Tourism Holdings Limited (THL) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Tourism Holdings Limited Half Year Results Conference. [Operator Instructions] I would now like to hand the conference over to Mr. Grant Webster, Chief Executive. Please go ahead.

Thank you, Amy. I appreciate that introduction. Thank you all for your attendance. As always, it really is appreciated. I have here with me today, Ollie Farnsworth, Steven Hall and Amir Ansari. You know their roles and they will jump in as appropriate. Ollie will be sharing the presentation with me as we go through and then look forward to the inevitable Q&A at the end, which we will leave plenty of time for. So I just wanted to start with the presentation with some key messages that we wanted to get across today. really the summary of the position of THL from my perspective. We do feel that we are in a positive place. The core of the business, the rentals activity has been strong in the half, and we've got a strong outlook in all regions putting the U.S.A. slide at this point in time. Sales has clearly been our drag over the last couple of years, and it declined it at a pretty rapid rate in volumes over the last 3 years. But we feel that we've broadly got under that, and we're seeing some degree of stabilization. The rate gross margin rate movement in the half should really be compared to the previous half rather than the prior corresponding period to see that the trends are actually reasonably consistent. We have done what we said we would do and in the controllable areas that we have able to -- or that we have within our control, sorry. We have debt well down, and we're forecasting to be under $400 million with the debt-to-EBITDA ratio of under 2 by year end. So when you take all of that into account, you have to look pretty positively into FY '27. We always said that this year was going to be a transition year. So let's get into it. The key stats, that 11% increase in services revenue that primarily, that's the rental revenue, inclusive of the U.S.A., is a really positive move. The U.S.A., obviously, not what we want but other areas improving dramatically. The sales decline on the prior corresponding period was generally in line with what we expected. The rental fleet growth for the half, again, with what we expected, and we need to talk shortly about where that fits for New Zealand, in particular, and an impact that has on the half 1, half 2 spread. And net CapEx for the year is in a positive position and shows that we are managing our capital expenditure in line with the expectations. Our net debt, as we talked about, whilst pretty much in line at the half is forecast to come down and that reduction of $30 million in January shows that we're well on track towards our expectations. We know the group return on funds employed is down and below our overall expectations, again, moving in the right direction. Let's talk about the strategic initiatives. We said we would review key areas of the business that were underperforming and needed action. We have, and we've taken action. I don't need to readdress, relook at those at any particular detail, but I want to talk about where we are moving forward. And we want to remind people as well that all of these actions were well planned and well underway at the start of the calendar year last year and worked throughout the calendar year, and we're moving into that last phase now. So for Australian manufacturing, we are still closing down the actual process right now. We're working through the last of our work in progress movement of our stock and equipment, and obviously looking to sublease that property at the same time. We will start to see the synergies of the 2 businesses combining into New Zealand over the coming year, and that will obviously flow through as a benefit as the rotation of fleet occurs over the coming years. Australian retail, we've got a new motorized product range coming out shortly, which we're very excited about. We see both a volume and margin opportunity with that product. [ Technical Difficulty ]

One moment, please. You've been reconnected. Please continue.

