AGM 2021

Oct 21, 2021

Slides

Tena koutou katoa. Welcome to the 35th Annual Meeting for Tourism Holdings Limited. My name is Rob Campbell, your Chair. Today, we welcome you as online participants through our virtual meeting platform. Through the platform, you can vote and ask questions online, and I will provide you with further instructions as we progress through the meeting. If you encounter any issues, please refer to the virtual Annual Meeting online portal guide referred to in our notice of meeting announcement on the NZX website. Or alternatively, you can phone the help line on 800, 200, 220. I would encourage you to send through any questions as soon as you can in order to allow us to answer those questions at the appropriate time in the meeting. To ask a question, you will need to click ask a question within the online meeting platform, select the item of business, type in your question and click Submit. I've been advised that we have a quorum present and as it is 2 pm, I will declare the Annual Meeting open. I'm joined by fellow directors Debbie Birch, Grainne Trout, Kathy Quinn and Rob Hamilton. And I note apologies from Doctor. Gurung Chen. We're also joined by our Chief Executive Officer, Grant Webster our Chief Financial Officer, Nick Judd and our Deputy Chief Financial Officer, Stephen Hall. PwC, our auditors are online as our representatives from MinterEllis and Rudd Watts, our solicitors. As indicated on the screen, we have received 57,400,000 valid proxies in postal boats, representing 37.8% of the ordinary shares on issue. Of those, dollars 42,500,000 have identified me as Chair of the meeting as proxy. I intend to vote all discretionary proxies I have received in favor of the 3 resolutions set out in the notice of meeting, but I will be abstaining from doing so in respect of the Resolution 1 regarding my underappointment. During today's meeting, I will provide a brief overview of the business and then hand over to our Chief Executive, Grant Webster. We will then open for general questions regarding our business and conclude with the formalities of the meeting, including the resolutions as detailed in the notice of meeting. Yes. So, Vidi, I will make you answer. I'll comment. Clearly, the last 12 months has been the most volatile period in THL's history. And unfortunately, that has resulted in its largest ordinary loss. We do believe that within that context, however, the business has been managed well and has continued to adapt. The balance sheet has been appropriately managed and the future of the business has been protected. A highlight of the business has been the shift to focus on vehicle sales. We've sold over 2,900 RVs through an effective and profitable RV sales business and have made the most of the increase in demand combined with automotive supply issues to deliver record volumes and margins in each country. While some of this demand growth for RVs is situational and one off in nature, there is industry research that supports the view that there is structural growth in the RV category as a greater proportion of younger buyers and families choose RV travel. On screen, you will find a summary of our financial performance for the 2021 financial year. The results clearly demonstrate that we operate in very different circumstances in each jurisdiction. The New Zealand business has had the largest loss given it had the largest fleet within our rental businesses and the smallest domestic population by a significant margin. Australia saw a very positive domestic environment from December 2020 through to late June when the delta variant caused closures across New South Wales and Victoria. The USA business had a very positive financial year 'twenty one with a record vehicle sales contribution and a domestic RV rentals business that benefited from little other suitable holiday options being available. I won't spend much time on the results now as the detail is in our integrated report. We will take questions on the results later in the meeting. I do, however, note that THL continues to be underpinned by a strong NTA per share of $1.73 as at the end of financial year 'twenty one. One natural outcome of our loss for financial year 'twenty one is that we have declared no dividend as was the case in the last financial year. We acknowledge the ongoing impact that this has on shareholders. Our expectation is that there will be no dividend in financial year 'twenty two. The resumption of dividends will be reliant on our business returning to profitability and there being a positive outlook containing some degree of certainty and consistency. We have said for some time that THL has a flexible business model, allowing it to manage its capital structure in a downturn by driving vehicle sales and rightsizing its fleet. This has now been proven again over the last year, with debt reduction of almost 90% between March December 2020. This flexibility has allowed us to face the current headwinds without raising equity during the pandemic period. Because of this, we continue to see no need to raise equity as a result of the current trading conditions. We've equally been focused on investing in our future while appropriately managing the present circumstances. There's a fine balance between the positivity of the long term outlook and our focus on the future and closely managing and responding to the difficulties