS Global
At the same time, Kuoni Group announced the intention to find new owners for all tour operating activities which were previously classified as Outbound Nordic and Outbound Europe/Asia. All respective transactions were executed as per reporting date (see note 2).
As a result of this reorganisation and segment composition, the Group has changed its internal management reporting to the entityʼs chief operating decision makers (CODM). The segment reporting was adjusted in order to reflect the new operational structure, effective from 1 January 2015. Accordingly, Kuoni Group has restated the operating segment information for 2014.
Breakdown of turnover of continuing operations by location of legal entity
Breakdown of turnover of continuing operations by activity
Breakdown of EBIT
Breakdown of assets by geographical area
As per 31 December 2014 the tangible fixed assets, goodwill and other intangible assets included the continuing operations as well as the discontinued operations, which were sold in 2015.
4. Personnel expenses
Compensation of members of the Board of Directors consists of fixed compensation and social security contributions in accordance with Swiss regulations. Half of the fixed compensation is paid in cash, and half in shares, which are subject to a three-year blocking period. The issue price of the shares concerned is determined again each year and corresponds to the final share price on the trading day before the grant date. The shares are allocated one day after the distribution of the dividend.
Total compensation for the Executive Board consists of a fixed and a variable component. The fixed component consists of a base salary, social contributions and a deferred benefit (in the form of share awards). The variable component contains a short- and a long-term incentive (performance share awards).
The short-term incentive plan is designed to reward Group Executive Board (GEB) members for the achievement of annual performance measures that are specific, quantifiable and challenging. The performance measures for all GEB members include financial targets at Group and Divisional level plus strategic targets aimed at promoting growth and the development of consumer-oriented and innovative approaches. Other agreed targets relate to Kuoni Groupʼs transformational objectives, people and talent development targets and stakeholder targets that are specific to key markets and the individualʼs role. The mix of targets is appropriate for Kuoni Groupʼs business model, which must be tailored to consumer and market influences, and are aligned with the Groupʼs business strategy and annual targets for 2015.
In 2015, GEB members were granted deferred compensation under the Restricted Share Plan (RSP) 2015 as part of the fixed component of their total compensation. The deferred compensation links executive compensation more closely to shareholder value creation and supports the retention of GEB members. There was no increase in the total value of this compensation element in 2015.
The restricted shares awarded to GEB members in April 2015 represent a percentage of their basic salary. The value of the restricted shares granted is generally equivalent to 40% of the basic salary (2014: 40%), calculated on the basis of the volume-weighted average price of shares from mid-February to mid-March prior to allocation of the shares. The shares are restricted for three years: a third of the shares are converted after one year, the next third after two years and the final third after the third year. The pay-out value of the compensation is based on the share price at the time of conversion, thereby linking this portion of compensation to shareholder value creation and the development of Kuoni Groupʼs share price.
In 2015, the GEB members received allocations under the Performance Share Plan (PSP) 2015. The PSP is designed to reward the GEB for its contribution to the companyʼs long-term success and for the creation of shareholder value.
In April 2015, GEB members were allocated performance-based restricted shares linked to a percentage of their basic salary. This target percentage came to 60% of the overall basic salary (2014: 60%). The calculation of the restricted awards was made on the basis of the volume-weighted average price of shares from mid-February to mid-March prior to allocation of the shares. The performance shares will vest based on the extent to which the performance targets are actually achieved after a three-year period.
The performance measures and the weightings that apply to the 2015 allocations are as follows:
- Free cash flow – weighting of 2/3 of the performance targets
- Turnover – weighting of 1/3 of the performance targets
These performance measures are designed to align the long-term incentive with the Kuoni Groupʼs business strategy. Each performance measure has a threshold, target, stretch and maximum achievement level that is set by the Target Setting Committee.
These levels are set stringently and are designed to reward outstanding performance. Based on the achievement of the performance measures, the actual number of shares that vest at the end of the three-year performance period is between 0 and a maximum of 2.5 times the number of performance shares initially granted.
In the reporting period, RSP and PSP share awards have been granted to the senior management. The average price of the 19,551 shares used for such purposes in 2015 amounted to CHF 297 (2014: 17,667 shares used; average price CHF 332). The price of each share is determined by its average stock market price on assignment, less a discount for the corresponding measurement period. An adjustment of the performance factor for current plans from previous years increased share-based compensation costs by CHF 0.5 million or 1,903 shares (2014: increase of CHF 1.9 million, or 10,564 shares). The costs for the share-based compensation amounted to CHF 6.9 million (2014: CHF 3.3 million).
