Tourism Holdings Limited (THL) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Tourism Holdings Ltd. 2026 Annual Results. [Operator Instructions] I would now like to hand the conference over to Mr. Grant Webster, Chief Executive. Please go ahead, sir.

Thank you, Chuck. Welcome, everybody. It's a pleasure to have you join us. With me here in the office is Ollie Farnsworth and Amir Ansari. We're looking forward to sharing with you the FY '26 annual results. As always, we'll move through the material at a reasonable pace given that you've had a chance to absorb it. We appreciate that there could well be a number of questions people will have, so we aim to get to those. Right. Steven, we don't need to talk about the disclaimer. Let's get to the executive summary. We are very content with the underlying net profit after tax from continuing operations of $46.1 million. Not where we had wanted to be for the year. But given what happened with the Middle East situation, we are very pleased with the result. We're equally pleased with the progress made during the year on the strategic initiatives that we announced in August 2025. Particularly, we're thrilled for the year with the growth in rentals revenue, which as we always say, is the engine of this business. Fleet was up for the year to nearly 8,600 vehicles. That's a little on the high side, but it's expected to right itself throughout FY '27. We're also very pleased to have the balance sheet in a position where we can announce the full year dividend of $0.105 per share made up of the final dividend of $0.075 and the earlier $0.03. That $0.075 will be 100% fully imputed in New Zealand, 0% franked in Australia. We are part of the tourism industry that had strong momentum in the first half of FY '26. Our initiatives and progress were definitely disrupted by the conflict, which created a gap in our forward booking intake. Talk more about that in our outlook slides. That gap is unlikely to be fully recoverable as the vast majority of it impacts Q1 FY '27. It does impact the significant earnings that we had expected for FY '27. However, as you see, we still stand by our $100 million underlying goal that we had for this business. The core drivers for that goal remain intact and the indicators that were before around rental growth, manufacturing and procurement benefits alongside our other cost reductions are all in play, along with an expectation of improvement. You will see, and it should be no surprise to me that the results today are on a continuing operations basis only. So following the divestment of the U.K. and Ireland business and in accordance with IFRS 5, we've restated the accounts in this presentation for FY '25 and FY '26 on a continuing basis. The balance sheet metrics, however, are reported on a total group basis and have not been restated unless we otherwise indicated in the reconciliation slide that we have at the back of the pack. The results summary, I think, covered, so we'll just skip that slide and move to the next slide with an update on takeover approaches. Everyone have no doubt will be keen for an update here, and I've got no doubt that there are a number of questions you may have, which we may well not be able to answer, and I'm sure you understand that. Look, the core update is the same as what we've been saying before. We do have 2 bidders, the BGH consortium at $3.10 per share and another party, which the Board considers to be a credible strategic offer bidder at $3.30 to $3.40 per share. With 2 bidders, you can imagine that we are very busy, still focused on driving the business forward, dealing with year-end. The 2 due diligence processes. It's certainly been a busy time. We are very pleased that the current proposals are a substantial increase on the offer last year of $2.30 per share. We right now are deep in due diligence. We have commenced