southern travel holdings limited annual report 2009

Southern Travel Holdings Limited Annual Report 2009

Southern Travel Holdings Limited Annual Report

Contents

Chairman’s Report 1

CEO Review 2

Financial Statements 4

Income Statement 4

Statement of Changes in Equity 5

Balance Sheet 6

Statement of Cash Flows 7

Notes to the Financial Statements 8

Auditors’ Report 32

New Zealand Exchange and Statutory Information 33

Company Directory 37

1

Chairman’s ReportFor the year ended 30 June 2009

Dear Shareholders,

It is my pleasure to present this, the Annual Report for Southern Travel Holdings for the year ending June 2009.

The Group, like so many others in the tourism industry, has experienced an extremely difficult and challenging financial year.

While we had predicted and prepared for a continuing decline in inbound business from Japan to New Zealand and Australia, theaccelerating monthly drop in arrivals, exacerbated by the swine flu epidemic, produced a fall in all arrivals from Japan to NewZealand of 67% in the month of June, 42% in the month of May, compared with the same months in the previous year, and very significantly greater than the industry had ever contemplated. This resulted in a June on June annual decline of all Japan arrivals toNew Zealand of 23%. Equivalent comparisons for Japan arrivals to Australia were May -24%, June -45% and June year on year -23%.

The dire effect of the swine flu on Japan inbound tourism must not be underestimated. Southern Travel alone has suffered over1,700 cancellations to date, 850 in May and June, the last two months of our financial year.

Thankfully, the Walshe Group operations continued to achieve record revenues, exceeding budgeted profit for the third year in succession. While outbound tourism generally experienced a decline, the spread and quality of our representation base and ourstrength in both New Zealand and Australia meant we gained or maintained market share for many of our principals.

Despite this most valuable contribution, the overall Group result was disappointing. The Group’s audited financial statements forthe year ended 30 June 2009 show a normalised EBITDA of $496,000 which, after depreciation and restructuring costs in Japan, isreduced to a loss of $292,000 before impairment charges.

Cognisant of the need to judiciously treat the matter of impairment to conform with IFRS latest requirements, the Directors determined to write off the full goodwill value relating to Experience New Zealand of $238,000 bringing the final result to an aftertax loss of $491,000. As previously indicated, it is confirmed that a dividend will not be paid.

Southern Travel remains committed to its inbound tourism operation and believes that while there will be little growth to NewZealand and Australia, other than trans-Tasman, in the coming year, there is still a sound future in the inbound tourism sector, andboth the Australian and New Zealand governments recognise the importance of the industry to foreign exchange earnings and employment. However, to thrive in the future we must survive the present and this we intend to achieve through sound management, careful planning and strategic marketing.

Further serious consolidation is being implemented in Japan and we will aggressively continue to reduce costs and right size theoperation there. We intend remaining in this market as the Group still maintains a viable market share.

It is our intention to develop our niche marketing strategy through Experience New Zealand, Drive New Zealand and direct sellingthrough our special websites as well as improving our offerings to the Australian market.

The Walshe Group will maintain its watchful management of its growing and impressive representation portfolio and will continueto be the backbone of the Group’s profitability for the immediate future, providing a sound base to support our recovery within theinbound sector.

The directors are considering various avenues to increase the capital of the company to strengthen the finances of the group andto pursue strategic investments intended to deliver growth to the company.

The Group continues to have no interest bearing debt and plans to continue this policy.

Annual MeetingThe annual shareholders meeting of Southern Travel Holdings Ltd will be held on Thursday 12th November 2009 commencing at 2.00pm at Mercure Hotel, 8 Customs Street, Auckland. The directors will present an update to shareholders together with astrategic overview from the CEO Jacqui Walshe.

Rodney HC Walshe ONZMChairmanSouthern Travel Holdings Ltd

Southern Travel Holdings Limited Annual Report2

The 2008/9 financial year has proven challenging – particularly for the inbound business. The global financial crisis and the adventof swine flu in the latter stages of the financial year impacted both the volume of passengers being handled and the related revenue. Fortunately the outbound business ended the year well ahead of budget, largely due to the client mix handled by theWalshe Group and their market offerings retaining their competitiveness and demand through an otherwise challenging period.

The main objectives for the 2008/9 year were to resize the Japan business, maintain profitability of The Walshe Group, realise areturn on investment from development work and new markets and to integrate new acquisition – Experience NZ.

Resizing of Japan business

There was a 40% reduction in staff numbers dedicated to the Japan inbound division during the 2008/9 year. Other cost reductionactivity included shifting to smaller premises in Tokyo and renegotiating external contracts. While these reductions went some way to improving underlying costs, the benefits were partially negated by the significant appreciation of the Japanese Yen duringthe year which meant that Japan based expenditure, while less in terms of headcount, actually increased in New Zealand dollarterms. This situation has resolved itself over the course of the last few months as the Yen has gradually declined in value againstthe major currencies.

Meanwhile the market continues to be challenged. There has been an overall downturn in the number of visitors from Japan to Australia and New Zealand throughout the year and there have been fundamental shifts in the way consumers purchase their travel. Southern has been working to adjust its business model but was not able to predict or prepare for the extent of cancellations relating to swine flu. The company has been a specialist in the provision of group touring services for the Japaneseschool market and swine flu coincided with the peak months for this traffic and was sufficiently last minute to prevent correctiveaction. Initial market reactions were that the problem was short term and that bookings were to be postponed rather than cancelledbut as Japan remains badly impacted by the pandemic the hesitation remains and it appears unlikely that there will be an earlyrecovery. Restructuring costs of $263,629 were incurred in 2008/9 and further resizing will be required in the first half of financialyear 2009/10.

Maintain profitability of the Walshe Group

The Walshe Group has been able to benefit from a strong outbound market from Australia, New Zealand and Hong Kong in the pastfew years. The global financial crisis in 2008 did not immediately impact any of the Walshe Group’s major accounts, such as SouthAfrican Airways, Royal Brunei Airlines, Swiss International Airlines or American Airlines in Hong Kong. Each account had a competitive or market offering which cushioned the early impacts. Australia is a strong economy and has avoided a technicalrecession which has assisted in keeping revenues high in that market. The New Zealand operation has meanwhile benefited frombeing successful in winning new business, being appointed for Etihad Airways and reappointed for Delta/Northwest during 2009.While the market does continue to be challenging and revenues have declined in response to the highly competitive environmentand need for discounting, the Walshe Group have pursued a proactive approach to cost reduction and made adjustments to headcount as necessary. The Australian and New Zealand operation have been highly profitable and the Hong Kong office covering itscosts. Singapore has needed restructuring and review throughout the year, however signs are promising for new accounts goinginto the next financial year.

Development work on new markets

It has been clearly identified and borne out during the course of the year that Southern needs to expand its inbound offering to different markets. It was a challenging year to be expanding into new product offerings as the competitive climate intensified andexisting organisations competed aggressively for retention of market share. The organisation is taking a medium term view on itsinvestment in new markets and has been taking the time to invest in a sound website structure which will expand the consumeroffering in mature markets and the trade offering in emerging markets. In the past year Southern has launched new websiteswww.drivingnz.com and www.passingthrough.co.nz. New website www.drivingoz.com will be launched in the first quarter of2009/10. Business has been building in the self drive segment which is increasing in popularity as a means of travelling within New Zealand and Australia.

CEO ReviewFor the year ended 30 June 2009

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Integrate new acquisition – Experience New Zealand

Experience New Zealand had a difficult first year within the group. Its major markets of USA and UK were impacted by the global recession, the strength of the US dollar drove up the costs of investing in Google ad words and delays in implementing the website upgrade meant ground was lost to competitors. The staff costs were reduced slightly by centralising accounting and administration to head office and efficiencies were gained through the provision of consulting support to the new Driving New Zealand business.

The depreciation costs associated with the Experience investment and the decision to write off the goodwill value assigned on acquisition had a negative impact on Southern’s overall result in 2008/9. Fortunately this write off and lower depreciation costsbudgeted for the coming year, combined with the successful website upgrade and improving market conditions has resulted in afar more positive outlook for the business going into the 2009/10 year.

Investment

During the 2008/9 year the focus of the business was on integration of Experience New Zealand and developing of new productconcepts and ideas arising from the existing business. Technology has been an area of ongoing investment in the past year bothin terms of network structures and software. The website development is happening in-house using a small but dedicated team of developers and utilising newly acquired content management software. At the same time the finance systems have been upgraded to enable greater consistency across the various divisions and improved efficiency of handling in the accounting andfinance area.