Defined benefit retirement plans
The Group incurs costs for retirement benefit plans in accordance with prevailing regulations in the countries in which it operates. The defined benefit plans of Kuoni Group are managed in Switzerland. They constitute 100% (2014: 91%).
Swiss pension plans
Kuoni Group organises the occupational pension provisions of its employees against the consequences of old age, disability and death within the framework of pension funds that are legally and financially separated from the employer. The pension assets are entirely separated from the assets of the relevant employing company, but also from the assets of the policyholders. The Swiss Occupational Retirement, Survivorsʼ and Disability Pensions Act (BVG) and its implementation provisions as well as the Act on Vesting in Pension Plans specify a minimum benefit in the area of compulsory and partly also in the area of supplementary occupational pension provisions. The relevant pension plan is specified in the pensions regulations of the foundations.
The foundation board of the pension fund is the most senior management body and consists on a parity basis of the same number of employer and employee representatives. It takes decisions on the content of the pension regulations (e.g. the insured benefits), the financing of the pension (e.g. employer and employee premiums) and on the management of the assets (e.g. investing the pension funds).
The pension fund is entered in the register for occupational pension plans and is subject to a cantonal supervisory authority or the Federal Social Insurance Office directly for supervisory purposes depending on their geographical area of activity.
The occupational pension plan operates in accordance with the capital cover method. This means that over the professional life an individual, retirement credit balance is accumulated, taking into account the annual salary insured and annual retirement credit entries plus interest. The annual retirement credit entries are calculated in percent of the insured salary and are staggered depending on the age of the policyholder. The final pension benefit depends on the contributions and has certain minimum guarantees. On the basis of these minimum guarantees, retirement plans in Switzerland are assigned to the defined benefit plans despite possessing many characteristics of defined contribution-oriented plans. The employee has the option to withdraw the retirement benefits in part or in full as capital. In addition to the retirement benefits, the pension benefits also include disability and survivorsʼ benefits, which are calculated as a percentage of the insured annual salary or of the expected retirement pension.
To finance the benefits, savings and risk contributions are collected from employees and employer as a percentage of the insured annual salary in accordance with the pension regulations. At least half of the financing is covered by the employer here. Autonomous pension funds have risks from the savings process, the asset management and bear the demographic risks (long life, death, disability) themselves. The relevant pension fund can change its financing system (premiums and future benefits) at any time. During the period of a shortfall and if other measures do not result in the financial situation improving, the pension fund can collect restructuring contributions from the employer and the policyholders on a parity basis.
International pension plans
In 2014, smaller defined benefit plans in UK and Norway existed. Such plans have been deconsolidated at closing of the sale of the tour operating activities and the inbound business activities in India.
The following assumptions (weighted averages) used in actuarial calculations were adjusted to take account of the economic situation in the country concerned:
The cover ratio of the benefit plans are shown below:
The assets of the independent retirement plans were as follows:
Employersʼ contributions for 2016 are expected to be CHF 3.1 million. Actual loss from investments for 2015 amounted to CHF 4.0 million (2014: gain of CHF 23.0 million). The assets of the retirement plans were invested in the following asset categories at year-end.
The retirement plans hold no shares or other equity instruments of Kuoni Travel Holding Ltd., Zurich. The assets were invested in stock-exchange-listed securities only. Part of the foreign-currency risks in securities investments was hedged with rolling foreign exchange futures transactions. The purpose was solely to hedge the foreign currency exposure and not to achieve an additional return by actively trading in foreign currency.
Retirement plan obligation was as follows:
The actuarially determined retirement benefit costs stated above were set against the Groupʼs contributions to retirement benefit plans. The following table gives a calculation of the pension costs of the Groupʼs major pension plans:
The negative past service costs in 2015 contained mainly a curtailment gain attributable to the restructuring programme in Switzerland (see note 20). The following table illustrates the remeasurement gains and losses that were recognised in other comprehensive income:
The following table illustrates the reconciliation of effect of asset ceiling:
The valuation of the pension benefit obligations is particularly sensitive with regard to changes to the discount rate and the assumptions of the salary rises and the expected mortality rates. The following table shows the percentage change of the pension payment obligation on the basis of a change to these actuarial assumptions:
Every sensitivity analysis considers the change of one assumption, while all other assumptions remain the same. This approach shows the isolating effect if an individual assumption is changed, but does not consider that some assumptions are mutually dependent.