Okay. My apologies, everybody. I'm not quite sure what happened. We do have backup connections and so forth, but we seem to lose connection for some reason. And that was before we got into any difficult Q&A. So I assure you it wasn't us avoiding anything from our end. Let's focus on the capital discipline and ROFE improvement. So I was just starting to go through the New Zealand situation. So New Zealand, very positive outlook for New Zealand. The key thing is to note that we do have to increase the fleet in the first half and increase the costs associated with that to get the benefit in H2. So please, when you look at the New Zealand result, just acknowledge and realize that it's all about setting up for H2. Our forward bookings in New Zealand are still well over 20% and we have a strong proportion of our expectation for the full financial year already booked. So New Zealand is in a positive place. If we look at the January and February results, they are well on track with our expectations for the full year, and we do expect New Zealand to have a record result. The sales of the ex-fleet is still strong based on the lower-priced units. You might even have seen in the results that I purchased 1.5 as well because we're too busy in peak season for me to take a crew higher. So I'm now proud owner of one of our ex-fleet. What we have seen, however, is the higher-priced vehicles out of the U.K., Europe haven't been selling quite as well. Across New Zealand, Australia, it is worth noting the real depreciation rates, which we're very pleased with. Looking at Australia, strong rental growth in days, again, a positive forward book and we're seeing some good opportunity for RevPar to keep increasing in the business, and we've seen good utilization increase in Australia at the same time. The cost reductions in retail will start to flow through, and I think that will have a positive impact as we look through to FY '27. It's important as well to note that within Australia that the inventory is now at a really good level down another $22 million in the Australian retail business. North America, again, we're getting funds employed out, which is a classic THL discipline when we're not delivering the return on funds employed. We make sure that we reduce the funds employed in a reasonable manner so that we can still get a recovery in the business, but we keep things really tight. Canada has had a very positive situation with forward bookings up over 30% and [indiscernible] sales have been positive, more broadly in North America, although of lower margins. But again, compare those to the previous half as opposed to the prior corresponding period. The U.S.A. still remains uncertain. We do see, as I was saying before, good domestic revenue. We do see good event revenue but as with the rest of the industry, whether that be hotels, airlines, rental cars or attractions and activities, international visitors from the core traditional markets are staying away from the U.S. at this point in time. The U.K. business, we note that it was a positive half and it's a little bit ironic given that we've had the sale and divestment of that business. But we do see that as a positive move for THL at this point in time. Those funds are obviously being used to pay down debt and will provide us with a better return on funds and a number of other balance sheet metrics moving into next year. From a manufacturing perspective, the key highlight for the period is definitely the movement of the Brisbane factory to move that volume to Australia, which will start to flow through benefit in the reduced purchase price of units for both Australia and New Zealand for the FY '27 period. You will note a lower margin on the internal product. That's just a pricing movement over time as reduced costs start to flow through to the rentals business. Tourism business looks slightly underperformed, not a major issue, mainly the Korean market to Waitomo was the key difference there. And on a GSS basis, we'll just note those cost savings that we're talking about. Moving on to improving fleet in RevPAR. So look, the positive movement in the group is the key thing to watch. What we do note again is that New Zealand result is very indicative of the fact that the fleet is front loaded to the first half. I just want to move on to talk about vehicle sales, which we do see on a global basis is stabilizing. And again, when we look at the results on a margin basis, both per dollar per unit in percentage basis compared to the previous half, they're reasonably stable across the different regions. We have seen -- we've talked about bouncing along the bottom, and we still see that, that's the current case at the moment. What we would point people towards is the real depreciation rate which is still at a very low rate and still reflects the fact that we believe we're buying well, selling well and indeed have good quality fleet across the globe and units that we have. Moving forward to the positive operating cash flow, and I'll hand over to Ollie to talk about that and the balance sheet position.

Thank you, Grant. So our first half net operating cash flow rose 67% to $40.5 million. That was driven by improved EBITDA and lower net CapEx. I'd note there an unfavorable working capital balance movement. That is timing base, and we expect that to normalize over the year. Looking forward to the full year, we expect to see significant growth driven by ANZ peak season earnings, fewer new fleet purchases in the U.S., no U.K. purchases and the one-off gain from the U.K. divestment. Just a reminder of our debt structure. It's primarily a syndicated bank facility supported by asset finance and floor plan. There's ample headroom within that facility, but it's pleasing for us to see that net debt trending down ahead of where we expected in our strategic road map. Net debt was $493 million at the end of the half and has already reduced by $30 million in January, as Grant pointed out earlier. We're targeting below $400 million by the end of the year, and that's supported by those strong operating cash flow as I ran through before. The net outcome of that is a $6 million or circa $6 million interest cost saving into the next year. I'll also note the expected gross CapEx of $210 million, which is down year-on-year, and that reflects the lower North American purchases and no purchases into the U.K. From a dividend perspective, our policy is for a 40% to 60% payout, distributing approximately 30% as an interim. On this basis, the Board has declared an interim dividend of $0.03 per share, that's 100% imputed and 0% franked. That's up 20% on the prior year. And based on the forecast range we've disclosed, we expect the full year dividend will be up around 55% year-on-year. We're also beginning to accumulate franking credits for potential use in the final dividend. Back to you, Grant.

