Tourism Holdings Limited (THL) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to Tourism Holdings Limited FY '23 Full Year Investor Presentation. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the call over to your first speaker today, Mr. Grant Webster. Thank you. Please go ahead.

Brilliant. Thanks, Desmond. Well, thanks, everybody, for attending and welcome. This is a great opportunity for us to present what we see as a momentous result for THL. I'm joined here today by Luke Trouchet, Nick Judd, Amir Ansari, Steven Hall and Nick Voss as well. So the proceeds for today, we're going to go through the results at a high level. We know that you can read all the numbers, but they will take some explanation. We won't present every slide that we sent out this morning, so the webcast does have an abbreviated version. There will be the standard opportunity to have questions at the end, and then we're going to do something a little bit different. For those that want to stay, we're going to have Steven Hall work through the review of all the purchase price accounting adjustments because there are a number of interesting points through all of that. And then, we can have another Q&A session at the end of that for those, who want to as well. Look, to kick off, I'd like to say a huge thank you to all of the THL crew across the globe, who created this very special result. And in particular, those that have pulled this together from the finance team and the rest of the teams. We've got an incredibly complex result, as you know, and I think it's been very, very well presented. And we've got an excellent annual report -- integrated report, as well for you to work through. So we actually have 5 different numbers that we're dealing with when we're talking about the report, but the stat figure is the obvious one, $49.9 million, and that's obviously the one that we should be focused on from a reporting perspective. But we also had the pro forma numbers that we're interested in as well, and we'll break those down as well, and that ranging from [ that ] $77 million through to the $80.1 million excluding the acquisition cost. The disclaimer, we don't really need to go into any detail, so we'll move into the executive summary. So as I mentioned with those 5 numbers, we'll leave that to Nick Judd to talk about shortly, and he can go through those in detail, but that statutory number is $52 million up on the prior year. We are resuming dividends at that $0.15 per share for the full year. So that's just over the 40% payout ratio, obviously, within the new range of 40% to 60%, and Nick will cover off that new policy as well. There were record results in most areas of the business, and we'll cover those from a division perspective. Return on funds employed is a critical metric for us here at THL and with a result of close to 16%, we see that as very impressive in what is still a recovery year. And you've got to remember that FY '24 is the first full year of Apollo and THL combined. We are inherently positive about our opportunities for growth in FY '24 and beyond. We'll cover that more in the outlook detail later on in the presentation. But now I'll hand over to Nick to provide us with the financial overview. Thanks, Nick.

