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Edited Transcript of SKC.NZ earnings conference call or presentation 17-Feb-21 10:00pm GMT

·43 min read

Interim 2021 Skycity Entertainment Group Ltd Earnings Call Auckland Feb 18, 2021 (Thomson StreetEvents) -- Edited Transcript of Skycity Entertainment Group Ltd earnings conference call or presentation Wednesday, February 17, 2021 at 10:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Ben Kay SkyCity Entertainment Group Limited - General Manager of Corporate Development & IR * Michael Ahearne SkyCity Entertainment Group Limited - CEO * Rob Hamilton SkyCity Entertainment Group Limited - CFO ================================================================================ Conference Call Participants ================================================================================ * Adrian Allbon Jarden Limited, Research Division - Director of Equity Research * Chelsea Arna Leadbetter Forsyth Barr Group Ltd., Research Division - Senior Analyst of Equities * David Fabris Macquarie Research - Research Analyst * Desmond Tsao Goldman Sachs Group, Inc., Research Division - Associate * Marcus Curley UBS Investment Bank, Research Division - Executive Director and Head of New Zealand Research * Sacha Krien Evans & Partners Pty. Ltd., Research Division - Executive Director of Gaming & Leisure ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you for standing by, and welcome to the SkyCity Entertainment FY '21 Interim Results Announcement Conference Call. (Operator Instructions) I would now like to hand the conference over to Mr. Michael Ahearne, CEO. Please go ahead. -------------------------------------------------------------------------------- Michael Ahearne, SkyCity Entertainment Group Limited - CEO [2] -------------------------------------------------------------------------------- Good morning, and welcome, everyone, to our first half '21 results investor call. Great to be presenting my first results to you as the Chief Executive and a real privilege to be the CEO of SkyCity. I was formally welcomed as CEO and opened early in February, which was an incredibly special occasion for me and my family got to participate in it as well. I've been the CEO chair for a little over 2 months now. It's been pretty busy, but really enjoying the role and looking forward to interacting with the investment community over the coming days, both in New Zealand and overseas. With me in the boardroom in Auckland today is Rob Hamilton, Chief Financial Officer; and Ben Kay, General Manager of Strategy and Investor Relations whom are well-known to you. This is Rob's 12th and final financial results delivered as Chief Financial Officer. He finishes up with us on Friday week. And Rob has been an outstanding Chief Financial Officer of SkyCity, and I'd like to acknowledge the skill, commitment that he's brought to the role, I wish him the very best for the future. Clearly, an immediate priority for me has been to implement a new management structure and bed down the team as well as obviously navigating the uncertainty arising from COVID. And we're again, struck with that this week, we shut our business in Auckland on Sunday evening, a really, really busy Valentine's evening and then with Chinese Year activity in full swing. And we reopened it today midday it reopened that level 2 operating we'll be opening in just under an hour. Moving on from COVID briefly. It's great to be able to have made a series of announcements regarding the management team. This morning, you will have seen our new CFO, Julie Amey, commences with us at the beginning of May. And Julie brings significant global experience in senior financial roles with the Shell organization as well. So Julie is in New Zealand, they are coming home and really, really excited to have her on the team. Also over the course of the past month or so, you will have seen bedded down our operating structure within the business, appointing Callum Mallett as COO, New Zealand; Matt Ballesty as Chief Casino Officer for the Group; and David Christian as the COO for our Australian Business. And I also like to say -- and look, I'm pleased to see we will have continuity in the Investor Relations role with Ben Kay and Ben is taking on some additional responsibility leading our Strategy function, and we'll be working closely with myself and Julie when she comes on board. Look, I'm really confident that we have great leadership group to take the business forward. And looking forward to some time, hopefully, in the year ahead that we are planning to have an Investor Day in person, and then you can meet the team in person. So I think we -- while it's -- we're thinking of that planning. Obviously, it's COVID dependent and requires border to be open and so on. Our first half '21 presentation was released earlier this morning and that you will have it. It's a comprehensive document. I'm going to take the document as read and then focus on the key highlights, teams and observations across the period and leave time for Q&A. So then moving to Slides 7 through 9. Let me talk through the results. Look, as flagged, the group has been significantly impacted by COVID-19, disruptions and ongoing border closures. We've normalized and reported EBITDA down 22% and 63%, respectively. However, despite the challenging environment, we're really pleased with the quality of the results overall, which was above expectations at the start of the financial year. To put the operational challenges in a little bit of context, we experienced 19 days have been closed in Auckland during the period. Over a month at alert Level 2 in New Zealand and a full 6 months of significant operating restrictions in Adelaide, including a 4-day period in late November are being closed. The team have got use of managing this uncertainty, again, as proven in the last couple of days. And certainly, demonstrated resilience and commitment. And we have a comprehensive COVID management plan that deals with moving between 3 and 2 and 1 at the various levels, both in New Zealand and in Australia. Our tourism businesses, in particular, in Auckland have been significantly impacted by the COVID-19 disruption and international border closures, which we do expect to continue for the foreseeable future. And then a little bit of context around that. The profitability of the hotel business in New Zealand is effectively half of what it was in half 1 '20. And food and beverage is effectively a breakeven result at a contribution level in Auckland. And obviously, attractions