at present. We constantly assess this balance in order to ensure that we're reinvesting and generating opportunities for the future without creating undue risk. Through the last 12 months, we have continued to invest in fleet purchases, ensuring that we maintain a high quality late model fleet of motorhomes. In doing so, we have clear mitigation plans should international borders continue to remain closed for an extended period. We also continue to be proactive about our future fleet needs, particularly given supply side challenges for electric chassis. We've refueled our projects focused on what our future fleet should look like, looking at the latest views on the most suited technologies. We've implemented several internal projects, improving aspects of our businesses, including vehicle designs and the full customer experience. We developed and launched our Kosmos booking system and our new approach to how we engage with our global trade partners. In the absence of international travel, the domestic aspects of our business have been further developed, providing our business with greater resilience through a broader set of revenue streams. Our sales and retail arms will play a bigger role in the business moving forward as we shift some of our Australian locations into a dealership model and leverage the overheads to provide a wider workshop and retail accessory offering. In March, we acquired the remaining 50% of Action Manufacturing. For years, the team in Action Manufacturing have been doing exciting work in the Specialist Vehicle segment. This is an area that we will be investing in further. And positively, the business has a full forward order book for the current financial year. THL's current balance sheet strength also enables us to consider small acquisition opportunities that complement the Action Manufacturing business. Creating a variety of scenarios and considering the potential outcomes of each is now the norm. Dealing with the consequences of those changes is more challenging, but a must do, particularly for tourism businesses. You can see with the THL results that we are continuing to adapt and create flexibility. Determining a very specific view on tourism is dangerous and potentially misleading given the degree of subjectivity involved. At a high level, the following statements best describe the current THL position: We are confident that international leisure tourism will return in all markets in which we operate. We are confident that our core RV category will continue to increase its proportion of the total tourism market globally. We believe that we have the business model, people capability and balance sheet to enable an appropriate return on capital for shareholders over a reasonable time period. Broadly, we see no structural risk why THL cannot achieve the $50,000,000 impact target we disclosed to the market in 2017, within 2 years of the global tourism system operating in a pre COVID like manner. We continue to explore acquisition opportunities globally as we always have. We remain open and transparent in our integrated report on the key risks we see for this business in the short and long term. And lastly, we remain focused on creating long term sustainable value for our stakeholders. I'm proud to be Chair of THL and thank every one of the crew for the manner in which they have operated over the past 12 months. I will now pass on to Grant. Thanks, Rob. Here in New Zealand today from a COVID-nineteen perspective, it feels like we've only really recently started to get a real sense of the kind of life most of the rest of the world's been living with in the last 12 months. Keeping our customers and crew safe has to be the highest priority for the executive and the business as a whole. We are fortunate to have a and the business as a whole. We are fortunate to have a passionate set of leaders across the globe that have led the introduction of new protocols very effectively. Our people recognize the importance of vaccinations for the safety of our crew, customers and society. And that's been recognized in our vaccination rates within our business in each jurisdiction that are higher than the rates for the general eligible population at this point in time. As a result of these factors, we've had no traceable spread of COVID within any of our workplaces. Now within the USA in particular that is a great success. And so to the crew that makes that happen day in, day out, I'd like to say a huge thank you. It's been another very challenging year, but one where the THL crew have again demonstrated the values of this organization and are moving together forward together in a very special way. It is worthwhile very quickly noting some key events from the last financial year and not just the good elements. As the Chairman said, we had our largest operating loss on record something we are not pleased about. But however, we are of the view that we minimized the loss and importantly, we protected shareholders again from a dilutive capital raise of rarity in the tourism industry. We purchased the remaining 50 percent of Action Manufacturing, a business with a very strong forward book that is now in excess of $100,000,000 in revenue. We rode the global RV sales wave well, creating new records across the business for sales volumes and margin. We had some great success in the technology space throughout