Thanks, Grant, and good afternoon and good morning to all on the call. As Grant has touched on, there are many numbers that we have presented this year, so that hopefully you'll be able to understand our results and you can get a sense of how well we've delivered against historic trends. I thought it would be useful taking some time to talk through these in a bit more detail, as even for someone, who likes numbers like myself, this is definitely an overload. The first number is the stat number, which includes 7 months of Apollo results in the 12 months of Apollo results. Pretty straightforward, the second number is the underlying profit numbers, which include the impact of the acquisition accounting, and this is also presented on a pro forma basis, which is the third set of numbers. These 2 sets of numbers will form the basis of the underlying comparatives, which we will use to compare against next year. Numbers 4 and 5 are similar to these numbers, but they are a comparison to guidance, which was provided in February and reaffirmed in May. They exclude the impact of the acquisition accounting, which the numbers were not known at the time of the guidance was set. I will talk more about the actual numbers shortly. However, I would now like to touch on some of the huge number of highlights that we have achieved this year. To run through this slide, we'll take all the call and more, but it truly has been a transformational year for THL. The merger with Apollo saw us not only list on the ASX, but achieved the highest market capitalization in THL's history. It was not the only significant acquisition with the remaining 51% of Just Go also being acquired, along with the addition of Transcold and Freighter to Action Manufacturing. The merged entity delivered a record underlying net profit result when compared with both companies' combined historical performance. There are many other highlights across the business, as we made progress on synergies, integration, digital initiatives, our future fit goals and continued key streams of work to build back better, as a business from the pandemic. So moving back to the numbers, and starting with the stat number. There were a number of one-off items that we have adjusted for in our underlying performance for the year. We obviously spent more than we hoped in getting the merger completed with an additional $5.8 million in cost for THL in FY '23. This was offset by a tax benefit from the recognition of some transaction expenses that have been reclassed from non-deductible to deductible. There were one-off revaluations of the original holdings in Just Go and Apollo, which were recognized at the half year. And a similar revaluation for the tranche 2 shares that we received from Camplify 12 months after completion of the sale of Mighway and SHAREaCAMPER. Once these were all taken into account, we ended up with an underlying number of $47.8 million, which we'll talk further about on the next slide. On a 12-month pro forma basis, this includes the 5 months of separate Apollo trading -- including, sorry, the 5 months of our separate Apollo trading, our underlying NPAT was $77.1 million. Again, this includes the acquisition accounting impact. However, I do need to point out that within this number, there were 2 impacts of accounting adjustments to the pro forma from the half year results. Firstly, an incorrect exchange rate was used to translate the Apollo 5 months earnings into NZD, and this has the impact of adding an additional $1.2 million to the 5 months earnings. Secondly, the 51% of the Just Go result for July, September was not captured. The 49% that we owned already was included through the equity accounting, but the other 51% added an additional $0.9 million to the pro forma numbers. It is important to note that we are comfortably within guidance irrespective of these inclusions. Moving to the comparison to profit guidance slide. This shows the reconciliation of the underlying numbers to the guidance numbers we gave previously, with the key change being the removal of acquisition accounting adjustments that we had to make in relation to the fair value of Apollo assets. Our guidance numbers did not include this impact at a time, as we had not started the work on revaluing the assets. Steven Hall, who will be known to many of you has been leading this project and has done a great job of working through the many elements. He will talk more about these adjustments after the Q&A is finished for those that want to stay on the call to understand this further. The impact of these acquisition adjustments was a $4 million decrease to NPAT, which when backed out gives us a merged company underlying comparison to guidance of $51.8 million compared with the guidance of above $48 million or on a pro forma basis, including the 5 months of stand-alone Apollo trading, $81.1 million after including the impact of the accounting adjustments previously mentioned versus the guidance of above $75 million. As I mentioned, these numbers are obviously to give confidence to the market that we achieved our guidance, but they will not be numbers that we use in go-forward presentations. Skipping to the dividend slide. We're very happy to be in a position to start repaying dividends to our shareholders, and we thank those of you that have stuck with us through the last few COVID impacted years. We will pay a $0.15 dividend, which represents the full dividend for FY '23, as no interim dividend was paid. This totals around $30 million pre the Dividend Reinvestment Plan. The key dates are outlined on this page, and it will be imputed at 100% for New Zealand shareholders and franked to 25%. We will also be offering a DRP for participating shareholders with a discount of 2%. The payout is in line with the updated dividend policy, which targets a payout range of 40% to 60% of underlying net profit after tax. This lower rate reflects our fleet regrowth that needs to be undertaken amongst other factors. Our future dividends will be split 30%, 70% between interim and final dividends, which complements the significant spend we incur in the second half of our financial year, as we purchased fleet for the Northern Hemisphere summer season. Moving on to capital expenditure for the year, and it's really pleasing to be able to show that we are well and truly back into fleet growth mode. A significant step-up in gross capital expenditure occurred in FY '23, and this will continue, as Grant will touch on further shortly. Proceeds from fleet sales held to similar levels, as strong margins continued throughout all regions across most of the year. We expect that net CapEx will be in line with this year's number. Now turning to our funding arrangements. We've continued to invest reasonable time into our funding arrangement, as we look to simplify and decrease lender margins wherever we see opportunities. We recently concluded the refinancing of our syndicated bank facility with a step-up in support from ANZ and Westpac, our long-term lenders to a $250 million facility. We're very thankful to them for the strong support that they have provided to the merged entity. Pleasingly, also after year-end, we've removed another 4 smaller lenders in the last of the COVID loans that was associated with our U.K. business. We certainly enjoy taking out any reminder of COVID from our business. Our net debt-to-EBITDA ratio has come back significantly across the year, as you would expect, with the strong EBITDA growth we have delivered. We are certainly not immune from higher interest rates, but we are laser-focused on using every opportunity to reduce rates, where we can and are now set up to be more selective, as we reflect to ensure and optimize cost of funding. Our effective interest rate has decreased, as we have utilized more of the syndicate bank funding, where line fee as incurred. But the comparison in this slide does not really do justice to the overall lower rate that we now incur for Apollo debt that was acquired through the merger. We are well on track with the synergy expectations for this area, which are included in the cash synergy target. This provides a good lead into the integration and synergy slides. We continue to make good progress against all synergy areas, as evidenced by the table included in the presentation, we are ahead of expectations. Previously, we expected implementation costs and synergies to be a wash in FY '23, but we have delivered a net $2 million cash benefit. There are a couple of key items that I would like to call attention to. All properties are now consolidated. We still have a couple of leases to exit, but we are making good progress with this and ahead of initial expectations. All fleets are now being sold through our retail networks in Australia, and RFPs are underway in key spending categories and will be concluded in coming months. In addition, there are 2 areas that we've done further work on. We've sized the North American fleet synergy, and we expect that this will kick off into FY '24 with financial benefits of USD 1 million to USD 1.5 million, showing from FY '25, and an expectation that this will -- that this number will grow meaningfully over time, as the new fleet plans flow through. Brisbane Manufacturing is now part of the Action Manufacturing fold, and we have started considering what further opportunities this may bring. As a result of this change, we may be slightly slower to deliver the bill of material synergies, but we believe that this will deliver further certainty around the achievement of this target. We have included a slide on our synergy tracking methodology, which we have presented previously. It is important that stakeholders understand that the further we will get from when the baseline was set, the heart of the tracking becomes because the counterfactual has become less and less relevant, especially in an inflationary environment. Board and management seek to get confidence about how we are tracking to our targets using 3 measurements. One, we calculate the actual synergy savings, where we can, e.g. property costs; 2, we will look at key metrics and other P&L indicators, where costs may be variable related e.g. tyre cost per hire day, et cetera; and 3, we will look at our bottom line NPAT results and forecasts. The [ 1/3 ] of these will become more and more important, as we go through FY '24 because our tracking against many of the synergy buckets becomes less and less effectual and our NPAT numbers will provide the best guide to achievement, as we go forward. I'll now pass back to Grant to talk through some of the latest trends we are seeing in key areas and regions.