The weighted average duration of the defined benefit obligation was 14.2 years (2014: 16.2 years).
5. Other operating expenses/other operating income
Other operating expenses
Other operating income
Other operating income included the gain from the disposals of the properties in Zurich of CHF 53.2 million in 2015. In 2014, other operating income contained the gain of CHF 10.1 million from the disposal of the property on Geroldstrasse, Zurich.
7. Financial result
8. Income taxes
Tax expense can be analysed as follows:
The weighted average tax rate of the Kuoni Group for the year under review was 27.6% (2014: 38.3%). The reduction of the weighted average tax rate is mainly due to the various tax rates applicable to the Group subsidiariesʼ positive and negative results.
Depending on the country involved, profit distributions have varying tax consequences, the extent of which cannot be estimated. The Group has the following unrecognised tax loss carryforwards:
Deferred taxes changed as follows:
At year-end the cumulative deferred taxes recognised in equity amounted to CHF –12.1 million (2014: CHF –2.6 million). They arise largely from the positive and negative current market values of the currency classified as cash flow hedges and remeasurement gains and losses on net pension assets. Deferred taxes are derived from the following statement of financial position items:
9. Earnings per share (EPS)
There were no dilutive effects.
10. Cash and cash equivalents
Cash and cash equivalents were denominated in the following currencies:
The average interest rates were:
11. Time deposits
This position contained time deposits originally maturing in more than 90 days from the date of acquisition.
Time deposits were denominated in the following currencies:
The average interest rates were:
12. Accounts receivable and other receivables
Accounts receivable and other receivables showed the following payment maturities:
Allowance for doubtful accounts receivable totalled to CHF 11.0 million (2014: CHF 4.5 million) for receivables between 61 and 90 days overdue and CHF 15.6 million (2014: CHF 20.5 million) for receivables by more than 90 days overdue. Some of the underlying receivables are expected to be paid. The receivables with payment date not yet due relate largely to long-term customer relations with agents or processing companies. Allowance for doubtful accounts receivable showed the following developments:
13. Tangible fixed assets
The cash-generating units of the Kuoni Group are considered to be its operating, reportable segments Global Travel Distribution, Global Travel Services and VFS Global. They are used to assess the value-in-use of goodwill recognised in the balance sheet. Goodwill is allocated to the cash-generating units of the Kuoni Group as follows:
Following the announced strategic review Kuoni Group has changed the management structure accordingly. Starting 1 January 2015, Kuoni Group consists of the three divisions: Global Travel Distribution (GTD) previously FIT (Fully Independent Traveller); Global Travel Services (GTS), previously Group Travel and Destination Management Specialists; and VFS Global.
The value of goodwill is tested at least annually for impairment, or if indicators or conditions suggest that its carrying amount can no longer be recovered.
The Kuoni Group applies a standard method to assess goodwill values. The basic amount which should be recovered by any goodwill reappraised is based on the value-in-use, which is determined from cash flow projections that are themselves based on the latest approved business plan by the Board of Directors. This plan includes the latest management estimates on turnover and margin trends and on projected operating costs.
The business plan also pays due regard to historic values based on past experience and includes projections for the next five years. Subsequent years are considered on a perpetual annuity basis, using growth rates from 1.5% to 2.5%. The discount rates have been calculated on the basis of the weighted average capital costs of the Kuoni Group, with due and full regard to country- and currency-specific risks relating to cash flows.
Management conducted sensitivity analyses for all cash-generating units, which assumed an increase of discount rates of 1% in connection with a reduction of the expected cash flow by 5%. In addition, individual valuations of all divisions have been conducted in connection with the announced takeover . These valuations were executed in the first quarter of 2016 by independent third parties. The results of the sensitivity analyses and the individual valuations confirmed that no impairment charge was needed.
15. Other intangible assets
The impairment loss of CHF 16.5 million on further intangible assets relates to the IT architecture of the division GTS. This IT architecture has been reviewed and adapted to cater for this. The planned new, end-to-end IT solution was no longer deemed fit for purpose and as a result had been terminated.
Intangible assets from acquisitions consisted largely of capitalised trademark rights, while other intangible assets included software acquired as well as costs for software projects. The costs for software projects in the course of construction amounted to CHF 15.0 million (2014: CHF 6.3 million).
