Tourism Holdings has announced a $6.5 million profit downgrade and advised its bankers it will breach its banking covenants in the weeks ahead; prompting a bankers' review.
Following the surprise downgrade, shares in THL were caned by shareholders and they plummeted almost 22% in value from 74c to 58c yesterday, on brisk turnover of about 625,000.
With THL's debt-to-equity ratio set to breach banking covenants, yesterday's share decline further exaggerated the debt-to-equity ratio, with THL's market capitalisation falling $16.5 million - from $72 million to $56.9 million.
THL chairman, Keith Smith, said yesterday, a "severe and sudden" drop in revenue of forward bookings for January meant instead of a previously forecast after-tax profit of $2.5 million, THL would book a $4 million loss for its second-half trading.
"Natural disasters, including the recent Queensland floods, a greater than anticipated decline from the United Kingdom market and poor January domestic tourism in both countries, are considered the causal factors in the decline," he said.
According to Statistics New Zealand visitor data released yesterday, there were a record 345,700 arrivals in December, but more tellingly for THL, the average number of estimated visitors per day fell by 4200 to 188,300.
Mr Smith, who said there would be no dividend for the half year and re-forecast that earnings before interest and tax (Ebit) - which were expected to be $10 million - would now be "break-even".
Craigs Investment Partners broker Peter McIntyre said THL "continues to disappoint investors", describing the $10 million Ebit shortfall as "wildly out" from previous forecasts.
"This follows a raft of disappointments which has left THL with a history of patchy market performance overall," Mr McIntyre said.
In 2008-09 its surplus after-tax was down 80% to $2.9 million, followed by an increase to $4.9 million in 2009-10, he said.
THL's shares have been as low as 22c in March 1988 to a high of $4.55 in January 1994, but yesterday's 58c was the lowest during the past year.
Forsyth Barr broker Tony Conroy said it was unfortunate that THL's earnings in the second half of 2011 are forecast to deteriorate further as demand for motorhomes, in both NZ and Australia, declines further, just as it begins to build up its Australian fleet.
He said THL's net debt was forecast to increase by more than $75 million to $111 million during 2011, including the Road Bear acquisition cost of $22 million and net capital expenditure related to new fleet for Road Bear, of an additional more than $18 million.
The capital spend applied to Road Bear was being done in the second half, while the profit recognition of this investment will not be recorded until full-year 2012; which has also combined to have a negative earnings impact on THL's full-year 2011 result, Mr Conroy said.
Mr Smith said because of the size of the profit downturn, THL was now forecasting that it will not be in compliance with banking covenants with both Westpac and the ANZ for the March 2011 quarter and discussions were being held with the banks, with the issue expected to be addressed by the end of the month.
"Westpac and ANZ have been THL's bankers for many years and once their review of updated forecasts is complete, THL will update the market," Mr Smith said.
Mr Conroy said "This [forecast banking breach] is very disappointing, but we're confident that THL can, as it has proven in the past, revisit its balance sheet structure through downsizing its fleet if required. Realistically this will occur in full-year 2012, if required."
Mr Smith said the decline in the key January booking month has "created significant uncertainty for the remainder of this financial year".
"The international media activity surrounding Cyclone Yasi only adds to the current uncertainties," he said.
Exacerbating the issue of lower hire days, yields for the February to June period were down on expectations as the industry reacted to the demand decline with severe price activity, Mr Smith said.
THL's US business interest, acquired in December 2010, was "performing well and to date is showing growth of 20% over the acquisition forecast", for the 2011 calendar year, Mr Smith said.
THL's fullhalf-year result will be released on February 24.
