Carnival Cruises 2007 Annual Report Download - page 5

On the whole, 2007 was another successful year
for our company despite the numerous challenges
we faced. With record net income of $2.4 billion,
or $2.95 per share, we remained the world’s most
profitable vacation company. Our revenues grew
by 10 percent to $13 billion, hitting an all-time high.
We rebounded from weakness in the Caribbean and
experienced continued growth in Europe.
Our manageable costs were kept well under
control as unit operating costs, excluding fuel and
currency, increased just one percent, significantly
below over all inflation. Although escalating fuel
prices tempered our financial results we still
managed a 6 percent improvement in
earnings over 2006.
Our North American cruise
business was bolstered by a strong
European season and a solid Alaska
season, however, pricing pressure in
the Caribbean early in the year hindered
operating performance. Demand for Caribbean cruises strengthened
considerably as the year progressed and we see this trend continuing
into 2008. The luxury segment of our North American business per-
formed exceptionally well throughout the year.
Our European cruise business continued to benefit from strong
European consumer demand and had another banner year, absorbing
substantial new capacity and producing significant increases in operating
income. We also benefited from the continuing strength of the euro
and sterling.
Our strong cash flow allowed us to return more value to our share-
holders in 2007, through increased dividends and our stock repurchase
program. Our board of directors approved two dividend increases in
2007, bringing the quarterly dividend to $0.40 per share. Over the past
three years, Carnival Corporation & plc has more than tripled its quarterly
dividend while funding an aggressive newbuilding program and main-
taining a high investment-grade credit rating. In addition, we purchased
another 9 million shares of our stock this year, bringing the total to 37
million shares since our buyback program began three years ago.
STRATEGIC INITIATIVES
While I am pleased by our 2007 financial performance, the ongoing
success of our multi-brand global marketing strategy has resulted in
a substantial increase in our cruise passengers as a record 7.7 million
consumers embarked on Carnival-branded cruise vacations all over
the world.
Our ship building program fuels our global marketing strategy, as
we build innovative vessels for our various brands. During the past year
Carnival Corporation & plc took delivery of five vessels and ordered
eight new ships. Currently, we have 22 ships on order scheduled for
delivery between now and 2012, representing a collective investment
of $13 billion.
NORTH AMERICA
Last year nearly two-thirds of our passengers came from the United
States, the world’s number one cruise market. We maintain the broad-
est array of cruise products in North America, and currently have nine
vessels on order for the four brands that market primarily to this
region.
Carnival Cruise Lines, our contemporary, family-oriented “Fun
Ship” brand, launched “Evolutions of Fun,” a $250 million product
enhancement initiative that includes expansive water parks, adults-only
areas, resort-style pools and more.
Premium passengers can choose to “escape completely” on Princess
Cruises or enjoy a more traditional cruise experience on Holland
America Line, which continues to exceed guest expectations with its
$425 million “Signature of Excellence” program featuring an exclusive
concierge level, culinary arts center and show kitchen, among other
enhancements.
For the wealthiest segment of the population, The Yachts of
Seabourn will indulge the most discriminating guest. With a 1:1 guest-
to-crew ratio, Seabourn is recognized as the ultimate luxury cruise
vacation experience.
Based on the current newbuilding program, our North American
brands are set to grow at a pace of 3 percent over the next 4 years. With
only 3 percent of the North American population taking a cruise vacation
each year, we continue to tap the increasing wealth and maturation of
the North American population.
GLOBAL GROW TH
Growing our business internationally is critical to the company’s future.
In 2007 nearly one-third of our passengers and 46 percent of our
revenues were sourced from outside the United States—the highest
percentage in the company’s history. Clearly, our international expan-
sion efforts are working.
Last year, we carried 20 percent more Europeans than in 2006,
sourced primarily from the United Kingdom, Germany, Italy, France and
Spain. In Europe, market penetration continues, with more consumers
than ever embarking on cruise vacations. Yet despite these gains, the
overall penetration rate for cruises is still remarkably low—just 2 per-
cent in the UK and under 1 percent in Germany, Italy, France, and Spain.
This vast potential market bodes well for the future of our business.
Given the increasing strength of the European marketplace, we
have 13 ships on order for our European companies with annual capacity
growth of 14 percent expected over the next four years. The low market
penetration levels leave our company well positioned to absorb these
capacity increases as we enhance international awareness of our brands.
Capacity in the UK is set to grow by 12 percent annually during the
next four years. We expect 2008 in particular to be a banner year for
growth in the UK as we introduce 26 percent more capacity. No com-
pany is better positioned to capitalize on the tremendous potential in
that region than Carnival Corporation & plc, which operates P&O
Cruises, Cunard Line and Ocean Village—the UK’s most recognizable
and successful brands.
Germany is also poised for substantial growth, and Carnival has the
two leading cruise lines that cater to German-speaking clientele—the
AIDA Cruises brand, aimed at the contemporary, active vacationer,
which will experience a 25 percent annual increase in capacity in the
German market over the next four years, and Costa Cruises, a more tra-
ditional cruise product which also maintains a strong German presence.
Costa Cruises remains the principal operator in Southern Europe.
Through 2011, the line is expected to experience annual growth of
9 percent, sourcing its guests primarily from Italy, France and Spain,
solidifying Costa’s role as the region’s leading cruise operator.
Last year, we added Ibero Cruises to our portfolio of European brands.
Based in Spain, Ibero Cruises is a leading operator offering affordable
quality cruise vacations to the Spanish speaking population. Its two-
ship fleet will be expanded this year when Carnival Cruise Lines’
Celebration transfers to its fleet. We plan to continue expanding the
Ibero Cruises brand in this high growth market.
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