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Edited Transcript of SGR.AX earnings conference call or presentation 17-Feb-21 11:00pm GMT

·39 min read

Half Year 2021 Star Entertainment Group Ltd Earnings Presentation Queensland Feb 18, 2021 (Thomson StreetEvents) -- Edited Transcript of Star Entertainment Group Ltd earnings conference call or presentation Wednesday, February 17, 2021 at 11:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Harry Theodore The Star Entertainment Group Limited - CFO * Matthias Michael Bekier The Star Entertainment Group Limited - MD, CEO & Executive Director ================================================================================ Conference Call Participants ================================================================================ * Anthony Longo CLSA Limited, Research Division - Research Analyst * Bryan Raymond Citigroup Inc., Research Division - Director * David Fabris Macquarie Research - Research Analyst * Desmond Tsao Goldman Sachs Group, Inc., Research Division - Associate * Larry Gandler Crédit Suisse AG, Research Division - Director * Matthew H. Ryan UBS Investment Bank, Research Division - Executive Director and Research Analyst * Rohan Sundram MST Marquee - Gaming and Contractors Analyst * Sacha Krien Evans & Partners Pty. Ltd., Research Division - Executive Director of Gaming & Leisure ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for standing by, and welcome to Star Entertainment H1 '21 Results Call. (Operator Instructions) I'd now like to hand the conference over to your first speaker today, Mr. Matt Bekier, CEO. Thank you. Please go ahead. -------------------------------------------------------------------------------- Matthias Michael Bekier, The Star Entertainment Group Limited - MD, CEO & Executive Director [2] -------------------------------------------------------------------------------- Thank you, Tara. Good morning, everybody. I've got here with me Harry Theodore, our CFO; and Mark Wilson from Investor Relations. In terms of the results, I'm just going to touch on the highlights. For the first half, we delivered normalized EBITDA of $226 million, which was down 26.6% on last year. At the statutory level, that stands 4.2%, which reflects the fact that we had almost no international business this half and a poor win rate last year. We think that in the circumstances, we have produced a respectable result. And there's really 4 things I want to call in those numbers. The first thing is, we did everything we said we're going to do to get out of the COVID disruption, and our actions are having the desired effect. We took our cost. We cut CapEx. We sold assets. And as a result, we improved the balance sheet without raising fresh capital. In fact, we were able to reduce borrowings by $151 million in this half. Second, with these steps to contain costs, which build on the work that we've been undertaking last year, we're getting good financial outcomes. Most importantly, we've reduced our fixed operating costs substantially. You can see that if you turn to Page 15 of the slide pack, where you see that our salaried headcount, which is a proxy for fixed cost, is down some 650 roles over the last 2 years. This represents 25% reduction. As a result, we are seeing a significant margin expansion to over 30% of revenue. I need to acknowledge that this was helped by JobKeeper, but even without JobKeeper, our margins would have expanded. Thirdly, our domestic business is very resilient. We knew that, you knew that, but we have more evidence for this in this period. You see on Page 7 for Sydney and Page 10 for Queensland how quickly the business responds to any easing of operating conditions. The fact that Queensland is showing year-on-year growth in the domestic revenue further speaks to the robustness of the domestic business. This is, to a very large extent, driven by the loyalty base and the strength of the revenue growth that we've seen from that loyalty base across all states despite all the ups and down in the operating conditions during the half. Fourth point I want to make is that our capital programs are progressing well. In Sydney, we brought in the Sovereign Room on time and on budget, and we're able to grow revenues in that segment year-on-year despite a cap of maximum 300 guests in the room. The Room, by the way, was built for over 1,000 people. So now that the conditions are easing, we're looking forward to further growth. In the Gold Coast, the Dorsett Hotel is progressing well. On the back of strong domestic demand for apartments in our location on Broad Beach, we've been able to greenlight the next tower that we'll build with our partners. It has the same attractive capital-light economics as the first tower has. And finally, at Queen's Wharf in Brisbane, the project continues to track well to plan and budget. It's coming now very much into focus with an anticipated opening from late 2022 onwards. Just turning to trading in the second half very quickly. It looks very much like the first half with 2 differences. First of all, we no longer receive JobKeeper subsidies any of our locations. And secondly, we are experiencing an easing of restrictions in Sydney since February 12, which is accelerating our revenue. I will now hand over to Harry to take you through the financials. -------------------------------------------------------------------------------- Harry Theodore, The Star Entertainment Group Limited - CFO [3] -------------------------------------------------------------------------------- Great. Thanks, Matt. Look, overall, as Matt said, we've made good progress on both costs and balance sheet in the period over the half. I'm just going to briefly touch on the key points of each of costs, debt and CapEx. So firstly, on costs, the initiatives in the half were obviously significant. And really put them into 2 buckets. On one side, we managed the costs in the half to the reduced operating footprint at each property. That meant focused initiatives in a number of areas like venue operating hours, overhead cost, staff rostering, marketing costs, procurement spend, and a number of other areas. Given the extent of the operating restrictions, we really had to tactically reduce our. (technical difficulty) As a result of these initiatives, OpEx was down about $155 million or 30% on the PCP, even if you exclude JobKeeper subsidies and absorbing incremental costs we're carrying on COVID safety initiatives, which was about -- just under $10 million for the half. On the other (technical difficulty) -------------------------------------------------------------------------------- Operator [4] -------------------------------------------------------------------------------- Ladies and gentlemen, we appear to be having some technical issues with our speaker line. Please stand by, and I'll address the situation. Once again, please stand by, and we'll get the speakers back online. -------------------------------------------------------------------------------- Harry