Financial StatementsFor the year ended 30 June 2009

Group Parent Note Year ended Year ended Year ended Year ended

($000) 30 Jun 2009 30 Jun 2008 30 Jun 2009 30 Jun 2008

Revenues 2 24,705 29,943 – –Cost of Sales (14,444) (18,990) – –

Gross Profit 10,261 10,953 – –

Other Operating Income 2 926 345 174 1,366Administrative Expenses 3 (8,593) (7,738) (365) (416)Other Operating Expenses 3 (3,124) (2,710) (110) (36)

Profit/(loss) before tax (530) 850 (301) 914

Taxation 5 39 (234) 65 (242)

Net profit/(loss) (491) 616 (236) 672

Attributable to:Equity holders of the company (504) 605 (236) 672 Minority interest 13 11 – –

(491) 616 (236) 672

Earnings per Share:Basic Earnings per Share (cents) 6 (2.8) 3.4 (1.3) 3.8 Diluted Earnings per Share (cents) 6 (2.8) 3.4 (1.3) 3.8

Income StatementFor the year ended 30 June 2009

The accompanying notes form part of these financial statements.

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The accompanying notes form part of these financial statements.


($000) 30 Jun 2009 30 Jun 2008 30 Jun 2009 30 Jun 2008

Equity at beginning of the year 7,352 4,449 6,583 3,886

Total equity at beginning of the year 7,352 4,449 6,583 3,886

Net surplus attributable to:Parent interest (504) 605 (236) 672Minority interest 13 11 – –

Movement in foreign currency translation reserve 8 (119) 262 – –

Total recognised revenues and expenses for the year (610) 878 (236) 672

Contributions from owners:Shares Issued – 2,025 – 2,025

Distributions to owners:Dividends

Parent interest (178) – (178) –

Equity at end of year 8 6,564 7,352 6,169 6,583

Comprising:Parent interest 6,540 7,341 6,169 6,583 Minority interest 24 11 – –

6,564 7,352 6,169 6,583

Statement of Changes in EquityFor the year ended 30 June 2009


Group Parent Note As at As at As at As at

($000) 30 Jun 2009 30 Jun 2008 30 Jun 2009 30 Jun 2008

Current assets Cash and cash equivalents 9 3,114 5,302 75 675 Trade and other receivables 10 2,124 3,117 546 1,020 Current tax asset 11 438 21 185 39 Other current assets – – – –

Total current assets 5,676 8,440 806 1,734

Non-current assets Investments in subsidiaries 13 – – 6,010 5,041 Financial assets – – – –Property, plant and equipment 14 451 507 – –Intangible assets 15(i) & (ii) 3,382 2,653 119 –Deferred tax assets 16 376 369 4 10

Total non-current assets 4,209 3,529 6,133 5,051

Total assets 9,885 11,969 6,939 6,785

Current liabilities Trade and other payables 18 2,782 4,020 755 171 Provisions 19 520 569 15 31

Total current liabilities 3,302 4,589 770 202

Non-current liabilities Lease inducement payment 19 28 – –

Total non-current liabilities 19 28 – –

Total liabilities 3,321 4,617 770 202

Net assets 6,564 7,352 6,169 6,583

Equity Issued capital 7 5,563 5,563 5,563 5,563 Retained Earnings 8 864 1,546 606 1,020 Reserves 8 113 232 – –

Total equity attributable to equity holders of the parent 6,540 7,341 6,169 6,583

Minority Interest 24 11 – –

Total equity 6,564 7,352 6,169 6,583

For and on behalf of the Board:

………………………………………………………… …………………………………………………………Chairman DirectorDate: 28 September 2009 Date: 28 September 2009

Balance SheetAs at 30 June 2009

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($000) 30 Jun 2009 30 Jun 2008 30 Jun 2009 30 Jun 2008

Cash flows from operating activities Cash was provided from:Receipts from customers (excl GST) 48,945 46,098 1,380 792 Dividends received – – – –Other – 398 – –

48,945 46,496 1,380 792

Cash was disbursed to:Payments to suppliers and employees (49,480) (46,995) (454) (410)Interest paid – – – –Taxation paid (132) (284) (75) (86)Other (774) – (116) (42)

(50,386) (47,279) (645) (538)

Net cash flows from operating activities 21 (1,441) (783) 735 254

Cash flows from investing activities Cash was provided from:Interest Received 2 142 257 16 54 Reimbursement 14 – 26 – –Advance from Related Parties – – – –Acquisition of Subsidiary – 1,639 – –

142 1,922 16 54

Cash was disbursed to:Purchase of property, plant and equipment 14 (128) (235) – –Purchase of intangible assets (203) – (122) –Repayment to related parties – – – (950) Acquisition of subsidiaries 12 (1,051) (134) (1,051) (134)

(1,382) (369) (1,173) (1,084)

Net cash flows from investing activities (1,240) 1,553 (1,157) (1,030)

Cash flows from financing activities Cash was provided from:

Issuing shares – – – –

Cash was disbursed to:Treasury Stock – – – –Dividends paid (178) – (178) –

(178) – (178) –

Net cash flows from financing activities (178) – (178) –

Net increase/(decrease) in cash held (2,859) 770 (600) (776)Cash at the beginning of year 5,302 4,267 675 1,451 Less effect of exchange rate change on 671 265 – –foreign currency balances

Cash at the end of year 9 3,114 5,302 75 675

Statement of Cash FlowsFor the year ended 30 June 2009


Notes to the Financial StatementsFor the year ended 30 June 2009

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Reporting entitySouthern Travel Holdings Limited (‘the Company’) is a company incorporated in New Zealand and registered under theCompanies Act 1993. The Company is a listed public company on the New Zealand Stock Exchange on the NZAX board.The Company and its subsidiaries comprise Southern Travel Holdings Group (‘the Group’).Southern Travel Holdings is a group of companies which provides specialist services in the travel and tourism sectors.

Measurement baseThe accounting principles recognised as appropriate for the measurement and reporting of financial performance and financialposition on a historical cost basis are followed by Southern Travel Holdings Group, with the exception that certain assets asspecified below have been revalued.The financial statements of the Company and the Group have been prepared in accordance with the Financial Reporting Act1993 and comply with the New Zealand equivalents to International Financial Reporting Standards (NZ IFRS). The financialstatements comply with International Financial Reporting Standards (IFRS). For this purpose the company has designated itselfas profit-oriented.The financial statements comprise the consolidated financial statements of the Group and the separate financial statements ofthe Parent Company. The information is presented in thousands of New Zealand dollars.

Estimates and JudgmentsThe preparation of financial statements requires management to make judgments, estimates and assumptions that affect theapplication of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.In particular, information about significant areas of estimation, uncertainty and critical judgment in applying accounting policiesthat have the most significant effect on the amount recognised in the financial statements is goodwill impairment in note 15.In relation to taxation, there are many transactions and calculations for which the ultimate tax determination is uncertain duringthe ordinary course of business. The Group is subject to income taxes in four jurisdictions and significant judgment is requiredin determining the worldwide provision for income taxes. Where the final tax outcome of these matters is different from theamounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period inwhich such determination is made.Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised inthe period in which the estimate is revised and in any future periods affected.

Summary of Significant Accounting PoliciesThe principal accounting policies applied in the preparation of these consolidated financial statements are set out below. Thesepolicies have been consistently applied to all the years presented, by the Group entities.a) Basis of consolidation – purchase methodThe consolidated financial statements include the parent company and its subsidiaries accounted for using the purchase method.In the Parent Company’s separate financial statements investments in subsidiaries are stated at cost less any impairment losses.Subsidiaries: Subsidiaries are entities over which the Company has control of the financial and operating policies so as toobtain benefits from its activities.Subsidiaries are fully consolidated from the date that control commences until the date that control ceases. All intercompanytransactions and balances are eliminated on consolidation. The purchase method of accounting is used to account for theacquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equityinstruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.Identifiable assets acquired and liabilities assumed in a business combination are measured initially at fair value at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of the acquisition over the fair valueof the Group’s share of identifiable net assets is recorded as goodwill. If the cost of acquisition is less than the fair value of netassets of the subsidiary required, the difference is recognised directly in the income statement.b) Intangible assetsIntangible assets comprise Goodwill and Computer software. Goodwill represents the excess of the purchase considerationover the fair value of the net tangible and identifiable intangible assets, acquired at the time of acquisition of a business or anequity interest in a subsidiary or associate company. Goodwill is tested annually for impairment.Computer software represents external software costs together with consulting fees and related costs for personnel directlyassociated with the development of software that have been capitalised. Computer Software and licence costs as well aswebsite development costs are recorded as intangible assets. Intangible assets are not amortised until they are ready for use.

