16th November 2004
NZX Release Chairman’s Address Annual Meeting
16 November 2004
Welcome Ladies & Gentlemen to Tourism Holdings eighteenth Annual Meeting. In this address we will cover seven 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. Dividends. 5. THL’s Sustainable Environmental Investment Strategy. 6. Directors. 7. The Managing
Director will then give a brief overview of developments in our attractions division. 2
1. THL’s 2004 FINANCIAL PERFORMANCE
As reported Tourism Holdings increased Net Profit After Tax from the previous year’s $8.7m to $11.2m, an increase of
29%. When excluding from both years unusual items and tax adjustments the trading tax paid profit increased 43% from
$7.2m to $10.3m. This much improved financial performance reflects the improved tourism environment which hasn’t been
affected by any world events that seriously impacted the two previous financial years. Our NZ Rentals business performed
extremely well with profit up 30% on a revenue increase of 13%.
Unfortunately our Australian Rentals division’s high season – the six months to December 2003 the traditional buoyant
period where international tourists enjoy motorhome travel in the Northern Territories – suffered from th e Iraq War and
SARS virus, both events causing a high level of cancellations over this period. Longer term rentals from our traditional
European travellers have also declined due, we believe, to their current soft economies.
The higher Group profit of $11.2m and continual focus on “Cash is King” programmes generated operating cash flows of
$40m. The Company’s Balance Sheet is very strong with an Equity Ratio of 62% and a Debt to Debt plus Equity Ratio of
27%. Both ratios exclude intangible assets which relate primarily to Goodwill. Capital Expenditure on increased
motorhome fleet in New Zealand and growth strategies for our Attractions division increased debt from a modest $38m to
$52m.
With the improved trading results and a strong financial position your Directors increased the dividends paid over the
financial year to 12 cents per share compared to 8 cents per share last year. This included a special one off dividend
of 4 cents per share paid in April.
2. TOURISM ENVIRONMENT
Tourism is back in vogue. Not only have international tourists resumed travel to the levels pre September 11 2001 but
there are major drivers behind the current phenomenon.
A massive increase in airline capacity has occurred especially on the long distance routes as well as the development
of new routes by traditional and new airlines. The low cost carriers have benefited international tourism as illustrated
by the 50% increase in Trans -tasman airline capacity lowering airfares by 20% in the past two years.
The demand for travel to New Zealand remains at unprecedented levels with the country expected to exceed 2.4 million
international arrivals this year in contrast to 500,000 in 1983. The growth of international tourism of 4.8 times in the
past twenty-one years now means that tourism in New Zealand is the #1 contributor to 3 the economy as measured by the
Gross Domestic Product at 7.6%, #1 employer at 10% and with annual $7.4b export earnings exceeds the Dairy industry as
New Zealand’s top exporter.
There are no indications that we can see which suggests New Zealand’s bubble as a “Hot” tourist destination is going to
burst. Whilst Australian international arrivals are in a growth phase, a large portion of this increase is not relevant
to THL’s investments in motorhome rentals and backpacker transport. The growth is coming principally from Asian
countries who do not traditionally use these modes of travel.
THL operates in the South Pacific region of New Zealand, Australia and Fiji where official tourism forecasts indicate
continuing strong growth in international arrivals of between 6% to 8% pa to 2010. The distance that Northern Hemisphere
countries travel to our region is no longer seen as a disadvantage as the South Pacific is deemed to have a “Peace
Haven” status in comparison to other regions such as America, Europe and Asia.
The New Zealand Tourism Research and Forecasting Council have researched the three international tourist profiles over
the past five years. In the pre -sold or series tour market there has been no growth over the past five years.
In the Semi-Independent traveller sector which reflects tourists that want a degree of pre-booked and organized travel
there has been a spectacular growth of 15.5% p.a. over the past five years.
With the FIT or Free or Frequent Independent travel market normally associated with the backpacker sector (18-35 years)
booking on arrival there has been a growth of 8.5% p.a. in the same period. THL’s investment focus is oriented to the
SIT/FIT markets which are enjoying this substantial growth with only Johnston’s Coachlines and our packaging operation
of Discover New Zealand operating in the pre sold series touring market.
