Top tourism sector firms rise but others slip in half-year

Friday 23rd February 2001

By Peter V O'Brien

A suggestion (NBR, Sept 8), that counter-cyclical theory would have made it a time to buy stocks associated with tourism proved incorrect in view of what happened to the sector's share prices in the intervening five to six months.

Prices for only two companies - Shotover Jet and Sky City - rose in the period and it may be stretching definitions a little to include Sky City in tourism. It can certainly be included in a wider grouping of tourism and leisure.

Manor Inns also came into that category but was excluded from the table of share prices accompanying this assessment because last week the company's directors asked its banker, WestpacTrust, to appoint a receiver.

The directors had concluded it was not possible to restructure its residual debt to the banker's reasonable satisfaction.

Manor Inns' report for the six months ended December 31 was issued the day before the announcement of receivership and showed a difficult financial position.

An interim loss of $331,000, down from the $1.02 million in the corresponding period of the previous year, took the accumulated deficit to $25.45 million and reduced shareholders' equity to $208,000.

Another half-year loss of the size recorded in the six months ended December would make the company technically insolvent, subject to any addition to reserves through revaluation of properties if that was feasible.

Group borrowings shown under current liabilities were $25.55 million, an amount the bank was apparently unwilling to carry any longer.

Air New Zealand's profit slump to an all-up $3.8 million in the six months ended December (from $127.23 million in the first half of last year) made headlines this week but the downturn was expected after the company foreshadowed a difficulty period.

Chairman Sir Selwyn Cushing told the annual meeting in November the current year's results depended significantly on trading for the then balance of the year which would be affected by fuel prices, exchange rates and competition.

Sir Selwyn said the first half would be disappointing but the second should be benefit form a number of initiatives then under way. The company estimated group trading profit for the full 2001 year would be substantially lower than in 2000.

Sir Selwyn also said maintenance of then current price levels for fuel were forecast to be more than $US100 million above the airline's budgeted fuel expense, despite benefits generated from hedging programmes.

An admission that the situation in Ansett Australia was worse than it appeared when Air New Zealand conducted due diligence on the former company was a surprise, given the usual thoroughness of such exercises.

The annual meeting was told the process of integrating Air New Zealand and Ansett into a single business was expected to deliver significant financial benefits, although a little behind schedule at that time.

Acquisition of the balance of Ansett was seen as an important strategic move for the longer term and opened up considerable potential for the future.

It should not be overlooked that the meeting was also told the next two to three years would "test the recognised capabilities of the group's new executive leadership."

The company is now to undergo a management reorganisation, which is probably code for an eventual reduction in staff numbers.

Companies that can be classified as "traditional" tourism groups should be doing well, in line with strong growth in the number of inbound tourists and the relatively weak New Zealand dollar.

Shotover Jet's interim report noted hoteliers and airlines reported strong bookings for the rest of the summer tourism season and said the outlook for the second half of the company's financial year was positive. That should flow on to strong trading next year.

The group's trading profit in the six months ended December was $580,000, compared with $317,000 in the corresponding period of the previous year.

Traditional tourism companies usually earn most of their profit in the second half, assuming they have June 30 balance dates, because the January-/June period includes high summer.

Shotover's share price of 60c this week was interesting, because the company's major shareholder, Ngai Tahu Investments, is increasing its holding to 80.5% through the purchase of 13.22 million shares at $1.034 a share, subject to a reduction to 99.3c if settlement is on or before March 21.

A premium over market price is normal for large parcels, but 50% seemed high, particularly as asset backing at December 31 was 31.7c a share before deducting $8.53 million of intangibles from shareholders' funds.

Tourism Holdings is another traditional tourism company and apparently doing reasonably well in New Zealand this year. A statement last week said a profit forecast of $21 million for the year to June 2001 would not be achieved; profit would be in the $14-16 million range.

Unaudited half-year profit was 13% down on last year but the shortfall was due to reduced revenue from its Australian rentals division.

New Zealand profit before interest and tax improved.

Tourism companies' share prices (c)
Company	19.2.01	4.9.00	2000/2001 high	2000/2001 low	% change 4.9.00 to 19.2.01

Air NZ A (1)	161	190	229	140	-15.3
Air NZ B (1)	204	280	260	168	-27.1
NZ Experience	10	12	15.5	8	-16.7
Shotover Jet	60	42	72	38	+42.8
Sky City	913	760	930	585	+20.1
Tourism Holdings	137	264	317	130	-48.1

(1) Adjusted for issue

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