16. Investments in associates
17. Investments in joint ventures
VFS TasHeel and Vasco Worldwide are joint ventures in which Kuoni Group participates. Both are as strategic partners of Kuoni Group principally engaged in visa application processing for the Saudi Arabian Government, based in Dubai, U.A.E.
VFS TasHeel and Vasco Worldwide are structured as separate vehicles and Kuoni Group has residual interests in the net assets of both companies. Accordingly, Kuoni Group has classified its interests in VFS TasHeel and Vasco Worldwide as joint ventures. In accordance with the agreement under which VFS TasHeel and Vasco Worldwide are established, Kuoni Group and the joint venture partner TasHeel have agreed to make additional contributions in proportion to their interests to make up any losses, if required.
The following table summarises the consolidated financial information of VFS TasHeel and Vasco Worldwide as included in its own financial statements, adjusted to the accounting principles of Kuoni Group. The table also reconciles the summarised financial information to the carrying amount of the Kuoni Groupʼs interest in VFS TasHeel and Vasco Worldwide.
18. Other financial assets
Other financial assets mainly comprised pension assets from funded pension plans totalling CHF 15.8 million (2014: CHF 0.0 million) – see note 4 – and loans to joint ventures amounting to CHF 22.0 million (2014: CHF 23.1 million).
The capital administered by the Kuoni Group corresponds to the consolidated equity. Kuoniʼs aims in administering this capital are:
- to maintain the sound structure of its statement of financial position based on going-concern values;
- to maintain the financial scope required for future investments and acquisitions;
- to ensure a return for investors that is commensurate with their investment risk.
The Kuoni Group administers its equity by means of its statement of financial position equity ratio, i. e. the proportion of equity to total assets. The equity ratio amounted to 32.5% on 31 December 2015 (2014: 32.2%).
The Kuoni Group is not subject to any legal covenants relating to minimum equity requirements. For covenants relating to financial indebtedness, see note 21.
The Board of Directors proposes to the annual general meeting not to distribute a dividend.
On 20 April 2015 the shareholders approved the appropriation from the capital contribution reserve of CHF 1.50 per registered share A (2014: CHF 1.50) and CHF 7.50 per registered share B (2014: CHF 7.50) in respect of the 2014 business year. The distribution to holders of shares entitled totalled CHF 29.4 million (2014: 29.0 million).
Composition of share capital
All registered shares A and B are fully paid up.
Conditional capital issuable via the exercising of conversion rights and/or warrants linked to bonds or similar debt issued by Kuoni Travel Holding Ltd or any of its subsidiaries in the domestic or international capital markets amounts to a maximum of CHF 384,000. In the case of issues of bonds or similar debt instruments to which conversion and/or warrant rights are attached, the pre-emptive rights of the existing shareholders are excluded. The holders of the said conversion and/or warrant rights are entitled to subscribe for new registered shares B. The acquisition of registered shares through the exercise of conversion and/or warrant rights and any subsequent transfer thereof are subject to the transfer and voting restrictions contained in the Articles of Incorporation. The Board of Directors is authorised to restrict or revoke the pre-emptive rights of shareholders when such bonds or similar debt instruments to which conversion and/or warrant rights are attached are issued to finance the acquisition of other companies or parts of companies. If shareholdersʼ pre-emptive rights are revoked by a decision of the Board of Directors, the conversion and/or warrant rights concerned will be issued at the prevailing market price, and the new registered shares will be issued at market rates, with due regard to the current market price of the registered shares concerned and/or of comparable financial instruments with a market price. The exercise period is limited to ten years for conversion rights and to seven years from the date of the bond issue for warrant rights.
Conditional capital of a maximum of CHF 96,000 also exists for use in exercising subscription or option rights granted to employees of Kuoni Travel Holding Ltd or its subsidiaries under one or more employee stock option plans (in accordance with art. 28 of the Articles of Incorporation). In such cases, new registered shares B may also be issued to employees at rates below the current stock market price, and existing shareholders shall have no subscription rights. The terms and conditions for the issue of such shares shall be determined by the Board of Directors. The acquisition of registered shares under such employee stock option plans and any subsequent transfer thereof are subject to all the relevant statutory transfer and voting right restrictions.
Restricted transferability provisions
The Articles of Incorporation stipulate that no more than 3% of total voting rights may be entered in the name of any one shareholder.