3. THL’S FORWARD BUSINESS OUTLOOK
3.1 Trading Trading for the September quarter has been solid bearing in mind it is the low season in New Zealand.
However Australia’s high season in the Northern Territories is not trading in line with expectations. This we believe is
due principally to the traditionally strong European markets, especially Germany, not travelling through the Northern
Territories as they have done. The European economies are still sluggish and Germans in particular – high motorhome
users in Australia – do not appear to have been travelling to the same extent as five years ago.
This has affected all motorhome rental companies with the #4 ranked operator recently withdrawing from both Australia
and New Zealand. Other major Australian operators have also been downsizing. We are currently undertaking a major review
of the Australian motorhome industry and the appropriateness of THL’s business model in Australia. The review will
enable your Board to ensure 4 that it has appropriate strategies to deal with the Australian Tourism market which has
experienced continuous change in recent years particularly as to airline competition.
The August 2004 acquisition of Hertz Motorhomes Australia’s forward bookings and fleet is trading in accordance with
plan. Our expectation is that these forward bookings will be incremental revenue whilst the increased disposal of fleet
will ensure we achieve our planned fleet size by June 2005. The withdrawal from the market of a major competitor as well
as the downsizing and possible exiting by other Australian competitors is a necessary rationalization and consolidation
process to improve overall industry economic viability. In New Zealand our Rentals business has had a good start to the
year and we were recently successful in acquiring the forward bookings and fleet of Cruise NZ who ceased operations.
Rentals forward bookings for the high season are strong.
3.2 Oil Prices Shareholders through their own personal experiences will be well aware of the significant inc reases in
fuel prices over the past six months. Based on economic forecasts it would appear that the prevailing high fuel prices
are going to continue for some time. The reality may well be that fuel costs will never be reduced to the prices
considered normal 12 months ago.
Our Rentals fleet of 4300 vehicles are not directly exposed to fuel costs as they are met by the hirers. However with
our Coaching and Vessel fleets fuel is a significant cost. We have applied where possible a fuel surcharge to recover as
much of the recent fuel cost increases as we can. In this regard we are appreciative of the understanding and support
generally given by our Inbound Tour Operators.
The New Zealand exchange rate has appreciated over the past six months particularly against the US currency.
Fortunately this has helped to mitigate to some degree the oil price increases. However the continuing higher fuel costs
are a trading reality which is difficult to recover in industry pricing.
3.3 Purchase of Fullers Bay of Islands
Today I am pleased to announce THL’s purchase of the Paihia based tourism business of Fullers Bay of Islands from the
current entrepreneurial owners Chris Jacobs, Roger Dold and Peter Murphy. Fullers Bay of Islands is one of New Zealand’s
great tourism companies. They were recognis ed as such in 2000 by winning the Supreme Award in the New Zealand Tourism
Awards.
The Managing Director will outline later Fullers Bay of Islands operations. THL will take over the business on 1st
December 2004. The purchase price is $22 million with $18 million payable on the 1st of December and the balance on or
around 31st May 2005. THL expects this acquisition to increase reported 5 Earnings Before Interest Tax and Goodwill
Amortisation (EBITA) by $3.3 million for the remaining seven months of this financial year. Fullers mode of operations
of cruising and coaching are areas of tourism in which THL has enjoyed years of experience, and has the competencies and
skills to manage. This purchase adds another iconic brand to your company’s stable of attraction businesses throughout
New Zealand.
3.4 Projected Forecasts Based on current trading and future bookings THL should achieve a trading net profit after
taxation of around $5m for the six months to December 2004. This is an increase of 19% on the $4.2m Net Profit After Tax
for the same period last year.
When we announce the half yearly results in February 2005 your Directors will have a reasonable assessment of how the
high season is trading and will be in a position to give an indication of the year end result. Analysts are currently
forecasting a profit for the 2005 year of around $13m which your Board is comfortable with subject to unforeseen events.
This would represent a profit increase of 16% on the 2004 year.
This does not include any contribution from today’s announcement of our acquisition of Fullers Bay of Islands which we
expect to add $600k to the Net Profit After Ta x for this current year or $1.6m NPAT pre Goodwill amortisation. I would
point out however that at this stage of the financial year we are working in a range of plus or minus 10% of the market
consensus forecast.