Theodore, The Star Entertainment Group Limited - CFO [5] -------------------------------------------------------------------------------- Okay. Sorry, hopefully, you can all hear me now. The line dropped out. I believe the last thing you heard when I was talking about incremental COVID costs. So I might just start back a little bit. So just on the costs, the initiatives in the half were significant and we. (technical difficulty) buckets. On one side, we managed the costs in the half to the reduced operating footprint at each property. Given the extent of the operating restrictions, we really had to tactically reduce a large part of the cost base as a result of those initiatives OpEx about $155 million or 30% on the PCP, even excluding JobKeeper subsidies and absorbing incremental COVID costs from safety initiatives that we had in place that were just under $10 million for the half. On the other side, we've been running a fixed cost or overhead reduction program, which is targeting $50 million in permanent cost reduction. That program is well advanced now with around $30 million of annualized savings already executed in the first half of the financial year, and we've got plans for the remainder to largely be in place by the end of the financial year. As Matt said, we've provided some detail on the areas of focus for that program on Slide 15. So on costs, we're focused on managing them to the short-term challenges from COVID, but also continued the fundamental restructure of the cost base, which should give us good leverage as operations return to more normal conditions and revenues recover post-COVID. Secondly, on balance sheet. We made really good progress in the half on the pathway to degearing. We agreed covenant amendments with lenders to get us through the short-term impacts of COVID. We've managed cash flow effectively. We've paid down $150 million of debt in the half, exclude any -- excluding any material proceeds from asset sales. And we've continued to advance the work on the asset sales we discussed during this year. So overall, we've made good progress against the plan. We set out at the full year results and fill the balance sheet, and gearing has a clear path now to get back to where we want it to be. Lastly, on CapEx. We spent just over $50 million of CapEx on balance sheet in the half. That's the lowest level of CapEx in a half since the company was established back in 2011. The JV contribution is now reducing significantly with Queen's Wharf contributions ceasing at the end of March this year. Looking forward, we're now in a position, as we've said before, that we can see CapEx stay comfortably below D&A for the foreseeable future. We can do that because we've just completed a very significant investment program in Sydney and Gold Coast. (technical difficulty) on Slide 16, just how significant that program has been over the last 6 years. We're also (technical difficulty) benefits of the capital-light JV investments starting to come through with the Dorsett tower in the Gold Coast to begin opening from mid-FY '22. That project will add significant growth investment to the Gold Coast with limited draw on our own balance sheet, which we've discussed before. With that, I'll hand back to Matt to discuss the priorities. -------------------------------------------------------------------------------- Matthias Michael Bekier, The Star Entertainment Group Limited - MD, CEO & Executive Director [6] -------------------------------------------------------------------------------- Thank you, Harry. I'm pleased to say that despite the disruption created by COVID, our strategy remains (technical difficulty) we're seeking to build the premier integrated resort company in Australia, and we seek to do so in a capital-light fashion. We're getting closer to this aspiration with the additional hotel and the Dorsett Hotel and entertainment spaces opening in the Gold Coast later this year, and as I said, Queen's Wharf opening a year after that. Our priorities for the year ahead reflect the execution of this strategy with 2 important modifications: one, COVID is forcing us to operate more conservatively than we would normally do. This will stay with us even as restrictions ease. And also, there's more work to be done, as Harry pointed out, to repair the balance sheet through further debt reduction, but we feel we're well underway on that journey. The second area of difference related to the Bergin report, which is handed down on the 1st of February. Apart from the uncertainty it creates as to when our competition can commence in operations in Sydney, the report will also lead to a changed regulatory environment. We're looking forward to working with the regulator to understand what this means for us, especially in respect of the future of the international VIP business. That's where we stop our remarks. And I'm happy to take any questions you may have. Thank you. Back to you, Tara. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question comes from Desmond Tsao at Goldman Sachs. -------------------------------------------------------------------------------- Desmond Tsao, Goldman Sachs Group, Inc., Research Division - Associate [2] -------------------------------------------------------------------------------- First question is just on costs. You clearly done a really good job on costs this half. I guess to what extent do you think there could be further cost-out opportunities through the business potentially that you've identified since you've embarked on this journey last year in light of the soft revenue environment? And I guess on the contrary, to what extent should we think about some costs coming back in once the operating environment normalizes or whether or not there's sort of implications from the Bergin report that requires more elevated compliance and regulatory spend? -------------------------------------------------------------------------------- Harry Theodore, The Star Entertainment Group Limited - CFO [3] -------------------------------------------------------------------------------- Thanks, Desmond. It's Harry. I'll take it, and Matt can add to the response. Look, in the short term, looking into the second half, we're going to continue to manage the cost base in the same way we have in the first half. So we still got a number of operating conditions that are not normal. We've got asset centers that haven't come back. So we're not back to normal yet. Obviously, we've had some easing in Sydney. And because of that easing, volumes will increase. And commensurately, we'll put costs back on in line with those volumes. But the approach you've seen in the first half, we will continue into the second half. Look, longer term, when COVID -- when the restrictions fall away and the operations move back to a normal level, in theory, the costs come back in line with the operating footprint. As I talked about, we've been running a program to look to