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Tourism Holdings to shrink US fleet in bid to improve cash flow

Monday 27th May 2019

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Tourism Holdings will shrink its US fleet by about 17 percent as the rental RV operator seeks to address an "unacceptable" performance from its North American business. 

The company said the US vehicle sales market is in decline, and it estimates the volume of wholesale transactions is down 40 percent and retail sales are down 10 percent. What's more, heavy discounting is squeezing margins, something Tourism Holdings expects to continue to another 12 months. 

"Despite the current market conditions, our USA performance for FY2019 to date is unacceptable," chief executive Grant Webster said in a statement. 

"However, there is nothing which indicates our fundamental build/buy, rent and sell model is broken or that we have a poor business."

The company downgraded earnings guidance in April, blaming the deterioration in the US business, and said it was reviewing its operations that include Road Bear, Britz and El Monte RV rentals, which they also sell.

Tourism Holdings affirmed its intention to declare a final dividend of 14 cents per share in the current financial year, keeping the annual payment in line with the 27 cents paid in 2018. It also reaffirmed guidance for profit to be $25-28 million in the year ending June 30. Net debt is expected to be about $240 million due to the decline in the vehicle sales environment. 

The company will cut US$40 million of planned capital spending from the US business and expects to shed 400 vehicles from its US fleet, giving it about 2,000 RVs in the 2020 financial year. 

It forecasts gross capital expenditure in the US of US$23.8 million in the year ending June 30, 2020, down from a forecast US$62.5 million in the current financial year. The company wants to reduce its funds employed in the US by US$20 million

Tourism Holdings expects its US business to generate positive operating cash flow of about US$35 million. It plans to strip out costs from the 2021 financial year by franchising or exiting up to five locations and cutting its wage bill. Tourism Holdings is also working line-by-line to trim other operating costs. 

The shares last traded at $4.30, and have dropped 17 percent so far this year. 

(BusinessDesk)

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