the year, albeit with some challenges from a cost and timing perspective, which is an area the team are keenly focused on addressing. And with that all every week with the challenges of the global supply chain issues, the impact on TH Shell has been relative to others largely mitigated due to the crews' long standing relationships in the industry, the agility we've shown in our planning and to be honest, it's classic hard work. We've increased our frontline wages in the USA and New Zealand in line with the THL future fit wage approach. Not only has this been the right thing to do, but it provides a really clear return on investment, ensuring our crew are paid a wage that provides them with the basic necessities in life is right and makes sense. We see productivity increase, higher retention and we can recruit more effectively. And we've created more of what we call alternative revenue opportunities. Most recently, you may have seen some of our product being used to assist the health sector with mobile vaccination centers. In Waitomo, we've dug deep and changed the way we operate knowing we're in a community that has been devastated by the lack of tourism. We've had new community based events, much deeper engagement with our owners and we're making the most of the Kaimahi For Nature program with the Papatafai. They're all real successes in what's been a really financially tough year. And we've got more opportunities for all parts of the business planned in the coming year. The chairs provided an overview of the results for the last financial year and are well canvassed in the integrated report and the year end investor presentation. So let's focus on the current state of the business. The lockdown situations in New Zealand and Australia have dented our performance in quarter 1 of this financial year compared to our expectations. Rental activity is clearly very inconsistent in both countries at the moment. But pleasingly, we are still operating at close to 40% utilization in Australia within the states that are open And by utilizing non holiday based rental opportunities, New Zealand is sitting around 20% utilization. The USA high season was below our expectations as we indicated in our year end reporting. We remained well up on our pre COVID domestic performance, but down on the calendar year 2020 high season. The winter shoulder season has shown a similar domestic rental trend, but the international outlook is clearly more positive, which I'll discuss shortly. From a vehicle sales perspective, the market today remains positive. Given our intent to limit sales in certain markets to ensure we've got the right rental fleet size, we finished quarter 1 with 620 vehicle sales globally. Margins have continued their exceptional trend from the last 6 months and are up on the corresponding quarter of last year. Costs have been well managed across the business to the lower volume and are appropriately down on last year. Before discussing the broader outlook, it's important to consider the vehicles we sell and the value that they hold. It was really noticeable to us during the year end and recent investor presentations that the manner in which we described our fleet value resonated. We got more questions and more feedback on this topic than we have historically. We operate our rental and vehicle sales businesses as separate arms, ensuring that we've got the right incentives and the right disciplines that exist within each of those businesses. And like it would with any other independent business, our rental business supplies the sales business with vehicles at essentially a wholesale price below the retail value, which the sales business then sells for a profit. This means that we have fleet that is on our books that is worth more in the market than we represent at a book value level. So internally, we call this embedded equity. The slide here shows the value of the equity in the business. At the last year end, our book value reflected the net tangible asset value of $1.73 per share. But above that, we have this concept of that embedded fleet equity. We expect that that's sitting around $0.18 to $0.36 per share depending on whether you take the higher recent margins or the longer term average. This is part of what underpins the value in THL and the ability of the business to manage the balance sheet. When we look at fleet investment, what's critical is that we continue to manage to the conditions now. We're at a point where we see international tourism resuming and we need to start to look to grow the fleet again. So our current fleet expectations are roughly as follows. So in the U. S, we're going into winter, so fleet will be decreasing, but on a seasonal basis. So we expect that we'll start to regrow the fleet in calendar year 2022 for that season's high season. Given the supply constraints in that market, we are holding back on sales over the coming months, while we gain confidence that we can get the number of vehicles that we need. In Australia, we believe we're past the low point in fleet size and we have started to regrow our fleet. In New Zealand, we will likely hit a low point at the end of this calendar year and then throughout calendar year 2022, we will slowly start to rebuild the fleet numbers and accelerate that growth rate through the second half of calendar year 'twenty two. So from a net capital expenditure