many management sessions across the group and site visits have started as well, with further site visits planned over the coming period. So clear and obvious reminder that both proposals obviously remain nonbinding. They are subject to a range of conditions, including completion of due diligence, financing approvals and other internal approvals that the bidders may have. We expect the process to continue for approximately a further 4 to 6 weeks being around that. The question has been raised, is due diligence taking a long period of time? We don't believe that it is. We've got 2 bidders in play, and we've got a lot going on in the business. So we are very happy that it's intense and progressing at a positive and good pace. Internally, I think the team at THL are doing a fantastic job. Those that are working on due diligence are working extremely hard. And to Ollie and Amir in particular, thank you for the work that you've been doing. The finance team has been doing a fantastic job and a lot of other people across the business. More importantly, the business itself continues to progress and focus on the outcomes that we're looking for in FY '27. Moving on to Return on Funds Employed. Whilst we are still not where we need to be, but we're starting to head back in the right direction, up to 8.7% on a continuing business basis. The funds, as I said, are slightly higher than they should be relative to the market situation that we have had. Let's move on to the strategic initiatives. As you know, in August last year, we announced our growth road map and a number of strategic initiatives. So I think we've made really good progress in the last 12 months. We sold the U.K. and Ireland business for around $57 million, including around $8 million of goodwill. We exited 2 loss-making dealerships in Australia. We consolidated manufacturing back from Australia to New Zealand, and we achieved a number of cost initiatives in the North American business. Top of that, we delivered around $5 million in underlying cost savings across labor, corporate, and digital costs. The full benefit of some of these initiatives will flow through into next year and subsequent years, particularly those that realize benefits in procurement on a fleet basis. The realization of those procurement benefits obviously flows through in lower depreciation and through the real depreciation rate. Just a point on the factory in Brisbane. We do have a sublease that we're in negotiations with at the moment or a sublessor/lessee, and we expect that to be executed in the next couple of months. The annualized cost around NZD 2.5 million. From a Waitomo perspective, we are still working with the stakeholders in the local hapu in regards to what the future may be beyond the expiry of the lease at the Waitomo Glowworm Caves. Those discussions remain positive and going well. Moving on to RV Rental and sales. Look, the rentals business is in a good state. Yes, our average rental fleet went up around 8,000 vehicles. RevPARV was an interesting one this year depending on if you look at it at a constant currency basis. But in essence, pretty much flat to just on an improvement. And to be honest, that rental revenue is something that we're really pleased with. We increased fleet into a softer sales environment that we weren't anticipating. We could certainly argue that we increased fleet a little bit too much, particularly in New Zealand, but then those disruptions that occurred globally significant. Vehicle sales clearly have been down on the last year, reflecting the fact that the market is down. Margins are holding up, so it's not been an issue of price. What we've seen overall is a real opportunity for us to continue to drive the engine of this business, the Rentals business. I'll hand over to Ollie to talk about the balance sheet, the operating cash flows and the dividend.