3.5 Capital Expenditure Apart from the normal replacement builds for Rentals there has been major expenditure in
development of our attractions in Waitomo with the opening of Ruakuri Caves and Kelly Tarlton’s plant upgrade and new
Stingray attraction. Whilst the recent acquisition of the Hertz Australia motorhome fleet was achieved by assuming their
operating leases THL purchased the 126 vehicles acquired with Cruise NZ takeover. Overall, capital expenditure for the
2005 year is expected to be in the range of $55m to $60m. In addition $22m will be spent on the Fullers Bay of Islands
acquisition. Funding for this acquisition is from THL’s banking facilities. Disposal of fleet is anticipated to be in
the range of $25m to $30m compared to last year’s $18m. Thus, net capital expenditure including Fullers Bay of Islands
for this financial year will be in the order of $50m to $55m compared to a net capital expenditure of $44m last year. 6
4. DIVIDENDS In April 2004 your Directors declared a special dividend of 4 cents per share in addition to the interim
dividend of 4 cents per share. This reflected their confidence in the strength of THL’s Balance Sheet, forecasted cash
flows and improving profitability.
THL is currently taking advantage of expansion opportunities and growing existing businesses with the improved outlook
for international tourism. Your Directors have reaffirmed a dividend payment policy of 60% of the Net Profit After
Taxation before the amortization of goodwill. A dividend of 5 cents per share was paid to Shareholders on the 22 October
2004 fully imputed which compares to 4cps last October.
We believe that Shareholders should receive a stable dividend payment which increases over time from profit growth as
well as retaining funds to enhance the financial strength of the company.
5. THL’S SUSTAINABLE ENVIRONMENTAL INVESTMENT STRATEGY THL operates in a tourism trading environment where increasing
demand and scrutiny is placed on our overall business development and strategies in the area of sustainable business
practices and our approach to the environment in which we operate.
The Company has and will continue to develop sustainable and environmentally sound business practices and processes.
Key elements of this strategy are improved management of waste disposal, energy usage, environment risk mitigation,
operating efficiencies and our environment improvement approach to customers, staff and the community. We are pleased to
announce the launch of a new environment initiative in conjunction with our new fuel supplier BP Oil.
THL and BP have developed a loyalty scheme for implementation in New Zealand in early 2005. The hirers of our 2,800
Rentals fleet of motorhomes and cars in New Zealand travel up to 100 million kilometers a year. BP will reward and
rebate to an environmental trust formed by THL and BP based on the fuel consumed by the hirers of our Rental fleet. This
Trust managed by THL and BP has initially identified four major environmental initiatives throughout New Zealand. The
first to be established is in the Ruakuri Reserve at Waitomo. This area is directly associated with THL’s cave
attractions and Black Water Rafting operation. The project will install within the Ruakuri Reserve a fenced off area to
protect against predators in which Kiwis will be released. This Waitomo project will be managed by representatives of
the Department of Conservation, Local Iwi, Property Owners and THL. A marine project identified with Kelly Tarlton’s and
a Fiordland National Park species initiative aligned to THL’s investments in Milford Sound are also being progressed. A
fourth environmental project will now be identified in Northland associated with our new acquired Fullers Bay of Island
business. 7 THL’s proposed increased environmental investment in the geographical areas in which it operates does not
compromise the Company’s financial performance. Not only is the funding of the THL/BP Charitable Trust via hirers fuel
consumption but THL firmly believes that a superior social and environmental performance underpins its healthy financial
performance, creates new business opportunities and helps build lasting and valuable relationships with our customers
and the wider community.
6. DIRECTORS
6.1 Re-Election of Directors Four Directors in accordance with the constitution have resigned and offer themselves for
re-election at this Annual meeting. To assist shareholders in their deliberations I would like to comment individually
on the four Directors concerned and their contribution to the Company. Each of the Directors up for re-election will
also speak briefly prior to that item on the agenda.
(1) Mr David Cushing David was appointed to the Board in June 2004 as a non-executive Director. Based in Christchurch
David has a record of proven business experience initially as an Investment Banker and more recently as a Director of a
number of New Zealand companies. David’s family interests also own 8% of THL shares. Having been appointed to the Board
during the year he offers himself for re-election under S34.3 of the constitution.
(2) Ms Joan Withers Joan was CEO for the Radio Network Ltd prior to becoming a professional director. She has a broad
and in depth experience as a Director of Auckland International Airport, Meridian Energy, Fairfax Newspapers in
Australia, Feltex Carpets and The Warehouse Group. Joan is a member of both the Audit & Risk and Remuneration & Nomination Committees and has been a director of THL for the past three years.