get $50 million of permanent cost-outs against that normal base of costs, and we're making progress there, and I'm comfortable we will get those savings. Look, there are other areas like marketing, as an example, [with the write back]. It's probably a bit early to make a call that any of that is sustainable. In F&B, obviously, we're running sort of more finite menu options. I think all of that works in the short term. Whether there are other more permanent savings in some of these areas, we don't want to bank on them. That's why we're running the fixed cost program. But obviously, as (technical difficulty) return to more normal and we assess the competitive environment, we'll continue to look for those opportunities as well. -------------------------------------------------------------------------------- Matthias Michael Bekier, The Star Entertainment Group Limited - MD, CEO & Executive Director [4] -------------------------------------------------------------------------------- Desmond, I would just add one more thing. The -- as you know, 60% of our cost is labor. And most of that is (inaudible) labor, particularly in table games and in F&B. There is a long-term push for us to drive productivity in hospitality and in gaming. In gaming, I think, for the next 3 years, we have a pretty clear road map. We are, I think, leading the pack with our investments into smart tables, which allow us to track customer play effectively. It also allows you to dramatically reduce the amount of administration time that dealers have to spend in terms of balancing the tables. As we expand that, that allows us to reduce the cost of supervision, allows us to reduce the cost in administration in the cage with balancing and so on. So there is more to come, but that will (inaudible) years to wash out. -------------------------------------------------------------------------------- Desmond Tsao, Goldman Sachs Group, Inc., Research Division - Associate [5] -------------------------------------------------------------------------------- Great. And then the second question is just around asset recycling. I would appreciate if you could just maybe elaborate a bit more around the timing of the proceeds and completion of the VIP assets and the Car Park concession. And then I also noticed, I think you made some comments around the potential review of other noncore assets. If you could maybe outline what some of these assets in the quantum would in scope for review are, that will be great. -------------------------------------------------------------------------------- Harry Theodore, The Star Entertainment Group Limited - CFO [6] -------------------------------------------------------------------------------- Sure. Yes, it's Harry again. Look, in terms of the current program, we have contracted the sale of 1 of the aircraft, and that should complete in the next couple of weeks. So the proceeds for that are around $30 million when that comes through. The Car Park concession in Sydney that we talked about at the full year results continues to progress. That's an active process, which we have a number of bidders still involved in the process. Look, that one, we think, makes a lot of sense to do and was a pre-COVID initiative. We restarted the process when the properties reopened. It's an asset that we think long term is a very valuable asset that should attract a high multiple. And provided we get the sufficient value through the process, we'll sell it. Look, I'm hopeful that we get that done this half. But ultimately, it's not something we have to do. I talked about the balance sheet repair, the covenant waivers. This is really only something we do if we get the right price, and that's what we're working on, and that's an active process. Look, in terms of other assets, we've talked about before, there's sort of 3 categories. There's car parks, there's retail and hotels that make the most sense. And I think we want to do the Sydney asset first to really demonstrate the value -- underlying value of these sorts of assets and then progressively we'll run a program to look at which other assets are in the best state to get the best multiple arbitrage on them. -------------------------------------------------------------------------------- Operator [7] -------------------------------------------------------------------------------- Our next question comes from Larry Gandler at Credit Suisse. -------------------------------------------------------------------------------- Larry Gandler, Crédit Suisse AG, Research Division - Director [8] -------------------------------------------------------------------------------- Great. Can you hear me guys? -------------------------------------------------------------------------------- Matthias Michael Bekier, The Star Entertainment Group Limited - MD, CEO & Executive Director [9] -------------------------------------------------------------------------------- Yes. Yes. -------------------------------------------------------------------------------- Larry Gandler, Crédit Suisse AG, Research Division - Director [10] -------------------------------------------------------------------------------- Fantastic. Look, I just wanted to delve a bit more into cost. As you guys operated through COVID, and you're seeing what's working in that environment, can you maybe talk to how the business might change post-COVID, perhaps as you're tapping into your loyalty players a bit more or maybe that's sustainable and you don't need the visitation in the future? What does the new casino look like? -------------------------------------------------------------------------------- Matthias Michael Bekier, The Star Entertainment Group Limited - MD, CEO & Executive Director [11] -------------------------------------------------------------------------------- Look, Larry, I'm probably going to show my colors here as a absolute dinosaur. But I hope that we -- the future looks not that different from the past. And I say that because what we've achieved during COVID was achieved in quite extraordinary circumstances. And if you take the Sydney property, for example, where we really just throttled visitation to the top tiers of the loyalty base, that creates some opportunity for us. Now that the restrictions are coming off to let more customers back in, including more lower-tier customers and unrated customers. But we can't keep going back to the same top-tier customers all the time. There's -- we take our responsibility around RG, responsible gambling very seriously. And we need to be careful that we refresh the pool of players and we build up a sustainable customer base. So I'm keen to bring new customers in and sign them up into loyalty and then go and develop them just a way like the way we have the current cohort of players. The point about cost though is we've learned a lot during this COVID, and we have reduced -- if you want the breakeven point for our operations substantially. We have focused pretty hard on fixed