Thank you. Thanks, Nick. Right, let's get under the hood and talk about the rental yield stream. So the rental yield performance has been a key part of our recent stories [ and it's ] probably the most queried area of our performance from an analyst and investor perspective and indeed, media as well. Likewise, as it is for you, it's clearly a high priority for us on a weekly basis within the business, but the revenue managers, the chief operating officers and obviously, all the relevant execs as well. We feel this focus is providing rewards today, and it will do for some time to come. We also know that the majority of the improvements come from the shoulder and lead time management, as opposed to just increasing high season pricing. We know that eventually, we will see some declines, but we've had no indication that pre-COVID yields will return, no indication. Those days appear past. The chart is illustrative only, and it provides you information, as we did and previously providing a similar slide at the Investor Day that shows you how we see it today. But the key is within all of this, that we have confidence in where we are and we have confidence in the future from a yield perspective. Looking at fleet sales margins. If yields were the #1 area of commentary, then sales margins is probably #2. And importantly, the trends here are in line again with our expectations. There is 2 focal points that we have been talking about, margin dollars and margin percentage. With the higher-cost vehicles, we do expect margin dollars to be higher than historical, as we return over time to historical margin percentages. The North American situation, in particular, we will discuss shortly. The key for vehicle sales right at the moment is that volumes on a global basis have in total remained broadly in line with the expectations, but again, North America is an element that we need to talk about in some detail, where volume is starting to decline to some degree in the market. And globally, we are seeing RV market has declined, which you can see in all the public reporting of the RV market on a global basis. Margin dollars will fall, as fleet renewal pushes through over the coming 2 years to 4 years. We are depreciating our vehicles appropriately, and Steve will discuss the approach that's been taken from a fleet perspective when it comes to those accounting adjustments after the Q&A session. It's a key item in those adjustments. Looking at our global fleet position. We are up around 550 vehicles. And the focal point here, again, we'll talk about North America. As you can see, the graph there, if you look at 2019, FY '19 did have the Apollo vehicles in there, which were divested at the start of COVID. So there are a few key points when it comes to fleet. The first is that shortages from both a supply and shipping perspective have continued. So we do have a lower starting point than what we anticipated. The second is the North American situation, where we are being more conservative. And this all relates to our expectations for FY '25, where previously, we had stated we would be around 10,000 vehicles, and we now dropped that by 9,500. So as I said, the first point around that is the shortage and shipping; the second is North America, where we're being more -- a little bit more conservative. And then the rest of the market staying in line with where we thought we would be. So again, that's only a 5% reduction in fleet. And overall, for us, it's really important that we ensure that supply stays slightly behind demand and that we maintain that opportunity from a yield perspective. We're still a long way from what you would call as normal or the pre-COVID levels, and we still see that there is definitely growth opportunities moving forward. Let's talk about North American sales market. So in May, we stated that we were in a late season, and we expected a deferment not a loss in sales. The reaction to that news and my personal view was overly cautious. Ultimately, the U.S.A. market did achieve our expectations. Canada did, however, fall shot. But within that, we did put 100 vehicles in Canada back into the rental fleet to maximize the demand that we saw in late bookings, which has continued right through this high season and indeed has driven a record result from a rental perspective in Canada. Since that time, yes, we have seen demand for new motorized decline, yes, we know that demand for new towable has also been down, but use is not as severely impacted. The largest issue that we see in the market is still the dealers have full lots with new towable product and some new motorized products. But we continue to drive volume broadly in line with our expectations, yes, on the downside, but certainly not severely. What I'd also remind everyone that we do have a very young fleet age in North America, we can be flexible with our model. And the long-term trend in North America, in our view, still remains exceptionally positive. When you think about the macroeconomic challenges, we've still seen a lot of people review the market in tourism in general, and asked the question, what are those impacts both from an economic perspective and an inflation perspective. There's 3 key messages that we would reinforce and deliver. The first is that tourism is definitely remaining resilient. People want to travel. They are clearly forgoing other items of expenditure, so that they can take their short-haul or long-haul trip, and we do see long-term demand remaining positive in tourism. The second is, yes, absolutely, costs are increasing, as Nick talked about, but we do see in our business that we have the synergies to deliver, and that is clearly an item that is different to both other industries and other players within the tourism industry. So for us, it's certainly a balancing item when it comes to cost increases. And the third for us is that we do have fleet increases ahead of us and a strong yield situation for rentals. We expect fleet growth. That's going to increase our earnings and increase our optionality. And as we said before, we do see yields broadly being stronger than what they've been historically. So despite that economic climate, we are inherently positive about the broad outlook for this business. And we're going to skip over the responsible management slides that were in the core business and the divisional performance summaries, so you can look at those at your own time, and we'll move on to the divisional performance overall. Firstly, return on funds employed. Again, an area that you've just got to watch how this has been calculated based on the average funds and the pro forma results, but you can look at the details, it's all on the footnotes and clearly explained. The reality is we're very pleased with the New Zealand and Australia results have delivered record ROFE results. The tourism business have reminded that it's a low capital requirement for us. It's the highest ROFE in the business and represents an incredibly strong operating leverage and overhead leverage that we have in the business. So as international tourism returns, we see that business just improving. That's an incredible result with over 60% ROFE. U.S.A., Canada and the U.K. all reflect different challenges, but challenges that we've had in fleet supply, including and really importantly, the late delivery of fleet for the calendar year '22 peak season, a, that it had an impact of reducing peak earnings, but also increase the funds employed for holding that incremental fleet over the winter period. We also, in the first half had to have a hold back on sales in some areas because of that inherent uncertainty that we had in sales -- in our fleet supply, sorry. Action Manufacturing also delivered a very positive return on funds result, and we expect that ROFE to improve moving forward, as supply chains normalize, and we can get back to a more lean approach to stockholdings, and as we work through the additional stock that was held due to the relocation of motorhome manufacturing from Albany to Hamilton. Please quickly go through the divisional results. Have a look at New Zealand to start with. So I want to discuss this on a 12-month pro forma basis, so that we can get a reasonable comparative and understanding. So [indiscernible] New Zealand, that $52 million turnaround in EBIT shows the ongoing potential