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Tourism Holdings Limited Results

9.00am - 9th August 2006


Tourism Holdings Limited
Results For The Year Ending 30 June 2006


- Reported Net Profit After Tax (NPAT) $11.0m vs $15.3m last year.
- NPAT reduced by impairment writedown of $3.7m after tax in the value of Kelly Tarlton’s Antarctic Encounter & Underwater World.
- Trading NPAT of $14.7m, consistent with February 2006 market guidance.
- Satisfactory performance from Rentals. Performance in all divisions affected by fuel costs and a decline in holiday visitor numbers to New Zealand from THL’s primary markets.
- Final dividend of 6 cents per share. Total annual dividend of 11 cents per share including 5 cents interim dividend.


Tourism Holdings Limited earned a Net Profit After Tax (NPAT) of $11.0m for the year ended 30 June 2006, compared to $15.3m for the 2005 financial year. Excluding the impairment writedown of Kelly Tarlton’s, NPAT is within the range of $14.5m - $15.5m provided as guidance to the market in February 2006. The $15.3m Group NPAT for the 2005 year included a $2.5m loss for the Oz Experience business sold in 2005.

Tourism Holdings Limited results are reported under New Zealand equivalents to International Financial Reporting Standards (NZIFRS) and all comparatives have been restated under NZIFRS.

The THL Board has agreed that the carrying value of Kelly Tarlton’s be reduced based on completing an impairment test to assess the value in use of the assets. This results in a charge against fixed assets in the current year’s account of $5.5m. This writedown reduces reported NPAT by $3.7m.

The Rentals division performed well in Australia and New Zealand, although the year-on-year comparison for New Zealand rentals was adversely affected by the timing of the 2005 Lions rugby tour to New Zealand.

The Coaching division achieved an improved result in the second half of the year, with strongly improved performances from Airbus, Kiwi Experience and the Discover New Zealand packaging unit offsetting a disappointing Johnston’s Coachlines result.

The Attractions division increased revenue, but earnings were reduced by the fire at Waitomo in December 2005 and by cost increases that were either one off or could not be passed on.

Group Revenue grew by 5% to $176m including a full 12 months of Fullers Bay of Islands trading (7 months the previous year).

As noted previously, the 2006 results include the impairment writedown of $3.7m after tax to Kelly Tarlton’s, and the 2005 comparatives include a loss of $2.5m after tax on the disposal of Oz Experience on 1st April 2005. Excluding these one-off items, trading NPAT reduced from $17.8m to $14.7m for the year.


The Directors have resolved to pay a 6 cents per share final dividend, fully imputed, with a record date of 20th October 2006 and payment date of 27th October 2006. With the interim dividend of 5 cents per share, total dividend for the year is 11 cents per share, which is the same as for the previous year.

THL’s dividend policy is to pay shareholders a dividend that provides certainty of income unless the Directors view future profitability as likely to be reduced on an ongoing basis. Dividends are based on a payment of at least 60% of NPAT after adjusting for one-off items, with an objective to match or exceed the prior year.


The relatively high value of the New Zealand dollar prevailing until the fourth quarter of the 2006 financial year reduced the number of international visitors, and caused them to curtail both the duration of their visits and their spending – particularly on leisure activities and attractions. Whilst the dollar’s value has since fallen, it is too early to predict the longevity and impact of these trends.

A recent external analysis, published in July 2006, estimated that in the short term a 10% increase in the real exchange rate leads to a 6% fall in visitor arrivals.

All divisions were affected by substantial increases in fuel and energy prices and the flow on impact on airfares into New Zealand.

The number of holiday visitor arrivals into New Zealand declined by 4% over the June 2005 year, with significant declines from key markets Japan (-11%), United Kingdom (-11%) (influenced by the Lions Tour in the prior period) and the USA (-2%). We see this trend continuing over the winter and early summer.

Tourism arrivals into Australia continued to improve in the June year in our key markets of Germany (+6%) and the UK (+1%). These increases coupled with good domestic growth reflected in a strong revenue increase in THL’s Australian Rentals business.

Prospects for all divisions will be influenced in the short term by a number of factors including the reduction in New Zealand visitor numbers, high fuel costs and airline surcharges – potentially offset by the lower value of the New Zealand dollar.

Meanwhile, international tourists are travelling into New Zealand later in the summer season than in previous years, producing a shift in THL's earnings profile towards the second six months of the year.

International tourism generates more than 80% of THL's revenue. The long-term outlook for New Zealand tourism remains very positive, with growth opportunities in several sectors. New Zealand retains a strong international tourism brand, with a mix of attributes and experiences appealing to a wide range of visitor segments.
With ongoing change in tourism markets in New Zealand and overseas and the appointment of a new CEO the company is undertaking a comprehensive review of its operations, structure and strategies to ensure that it is well positioned to take advantage of future opportunities.


