Leisureland results below expectations

Press, 7 December 1988, Page 45

Leisureland results below expectations

The disappointing results of Leisureland Corporation for the financial year ended March 31 were below expectations, the chairman, Mr J. D. St Clair Brown, said in the company’s annual report.

He said this was for the following reasons:

• Penal interest costs, arising from excessively high rates charged, were further compounded by delays in expected settlements. The group interest cost exceeded $2.5M to March, 1988. The current year will reflect a much lower interest charge following debt repayment. • The general decline in retail sales affected all areas of operations.

© Tourist numbers did not reach expectation with the general decline in tourist arrivals for the winter ski season.

• The 1987 ski season did not make budget because of the lack of snow and late start to the season.

• As a consequence of the sale of Victoria Park Market, revenues for 10 months only were brought to account.

© Extraordinary provisions of more than SIM are brought to account reflecting the economic environment to March, 1988.

“The company now has a more conservative gearing and can look forward to improved trading results in future years by further reducing debt and overheads, and improving the profitability of Waiwera Thermal Pools, the Te Atatu Leisure Park, and Mt Hutt Ski Fields. Divestment of other investments, the collection of receivables, and joint venture opportunities are considered the prime objectives of the directors and management, to ensure we meet our debt obligations, produce profits, and pay dividends.

“Trading conditions in New Zealand for the second half of the 19871988 financial year, continuing into the 1988 calendar year, have resulted in continued reorganisation, rationalisation, and a constant review of the group’s activities, budgets and overheads.

The total group deficit for the year after tax, extraordinary items and unrealised increases in property values was $1 million. Revenue from operations increased to $12.1 million. The consolidated group asset backing of each share is 94c a share as at March 31. Consolidated shareholders’ funds have been maintained at $27.8 million. The proportion of shareholders’ equity to total assets in the parent company is 81.5 per cent, compared to 67.6 per cent the previous year. The ratio of current assets to current liabilities of the parent company changed dramatically with the sale of Victoria Park Market and the retirement of debt. Current liabilities reduced from $7.7 million to $2.6 million and current assets increased from $4.1 million to $6.8 million. The asset backing of the parent company at March 31 was 92.5 c.

The group sold the property and assets of Victoria Park Market, Limited, realising a capital gain of $5.7 million. The majority of this gain had been included in the surplus for the 1987 year and therefore is not included in the current year’s trading result. The sale price exceeded the revalued worth of the property. The realised capital gain has been transfered to reserves and is available to be paid out as a dividend when cash re-

sources allow. “With current conditions prevailing, and general economic uncertainty the directors are pursuing joint venture opportunities for existing investments and the introduction of further capital. Negotiations are continuing and announcements are expected before or at the time of the annual general meeting. The directors consider it unrealistic to raise additional capital in New Zealand, given that the quoted share price on the New Zealand Stock Exchange is about one-third of the net asset backing per share. “A 3 Year Development Plan for Mount Hutt Ski and Alpine Tourist Company, has been completed and the directors are confident a satisfactory profit contribution to the group will result over the next three years. The company has traded well during the 1988 season, in spite of the late arrival of snow, making it the shortest season on record. The Mount Hutt Company, however, recorded a satisfactory profit for the six months ended September 30.

“Other mainstream company activities, Waiwera Thermal pools and the Te Atatu Leisure Park, are being constantly monitored to improve cash flow and profitability.

“The El Polio Loco chicken franchise began operations during 1988 and the acceptability of the product has been thoroughly researched at a test restaurant at Victoria Park Market. This hais now been replaced by the first ‘stand alone’ restaurant opened at New Lynn, Auckland. The start up costs, research, marketing, and lead time for the establishment of a restaurant chain of this

type throughout New Zealand determines that positive cash flow and profitability can not be expected for two to three years. Consumer research has proven customer satisfaction and the product and concept should trade well in New Zealand. The expansion of the chain will be determined by trading conditions and available capital.

Referring to the dividend, Mr St Clair Brown said: “Distributable Reserves have increased during the year by $2,874,000 (245 per cent). The directors have considered the desirability of paying a dividend and are in favour of so doing. They also take the view that the maintenance of a conservative equity to debt ratio is essential in these difficult economic times.

“The directors have planned to increase reserves over the next twelve months by improving profit contribution from operating businesses and by realisation of nonessential assets. The difficulty confronting the directors is in predicting the timing of planned realisations. “It would be prudent to pay a cash dividend only when such realisations have been achieved. The directors do not consider a bonus share issue in lieu of a cash dividend is an acceptable alternative in this environment. The directors require a resolution from the members approving the level of dividend payment recommended at 10 per cent or 5c a share, while allowing the directors discretion regarding the timing of the payment. The directors would keep shareholders fully informed in this regard, he said.