STOCK EXCHANGE RELEASE
CHAIRMANS ADDRESS
ANNUAL MEETING
11 NOVEMBER 2003
Welcome Ladies & Gentlemen to Queenstown and Tourism Holdings seventeenth Annual Meeting.
In my address I will cover five specific areas:
1. THL’s Financial Performance over the past year.
2. The Tourism Environment in which the company operates.
3. THL’s forward business outlook.
4. Future Dividend Policy.
5. Governance.
1. THL’s 2003 FINANCIAL PERFORMANCE
As reported, Tourism Holdings increased Net Profit after Tax from the previous year’s modest $300,000 to $8.7m for the
2003 financial year. However, when excluding from both years unusual items such as sales of assets, write downs and tax
adjustments the trading tax paid profit increased 60% from $4.5 to $7.2m.
A pleasing performance but one that would have been better but for the impacts in the second six months of the Iraq War
and the SARS virus.
Whilst these world events adversely affected the end of the summer season it was not as devastating as the previous year
when September 11th, the Ansett Collapse and the threat of further terrorism attacks discouraged international tourists
to travel during our traditional high season of November to April.
The higher profit of $8.7m is supported by high operating cash flows of $40.3m. “Cash is King” programmes instituted
because of September 11th and the Ansett Australia collapse continue. This has ensured your Company has a very strong
Balance Sheet as evidenced by our debt being halved to $38m, Equity Ratio improving from 54% to 66% and our bankers are
delighted to see the Debt to Debt plus Equity Ratio improve from 37% to 22%. Both ratios exclude intangible assets.
With the improved trading result and strong cash flows we were able to reward shareholders with an increased dividend
over the calendar year of 8 cents per share compared to 3 cents per share last year.
2. TOURISM ENVIRONMENT
With a degree of poetic license we have referred to the past two years in international tourism as “The Perfect Storm”.
Gigantic waves crashing down from massive heights and from all directions without notice.
THL has survived, and is currently operating in a more traditional tourist year, as we enter the high summer season.
Whilst unrest in the Middle East and continuing threats of terrorism continue, the international traveller appears to
have accepted these as “the norm” and have resumed travelling, although some exceptions to this generalisation exists.
THL operates in the South Pacific countries of New Zealand, Australia and Fiji which are seen to be safe and where
international travellers are welcome.
Whilst there will always be threats to international tourism such as wars and SARS type viruses, tourists have become
more resilient and determined to travel overseas. Also the industry has learned lessons and health outbreaks will be
better contained and managed than SARS was earlier this year.
As we speak here today the tourism environment is relatively stable and gradually recovering from the SARS induced slump
in visitor arrivals. International tourists into New Zealand now number over 2 million and for the month of September
were up 9% with Australia and United Kingdom travellers showing pleasing growth of 20% and 16% respectively.
Over the year to September 2003 THL’s traditional source markets have, other than Japan at 3.4% growth, been above the
international arrivals growth of 4.8% with:
United Kingdom + 10.9%
Australia + 8.5%
Germany + 7.5%
United States + 6.3%
Unfortunately whilst New Zealand as a tourist destination continues to be “Hot”, Australia is not; which is where we
have 36% of our business. In the month of August, tourist arrivals into Australia were down 3% and the year to August
showed a decline of 2%.
The World Rugby Cup will boost international arrivals into Australia over the October/November months but these tourists
do not necessarily utilise our Australian products of motorhome rentals and backpacker transport. What has become
evident is that our normal client base, up to, and during the World Cup have stayed away, as they did in 2000 for the
Olympics, due to higher travel and accommodation costs and perceived shortage of hotel accommodation. Over this period
there will be a slight knock on effect for New Zealand.
Fiji is currently buoyant with the environment deemed to be stable with no indication of further political instability.
