Letter to shareholders 

Zurich, 15 March 2016                                                                           

Dear Shareholders

As one of the leading global travel service providers with a strong focus on technology and innovation, Kuoni Group is publishing its complete 2015 Annual Report online exclusively – for the very first time.

In January 2015 we informed you about Kuoni Groupʼs new strategic direction as a service provider for the global travel industry and governments. The decision taken then to refocus Kuoni was made against a background of persistent rapid and profound change in customer habits, in technology and in the globalisation of demand. The Board of Directors and Group Executive Board came to the conclusion that in an environment characterised by economies of scale, digital applications and highly differentiated product offerings we were no longer the best owner for all the businesses we traditionally ran. This is why we sold the tour operating business last year to new owners who were in a position to develop its potential better than we could. The Rewe Group, the new owner of the European tour operating business, and Fairfax/Thomas Cook India, new owner of the units in India and Hong Kong, have the necessary size, resources and shares of the relevant markets, putting them in a better position to run the business successfully in the long term.

The 2015 Annual Report has been designed to make the information accessible on computers, tablets and smartphones. You can go to the Download Centre to select, download and print the chapters you want.

Heinz Karrer (right)
Zubin Karkaria (left)

Back then, like today, our decision was guided by the desire to identify the right strategy and means to secure Kuoniʼs long-term success and fulfil the legitimate aspirations of all of our stakeholders. The Board of Directors remains confident that the new focus initiated over a year ago is correct, and that the strategy underpinning it is the right one. In its current configuration Kuoni has three core businesses with great potential; it also has unique expertise and skill in all three areas, and an experienced and dynamic management team.

We hope you find Kuoniʼs 2015 Annual Report informative and convenient to access.

Timing plays an important role in making the most of this potential. The pace of change we are seeing in our business, driven by the markets, technology and the main market players, means that substantial investments are required to maintain and expand a strong market position. As well as posting market-beating, sustainable organic growth, a company has to be able to grow through acquisitions.

Review and evaluation of all strategic options

Towards the end of 2015 the Board of Directors – with the support of the relevant experts – conducted a comprehensive review and evaluation of all strategic options. This included a rigorous evaluation of the offers received from various candidates to take over Kuoni Groupʼs business activities. In the end, the Board decided unanimously in favour of the offer made by the globally active private equity company EQT. The support shown for EQT as the new owner by the management team led by CEO Zubin Karkaria was a decisive factor.

The fundamental decision taken by the Board of Directors in the light of the above considerations to transfer responsibility for the Kuoni Group to the best-qualified and most suitable new owner is entirely consistent. It is guided by the potential of the Kuoni Group and by the Boardʼs responsibility to create value for shareholders, promote the companyʼs interests and take account of the interests of all stakeholders.

The Board of Directors also welcomes the decision by the Kuoni and Hugentobler Foundation to enter into an agreement with EQT. This agreement sets out details of the joint management of Kuoni Group by EQT and the Foundation, as well as defining the key pillars of Kuoni Groupʼs future development and describing the Foundationʼs future involvement in Kuoni.

The planned takeover of Kuoni Group by EQT as the new owner brings some attractive long-term benefits to the company, its business partners and its employees. The transaction allows Kuoni Group to continue developing its position as a leading, focused and global service provider for the worldwide travel industry and for governments. This will be done through investments in technology, in a wider portfolio of services and in acquisitions of other companies, thus taking full account of the Boardʼs criteria as outlined above. EQT intends to make respective investments to develop and strengthen Kuoniʼs market position and increase its profitability.

In doing so it will be able to build on the current implementation of the strategy to strengthen and expand Kuoni Groupʼs three divisions. The relevant operational measures, announced in November 2015, are progressing on schedule and delivering the expected results.

Kuoni concluded a binding transaction agreement with EQT on 1 February 2016. EQT has made a public tender offer of CHF 370 in cash per registered B share. If and when the public tender offer is completed successfully, shares in Kuoni Travel Holding Ltd will be delisted. The company will then have the opportunity to implement its strategy outside the spotlight of the capital markets, which in this phase of the companyʼs development would undoubtedly be an advantage.

Board of Directors and Group Executive Board recommend to accept EQTʼs public offer

As you will see from the public tender offer, completion of the offer is conditional on achieving a tender rate of at least 67% of the votes and of more than 50% of the share capital of Kuoni Group, as well as on the removal of the share transfer and voting right restrictions from the Articles of Incorporation. The removal of these restrictions requires the approval of an extraordinary General Meeting. Completion of the public tender offer is also subject to the approval of the competition authorities and fulfilment of other standard conditions.

Due to these developments, the Annual General Meeting of Shareholders scheduled for 26 April 2016 is deferred to a later date. The delisting of Kuoni shares should take place in the second or third quarter of 2016.

The Board of Directors and Group Executive Board recommend that you, our valued shareholders, accept EQTʼs public offer.

