Investors warm to tourism firms

By Peter V O'Brien

Friday 5th March 2004

Share price movements over the past year for companies associated with tourism showed good investor confidence in the sector.

Only Air New Zealand and Sky City Entertainment Group declined during both periods, the latter's fall being marginal.

ºThe airline's price dip over the year probably reflected the possible effects of fare price wars and no-frills flying.

Tourism's general health and the health of companies operating in the sector (broadly defined) is related to the number of overseas visitors, subject to two caveats:

* New Zealanders on holiday ("internal tourists") are an important element in the companies' revenues, particularly for those such as New Zealand Experience and Sky City (the former company's reports refer specifically to matters that could have only a local content as important influences on trading); and

* A given percentage increase in the number of overseas visitors may not necessarily equate to the same percentage increase in tourist spend.

The first matter, as related to its influence on trading, was covered in New Zealand Experience's report for the six months ended December 31.

Referring to the outlook for its Rainbow's End theme park, the company said operating results for the rest of the year were subject to weather conditions during the key trading periods "such as school holidays."

It also noted Rainbow's End popularity as a venue for corporate and group functions.

The tourist spend factor is straightforward. Wealthy tourists, staying in CDL Hotels' u-market accommodation for example, could spend more in a few days than several times their number of backpackers.

Conversely, the backpackers might be more likely to participate in adventurism tourism activities than many of the well-heeled. The industry is a "horses for courses" sector.

Latest reports from the listed companies again referred to cashflow, the lifeblood of any company.

Air New Zealand chairman John Palmer explained his company's 22% reduction in cashflow for the six months ended December compared with the corresponding period of the previous year.

It related to removal of the previous period's one-off cash increase after introduction of the airline's Express Class and the payment of provisional tax for the first time since 1998.

Auckland International Airport's interim report made no reference to its net operating cashflow, a strange omission, given it went up 7.4%, from $61.89 million to $65.79 million, despite hefty increases in income tax paid and interest paid.

Jet boat operator Shotover Jet spent some time explaining its cash position, which was better than in the previous corresponding period.

Tourism Holdings, the most diversified of the seven tourism-associated listed companies, said in the interim report for the six months ended December 31 that operating cash flow decreased $5 million to $13 million, due to increased working capital requirements relative to the previous first half.

Tourism Holdings' interim profit was down 18.9% but there was a $1.4 million (after tax) gain in the first half of 2003 from asset sales, unusual items and trading from discontinued businesses.

The company said net profit increased 10.5% on a like-for-like basis, a point that explained its solid share price improvement over the past year.

Shareholders would welcome a fully-imputed 4c share interim dividend and an accompanying 4c share special payment, also fully-imputed.

Sky City Entertainment now operates in Australia, where casino margins are apparently lower than those achieved in Auckland. The Auckland operation is an integrated tourism venue with a casino, hotel bars and restaurants and other entertainment.

Integration is the key to the total industry's successful operations. Air New Zealand carries inbound and local passengers. Most go through Auckland Airport, many stay at Sky's or CDL's hotels, use Tourism Holdings coaches and rentals and enjoy the "experiences" of that company, New Zealand Experience and Shotover Jet.

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