like Sky Tower have been materially impacted. IV continues to trade at a modest loss, but it has been reduced versus our expectations early in the year due to cost savings and some interstate tables activity that we've seen post one of the expansion in Adelaide. We've recently commenced a review of it to consider key operational and regulatory financial settings for the future and considering the recommendations from New South Wales Casino acquiring the Crown Resorts as part of this review. A slide at the UBS Investor Conference in November, it's pleasing our domestic gaming business, which is the key value driver in the group, has continued to be resilient and performed well when open, particularly EGMs. And we've also seen the operating model bed down and delivered good cost execution. We continue to see good levels of play from local premium customers, consistent with the trends in the second half '20. And certainly, the investments we've made in the VIP facilities in Auckland helps us there. And we're benefiting from new products in Auckland and Hamilton as well and certainly a stronger consumer, domestic consumer environment than we would have expected earlier in the year. Hamilton and Queenstown, in particular, delivered strong results underpinned by EGM activity and cost savings with an EBITDA growth of 22% and 50% in the half. Auckland EGM performance at around 95% of the pcp on a like-for-like basis was a highlight at our key property demonstrating the stable and resilient features of this business, with table games activity, improving month-on-month as restrictions ease. The cost base has been pretty well managed, pretty happy with that following the operating model changes that we made last year. We have seen good momentum in the business. Prior to this disclosure, we just had an open. And I might refer you to Slide 10 -- in the Slide 10 in the deck. We present the performance across our 3 properties for the period July to October 2020, which is the same as when we presented at the UBS Conference in November. And then have updated to include the black bars on the chart, which is November 13 to February 2021 on a like-for-like basis. And what you can see is that performance has progressively improved across each category and each property over the period. Local gaming activity for the period November to February across the business was in line or above the pcp, which is pleasing. And we've seen broad-based improvements in performance in Adelaide, also opening up a new expansion, which I'll talk later in the call. It get you to refer to Slide 17, 18 in terms of group strategy and my own priorities as CEO. What I presented here is really a high-level view on how I'm thinking about strategy for the business and on the Investor Day, that we're going to plan when we can, we'll be able to get into the detail of this. And what I would say is that we have privileged assets. Monopolies are incredibly strong positions in high-quality regulated gaming jurisdictions, which allows us to have long-term strategic planning. I want to describe the strategy is not materially different to that what I've inherited but I've increased the emphasis on optimizing our core business, which now does include online gaming, online casino gaming and lifting returns on cash flows, return on capital. The strategic plan focuses on 3 core pillars, which are viable. So firstly, operational excellence at our core. That is running the businesses that we have today. Focusing on continuous improvements in operational performance and investments to support that. Local gaming is a key driver of the group. It has always been and it will be in the future. So focusing on maximizing the value of those exclusive licenses that we have. Important to navigate through uncertainty of COVID, and I don't underestimate this with the challenge and the scale and the timing of it. And the real opportunity and the real focus is to return our business to FY '19 earnings when fully operational. And then with aspiration to grow well beyond that over the medium term. We will be investing in improving our marketing and loyalty execution through technology as well. And I think any capital development, certainly in the short and medium, we'll be focused on the existing assets and particularly in our core gaming propositions. The second pillar in terms of completing our major projects and optimizing asset portfolio, obviously critical to complete the major investments that we have. And great to see that Adelaide has opened is running to people to have the project itself is largely completed. And now it's about execution there. And obviously, NZICC and Horizon Hotel getting those complete within the budget that we've outlined, that's a major strategic priority for us. And then the third pillar, pursuing the omnichannel opportunity, we do have a unique opportunity to monetize omnichannel and consolidate our leadership position in the gaming industry, particularly in New Zealand. It has quickly become a meaningful part of our business, which you'll see in our results, and it offers an exciting long-term opportunity. And it's important to start planning today for the potential integration of land-based and online businesses. Underpinning all of that, it's really important that our culture of our organization is right and focused in the right areas, and I'd call out continuing to focus on our social license, responsible gaming, AML, community, and we're part of the community in everywhere we operate. That's really important. We engage in the right way and we integrate them right way and sustainability. So you'll see more of our sales as we move forward. Ben, as I mentioned earlier, is taking a role here, and we're working on developing a strategic framework to ensure with that discipline and accountability about both the development and the execution of our strategic plan. Now turning to our major projects. I'd like you to refer to Slide 22. Really pleased to say that Adelaide expansion has completed on time and on budget. And the performance prior to actually opening by COVID and construction disruption what I would describe as stable. And on a like-for-like basis, domestic gaming was pretty similar to the previous period. Our new product is certainly a world-class product. And the response from customers so far has been really strong, great feedback. What I'd say to everybody on the call, all of the Aussies, make sure you take a weekend out and go on business and put plenty of money in your pockets and have a great time at