By Loreth Beswetherick In a challenging weather year for ski resorts across North America, with skier visits that haven’t picked up in the last decade, Intrawest significantly outperformed its major ski industry competitors last year. This is the news to come out of the corporation’s annual report for 1999. It is delivered in a new-look glossy, magazine-style format. If you want the serious stuff — the full financial statements plus management discussion and analysis — go to the website. The magazine, Resort Life, contains only a summary of the numbers in a centre pull-out section. The intent, said Intrawest director of corporate communications, Valerie Sharp, was to create a reader-friendly report that would carry the Intrawest message to a broader audience, including not only shareholders, but also the tens of thousands of season pass holders, real estate owners and Club Intrawest members. While Resort Life offers a "behind-the-scenes tour of core strategies" Intrawest financials show the corporation posted increases in visits, revenue per visit and profit margins across its mountain resorts. The rapid growth in revenue and earnings, fuelled by a voracious appetite for acquisitions plus improvements in same-resort operating results over the past five years, continued into 1999. The first-year results from the newly-acquired warm-weather resorts were also largely in line with expectations. Operating highlights for 1999 included a 53 per cent increase in total revenue, from $601.7 million to $920.7 million, with ski and resort revenue increasing 57 per cent and real estate sales revenue increasing 44 per cent. On a same-resort basis — comparing the resorts owned by Intrawest in 1998 to the same resorts in 1999 — revenue increased 21 per cent. Winter revenue was up 18 per cent with skier visits up nine per cent and winter revenue per visit up eight per cent. Intrawest’s expansion of its non-winter business is also paying dividends, with same-resorts’ non-winter revenue up 37 per cent over the previous year. Overall, same-resort earnings increased 30 per cent from $80.7 million to $104.9 million. On the real estate side, sales increased 44 per cent from $226.4 million to $326 million. Intrawest sold 1,126 units versus 763 the previous year. The outlook for ski and resort operations, however, indicates a slow-down on resort acquisitions in favour of maximizing existing assets. Intrawest has been in a major expansion phase over the past five years, having acquired seven mountain resorts, two warm-weather locations and various other related businesses. The planned integration of the new businesses into the company’s network of resorts is reported to be mostly complete and a large portion of the planned capital expenditures to update the resorts will have been invested by the start of this winter season (1999/2000). The primary focus over the next year will now be to increase returns on capital from existing assets by filling capacity during non-peak periods, increasing revenue per visits and continuing to improve margins. As CEO Joe Houssian said in his Resort Life interview: "We do not need to acquire anything to maintain our 20 per cent plus growth rate. This growth will come form our existing assets." Houssian pointed to Whistler-Blackcomb as an example. He said Whistler-Blackcomb is the corporation’s most mature asset yet it still has a lot of growth potential. "At our other resorts, we have only just put the infrastructure in place to turn them into attractive year-round facilities... I am very comfortable knowing we can meet our financial objectives by building on what we already own." But that doesn’t mean the corporation isn’t looking beyond shorter-term maximizing of its assets. "We continue to examine other opportunities," said Houssian. One of those is warm-weather destinations, another is possible European expansion. "We continue to be presented with new ski resort deals and we will continue to grow Club Intrawest," said Houssian. "Recently a senior team of our real estate executives went to Europe to look at opportunities to create villages at some of our resort operations there controlled by Compagnie des Alpes. They were very intrigued and were heading back again in October." Houssian said competitors haven’t managed to match Intrawest’s performance because they are primarily ski hill operators. "We consider ourselves to be more of an integrated leisure player." He said Intrawest offers a leisure experience as well as expertise in building real estate villages. "To my knowledge we are the only people in the world who have successfully married these two disciplines." When Intrawest got into the ski industry business in 1986 with a share in Blackcomb, the corporation hit upon a formula that has been applied to, and worked financial magic, at all its resorts. Referred to as the "revenue gears," the recipe works like this: Start with acquiring a resort and build an animated village so, once people come, they stay longer and spend more. All this creates a shift to the next gear and attracts more visitors who come more often, spend more money and bring their friends. More accommodation is then built and diverse attractions added so more guests come. Additional guests, more often, leads to the expansion of year-round facilities, maximizing the use of shops, hotels, conventions facilities and restaurants. As occupancy and room rates climb, so does demand for resort real estate, creating a surge in real estate sales. All this results in a total resort experience which brings year-round guests, generates financial critical mass and leads to the acquisition of more resorts. Houssian said the key discovery learned at Whistler was the importance of the direct relationship between leisure activities on and around the mountain and the village at its base — a village with "entertaining shops, great restaurants, first-class lodging and no cars." Another reason for Intrawest’s edge over the competition is a strategy to mitigate the ski industry’s dependence on weather. Its holdings are geographically diverse stretching over 10 different climactic zones. "We have built this company so weather is not a concern," said Houssian. "We’ve had El Niño and we’ve had La Niña and we’ve had years that didn’t have a label on them and every year we continue to hit records." Intrawest outshone competitors with holdings in a cozy geographic concentration. For example, Vail Resorts Inc. has its four premier resorts in the Colorado Rockies, an area that suffered through a snow drought much of last season. While some Intrawest resorts were not immune to last season’s weather anomalies, any dips were offset by epic snow in other areas and the record performance of 2.14 million skier visits at Whistler-Blackcomb. The traditional seasonality of the ski industry is also mitigated through the acquisition of summer operations and growing summer season and shoulder season business. Risk on the real estate side is managed by staying out of the construction business, instead engaging general contractors to construct Intrawest projects. The corporation structures construction contracts on a fixed-price basis so cost overruns are at the contractor’s risk. Houssian said real estate revenue is predictable because projects are pre-sold through pre-launch programs. He added an obvious trend in his company relates to how Intrawest brand development, customer loyalty programs and the process by which people book vacations work in partnership. To capitalize on this link Intrawest has hired two new senior executives, one to head up Intrawest Vacations, the new travel reservations and vacation packaging arm, and another to focus on Intrawest Lodging which operates and manages more than 5,000 condominium units. Houssian said new technology is also playing a key role and Intrawest resort web sites are now being customized to meet the guests’ needs. "Dealing with our customers in a more personalised fashion, understanding their needs and desires, and then anticipating them, are key." So why, the question is posed, is Intrawest’s success not fully reflected in its stock price? Houssian said Intrawest, at the surface, is not easy to understand. "You’ll either see us as a ski operator or you’ll see us as a builder and seller of real estate." But, said Houssian, Intrawest is really about the total experience and the market is finally beginning to understand that.