Forum Archive Index - February 2001

["Peter Maiden" <pmaiden@xtra.co.nz>]

I had a long day at work and had to catch a plane home again. So why not take take out frustrations out on Tourism Holdings (constructively of course). Laptops do come in useful on planes sometimes.

 

Contributors might be interested in sharing my frustration - here's the letter I wrote to Dennis.

 

I'll let you know if I get a response

 

Peter

 

 

Mr Dennis Pickup

Managing Director

Tourism Holdings Limited

Auckland

 

February 13^th, 2001

Sir

I write as a disgruntled shareholder expressing my concern at recent events concerning Tourism Holdings.

I carefully research all investments I make and this approach means I do not often pick losers to the degree that Tourism Holdings is turning out to be.

I invested in Tourism Holdings fully realising that there were risks associated with doing so, especially when the past few years’ performance could only be rated as ‘fair’ at best.

The company’s reported profit for the 2000 year of $14.8M was a better performance than previous years but the 7% Return on Invested Capital (on year end figures) could hardly be called a staggering success. However the improved performance did indicate that Tourism Holdings was heading for a bright future.

Even last year when the share price was around the $2.50 mark the market was implying that the NPV of the company’s future cash flows was a negative $55M – ie expected to continue making a return on invested capital less than the cost of that capital. The market obviously was waiting for the company to significantly improve its performance before it would reflect a fair value in its share price.

That improvement had to come through significantly increased earnings. With such a relatively high fixed cost component to your business, significant revenue growth had to be the key driver for the required earnings to come through.

The prospects in the tourism sector in New Zealand have been favourable for some time and this is likely to continue into the future. Tourism Holdings have been painting a pretty optimistic picture of where they fit into this growth industry. I invite you to re-read your last annual report, stock exchange announcements and the comments made at your last AGM to see what I mean.

With all this in mind I invested in Tourism Holdings - even after the company stated in November that this years profit would be down on original expectations. However it was said that Tourism Holdings would still be ‘producing very substantial, and increasing profits’

When buying some shares I fully appreciated that there could be further downsides but I did believe that things were looking up and that Tourism Holdings would be a success story in 2001.

However the company’s announcement this week has shattered that belief.

One thing markets around the world do not put up with is a company downgrading earnings to the degree that Tourism Holdings has, especially less than 3 months after a previous warning. One comment I have heard expressed is that Tourism Holdings will become a pariah of the New Zealand Stock Exchange. Current performance and the way that the company manages shareholder expectations suggest that this will be the case.

The company says that the latest downgrade is a result of ‘reviewing the draft December 2000 results, sales figures for January 2001 and projected forward bookings…’. It appears as if revenues are the problem. As the downgrade in earnings is $7.0M (33% of expectations) it appears that the company has previously over estimated revenues (maybe by $30M) and/or under estimated expenses. Also, doesn’t this half year include the Britz result for the full period for the first time?. Either the company has lived in hope that tourists will turn up in droves or has badly misread the market.

The company is pretty keen to put up excuses such as the America’s Cup boom did not go outside Auckland, weather, Fiji coup, Olympics etc etc but shareholders expect a company to manage their way through these adverse advents – or at least not factor in what may have been into published forecasts. Your words in the last annual report that the ‘…new emphasis (on Australia) is producing benefits which add greatly to the stability of THL’s business operation’ must be coming back to haunt you.

Whichever way I do my sums it does not appear that the situation could change so dramatically over three months because of such a shortfall in revenues. With due respect I need to question whether the company really knows what is going on. Alternatively the situation is really far worse than reported and this is not the last bit of bad news we will hear from Tourism Holdings.

The company says that they need to keep the market informed. I am taking it on my back to keep you informed of shareholder sentiment. I hope that you will pass on this shareholder’s disappointment to the rest of the board. No doubt you will not hear from those shareholders who have sold more than 4% of the total shareholding (maybe up to 20% of the small shareholding) in Tourism Holdings in the last two days. I am sure that I do speak for many others who have not yet decided what to do after receiving this news.

Any comment that you may want to make in response to my comments would be appreciated.