Is Tourism Holdings getting out of tourism?
Ten years ago, Tourism Holdings Ltd was a post-GFC stock market basket case, with a hotchpot of tourism assets from penguins to ski fields, from bus tours to boat trips. These days THL is the world’s largest motorhome rental company, successful, growing, and with ambitions to be a major player in the digital space. Yes, you heard right. THL is aiming to make big money online. From campervans. Nikki Mandow talked to CEO Grant Webster.
Last week Tourism Holdings announced it is getting out of practically all its non-RV assets (RV means recreational vehicle - American lingo for motorhomes and caravans.) It’s selling profitable businesses like Waitomo blackwater rafting so it can invest in: a) more RVs, and b) unproven and as-yet unprofitable app and web technology for RVs.
Technology like customised trip planning, apps to help RV owners manage their vehicle servicing, even internet of things for motorhomes.
Tourism Holdings started life as a scenic helicopter business and once owned Kelly Tarltons, Fullers Bay of Islands, part of the Treble Cone ski field, and a tourism transport company in Fiji. Now it has put its Kiwi Experience bus tour operations and most of its Waitomo assets up for sale. Only its glowworm caves are spared, because a lease ending in 2027 makes selling them problematic.
CEO Grant Webster says this is the opposite of a fire sale; rather it's a profitable, growing company selling assets that are no longer core because there are willing buyers around, and plenty of other things to spend money on.
Webster expects to make announcements over the next couple of months.
A company deciding to stick to its knitting - in this case campervans - is hardly groundbreaking news. THL manufactures, sells and rents RVs. In fact, rather unexpectedly, it’s the biggest RV rental company in the world, with business in New Zealand, Australia, the US, the UK, South Africa and Japan. It has ambitions to grow into other markets: Europe, Canada, China.
(Ahhh, China. The 1.4 billion or so inhabitants of the world’s most populous nation collectively own fewer motorhomes than the 4.8 million New Zealanders. What if...)
What is surprising, however, is deciding to invest shareholders’ money in the uncertain world of digital technology. Now there’s a riskier proposition - and one potentially more difficult for investors (who will get their chance to ask questions at the company's annual general meeting tomorrow to understand.
I meet Webster at the company’s HQ on Beach Road in Auckland. It’s not downtown chic, but it’s an upgrade from its previous home in K’ Road. I walk up the stairs and do that annoying digital sign-in thing where you have to tell them your grandmother’s middle name and that you could walk back down the stairs unaided if there was a fire.
There’s no reception desk, so you sit on a lime green beach chair with orange-striped cushions surrounded by digital pictures of sheep and kea, and hope someone comes. There's a bell to ping if no one does. Behind you there’s an open-plan office with breezeblock walls, plywood ceiling and colourful panels. Beach house meets urban youth group.
The boardroom, which is called the pool room, has weatherboards on the inside and a window looking out at the car haulage trucks and the new Lime scooters along Beach Road.
Webster is super-tall, writes a lot of stuff on the whiteboard, minds about getting his macrons right. He accepts that putting several million dollars into a digital strategy might make some investors nervous. But he tells me it’s not impossible - maybe even likely - that the company could one day make as much money from its low-capital-intensive digital businesses as it does from its capital-intensive motorhomes.
A campervan digital strategy
The hub of Tourism Holdings’ technology strategy is TH2Connect LLC, a US-based joint venture with the world’s largest RV manufacturer, Thor Industries. Webster says THL had done some business with a Thor subsidiary in the past, but approached the parent in early 2017 with a digital proposition. The US$94 million, 50:50 deal was announced in February.
In essence, TH2Connect is the parking lot for a variety of digital assets from THL and Thor. It has more than 60 developers on board and Tourism Holdings alone will pump $15 million into the business this year.
“The different components of TH2 provide a variety of products and services to owners and businesses across the industry,” the blurb says. To be honest, I find it hard to picture any digital products and services that a motorhome driver might even want, let alone pay for. But then I’ve never driven anything larger than a double-cab ute.
Webster has. He's driven a few RVs in his time. And he reminds me, we aren’t just talking about New Zealander in their campervans - more than 50 percent of THL’s revenue comes from overseas, and TH2 hopes to launch in Europe in the next 12 months.
One of THL’s longest-running digital products, now in the TH2 stable, is called Roadtrippers. It’s like the Lonely Planet for more adventurous drivers, and not just people in RVs. Webster says it's a digital route planner for what he calls “de-tourists”, people who don’t just want to motor from sight to sight; they want to take a de-tour.
“These are experience seekers. Ticking the box of Alcatraz and the Golden Gate Bridge is OK, but it’s not where you get the real adventures. Roadtrippers can tell you where to go and what to do and it can be customised. If you want wine tourism, or bushwalking, that’s what you ask it to do.”
The starter Roadtrippers pack is free, and last year it plotted around 3.5 million roadtrips. There’s been big growth in the last two years, Webster says, and TH2 has just started trialling a US$29/year “Roadtrippers plus” package for true self-driving geeks. More maps, more “waypoints” for your itinerary, offline mapping for when you are out of mobile range, even something called “nighttime view”, which I hesitate to ask about.
The key thing with THL’s apps, as with so many digital products, is users, Webster says. Once THL has enough people using Roadtrippers, it can start thinking about digital advertising, about selling (anonymised, he stresses) data, or clicking the ticket with commissions on campgrounds or activities.
“Then, if you meet a greater need, you end up being able to go to a subscription or membership model.”
There are other digital products in the TH2 stable too. Mighway (get it, Sinatra fans?) is a sort of Airbnb for campervans - where owners who aren’t using their vehicles the whole year can rent them out to visitors. Mighway is in New Zealand and the US at the moment, with plans to expand.