in this business. Vehicle sales were down 36%, but that was us, again, holding fleet for rentals in a challenging supply environment. And that's certainly reinforced by the average margin per unit, which was still over $30,000. Fleet growth of 391 is quite simply not enough, and we would have preferred to have more, and we would have preferred to have more for this summer as well. It will take a few years for us to reach those pre-COVID combined levels. Demand in this market remains strong. And whilst these yields will drop at some point in the future, we're certainly seeing still strong results for the business today. New Zealand still has great growth options as well. A simple example is the opening of the Palmerston North location and other regional opportunities that may sit in front of us as well. Similarly, in Australia, a pro forma EBIT of $50 million, up $43 million is a very impressive EBIT result. Rental recovery was great 150% up with good yields. We are certainly going to look at the way that we report the Australian segment, and we will look in the future to have rentals, retail, and manufacturing reported separately, but for now, they are all as one. Margins have remained positive in this business and have been managed very effectively across each market. Manufacturing volumes were positive and produced around 20% more than the prior year, again at good margins. And with Action combining with the Brisbane factory, we see that there are great opportunities for further synergies than we had originally expected and just efficiency of the way that the businesses operate and definitely some good product development opportunities into the future as well. We see lots of growth opportunities for Australia. In terms of the USA, we covered the key points around the market and in general. But just a reminder that the FY '23 results did reflect that shortage of fleet in calendar '22 that those vehicles arrived late in quarter 2. And again, they were held over winter, which did increase our costs, our depreciation and interest and clearly, that fleet was underutilized over that period. The peak season for calendar '23 arrive -- shy of 200 units. Revenue was increasing, but to be honest, not really where we want to be for this business. It's a business that has more potential than what we've realized in the last few years. The market conditions have not been great, but we want to be better than that. We do realize that this performance -- this business performed exceptionally well during COVID and was indeed our largest profit earner. But we're really going to watch carefully what happens in calendar '24, we are going to be looking for growth. And on top of that, as Nick talked about, we have North American fleet synergies that will start to come to fruition from next year. Moving on to Canada. This is the first time that we've got a detailed report for Canada from THL perspective. It's an exceptional team up there in Canada, and Luke, and the team have managed over the last few years that transfer from an owner-operator business to a group owned international business very, very effectively. They are managing the rental opportunity in Canada exceptionally well. Yields up 20% on pre-COVID holding market share well from what we can see and looking for future growth as well. When you look at the sales market, it is really hard to understand in the comparative numbers exactly where we should be. We held sales because of shortages over the last couple of years, but what we've seen in just recent times is that we have struggled to get the units through and out given the rentals demands, and given that in the U.S., we've managed to get ahead in some of what was previously CanaDream's customers. We do have an expectation that we're still going to be able to move the volume that we expect over the coming period, but we'll have to see just exactly how the market responds to that. The season that we've been through from a rentals perspective has been certainly very positive, and the opportunity in this market is for us to continue to maximize those opportunities, whilst addressing that sales situation. And long term, it again, remains very positive. In the U.K. and Europe, I don't need to go into too much detail, but again, the numbers don't really represent what underpinned the good management performance or indeed what we expect for the future. What's happened there is a strange situation, it's sort of a combination of what we've seen in other markets. Like the U.S.A., there was a shortage of fleet last summer, and thus the funds were too high over winter impacting return on funds. Whilst like in New Zealand, we actually had to hold back sales in H1 to see whether the fleet was actually going to arrive. And like in Canada, the fleet sales are sort of all over the place right at the moment, so not really an indicator of the market. And like we've talked about in other markets, there's a whole lot going on from an acquisition basis as well. Indeed, the acquisition of the 51% that was remaining in Just Go and the merger of Apollo, and inclusion of Bunk, as one has created a number of areas of change. When we look to the future, however, we see the calendar year '23 high season is very positive from a rentals perspective, and the supply situation from a fleet perspective is definitely improving, and we see synergies coming into that business over the coming period as well. So growth -- rentals growth and sales recovery alongside synergies is what the future is about in that business. Quickly moving to Action, a very positive year in which was a challenging one in many, many circumstances, supply perspective, factory moves, labor market inflation pressure and the activity connected with 2 acquisitions throughout the period as well. The EBIT pre-eliminations is nearly 70% up with volume up 48%. So the outlook, again, remains inherently positive. The non-RV demand remains very strong into calendar '24, and our outlook is indeed more positive than what it's been because, again, we see that the chassis supply situation is improving over the coming 12 months. RV production is increasing in line with our expectations, and again, a better chassis and supply with greater alternatives, giving us a real opportunity and some real synergistic vertical integration with Transcold and Freighter and then obviously, the further synergies with Brisbane, as the businesses all come together as one. Tourism, as we've said, a real opportunity for us in this financial year, FY '24 to get back to those pre-COVID levels and around that $12 million EBIT number. It's entirely in sight with what we see from an outlook perspective, any airline capacity coming into New Zealand. Low capital requirement, the ROFE for this business over 60%, as we've talked about, EBIT margin in FY '23 over 25% in a recovery year. It's not a management distraction in this business. We get great connection with the broader tourism industry and have a lot of lessons along the way for the broader business. These businesses are good for THL today. From a group support services perspective, it's fair to say that it's challenging to really assess this at the moment. There is a chunk of costs, which are deeply embedded within the Australian segment, in the way that Apollo has reported them historically. So this gives an indication on the THL to THL comparative kind of a basis, but the reporting in this area will improve moving forward. Let's quickly go to the outlook. So we know what we must do from a business perspective. We must execute on the synergies. We will grow, but we'll grow smartly. We need to be aware of margins, both from a rental yield perspective and a sales perspective, and we need to make sure that we deliver on the growth expectations that we have. And what is an environment that we'll see vehicle sales margins come back as expected and clearly indicated and yields in some time coming back in rentals, balanced by those synergies, fleet growth and broad market opportunities that we see as a business. So from a THL perspective, we are positive about the broad outlook, and we're exceptionally positive and pleased with the result of the year that's passed. Thank you all very much for your time. We will open up Desmond to questions from the group. We can see that there's a few already lined up.

