Tourism : 26Feb2019 - THL FY19 Interim Results

OUR JOURNEY CONTINUES.

2019 Interim Report

A thl Interim Report 2019

Contents

• 01 Highlights

• 02 Chairman and CEO report

• 08 Consolidated income statement

• 09 Consolidated statement of comprehensive income

• 10 Consolidated statement of changes in equity

• 12 Consolidated statement of financial position

• 13 Consolidated statement of cash flows

• 14 Notes to the consolidated financial statements

• 31 Corporate information

WHERE WE ARE

As at 31 December 2018

EARNINGS BEFORE INTEREST AND TAX (EBIT)

• $33.3M $34.7M +4%

  REVENUE

  (RENTALS AND SERVICES)

• $136.0M $144.3M +6%

  REVENUE (VEHICLE SALES)

• $73.1M $62.9M -14%

  INTERIM DIVIDEND1

• 13CPS 13CPS

TOTAL NET PROFIT

AFTER TAX (NPAT) EXCLUDING NON-RECURRING ITEMS

$17.5M -17%

DIGITAL INVESTMENT LOSSES3

Note: 1 50% imputed. 2 Excludes $1.8M non-recurring benefit of re-measurement of deferred tax balances. 3 In H1 FY18 this includes losses incurred in Mighway and Roadtrippers. In H1 FY19 this includes losses incurred in thl's 50% equity investment in TH2.

CHAIRMAN AND CEO REPORT

Dear Shareholders

We are pleased to present thl's interim report for the first half of the 2019 financial year.

We have endeavoured in recent years to set clear targets for the business, and to report to shareholders and other stakeholders against those targets. Sometimes those reports will reflect success. At other times, and in parts of the business, we will miss. We hold ourselves to account accordingly.

This business is not only growing, but is changing in its scope and structure. We are taking the build/buy - rent - sell model in our RV business to wider geographies. At the same time, we are extending the scope of what we offer the global market.

Both of these directions rely on the strong equity base and the operating disciplines and technologies which have been built in the business. We will continue to manage capital efficiently while investing in sustainable growth.

The thl profit results at the moment are complicated by a number of items that are one-off in nature (a term we use sparingly) and our changing business model. We look to explain those items clearly in this report, as well as providing answers to what we see as the critical questions you may have about thl and our ongoing performance.

The business is creating long term value through the changes that we are making.

The core business is performing well in its relatively mature markets of Australia and New Zealand. The North American market has been challenging, but the opportunity there is enormous. The key immediate focus in this market is for us to optimise the potential of the El Monte RV purchase, while maintaining the strong earnings of Road Bear, and seeking further opportunities to expand. After some tough trading conditions, and the inevitable restructuring costs in getting the El Monte RV model where it needs to be, we see a positive outlook for the remainder of the 2019 calendar year.

There are positive early signs in our significant TH2 investment with Thor Industries. TH2 has the potential to be a strong digital infrastructure provider, not only to thl and Thor, but to the wider industry. We also expect it to be a significant earnings contributor for thl in the future.

We continue to see a wide range of acquisition and other joint venture opportunities around the world. We are actively engaging with a number of these. Our strong capital and operating disciplines mean that we will find that most do not meet our criteria. We incur costs for this active, but rigorous, approach, but consider these an essential part of optimising the opportunities that thl has.

02 thl Interim Report 2019

From an outlook perspective, we are wary of slowing growth in global tourism, and will manage our balance sheet accordingly. Despite this, we have initiated a number of projects (with careful capital allocation) that will enhance our profitability in the longer run. We are positive that the thl model, as it is evolving, has a strong future.

Keeping the focus simple, we see the key points from the result as follows:

• • The core business Earnings Before Interest and Tax (EBIT) result was strong, with growth in both the New Zealand and Australian rentals businesses (remembering that H1 FY18 had the Lions rugby tour included in the result). This was another record result for the core business from an EBIT perspective.

• • The El Monte RV business is still adjusting to its new operating model and has been impacted by negative industry trends.

• • Vehicle sales in the USA, in particular, have been weak across the industry but we do not see that as an ongoing issue.

• • Our group support costs rose, due to costs associated with exploring M&A activity.

• • TH2 is on track with our plans.

STRATEGIC DIRECTION

We summarise thl and our opportunities as follows:

A Large, Addressable RV Market

The RV market is worth tens of billions of dollars on a global basis. We are a very small part of the global industry. There are many opportunities to leverage our skills and operating model to take a larger slice of the global market.

Future technology developments, like autonomous, data connected and electric vehicles, have the power to make a huge difference to the size of our market, and our style of travel is only going to grow - domestically and internationally.

A Digital Approach

TH2 is our own form of digital enhancement and low capital market development. We have confidence that TH2 will succeed for the following simple reasons:

• • We have a strong distribution channel strategy. The JV partners (Thor and thl) have the ability to access the market directly through strong leadership positions within our respective industry and geographic segments.

• • Roadtrippers and CamperMate already have a strong user base (over 3.5M users).

• • We have a series of compelling product propositions ready and in development.

A Disciplined Core Business

Returns continue to improve in the core business and we see ongoing opportunities for improvements in our operating model.

We are currently still experiencing reasonable growth in forward bookings in all markets. We will continue to manage our fleet capacity and capital expenditure in line with any market softening from time to time.

We have ancillary revenue opportunities in all operating jurisdictions. The best example is retail servicing. There are many sites across the world where we have the infrastructure and capability to conduct a lot more retail service work than we have historically. We now have much better system capability and marketing power to be able to maximise these opportunities.

In summary, the core business still has internal growth with additional adjacent opportunities.

ACQUISITIONS AND GROUP ACTIVITY

We have been clear about our intention to grow globally. We have an ongoing pipeline of opportunities that we are exploring and, when we last reported, we were confident that we would see some transactions of significance before now. These have not occurred. This is simply because we apply the same capital disciplines in this aspect as we do in our operating business. We will buy or sell if the price is right and only then. We do not mind missing chances to reduce value.

It is the right thing to be open about our plans to grow value by acquisition, as well as organic growth. At the right value we will transact. We will have some increased overhead costs as a result of this approach, though we do not anticipate that these will repeat at the level of the past year.

GOALS thl public announcements over the past five years have included a high level of goal setting. We have been reviewing these stated goals and acknowledge some "drift" in these goals as a result of the wide range of opportunities we have.

From a 'business as usual' (excluding TH2 losses) perspective, we now expect to achieve the $50M NPAT target in FY2021. We consider this more certain than the acquisition and TH2 opportunities.

When we consider the TH2 opportunity, the potential acquisitions and ancillary business growth aspirations, we are targeting a business which, in three years, doubles in value. The timing and predictability of this goal is much less certain.

It makes sense to be considering our goals on this certain/ less certain spectrum. Look for us to continue to discuss this approach.

FY19 OUTLOOK

We have adjusted our FY19 guidance to reflect the changes in the USA market, experienced recently, and the additional costs we have incurred at a group level.

We now expect our net profit after tax for the FY19 year to be around $32M (excluding potential Australian tax issue) from previous guidance of $32-34M.

We have previously indicated that we see the FY19 dividends aligning with FY18, as we have isolated the investment in TH2. That view remains and, thus, at this point in time, we expect the FY19 final dividend to be 14cps, equating to a total dividend of 27cps for the year.