(3) Mr Rick Christie Rick has enjoyed a highly successful career as CEO of an Oil Company, Motor Vehicle and Plant
Distributor, TradeNZ and an Investment Com pany. He is now a professional Director and is Chairman and/or a Director of
Companies and Industry Boards including AgResearch, EBOS Group, the Government’s Growth & Innovation Advisory Board, Wakefield Hospital and the NZ Pork Industry Board. Rick is Wellington based and has been a
Director of THL for the past seven years. He chairs the Audit & Risk Committee and is a member of the Remuneration & Nomination Committee.
(4) Keith Smith As with Rick I have been a Director of THL for the past seven years. I am also a member of both the
Remuneration & Nomination and Audit & Risk Committees. I am a Senior Partner of BDO Spicers, a New Zealand Chartered Accountancy firm for which I have been a
partner for 26 years with them and their predecessors. 8
I am now a full time professional director having previously been involved for many years in Insolvency, Reconstruction
and Corporate Advisory work. I chair the Boards of public listed companies of The Warehouse Group, Wrightson’s and
Skellmax. I am also either Chairman or Director of a number of other private Companies
Finally, I would like to say that your Board is made up of extremely experienced and competent professionals with a
diverse set of skills. It is my job to ensure that these skill sets are tapped by management when required and to that
end various projects and committees of the Board are run by directors other than myself – with the appropriate
governance lines obviously back to myself as Chairman. I am firmly of the view that the governance and workloads of
myself and my fellow directors in relation to this company are appropriate and are best practice in providing
stewardship to all stakeholders in this company.
6.2 Don Spary Retirement Today we also say farewell to one of our directors, Don Spary, who retires at the conclusion
of today’s meeting.
Don was one of the five original Directors of The Helicopter Line Limited (later to become Tourism Holdings Limited)
when that company was incorporated prior to the 1986 listing on the New Zealand Stock Exchange. He has served as a Board
member for a period or more than 18 years. His retirement from the Board brings to an end an important era in the
development of the company, as he is the last of the original Board members to serve on the Board of the company. The
original five were Tim (now Sir Tim) Wallis; the late Reid Jackson; Graham Gosney; Graham Sinclair; and Don Spary.
Don’s professional and business career commenced with early service as a officer in the British Army, following his
graduation from Sandhurst Military College. During his tours of duty, he saw service in a number of countries, and in a
wide variety of service roles. He rose to the rank of Major, before retiring from the Service upon completion of his
contract term. His duties, and preferences, led him to qualifying as a Parachutist, a Helicopter Pilot, and later
Helicopter Instructor. Don’s geographic placements are best demonstrated by mentioning his wife Jan and he have five
children, each born in a different country.
A new life in business saw Don join Sir Tim Wallis’ Luggate Game Packers as a helicopter pilot. Early recognition of
Don’s leadership qualities and other abilities resulted in him becoming the first General Manager of the burgeoning
Alpine Helicopters Limited, which gave him the opportunity to develop a general and specialized aviation business, and
to overview those aspects of massive growth in the Wallis businesses. Don became a key figure in the Helicopter
Industry, and an acknowledged expert in aviation insurance and administration. During that period he was awarded the
George Medal for outstanding bravery during a helicopter rescue operation, and later was awarded the Officer of NZ Order
of Merit for his achievements in Aviation, Tourism, Conservation and Community. 9 Don Spary now leaves the Board after a
long term of distinguished service to Tourism Holdings limited. No doubt shareholders will join with Don’s fellow
Directors in wishing him a long and happy retirement, although it must be acknowledged that many who know Don well will
share the view that ‘retirement’ is a word which will not accurately describe Don’s future activities.
7. CONCLUSION In concluding this presentation, I would like to say that the year under review has been an important
year in rebuilding the company’s platform after the devastating effects of world events over the past three years.
Whilst we have a way to go, particularly in Australia, we have developed an efficient cost controlled environment where
working the assets, we have, in the most efficient and profitable manner is foremost in the minds of the Managing
Director and his Executive team. I would like to thank all staff across the total company for their dedication and
commitment to all Stakeholders and importantly, “making the moment” for all our customers, their experiences will create
the environment for increasing visitors to New Zealand, Australia and Fiji and therefore onto our assets. I look forward
to reporting further positive progress for the Group at the half year announcement next February. The Managing Director
will now inform Shareholders on the exciting developments in our Attractions business.
