Mr Dennis
Pickup
Managing
Director
Tourism Holdings
Limited
Auckland
February 13th, 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.
See IRG research reports