[Operator Instructions] First question comes from Kieran Carling from Craigs Investment Partners.

Congratulations on the strong result. First one from me is just around your guidance commentary, just to get some clarification and perhaps a little bit of a steer of where we're heading in FY '24. Would it be reasonable to assume that including the $4.4 million in ATL acquisition costs, you expect underlying NPAT in FY '24 will come in above the $77.1 million pro forma NPAT delivered in FY '23?

So there's a couple of things there, Kieran. So we haven't provided a guidance number for FY '24. We've indicated that we'll give more information at the annual meeting, both about FY '24 in general, not saying that we'll give an exact number and obviously, our medium and long-term growth aspirations as well. So we're not going to get drawn into a number for FY '24, we'll just wait on that. The second point that I just probably clarify the $4.4 million that we've talked about is the purchase price accounting adjustments, as opposed to acquisition cost [Technical Difficulty] to clarify that. And again, Steve will talk through some of the detail behind that shortly.

Okay. Understood. Just on rental yields, looking very strong in Australasia for the upcoming peak season. Can you just provide us a little bit more color on what you're seeing in terms of utilization levels across New Zealand and [ Oz ]. Any changes in booking lead times that you're seeing versus pre-COVID levels? And then just perhaps touch on any visibility you have on yields following sort of February, March next year?