our property. And we significantly expanded our gaming and entertainment facilities. And I've just outlined on Slide 23, just a little bit of detail now on what the final product looks like right now and where we'll end up as we finalize that. So some new areas to open. It's been a positive performance post opening. We've outlined that on Slide 24. But I would caution it's early days yet, but really encouraging across all parts of the business with local gaming revenue up 33% versus the pcp period. The new hotel including beverage facilities that remain incredibly well received by customers. And the local team in Adelaide have done a tremendous job opening the property in what was a pretty challenging time to open that business. We've also seen good cost to keep execution in the initial period. That's been a real focus of the team. So and benefiting also from the lower effective tax rate due to a higher mix of premium gaming activity with the new VIP facilities that we have there. There's also some several positive car parks ahead. We expect to take the position of 750 car park spaces from the start of FY '22. And obviously, orders opening more meaningfully, expect to be able to address the interstate and international markets over time. And I'd also say based on the performance, post opening, we remain comfortable with the medium term EBITDA targets for the property that we've previously outlined. Only is more another CapEx now remaining that to be spent there and looking forward to seeing strong cash conversion of the property going forward. On NZICC/Horizon Hotel, the reinstatement is progressing post a fire, but stored and anticipated. The dates that we expect completion, the hotel first half 2022 and NZICC a completion by the end of 2023. We remain comfortable with our contractual position with Fletcher's and we've recently settled some pre fire claims with Fletcher's to clear the path to work collaboratively towards completion. No change expected until the total project cost of around $750 million, of which it was about 20% less to spend, excluding the cost -- these costs from the fire, which are expected to be funded by insurance. Just some color on online gaming, and it's an exciting feature of our results in the half year product business has now delivering a reasonable return even from an EBITDA point of view. So fantastic to see a business, which is a start-up really actually cash flow positive in a really short amount of time and contributing about $5 million of EBITDA to the -- in the half year. We now have about 30,000 hectares, and that continues to grow. Look, we're continuing to optimize the size with GiG. The product and the experience customers getting on our online and true mobile has improved significantly over the past 12 months or 6 months as well. And despite the operational constraints that we've put out the business in terms of fixing in relation to marketing, we've seen a significant increase in revenue and EBITDA that I mentioned. Trading is pretty consistent now month by month. Following a significant increase in customer registrations and first-time depositors from March 2020 around the time of the first lockdown. We remain very supportive of regulation in New Zealand. The DIA's positive review to allow game is continuing, and we expect to give our updates from the DIA continue over the next few months. But globally, online gaming, whether it's sports betting or online casino gaming is a global theme, and we look to the U.S. and the opening up that's happened there. And probably worth also highlighting online gaming companies are consistently trading at significantly higher premiums than a land-based casino structural global outlet. So again, look, really excited about this part of our business as we look forward. From a capital management point of view, and I think you refer to -- back to Slide 15. Rob and Ben can take questions later on. But we're happy to make some high-level observations but the balance sheet is in a much better position today than we expected at the time we raised equity in mid-2020 and funding finance risk is effectively taking off the table for shareholders. We very much have the sufficient liquidity around $465 million as of December 2020 to respond to further COVID-19 disruptions or more protracted economic recovery in New Zealand and Australia. Our major projects are fully funded and focused on execution and the balance sheet capacity can be reviewed when we no longer in reliance on covenant waivers relief and the domestic and international environment becomes more certain. We expect to compile the financial covenants at 30 June, testing period, assuming that no prolonged property closures. And in relation to final dividend, we're obviously not paying the dividend at the half year, we expect to pay a final dividend in the year in September or October. That does assume no prolonged property closures. And we do appreciate the support of shareholders who have understood the need for us to preserve capital during this period. A review of the dividend policy has been undertaken by the Board in the half. And a preference for greater flexibility than what existed under the previous policy that's come out of that review. We're targeting a payout ratio of between 60% to 90% of normalized profit per annum as we look forward and intend to progressively increase dividends over time as earnings grow. In terms of outlook, the business has been performing better than expected prior to the current closure in Auckland. And at this point, we are -- we're not changing our previous guidance for FY '21. The outlook, those remain uncertain, and it's subject to change. That is the reality. And I think the last couple of days have just reemphasize that. When we intend to provide more detailed guidance when we get more certainty. So potentially, the Macquarie May Conference maybe the opportunity to do that. What I would say is that our local gaming business continues to perform well when open, particularly in GMs, and we've seen that consistently, and we've seen that in the presentation here. And our tourism-related businesses continue to be significantly impacted by operational restrictions and international border closures. And we also expect that to continue until we see a change in international borders, which we do expect to be remain closed for foreseeable future. So I'm going to pause there and open to questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question comes from Chelsea Leadbetter from Forsyth