Then at the end of September, TH2 launched Togo, named after an Alaskan husky dog, who saved a whole load of explorers' lives. Togo is a digital version of the campervan owner’s scruffy folder full of manuals, old invoices, reminder post-it notes about checking the roof vent, and business cards from that-great-mechanic-we-found-somewhere-near-Hamilton. Togo will keep all your registration and maintenance details, remind you about servicing, point you in the direction of a helpful garage when you break down on somewhere in Ohio, and provide a pre-trip safety checklist.
If that sounds a bit pointy-headed, Webster says it’s going to get more sexy. Within the next year Togo will start incorporating some 'internet of things' capability. Imagine, for example, using your smartphone or onboard tablet as the control centre for your lights, wastewater levels or battery charge.
“It's like 'check my RV is ready to go' at a push of a button,” Webster says.
TH2 is also getting into telematics. The word comes from French and combines “telecommunications” and “informatics”, and it's about having a vehicle’s onboard computing systems connect remotely with the outside world. Anything from GPS route finding, driverless cars, fault diagnostics, or the technology which can allow your boss to remotely immobilise your car’s engine if you appear to be taking an unwarranted detour.
Webster says THL has been doing a lot of work on telematics, particularly around safety. Development isn’t going as fast as the company would like, but the Australian motorhome fleet and a chunk of its Kiwi vehicles are connected to a system which keeps track of factors including harsh braking or speeding.
“You get a message on the tablet in the vehicle basically saying “you’re speeding”, though it takes into account the frequency and by how much. If you are a constant offender to a large degree, the messaging gets more assertive, and you can end up with a fine from us, because you’ve breached the terms and conditions. We’ve had a more than 75 percent reduction in speeding,” Webster says.
Have you fined people?
“We’re not fining to a degree that it’s a notable item in the P&L [balance sheet profit and loss account],” he jokes.
The system also warns campervan drivers if, for example, they are approaching a low bridge (THL’s incidence of overhead roof damage is down 75 percent), or if they are moving into an area where there’s a bushfire or other serious natural hazard (there’s 100 percent adherence on that one).
But no, telling drivers if they are driving on the wrong side of the road is a few years away, Webster says.
Half way through my interview with Webster, people gather in the corridor outside and we move from the “pool room” to Webster’s office. It’s small, tidy, impersonal - apart from a family photo. Webster says he travels a lot, so when he’s away, his office doubles as a meeting room.
That seems unusual, but what do I know about the boss of a company which in the last financial year turned over $426 million, grew revenue 25 percent and made $37.5 million in net profit, up 24 percent from the year before?
Maybe lots of CEOs let people use their office as a meeting room.
I don’t ask Webster about this, but I do ask him why he reckons Tourism Holdings can make money from digital properties where other industries (media, for example) have largely failed.
THL isn’t expecting the digital side of the business to get into the black in the next two years, Webster says, and that’s been hard for some investors to understand.
“We’ve turned around and said we are intentionally investing $15 million in loss-making businesses. That we will go backwards this year.”
But while there are no guarantees, Webster believes the company is on the right track. “This is what businesses are challenged to do today. Don’t stand still. Don’t be disrupted. Embrace digital change and change your customer offering. But do it without losing focus on the core.”
Webster says the loss from digital investments will be “a small single digit percentage” relative to THL’s overall balance sheet.
“The absolute worst case scenario is we’ve created a product that’s excellent for our customers. The best is that THL is transformed again and has a balance of good returns in our classic capital-intensive business and outstanding returns in a low-capital, growth, digital business.”
Andy Bowley is head of research at investment firm Forsyth Barr. He says the digital strategy makes the future results at THL more difficult to predict.
“It’s good from an investor’s point of view to have a company that’s leading the way and trying new things, and there’s an element of first mover advantage, but there’s uncertainty as to whether the venture will be successful. It doesn’t put me off, but it makes me wary.”
Still, Bowley says putting $15 million in is hardly betting the house.
“I’m not worried about it being a massive black hole where they keep pumping cash, because both Grant and Rob [chairman Rob Campbell] are very return-on-capital focused. They aren’t going to be investing in a venture without a clear line of sight of return on capital.”
A turnaround story
Analyst and investor optimism has been hard-won over the last decade or so. Having listed on the NZ stock exchange in 1986, it’s been a bumpy ride for Tourism Holdings’ share price. Up to $3.20 in 1999, down below a dollar in 2003, back to $2.80 in 2007 and briefly below 50 cents during 2009 when the global financial crisis hit.
The share price remained under $1 until 2014, when it started climbing steadily, reaching a peak of $6.70 in June this year, before falling back.
What’s changed? Bowley says Cambell’s appointment as chairman of Tourism Holdings in mid-2013 was a turning point for the company.
“Grant is a good CEO and has really benefitted from the oversight of Rob Campbell,” Bowley says. “What Grant and Rob have demonstrated over five years is their ability to adapt to market conditions, do merger and acquisitions to add value, consolidate markets, and invest in new initiatives that are leading the industry.”
Net profit after tax was $3.8 million in the year to June 2013. Five years later, the equivalent figure for 2018 is $37.5m, and THL has signalled more M&A activity on the way.
“We are currently in discussions with various parties around the world, with interesting opportunities for both core THL and the businesses in which we have equity interests,” Campbell said recently.
Bowley says the announcement Tourism Holdings is selling the last of its traditional tourism assets isn’t a surprise - it was inevitable.
Still, Webster says he’ll personally be a bit sad to see the assets go.
“I’ve been in this business for 13 years and in this role for 10 and there is an emotional element. They are inherently good businesses with good people. They are producing some of the highest returns on funds in the group.”
Shhh. Don’t tell the investors.
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