12 January 2015

Lisa Barrett
General Manager
Tourism, Sectors, Regions and Cities
Ministry of Business, Innovation and Employment

By Email

TOURISM GROWTH PARTNERSHIP

TGP-R2-12: Manea – Footprints of Kupe

Reference: MBIE, Tourism Growth Partnership, TGP-R2-12, letter dated 22 December2014.

Kia ora Lisa

Te Hua O Te Kawariki Trustees and the proposed directors of Manea Kupe Ltd, under the chairmanship of the Hon
Shane Jones, have met and discussed the funding application over the Christmas period, giving guidance on the
response to your letter of the 22nd of December 2014.

We appreciate the opportunity to answer the questions and requests as expressed in the letter. We also
appreciate the opportunity and encouragement to resubmit the project.

We appreciate that the questions focus is on the commercial viability of the application, however the Trust felt it
important to re-state that this project, as outlined in previous proposals and in the business plan, has other key
social and cultural objectives as well, which are in line with the stated national tourism industry strategies, as
expressed by the Minister on the MBIE website.

Strategically, we are also aware that tourism is extensively featured in the Northland Regional Growth Study
sponsored by MBIE to be launched in February 2015, with focus around the development of authentic Māori
product attractions and the revitalisation of the Twin Coast tourism route. The Manea project will be a key to
both these components, especially with the proposed development of Waipoua National Park and cycle trails.
The Hokianga has the potential to become a major destination in its own right, complementary to the Bay of
Islands and Cape Reinga. The Hokianga is rich in New Zealand history and stories, which have been under
celebrated both domestically and internationally.

The specific response to the matters listed is:

• Co-investment. The business plan identified that Nga Puhi would be an equity partner and the Northland
Regional Council (NRC), a loan investor from their Growth and Investment fund. Whilst the Trust was
comfortable with the NRC also being an equity partner and the rules of the Growth and Investment fund allow
this to occur, it was not NRCs preference. The Trust agrees that having no debt would be preferable, but can
live with 62% equity and 38% debt funding as a commercial entity.
 The Growth and Investment fund is primarily focused on gaining a return on investment for the ratepayers
with the focus on stimulating economic development. We will enter into further discussions with the NRC
through Northland Inc regarding their appetite for equity investment.

International Market Focus. We have recognised that marketing is the key to ongoing visitor patronage, but
believe that it is not all about spend - it is about establishing functional relationships. The company will keep
a constant review on the marketing spend with an intent to contribute to international marketing as
necessary. Half of the industry letters of support that have been submitted with the proposal, have come
from tourism marketers based overseas in Australia, UK, Europe and Asia.

One letter of support was from Renaissance Tours who forecast bringing more than 60,000 passengers and
crew calling at the Bay of Islands in 2016 with significant increase in the following years. They have been
scratching for suitable inventory for these passengers and see the proposed project as fitting into their visitor
template. We have had indication of support from other Cruise companies.

Recently we have seen an upsurge in overseas educational groups with 20 such groups booked in for 2015,
(more than domestic groups), mostly in the off season periods. The company has made a commitment to
support these companies going forward, as well as ongoing establishment of new relationships with a
dedicated marketing manager shared with Footprints Waipoua.

• On-going sustainability. We agree with the panel that patronage was the key risk with the project. We sense
that there is some scepticism within the panel on the visitor numbers estimated. In both the previous two
proposals and the business case, the Trust has identified and therefore spent most of the planning efforts
attempting to mitigate this risk in our planning. This involved consultation with two “independent expert”
groups as well as using the work of three “independent” studies completed in the last twelve years.

In our 2013 proposal, we based our estimations on the 10 year average of the Kauri Museum (78,000). We
also had figures from Tane Mahuta (93,000 average) and the Hokianga Isite (62,000). On recommendation
from the panel after our second proposal submission, it was suggested that we look at sensitivity based on
45,000.

As part of developing the business case, we consulted two “independent “sources. The first was through two
industry workshops with local and national inbound companies. These participating companies were, in some
cases, likely competitors for patronage with Manea but participated because they understand the strategic
benefits of building a strong West Coast attraction and the possible benefits to their business.

At the first workshop, the possibilities were discussed, and the companies were asked to provide figures
based on tourism directed visitors to the Hokianga currently. Between them, they came up with a figure of
37,444 - most of whom are international visitors. The second workshop validated these figures. We know that
the Copthorne Hokianga had 21,000 bed nights last year, therefore we are comfortable with the 37,000
figure, as historically 65% of visitors to the Hokianga are FIT and this figure did not allow for them. The table
at Appendix 1 of the business plan is the outcome of the workshops and demonstrates industries view on the
possible increase percentage per source that we could expect with effective marketing.