8. ATTRACTION DEVELOPMENTS
8.1 Fullers Bay of Islands THL is delighted to have acquired one of New Zealand’s iconic businesses – Fullers Bay of
Islands. The business operates two brands – Fullers Bay of Islands and Awesome Adventures. It operates four cruising
products including the famous Cape Brett Hole in the Rock and Cream Trip cruises, Dolphin Adventures and the Excitor
Fast Boat. Other boat operations include the passenger ferries between Russell / Paihia and vehicle ferries at Opua.
Fullers also operates daily tours to Cape Reinga via Ninety Mile Beach. Fullers is a great fit to THL’s existing
operations and the two companies have the benefit of a long standing and rewarding business association. Our coaching
operation of Johnston’s, Great Sights and Kiwi Experiences together with our NZ Maui and Britz motorhome and car rental
businesses transport tourists onto Fullers. We have also enjoyed a successful relationship in our membership of New
Zealand’s Leading Attractions. 10
8.2 Kelly Tarlton’s In 1995 Kelly Tarlton’s successfully opened the Antarctic Encounter and introduced the very popular
penguin display. This investment transformed the business and achieved significant growth in visitor numbers. While
Kelly Tarlton’s has generated very good cash flow in the past few years, visitor numbers have declined as the attraction
has been perceived as tired. This Christmas, that reputation will change.
In mid December we will open the first stage of a major 3 year redevelopment that will transform Kelly Tarlton’s. This
year visitors will be able to get up close to the worlds largest variety of Stingray. These 200kg creatures are
trainable and respond to human interaction, they feed regularly and make excellent interactive aquarium animals. We
expect visitors will be in awe of them and word of mouth will bring the same sort of increase in patronage that occurred
when the penguins arrived in 1995. This new area, called Stingray Bay, will provide a café and seating area for catered
events. It will also feature a new loading bay for the penguin enclosure snow cats, which will significantly reduce
queuing on busy days. The project is on time and on budget and we look forward to it’s opening at Christmas.
8.3 Ruakuri In 1985 Ruakuri Cave was closed to the public. Last year, we were successful in gaining a thirty year
license to operate the cave and in February 2005, THL will proudly reopen the experience and introduce an exciting new
product to New Zealand tourism. Ruakuri is located at Waitomo near the Glowworm and Aranui Caves and the three caves
will complement each other extremely well. The Glowworm Cave has over 400,000 visitors per annum and is internationally
renowned for its unique glowworm experience.
Ruakuri is a much larger cave system with many passages and spectacular limestone formations. It’s real highlight is
it’s significant role in local Maori history. The traditional entrance to Ruakuri Cave was a campsite for Maori people
travelling inland from Kawhia as far back as the early 1500’s. Ruakuri, meaning den of dogs, was home for a pack of wild
dogs that threatened these early travellers.
In keeping with Tourism New Zealand’s campaign to attract interactive trave llers to our country, we will be carefully
positioning Ruakuri Cave to be an involving experience. With the tag line of “A Spiritual Journey”, the tour of Ruakuri
will encompass the Maori belief that the underground is the spirit world and home to the goddess of death. With the an
area designated as waahi tapu, a pathway termed the Ghost Walk and a new entrance to the cave that will be low lit,
eerie, and with the sound of howling dogs in the distance, we know we will heighten the senses of our visitors. 11 There
are nearly 2 kms of new pathways being installed with many world class limestone formations to admire. We are very
confident Ruakuri will not only be a successful addition to THL but to NZ tourism.
8.4 Red Boats Milford Sound Red Boats is one of THL’s jewels. The splendid scenery and marine life in the fiord,
combined with the drive through the Fiordland National Park, makes this experience one of our best. In 1999, Tourism
Holdings secured 100% ownership of Milford Sound Red Boats and began to plan its development to enhance profitability
and market share. Part of that plan included the purchase of a 400 seat catamaran called the Pride of Milford and the
refurbishment of one of our existing catamarans which has been renamed Spirit of Milford.
Pride of Milford successfully entered the fleet last year on time and on budget. The standard of fit out and design has
set a new benchmark at Milford Sound and we are beginning to grow our market share. Spirit of Milford was refitted in
Dunedin this winter and a $900k investment has converted this vessel to a very high standard. We have a lot of
confidence in ongoing growth at Milford Sound and continued strong financial returns. I now pass you back to the
Chairman, Mr Keith Smith.
ENDS