Yes. So in terms of utilization, so broadly speaking, we're hitting the kind of utilization numbers that we want to be hitting. We are short of fleet. So clearly, as we move into peak periods, that means that we're hitting maximum utilization. And that doesn't mean that winter, you had maximum utilization, obviously. So utilization is heading in the right direction. Across U.S.A., Canada and U.K., where those vehicles arrived late, clearly, that meant that our utilization over the winter period was lower than what you would have expected if those vehicles have arrived earlier, and we've been able to sell the vehicles we wanted. So we should see -- we will see utilization improvements in those 3 markets. From a lead time perspective, look, we're still not in a clear trend perspective at the moment. What we are seeing is lead times move around a little bit more. Yet you get situations like Canada, as we talked about, has had a really strong late booking window for this high season more than what we expected. So there is no clear trends that we can compare to at this point in time. Things are still moving quite significantly. From a yield perspective, we've given some really good indications, I think, and that goes through to the peak season. It is too soon for us to start speculating on where yields will end up post February, March 2024 for New Zealand and Australia. So I think the information that we've given there gives you a really good indication on the coming peak seasons for all markets.

Okay. And then just last one from me for now. Just in the U.S. on that slide that references an 11% decline in total fleet sales volumes and average fleet sales margin was down by [ USD 7,000 ] on the PCP. Can you please explain or talk through how this only results in a sale of goods decline of 3% year-on-year.

You're on the U.S.A. slide...

Yes. Slide 31.

Well, just -- I'll just have a look at the numbers that you're talking about in detail, but they certainly should all add up and maybe we'll come back to that question, Kieran and open up to some others.

One moment for the next question. Our next question comes from Andy Bowley from Forsyth Barr.

A couple of questions from me. Just sticking with the rental yields slide for the time being. [ Can I just ] get a sense in terms of the commentary there, we've got growth in Australia, we've got growth in Canada, we've got strong growth in New Zealand, what does strong growth mean, Grant? You single New Zealand out, what is it -- what does it mean? If you look at the line above, we've got -- I'd say all of those numbers are strong and the weakest is 20% up in Canada, but what does strong growth mean for Q1 to Q3 FY '24 for New Zealand?

So the main thing there, Andy, is that it's still -- it's a timing perspective. So we sort of said this at the May period and a little bit at the half as well because New Zealand was late or the last market to open from an international border perspective. It didn't have that same growth. So when you're looking at this H1 for FY '24, we're seeing strong yield growth over last year because we had only just opened and [ didn't ] really sort of got a handle on where the market was and what was happening from that perspective. I won't put a number on it, but again, you can look at the relativities, but reinforce the fact that -- and probably annoyingly for you guys, there is no indicator of any kind of metric on the [indiscernible] on that chart. So it is illustrative only, and it is focused on those phases. And yes, New Zealand still because of that run rate situation, still has strong growth into this half, in particular, but I won't put a number on it.

But so, if we weight the various markets across from what you can see today relative to what you've achieved in FY '23, we should expect reasonable growth in yields for the year ahead. Is that a fair assumption?

Yes [indiscernible].

Yes. Okay. And you haven't seen any evidence of yield declines in any of the market segments in any of the regions?

No. We've started seeing yields in the U.S. to be in line. And obviously, there's the odd period and [ odd ] product and those sorts of things, where it's come back a little bit. We'll chase utilization a little bit harder, so forth and so on. But no, we haven't seen any inherent large declines or anything of significance.

Okay. Good stuff. Just lastly from me. There's a few moving parts in the balance sheet for the year ahead. Where do you see net debt getting to at the end of FY '24?

The number that we've put in the release.

Could you...

We're going to put a number in the release, Andy?

You did or you didn't.

No, we didn't. Sorry, I'm being facetious. Apologies.

If we gave you that you'd be able to triangulate earnings for the other data that we've given you. There's a net CapEx number in there, which has guided to $160 million.

So we didn't -- we're not providing a net debt forecast at this point in time, Andy.

Thank you for the questions. Next question...

Just one second, [ Desmond ], and I think we'll just come back to Kieran's question.

Sorry, Kieran, back to your question regarding why the sale of goods revenue is only down 3%, that's because the cost of fleet is pretty higher. So the proceeds per fleet sales stay up even though the margin has come back proportionately greater than that. So that's just what we've been talking about -- about the cost of the vehicles coming through.

Of course. Yes. Sorry, Desmond. Moving back to questions.

Our next question comes from Ben Wilson from Wilsons Advisory.

Congratulations, team, on excellently managing complex environment and delivering a strong result. Apologies for all the questions on yields, but just one more -- one for me, if possible. Just interested, you have talked about the shoulder season demand should be structurally higher. So as I understand it, the period between winter and summer and between summer and winter, just wondering how that is playing out or has played out now that we're exiting the Australasian winter and the Northern Hemisphere summer. Have you seen sort of higher bookings and higher yields as expected across the regions?

Yes. So look, yields are holding up through those periods. And again, it's both in those periods in through peak as well that we've talked about the lead time management. So as you know, traditionally, yield curve is very much a curve steeping from up to 12 months, 18 months out through to the last minute peak. What we're seeing is that, that has remained a lot flatter. And that -- it's again, shoulders included, it's that early booking yield that is driving a lot of the yield improvement. And that is, as I say, continuing in all markets at those periods of time.