The second expert source was the Gibson Group, who recommended that we were light on our visitor
projection, and should be focusing on 50,000 as a start point. After some consideration we based our business
plan on the first year of 35,000.

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 Given the exhaustive process to arrive at what we believe is a very conservative figure, which is below the
panels suggested figure, we were surprised at the request for a further independent review. The Trust and
the Board have some difficulty envisaging the benefit of another study to the project and further funding for
such a study is problematic. The Trust is satisfied that local operator visitor intelligence will give us a currency
that a consultant maybe not be able to duplicate and could argue the growth rates predicted, are as those
achieved by similar international product. We are also aware that market conditions are dynamic and change
rapidly. We also note that international market focus naturally reduces repeat visitation.

The second part of this request was around refreshing and quality of the product. The authenticity of a
timeless narrative, passed down the generations, is the main attractor. This is a similar project to a permanent
gallery in a museum, which would typically mature and be fully refreshed in years 8-10.

The regeneration issue has been recognised and discussed at length with the Gibson Group in the design of
the product. There has been some allowance in the budget, under maintenance, for year’s three to five to
assist with this. Whilst we are obliged to maintain the core footprints as described in the business plan, there
is the opportunity to develop more and refined approaches using the existing technology. As other
technologies are developed, there is an opportunity to deploy this. The design of the facility will allow room
for expansion if necessary. There will be an arrangement for taonga currently stored in Te Papa and the
Auckland Museum, to be displayed on rotation at the site. Manea will also have an active and varied events
programme.

Quality standards in authenticity of delivery and service will be a hall mark of the attraction and the company
will ensure that there are systems in place for continuous improvement and seek ISO certification. The Trust
has observed the development of Footprints Waipoua which is an example of continuous review and
improvement in a culturally focused product and will be in a position to learn from the lessons of their
development.

• Commercial Returns. As indicated in answer above, we have based our first year’s profit and loss budget on
the 35,000 attendance which is the break-even point. As the marketing kicks in and tourism operators gain
confidence in the product, we are expecting modest growth rates for the first five years and then even out.
This experience is illustrated in similar existing attractions developed and modelled by the Gibson Group. Our
aim at the end of year five, is to have patronage better or equal to the Kauri Museum and the budgets reflect
this.
The sensitivity analysis for Year One is:

Targeted
Estimated Patronage 24,500 28,000 31,500 35,000 38,500 42,000 45,500
Sensitivity 70% 80% 90% 100% 110% 120% 130%
Total Income 914,170 1,044,765 1,175,361 1,305,957 1,436,552 1,567,148 1,697,743
Total costs 1,274,400 1,274,400 1,274,400 1,274,400 1,274,400 1,274,400 1,274,400
EBIT (360,230) (229,635) (99,039) 31,557 162,152 292,748 423,343
% -39% -22% -8% 2% 11% 19% 25%
Minus Interest 15,000 15,000 15,000 15,000 15,000 15,000 15,000
Minus Taxes 6,311 32,430 58,550 84,669
EBITDA (375,230) (229,635) (99,039) 10,245 129,722 234,198 338,675
-41% -22% -8% 1% 9% 15% 20%

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 The sensitivity analysis for Year two is:

Targeted
Estimated Patronage 29,400 33,600 37,800 42,000 46,200 50,400 54,600
Sensitivity % 70% 80% 90% 100% 110% 120% 130%
Total Income 1,145,480 1,309,120 1,472,760 1,636,400 1,800,040 1,963,680 2,127,321
Total costs 1,427,403 1,427,403 1,427,403 1,427,403 1,427,403 1,427,403 1,427,403
EBIT (281,922) (118,282) 45,358 208,998 372,638 536,278 699,918
% -25% -9% 3% 13% 21% 27% 33%
Minus Interest 9,000 9,000 9,000 9,000 9,000 9,000 9,000
Minus Taxes 9,072 41,800 74,528 107,256 139,984
EBITDA (290,922) (127,282) 27,286 158,198 289,110 420,022 550,934
-25% -10% 2% 10% 16% 21% 26%

The Company also expects changes in the type and makeup of the patronage as maturity and marketing impact.
As indicated in the business case, patronage is recognised as the biggest single risk in the plan and management
will be instructed to have this, marketing and costs under constant review. The costs include a $100,000 fund for
contingencies.

The Café has already opened and has operated for a month. Patronage and returns are well above forecast.

The Trust wishes to thank the panel for its constructive feedback on the business plan and looks forward to the
application being reconsidered in the near future as this application has been in progress for over eighteen
months. We submit this letter as a re-application, to be read in conjunction with the current business plan. Over
time, when we are able to clarify some of the co-funding issues we will amend the business plan.

Aku mihi anō

Wayne Hutchinson
Project Manager
On behalf of Te Hua O Te Kawariki Trust