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c) Property, plant, and equipmentProperty, plant and equipment are stated at cost, less accumulated depreciation and impairment losses. Cost is the fair value ofconsideration given to acquire or construct the asset, plus other directly attributable costs which have been incurred in bringingthe asset to the location and condition necessary for its intended use.Subsequent costs are included in the asset’s carrying value or recognised as a separate asset, only where it is probable thatthe future economic benefits associated with the item will flow to the Group and the cost can be measured reliably. All othercosts are recognised as repairs and maintenance in the income statement when incurred.Depreciation is calculated using a mixture of the diminishing value method and straight line method on all property, plant andequipment, at depreciation rates calculated to allocate the assets’ cost over their expected useful lives. For major classes ofproperty, plant and equipment, the expected useful lives are:• Computer & office equipment 3 to 8 years• Furniture & fittings 8 to 25 years• Leasehold improvements 5 to 20 yearsd) ImpairmentAssets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate thatthe carrying amount may not be recoverable.Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment.The assumptions used in estimating the recoverable amount and the carrying amount of goodwill are discussed in note 15.An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Therecoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units).Previously recognised impairment losses on assets other than goodwill may be reversed if there is a positive change in theestimates of the recoverable amount, but only to the extent of the prior cumulative impairment loss.e) TaxationThe income tax expense charged to the income statement includes both the current year’s provision and the income tax effect of:• Taxable temporary differences, except those arising from initial recognition of goodwill and other assets that are not

depreciated; and• Deductible temporary differences to the extent that it is probable that they will be utilised.Temporary differences arising from transactions, other than business combinations, affecting neither accounting profit nortaxable profit are ignored.Deferred tax is not recognised on temporary differences associated with investments in subsidiaries, associates and joint ventures because:• The parent company is able to control the timing of the reversal of the differences; and• They are not expected to reverse in the foreseeable futureTax effect accounting is applied on a comprehensive basis to all temporary timing differences using the liability method. A deferredtax asset is only recognised to the extent that it is probable there will be future taxable profit to utilise the temporary differences.f) Goods and Services Tax (GST)With the exception of trade payables and receivables, all items are stated exclusive of Goods and Services Tax.g) LeasesGroup entities lease certain property, plant and equipment.Finance leases, which effectively transfer to the Group entity substantially all of the risks and benefits incident to ownershipof the leased item, are capitalised at the present value of the minimum lease payments. The leased assets and correspondingliabilities are recognised and the leased assets are depreciated over the period the Group entity is expected to benefit fromtheir use.Operating lease payments, where the lessors effectively retain substantially all the risks and benefits of ownership of the leaseitems, are included in the determination of the net surplus in equal installments over the period of the lease.h) Foreign currenciesTransactions in foreign currencies are initially recognised in the functional currency of the relevant operating unit.At balance date, foreign monetary assets and liabilities are translated at the closing rate, and exchange variations arising fromthese translations are recognised in the income statement.The assets and liabilities of foreign operations whose functional currency is not the New Zealand dollar are translated at theclosing rate. Revenue and expense items are translated at the spot rate at the transaction date, or a rate approximating thatrate. Foreign currency exchange differences are recognised in the foreign currency translation reserve.The foreign currency exchange differences on hedging transactions undertaken to establish the price of particular sales orpurchases, together with any costs associated with the hedge transactions, are deferred and recognised in the measurementof the purchase or sale transaction.


i) Financial instrumentsFinancial instruments are recognised in the balance sheet when the Group becomes party to a financial contract. They includecash balances, bank overdrafts, receivables, payables, investments in and loans to others, and term borrowings. In addition,members of the Group are party to financial instruments to meet financing needs and to reduce exposure to fluctuations in foreign currency exchange rates. These financial instruments may include guarantees of others’ bank overdraft facilities,swaps, options, forward rate agreements, and foreign currency forward exchange contracts.j) (i) Receivables and payablesReceivables and payables are initially recorded at fair value and subsequently carried at amortised cost using the effectiveinterest method. Due allowance is made for impaired receivables (doubtful debts). Except for a few customers with extendedcredit terms, the resulting carrying amount for receivables is not materially different from estimated realisable value.j) (ii) InvestmentsShares in listed companies are designated as financial assets at fair value through profit or loss. They are initially recorded atcost and subsequently revalued to market bid price as a measure of fair value. Gains and losses are recorded in the incomestatement.Shares in unlisted companies cannot be reliably valued. They are therefore carried at cost less any impairment losses. Shouldany impairment losses be suffered they will not be reversed, even if the circumstances leading to the impairment are resolved.j) (iii) BorrowingsBorrowings are initially recorded at fair value net of transaction costs incurred, and subsequently at amortised cost using theeffective interest method.Borrowing costs that are directly attributable to the acquisition, construction, or production of assets that necessarily take along time to build and/or prepare for use form part of the cost of that asset. Other borrowing costs are recognised as anexpense in the period they are incurred.j) (iv) GuaranteesGuarantees granted to parties outside the Group are initially measured at fair value. Any income is recognised evenly over theterm of the contract. Losses from financial guarantees are recognised by the Company when it assesses that it is more likelythan not to become liable for the outstanding balances. It is impossible to determine a fair value for guarantees given by theParent in favour of subsidiaries, and no fee is charged. These are therefore not recognised as a liability in the financial statements. This is a departure from generally accepted accounting practice. The effect is not material.j) (v) Hedging instrumentsThe Group may enter into foreign currency forward exchange contracts to hedge trading transactions, including anticipatedtransactions, denominated in foreign currencies. These will be designated “fair value” or “cash flow” hedges as detailed innote 20. The Group does not hedge its investments in foreign operations.Fair value hedges: Changes in the fair value of the hedge contracts are recorded in the income statement, together with thechanges in the fair value of the hedged item(s).Cash flow hedges: Changes in fair value of the effective portion of the swap are recognised in equity.Changes in fair value of any ineffective portion are recognised in the income statement. Amounts accumulated in equity areeither:• Transferred to the income statement in the period when the hedged item affects profit or loss; or• If the hedged transaction results in the recognition of a non-financial asset or a liability, transferred to the initial cost of the

asset or liability.k) RevenueRevenue on sales of inbound tours is recognised when the tour commences. Revenue on sale of outbound travel is recognisedwhen the travel is availed.l) Cash flowsFor the purpose of the cash flow statement, cash includes cash on hand, deposits held at call with banks, and investments inmoney market instruments, net of bank overdrafts. m) Employee entitlementsLiabilities for annual leave, sick leave and long-service leave are accrued and recognised in the balance sheet.Annual leave expected to be paid within 12 months and sick leave are recorded at the undiscounted amount expected to bepaid for the entitlement earned. For sick leave this is based on the unused entitlement accumulated at balance date andexpected to be utilised in the future.For long-service leave the liability is equal to the present value of the estimated future cash outflows as a result of employeeservices provided at balance date.n) DividendsDividends are recognised in the period that they are authorised.

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o) Segment informationThe operating segments reported are those that engage in business activities and whose operating results are regularlyreviewed by the Group’s chief operating decision maker.Profit, assets and liabilities for all segments as well as transactions between segments are measured according to generallyaccepted accounting practice in New Zealand.Revenue is attributed to countries on the basis of the location of the unit making the sale. Attributing revenue on the basis ofthe customer’s location would not make a material difference. Reportable segments are identified by the services delivered.p) Share CapitalIncremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity.q) ProvisionsA provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can beestimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisionsare determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments ofthe time value of money and the risks specific to the liability.r) Standards, Interpretations & Amendments to Standards not yet adoptedThe following are new standards, interpretations or amendments to existing published standards, mandatory for accountingperiods commencing on or after 1 January 2009, or later periods, that have not been early adopted by the group:r) (i) IAS 1 : Presentation of Financial Statements (mandatory for annual periods beginning on or after 1 January 2009). Revisions to IAS 1 require owner changes in equity to be disclosed separately from non-owner changes in equity. Non-ownerchanges in equity i.e. comprehensive income, are required to be presented in either one statement of comprehensive income,or two statements i.e. an income statement and a statement of comprehensive income. Comprehensive income items are notto be included in the statement of changes in equity. It is expected that when the Group applies this standard there will besome changes to the presentation of the financial statements.

r) (ii) NZ IFRS 3 : Business Combinations and NZ IAS27 Consolidated and Separate Financial Statements(mandatory for annual periods beginning on or after 1 July 2009). The revised standard continues to apply the acquisition method to business combinations but with some significant changesto the treatment of transaction costs and contingent consideration. The Group will simultaneously adopt the changes to NZ IAS 27 “Consolidated and separate financial statements”. When the Group adopts these standards it does not expect material changes to the Group’s measurement of acquisitions and disclosures of financial statements.There are a number of other IFRS standards and amendments which have been issued but are not reflected in the Company’sfinancial statements as they do not currently apply. These IFRS standards and amendments are as follows:

The Company will comply with their disclosure should the Company’s policies change in the future to bring them in effect.