Brilliant. Thanks, Ollie. So let's move on to the outlook statement. So the first time that THL's provided guidance for some time at this time of the year. So that range of $43 million to $47 million impact for the full year. We would note very clearly that, that is impacted by about $1 million with the U.K. divestment Obviously, we're missing out on the high season earnings from that perspective. That's on a net basis, so taking into account interest and so forth. We do note that we've got that positive forward book in New Zealand, Australia and Canada. The U.S.A. is still the key concern, both from a rentals and vehicle sales perspective. But vehicle sales for the group are expected to be up on the second half of the prior corresponding period, which was probably reasonably obvious, given the improvement in the results we're expecting. I want to just reiterate again that net debt number and looking to be under the $400 million in debt-to-EBITDA under 2x, which we see as a very, again, positive side of the capital management disciplines that exist in the business. Then just moving on to the growth road map assumptions. So we feel that it is important to remind everyone of where we're hitting, and why we still believe that it is reasonable assumptions that sit behind the growth road map. So when we look at the rental days, they're definitely well on track. Again, the U.S.A. being slightly aside that may fit some of the timing, but the core markets are definitely well up, and aligned very much with the broader tourism expectations for each of those markets that we're operating in. Yields are definitely okay as well and in line with the general expectations, we would see adjusting for inflation only with no significant increases or decreases planned. Vehicle sales, we know is a work in progress. However, when we look at our expectations for the $100 million and compare that to where we are today and look at the volume and margin plans that we have, we are still confident that, that is hitting in the right direction and if we can achieve those targets. To have the kind of revenue that we need, we need that fleet around 9,000 vehicles and obviously being over 8,500 now we are well on track for that. In the net debt position, clearly, we're well ahead, and we've covered that significantly today. Total cost and depreciation, we have given an orange light on that. Now that is not because we don't believe we can achieve the numbers. It's because there's a different timing difference. Let's take these 2 key scenarios here. Canada, in the U.S., just with the volume of fleet that we're rotating through and the speed of that is slower than what we originally anticipated, for the obvious reasons of U.S. rental activity being down. We do believe we will still achieve all the synergies. It's just at a slower rate for as we get there. And the second depreciation savings, obviously, will start to flow through for New Zealand and Australia as we get that leverage benefit of bringing the production through New Zealand. Then New Zealand tourism, again, just we are happy with the current discussions that are occurring in Waitomo. We won't say any more than that. There are obviously confidential discussions, but we are happy with the progress that we're making here at this point in time. So in closing, I'd just like to note, we know that it has taken some time as the market in the RV industry globally has continued to decline for us to readjust appropriately, but we have. We believe we're in a better place than many in the industry. We recognize that FY '26 is still labeled this transition year as the actions that we've taken and activity that is ongoing starts to flow through to an FY '27 result, which we believe will be even more positive. Amy, we will hand it back over to you and open up for questions.

[Operator Instructions] The first question comes from Andy Bowley at Forsyth Barr.

So first question, just around net debt and fleet investment recognizing that you want to target 9,000 vehicles by June '28 and we've been on an accelerated reduction in net debt from here. How do you see the balance sheet navigating over the next few years, notwithstanding a fair bit of uncertainty on various aspects of the business model? But can we or do we have to see investment, i.e., net debt increase to get towards -- back towards that kind of 9,000 vehicle figure? Or do you expect further paydown in net debt?

No. We think that the operating cash flow outlook is strong over the coming years, and that's going to sustain the growth profile to get there.

So from a net debt point of view, what does that mean?

We would expect it to be reasonably flat. You might see a slight reduction on it, but the biggest movement comes in this year.

Okay. So from a net debt-to-EBITDA point of view, which you referred to in the preso, we should see as the EBITDA continues to improve, that net debt-to-EBITDA fall further?

Correct.

Great. And maybe a second question in light of the fact that you won't talk about New Zealand tourism discussions from a Waitomo point of view. In the context of the broader vehicle sales market, I recognize it's challenged globally. Can you talk to some of the regional differences that you're seeing? It looks like New Zealand is doing a bit better and what's happening between Canada and U.S. and recognize the comments that Grant you made around the synergies between those 2 markets aren't as progressed as you'd like. But with regards to what you're seeing on the ground from a vehicle sales market point of view, please?

Yes. So look, you can see in the results, but what we're seeing is global trends and then a little bit -- we'll talk about the regions, but the global trends are definitely people are buying cheaper units. And so we're seeing that trading down. That's no surprise with the inflation that secured in the RV market broadly over the last 4 or 5 years. We are seeing people within that they are shopping around a lot in looking for a deal. But in saying that, we're seeing inquiry rates are increasing and generally, the consumer confidence seems to be coming back into the market. When you look at -- and you can see all the public listed results out of North America in particular and out of Europe, people are expecting growth again now, albeit small single-digit rates, 2.5% to 4% is sort of the kind of the mark. Canada is getting an uplift on the basis that we've got -- there was a period there where nobody was buying because of the tariff situation, and we've got stock. And we've got stock that's well priced. So Canada is doing well from that perspective. In U.S.A., we're again only just coming into the selling season from sort of April onwards. So we'll see. But early indications, the first big shows of the year have been positive. Australia is still struggling. And we're seeing, again, the Chinese product still taking market share there more broadly in the towable space. Motorized, it's still very much about Australia and in New Zealand, basically, as I said before, doing well on the lower-priced units. So if I as give it a context on a global basis, it's definitely stabilized and heading to small growth.

