Chairman's report

 

Name of Listed Issuer: New Zealand Experience Limited (NZE)
Preliminary Result Announcement for the Full year to 30 June 2007
FLLYR: FY TO 30/06/07 $1,310,000 PROFIT ($828,000). DIV 3CPS

This report has been prepared in a manner which complies with generally accepted accounting practice and gives a true and fair view of the matters to which the report relates and is based on audited financial statements.

CONSOLIDATED OPERATING STATEMENT

TOTAL OPERATING REVENUE ($NZ 000):
Current Full Year: $9,464. Up 9.2%
Previous Corresponding Full Year: $8,666

OPERATING SURPLUS BEFORE TAXATION ($NZ 000):
Current Full Year: $1,935. Up 56.3%
Previous Corresponding Full Year: $1,238

LESS TAX ON OPERATING PROFIT ($NZ 000):
Current Full Year: $625
Previous Corresponding Full Year: $410

OPERATING SURPLUS AFTER TAX AND ATTRIBUTED TO MEMBERS OF THE LISTED ISSUER ($NZ'000)
Current Full Year: $1,310. Up 58.2%
Previous Corresponding Full Year: $828

DIVIDEND:
Amount: 3 cents per share
Record Date: 14 September 2007
Payment Date: 28 September 2007
Full imputation credits attached and supplementary dividend payable as applicable.

EARNINGS PER SHARE:
The earnings per share based on the number of shares on issue for the year ended 30 June 2007 (37,000,000) is 3.54cps (2006: 2.24cps).

COMMENTARY ON RESULTS

The directors are very pleased to report a net surplus of $1,310,000 for the year ended 30 June 2007. This is a record result for the group and is well ahead of past years and our own expectations set at the start of the year. We have traditionally lost the benefit of at least one school holiday trading period due to poor weather, and in past years the annual results and commentary have reflected this. We have been fortunate that throughout the 2007 financial year we have generally had fine weather during expected busy trading periods. Combining this with continued cost management across the operations, and an increase in spend per visitor, the increased revenues achieved have flowed through to a corresponding increase in pre tax results.

Park visitation for the year increased by almost 5% from 285,000 in the prior year to 298,000 visitors in the current year. A $1.00 increase in admission prices, which came into effect at the end of December 2006, has increased the average admission price for the second half of the year in comparison to the same period last year. Visitors also spent more on average this year in the interactive games arcade and on our merchandise offerings. In the 2006 year the average spend per visitor on food and beverage increased as a result of new offerings and facilities in this area, and these levels were maintained for the current financial year.

In the 2005 financial year the interactive games arcade and merchandise areas were significantly enhanced with the new entry pavilion, however these improvements did not translate into the expected increase in revenues. In the second half of the current financial year we again revised the layout and offerings of these areas with only minimal capital outlay. The results have tracked exceptionally well with increased revenues from the interactive games area and improved margin in the merchandise store as a result.

Cost control is an ongoing focus for the group - even more so in recent years as a result of continued external cost pressures which all businesses must address. We have in some cases had to pass these cost increases on to customers in the form of small increases in the admission price, however we are reluctant to do this on a continuing or regular basis, unless we have new offerings at the Park. Attention has therefore been applied to increased staff training, improved scheduling of staff requirements, and more detailed reviews of current cost structures and supply arrangements. This has worked well to date.

We remain very conscious of customer service and customer safety. We have maintained our high standards of customer service and have also been able to continue with all our ride maintenance programmes in accordance with established plans. In addition, we have continued with our programme of maintenance to the Park environment and surrounds. These three aspects are fundamental to our overall offering and attraction of visitors to the Park.

We also continue to look for additional revenue streams related to our core business. The conference facilities have not been well utilised which remains an area in need of attention. However, additional revenue streams from carparking facilities have continued to increase over the last year without additional operating costs and external funding from a government grant scheme was obtained and utilised to complete additional staff training programmes.

In last year's annual report we advised that the lease term with the Manukau City Council in relation to the land upon which the Park is located which at present runs until 2019 had been conditionally approved through to 2034. We have continued to pursue the finalisation of this extension with the Council, however we are still waiting for formal documentation. Indications are that the Council remains very supportive of the Park and the lease extension, and there has been no indication that it will not be finalised. We continue to discuss specific terms to ensure the extension is in the best interests of the group, and look forward to the conclusion of this matter in the near future.

In the last quarter of the financial year, senior management has spent considerable time with representatives from the Northern Distribution Union. A representative of the union approached senior management in April of this year advising of their intention to recruit new members. Previously, there has been very little union presence at the Park. We have applied our best endeavours to work with the Union and received very positive feedback in relation to our employment conditions and the relationship between staff and management. Much of the discussions have centred on the current political debate relating to youth pay rates and increasing the minimum wage rate. A resolution to this matter has now been achieved and an agreement has been ratified. Rainbow's End is very proud of its employment relations, having been a finalist in the 2005 Employer of Choice Award at the Westpac Manukau Business Excellence Awards. Many staff have worked at the Park for a number of years and we foster a positive working relationship between staff and management, for which the park is well known. We continue to be the 'employer of choice' with numerous applicants for our holiday recruitment programmes, and in some cases we have been in a position to eliminate scheduled recruitment drives due to our positive staff retention.

Our people are a key asset for the Park, and we pride ourselves on continuous improvement for all employees at the Park. As we do every year, the directors express their appreciation to all management and staff for their efforts throughout the year, and the contribution of each team member to the overall success of the Park as a destination for guests and as a business able to operate for the benefit of all stakeholders.