cost, and that will serve us well going forward. As revenue comes in, domestic revenue, which is higher margin than the international business, I want us to capture as much as that domestic revenue. And I think given the -- if you keep our fixed cost at the level that we have it, we will see margin expansion that is quite attractive. -------------------------------------------------------------------------------- Larry Gandler, Crédit Suisse AG, Research Division - Director [12] -------------------------------------------------------------------------------- And in terms of the total headcount, I know that it's -- the salaried staff have come down based on your presentation here. I'm just wondering about the overall group if we kind of put aside what you just showed us on the salary, do you expect that you'll be able to operate the casinos with significantly reduced floor staff post COVID? -------------------------------------------------------------------------------- Harry Theodore, The Star Entertainment Group Limited - CFO [13] -------------------------------------------------------------------------------- Yes. Look, I'll take that, Larry. So the salaried staff all full-time employees that are on a salary. The rest of the staff base are on enterprise agreement they get rostered on, right? And they -- full-time, part-time and casual components across the group, but they're all sort of rostered on. And therefore, you can roster them on based on the demand you have in that particular area. They fluctuate in terms of full-time equivalent numbers every month based on demand, and you can manage them. In the short term, they're obviously being managed to the operating footprint we have available across gaming and nongaming. As the operating footprint comes back and increases, those numbers will increase as well, commensurate to the volumes. I think what Matt was talking about before is table game supervision, as an example, you roster on ratio of supervisors to tables numbers. That's where we're really focusing our attention around making sure we get those ratios as tight as possible and can operate table games with appropriate supervision leveraging technology and with the right sort of labor mix. The frontline staff that are serving the customer, we roster them on based on where the demand is. And we want, as COVID restrictions ease, the demand comes back, we'll roster more staff on. -------------------------------------------------------------------------------- Matthias Michael Bekier, The Star Entertainment Group Limited - MD, CEO & Executive Director [14] -------------------------------------------------------------------------------- And Larry, Harry mentioned that we have direct COVID-related costs through hygiene marshals and so on that we estimate is just short of $10 million in the half. On top of that, we have reduced productivity because we have to -- we can't put it in there as many people into the restaurants. There's a 4-square-meter rule. We could only serve 3 gamers at each table. That's now gone to 5 in New South Wales, 7 in Queensland. So as this all relaxes, we'll get back to better productivity numbers. -------------------------------------------------------------------------------- Larry Gandler, Crédit Suisse AG, Research Division - Director [15] -------------------------------------------------------------------------------- Yes. Okay. Understood. Last question for me. Just in terms of JobKeeper. You mentioned you're no longer on JobKeeper. I thought it was -- the program was going to end March. And so maybe you could just clarify that. -------------------------------------------------------------------------------- Matthias Michael Bekier, The Star Entertainment Group Limited - MD, CEO & Executive Director [16] -------------------------------------------------------------------------------- Yes, the program does, but we haven't qualified for the last tranche of the program. So we qualified for all properties until the end of September. At the end of September, the Queensland properties and all group staff dropped off because the revenue performance was sufficient that we didn't qualify for the next tranche. Sydney, obviously has had still very significant impacts on the operation of the business. So that did qualify to December, but the revenue has improved sufficiently now in Sydney that we didn't reapply for the March quarter. -------------------------------------------------------------------------------- Operator [17] -------------------------------------------------------------------------------- Our next question comes from Bryan Raymond at Citi. -------------------------------------------------------------------------------- Bryan Raymond, Citigroup Inc., Research Division - Director [18] -------------------------------------------------------------------------------- I'm just interested in Gold Coast performance when borders were open. The overall numbers are quite pleasing given the restrictions. But just to get a feel for how the go-forward might be. Have we seen -- I guess, Brisbane as well, when we didn't see closed domestic orders, what sort of run rate of growth were you guys experiencing there? -------------------------------------------------------------------------------- Matthias Michael Bekier, The Star Entertainment Group Limited - MD, CEO & Executive Director [19] -------------------------------------------------------------------------------- Yes. The Gold Coast had an exceptional (inaudible). And that's when the borders -- I think the (inaudible) January again. We've had -- and the demand continues to be very strong into the (technical difficulty) is pent-up demand to get up to the Gold Coast, possibly can. The Gold Coast benefited a little bit from the shutdown, particularly in December in Brisbane, which then pushed a lot of the business from that sort of South of Brisbane into the Gold Coast. But we are very pleased with the run rate in the Gold Coast and the mix. The fact is, as soon as the flights open up, domestic salespeople were able to sell the Gold Coast really, really easily. And in January, we had a record. We had a record inbound traffic number for our domestic salespeople into the Gold Coast. So we're happy with the performance, and we think a lot of that is sustainable because the product is getting very good. -------------------------------------------------------------------------------- Bryan Raymond, Citigroup Inc., Research Division - Director [20] -------------------------------------------------------------------------------- Right. I appreciate that. I mean in terms of the overall magnitude would be in the order sort of 20% plus for those times when the borders were opened that you -- when -- for the Gold Coast and Brisbane? Or would it be just sort of -- given you're up about 8% overall, I thought it should be a healthy double-digit run rate. Is that a fair assumption to make? -------------------------------------------------------------------------------- Matthias