Barr. -------------------------------------------------------------------------------- Chelsea Arna Leadbetter, Forsyth Barr Group Ltd., Research Division - Senior Analyst of Equities [2] -------------------------------------------------------------------------------- I guess just coming back to Adelaide and appreciate the color you've given us in terms of how things have started. But just trying to understand a little bit about how to think about the profile from here. And I appreciate we're in an uncertain backdrop, et cetera. But do you think there's been a boost from the sort of opening kickstart sort of effect that we'd start to feel back before you can have, I guess, a better exposure to tourists and whatever asked down the track? Or do you think the level that you started at is just sort of keep kicking away and keep continuing to hopefully take some market share from? -------------------------------------------------------------------------------- Michael Ahearne, SkyCity Entertainment Group Limited - CEO [3] -------------------------------------------------------------------------------- Yes. Look, Chelsea, I would say -- the first thing I'd say is what you're seeing there is domestic activity largely tied up trading activity across the property that we're seeing that initial trading period. And we -- as we -- sorry, that's right, it's become more -- travel more and we market more, we'd expect to see more domestic activity. It is early days. We're monitoring it on a daily, weekly basis. I would say, over that period, the activity has been pretty consistent. So it's been pretty consistent the growth that we've seen across the periods through December and January. But it is early days. The game in the EGM performance looks pretty good. And our local VIP gaming performance has been pretty good. There's plenty of upside in the hotel. There's plenty of -- we see similar trends that we see not only in Auckland, but any of the other properties we see weekends are really busy. So the additional capacity we have, we certainly see the benefit of Friday, Saturday and Sunday. And then off peak a little bit softer. That's similar to all of these type of properties. Rob, anything else you wanted to add? -------------------------------------------------------------------------------- Rob Hamilton, SkyCity Entertainment Group Limited - CFO [4] -------------------------------------------------------------------------------- No. It's covered that well, Michael. Just to emphasize, we're obviously very pleased with how Adelaide has started. The team has done a great job here to have the property opened. It's great to see the additional visitation coming through, which is really highlighted through in terms of the gaming and non-gaming performance. As Michael, said, early days, but as he has given us the confidence to reaffirm the longer term guidance, which we previously put out on the LA property. -------------------------------------------------------------------------------- Chelsea Arna Leadbetter, Forsyth Barr Group Ltd., Research Division - Senior Analyst of Equities [5] -------------------------------------------------------------------------------- Okay. I appreciate that. And maybe stepping back at the group level. If we think back maybe 6, 12 months ago, obviously quite a pressure period in terms of taking costs out, et cetera, and the business, they are clearly performing better than you thought back in the depths of lockdowns, et cetera. Having you put back a portion of those costs now? Or should we be expecting you to be putting more in the next 6 months in? -------------------------------------------------------------------------------- Michael Ahearne, SkyCity Entertainment Group Limited - CEO [6] -------------------------------------------------------------------------------- Yes. Look, some costs have come back into the business, as you'd expect as the activity recovers. But not what we took out. I think our operating model does see less marketing activity going on marketing costs. And I think what we see is that that's pretty sustainable. We have hired more people in gaming, for example, so we have 150 more heads than we had at our lowest point. So we're being pretty cautious in our approach there. So we -- however, we don't envisage that we're going to add back all the costs that we've taken out. And certainly, that's not our thinking. -------------------------------------------------------------------------------- Chelsea Arna Leadbetter, Forsyth Barr Group Ltd., Research Division - Senior Analyst of Equities [7] -------------------------------------------------------------------------------- Okay. So it sounds like you're still comfortable that you should be able to retain some of these margin benefits over time in terms of operating efficiencies and various things that you've been out to gained so far? -------------------------------------------------------------------------------- Michael Ahearne, SkyCity Entertainment Group Limited - CEO [8] -------------------------------------------------------------------------------- Yes. We think that is sustainable. It's difficult now because you don't have a clean period. You always have periods that you're short or at your level too. So it's actually very difficult to see a clean margin. But what we see is when we do have a period of normality, we are seeing an underlying higher margin in each business units, if it's at a normal operating environment. -------------------------------------------------------------------------------- Chelsea Arna Leadbetter, Forsyth Barr Group Ltd., Research Division - Senior Analyst of Equities [9] -------------------------------------------------------------------------------- Okay. And last question on Hamilton. Clearly, it continues to hit it out of the park in terms of performance. I just understood in how you think about the sustainability of where you're sitting at the minute, particularly with things like win rates in EGMs in that business? -------------------------------------------------------------------------------- Michael Ahearne, SkyCity Entertainment Group Limited - CEO [10] -------------------------------------------------------------------------------- Yes. Look, we're obviously really pleased with the performance of Hamilton. I'll put it down to a couple of things. The significant changes we've made in the business there. That property walking here today versus a year ago, it feels like a casino today. The product is substantially better. So there's some structural changes we've made in