Tourism Holdings Limited Operational Review :

All Divisional commentary is based on results restated to comply with New Zealand equivalents to International Financial Reporting Standards (NZIFRS). As both the current and previous period results have been restated to conform with NZIFRS, they are directly comparable.


The Rentals division achieved operating earnings (Earnings Before Interest and Tax) of $24.7m, compared with $26.8m in the 2005 year.
The Australian Rentals business lifted revenue by 13%, with fleet utilisation increased from 65% to 72% for the year. Operations in Melbourne, Hobart, Darwin and Adelaide were placed in the hands of third party operators to lift sales and service levels. The establishment of agency operations allowed the business to focus on higher volume locations and move others to a variable cost, rather than fixed cost, model.

As a result of development over the past three years, the combined Australia / New Zealand domestic market now provides an increasing share of Australian Rentals’ total customer base. This reduces exposure to risk associated with long haul markets such as Germany and UK from long haul airfares and international currency fluctuations.

Revenue from New Zealand Rentals decreased marginally (-3%). Within this, motorhome and disposal revenue growth was positive, offset by a decline in car revenues. The increase in disposals enabled the business to optimise the size of its fleet and consolidated THL as the provider of quality second-hand units to the New Zealand market.

New Zealand Rentals enjoyed growth across all its motorhome brands. This was led by the Backpacker brand through competitive pricing, a compelling brand offer and an increased focus on value-based travel in the youth and adventure market.

The Rentals division further advanced its focus on fleet quality, commissioning a new generation of four-berth and six-berth vehicles to be launched in 2007. The strategy to increase sales direct to consumers was advanced by the introduction of business-to-consumer websites for all three brands (Backpacker, Britz and Maui) in early 2006.

Results from CI Munro were affected by the downturn in New Zealand tourism and the resulting softness in build requirements. Cost reductions were implemented to adjust to the lower demand. The company plans to introduce exciting new product designs in 2007 to refresh its range for both rental and private retail customers.


The Coaching division achieved a much improved second half performance, following a loss in the first half. Operating earnings (Earnings Before Interest and Tax) were $1.6m compared with $1.9m in the 2005 year. Revenue was down 7% to $36.6m.

Great Sights was affected by the decline in arrivals from Japan, which accounts for one-third of its business. During the year progress was made on initiatives to reposition the business, including an online booking engine which produced good growth in direct bookings. Progress was also made in reducing Great Sights’ reliance on the Japanese market, with an encouraging increase in bookings from Asia and India. Sales made via visitor information centres and hotels also increased, and new product innovations continued with the introduction of several new tour options.

Kiwi Experience lifted its earnings substantially, with revenues up on the previous year, and cost control and fleet management contributing significantly. This followed a range of business improvements including the relaunch of the Kiwi Experience brand, the introduction of a new website booking facility, and ongoing refinement of product and service delivery to both trade and travelling customers.

Johnston's Coachlines’ performance was well below that for the previous year, with lower revenue influenced by the Japanese market, reduced trading by major customers and the dramatic increase in fuel costs. A number of initiatives were undertaken to restructure the company to reduce costs. In addition, new business was obtained which will commence in the forthcoming high season.

Airbus had an excellent year with a 12.5% increase in passenger numbers. Three new buses were introduced into the owner-driver fleet to replace older vehicles.

Tourist Transport Fiji & Feejee Experience had a pleasing year, with increased earnings. Tourist Transport Fiji launched the Great Sights product, completed the renewal of its small vehicle fleet, and won new business from a number of customers. Feejee Experience launched its Hotel Hula Loop product and upgraded all properties on the Hula Loop circuit.


The Attractions division increased revenue by 13% due to the inclusion of a full 12 months of Fullers Bay of Islands revenue. The division experienced increased costs in fuel, power and depreciation from capital expenditure required to keep the business competitive. Operating earnings (Earnings Before Interest and Tax) for the division were at breakeven, compared with $8.2m in the 2005 year.

Excluding the Kelly Tarlton’s impairment writedown, EBIT was $5.5m.

The Waitomo Glowworm Cave facilities suffered fire and vandalism incidents in December 2005, and Kelly Tarlton’s was flooded during a power outage in early June 2006. Whilst these incidents have disrupted trading they have provided an opportunity to design a significantly enhanced product at Waitomo and improved tank display, retail, theatrette and education components within Kelly Tarlton's. At Waitomo the facilities were quickly recovered to the point where customers were able to enjoy a full caving experience within five days of the fire. Designs and concept drawings for the new Waitomo Visitor Centre are currently being finalised. At this point in time we expect the new complex to be open in around 18 months. The division continues to work closely and positively with insurers and local interests over both issues.

The highlight of the year was the establishment of the Ruakuri Caves operation, which was opened in July 2005. Ruakuri offers customers the opportunity to view one of the most remarkable cave formations in the world.