Standard / Interpretation Effective date:Periods beginning

on or after

NZ IFRS 1 Amendment: Cost of Investment in Subsidiary, Jointly Controlled Entity or Associate 1 Jan 2009NZ IFRS 2 Amendment: Vesting Conditions and Cancellations 1 Jan 2009NZ IFRS 2 Amendment: Share-based Payment – Group Cash-settled Share-based Payment Transactions 1 Jan 2010NZ IFRS 4 Amendment: Insurance Contracts 1 Jan 2009NZ IFRS 7 Amendment: Improve Disclosure about Financial Instruments 1 Jan 2009NZ IAS 1 Amendment: Puttable Financial Instruments and Obligations Arising on Liquidation 1 Jan 2009NZ IAS 23 Borrowing Costs (revised) 1 Jan 2009NZ IAS 27 Amendments: Cost of Investment in Subsidiary, Jointly Controlled Entity or Associate 1 Jan 2009NZ IAS 32 Amendment: Puttable Financial and Obligations Arising on Liquidation 1 Jan 2009NZ IAS 39 Amendment: Eligible Hedged Items 1 Jul 2009NZ IAS 39 Amendment: Embedded derivatives 1 Jul 2009NZ IFRIC 15 Agreements for the Construction of Real Estate 1 Jan 2009NZ IFRIC 16 Hedges of a Net Investment in a Foreign Operation 1 Oct 2008NZ IFRIC 17 Distributions of Non-cash Assets to Owners 1 Jul 2009NZ IFRIC 18 Transfers of Assets from Customers 1 Jul 2009


Changes in accounting policiesThe Company has decided to reclassify Computer Software from Property, Plant and Equipment to Intangible Assets to moreaccurately reflect the nature of the asset. These changes have resulted in the restatement of the 2008 Balance Sheet valuesfor Property, Plant and Equipment as well as Intangible Assets. In addition to this, the information provided in notes 14 and 15have also been adjusted to reflect this restatement. The impact of reclassifying Computer Software has been to increase the2008 net book value of Intangible Assets and reduce the 2008 net book value of Property, Plant and Equipment accord by $6,000(being cost of $160,000 less accumulated depreciation of $152,000). There have been no other changes in accounting policies during the current financial year.

Group Parent ($000) Note 2009 2008 2009 2008

Sales RevenueRendering of services 24,705 29,197 – –Income crystallising in prior period – – – –Effect of recognition of provisionagainst income crystallising in prior period – 742 – –

Other RevenueManagement fees – – 158 1,130 Dividends intercompany – – – 182 Interest 142 252 16 54 Foreign Exchange Gains 688 4 – –Other 96 93 – –

Operating Revenues (from continuing activities) 25,631 30,288 174 1,366

Discontinued operations There were no discontinued operations for the period.

2. OPERATING REVENUES


Operating expenses include:Depreciation & Amortisation 14 & 15 525 125 3 1 Loss on Disposal of Fixed Assets 14 6 5 – –Employee benefits

Salaries & Wages 6,371 6,632 140 186 Pension fund contributions 349 344 – –

Directors remuneration 97 80 97 80 Donations – 5 – –Foreign Exchange Loss – – – –Rental and operating lease costs 1,159 1,149 13 11 Restructuring costs 233 – – –Impairment of goodwill (included inOther Operating Expenses) 15(i) 238 – 81 –

3. OPERATING EXPENSES

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Amounts paid or due and payable to the auditors for:

Assurance ServicesAuditing the financial statements:

Hayes Knight Auckland firm 46 – 19 –Related practices of Hayes Knight Auckland firm 40 – – –Other auditors 2 102 – 22

Other assurance services:Hayes Knight Auckland firm

IFRS accounting services – – – –Other assurance services – – – –

Related practices of Hayes Knight Auckland firmIFRS accounting services – – – –Other assurance services – – – –

Other auditorsIFRS accounting services 15 16 12 –Other assurance services 2 12 2 –

Taxation ServicesHayes Knight Auckland firm

Tax Compliance Services 10 – 3 –Tax consulting 4 – 4 –

Related practices of Hayes Knight Auckland firmTax Compliance Services 10 – – –Tax consulting – – – –

Other auditorsTax Compliance Services 7 10 4 –Tax consulting 6 2 – –

Other ServicesHayes Knight Auckland firm – – – –Related practices of Hayes Knight Auckland firm – – – –Other auditors 15 27 2 –

4. AUDITORS REMUNERATION



Current tax (32) 396 (71) 246 Deferred tax 16 (7) (162) 6 (4)

Income tax expense (39) 234 (65) 242

The Group’s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicableto profits of the consolidated companies as follows:

Profit/(loss) before tax (530) 850 (301) 914

Taxation calculated at domestic rates applicable to profits in the respective countries (132) 216 (90) 301

Adjusted for the tax effect of:Permanent Differences 74 (21) 24 30 Tax Effect of Losses not recognisedon other overseas subsidiaries 40 39 – –Tax Effect of Losses carried forward in Australia (25) – – –Under/(Over) Provision in Prior Year 4 – 1 –Other – – – (90)

Income tax expense (39) 234 (65) 241

5. INCOME TAX EXPENSE


(a) Basic earnings per share Profit attributable to ordinary shareholders (numerator) (504) 605 (236) 672 Weighted avg no. of ordinary shares outstanding (denominator) 17,829 17,829 17,829 17,829

Basic earnings per share (cents) (2.8) 3.4 (1.3) 3.8

(b) Diluted Earnings per Share Profit attributable to ordinary shareholders (numerator) (504) 605 (236) 672 Weighted avg no. of ordinary shares outstanding (denominator) – basic EPS 17,829 17,829 17,829 17,829 Adjustments for the effect of shares issued – – – –Weighted avg no. of ordinary shares outstanding (denominator) – diluted 17,829 17,829 17,829 17,829

Diluted earnings per share (cents) (2.8) 3.4 (1.3) 3.8

There have been no transactions since balance date which, had they occurred before balance date, would have changed thenumber of ordinary shares outstanding as at balance date.

6. CALCULATION OF EARNINGS PER SHARE

15


(a) Share Capital Issued and fully paid ordinary shares 5,594 5,594 5,594 5,594 Treasury Stock (31) (31) (31) (31)

5,563 5,563 5,563 5,563

No. of Shares Issue Price $000

(b) Movements in ordinary share capital (fully paid) Opening Balance 1 July 2008 17,829,302 5,594 Shares issued as part of acquisition – –

Closing Balance 30 June 2009 17,829,302 5,594

2009 2008 No. of Shares $000 No. of Shares $000

(c) Movements in treasury stock Opening Balance 1 July 2008 37 31 37 31 Shares issued as part of acquisition – – – –

Closing Balance 30 June 2009 37 31 37 31

Application of Treasury Stock Method:Southern Travel Group completed a share buyback programme on 23 November 2005. The unallocated shares are accounted forunder the treasury stock method and deducted from ordinary share capital on consolidation.

(d) Ordinary Shares All ordinary shares have equal rights to vote, to dividends and to any surplus on winding up, they have no par value.

7. CONTRIBUTED EQUITY



Cash at bank and in hand 1,391 1,337 – –Deposits at call 887 2,367 75 675 Foreign Currency Accounts 289 1,017 – –Restricted cash balances 547 581 – –

3,114 5,302 75 675

Restricted cash balances relate to deposits provided as security for bank facilities in favour of various airlines. Included in deposits at call is $140,000 to enable the group to purchase, if required, forward foreign exchange contracts up to 60 million JP Yen at any one time (2008: $140,000).

9. CASH AND CASH EQUIVALENTS


(a) Reserves Foreign currency translation reserveBalance at beginning of year 232 (30) – –Movement during the year (119) 262 – –

Balance at end of year 113 232 – –

(b) Retained Earnings Balance at beginning of year 1,546 941 1,020 348 Net surplus attributable to the shareholders of the Company (504) 605 (236) 672 Distributions to owners (178) – (178) –

Balance at end of year 864 1,546 606 1,020

Net surplus attributable to Minority Interest 24 11 – –

TOTAL EQUITY 6,564 7,352 6,169 6,583

Dividends Prior year final dividend of 1c per share(2008: 0c per share) (178) – (178) –Current year interim dividend of 0c per share(2008: 0c per share) – – – –

Total Dividends (178) – (178) –

The prior year final dividend carried an imputation credit of 0.49 cents, equivalent to 49 cents in the dollar.

8. RESERVES AND RETAINED EARNINGS

17


Trade receivables 1,561 2,366 – –Sundry receivables 423 515 13 6 Inter-company receivables – – 495 1,014 Prepayments 140 236 38 –

Total receivables and prepayments 2,124 3,117 546 1,020

10. TRADE RECEIVABLES AND OTHER RECEIVABLES


Taxation Receivable 438 21 185 39

Total current tax assets 438 21 185 39

11. CURRENT TAX ASSETS

12. BUSINESS COMBINATION

On 26 September 2008 Southern Travel Holdings Limited acquired 100% of the shares of Experience New Zealand Travel Limitedand Experience Travel Limited.The aggregate purchase consideration was $1,050,979, comprising $969,000 in cash, and acquisition costs of $81,979.

