The Business Herald’s markets and banking reporter.

Big Read: Mt Ruapehu business fights against cooling times

On a good day, you can't beat Mt Ruapehu. But for the skifield company, it isn't all blue skies, reports Christopher Adams.

You wouldn't guess Dave Mazey is on the verge of retirement as he makes fast, sweeping turns across the ski area he has managed for the past 30 years.

The Ruapehu Alpine Lifts chief executive has taken time out of his schedule to hit the slopes with The Business.

We're heading to Whakapapa's Delta Corner, the future destination for the centrepiece of RAL's expansion plans - a 1.8km gondola that may open in time for the 2018 ski season.

The conditions are close to perfection, with blue skies and not a breath of wind. And a recent storm cycle has obligingly plastered the mountain in 2.5m of snow.

Mazey, who resigned in May but is staying on as CEO until his replacement is found, grins as he slides to a stop at the bottom of the Knoll Ridge T-bar.

"How was that?" asks the 64-year-old, even though he already knows the answer.

The Mt Ruapehu ski areas - often unfairly viewed as poor cousins of their South Island counterparts - are world-class on a good day (and abysmal on a bad one).

But despite all it has to offer, RAL is facing an uncertain future amid a persistent decline in skier numbers and disappointing financial results.

The company, which acquired Turoa out of receivership in 2000, reported 430,000 skier days for the 2006 season (one person skiing for a day is classed as one skier day).

By the 2015 season that had fallen to 340,550, a 21 per cent reduction, according to the most recent annual report.

The decline would be even steeper if you went back to the mountain's heyday in the 1980s, before the disruption of the mid-1990s Ruapehu eruptions, from which the North Island ski industry has never fully recovered.

People have a wider range of weekend and holiday activity options these days. There's a lot to watch on Netflix and flights to Bali, Thailand or Australia are going cheap.

A map of Mt Ruapehu:

Graphic / NZ Herald
Graphic / NZ Herald

And Mt Ruapehu, unlike the South Island ski areas, doesn't attract large numbers of international skiers. While skier numbers at Ruapehu have slid, Queenstown has been booming, thanks in part to overseas skiers.

Other challenges for RAL have included boardroom battles and operating licence issues that have delayed the investments, such as new lifts, which are crucial to increasing the number of skiers, snowboarders and other visitors.

There was a devastating arson attack at Whakapapa in 2009, and a diesel spill at Turoa in 2013 contaminated Raetihi's water supply and dealt a blow to the firm's reputation among local communities.

Sam Clarkson, owner of the Edge to Edge ski rental shop in Whakapapa Village and one of RAL's more than 4000 shareholders, claims the company is in a "death spiral" from which it will recover only if there are major changes to the board and management.

Beginnings

RAL's roots stretch back to 1953 when it was established by a group of ski enthusiasts.

The board realises that the current operating model is not sustainable.

It's a public benefit entity - with a virtual monopoly on North Island skiing - that doesn't pay tax because its profits are reinvested into maintenance and redevelopment of ski facilities.

The firm, which reported a $763,992 surplus from revenue of $27.4m in the last financial year, employs roughly 65 staff over the summer months, swelling to around 750 during winter.

Shareholders do not receive dividends and their shares don't appreciate in value. The only reason for holding them is to have some say in the direction of the business.

RAL chairman Murray Gribben admitted the firm was going off-piste in his address to shareholders at the company's 63rd annual meeting, held at the Château Tongariro in July.

"The board realises that the current operating model is not sustainable," Gribben said. "The financial results over the past few years are a key indicator of that."

One of Clarkson's main gripes is a major reduction in Whakapapa's beginner facilities. There were previously a number of learner areas on the upper field, but Happy Valley - at the base area - now offers the only "green" runs.

"They are now on the last turn of the death spiral - if they remove any more beginner facilities we won't have any at all," says Clarkson.

Ruapehu Alpine Lifts is in a "death spiral", claims shareholder and ski hire operator Sam Clarkson.
Ruapehu Alpine Lifts is in a "death spiral", claims shareholder and ski hire operator Sam Clarkson.



"If beginners have an unhappy experience, they just won't turn into skiers or they'll just bugger off to the South Island."

Clarkson, one of RAL's most vocal critics, says the firm's maintenance operations are under-resourced.

That, he claims, contributed to an August 16 accident at Whakapapa in which a woman was badly injured when a T-bar broke.

Mazey, meanwhile, has been in the top job far too long, in Clarkson's view.

"Do you know of any other company where the CEO has been there 30 years?"

He says management salaries - up to $1.3m was paid to nine senior managers in the past financial year, including around $270,000 to the top-paid staffer, likely to be Mazey - are overblown.

Questions have also been raised about the contract to re-build Whakapapa's Knoll Ridge Chalet, which was destroyed by the 2009 arson attack.

The $12m contract wasn't put out to tender and was awarded to Stanley Construction, which is part-owned by former RAL director Kevin Stanley, who was voted off the board at July's annual meeting.

There have been recent ructions within the board, which Clarkson says is dominated by "financiers" - to its detriment, he believes.

The root cause of RAL's problem is the board has a shared, relatively narrow culture and a lack of thought diversity, a quite limited comfort zone and an unwillingness to challenge and change.

Former director Kerry McDonald stepped down suddenly in October after four years with the company.

In a scathing resignation letter sent to Gribben, McDonald described the challenges he said he encountered in pushing for changes in areas such as management, budgeting and capital planning.

He became "increasingly forceful" in his efforts and was asked to resign from the board in June last year, according to the letter.

McDonald, a veteran company director who chairs consulting firm Opus International and is a director of the New Zealand Institute of Economic Research, initially refused to stand down on the grounds that it was his duty to act in the best interests of the company "not to win a popularity contest".