perspective, given that we've been able to sell more vehicles than planned to date and as we move some of the New Zealand vehicle on fleet dates into the 2023 financial year, we can revise our expected net capital expenditure down. So we're saying it is now going to be between $25,000,000 $60,000,000 for the 2022 financial year. We see no value at the moment in projecting a year end net debt figure, because at this point in time, we are continually actively managing the balance sheet, actively managing what we do between purchases, sales and obviously establishing what happens from a rental market perspective. So a question we are often asked is, can you return your fleet to the same levels you had pre COVID? And if so, when do you expect to get there? So firstly, yes, we can re fleet. So from a funding perspective, we are very fortunate to have long standing supportive partners in ANZ and Westpac. So all things remaining equal, we'll have around $200,000,000 of available headroom and facilities at the end of the calendar year. The tenure of those facilities was also extended earlier in the year and that headroom gives us the ability to add close to 2,500 vehicles, recognizing that fleet mix by type and country can have an impact on those numbers. But then answering the second part, when, that's certainly a lot harder. As evidenced by the last 18 months, we will continue to treat fleet and balance sheet management as a key focal point for the business. Any prediction today, therefore, still has a risk of actually being misleading. So recognizing that as a general guide only, we are targeting for the USA and Australia to get back to pre COVID fleet levels some point in the 2023 financial year. The New Zealand fleet regrowth is certainly more uncertain, but it will take longer than that. From an outlook perspective, the question we're asked regarding future fleet plans is sort of a proxy for that deeper question. Can you get back to the profit levels you had pre COVID? So reinforcing the comments from the chair, there is no structural reason we see today that would prevent us from achieving that pre COVID impact goal of $50,000,000 in the future. Indeed, we could potentially achieve that goal with less capital employed than we would have required pre COVID given the approved low capital businesses we have and the lower cost base that we're operating the business from. That, however, that's the future. Today, we're still focused on limiting the impact of the border closures and lockdowns on the current financial year. We continue to believe that the current conditions make any impact guidance for financial year 2022 inappropriate. Our expectations remain that we will have an impact loss in financial year 2022, but we're more positive about the certainty of international travel in some form in all markets in FY 'twenty three. Within 2022 financial year, we expect the first half performance will be down on the prior corresponding period, driven by the delta impact in New Zealand and Australia and the lower USA rental performance and less government support globally relative to the prior year. Conversely, we expect the second half will be significantly improved on FY 2021 as vaccination rates in Australasia climb, restrictions ease and operating conditions improve. We expect the continued benefit of lower fleet and expect vehicle sales margins to remain strong. We will likely provide another update in December assuming there's greater clarity in forward bookings, particularly the international interest in the USA from the core European and UK markets. It's easy to let the COVID situation become all consuming and distracting as we minimize losses and protect the business. We have, however, taken an approach that it's critical to maintain a strategic outlook on all aspects of the business. We're guided well by our future FICC goals. We call it our pathway. We know where we need to go. It provides both a measurement tool and helps create a mindset to ensure that the decisions and actions we take today will create a better business, one that is here for the long term. We know that there's an advantage to stay ahead of the emission challenge in this business, to challenge our market channel strategies and to build new designs in our vehicles that reduce cost and improve the customer experience. Most importantly, we benefit from reviewing and enhancing the way we recruit, train and retain our crew so that we can deliver the customer experiences that align with our purpose of creating unforgettable journeys. So whilst acknowledging the current loss situation, the business is very well positioned to emerge from this pandemic period with a leading market position, well managed balance sheet, new revenue streams and a growth orientated manufacturing business and a capable motivated crew. So just before passing back to the Chair, I would like to again thank all the crew in THL. I'd like to thank you, our shareholders, for your support and also our Board. They have constantly challenged management, but are also extremely supportive of the business as a whole. And I will now pass back to you, Chiat. Thank you, Grant. I'd like to now open to any general questions relating to our business that you may have. We'll separately address each of the resolution shortly, and so I ask that any questions relating to those resolutions be