($000)

The assets and liabilities of the acquired group were:Fixed Assets 9 Intellectual Property and Domain Names 200 Software 664 Payables and Accruals (56)Employee Entitlements (4)

Net Assets Acquired 813

Goodwill 238

Consideration 1,051

Consideration satisfied by:Cash 1,051

Net cash outflow 1,051

The goodwill price is based upon the historic profitability of the acquired business. Contribution to the operating profit before interest and taxation from 27 September 2008 to 30 June 2009 was a loss of $12,000, revenue contributed over the same period was $116,000. It is not practical to disclose the revenue and profit of the combined entity from the start of the period as the entity’s accounting policies have been aligned with the group’s since it’s acquisition andthe group does not consider the whole years results would have significant impact.The agreement for sale and purchase of Experience New Zealand included an earn out clause whereby the Company would be required to pay the vendor a success fee based on the financial results of Experience New Zealand Travel for the 2009 and2010 financial years. No success fee was payable based on the 2009 results and the maximum success fee payable under thisagreement for the 2010 financial year is $120,000. However the directors believe that it is not probable that this amount will bepayable therefore no provision has been made in the accounts.


Name of Entity Country of Percentage held Balance Incorporation 2009 2008 Date

Southern Travelnet Limited New Zealand 100% 100% 30-JunSouthern Travelnet PTY Limited Australia 100% 100% 30-Jun

The Walshe Group Limited incorporating: New Zealand 100% 100% 30-JunWalshes World Limited New Zealand 100% 100% 30-JunAlliance International Marketing Services Limited New Zealand 80% 80% 30-JunHawaii Tourism Oceania Limited New Zealand 100% 100% 30-JunThe Walshe Group Pty Limited Australia 100% 100% 30-JunWalshes World Agencies PTY Limited Australia 100% 100% 30-JunAirline International Marketing Services PTY Limited Australia 100% 100% 30-JunHawaii Tourism Australia PTY Limited Australia 100% 100% 30-JunThe Walshe Group Limited Hong Kong Hong Kong 100% 100% 30-JunThe Walshe Group (Singapore) PTE. Ltd Singapore 100% 100% 30-Jun

Experience New Zealand Travel incorporating: New Zealand 100% 0% 30-JunExperience Travel Limited New Zealand 100% 0% 30-Jun

WGI Limited was struck off from the Companies Office on 12 October 2007, therefore no longer a 100% investment.

13. INVESTMENTS IN SUBSIDIARIES

Computer & Furniture Leasehold($000) Note Office Equipment & Fittings Improvements Total

GROUP At 1 July 2007 Cost 76 157 171 404 Accumulated depreciation (70) (76) (51) (197)

Net book amount 6 81 120 207

Year Ended 30 June 2008 Opening net book value 6 81 120 207 Additions 196 12 24 232 Acquisitions through business combinations 127 59 33 219 Reimbursement – – (26) (26) Impairment of Fixed Assets – – – –Disposals net of depreciation 3 (4) (1) – (5)Depreciation charge 3 (61) (29) (30) (120)

Closing net book amount 264 122 121 507

At 30 June 2008 Cost 953 328 209 1,490 Accumulated depreciation (689) (206) (88) (983)


14. PROPERTY, PLANT AND EQUIPMENT

19

Computer & Furniture Leasehold($000) Note Office Equipment & Fittings Improvements Total

Year Ended 30 June 2009 Opening net book value 264 122 121 507 Additions 122 4 2 128 Acquisitions through business combinations 5 4 – 9 Reimbursement – – – –Impairment of Fixed Assets – – – –Disposals net of depreciation 3 (5) (1) – (6)Depreciation charge 3 (142) (24) (21) (187)


At 30 June 2009 Cost 911 330 211 1,452 Accumulated depreciation (667) (225) (109) (1,001)


There is no tangible property, plant and equipment held by the parent company (2008: nil).

14. PROPERTY, PLANT AND EQUIPMENT (continued)


(i) Goodwill Goodwill arose from:Opening cost 2,647 – – –Acquisition of business assets – The Walshe Group – 2,647 – –– Experience New Zealand Travel 238 – 81 –

Closing cost 2,885 2,647 81 –

Accumulated impairment losses (238) – (81) –

Closing book value 2,647 2,647 – –

Year Ended 30 June 2009 Opening carrying amount 2,647 – – –Additions 238 2,647 81 –Disposals – – – –Impairment charges 3 (238) – (81) –Amortisation charges – – – –

Closing carrying amount 2,647 2,647 – –

Impairment Tests for Goodwill Goodwill is allocated to the Group’s cash generating units (CGU’s) as indicated below:

The New Zealand based outbound travel operation 1,323 1,323 – –The Australian based outbound travel operation 1,324 1,324 – –Experience New Zealand Travel 238 – 81 –

2,885 2,647 81 –

15. INTANGIBLE ASSETS


15. INTANGIBLE ASSETS (continued)

Growth Discount RateRate 18.30% 17.30% 16.30% 15.30% 14.30% 13.30% 12.30%6% 165 181 198 215 233 252 2725% 97 112 127 142 158 175 1924% 31 44 57 70 84 99 1143% -33 -23 -12 0 12 24 372% -97 -88 -78 -69 -59 -48 -371% -159 -151 -144 -136 -127 -119 -1100% -219 -213 -207 -201 -195 -188 -181-1% -278 -274 -270 -265 -261 -256 -251-2% -477 -477 -476 -476 -476 -476 -475

Growth Discount RateRate 18.30% 17.30% 16.30% 15.30% 14.30% 13.30% 12.30%6% 1,765 1,911 2,062 2,219 2,382 2,551 2,7275% 1,069 1,195 1,325 1,461 1,602 1,749 1,9014% 388 495 606 722 841 966 1,0953% -276 -187 -95 0 99 201 3082% -924 -853 -780 -704 -626 -544 -4591% -1,557 -1,503 -1,448 -1,391 -1,332 -1,271 -1,2080% -2,174 -2,138 -2,100 -2,062 -2,022 -1,981 -1,938-1% -2,777 -2,757 -2,737 -2,716 -2,694 -2,672 -2,650-2% -3,365 -3,361 -3,357 -3,354 -3,351 -3,347 -3,344

Experience New Zealand Travel operations:

Due to the current uncertainty in the economy an independent appraisal opinion was sought by the directors regarding thecarrying values of goodwill. A Future Maintainable Earnings approach using the pre-tax earnings projections based on the futuremaintainable forecasts for the 2010 financial year was used. This independent appraisal supported the recoverable amountsbased on the value-in-use method, of the New Zealand and Australian outbound operations. The findings of the independentappraisal noted that the future maintainable earnings of one of the Group’s subsidiaries, Experience New Zealand TravelLimited, did not support the carrying value of the goodwill associated with this cash generating unit. The Directors considered itprudent to write down the goodwill resulting from the acquisition of Experience New Zealand Travel as the financial performanceof this cash generating unit has had some impact from the global recession. For this reason goodwill resulting from theExperience Travel acquisition has been fully impaired at $238,000.Consistent with the Group’s business plan, goodwill is allocated across all Cash Generating Units. Recoverable value is basedon the value in use method based on past experience of the management, independent appraisal and advice received, togetherwith consideration of the impact of the global recession on the travel industry as assessed by the Directors.Impairment is assessed using an internal discounted cash flow model on a value in use basis. The discount rate is 15.3% onthe unleveraged pre-tax nominal cash flows including capital expenditure. The discounted rate is based upon industry averagesobtained from an independent cost of capital report and includes a risk premium of 5% as well. An inflation assumption of 2%has been used, with growth factors above inflation of 1% for the next four years.The budget information used as the base for the cash flow forecasts is the director approved budget for the 2010 financial yearfor each of the cash generating units. The cash flow forecasts assume the same expected gross margins as the budgeted period,expect foreign exchange rates to remain fairly constant and assume no price inflation. Information produced in the budgetsand cash flow forecasts reflects past experience. Management and Directors use the budgets to compare the results of eachof the cash generating units during the year.Based on the above assumptions, the valuation supports the value of the New Zealand and Australian outbound intangibleassets but not the value attributed to inbound Experience New Zealand Travel due to the reasons stated above.Any adverse changes in actual performance of the operations for the year ended 30 June 2010, or future rates of growth, will reducethe calculated recoverable amount and may result in recognition of impairment in the carrying values of assets in future years.The following tables show the effect of a % movement in the discount rate of 15.3% and/or the sales growth assumption of 1%on the calculated recoverable amount of the NZ and Australian outbound operations as well as the Experience New ZealandTravel operations in $ thousands.