Next question comes from Vignesh Nair at UBS.

Grant, first one, just on retail vehicle volumes into the full year. Obviously, been sort of a fairly challenging time in that market. Just keen to get your view in terms of what the outlook looks like what potentially sort of continued high interest rates, especially in Australia and maybe New Zealand towards the back end of the year as well?

Yes. Look, on a New Zealand basis, it's not a material number overall. And as you can see in the numbers we're making up for that volume in ex-fleet. So it's not as much of an issue. In Australia, obviously, we're expecting volumes to be down with Kratzmann and Sydney RV out of the picture. But the key point there is what is our overall loss in that market, and we're expecting that to improve. So yes, the retail market is still tough in Australia. As you've noted the points around interest rates. We're coming into that with our new product launching in this half as well, which again, we're very excited about. And we'll be putting a lot of effort and behind. So when you look at all of that, we really expect Australia retail to improve. And again, head into FY '27 with a vastly improved result.

Is that new product lower priced and so sort of more suitable given the broader macro? Like how should investors think about?

So there's a range of products. We're starting with definitely far better value for money. So we're starting at the higher end with the fully spec unit, which is a larger unit, and that's got all sorts of different features to it between solar and washing machines, all sorts of stuff. So we're starting at that end just because that's the sort of the premier product, it's the key launch point. But then yes, we will end up with some newer units that are better priced and certainly, we're happy with where the margins expect to sit across the range of that retail product.

That's helpful. And second question, I suppose following on from the previous question from Andy. Just on the North American business, obviously been a tough operating environment there for a little while now. If that sort of trend does continue for, call it, the next 18 to 24 months, can you sort of walk us through your thinking in terms of the strategy in that geography? And how sort of important it is to the broader picture and how you think about maybe repositioning the business if that continues to be a laggard for quite some time?

Yes. So we -- I guess there's 3 things that I would say. The first one is when you look at what we've done over the last period of time, we are retaining a strong discipline on return on funds employed, and we will continue to look at any business on that basis and make sure that we have a pathway for growth. And if we had to make really hard decisions, then we could and would. I don't want that to be taken as any kind of exit of North America because that's not what it's saying. It's the same we're disciplined in our approach. The second thing I would say is we are in the industry. We've tested this across the industry more broadly, is we believe that return of tourism in the U.S.A. is a matter of when not if. When we look at the active considerers, the people who still broadly want to go to the U.S., they still want to go. When you look at what attracts people to the U.S. the natural landscapes and environment, plus the city escape, plus all the theme hikes and everything else still exists that people still want to go. So it is -- we do believe it's a timing issue. And the third thing I'd say is that we continue to drive the business for improved profitability and returns along the way. And so long as we're continuing to move towards those targets at the right kind of level, then you've got to back the business to be able to get to where it needs to at a total return in an appropriate period of time. So a little bit vague there, obviously, because you just don't know exactly what's going to happen. But we've been strong on cost out. We're being strong on capital out, and we've been strong in driving revenue where it's available. So again, Canada doing an exceptional job. Plus we've still got all those fleet synergies to flow through. So hopefully, that answers your question well enough, Vignesh, given that there are no absolutes.

The next question comes from Kieran Carling, Craig Investment Partners.

Just to expand on some of the other questions around the retail channel and AZ. You've mentioned the impact from some of the Chinese products taking share in the towables segment. Just from a quick click online, it seems as though some of your competitors like Snowy River are offering Class C motorhomes on the LDV chassis at a price point that's about $50,000 less and has similar specs to your Apollo range. So just curious to get your thoughts on the impact of some of the structural changes occurring in that motorized segment in Australia?

Yes. So I guess there's a similar question that was asked at the annual meeting last year around that product and I think if you go back and have a look at the transcript of that, you'll see the answers there. And to be honest, they haven't really changed. So we're well across that product. Indeed, if you have a look at our RBC in New Zealand, we have the LDV product direct out of China fully built. We are the licensee for that here in New Zealand. So we know the product, we know the product well. We have different LDV product in the market as well. And we've got a new product that we've launched in the last 12 months. So I think when we look at it, we actually see that there is a place in the market for it. It is a different spec. It is a different customer and target market. We don't see it as having an impact on any of our particular range at this point in time. And indeed, will be...