Michael Bekier, The Star Entertainment Group Limited - MD, CEO & Executive Director [21] -------------------------------------------------------------------------------- Yes. Look, I'd say Brisbane doesn't -- Brisbane is very much a local market proposition in its current form for us given the property's bill. For the Gold Coast, we've given you a number for January. Gold Coast is the first month this financial year, that -- January is the first month that Gold Coast is up on the pcp. December was pretty close to pcp, but not up. And in the previous months, we were tracking down. So that gives you a sense that since the borders have opened, you've got the average for the half. There is a meaningful improvement in the Gold Coast relative to the prior period. -------------------------------------------------------------------------------- Harry Theodore, The Star Entertainment Group Limited - CFO [22] -------------------------------------------------------------------------------- And Bryan, the thing with the Gold Coast is Monday through to Friday, it's pretty quiet, still is. And normally, we have convention business. It was only now in February that the first few conventions have started to come back into town. And once that business builds back up again, that's when the property is really flying. Because then we have the weekend and holiday traffic as well as the base load from the convention business. -------------------------------------------------------------------------------- Bryan Raymond, Citigroup Inc., Research Division - Director [23] -------------------------------------------------------------------------------- That makes sense. Okay. Great. So just the other one is just around the regulatory backdrop. In a world where Australia doesn't allow junkets to operate here, how do you think about how you position your capital investment within the business? Obviously, it's pretty -- I would argue the domestic business is higher quality than what you get out of the VIP business, particularly junket side of that. Like what would you -- how would you guys position Star overall in terms of your investment decisions in a world where there's no junket business available too? -------------------------------------------------------------------------------- Matthias Michael Bekier, The Star Entertainment Group Limited - MD, CEO & Executive Director [24] -------------------------------------------------------------------------------- Yes. Bryan, you know that for the last few years, we've talked about diversifying the sources of revenue in our VIP business away from the dependence on junkets, more towards (inaudible) business and particularly more towards the Premium Mass business. The Premium Mass business looks very much like the top end of our local (technical difficulty) I totally agree with your assessment about the reliability and the margins and the quality of our domestic business. We want to complement that with the Premium Mass business. So as soon as international flights opened up again, we've kept (inaudible) in Singapore and in Hong Kong. We are going to (inaudible) mass aggressively. In terms of what that means for us, well, we need more hotel rooms. We need more hotel rooms, and we need fewer suites. And as you would have seen, we don't need debts as much as we would have under a junket impact (inaudible) spaces. Most of the premium mass players play in what we call the Sovereign Room, so the premium private gaming rooms. So the assets are quite complementary that we're building here. And we don't anticipate a significant change in the capital program. -------------------------------------------------------------------------------- Bryan Raymond, Citigroup Inc., Research Division - Director [25] -------------------------------------------------------------------------------- Would it be accretive overall to -- or like how accretive would it be to overall return on capital in the business if you had no junket business and you're focused on that domestic and premium international Premium Mass business? -------------------------------------------------------------------------------- Matthias Michael Bekier, The Star Entertainment Group Limited - MD, CEO & Executive Director [26] -------------------------------------------------------------------------------- If we were able to substitute the turnover from VIP with Premium Mass business, we would run the business comfortably at a 30% EBITDA margin. So the junket business was running at about 10% EBITDA to revenue ratio. The Premium Mass business is running at about 30%. Now the reality is we'll need to build up a massive business to do that because there's a lot of trips that need to be generated to substitute some of these very large players. -------------------------------------------------------------------------------- Operator [27] -------------------------------------------------------------------------------- Our next question comes from Rohan Sundram at MST. -------------------------------------------------------------------------------- Rohan Sundram, MST Marquee - Gaming and Contractors Analyst [28] -------------------------------------------------------------------------------- Actually just as a follow-up on Bryan's question. You might have partly answered it actually. In that world where there are no junket relationships or hypothetically, no visitations from China, what would be your willingness to build up a VIP business from Southeast Asian direct relationships? Is there much willingness there given what you just said around premium mass? And do you think you could build a business, a viable one just on the back of that? -------------------------------------------------------------------------------- Matthias Michael Bekier, The Star Entertainment Group Limited - MD, CEO & Executive Director [29] -------------------------------------------------------------------------------- We do -- we've always done direct business with customers that have been established credit record and capability of paying. That doesn't change, right? And we will continue to do that with the appropriate level of caution around (inaudible) obviously. The sweet spot for us, though, is premium mass. We are very focused on premium mass, and there's a reasonable amount of work going on right now to prepare ourselves for when we can go after that business again. -------------------------------------------------------------------------------- Operator [30] -------------------------------------------------------------------------------- Our next question comes from Anthony Longo at CLSA. -------------------------------------------------------------------------------- Anthony Longo, CLSA Limited, Research Division - Research Analyst [31] -------------------------------------------------------------------------------- I know you said that the comments on the Bergin inquiry, you were limited to what you've