New Zealand and Australian outbound operations:

21

Computer Intellectual Website($000) Note Software Property Development Total

(ii) Other intangible assets

GROUP At 1 July 2007 Cost 160 – – 160 Accumulated depreciation (152) – – (152)

Net book amount 8 – – 8

Year Ended 30 June 2008 Opening net book value 8 – – 8 Additions 3 – – 3 Acquisitions through business combinations – – – –Reimbursement – – – –Impairment of Fixed Assets – – – –Disposals net of depreciation – – – –Depreciation charge 3 (5) – – (5)

Closing net book amount 6 – – 6

At 30 June 2008 Cost 145 – – 145 Accumulated depreciation (139) – – (139)


Year Ended 30 June 2009 Opening net book value 6 – – 6 Additions 89 – 114 203 Acquisitions through business combinations 664 200 – 864 Reimbursement – – – –Impairment of Fixed Assets – – – –Disposals net of depreciation – – – –Depreciation charge 3 (338) – – (338)


At 30 June 2009 Cost 924 200 114 1,238 Accumulated depreciation (503) – – (503)


There has been a net book value reclassification of $6,000 (2008: $8,000) of software from tangible to intangible assets to complywith IFRS.There has not been any change in the effect on earnings.



Computer Intellectual Website($000) Note Software Property Development Total

PARENT At 1 July 2007 Cost 5 – – 5 Accumulated depreciation (4) – – (4)


Year Ended 30 June 2008 Opening net book value 1 – – 1 Additions – – – –Disposals net of depreciation – – – –Depreciation charge 3 (1) – – (1)

Closing net book amount – – – –

At 30 June 2008 Cost 5 – – 5 Accumulated depreciation (5) – – (5)

Net book amount – – – –

Year Ended 30 June 2009 Opening net book value – – – –Additions 8 – 114 122 Disposals net of depreciation – – – –Depreciation charge 3 (3) – – (3)

Closing net book amount 5 – 114 119

At 30 June 2009 Cost 13 – 114 127 Accumulated depreciation (8) – – (8)

Net book amount 5 – 114 119

There has been a net book value reclassification of $nil (2008: $1,000) of software from tangible to intangible assets to complywith IFRS.There has not been any change in the effect on earnings.


23


The balance comprises temporary differences attributable to:Employee benefits 152 165 4 10 Non-deductible provisions 10 16 – –Property Plant & Equipment 3 12 – –Tax Losses 154 129 – –Other 57 47 – –

376 369 4 10

Movements:Balance at beginning of year 369 75 10 6 Acquisitions through business combinations – 132 – –Transfer to/from statement of financial performance 7 162 (6) 4

Balance at end of year 376 369 4 10

Expected settlement:Within 12 months – – 4 10In excess of 12 months 376 369 – –

376 369 4 10

Subsequent Event:The Government announced that the New Zealand company tax rate would reduce from 33% to 30% effective for income tax yearsbeginning on or after 1 April 2008. The financial effects of the change in the tax rate on the opening balance of the Deferred TaxAsset have been brought to account in the financial statements for this financial year.The utilisation of these Deferred Tax Assets is dependent on future taxable profits in excess of the profits arising from the reversalof existing taxable temporary differences and shareholder continuity being maintained in accordance with New Zealand tax legislation requirements. The recognition of these deferred tax assets is evidenced by forecasts of future income tax arising inthe next ten years.

16. DEFERRED TAX ASSET


Balance at beginning of year 59 (171) – (174) Imputation credits attached to dividends received during the year – – – 90 Imputation credits attaching to dividends paid during the year (87) – (87) –Income tax payments during the year 132 230 188 84

Balance at end of year 104 59 101 –

At balance date the imputation credits available to the shareholders of the Company were:

Through direct shareholding in the Company 100 –Through indirect interests in subsidiaries 4 59

Group balance at end of year 104 59

17. IMPUTATION CREDITS



Trade payables 2,230 3,466 – –Sundry payables and accruals 552 554 75 169 Inter co payables – – 680 2

Total payables 2,782 4,020 755 171

18. TRADE AND OTHER PAYABLES


Employee benefits 520 569 15 31

Total provisions 520 569 15 31

Employee Other ($000) Benefits Provisions Total

(a) Movements in provisions Movements in each class of provision during the financial year are set out below:

Group – 2009Carrying amount at start of year 569 – 569 Additional provisions recognised 365 – 365 Amounts incurred and charged (418) – (418)Acquired from business combination (Note 12) 4 – 4

Carrying amount at end of year 520 – 520

Parent – 2009Carrying amount at start of year 31 – 31 Additional provisions recognised 11 – 11 Amounts incurred and charged (27) – (27)Acquired from business combination (Note 12) – – –

Carrying amount at end of year 15 – 15

(b) Employee benefits Employee benefits provision is made up of accrued annual leave and long service entitlements. Annual leave entitlements areexpected to be materially paid out within the next 12 months.

19. CURRENT PROVISIONS

25


Maximum exposures to credit risk at balance date are: Bank balances 9 3,114 5,302 75 675 Receivables 10 2,124 3,117 546 1,020

The above maximum exposures are net of any recognised provision for losses on these financial instruments.

Concentrations of credit risk:Southern Travel Group’s largest customer accounts for 15.66% (Jun 2008: 20.65%) of total sales and 5.02% (Jun 2008: 9.48%) of tradereceivables at balance date. The group does not have any other significant concentrations of credit risk.

Liquidity risk:Liquidity risk represents the Company’s ability to meet its financial obligations on time. The group generates sufficient cash flowsfrom its operating activities to make timely payments and does not require committed credit lines.Management supervises liquidity by monitoring short-term and long-term cash flows for up to twelve months.

Currency risk:The Southern Travel Group has exposure to foreign exchange risk as a result of transactions denominated in foreign currencies arising from normal trading activities.The foreign currencies in which the Group primarily transacts are Australian dollars, Hong Kong dollars, Singapore dollars andJapanese Yen. Where exposures are certain, it is the Group’s policy to hedge these risks as they arise. For those exposures less certain in their timing and extent, such as future sales and purchases, it is the Group’s policy not to cover these anticipated exposures until the due date and amount can be accurately determined.The Southern Travel Group uses foreign currency forward exchange contracts to manage these exposures. At balance date therewere no outstanding foreign currency forward exchange contracts.By managing currency risk the group aims to moderate the impact of short-term fluctuations in exchange rates. Over longer periodschanges in exchange rates will have an impact on profit. If the NZ dollar had been 1% stronger against the Australian dollar overthe last year it is estimated that reported profit would have been $1,000 lower (2008:$1,000). If the NZ dollar had been 1% stronger against the Japanese Yen over the last year it is estimated that reported profit would havebeen $14,000 higher (2008: $15,000).Sensitivity to other currencies is much lower and not considered significant by the group

Interest rate risk:Apart from cash at the bank and term deposits the Southern Travel Group is not exposed to interest rate risk as all other financialassets and liabilities are non-interest bearing. The deposit interest rates ranged from 0.01% to 7.75% during the year (year ended 30 June 2008: 0.01% to 9.04%).

Fair Values:The carrying amount of cash and cash equivalents, trade receivables and payables approximates fair value because of their shortterm to maturity. The aggregate net fair values of the financial assets and financial liabilities are the same as the carrying values asper the statement of financial position.

20. FINANCIAL INSTRUMENTS

Credit Risk:To the extent that Southern Travel Group has a receivable from another party, there is a credit risk in the event of non-performanceby that counterparty. Financial instruments which potentially subject the Group to credit risk principally consist of bank balances,and foreign currency forward exchange contracts.Southern Travel Group manages its exposure to credit risk on a Group basis.Southern Travel Group performs credit evaluations on all customers requiring credit and generally does not require collateral.Southern Travel Group continuously monitors the credit quality of major financial institutions that are counter parties to its financialinstruments, and does not anticipate non-performance by the counter parties. Southern Travel Group further minimises its creditexposure by limiting the amount of funds placed with any one financial institution.Southern Travel Group further minimises its credit exposure by limiting the amount of funds placed with any one at any one time.



Reported surplus after taxation and before including share of retained surplus of associate: (491) 616 (236) 672

Add/(less) non-cash items and non-operating items:Net loss/(gain) on foreign exchange (798) (3) – –Depreciation 3 525 125 3 1 Amortisation of Lease Inducement – 28 – –Interest Received 2 (142) (257) (16) (54)Movement in deferred taxation 16 (7) (162) 6 (4) Loss on sale of property, plant and equipment 3 6 5 – –Impairment of intangible assets 15 238 – 81 –Change in operating assets and liabilities, net effects from purchase of business assets (60) (563) – –

Movement in working capital:Increase/(decrease) in trade creditors (1,236) 326 – –Increase/(decrease) in sundry payables and employee entitlements (52) (75) (110) 115Increase/decrease) in taxation payable (417) 221 (146) 158 (Increase)/decrease in receivables 993 (1,044) 474 (636) Increase/(decrease) in inter-company payable – – 679 2

Net cash flows from operating activities (1,441) (783) 735 254

21. RECONCILIATION OF REPORTED SURPLUS AFTER TAXATION WITH CASH FLOWS FROM OPERATING ACTIVITIES

22. CONTINGENCIES

The New Zealand Inland Revenue recently concluded an industry wide investigation into refunds claimed in respect of servicefees charged to overseas customers. Based on statements made by the Prime Minister and Minister of Inland Revenue theDirectors believe that there will be no potential liability in relation to this matter.The agreement for sale and purchase of Experience New Zealand included an earn out clause whereby the Company would berequired to pay the vendor a success fee based on the financial results of Experience New Zealand Travel for the 2009 and 2010financial years.No success fee was payable based on the 2009 results and the directors believe that it is not probable that the success fee forthe 2010 year amount will be payable. If a success fee is payable it shall be no more than $120,000.The Directors believe that there are no other contingent liabilities at 30 June 2009.