Financial Performance

Total revenues increased by $798,000 (9%) to $9,464,000, due to increased visitor numbers and average spend per visitor. The flow through of this revenue increase to the pre-tax earnings demonstrates the cost structure of the business which is relatively fixed, and the benefits of additional visitation through the busy holiday periods. Despite operating on a turnover based property rental, of the revenue increase, just over 87% has flowed through to the increase in the surplus before income tax (up $697,000).

Efficient staff scheduling and management partially offset the impact of wage rate increases and the increase in annual leave entitlements for all employees from three to four weeks per year, the cost of which has started to impact on overall payroll costs. In the prior year we experienced a 57% increase in electricity costs which are significant for a number of our major attractions; however an alternative pricing strategy recommended by management was adopted this year which successfully reduced current year electricity costs by almost 30%.

During the year our internal employee training program was recognised as a certified training scheme which qualifies for government grant assistance. This year we received $54,000 in funding to offset internal and external costs incurred in undertaking our staff training programmes. This grant has been recognised as a reduction in total operating costs to reflect the reimbursement nature of the grant.

EBITDA increased by 22% over last year, while earnings before interest and tax have increased by 39% over the 2006 financial year results.

Continued debt reduction has resulted in a lower interest expense for the group despite a year of increasing interest rates.

The group pays full corporate tax at 33%, although the current year expense has reduced by $14,000 due to the change in deferred income tax liabilities expected to be realised under the reduction in the corporate tax rate from 33% to 30% from the 2009 income tax year onwards.

Financial Position and Cash flows

Net operating cashflows of $2.2m were up 4.5% on the prior year. Operating cashflows were again primarily applied to the reduction of group debt, payment of a dividend to shareholders in September 2006, and toward ongoing capital expenditure requirements.

No major capital projects were undertaken during the 2007 year. Capital expenditure was primarily on a range of items to maintain and improve the general appearance and efficiency of the park. Included within the expenditure was an upgrade to the point of sale system at the Park which was undertaken to increase internal controls in this area and enhance management reporting processes.

A reduction in the term loan facility and partial repayment of the revolving credit facility has resulted in an overall reduction of $1.2m in bank debt. The bank facilities in place comprise a term loan of $1.5m and a revolving credit facility of $3.5m. While total available debt facilities remain unchanged at $5m, a $1m changeover between term debt (previously $2.5m) and the revolving credit facility (previously a $2.5m limit) during the year was completed due to lower continuing debt levels.

With reductions in the debt, and the significant increase in net surplus, the equity ratio (equity to total assets) has increased from 53% to 66% during the current year. The directors consider this to be comfortably within the appropriate range for the company at this time having considered expected capital expenditure requirements over the next two years.

Dividend

Subsequent to balance date, the directors have declared a fully imputed dividend of 3.0 cents per share which will be paid on 28 September 2007 to shareholders on the share register as at 5pm on Friday 14 September 2007.

The stated dividend policy of the group is to pay dividends in the range of 80% to 90% of the annual surplus. In determining the 2007 dividend, the directors have considered the expected profitability for the new financial year and what may be considered as expected earnings, which would indicate to a dividend of approximately 2.25 cents per share, an increase of 12.5% on previous dividend levels. In light of the exceptionally good year and the results achieved, the directors consider it is appropriate to also return the additional earnings to shareholders, equating to a special dividend of 0.75 cents per share, which will be paid at the same time as the normal dividend to make up a total dividend of 3.0 cps.

It is pleasing to be able to declare such a dividend to shareholders, many of whom have been long-term investors through many years when the group was not in a position to declare any dividends. Future dividends are expected to be in accordance with the stated dividend policy of the group.

The combined dividend declared of 3.0 cents per share represents a yield of 9.4% based on the closing share price of 32 cents at 30 June 2007. As the dividend is fully imputed, this yield is the equivalent of a 14.0% taxable dividend.

Outlook

The outlook for the 2008 financial year is for a lower net surplus than reported for the 2007 financial year, due primarily to the 2007 year having been quite exceptional in comparison to past trading periods. Further cost pressures are expected to flow through to the business in the form of both supplies and payroll based expenses. We also anticipate that there may be increased pressures on consumers which could reduce the levels of disposable income available for leisure activities such as Rainbow's End.

The target for the year ahead is for a net surplus in the vicinity of $1,000,000, however as is always the case, this is dependent on a number of aspects, including the weather during our peak trading periods. The July 2007 school holidays were unfortunately not favourable in terms of weather, but this is typical of the challenge the business has faced in past years.

Operating plans include a continuation of debt reduction as well as capital expenditure on an upgrade to one of our existing popular attractions. Planning will commence for our next major new attraction ahead of the 2009 financial year. We also expect to conclude lease extension arrangements and documentation with the Manukau City Council as a matter of priority.

In accordance with the group dividend policy, the board expects to maintain current dividend levels (exclusive of the 0.75 cents per share special dividend) but will provide further guidance regarding the forecast net surplus and dividend payout following the interim result announcement in February 2008.

The board continues to seek and evaluate opportunities to expand the company with the addition of good businesses which are complementary to Rainbow's End and the entertainment industry. The current focus relates to opportunities utilising the existing asset base to create additional revenue streams, however the group needs to consider other opportunities to enhance earnings prospects and shareholder value. Such opportunities have not proven to be readily available and must at least have an expected contribution to value and dividend growth which is commensurate with the associated business risks in order to be considered as viable prospects.

For further information please contact Dave Lock on 021-662593 or 09-302-5247.

Approved for release: 16 August 2007

Released by Andrew Frankham
Group Finance Manager
New Zealand Experience Limited