raised at that time. Are there any questions received from shareholders? We've got 2 questions raised so far, Cheah. The first one comes from Jarrod Lovely, who asked, I was concerned about hearing about the sale of assets to cover debt. Can the Board confirm that this is not going to happen again? I think Grant has covered this to some extent. The sale of vehicles is a core part of our business. It's what we do all the time. We buy or build, we rent and we sell vehicles. When there's a downturn and the demand for rentals isn't there, a logical thing for us to do is to protect our position by continuing or indeed increasing the sale of vehicles and then anticipating when conditions improve for rentals, lifting that again. It's a core part of our business. It enabled us in this last period of time to avoid having significantly dilutive equity raising, which would have impacted adversely on shareholders. And frankly, it's just a much better way to manage the risks involved in this business, the fluctuations, even when they're quite extreme, as we've experienced now. So we would do the same again. It's part of the way we've structured the business to thrive. Thank you, Chair. And the second question is, what, if any, are the new Allied business opportunities that the company is contemplating? Because travel and tourism do not seem to have an immediate recovery prospects, any long term direction changes that are being considered? We're not considering any long term direction changes. We will continue to work within the broad framework of businesses that we undertake. So we are looking at opportunities in relation to Action Manufacturing, which are areas that are part of its core business. They tend to be reasonably small scale, but nevertheless, they are capable of enhancing the performance of action. And we look at a number of those. And if they do shape up, we'll progress them and use our balance sheet as we should do to enhance shareholder stakeholder value. Not really sure it's right to say that the prospects for tourism are not that strong. It depends where you look at it. In the UK and in the United States, the indications are quite positive. We're seeing an increasing degree of optimism in Australia. And indeed, I think you can now see returns starting to become a prospect in the New Zealand economy. So I wouldn't be too negative about that. We are aware that we need to continue to operate not just our current model, but to look at every opportunity to enhance that model to lower costs and to improve market opportunities. So we constantly have people do put propositions to us. We search out opportunities where we think we can add to our existing offer in a way that is sensible. So we're quite positive in this. We're certainly not going off into an overly defensive position. Thank you, Chairman. There's no further questions at the moment. Thank you. If there are no further questions, we'll proceed to voting. We now come to that formal part of the business, matters requiring resolutions, which were outlined in the notice of meeting. You may ask questions on each matter being put to the shareholders through the virtual meeting website as we proceed through. Now moving to the resolutions themselves, I propose to call a poll on each of these resolutions. As I mentioned, the shareholders will be able to cast their vote using the electronic voting card received when online registration is validated. To vote, you will need to click get voting card within the online meeting platform. You will be asked to enter your shareholder or proxy number to validate. Please then mark your voting card in the way you wish to vote by clicking for, against or abstain on the voting card. Once you've made your selection, please click Submit Vote on the bottom of the card to lodge your vote. Please refer to the virtual meeting online portal guide or use the helpline specified if you do require assistance. Voting will remain open until 5 minutes after the conclusion of the meeting and the result of the vote will be announced on the NZX website. Each resolution set out in the notice of meeting is to be considered as an ordinary resolution and as such, must be approved by a simple majority of the votes cast by shareholders entitled to vote and voting on the resolution. As the first resolution relates to myself, I'll now pass over the chair of the meeting to Grainne Trauth. I'll now invite Grainne to chair the meeting in respect of this resolution. Thank you, Rob. Resolution 1 concerns the reelection of Rob Campbell as the Director of the company. Rob was appointed as the Director of THL in May 2013 and was appointed as Chair of the THL Board in August 2013. The Board considers Rob to be an independent Director and is unanimous in recommending that shareholders vote in favor of his reelection. I now invite Rob to address the meeting. Thank you, Grainneur, and thank you to the shareholders for the support I've had to be with the business for this last 7 years and a fair bit of that as Chair. Tourism Holdings is an exciting business to work in. It's not always easy when we have challenges of the kind that we've experienced globally in tourism in the last few years, But it's a business which is well structured to survive difficulties and it has a very dedicated leadership and dedicated staff who are able to that much used phrase now pivot. But