layouts and product and pricing that definitely is sustainable. And then the other is the economy there is very poised. And the outlook there is really positive as well. So our view is what we're seeing there is a sustainable level of earnings for that business on an ongoing basis. It's not that there's a one-off customer win included in that number. That's not the case. -------------------------------------------------------------------------------- Rob Hamilton, SkyCity Entertainment Group Limited - CFO [11] -------------------------------------------------------------------------------- Chelsea, I'll just add one small note of caution, obviously, once international boarders do open up, you expect to see a few people from Waikato want to get across to Australia and overseas. So we've been fortunate to have a captive domestic market in the Waikato over the last -- or during the reporting period. So just a note of caution, once borders do open up, which may impact FY '22 slightly, but I don't think it's anywhere near sufficient to reverse the benefits that Michael just highlighted. -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- Your next question comes from Desmond Tsao from Goldman Sachs. -------------------------------------------------------------------------------- Desmond Tsao, Goldman Sachs Group, Inc., Research Division - Associate [13] -------------------------------------------------------------------------------- I just had a couple of quick ones. Firstly, just on Slide 10. I appreciate if you could perhaps give some color just around, I guess, the performance into the second half, so from January to mid-Feb, if you're able to sort of shed a bit more color on that, that would be great. -------------------------------------------------------------------------------- Michael Ahearne, SkyCity Entertainment Group Limited - CEO [14] -------------------------------------------------------------------------------- Look what I would say is that was pretty consistent. We -- I would say, what you see there is a progression over time in performance. The black bar was free up of October to November. So that's what it continued as that's at Level 1. So -- and I think, we seem to customers get more confident gradually over time, you see businesses recover. Table game is probably the interesting one. That's one that was going slow for quite some time, and we've seen that recover as well. So I think you see a progressive ongoing improvement on how we described it. -------------------------------------------------------------------------------- Rob Hamilton, SkyCity Entertainment Group Limited - CFO [15] -------------------------------------------------------------------------------- Yes, just a comment that I would make, looking at the analyzed period if I can say on Auckland, July and December were 2 months, and we look at where we are at Level 1 trading without restrictions and Auckland, at a property level, delivered around $20 million of EBITDA, which is broadly comparable to what we were doing pre-COVID. And January was pretty similar to December, wasn't it Michael at all clubs. But looking at the analysis more broadly that the trends have been pretty consistent across each category across each property, which has been pleasing. -------------------------------------------------------------------------------- Desmond Tsao, Goldman Sachs Group, Inc., Research Division - Associate [16] -------------------------------------------------------------------------------- I appreciate the additional color. And then just secondly, I guess, just around the full year guidance. You've reiterated the guidance that you gave out a few months ago. I think it's still framed around '21 normalized EBITDA to be above '20, but well below '19 levels, that's despite the, I guess, better-than-expected first half '21 performance. Just interested in the degree of conservatism baked in, just potentially around further closures, et cetera, to play out over the next 4 months? -------------------------------------------------------------------------------- Michael Ahearne, SkyCity Entertainment Group Limited - CEO [17] -------------------------------------------------------------------------------- So what I'd say is that it's uncertainty. We just don't know how are we operating at, we saw some Level 3, are we at Level 2 or are we Level 1, and that has a major impact on earnings. So I'd refer back to the November shutdown 19 days in Auckland cost of $20 million on EBITDA Level 2, our operation is half of what Level 1 is. So in that environment, it's very difficult to give on an exact defined number on it. -------------------------------------------------------------------------------- Rob Hamilton, SkyCity Entertainment Group Limited - CFO [18] -------------------------------------------------------------------------------- Yes, we've been deliberately cautious, given that uncertainty, if we sail through the past week at Level 1, we are looking potentially in providing a guidance, a slightly narrow guidance range. The broader guidance that we've given the last week has just shown how things can change on a day. And that right now, our properties are actually still shut for the next 25 minutes. So -- and we're not sure how and property in Auckland, I'm not sure how we're going to respond in Level 2, how long Level 2 will be. So I think the -- what we'd like to be able to do is when we get to the -- we normally provide an update in early May, around the time of the Macquarie Conference. So our intention would be to do just that. -------------------------------------------------------------------------------- Operator [19] -------------------------------------------------------------------------------- Your next question comes from David Fabris from Macquarie. -------------------------------------------------------------------------------- David Fabris, Macquarie Research - Research Analyst [20] -------------------------------------------------------------------------------- Look, I know a cost question was asked earlier, but have you got thoughts to whether you can structurally expand margins across your assets when revenues fully recover? I mean, is there an opportunity to reduce fixed costs through headcount reductions or other initiatives? -------------------------------------------------------------------------------- Rob Hamilton, SkyCity Entertainment Group Limited - CFO [21] -------------------------------------------------------------------------------- Yes. I think there is, David, in