Kelly Tarlton's did not reach desired targets in the financial year following the opening of Stingray Bay in late 2004 however the Shark Attack exhibition in April and May 2006 was a significant success.

Fullers Bay of Islands traded down on the previous year with the impact of lower visitor numbers, a new competitor in the region and fuel cost increases. The enhancement of fleet and facilities continued throughout the year. Fullers Bay of Islands took delivery of a new 49-seater coach for its Cape Reinga product, and is well under way in building a new $2.5m car ferry which will come into service in November 2006, providing a significant increase in capacity for the local and tourist markets.

Milford Sound Red Boats experienced a profitability decline due to the reduced number of Japanese visitors into Milford and the loss of one major client. New business has been acquired commencing in the new calendar year. The Milford Sound Underwater Observatory was purchased in the last quarter of the year. This business should benefit from being combined under the THL distribution channels and with the benefit of the group’s experience in operating unique attractions from a customer perspective.


Interest bearing debt net of cash on hand was $86m at June 2006, compared with $83m at 30 June 2005.

The debt to debt-plus-equity ratio is 43% at June 2006 (42% at June 2005). Operating Cash Flow was $41m for the year, the same as the 2005 year.


The group maintained its strategy of strong reinvestment in assets to remain at the top end of the New Zealand tourism market. Capital expenditure for the year was $57m, compared with $92m in the 2005 year. This was related mainly to normal rentals fleet replacement.

A small acquisition was made during the year – of the Milford Sound Underwater Observatory, which is now included as part of the Red Boats operations at Milford.

Disposal of fleet (principally motorhomes) realised $24m, leaving capital expenditure net of disposals at $33m. This is higher than previous guidance due to higher fleet expenditure and the observatory acquisition.


As the group has adopted New Zealand International Financial Reporting Standards (NZIFRS) from 1 July 2005, the reported profit and June 2005 comparatives have been restated to comply. This had the following impact:

- Amortisation of goodwill is excluded in the calculation of NPAT. Restating the June 2005 year results for this change adds $5.2m to earnings.
- Revenue is recognised over the visitor’s travel period, rather than as previously at the time of departure. The adjustment for the 2005 year is -$0.3m after tax.
- Other adjustments totalled -$0.2m.

A reconciliation of the 2005 results to those reported previously is provided below.


Mr Dennis Pickup retired as Managing Director after seven years effective 3rd April 2006 and I would like to again thank Dennis for his leadership during this time.

He was succeeded as Chief Executive Officer by Mr Trevor Hall, who commenced on the 3rd July 2006. Mr Hall was previously Chief Executive of the New Zealand Lotteries Commission, and before that held a number of senior tourism management and marketing positions in New Zealand and internationally.


The THL Board considers its governance code and practices comply fully with the NZX best practice code.

The Board has adopted a formal Board Charter covering governance, ethics, appointment of directors and directors’ independence. The Board Charter also includes a Code of Ethics, an Audit & Risk Committee Charter, a Remuneration & Nomination Charter and a Market Disclosure Policy.

These documents can be accessed in full on the company’s website, .


With international tourism generating more than 80% of the group’s turnover, THL will remain influenced by trends and events on the world stage, including international tourism patterns, currency movements and travel costs. Whilst these fluctuate from year to year, the fundamental outlook remains positive, with New Zealand and Australia highly attractive as international destinations.
The new CEO, Trevor Hall, is reviewing all THL’s businesses to ensure it is well positioned to take advantage of the opportunities created in coming years. It is investing in its assets to ensure that they remain at the forefront of the tourism industry in this part of the world.

Many undercapitalised companies (including operators of poorly maintained cheap imported vehicles) have entered the industry over recent times and are now struggling with asset replacement costs and cost pressures. The key focus of THL’s investment is to maintain high quality tourism assets to enhance New Zealand’s tourism appeal and to enhance the service and quality offered to customers. The benefits of this ongoing programme should be seen in results in future years.

In the Rentals division, the development of the Backpacker youth brand will continue, along with the focus on generating direct sales through new online channels. These are producing increased yields and reduced commission costs, whilst providing greater value to customers. Other priorities include the achievement of further process and efficiency gains, restructuring of the cars offerings in New Zealand and Australia and the refinement of the agency sales model in Australia.

In Coaching, major priorities are the improvement programmes for Johnston’s Coachlines and Great Sights. Johnston’s will benefit from structural changes implemented for the start of the current financial year, the acquisition of new business, growth from key clients indicated for the second half of the year and tighter management of variable costs.

In Attractions, cost recovery remains a key focus, to be balanced with protection of market share in key price-sensitive markets. The recovery programmes at Waitomo and Kelly Tarlton's provide opportunities to enhance the long-term future of these locations. Further investment will be made in the Milford Sound operations to ensure that the product matches the unique natural environment.

This Results Announcement is also posted on the Tourism Holdings Limited website:


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