2015 financial year

Kuoni Group generated turnover from continued activities of CHF 3,348.7 million in 2015, compared with CHF 3,372.0 million in 2014. There was significant organic growth of 6.9%, but the strong Swiss franc had a negative effect of 7.6% on the conversion into our presentation currency, resulting in a nominal net decline in turnover of 0.7%.

The high-growth divisions Global Travel Distribution (GTD) and VFS Global once again made strong contributions to overall turnover, posting organic growth of 9.8% and 23.3% respectively. Operating earnings before amortisation (EBITA) amounted to CHF 124.0 million (2014: CHF 105.7 million), while operating earnings (EBIT) came in at CHF 81.2 million (2014: CHF 76.4 million). EBIT was therefore higher than in 2014, though it was heavily influenced by one-off effects such as the sale of the “Neue Hard” property in Zurich (+CHF 52.6 million), the value adjustment on other intangible assets (CHF –16.5 million), as well as the costs of restructuring the Global Travel Services (GTS) Division and the support and group functions (CHF –25.2 million). Excluding these items, the adjusted EBITA came to CHF 96.6 million and the adjusted EBIT was CHF 70.3 million. It should be noted that the previous yearʼs result included CHF 10.1 million from the sale of the Geroldstrasse property.

The sale of the tour operating business led to a loss of CHF –132.4 million before the reclassification of CHF –219.7 million of currency translation losses (CTA) accumulated over the years. This accounting effect had no impact on the equity or cash position. The net result after tax from discontinued operations came to CHF –352.1 million (2014: CHF 9.2 million). The net result thus came to CHF –294.2 million overall, compared with CHF 67.4 million in 2014.

The GTD Division GTD (global distribution partner for accommodation and travel services in the business-to-business sector) posted a new record of 14.5 million room nights booked. Strongest growth came from markets in Asia and the Middle East. EBIT also went up.

The GTS Division (group travel business, event management and Destination Management Specialists) reported positive organic growth, especially with customers from China and Taiwan. However, a fall in demand in the important Japanese market had a substantial negative effect on the result. The restructuring of the group travel business commenced during the year under review. At the Destination Management Specialists, geopolitical events and lower demand from Russia had an impact on turnover. Cost savings and a focus on destination services with higher margins and more profitable orders led to an improvement in operating earnings.

In 2015 the VFS Global Division (provider of outsourced visa services for governments) processed 20.1 million visa applications, which is a new record. This growth was achieved primarily in the source markets of Asia/Pacific, India, the Middle East and Africa. At the end of 2015 VFS Global was running 1,916 application centres for 48 governments in 123 countries around the world. Operating earnings (EBIT) were up slightly on the prior year.

In November 2015 Zubin Karkaria was appointed as CEO of Kuoni Group, succeeding the outgoing CEO Peter Meier, and now heads the Kuoni Group as well as the VFS Global Division. Zubin Karkaria founded VFS Global in 2001, and has been a Member of the Group Executive Board since March 2013. In November 2015 Dr. Prisca Havranek-Kosicek was appointed as the new Group CFO, succeeding previous CFO, Thomas Peyer, effective March 2016.

As stated in the public tender offer by private equity company EQT on 29 February 2016, any dividend distribution would be deducted from the offer price. The Board of Directors is therefore recommending to the forthcoming Annual General Meeting that no dividend in the form of a withholding tax-free distribution against reserves from capital contributions be paid.

The Board of Directors and the Group Executive Board would like to thank all our employees for their great commitment and professionalism during 2015. Many of them worked extremely hard and with great commitment on the major change process, and they certainly deserve our praise.

2016 will be a springboard for growth and profitability

Dear shareholders, Kuoni has been through some stormy times. The internet has triggered profound changes in consumer behaviour and in the provision of travel services, and our industry has been affected more dramatically than just about any other.

Today we can say with confidence that Kuoniʼs Board has fulfilled its primary task in every way – namely to ensure the long-term success of the company even in a fundamentally altered environment.

We realised that under todayʼs completely different market conditions, a highly diverse group of shareholders are not the best owners for either the consumer or the B2B business. And without regard for either praise or censure we have simply taken the decisions that best serve the company, its shareholders and its other stakeholders. We firmly believe that these decisions will be proven right.

The Board of Directors and Group Executive Board would like to thank you, our shareholders, for the trust you have shown in us over the years. We appreciate it very much.

The Kuoni brand and the companies that stand behind it will continue to have a very strong presence in the traditional tour operating business with end customers in Europe. So does our group travel business under the Kuoni brand, especially in Asia. The year 2016 will also be a springboard for further growth and profitability for all our other activities. Our aim is to build further on our strong global market positions with innovation, quality, and reliability.

Heinz Karrer

Chairman of the Board of Directors 

Zubin Karkaria

Chief Executive Officer (CEO)