terms of margins. And we -- if you take a look at the Hamilton result, for example, the Hamilton result is obviously, again, dominated by EGM performance. And -- but once you make it since do I look at the Hamilton result, good EGM -- for really EGM performance, good tables performance, weaker non-gaming performance and margins are up significantly. So a combination of stronger a gaming performance, which is obviously our higher margin part of the business, but also some meaningful cost savings still being -- have been implemented and have been bedded down in that business. So as Michael indicated earlier, we're not looking to add costs back in where we don't need to. So the Hamilton business is, I think, a good example of what we're achieving in all parts of our business. We'll find it's a little bit more opaque, given the mix of activities and also the significantly weaker non-gaming performance during the half. Food and beverage, I think as we've hired and has been relatively weak and hotel is the same, and they are -- they have a significant adverse impact on the overall margin for the Auckland property. But once you -- if you have a look at gaming, margins there are equivalent to what we've achieved, if not slightly up on what we've done in prior periods. And if we're back to a normal revenue level of activity in Auckland then we'd expect to see with a similar mix of business, we'd expect to see margins slightly up, and that would be sustainable going forward. -------------------------------------------------------------------------------- David Fabris, Macquarie Research - Research Analyst [22] -------------------------------------------------------------------------------- Great. Another question, just so thinking about... -------------------------------------------------------------------------------- Rob Hamilton, SkyCity Entertainment Group Limited - CFO [23] -------------------------------------------------------------------------------- Dave, if I could add something. I mean, in regards to Adelaide, specifically, look, we have signaled that we would expect margin improvement at that property post expansion. Particularly when you think that the growth that we're anticipating at that property is going to be in the higher margin part of our business. That's what we've seen so far for the property since we've been opened in December and January. So hopefully, we're going to see that flowing through as we report over subsequent periods. So that property historically done, let's say, 15% to 18% EBITDA margin level, we'd expect improvement as the property ramps up post opening of the facilities. -------------------------------------------------------------------------------- David Fabris, Macquarie Research - Research Analyst [24] -------------------------------------------------------------------------------- Great. And just thinking about the strategic review on IB. Are you thinking that New Zealand may look to ban junket play in time? And what's been the historical skew to junket when we think about maybe the FY '19 volume? -------------------------------------------------------------------------------- Michael Ahearne, SkyCity Entertainment Group Limited - CEO [25] -------------------------------------------------------------------------------- Look, we're not -- we haven't had any communications from the DIA around junkets. As obviously, it's been a major focus in New South Wales of recent times. It's -- the key issue for IB is international borders are closed. And the way the business can operate going forward is clearly changing as a result of the crowd inquiry. So what we're wanting to do is essentially try to get ahead of some of those changes. And make sure the business can operate sustainably going forward. Our business in the international side has always been operated much more conservatively and much less reliance on junkets than some of our peers. If we look back at FY '19, which is sort of the best comparable period, been around 15% of our turnover was driven by the corporate junkets. -------------------------------------------------------------------------------- David Fabris, Macquarie Research - Research Analyst [26] -------------------------------------------------------------------------------- Got you. And one last question for me. Just thinking about Adelaide. Have you got any observations as to whether local market operators have shifted to note acceptors and are you getting a benefit because you're ahead of the reform changes? Or is the market still fairly competitive? -------------------------------------------------------------------------------- Michael Ahearne, SkyCity Entertainment Group Limited - CEO [27] -------------------------------------------------------------------------------- Yes. Look, we're definitely ahead of others in terms of timing because we're fully no receptors and that's in our number. I don't know if it's a particular competitive advantage. I think it's going to list to market. My view is no inceptors will actually lift, create a larger market, and we benefit from that side. I don't think that the fact that we're ahead in itself I don't think that's particularly beneficial to us. It's good to be ahead. And we certainly see it's positive in terms of EGM performance. -------------------------------------------------------------------------------- Rob Hamilton, SkyCity Entertainment Group Limited - CFO [28] -------------------------------------------------------------------------------- But I expect any of the sophisticated operators will quickly catch up. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- Your next question comes from Marcus Curley from UBS. -------------------------------------------------------------------------------- Marcus Curley, UBS Investment Bank, Research Division - Executive Director and Head of New Zealand Research [30] -------------------------------------------------------------------------------- Just 2 from me. On Adelaide, obviously, you've given some details. But I just wondered whether you'd be willing to give us some hard numbers around the revenue and EBITDA of the casino since it's opened. The comparative numbers you've given, one would assume are impacted by last year's COVID issue. So is it possible to sort of just annualize what you're seeing to give us a ballpark sort of illustration of what's happening? -------------------------------------------------------------------------------- Rob Hamilton, SkyCity Entertainment Group Limited - CFO [31] -------------------------------------------------------------------------------- So I think it's difficult to actually put numbers on this call. Look, what I would say like we've given review, we've also said costs have been managed reasonably well, and it is flowing through the EBITDA. I wouldn't be comfortable actually putting an actual number for December and January out there at this point. -------------------------------------------------------------------------------- Michael Ahearne, SkyCity Entertainment Group Limited - CEO [32] -------------------------------------------------------------------------------- Marcus, as you know, we're not in the habit of giving out monthly results and I know it would be wonderful if we did, but we're not about to start. What I would say is the Adelaide results last year weren't really impacted by COVID. So the comparable period that we've shown on Page 24, 01 December through 13 Feb isn't really impacted by COVID at all. And these numbers obviously don't include IB. So if there was going to be a COVID impact on Adelaide, it would be IB sort of going into Chinese New Year and the first couple of weeks of February last year. -------------------------------------------------------------------------------- Marcus Curley, UBS Investment Bank, Research Division - Executive Director and Head of New Zealand Research [33] -------------------------------------------------------------------------------- Okay. And then secondly, do you think the right working assumption for us going forward with international VIP is that you won't be involved in junket play? -------------------------------------------------------------------------------- Michael Ahearne, SkyCity Entertainment Group Limited - CEO [34] -------------------------------------------------------------------------------- We haven't made any decisions on that. And given the international borders are closed, we've got a little bit of time to figure that out. So we obviously haven't had any interaction with the Macanese junkets for some months now, effectively 12 months. -------------------------------------------------------------------------------- Marcus Curley, UBS Investment Bank, Research Division - Executive Director and Head of New Zealand Research [35] -------------------------------------------------------------------------------- Okay. And so when do you think you'll come to that decision? And is that something you will announce in the near term? Or do you think it will -- you'll take some time with it? -------------------------------------------------------------------------------- Michael Ahearne, SkyCity Entertainment Group Limited - CEO [36] -------------------------------------------------------------------------------- I would say the review underway. And we have some time because international borders aren't opening either. But let's say in this 6-month period, you will have learnt that what our position is going forward. -------------------------------------------------------------------------------- Rob Hamilton, SkyCity Entertainment Group Limited - CFO [37] -------------------------------------------------------------------------------- And just to reiterate, Marcus, our reliance on the Macanese junkets is a lot smaller than our competitors. And the bulk of our business for some time now has been essentially individual customers or individual customers playing through very small group operators essentially the domestic group operators as opposed to the Macanese junkets. So we believe there is a meaningful, sustainable international business for SkyCity going forward. -------------------------------------------------------------------------------- Marcus Curley, UBS Investment Bank, Research Division - Executive Director and Head of New Zealand Research [38] -------------------------------------------------------------------------------- Sure. But I suppose the issues that Crown have run into with those junket operators would equally apply to yourselves? Or do you think you could manage those junket operators in a more appropriate way? -------------------------------------------------------------------------------- Michael Ahearne, SkyCity Entertainment Group Limited - CEO [39] -------------------------------------------------------------------------------- Yes. Look, I'll just read out Rob's comments. The international business is in its entirety, we believe that there can be an international business in the future. We've never been wind on the junket operators. -------------------------------------------------------------------------------- Rob Hamilton, SkyCity Entertainment Group Limited - CFO [40] -------------------------------------------------------------------------------- We don't want to get into a review of the Crown issues, Marcus. We've operated our business quite differently since its inception, and don't think the same issues automatically apply to SkyCity. -------------------------------------------------------------------------------- Marcus Curley, UBS Investment Bank, Research Division - Executive Director and Head of New Zealand Research [41] -------------------------------------------------------------------------------- And sorry, Rob, the line is not particularly clear, but did you say that in FY '19 50% 5-0-percent of the business was on corporate junket. -------------------------------------------------------------------------------- Rob Hamilton, SkyCity Entertainment Group Limited - CFO [42] -------------------------------------------------------------------------------- 15%, 1-5, Marcus. -------------------------------------------------------------------------------- Ben Kay, SkyCity Entertainment Group Limited - General Manager of Corporate Development & IR [43] -------------------------------------------------------------------------------- Marcus, this is Ben here. Just referring to Page 46 in the presentation, which I know is the things of the Appendices, but there's a commentary about the proportion of FY '19 turnover that was represented by the Macanese groups. And that's been pretty consistent. Rob has in over several years. -------------------------------------------------------------------------------- Rob Hamilton, SkyCity Entertainment Group Limited - CFO [44] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Ben Kay, SkyCity Entertainment Group Limited - General Manager of Corporate Development & IR [45] -------------------------------------------------------------------------------- That was most probably a peak in FY '19 in terms of that