"In my opinion the root cause of RAL's problem is that the board has a shared, relatively narrow culture and a lack of thought diversity, a quite limited comfort zone and an unwillingness to seriously challenge and change," he wrote.

Former RAL director John Sandford, who was on the board from 2004 to 2011, says the firm has "suffered at the governance level".

"Its governance systems aren't robust enough," he says, adding that the company's capital structure requires serious examination.

A $7.5m dollar chairlift began operating at Whakapapa Ski Area this season. Photo / Alan Gibson
A $7.5m dollar chairlift began operating at Whakapapa Ski Area this season. Photo / Alan Gibson

"I think it's inhibited by the fact it was set up as a non-tax paying entity 60 years ago and I'd certainly challenge that that's the right structure going forward."

So would RAL benefit from being a more commercial operation?

"In my view, yes," says Sandford.

Tough business

Gribben, however, dismisses criticism of RAL's board and management.

"It's a tough business," he says. "I come from a private equity background and I don't think there's a more complex business I've had to deal with."

Gribben says Mazey and his management team have done a "fantastic" job, especially given the capital restraints they have often faced.

"In an operational sense you wouldn't get a better person [than Mazey] to be on top of all the issues around the mountain," he says.

That's a view shared by Kathy Guy, general manager of Château Tongariro and Wairakei Resort.

"Anything that RAL is doing I think is incredibly positive," she says. "It's a hugely capital intensive business and everyone in the industry should be getting behind them and supporting them."

For his part, Mazey says describing RAL as being in a death spiral is "a bit bloody harsh".

In an operational sense you wouldn't get a better person [than Mazey] to be on top of all the issues around the mountain.

"We trade successfully and we invest," he says, adding that Happy Valley is a "perfect" offering for beginners.

Gribben says RAL's salary bill has remained flat for some time.

"I make no apology for what we pay people and I think we are in line with any other business in New Zealand," he says.

"Without those people the business wouldn't run."

Gribben says the board has been through a period of "rejuvenation", which has included the appointment of Michelle Trapski, the former CEO of bungy operator AJ Hackett, and Debbie Birch.

Asked about McDonald's resignation letter, he says that as chairman he values diversity and debate.

It's "not at all" the case that directors can't express their views and push for change.

"Kerry McDonald didn't resign because of disagreements with other board members," Gribben says.

He says time constraints meant RAL didn't have the luxury of being able to put the Knoll Ridge Chalet contract out to tender.

"Stanley Construction had previously been involved in a lot of tenders for buildings on the mountain - they had a track record."

Nor does he think RAL would benefit from a change in its capital structure. "The business is run as a commercial operation - full stop."

Happy Valley at Whakapapa / Supplied
Happy Valley at Whakapapa / Supplied

The company says ample resources are put into maintenance. "Safety of our customers is paramount."

Expansion plans

Back up on the slopes, Mazey shows off the panorama that will greet passengers when they disembark from the proposed gondola.

Delta Corner, at an altitude of about 2000m, offers a sweeping view of the central North Island, from Ngauruhoe, Mt Tongariro and Lake Taupo all the way to Mt Taranaki in the west.

Knoll Ridge Chalet - the current destination for non-skiing visitors, particularly over summer - doesn't provide the same vista, as the views of Ruapehu's neighbouring volcanoes are blocked by the jagged Pinnacles range.

The eight-seater gondola would have a café at its top station and "snow play" facilities including toboggan trails that could operate from June through to February.

The development, which requires resource and Department of Conservation consents, is a key plank in the firm's efforts to increase year-round visitor numbers.

Boosting off-season revenue is vital to smooth out its volatile earnings that can be hit by poor snowfalls or a string of bad weather over the weekends or school holidays.

A big challenge for the company, however, is the fact that it operates in a national park and summer activities other than hiking - such as mountain biking, a big summer revenue earner for many ski resorts - are not allowed.

This place has been a big part of my life and it still will be.

Mazey says the gondola, combined with a new express quad chairlift that opened on Whakapapa's lower mountain this year, replacing two ancient double chairlifts, would "eliminate" queues at the base area on busy winter days.

RAL is courting potential investors who could help fund the gondola project, which would require a total investment of up to $37 million, he says.

There are also plans for a number of additional new lifts on both sides of the mountain.

These include a quad chair that will replace Whakapapa's Waterfall T-bar, set to be installed over the coming summer, and a six-seater express that would replace the ageing Knoll Ridge and Valley T-bars.

The investment plans have been held up by uncertainty about the Department of Conservation licences the ski areas require to operate in Tongariro National Park.

Whakapapa's licence was finally renewed in December, allowing the company to press ahead with developments on that side of the mountain.

Turoa's licence, due to expire at the end of 2022, is yet to be renewed. RAL hopes this will be resolved this year.

A key aspect of the licenses is RAL's relationship with local iwi. Ruapehu is of great spiritual significance to Maori, principally Ngati Tuwharetoa, Ngati Rangi and Ngati Uenuku.

Mazey says iwi recognise the benefits RAL offers, such as employment.

But there is a core element among Maori who would like to see the ski areas gone, he says.

Tongariro National Park is subject to a Treaty of Waitangi claim.

"There's no doubt there are many within all of the iwi around the mountain that find the fact that [skiing] happens offensive," Mazey says.

Iwi representatives did not respond to requests for comment.

Mazey, whose father John was the chief ranger of Tongariro National Park through the 1960s and 1970s, will retain a consulting role after he steps down as chief executive.

"This place has been a big part of my life and it still will be."

This article was first published on September 1, 2016

- NZ Herald

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