As at 31 December 2015 the following largest shareholders are known to the Kuoni Group :
All movements that crossed a threshold between 1 January 2015 and 31 December 2015 were disclosed and duly published on the website of SIX Swiss Exchange Regulations as well as on the company website.
The number of treasury shares is 78,632 (2014: 128,947). These are reserved for the employee share plans of the Board of Directors, the Group Executive Board and senior management. The changes to the number of treasury shares reflect the registered shares B issued to the Board of Directors, the Group Executive Board and management.
Only a limited amount of retained earnings is available for distribution
- the free reserves of Kuoni Travel Holding Ltd. subsequent to the approval of an appropriate resolution by the General Meeting of Shareholders;
- the reserves of subsidiaries in accordance with local fiscal and legal provisions, provided they are distributed first to the parent company.
Other reserves contain translation differences (CTA) as well as gains or losses from remeasurement of defined benefit plans, net of taxes, and fair-value gains or losses, net of taxes, from hedging activities recognised in equity.
The biggest translation differences derived from the translation of the assets and liabilities of Group subsidiaries reporting in GBP or EUR and of USD-denominated intragroup loans of an equity nature/CHF-dominated intragroup loans to subsidiaries with a different currency.
The hedging reserves correspond to the positive or negative fair value of currency and fuel price hedging contracts classified as cash flow hedges. They are expected to be removed from equity within twelve months.
Remeasurement gains and losses on defined benefits pension plans
The reserve includes remeasurement gains and losses on defined benefits pension plans on pension plan assets and pension plan liabilities as well as the effect of asset ceiling. The income taxes on the remeasurement of pension plans amounted to CHF 8.0 million (2014: CHF 6.4 million).
Restructuring provisions comprised lease termination penalties and employee termination payments. No provisions were recognised for future operating losses. In 2015 CHF 18.0 million restructuring costs relating to division GTS and CHF 7.2 million relating to corporate and support functions were recognised (2014: CHF 0.0 million). Thereof, CHF 2.1 million were already expensed as incurred. The aim of restructuring the GTS division is to rapidly adjust to changed market conditions through more flexible and cost-efficient structures. Management structures will be adapted, complexity reduced, operational back-office activities outsourced and services that do not add value will be discontinued. Sales activities will be streamlined, simplified and focused on more profitable customer segments. The increase in other provisions was mainly related to the disposal of subsidiaries in 2015. Although Kuoni Group expects a large part of provisions to be settled in 2016, by their nature, the amounts and timing of cash outflow of non-current provisions are difficult to predict but expected to happen within two-to-three years.
21. Financial debts
Kuoni Travel Holding Ltd. issued a CHF 200 million bond at an annual interest rate of 1.5% in October 2013. The bond was issued at 100.194%. The bond has a duration of six years and matures on 28 October 2019. The effective interest rate applied is 1.62%. The proceeds of the bond were used to redeem the previous CHF 200 million bond on 28 October 2013. The bond had a market value of 100.5% at year-end (stock exchange price on 31 December 2015). Liabilities towards credit institutions include bank accounts of subsidiaries with a negative balance on the balance sheet date.
Syndicated credit facility
Kuoni Group initiated early refinancing of the existing revolving credit facility of CHF 209 million. The new revolving credit facility of CHF 200 million replaced the existing agreement on 21 September 2015 and runs until June 2020. As at 31 December 2015, the drawn amount of the credit facility was CHF 20 million.
The new credit facility includes a financial covenant relating to the degree of indebtedness. The maximum degree of indebtedness must not exceed 3.0 times, measured as the ratio between net debt and EBITDA. The interest to be paid is calculated on LIBOR plus a margin of between 0.75% and 1.75%.
Financial debts were due as follows:
Financial debts were denominated in the following currencies:
Average interest rates were:
22. Financial risk management and derivative financial instruments
Carrying amounts and fair values of financial assets and liabilities as at 31 December 2015.
Carrying amounts and fair values of financial assets and liabilities as at 31 December 2014.
The measurement of the market values of active and passive financial instruments is based on observable market data where possible. The determination of the market values depends on the inputs used of the following levels 1 to 3:
Level 1: quoted market value in an active market of an identical financial instrument.
Level 2: current market value in an active market of a similar financial instrument or a valuation method whose prime input factors are based on direct or indirect observable market data.
Level 3: valuation method whose prime input factors are not based on observable market data.