said today, but I thought I'll give it a crack anyway. So rather than, I guess, focusing on junkets and the other things, but are you able to perhaps outline what the -- what your current expectations are as to how things may change in the context of that report, particularly focused on maybe the cost, compliance costs as a result? -------------------------------------------------------------------------------- Matthias Michael Bekier, The Star Entertainment Group Limited - MD, CEO & Executive Director [32] -------------------------------------------------------------------------------- Look, we don't -- it's a little bit early to really think about that. There's reference to a compliance audit that needs to be undertaken by an external compliance auditor. That -- I kind of imagine that being a gigantic amount of money. I note they are already paying a supervisory levy of about $8 million to ILGA at this point, which is different from Crown. If they build up their own regulator, I think I can't imagine that they need a lot more than -- and we have more people contributing to the bill. I don't expect that number to go up all that dramatically. So I'm not that worried about of regulation and compliance. I think we pay a lot of that already, and we do a lot of that. And I'm sure it's not in the regulator's intention to overburden the business with additional regulation. I think they just want to make sure that the regulation is a lot more prescriptive and unambiguous about what you can and can't do. I don't know if you've seen our submission to ILGA, but we embrace that. We were very supportive of that. -------------------------------------------------------------------------------- Anthony Longo, CLSA Limited, Research Division - Research Analyst [33] -------------------------------------------------------------------------------- Understood. Appreciate that. Second one for me, a little bit. The cash flow again looked pretty strong. So CapEx was lower for the half, as you mentioned, but the guidance is similar to what you have. How should we be thinking about CapEx going forward in the context of the guidance that you've given, but also with respect to cash flow conversion going forward? And then perhaps a comment on why those JV contributions are below the previous guidance as well. -------------------------------------------------------------------------------- Matthias Michael Bekier, The Star Entertainment Group Limited - MD, CEO & Executive Director [34] -------------------------------------------------------------------------------- Just on the CapEx profile going forward. The Gold Coast, if you -- look, if you look at Queen's Wharf, Queen's Wharf comes out of the ground. Once we start to open up, that's going to be a brand's banking new property. That won't require maintenance CapEx. So I expect for Brisbane to be that -- particularly in the early years to be substantially -- CapEx to be substantially below D&A. In the Gold Coast, Gold Coast is an oldish property. We still are catching up with some maintenance CapEx. But we have 2 new hotel towers, the third one coming through. The last big renovation isn't that long ago. I don't expect the Gold Coast to run ahead of D&A. And then Sydney. Sydney really depends on what we can do with our development opportunity (inaudible). If we do get these development opportunities up, we expect that they will be joint venture developments as well. So Sydney will probably running closest D&A, but I don't expect that to be above that -- above either. So I think the medium-term outlook on CapEx is pretty good -- on cash flow generation is pretty positive. In terms of the joint venture contribution, I'll hand you to Harry. -------------------------------------------------------------------------------- Harry Theodore, The Star Entertainment Group Limited - CFO [35] -------------------------------------------------------------------------------- Yes, we purchased the property adjacent to the casino in Sydney with our partners. It's part of that master plan that Matt referenced. And we ended up funding that fully off balance sheet. So that's the main driver of the difference. If you look at the JV contributions this year, it's almost exclusively Queen's Wharf, and that has continued to track to plan. And as I said in the comments that the contributions there cease at the end of March. And then that project is fully funded with the debt facility we have in place. -------------------------------------------------------------------------------- Anthony Longo, CLSA Limited, Research Division - Research Analyst [36] -------------------------------------------------------------------------------- That's great. And look, I'll try not to over stay my welcome. So one last question for me. And in terms of -- so historically, you've spoken about the Gold Coast master plan, and just now you mentioned that you sort of need more hotel rooms and the like. I mean, given where we are at the minute, I mean, what's the appetite to potentially accelerate that and get more towers up? Is that something that you're looking at, at the minute now? -------------------------------------------------------------------------------- Harry Theodore, The Star Entertainment Group Limited - CFO [37] -------------------------------------------------------------------------------- Yes, I'll take that one as well. So the Dorsett tower is obviously well under construction, progressing to plan and (inaudible). We then have another tower that's the next one in the stage master plan that's adjacent to it. And we have committed now to that tower because the presales has hit an acceptable level. And so that has just started construction, and that's sort of an FY '25 completion date. That will have a 5-star hotel in the bottom and the apartments on top. And the economics are very similar, I think, as Matt mentioned that the outset to Tower 1. So similar overall construction or development cost for the program, the same process where we put some equity in upfront and when the apartment sales complete, we get it back. -------------------------------------------------------------------------------- Matthias Michael Bekier, The Star Entertainment Group Limited - MD, CEO & Executive Director [38] -------------------------------------------------------------------------------- The other question is, can we do more? Yes, the master plan has room for 3 more towers. I think we might just take a breather for a little while here. And in particular, I want to see -- we've modeled the flow-through from the additional hotels and apartments on to the gaming floor. I want to see that come through. And as I said, the Dorsett will hopefully open up before the towers complete and all the apartments have been taken up. But I want to see some of those benefits flow through before we chew off more. -------------------------------------------------------------------------------- Anthony Longo, CLSA Limited, Research Division - Research Analyst [39] -------------------------------------------------------------------------------- Understood. Now, look, thanks very much, Matt and Harry. And Matt, you're hardly a dinosaur, so thanks very much. -------------------------------------------------------------------------------- Harry Theodore, The Star Entertainment Group Limited - CFO [40] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [41] -------------------------------------------------------------------------------- Our next question comes from Sacha Krien at Evans & Partners. -------------------------------------------------------------------------------- Sacha Krien, Evans & Partners Pty. Ltd., Research Division - Executive Director of Gaming & Leisure [42] -------------------------------------------------------------------------------- I got cut off for a while on the course. So I might be repeating things, so apologies for that. Matt, I just wanted to ask you what your view was, if you have any concerns around the source of funds declaration that was part of the regulatory reform recommendations put forward in the Bergin report? -------------------------------------------------------------------------------- Matthias Michael Bekier, The Star Entertainment Group Limited - MD, CEO & Executive Director [43] -------------------------------------------------------------------------------- Not really. Look, we already do that for our private gaming customers in April. It's now going to be a question of how we operationalize that requirement. So no, not really. -------------------------------------------------------------------------------- Sacha Krien, Evans & Partners Pty. Ltd., Research Division - Executive Director of Gaming & Leisure [44] -------------------------------------------------------------------------------- Okay. That's good to hear. Your cash flows -- I mean, if you get the CapEx sale away, it looks like you're going to be, to me anyway, within your target net debt-to-EBITDA range, which I think is 2 to 2.5. So probably below that pretty soon after given the sort of CapEx and JV contribution profile you're talking about. I mean, maybe -- if you could maybe talk us through what you think some of your strategy might be with the additional cash at that point? Or too early? -------------------------------------------------------------------------------- Matthias Michael Bekier, The Star Entertainment Group Limited - MD, CEO & Executive Director [45] -------------------------------------------------------------------------------- Look, too early to be specific, but we've said for -- consistently that once Queen's Wharf comes out of the ground, we'll be throwing off a lot of excess cash. And I think the base strategy here has to be that we start to return some money to shareholders. The form which it takes, we will sort of decided upon a bit closer to that point. -------------------------------------------------------------------------------- Sacha Krien, Evans & Partners Pty. Ltd., Research Division - Executive Director of Gaming & Leisure [46] -------------------------------------------------------------------------------- Yes. Okay. Last question. I mean, just looking at the New South Wales EGM market, hubs and clubs there, they're up year-on-year it looks like for most of the half. So they're clearly doing a bit better given they're not subject to the same level of restrictions that you guys are. In the periods where you haven't had tight restrictions, have you had any trouble reengaging some of those players that are probably now playing at pubs and clubs? -------------------------------------------------------------------------------- Harry Theodore, The Star Entertainment Group Limited - CFO [47] -------------------------------------------------------------------------------- Look, it's been such short period, Sacha. They're probably not long enough. I would say we feel the underlying demand environment is strong more broadly. Clearly, with the restrictions, we've focused on the top tiers of the loyalty program. And we have got very good traction there. So we're seeing our most valuable customers. As we say in the release, Sovereign Room's up on (inaudible) sort of come back and play consistently with us clearly because of the restrictions, then we haven't been able to prioritize some of the (inaudible) customers just because of capacity constraints. But that's something, obviously, if we can get a sustained period with the restrictions easing becomes a big focus for us and big opportunity. -------------------------------------------------------------------------------- Sacha Krien, Evans & Partners Pty. Ltd., Research Division - Executive Director of Gaming & Leisure [48] -------------------------------------------------------------------------------- Okay. Great. And last quick question. I think on the last result call, you guys said you didn't anticipate a lot of additional costs around your Crown Sydney defense. Can you just confirm that's still the case? -------------------------------------------------------------------------------- Harry Theodore, The Star Entertainment Group Limited - CFO [49] -------------------------------------------------------------------------------- None of our plans have changed. Obviously, the timing is uncertain (technical difficulty) -------------------------------------------------------------------------------- Sacha Krien, Evans & Partners Pty. Ltd., Research Division - Executive Director of Gaming & Leisure [50] -------------------------------------------------------------------------------- Sorry you just cut out, but I think I've got most of that. -------------------------------------------------------------------------------- Harry Theodore, The Star Entertainment Group Limited - CFO [51] -------------------------------------------------------------------------------- Our plans haven't changed, Sacha. And obviously, we don't have a defined timeframe for when Crown opens. -------------------------------------------------------------------------------- Operator [52] -------------------------------------------------------------------------------- Our next question comes from David Fabris at Macquarie. -------------------------------------------------------------------------------- David Fabris, Macquarie Research - Research Analyst [53] -------------------------------------------------------------------------------- Just looking at the Gold Coast asset and with [EBIT] realizing at around $100 million both those headwinds, can you remind us on the aspirational EBITDA targets for this asset in the medium term and how you get their? Thoughts around deeper market penetration? And comments to an earlier question just around the flow-through benefits do we expect from the new towers? -------------------------------------------------------------------------------- Matthias Michael Bekier, The Star Entertainment Group Limited - MD, CEO & Executive Director [54] -------------------------------------------------------------------------------- Yes. So the aspiration that we talked about was, I said I wanted to get the Gold Coast up to $120 million worth of EBITDA in the medium term. I think that is a very realistic aspiration. I can see how we shoot through that pretty comfortably. Once the boarders open back up again, we get a bit of Premium Mass business. We get more tourism business. And most importantly, we get the baseload of convention business back into the property. That number is very achievable. And we had run rates in previous periods, actually in the first half of last year and early in the second half last year, that was -- that were well underway to achieve that. So that's why we're sort of big believers in the property. The flow-through benefit is, look, each tower should generate about 0.5 million room nights, additional room nights that flow through. And depending on how aggressive we are with -- we know how you interpret the anticipate a flow-through, it should be at least $10 million to $15 million worth of EBITDA from that onto the existing operations. -------------------------------------------------------------------------------- David Fabris, Macquarie Research - Research Analyst [55] -------------------------------------------------------------------------------- Great. And just to follow-up on another question just on the Crown Sydney defense. So you don't anticipate any need to increase your marketing spend or comping to high-end customers to defend Sovereign resort? -------------------------------------------------------------------------------- Matthias Michael Bekier, The Star Entertainment Group Limited - MD, CEO & Executive Director [56] -------------------------------------------------------------------------------- Look, yes, we do, but it's not going to be [sheep] stations based on our modeling. And we are -- and now through technology and our capability around our (inaudible) quite able to target that quite precisely. So that's why Harry said, yes, it's going to go up a little bit, but nothing that we would say to really worry about. -------------------------------------------------------------------------------- Operator [57] -------------------------------------------------------------------------------- (Operator Instructions) Our next question comes from Matt Ryan at UBS. -------------------------------------------------------------------------------- Matthew H. Ryan, UBS Investment Bank, Research Division - Executive Director and Research Analyst [58] -------------------------------------------------------------------------------- Can I ask about what restrictions or procedures that you think are going to stay in place after everyone's got access to the vaccine, if any? -------------------------------------------------------------------------------- Matthias Michael Bekier, The Star Entertainment Group Limited - MD, CEO & Executive Director [59] -------------------------------------------------------------------------------- Look, I don't anticipate that any restrictions will continue after this. Once it's in hand, I don't really see why there would be anything more to be done. So we've seen a shift to cashless payment. We're doing -- investigating technologies to make it easier for people to be in less confined environments. But I don't, at this point, anticipate a long-term penalty on us. -------------------------------------------------------------------------------- Matthew H. Ryan, UBS Investment Bank, Research Division - Executive Director and Research Analyst [60] -------------------------------------------------------------------------------- Okay. That's pretty clear. And what's your understanding on the timing for the change in the Sydney table tax rate? -------------------------------------------------------------------------------- Harry Theodore, The Star Entertainment Group Limited - CFO [61] -------------------------------------------------------------------------------- So we are continuing for this financial year on the same tax framework as we have been for some time, which has the escalating regime as a base rate and then based on where your revenue is, escalates on the 1st of July. So the start of FY '22, we moved to the fixed tax structure that we've previously talked about. -------------------------------------------------------------------------------- Matthew H. Ryan, UBS Investment Bank, Research Division - Executive Director and Research Analyst [62] -------------------------------------------------------------------------------- Does that still apply if Crown Sydney is not open? -------------------------------------------------------------------------------- Harry Theodore, The Star Entertainment Group Limited - CFO [63] -------------------------------------------------------------------------------- Yes. So our deal's directly with the government. We've got our own agreed tax arrangements. It has nothing -- no contingency on Crown. -------------------------------------------------------------------------------- Matthew H. Ryan, UBS Investment Bank, Research Division - Executive Director and Research Analyst [64] -------------------------------------------------------------------------------- And just a small one to finish. What's the carryforward tax losses that you've got at the moment? -------------------------------------------------------------------------------- Harry Theodore, The Star Entertainment Group Limited - CFO [65] -------------------------------------------------------------------------------- We've used them up in the half (inaudible) but -- so you're starting to get back into paying tax in the second half to a material amount. It will depend a little bit on VIP receivables. When you provision them, they're not deductible from a tax perspective. But if you determine they're not collectible, you can write them off. And when you write them off, they're deductible. So that's what's going to sort of drive a reduction in cash tax payments going forward. Other than that, we're in a tax payable position now. -------------------------------------------------------------------------------- Matthias Michael Bekier, The Star Entertainment Group Limited - MD, CEO & Executive Director [66] -------------------------------------------------------------------------------- Okay. I think this is the last question. That's it. Well, thank you very much for your time and your continued support. Look forward to catching up with you individually over the next couple of weeks. -------------------------------------------------------------------------------- Harry Theodore, The Star Entertainment Group Limited - CFO [67] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [68] -------------------------------------------------------------------------------- Thank you so much. Ladies and gentlemen, that does conclude the call today. Thank you so much for your attendance. You may now disconnect.