However assisting regional tourism is the increased airline capacity into the South Pacific. The increased trans-tasman
capacity of 18%, which began last week, coinciding with the summer season is most welcome. Overall air seat capacity
into New Zealand is up 28% this summer. This includes the recently announced direct flights from Asia by new NZ
destination airlines, Asiana Airlines and Korean Airlines. This together with increased flights from traditional Asian
carriers of Singapore, Thai and Malaysian airlines is positive for New Zealand tourism as they pump cheap airfares in
Europe.
However Japan and Asia have not recovered as quickly as the industry anticipated following the Iraq War and SARS as have
our other markets. Japan may also be affected by the country’s forthcoming national elections.
3. THL’S FORWARD BUSINESS OUTLOOK
3.1 Trading
Trading for the September quarter of the new financial year has been mixed and affected by the SARS hangover with the
reduced Asian and Japanese visitor numbers continuing to impact our attractions and New Zealand Coaching operations.
Rentals New Zealand has performed well with the lift in European and UK visitor numbers.
Rentals Australia is consistent with last year.
The backpacker coaching operations have performed below last year particularly in Australia where a significant
reduction in backpacker visitor numbers has been experienced.
For the second quarter, October to December, forward bookings are strong into Rentals New Zealand, however our
attractions continue to be adversely affected by the slow recovery from Japan and Asia.
The high number of days the Milford Sound road has been closed over the past 3 months has also meant reduced numbers for
Great Sights and Milford Sound Red Boats.
In Australia the impact of the World Rugby Cup appears to be similar to the 2000 Olympics with traditional tourists
postponing travel until its completion.
Taking these influences into account THL should achieve a Trading Net Profit after Taxation of $3.8m for the six months
to December 2003. This is consistent with last year’s profit of $3.8m excluding unusual items of $0.9m (mainly profit on
sale of businesses) and the discontinued Aviation / Treble Cone businesses of $0.5m. For the record THL reported an
overall NPAT of $5.2m for the same period last year.
When we announce the half yearly trading results in February 2004 we will know the level of our high season trading and
degree of forward bookings, and will be in a position to give an indication of the year end result.
3.2 Capital Expenditure
With the normal replacement builds for THL Rentals plus the growth and development expenditures for Red Boats, Waitomo
Caves and Kelly Tarlton’s, Capital Expenditure for the 2004 year is expected to be in the range of $65m to $70m. With
the increased Rentals activity there will not be the same level of motorhome fleet disposals as in the previous year.
The revenue from disposals is forecasted to be $16m, down on last year’s $28m.
Thus, net Capital Expenditure for this year will be in the order of $49m to $54m compared to Capital Expenditure
excluding sales of businesses of $9m last year. We should note that in addition, last year $13m was raised from the sale
of businesses.
3.3 Growth Strategies
With the conclusion of THL’s business and asset sales, which has in part contributed to the exceptionally strong Balance
Sheet and Cash Flows, THL has been seeking expansion opportunities.
On the 31st October 2003 we acquired The Legendary Blackwater Rafting and The Ruakuri Caves with their 30 year
concessions. These businesses leverage our existing operations at Waitomo.
The Pride of Milford, our new 400 seat catamaran, was delivered in October. Your Directors viewed, and cruised on it
yesterday whilst in Milford Sound. It is a very welcome addition to our four vessel fleet. I must say as a self
professed “Boatie” I had high expectations from a $6m expenditure; I am pleased to say that I was pleasantly delighted
at the finished product. Management, in particular Richard Wilson and his Experiences team are to be congratulated, not
only in delivering “on time and within budget” but also the end product. The Pride of Milford will be the star cruising
boat for many years on the Milford Sound for which you as shareholders and we as your Directors will be proud of.
Similarly we are well advanced in the planning for the upgrading of Kelly Tarlton’s. During the low winter 2004 season a
new filtration plant will be installed. This will be followed over a three year journey with progressive upgrades of the
attractions including the development of a Sting Ray Bay, Shark viewing tank (swimming is an option) and major improved
viewing of the penguins in the Antarctic Centre.
The planned $12m expenditure spread over three years will revitalise Kelly Tarlton’s and enhance it as one of New
Zealand’s premier tourist attractions.