I don't know any other business which has been able to pivot as effectively as Tourism Holdings has at very low cost to its shareholders at very low damage to other stakeholders who have a legitimate interest in the business as Tourism Holdings has done in this time. I think that's a tribute to the leadership team. I'm privileged to have had the opportunity to serve in that team. And I would very much appreciate the opportunity to continue the job as we swing our way out of this difficult period. I look forward to working with the team again with your support. Thank you. Thank you, Rob. I now propose that Robert James Campbell, who retires by rotation and is eligible for reelection, be reelected as a director of the company. Are there any questions? There are no questions at the moment, Thank you. Please now select either for, against or abstain for Resolution 1 on the voting card. And I'll now pass back to Rob. Thank you, Grainne. We'll now move to Resolution 2, which concerns the reelection of Debbie Birch as the Director of the company. Debbie was appointed as Director of THL in September 2016 and has chaired the Board Marketing and Customer Experience Committee since 2019. The Board considers Debbie to be an independent Director and is unanimous in recommending that shareholders vote in favor of her reelection. I will now invite Debbie to address the meeting. For those of you that don't know me, my background has been in debt capital markets, principally working for Global Banks Offshore. I spent 20 years almost working in Asia and Australia. And since coming back to New Zealand for the last 10 years, I've been a professional director and trustee for a number of different boards, some in the tourism sector and others in primary sector and funds management. Yes, as Rob said, I currently chair the Marketing and Customer Experience Subcommittee. I'm also a member of the Audit Committee and the Sustainability and Risk Committee. I had 5 years with THL, and it's been an amazing experience. We've I've seen the share price hit an all time high in June 2018 of $6.16 I've seen it at a low in March last year and now a recovery. I think notwithstanding the current COVID pandemic, which has severely impacted tourism worldwide, I think THL has weathered the storm really well and that's testament to the company's management skills and of course, a supportive Board. I also believe THL is well positioned to transition through the opening of international borders, and I'm seeking reelection to see the company through the next stage of recovery and beyond. Continuity is critical at this time. I appreciate the responsibility I have to represent shareholders and would appreciate the opportunity to continue to deliver value in the years ahead. Thank you very much for your consideration. Thank you, Debbie. I now propose that Deborah Rysburch, who retires by rotation and is eligible for reelection, be reelected as a director of the company. Are there any questions? There are no questions on this resolution. Thank you, Stephen. There have been no questions. I'll now move to put the vote. Could you please now select either for, against or abstain for Resolution 2 on the voting card? We'll now move to Resolution 3, which relates to the directors setting the remuneration of our auditors. PWC is the auditor of THL and has confirmed its willingness to continue as auditor of the company. I propose that the directors are authorized to fix the remuneration of the auditors for the ensuing year. Are there any questions? There are no questions on this reservation. Thank you, Stephen. If there are no further questions, I will put the resolution. Could you now select either for, against or abstain for Resolution 3 on the voting card? Thank you. And thank you for your attendance to the resolutions. That concludes the formal elements of our meeting. As I mentioned previously, voting will remain open until 5 minutes after the conclusion of the meeting and the results of the vote will be announced on the NZX. Before we close the meeting, are there any other general business items that shareholders would like to raise? There's one more question that's been asked here. It is from Peter Wood asking, do we intend to open up any special deals to New Zealanders for camper vans? Very good opportunist question, Peter. I'm not aware of us opening a marketing campaign at the moment, but I will ask the Chief Executive to comment on that. It's a sale, Grant. Get on to it. There's Without giving anything away, we know that when alert levels change and there's an opportunity for people to travel depending on what those restrictions are, we have different marketing campaigns that are ready to go depending on the situation that occurs. So if it's needed and if it's going to encourage the right activity in the right directions, we are ready to go. But we're not confirming that we'll definitely put something out there. So we know how to encourage travel. We'll keep it going. Thank you, Grant. I don't think we missed many of those opportunities. I hope not. Are there any other questions? There are no other questions at the moment, Cheah. Thank you, Stephen. So there being no other matters of business, I would like to thank you all for attending our 2021 Annual Meeting. And I now declare the meeting closed and wish you all a safe, few days ahead of you. Thank you.