27

24. RELATED PARTY TRANSACTIONS

(a) Directors The names of persons who were directors of the Company at any time during the financial year are as follows: R Walshe; K Gunji; R Fyers; T Nicholas.

Directors’ shareholding Between 7th November 2008 and 3rd February 2009 Kiyomi Gunji/Malcolm Birchfield sold 80,000 shares for $16,000 in on-markettransactions. These shares were held under a Bare Trust on behalf of a senior manager who is no longer employed with the Company.Between 13th May 2009 and 8th June 2009 Kiyomi Gunji/Malcolm Birchfield sold 308,000 shares to the value of $61,600 in off-market transactions to individual shareholders. These shares were previously held under a Bare Trust on behalf of senior management.

Group ($000) 2009 2008

The current shareholding of Directors is as follows:Rodney Walshe 4,565,848 4,565,848 Kiyomi & Kazue Gunji 6,948,000 6,948,000Kiyomi Gunji / Malcolm Birchfield – 388,000

Loans to Directors There were no loans to Directors as at 30th June 2009 (2008: $nil).

DirectorshipsDirectors have disclosed the following directorships held by them:Richard Fyers Director and Principal Fyers Wickham Limited

Principal Fyers Joyce, LawyersTerry Nicholas Director Nicholas Associates Limited

Directors’ and Officers’ insurance The company has arranged Directors’ and Officers’ liability insurance covering the Directors acting on behalf of the Company.Cover is for damages, judgements, fines, penalties, legal costs awarded and defence costs arising from wrongful acts committed while acting for the Company. The types of acts that are covered are dishonest, fraudulent, malicious acts, or omissions, wilful breach of statute or regulations, or duty to the Company, improper use of information to the detriment of theCompany or breach of professional duty. The insurance cover does not cover liabilities arising from criminal actions.

23. COMMITMENTS

(a) Capital Commitments The Group has capital commitments of $30,000 as at balance date (2008 : nil). This relates to the implementation of the Group’snew financial reporting system.

(b) Operating Lease commitments – where a group company is the lessee The Group leases various offices and equipment under non-cancellable operating leases expiring within two to five years. Theleases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated.


Lease commitments under non-cancellable operating leases: Less than one year 832 867 – –Between 1 and 2 years 604 372 – –Between 2 and 5 years 289 330 – –Greater than 5 years – – – –

Total operating lease commitments 1,725 1,569 – –


24. RELATED PARTY TRANSACTIONS (continued)

(b) Key management personnel compensation Key management personnel compensation for the years ended 30 June 2009 and 30 June 2008 is set out below. The key management personnel are all the directors of the Company and the two executives with the greatest authority for the strategic direction and management of the Company as well as a related party consultant.

2009 ($000) Directors’ Fees Salary Consulting Fees Total

Short-term benefitsMalcolm Birchfield* – – – –Richard Fyers 22 – 34 56 Kiyomi Gunji 22 45 – 67 Ross Keenan* – – – –Terry Nicholas 22 – 31 53 Rodney Walshe 32 – – 32 Other key management personnel – 354 103 457

Short-term benefits 98 399 168 665Termination benefits – – – –

Total key management and personnel compensation 98 399 168 665

2008 ($000) Directors’ Fees Salary Consulting Fees Total

Short-term benefitsMalcolm Birchfield* 7 – – 7 Richard Fyers 13 – 12 25 Kiyomi Gunji 10 96 – 106 Ross Keenan* 10 – – 10 Terry Nicholas 13 – 7 20 Rodney Walshe 27 – – 27 Other key management personnel – 325 108 433

Short-term benefits 80 421 127 628Termination benefits – – – –

Total key management and personnel compensation 80 421 127 628

* Resigned 26 October 2007.Consulting fees charged to the Group by the related party consultant, Richard Fyers and Terry Nicholas, through their businessentities, were under commercial terms and conditions at fair market value. There were no outstanding balances with key management personnel at 30 June 2009.

29

24. RELATED PARTY TRANSACTIONS (continued)

The number of employees within the Group receiving remuneration and benefits above $100,000 are indicated in the followingtable:


Employee Remuneration100,000 - 109,999 3 1110,000 - 119,999 1 2 1120,000 - 129,999 2 1 1130,000 - 139,999 1140,000 - 149,999150,000 - 159,999 1 1160,000 - 169,999170,000 - 179,999180,000 - 189,999 1190,000 - 199,999 1200,000 - 209,999210,000 - 219,999220,000 - 229,999 1 1230,000 - 239,999240,000 - 249,999 1 1

(c) Subsidiaries The ultimate parent entity within the Group is Southern Travel Holdings Limited. All members of the Group are considered tobe related parties of the Company. This includes subsidiaries identified in Note 13.

(d) During the year the following transactions occurred with related parties in addition to key management and personnel compensation:

Parent ($000) 2009 2008

(i) Revenues from subsidiaries:Management Fee Revenue 158 1,130 Dividends Received – 182

158 1,312

(ii) Outstanding balances:The following balances are outstanding at the reporting date in relation to transactions withrelated parties:Current Receivables:Southern Travelnet Limited 494 919 Experience New Zealand Travel Limited 2 –The Walshe Group Limited – 94

496 1,013

Current Payables:The Walshe Group Limited 682 –

682 –

Related party balances have no fixed settlement dates and balances are non interest bearing.


25. SIGNIFICANT EVENTS AFTER BALANCE DATE

The Directors are considering various options, including a possible rights issue, to increase the share capital of the Group. Thiswill strengthen the Company’s balance sheet and enable the Company to pursue strategic investments that will deliver futuregrowth to the Company.

26. SEGMENT INFORMATION

The Group operates predominantly in two business segments being inbound and outbound tourism providing predominantlyarrangement of tours and tour related services and GSA services and in three geographical areas – New Zealand, Australia and Other.

(a) Primary reporting format – Business Segments

($000) Inbound Tourism Outbound Tourism Eliminations/Unallocated Consolidated Year ended 30 June 2009 2008 2009 2008 2009 2008 2009 2008

Sales to customersoutside the Group 17,604 23,186 7,101 6,757 – – 24,705 29,943 Interest revenue 72 172 54 26 16 54 142 252 Foreign Exchange Gains 412 – 276 – – – 688 –Other income 59 69 37 24 – – 96 93

Total revenue 18,147 23,427 7,468 6,807 16 54 25,631 30,288

Segment result (before Taxation) (1,415) 585 1,345 665 (460) (400) (530) 850

Taxation 39 (234)

Group’s operating profit/(loss) (491) 616

Depreciation & Amortisation Expense 428 40 94 85 3 – 525 125

Impairment of Goodwill 238 – – – – – 238 –

Capital Expenditure 93 156 116 79 122 – 331 235

Segment Assets 3,786 5,516 3,852 3,784 2,248 2,669 9,886 11,969

Segment Liabilities 2,608 4,270 1,426 1,996 (713) (1,649) 3,321 4,617

31

26. SEGMENT INFORMATION (continued)

(b) Secondary reporting format – Geographical Segments

New Zealand Australia All Other Eliminations Consolidated ($000) 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008

Sales to customersoutside the Group 19,457 24,494 4,642 4,917 606 532 – – 24,705 29,943 Intersegment sales – – 5,704 8,148 – – (5,704) (8,148) – –Interest revenue 109 220 33 31 – 1 – – 142 252 Foreign Exchange Gains 682 – 10 – (4) – – – 688 –Other income 64 71 28 18 4 4 – – 96 93

Total revenue 20,312 24,785 10,417 13,114 606 537 (5,704) (8,148) 25,631 30,288

Impairment of Goodwill 238 – – – – – – – 238 –

Capital Expenditure 256 161 63 57 12 17 – – 331 235

Segment Assets 11,537 12,263 2,782 2,831 258 392 (4,691) (3,517) 9,886 11,969

(c) Information about major customers The Group has transactions with one customer that accounts for 10% or more of total revenues, being $3.9 million. These revenues are reported in the inbound segment and New Zealand and Australia segments.


