Special Report: Tourism Holdings' Big Hopes For 2001

By Perry Williams, ShareChat Wellington Correspondent

Friday 19th January 2001

As people finish their holiday break and clamber back to work, New Zealand's largest tourism company is quietly tallying up profits for the first half of summer. After massive restructuring Tourism Holdings (NZSE: THL) is focused firmly forward, trying to forget the disappointment of the America's Cup, Sydney Olympics and over-hyped millennium celebrations, all of which failed to front up with the promised tourist hordes. Perry Williams reports.

It should have been a tourist operators dream. The America's Cup - millions of dollars and thousands of tourists with time on their hands.

Unfortunately for Auckland-based Tourism Holdings it was in fact a fairly bleak period, which the company says just couldn't be predicted.

"It was very much a case of people turning left at Queen Street then straight to the Viaduct Basin and enjoying the weather. The rest of the country didn't get much of a look in," says CEO Dennis Pickup.

For a company which targeted the America's Cup as a big opportunity for the country's tourism prospects, that admission hurts.

THL was hoping events such as the America's Cup would be just an entrée for tourists keen to sample the rest of the country's fare.

Although the company owns Kelly Tarlton's Antarctic Encounter and Underwater World in Auckland, its major investment in Maui campervans and coaches in New Zealand means it relies on tourists travelling around the country, not just staying in one place.

The same goes for its Britz motorhomes business in Australia and South Africa and its fleet of 27 coaches in Fiji.

Its tourism experiences division, which includes ventures such as Waitomo Glow Worm Caves and Aoraki/Mt Cook ski planes, also relies on tourists moving further than Auckland.

In terms of bottom-line results the late 1999/2000 setback in New Zealand and the slow period over the Olympics (minus Sydney) for Australia, along with continuing political unrest in Fiji, led to a solid but unspectacular year for the company with their share price far from inspirational.

Despite continued profit growth the company did not match its own profit forecast for the year to June 2000, recording a $14.83 million profit - some $3 million off the group's forecast.

At the time Mr Pickup said the profit forecast for the year to June 2001 of $26.8 million - an 81% increase - would be met, citing a full year of the Britz rental van business in Australia and less dislocation in New Zealand. But a disappointing first quarter result for the 2001-year has led directors to downgrade this year's annual profit to $21 million.

Even given the less-than-hoped-for results, investors are questioning why the company's share price, at around $1.90, is languishing considering the bullish future prospects for tourism here.

A significant share sale late last year by the American owner of several million company shares certainly put downward pressure on the share price, with the falling New Zealand dollar prompting sell-up decision.

Despite the company's current share price, one analyst believes demand for tourism companies will continue to grow as visitor numbers rebound.

Mr Pickup agrees that the tourism sector overall is looking good.

He says the November through to January period - almost completed - is looking very promising for New Zealand. Many Kiwis decided not to travel overseas and spent their money on domestic travel instead.

The low Kiwi dollar has also led to a solid level of incoming tourists - all factors benefiting the company.

Indeed, New Zealand's international holiday tourism industry is forecast to grow by over 7% for the next five years according to new research.

The number of visitors coming to New Zealand on holiday is forecast to increase by 7.2 percent a year, from 820,000 to 1.33 million by 2006.

"Yes, I've seen some very promising forecasts myself up until 2010 so certainly we're looking good on the horizon", Mr Pickup said.

Mr Pickup is also positive about the Government's input into tourism with THL's marketing manager, Sean Murray, on the Government's newly formed Tourism Forecasting Council.

"We're quite interested in where the Government can take this new Council because if they get it right the benefits could be huge."

A former tourism advisory board set up by former tourism minister Murray McCully was axed after political pressure in 1999.

But Mr Pickup says the company's own private links with dozens of other tourist operators are probably more important than anything the Government can do.

"We're putting money into that for long-term gain. It's about getting this whole region better known overseas."

The long-term gain scenario can probably be applied to the company's share price, because although Mr Pickup says investments such as Kelly Tarlton's have been an especially good performer recently, income for late last year in Australia had been disappointing.

"It's been a boom and bust cycle really. The introduction of GST and rising interest rates has really hit the pocket over there," he says.

Other negatives for the company are fluctuating fuel prices, the lacklustre tourism market in Fiji, where business income hasn't recovered since last May's coup, and, back home, its Treble Cone Ski Area investment near Wanaka.

The skifield lost too many high season days last winter because of abnormal weather patterns and was unable to recover from the late season start. The company has twice tried unsuccessfully to sell the field.

THL's future then looks a balancing act between making the most of a positive outlook for tourism at home and ensuring overseas investments keep up with the play.

"Certainly short term it's looking a little fragile, but it's still a company with good growth prospects long-term and we're confident it will meet targets," says one analyst.

Investors too are confident of a recovery and thus it would seem that if the company plays its cards right, the Year 2001 could see THL's share price blossom.

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