Okay. And the next question is just also on competition as well. You're obviously seeing strong rental demand and Australasia based on some of the checks we've done, it sounds as though Indie Campers has expanded its fleet quite rapidly in New Zealand and RoadSurfer is looking to expand into New Zealand and Australia. So can you just provide some comments around how much of a threat you see the entry of those competitors being, and whether you think the return on funds employed in your New Zealand business is sustainable on that basis?

Mr. Webster? One moment please. [ Technical Difficulty ]

Hi Amy, are you there?

You have been reconnected.

Okay. Thank you. All right. So again, not sure what's happening with the technology --

You are muted again, sir. One moment, please. Please go ahead.

Sorry, everybody. Still unsure as to what's actually been going on, but I believe we still have one question to come. Kieran are you still there?

Yes, sure. Sorry. So just the second question was on competition as well. So just in regard to the strong demand you've been seeing in Australasia, some of our checks have suggested that Indie Campers has been expanding its fleet quite rapidly in New Zealand and RoadSurfer is also exploring an entry into Australasia. So just wondering if we can get some comments from you the expansion of those large global competitors into the sort of Australasian region and what that might do to your sort of rental picture in this part of the world?

Yes. So from an Indie Campers' perspective, I'm not sure about large increases in fleet of certainly coming off a low base, so maybe on a percentage basis. I think when we look at our market share indicators, we are still very confident about where we're sort of sitting on a market share basis. RoadSurfer have indicated many months ago that they might come into this market, they have not done anything since there's been no indication of them buying product from anyone that we've seen or any sites or marketing collateral or anything that sort of supported that. So it will be interesting to see what actually happens with that. Of note, there are other competitors that have got publicly available information that they are loss-making in this region. So we have some absolute scale benefits. We have the build rent sale model. That's a good moat for us at this point in time as well. So -- and we have very strong trade relationships as well, which is not something that those other competitors have at this point in time. So we're confident with where we're staying where we are today. We watch them carefully, obviously, as you do with any competitor group. But no, we're happy with where things are today.

The next question is from Belinda Moore at Morgans.

Just on the U.S., you're not expecting sort of to see any improvements with the talk of all the inbound travel coming in for the FIFA World Cup and the 250th anniversary. And then sort of secondly, how do we think about sort of the full year for action manufacturing and also corporate costs, just given I think, the sort of $3 million reduction there?

Sorry, Belinda, we've changed entry points again. but anyway. So when you said -- are we seeing any improvement in the U.S.? Was that your question?

Just given the FIFA World Cup and the sort of 250th Anniversary, are you supposed -- are you going to see any benefit from that, please?

The short answer is no. Unfortunately, events like the FIFA World Cup in an area like the U.S., they -- the events are too dispersed for people to take an RV and they create a bit of sort of crowding out around some of the hotel prices and stuff. So we're not seeing any significant uplift there. There's some stuff out of South America, Brazil and so forth, which is a little bit interesting, but it's not anything that's going to offset anything else. What we are seeing and what we're picking up from the likes of Brand USA is that the other activities you're talking about, the Route 66 celebrations, the 250 years are improving that brand, that broader brand awareness and consideration. So it is not now as opposed to never as our view, but no short-term gains for calendar '26 out of those events.

I'm sorry, just in case you didn't hear my 2 other questions with one around how we think about sort of your group support services and other costs on a full year basis, just given I think you're taking out $3 million? And then also how we think about sort of action manufacturing, you're still expecting sort of a second half pickup given improving economic conditions?

Yes. So look, on a group support basis, we are continuing to see cost out programs coming to fruition. So yes, we essentially run rating those costs are about right. It sort of ends up around $5 billion for the full year and runs through nicely into FY '27. And then you cut out on the last but Belinda, sorry, the last -- if you could just repeat the last question again?

Action Manufacturing. I mean it was obviously a weak first half, but how are we thinking about the second half, please?

Yes. Look, so the second half for action on a third-party basis is actually looking really positive. So on a relative basis, so the pickup that you're hearing and sensing in the New Zealand economy more broadly is what we're seeing. So we have got a good forward order book now on our third-party product. And obviously, on an internal basis, it will start to get the additional activity from the consolidation of the manufacturing side. So we're positive about action second half year.

Ms. Moore, you have no further questions at this time? Okay. So this concludes our question-and-answer session. Would you like to make any closing remarks, Mr. Webster?

Again, my apologies for -- that would be the most interrupted conference call that I've had in 20-odd years. So my apologies to all that is still on the line for that. But thank you very much for your time. Look forward to catching up with a number of you on a one-on-one basis over the next few days. We remain, as you said at the start, very positive about where THL is sitting in our outlook into the coming 12, 18 months. Thank you, Amy. We'll close the call.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.