The calculation of fair value level 2 is subject to the following valuation principles:
Foreign currency-related futures and swaps based on valuation principles from external financial service providers that use observable market data for interest rates, yield curves, exchange rates and implied volatilities for similar instruments on the measurement date. This is the present-value method. In the past financial year, there were no transfers between the different levels.
The table below shows the financial instruments held by the Kuoni Group.
In the normal course of its business, the Kuoni Group is exposed to liquidity, credit and market risks (essentially interest rate and currency risks). To manage these risks, various derivative financial instruments are used. While these are subject to the risk of market rates changing subsequent to their acquisition, such changes are generally offset by opposite effects on the items being hedged.
Liquidity risk is the risk that the Kuoni Group may be unable to meet its financial obligations when these become due for payment. The liquidity position of the Kuoni Group is significantly influenced by the booking and payment pattern of customers. As a result, liquidity is at its lowest in the winter months and at its highest in the summer months. Kuoni permanently monitors its liquidity to keep it at adequate levels, with monthly reports to the Group Executive Board and the Board of Directors. This is done partly by maintaining liquidity reserves, to even out the usual fluctuations in liquidity levels and needs. Kuoni also has unutilised credit facilities to cope with any major liquidity fluctuations. These unused credit facilities totalled CHF 180 million on 31 December 2015 and are available for loans, overdrafts and hedging activities. The facilities are spread among several banks, to avoid excessive dependence on a single banking institution.
The due dates of the financial debts held are shown in note 21. The other financial instruments held (accounts payable and accrued expenses) are all payable within six months.
Exposure to credit risk is monitored on an ongoing basis and covered by appropriate value adjustments on accounts receivable and prepayments made. Credit risks are limited because the customer base of the Kuoni Group consists of a large number of customers spread over a wide range of geographical regions. There are no risk concentrations.
The counterparties to derivative financial instruments and cash are carefully selected financial institutions. Given their high credit ratings, the Kuoni Group does not expect any counterparty to fail to meet its obligations. The maximum exposure to credit risk is represented by the carrying amount of each financial asset.
Furthermore, the Group enters into derivative transactions under International Swaps and Derivatives Association (ISDA) master netting agreements with the respective counterparties in order to mitigate counterparty risk. Under such agreements the amounts owed by each counterparty on a single day in respect of all transactions outstanding are aggregated into a single net amount that is payable by one party to the other. The ISDA agreements do not meet the criteria for off-setting in the balance sheet as the Group does not have a currently enforceable right to offset recognised amounts.
As per 31 December 2015 the amount subject to such netting arrangements was CHF 7.4 million (2014: CHF 11.5 million). Considering the effect of these agreements, the amount of derivative assets and derivative liabilities would decrease.
Interest rate risk
The Kuoni Group is exposed to interest rate risk as a result of movements in interest rates in the capital market. Generally, all non-current financial liabilities have fixed interest rates. Consequently, changes in interest rates can result in fluctuations in the fair value of such financial liabilities. This would not have any impact on the net result or future cash flows, however. No corresponding derivatives are outstanding on the balance sheet date.
Cash flow sensitivity analysis for financial instruments with all variable interest rates: a one percentage-point increase in the interest rate applicable would have increased the net result by CHF 2.5 million (2014: CHF 3.2 million). This analysis is based on the assumption that all other influencing factors remain unchanged.
Foreign currency risk
The Kuoni Group incurs foreign currency risk primarily on purchases and borrowings denominated in a currency other than the functional currency of the subsidiary concerned. A further foreign currency risk of smaller significance derives from the amount of turnover denominated in a currency other than the functional currency of the subsidiary concerned. On a consolidated basis, the Group is also exposed to currency fluctuations between the Swiss franc and the functional currencies of its subsidiaries. The major currencies giving rise to currency risk for the Kuoni Group are the euro, pound sterling and US dollar.
Foreign currency risks are monitored within the Kuoni Group in accordance with specified guidelines. These guidelines contain principles on risk limits, the forms of hedging instruments permitted and the relevant risk monitoring processes. The guidelines prohibit on principle the use of derivative financial instruments for speculative purposes. The enforcement of these guidelines and general risk management are provided by the Kuoni Groupʼs treasury units in the form of a hedging strategy. Monthly reports are submitted to the Group Executive Board on the current risk situation.
The Kuoni Group uses forward exchange contracts to hedge its foreign currency risk. Most hedging contracts have maturities of up to 12 months. Where necessary, the forward exchange contracts are rolled over at maturity. The Kuoni Group does not hedge against the foreign currency risks associated with its net investment in foreign entities or the related foreign currency translation of local earnings.