4. FUTURE DIVIDEND POLICY
At last year’s shareholders meeting your Directors indicated that with a strong Balance Sheet and forecasted stronger
cash flows they had a number of options to benefit shareholders.
These options included capital repayment, special dividends; buy back of THL shares as well as seeking expansion
opportunities.
Since last November’s announcement the Iraq War and in particular the SARS virus occurred unexpectedly.
Whilst world events will continue to create uncertainty in international tourism your Directors will continue to explore
the best alternatives to reward shareholders whether by returns to shareholders, reinvestment or new business
development and acquisitions.
When declaring dividend payments Directors consider the Net Profit after Taxation before the amortisation of goodwill
currently $5m, which is a non cash item. Thus last year tax paid profit before goodwill amortisation was $13.7m compared
to the reported profit of $8.7m. The 8 cents per share paid out for the 2003 fiscal year is 57% of pre goodwill
amortisation tax paid profit.
Your Directors consider a payout ratio of around 60% of pre goodwill amortisation tax paid profit is appropriate.
Further we consider a stable dividend payment, growing over time to be of high importance to shareholders and we are
therefore committed based on the current trading outlook, to be paying a dividend of at least 8 cents per share over the
2004 calendar year.
5. GOVERNANCE
Your board is committed to best practice in all areas of corporate governance. With the exception of the Managing
Director, all Directors are non-executives.
The two main Board sub-committees are chaired by independent, non-executive Directors, Rick Christie, in the case of the
Audit & Risk Management Committee, and Harry Price, the Remuneration Committee.
This year also saw us farewell Graham Sinclair, one of the Company’s Founding Directors and a previous Chairman. Graham
made an enormous contribution to the Company over a seventeen year period, and we all have benefited from his wise
counsel at various times during our respective terms of involvement with the Company.
As I have stated in the past, we wished to strengthen our Board representation with further Australian-based people.
We were, therefore, pleased when Graeme Bowker, who is based in Melbourne, agreed to join the Board earlier this year.
Graeme has a wide business background in both New Zealand and Australia. As Graeme was a Board appointee during the
year, he resigns at this Meeting and offers himself for re-election under S34.3 of the Constitution.
As I highlighted in the Annual Report, and as detailed in the Notice of Meeting, we are seeking Shareholders’ approval
to increase the total Directors’ fees payable per annum to all Directors’ taken together, to $450,000. The last increase
was in 1999, and since then considerable extra responsibilities have been placed upon Directors generally, plus the
increasingly Australasian focus of our business requires us to benchmark Non-Executive Director remuneration on an
Australasian basis.
We are also proposing that the Company’s Constitution be amended to change the Board’s ability to pay retirement
benefits to a retiring director. The proposed amendment will provide that, and I stress in an extreme and I might add
unlikely event, that the Board wishes to pay a retirement benefit to a Non-Executive Director this can only be paid if
Shareholders’ approval has been granted. Whilst this will apply on a case by case basis, I repeat it is the Board’s view
that this provision would be rarely used, and if so, only in exceptional circumstances.
We are of the view that Non-Executive Directors should be remunerated properly during their term of office, and not at
the end of their period of service.
6. CONCLUSION
2003 proved to be another challenging year with a variety of adverse world events.
Whilst Directors and Management have focused on the immediate short term of surviving, as we say “The Perfect Storm”, we
have been mindful of delivering a longer term strategy consistent with our vision and aspirations to generate increased
wealth to Shareholders.
Your Board and Management have been extremely diligent, hard working and focused on longer term growth strategies.
All our Staff continue to remain loyal with minimal staff turnover, and are extremely committed to delivering to our
tourists “A Great Experience Every Time”.
The past year, whilst again difficult, frustrating and negatively impacted by events outside of THL’s control, has been
a rewarding and satisfying year.
Whilst nothing in international travel is certain, the immediate outlook is more positive than it has been for the past
two years.
Interests of Shareholders remain paramount to your Directors.
With the release of half-year trading results in February we will update you on the trading outlook following the high
season.
Keith Smith
Chairman
11 November 2003
ENDS