Thank you, Grant. Net debt of $436 million is heading in the right direction and the equity ratio is sitting. Net CapEx was higher than we originally anticipated, and that's largely attributable to vehicle sales shortfall following the breakout of the conflict. Non-fleet CapEx has reduced significantly. That reflects the fact that previous year had new branch investment in several areas, most notably Waitomo Caves, our headquarters in Auckland. In a good funding position, and we're pleased with the balance sheet progress. Moving on to operating cash flow. So we've had another year of positive operating cash flow at $67 million. Improved profitability is a key contributor to that together with inventory reduction. The inventory reduction is primarily driven by the strategic initiatives in Australia Retail and Australia Manufacturing. From a dividend perspective, Grant covered the dividend situation well in the executive summary. So a full year dividend of $0.105 per share made up of the final dividend of $0.075 per share, that's 100% in New Zealand and 10% franked. And that is keeping with a 50% payout ratio that we've had in recent times, and we've maintained an approach of no dividend reinvestment plan. I'll pass back to Grant to talk through the outlook.

Thanks, Ollie. Look, we've talked about Rentals being the heart of the business. We are a tourism business. RV Rentals are at the core part of our revenue generation. So to see the total services revenue increased by 11% to nearly $500 million was again a pleasing result in the market environment. And it is indicative of the work that our sales and marketing team has been doing alongside a more buoyant tourism backdrop in all jurisdictions apart from the U.S. So let's just talk about the Southern Hemisphere. So prior to the Middle East conflict, the Southern Hemisphere bookings really positively. As of February, New Zealand was up 25% and Australia was up over 20%. And clearly, we had the Middle East conflict in there. So by August, those bookings dropped being 15% ahead for New Zealand and 5% for Australia. However, this is a really interesting point. The last 4 weeks have shown that New Zealand has actually been up around 4% and Australia 15%. So we have seen a recovery in bookings in the last month. Is that enough momentum to recover where we were at? Not for quarter 1, potentially for the high season. It is too soon to say. Certainly continuing to see volatility. Northern Hemisphere. So the booking intake were obviously less impacted by the conflict because obviously, there's less flight disruption. Canada is well on to deliver a record rental revenue result in the 2026 summer season. And at February, it was up 30% or around 30% with the actual rental revenue achieved during the June, July period around 25%. The U.S. story has been well known about for some time. Pleasingly, obviously, for the summer, it's recovered from being down 35% to only 15%. And really importantly, we've seen in recent weeks, although 45% improvements over the prior year's bookings. We do wonder and believe that the FIFA World Cup in the U.S.A. may have been a sentiment change. Certainly, the increases in bookings that were very well aligned to that timing. Moving on to RV sales. It's clear we've still got pressure on the sales side of the market. We can see it around the world. RV Industry Association wholesale shipment data in the U.S., it is a reduction of 11% since the start of the year. And it's interesting that both Thor Industries and Camping World have recently reduced their expectations for total shipments for the 2026 calendar year. Overall, we do expect a recovery at some point. Long-term fundamentals of the RV industry remains strong. People want to travel in RVs and they want this kind of holiday. More importantly, we still think that THL's focus on RV rentals provides even more [indiscernible] pushed away people purchasing expensive large RVs. And we're still in the right place. People still want to travel in RVs. We've seen the number of trips occurring in people's RVs increasing. We've seen the average age of people buying RVs decreasing. People still want to take these leisure holidays, and we are sitting there ready for them from a rental perspective. Let's move on to the outlook. As we discussed earlier, when we entered the second half of the year, we had strong momentum across the rentals business. Booking intakes were well ahead of the prior year in all markets. And apart from the U.S., we were expecting meaningful earnings growth into FY '27. The disruption from the Middle East conflict created a gap, but it's a gap that we possibly could recover over the high season, but it is unlikely to in quarter 1. We are still expecting some level of growth in FY '27, but we know with the level of volatility in the business today and in the industry today, it is too difficult to provide guidance at this point in time. So in summary, we were on the right track. We did the right things. We initiated our strategic initiatives and executed well. We are well set for the future. We've got a positive balance sheet, and we've got the business in the right place to keep moving forward. I will end there and hand over back to Chuck to manage us through the Q&A.

[Operator Instructions] The first question will come from Andy Bowley with Forsyth Barr.

A few questions from me. The first of which is around fleet development. Fleet, I guess, in the past year has held pretty steady, thanks to the U.K. divestment and the increases in fleet, particularly in New Zealand and Australia. How are you expecting the fleet to evolve over the next 12, 18, 24 months in terms of what you see today, particularly around the vehicle sales market challenges that you've got?

Yes. Thanks, Andy, and thanks for joining the call, and thanks in your note for acknowledging you part of our result this year with your CanaDream holiday. It was great to see, thank you. From a fleet perspective, we have increased that post-COVID lull. And so over the next 12 to 24 months, we'd see the growth rate in fleet very much diminishing relative to the last 3 years. So still some growth, but we have room to move from a utilization perspective in most of our markets.

If we look at geographically, Grant, where are you expecting growth to be most directed?

Well, so we are heading towards...

Just to clarify that just fleet growth.

Okay. So fleet growth is still going to be centered Southern Hemisphere at the moment because we're still going to prove out the North American model and make sure that that's working well. So it will be Southern Hemisphere related. There will be a little bit as we get any confidence in the U.S. building and building. We could see more fleet growth there. Canada does need a little bit more fleet growth, but Southern Hemisphere focused.

Great. Okay. So if we then translate that into balance sheet with fleet growth, what are we expecting over the next couple of years from a broader net debt perspective? Is this the low point and we start to see some reinvestment back into the broader business from a balance sheet point of view?

I think we possibly looked at it more generally. I-