The currency hedging contracts outstanding at year-end are summarised in the following table. The market value volatility from hedging contracts, which qualify as cash flow hedges, will likely be reclassified from the other comprehensive income to the income statement within a year. Changes in the fair value of forward exchange contracts, currency options and swaps that economically hedge monetary assets and liabilities in foreign currencies and for which no hedge accounting is applied are recognised in the income statement. Both the changes in fair value of the forward contracts and the foreign exchange gains and losses relating to the monetary items are reported under direct costs.
The fair value is the (higher or lower) value at which a derivative contract could be concluded on the balance sheet date. The fair values calculated on the balance sheet date should be looked at not in isolation but together with the calculated value of anticipated future transactions and hence in the context of the aggregate reduction in the Groupʼs exposure to currency movements. Positive or negative fair values of derivative financial instruments are carried on the statement of financial position under accounts receivable/other receivables or accounts payable/other payables.
The contractual cash flows are pitted against flows from underlying transactions that roughly offset the contractual cash flows.
Derivative financial instruments by currency:
Maturities of derivative financial instruments:
Foreign-currency sensitivity analysis
A change in the foreign-currency positions shown at year-end as a result of a +10% or –10% change in currency exchange rates would have increased or decreased consolidated equity and the Group net result by the amounts shown below. This analysis is based on the assumption that all other variables (and interest rates in particular) remained unchanged. The consolidated income statement may also be substantially affected by any changes in currency exchange rates relating to financial instruments bought and sold within the business year to which the provisions of IFRS 7 do not apply.
23. Related parties
Related parties are directors and Group Executive Board members (together with members of their families), associates, joint ventures as well as major shareholders and companies controlled by these parties and pension plans.
Apart from the compensation paid to the Board of Directors and the Group Executive Board and the ordinary contributions to occupational pension plans, there were no significant transactions with related parties in 2015.
Kuoni and Hugentobler-Foundation, Stans
The Kuoni and Hugentobler-Foundation received a (gross) distribution of capital contribution reserve of CHF 1.9 million (2014: CHF 1.9 million) on the basis of its shareholding.
All transactions with associates are priced on an armʼs length basis. The Kuoni Group made no sales to associates in 2015 (2014: CHF 0.0 million), while no purchases were made from associates (2014: CHF 5.1). In 2015, no profit was distributed by associates (2014: CHF 0.1 million).
All transactions with joint ventures are priced on an armʼs length basis. The Kuoni Group made no sales to joint ventures, while no purchases were made from joint ventures. There are loans/receivables to joint ventures amounting to CHF 22.0 million and CHF 13.9 million (2014: CHF 23.1 million and CHF 0.0 million). No profits were distributed by joint ventures in 2015.
The transactions between the Kuoni Group and the various defined benefits pension plans for its employees are shown in note 4 and amounted to CHF 0.4 million (2014: CHF 0.7 million). As in the previous year, the Kuoni Group currently has neither liabilities nor assets towards these pension plans.
Group Executive Board and Board of Directors compensation
The total compensation (including employerʼs contributions to social security and pension funds) paid to members of the Group Executive Board and the Board of Directors, which is included in personnel expense, consisted of:
The compensation paid to and shares held by members of the Board of Directors and the Group Executive Board are shown in detail of the financial statements of Kuoni Travel Holding Ltd., in compliance with Swiss law.
24. Contingent liabilities, assets pledged
The assets pledged in prior year were used to secure bank loans with mortgage collateral.
25. Leasing liabilities
This position mainly contained lease contracts for buildings.
26. Events after balance sheet date
On 2 February 2016 private equity company EQT announced an all-cash public tender offer for all publicly held registered shares of Kuoni Travel Holding Ltd. (SIX:KUNN) for a price of CHF 370.00 per share. On 29 February 2016 EQTʼs subsidiary, Kiwi Holding IV S.à r.l., published the corresponding prospectus. Kuoni Groupʼs Board of Directors unanimously supports the offer and considers the valuation as fair and adequate. Should the offer succeed, the creditors of the bond and the syndicated loan have the right to claim repayment of such financial debts classified as non-current.
The consolidated financial statements were approved by the Board of Directors and released for publication on 8 March 2016. No further events after 31 December 2015 occurred that would result in an adjustment to the carrying amounts of the Groupʼs assets and liabilities.