Great. And just one slightly more less yield question. I noticed on the Maui website, I'm not sure, if this is new or not, but I think Maui is available in South Africa. Can you just comment on -- is that a sort of a new expansion for you? And if you have any sort of additional regional expansion plans?

So there is a company that is a franchise operation only has no legal ownership at all Tourism Holdings Rental South Africa Limited, which has Maui, Britz and Kea, that has been a relationship that's been in place for well over 25 years. The Kea and Maui relationship joined in 2012, and so they've been around for that long. We have obviously contact with them as part of that franchise operation, but no direct financial relationship apart from the franchise fees, which aren't significant at all.

Okay. Great. And then maybe just lastly, in terms of sort of international versus domestic rental profile, are you seeing any sort of change, I guess, with higher cost of living in terms of international travelers sort of dropping off and more domestic travelers [ that's ] rental customers or no real changes, as yet.

So as we've continued to a, refleet and start to see that in all markets; and b, hit the sort of the high seasons. We are seeing international grow and domestic has proportionately obviously become a smaller part of the business, again, as you would expect. But domestic, I'd have to check for all markets, I'm pretty sure it is the [ mainstay ], is still running at a higher volume than it did pre-COVID. And so we've benefited from that more broadly as a business. But yes, the greater growth rate is absolutely in international, as that recovers.

One moment for the next question. Next up, we have the line from John O'Shea from Ord Minnett.

Guys, can you hear me okay?

Yes. Great. Thanks, John.

Yes. Thanks, and well done on the result. Just a couple from me. Firstly, in relation to the pro forma calculation, as we look at it for '24, can you just remind me how you've gone about doing the -- I can see at the EBIT level, exactly how that pro forma has been put together. In terms of interest, what sort of rate assumptions have you assumed for taking the Apollo earnings in relation to that pro forma period? Is it their previous rates of interest or the THL rates? Or how have you gone about that?

Yes. So that's all actual results, John. That's all the FY '23 numbers. So we've just carried through the 5 months of the Apollo results. So that [ they are ] interest that they incurred from July to November. And then we have put those results obviously into the THL results, which was the 12 months of THL and obviously, additional 7 once Apollo became part of the merged entity. So effectually there's no attribution reallocation there, that is just actual results line by line and combined.

Yes. Just wanted to check that's what I thought. So therefore, does that mean that there's potentially some -- obviously, interest rates have moved upwards, as we know. But on a like-for-like basis, does that mean, as you -- obviously, they're taking your debt facilities on board that there's potentially some savings obviously there?

Yes. Look, it's hard in this market with how much the base rates have moved because our rates are obviously set off benchmark rates in each country. And so everybody on the call knows how much they've moved over the last probably 12 months, 18 months. So we have undoubtedly [Technical Difficulty] our interest rates down in terms of -- in comparison to the rise that's there. So we haven't increased it to the same proportion that base rates have because we've managed to adjust some of those rates that Apollo had at the top end. And actually, probably the best guidance I can give you around that is if you compare the note we had at half year on the borrowings and the financial statements versus the note we have in the results this time, it gives a good indication of some of the top end rates that we no longer have any more in spite of what's going on. And as I touched on, even for us, the effective interest rate has come down, as we've more efficiently used the bank facilities that we have that were sitting relatively undrawn about a year ago. So we're continuing to look at how we optimize that. We've got a bit of work to do in that space. So that should drive some benefit back to us. But you're right, we're not immune unfortunately to those base rate movements that flow through.

Sure. That answers that one. The second one was around the CapEx in FY '24. I note that you have indicated a $30 million spend there outside of the net fleet CapEx. Can you just perhaps give us some more detail on what that is, correct?

Yes. The biggest portion of that is -- and we haven't got anything concluded yet. That is what we need to do in terms of an Auckland property. You remember, nearly 3 years ago that [indiscernible] the fire. And so there's a -- we've got to be out of the temporary slide -- site that we're in and basically about 14 months' time. So there's a couple of plans underway, nothing that is -- will be released yet, but that's an expectation that, that will be in there, which is sort of 2/3 of that amount.

And the last one is synergies. You hinted a couple of times about in a couple of different areas [ upside ] the synergies, how should we kind of think about that is -- have I interpreted what you've -- the way you've been talking about it in the right manner by suggesting that synergies you're providing is a minimum number and as it stands at the moment, do you think there's upside to those numbers? Am I interpreting what you're saying correctly or incorrectly?

So I mean, I had to get drawn too heavily into a number and look, we'll give again a bit of an update at the annual meeting. But what we originally stated in our synergy numbers didn't include North American fleet. We've given an indication of North American fleet, which is clearly an upside on that side of things. Likewise, we've said that in the U.K., Europe, there is material for that business, but insignificant on a global basis, synergies there, which also went in that number. And we've said broadly we're running ahead. So those are the sort of the indicator points that would be saying around synergies, but we would caution people not to get too far ahead of themselves because it's already a big number out there.