Auditors’ Report

33

New Zealand Exchange and Statutory Information

Corporate Governance

Role of the BoardThe Board of Directors of Southern Travel Holdings is elected by the shareholders to supervise the management of the company.The Board establishes the Company’s objectives, overall policy framework within which the business of the company is conductedand confirms strategies for achieving these objectives, monitors management’s performance and ensures the procedures are inplace to provide effective internal financial control.

Board membershipThe Board currently comprises of four non-executive Directors including the Chairman. In accordance with NZAX Listing Rule 2.1.6 one third, or the number nearest to one third, of the Directors (excluding any directorappointed since the previous annual meeting ) retire by rotation at each annual meeting. The Directors to retire are those who havebeen longest in office since their last election.Directors retiring by rotation may, if eligible, stand for re-election.

Audit and Finance CommitteeThe Board has established an Audit and Finance Committee comprising of four Directors, Mr R.H.C. Walshe, Mr R. Fyers, Mr K. Gunjiand Mr T.O. Nicholas (Chairman) with attendances by appropriate management representatives.The function of the Audit and Finance Committee is to oversee financial reporting, accounting policies and audit services in theCompany. This includes reviewing the adequacy and effectiveness of internal controls. The Committee keeps under review thescope and results of audit work, its cost effectiveness and the performance, independence and objectivity of the auditors. Theyalso review the financial statements and the announcements to the New Zealand Exchange concerning financial results.During the period under review the Audit and Finance Committee met three times.

Internal financial controlThe Board has overall responsibility for the company’s system of internal financial control. The Directors have established procedures and policies that are designed to provide effective internal financial control. Annual budgets and long term strategic direction are agreed by the Board.Financial statements are prepared monthly and reviewed by the Board throughout the year to monitor performance against budget targets and objectives.

Directors’ and Officers’ insuranceThe company has arranged Directors’ and Officers’ liability insurance covering Directors acting on behalf of the Company. Coveris for damages, judgments, fines, penalties, legal costs awarded and defence costs arising from wrongful acts committed while acting for the Company. The types of acts that are covered are dishonest, fraudulent, malicious acts, or omissions, willfulbreach of statute or regulations, or duty to the Company, improper use of information to the detriment of the company or breach ofprofessional duty.

Going concernAfter reviewing the current results and detailed forecasts, taking into account available credit facilities and making furtherenquiries as considered appropriate, the Directors are satisfied that the Company has adequate resources to enable it to continuein business for the foreseeable future. For this reason, the Directors believe it is appropriate to adopt the going concern basis inpreparing the financial statements.

The role of the shareholdersThe Board aims to ensure that shareholders are informed of all major developments affecting the Group’s state of affairs.Information is communicated to shareholders in the annual report and interim report and media announcements. The Boardencourages full participation of shareholders at the annual meeting to ensure a high level of accountability and identification withthe Group’s strategies and goals.

Remuneration CommitteeThe Board has established a Remuneration Committee comprising of three Directors, Mr T.O. Nicholas, Mr K. Gunji and Mr R. Fyers(Chairman). The committee is responsible for making recommendations to the Board on remuneration policies for the ChiefExecutive Officer and Senior Management staff.

During the period under review the remuneration committee met on one occasion.


Directors’ Security HoldingsAs at 22 August 2009

Director 2009 2008

Rodney Walshe 4,565,848 4,565,848Kiyomi & Kazue Gunji 6,948,000 6,948,000Kiyomi Gunji / Malcolm Birchfield – 388,000

Statutory InformationInterests registerThe Group is required to maintain an interests register in which the particulars of certain transactions and matters involving thedirectors must be recorded. The interests register for the Group is available for inspection at its registered office.Details of all matters that have been entered in the interests register by individual directors are outlined below and set out in relatedparty information (Note 24). Where a director has declared an interest in a particular entity, as a shareholder and/or director, thedeclaration serves as notice that the director may benefit from any transactions between the Group and the identified entities.The following entries were recorded in the interests register of the Company during the period.

a) Share dealings of the DirectorsKiyomi Gunji sold 80,000 shares between 7 November 2008 and 3 February 2009 in on market share transactions. These shareswere held under a Bare Trust on behalf of a Senior Manager who is no longer employed with the company.Between 13 May and 8 June 2009 Kiyomi Gunji transferred 308,000 shares in an off market transfer to individual shareholders.These shares were previously held under a Bare Trust on behalf of Senior Management.

b) Loans to DirectorsThere were no loans to directors as at 30 June 2009.

c) Directors’ remunerationDetails of remuneration and other benefits paid to Directors as at 30 June 2009 are as follows:

Fees Salary TotalDirector $ $ $

Rodney Walshe 32,167 32,167Kiyomi Gunji 21,500 45,130 66,630Richard Fyers 21,500 21,500Terry Nicholas 21,500 21,500

96,667 45,130 141,797

d) DirectorshipsDirectors have disclosed the following directorships held by them.

Richard FyersDirector and Principal Fyers Wickham LimitedPrincipal Fyers Joyce, Lawyers

Terry NicholasDirector Nicholas Associates Limited

e) Directors’ indemnity and insuranceThe Company has insured all its directors and the directors of its subsidiaries against liabilities to other parties (except the Company or related party of the Company) that may arise from their positions as directors. The insurance does not coverliabilities arising from criminal actions.

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f) Employee remunerationThe number of employees within the Group receiving remuneration and benefits above $100,000 are indicated in the following table:

Employee Remuneration Group Parent

100,000-109,999 3

110,000-119,999 1

120,000-129,999 2 1

130,000-139,999 1

140,000-149,999

150,000-159,999 1

160,000-169,999

170,000-179,999

180,000-189,999

190,000-199,999 1

200,000-209,999

210,000-219,999

220,000-229,999

230,000-239,999

240,000-249,999 1 1

Stock Exchange Listing The Company’s shares are listed on the New Zealand Alternative Stock Exchange.

Distribution of Security Holders and Security Holdings As at 31 August 2009

Security Classes Holdings Ranges Holders Total Units %Fully Paid Ordinary Shares 1-1,000 9 7,216 0.04

1,001-5,000 104 366,415 2.065,001-10,000 70 616,150 3.46

10,001-50,000 45 1,012,074 5.6750,001-100,000 8 654,600 3.67

100,001+ 14 15,172,847 85.10Total 250 17,829,302 100.00


20 Largest Registered Holders of Quoted Equity Securities As at 31 August 2009

Shareholder Name Number of Shares % of Total Shares

1.= Kiyomi Gunji * 3,474,000 19.481.= Kazue Gunji * 3,474,000 19.482. Rodney Walshe Limited * 2,724,105 15.283. John Robin Holmes & Rodney Harold Clinton Walshe – Argyle Account * 1,841,743 10.334. James Ian Urquhart * 1,100,000 6.175. New Zealand Central Securities Depository Limited 635,190 3.566. Bancorp New Zealand Limited 600,000 3.377. John Scott Stewart Richardson 406,000 2.288. Geoffrey Donald Walker and Martin Victor Richardson 184,582 1.049. Forresters Nominee Company 177,000 0.99

10. Donna Nerissa Love and Marcel Riethmann 160,000 0.9011. Michael Hall 143,454 0.8012. Nobuo Terado 136,000 0.7613. Terry Bryce Horne and Margaret June Horne 116,773 0.6514.= Craigs Investment Partners Ltd 100,000 0.5614.= Richard Marston Flower & James Michael Syme 100,000 0.5615. Alan Selwyn Dodwell & Nicola Kathleen Ann Dodwell – Dodwell Family A/C 97,000 0.5416. Ian Graham Douglas 80,000 0.4517. Donald Clifton Jacobs 76,000 0.4318. Terry Bryce Horne and Barbara Lesley Horne 70,000 0.3919. FNZ Custodians Ltd 69,000 0.3920. AMG Corporation Ltd 62,600 0.35

* The persons marked with an asterisk are deemed to be substantial security holders in accordance with Section 26 of the Securities Markets Act 1998.

Directors Rodney Walshe (Chairman)Kiyomi Gunji (Deputy Chairman)Richard FyersTerry Nicholas

Registered Office Level 9, 175 Queen StreetAucklandTelephone: +64 9 379 2468

Postal Address Box 3719Auckland

Auditors Hayes Knight Audit

Bankers ASB Bank Limited

Solicitors Fyers Joyce Lawyers

NZX Sponsor Bancorp New Zealand Limited

Share Registrar Link Market ServicesP O Box 384, AshburtonNew ZealandTelephone : +64 3 308 8887Facsimile : +64 3 308 1311

Business Locations New ZealandAustraliaJapanHong KongSingapore

Corporate Website www.southerntravel.co.nz

Company DirectoryAs at 30 June 2009

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southern travel holdings limited annual report 2009

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