Thanks very much, guys. That's all for me, and good job. Thank you.

Thanks, John.

We have new questions from the line of Grant Lowe from Jarden.

Team, can you hear me okay?

Yes, Great. Thanks, Grant.

Just a couple of ones for me. Just while you're in the mood to be telling us additional numbers, Grant, is there any guidance on what we think the effective interest rate will be for FY '24, which had -- it's likely to come down a bit, but any firmer number?

No. Look, the -- what will continue to happen is obviously, with the increased corporate facilities, which now we've got the $250 million, we'll utilize more of that as we go forward. So that brings down the ineffective portion of the line fee, which helps out. But really, it is still challenging just with, as I mentioned, those base rates and where they sit. So we'll get the flow through of some of that. We also have some fixed rate contracts that roll off and it will obviously be replaced. The lowest of those is sitting at 3.2%. I'd love to be able to get our fixed rate back at that level, which we won't be able to. So some of the new fleet coming in will come in at higher rates as well. So yes, no forecast on that at this stage, Grant. But that's sort of some of the...

That's fine. Can you just remind me what proportion of your debt is hedged in or fixed?

So at the moment, I haven't got the number off top of my head. Let me ask you an easy question, Grant, and I'll come back.

Yes. Okay. The next one is just around the dividend. I think historically, you have a payout of 75% to 90%, and I appreciate, there's a re-fleeting phase, the lower payout range. But presumably, once we [ fast ] forward 3 years or so, would it be reasonable to assume a reversion back to that 75% to 90% payout.

Look, you won't draw us into making conclusions about something that far out. We're certainly -- the 40% to 60% is what is relevant today. That is the policy that the Board is set and approved and it's the one that you should use, as your basis for assumptions today. If it was going to be different, we would have given you a different indication. So [ 40% to 60% ], where we're sitting today. What I'd just add is that point that we've got the refleet. We obviously still are a growth-orientated company focusing on acquisitions, but also that point around tax efficiency as well when you look back at it and you're getting a base proportion of earnings out of North America coming back and distributing those as essentially a double tax. So where we should be able to use it for growth, we should use those funds for growth.

Okay. That's understood. If the interest [ run ] is -- sorry, the hedge there, we can follow up on [ benefits easier ].

Thank you. There are no further questions at this time, please continue.

Yes. So Desmond, what I think we'll do is we just, as we [ sit ] for -- it doesn't look like there's anyone queuing up for questions immediately. So we will thank everybody very much. But please remember we are now going to stay on the line, and we're going to have Steven Hall talk through the acquisition accounting methodology and approach, which is the slides that were in the back of the presentation as well. And then, we will have a Q&A on that as well, if you so choose. For those that either uninterested or feel they've got the heat around that completely well done, would be point -- first point I've made, but thank you, again very, very much for your time. But we'll hand over to you, Steve, to start to talk us through that. Thank you.

Great. Thanks, Grant, and hello, everyone. We've only got a couple of slides left. So I'll jump straight into it. As part of the acquisition accounting, we have undertaken an exercise to fair value all of Apollo's assets and liabilities. The table on this slide is showing the fair value adjustments that we've made from the carrying values in Apollo's book. I won't read through each of those. But on the next slide, we've outlined which of those adjustments have an impact on operating profit. The 2 key adjustments are in relation to IFRS 16 and vehicle inventory. For IFRS 16, we're required to reset the right-of-use-asset to be equal to the lease liability, as at the acquisition date. In Apollo's book, the right-of-use-asset in relation to the Brisbane factory had previously been written off. So the impact of this adjustment is to increase the right-of-use-asset and the depreciation amount that flows through to the P&L. This has an ongoing annualized impact of $2.3 million. The other key adjustment is in relation to vehicle inventory. So for vehicle inventory on hand as at the acquisition date, we've valued them at a mix of wholesale and retail values, which is above the book value. So as those vehicles are being sold, it results in a reduction in the margin that we would have otherwise recognized. The impact of that adjustment in FY '23 is $2.7 million, and we expect the balance of that will wash out in FY '24, as outlined in the table. Finally, it's important to note -- also note that the acquisition accounting is still provisional. Under the accounting standard, we've got up to 1 year to complete the acquisition accounting. We're still undertaking further cash flow analysis to confirm the value and allocation of intangible assets, but the fixed asset values are already finalized and confirmed with the auditors. That brings us to the end of the presentation. So I'll pass back to Desmond, and open up for any remaining questions.

[Operator Instructions]

Again, I think, Steve, your clarity on that presentation and what's been included is solved that for everybody. So thank you. Desmond, it doesn't look like anybody is raising their hands. Any other final questions from anyone. Right. Again, thank you very much, everybody, for your time. Really appreciate it. We look forward to catching up with a number of people over the coming week or so and appreciate your support of THL and the changes that we've been through. Great stuff. Thank you very much, Desmon, for hosting us.

That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.