percentage. -------------------------------------------------------------------------------- Rob Hamilton, SkyCity Entertainment Group Limited - CFO [46] -------------------------------------------------------------------------------- Yes, of course. -------------------------------------------------------------------------------- Operator [47] -------------------------------------------------------------------------------- Your next question comes from Sacha Krien from Evans & Partners. -------------------------------------------------------------------------------- Sacha Krien, Evans & Partners Pty. Ltd., Research Division - Executive Director of Gaming & Leisure [48] -------------------------------------------------------------------------------- It was useful extra color on Auckland's EBITDA in December. I'm just wondering if you could perhaps give us an EBITDA number for the December quarter when I think your restrictions were less than the September quarter across the business? -------------------------------------------------------------------------------- Michael Ahearne, SkyCity Entertainment Group Limited - CEO [49] -------------------------------------------------------------------------------- So, Sacha, we're not in the habit of putting out quarterly EBITDA numbers. So unable to answer that one for you on this call. -------------------------------------------------------------------------------- Sacha Krien, Evans & Partners Pty. Ltd., Research Division - Executive Director of Gaming & Leisure [50] -------------------------------------------------------------------------------- Okay. No problem. Just on your comments around some cost potentially coming back into the business. So I think it was fourth quarter '20, you did the labor restructuring. You talked about $40 million of annualized OpEx savings. Can you just remind us how many heads came out of the business at that time. And I missed before when you said how many you've added back? And maybe just a comment on how -- whether or not that's a permanent annualized cost saving that $40 million that you've previously talked to? -------------------------------------------------------------------------------- Rob Hamilton, SkyCity Entertainment Group Limited - CFO [51] -------------------------------------------------------------------------------- Yes. So the restructure that we took at the time at about 900 or something like 850 or so was a final number that individuals have made redundant. And we brought that people on time as businesses recovered. I mentioned there are 150, but probably a little bit more now have come back into the business. We're hiring far more the part-timers than casuals rather than full timers. I think the full, the additional full timer is a number of circa 20 of that 150. So it's actually a very small portion. The full $40 million isn't -- some of that will come back into the business as we grow. If you think of food and beverage and hotel businesses, these are highly labor-intensive. So some of that will come back over time. So however, when our business gets back to FY '19 sort of levels, if we have a structurally different look in terms of margins. So we're not giving exact guidance on what that number looks like. But our insight is what we're seeing, I would say we are not sure what the outlook is in terms of when businesses will recover. But what we're doing is taking a cautious approach to labor management, both in the front of house business, but also in the corporate areas as well. -------------------------------------------------------------------------------- Sacha Krien, Evans & Partners Pty. Ltd., Research Division - Executive Director of Gaming & Leisure [52] -------------------------------------------------------------------------------- Okay. Sure. That's helpful. And then can you just remind us what your long-term Adelaide guidance is, I think you guys mentioned it just before. -------------------------------------------------------------------------------- Rob Hamilton, SkyCity Entertainment Group Limited - CFO [53] -------------------------------------------------------------------------------- Look, we've said $60 million EBITDA, and that includes in the next couple of years outside of COVID, once we're clear of COVID. -------------------------------------------------------------------------------- Sacha Krien, Evans & Partners Pty. Ltd., Research Division - Executive Director of Gaming & Leisure [54] -------------------------------------------------------------------------------- And then... -------------------------------------------------------------------------------- Rob Hamilton, SkyCity Entertainment Group Limited - CFO [55] -------------------------------------------------------------------------------- Targets. Target for the property. -------------------------------------------------------------------------------- Sacha Krien, Evans & Partners Pty. Ltd., Research Division - Executive Director of Gaming & Leisure [56] -------------------------------------------------------------------------------- Got it. And then just last question on Adelaide. I mean -- or last question overall. How soon do you expect to get up to 1,500 slots in Adelaide? Is that sort of -- I mean, do you think you need to have all 1,500 entitlements out there to hit that $60 million target? -------------------------------------------------------------------------------- Michael Ahearne, SkyCity Entertainment Group Limited - CEO [57] -------------------------------------------------------------------------------- No. Look, look, we definitely don't need 1,500 to deliver the $60 million target. The unit numbers that we have outlined there are the unit numbers we would need to get there. I think it's a nice option to have that we could expand in future. But if you look at win per unit is to any property in Australia or even our own properties here in Hamilton as well. The win per unit is very low there. So it's about -- my view is about the location and the -- what we've got in premium rooms and VIP, that's certainly helpful. But it's a nice option in the future to be able to grow. -------------------------------------------------------------------------------- Rob Hamilton, SkyCity Entertainment Group Limited - CFO [58] -------------------------------------------------------------------------------- Essentially be here a comment I would make also trying to signal there is there is some capacity, right, under the entitlements that we have. And we have created space within the facility that can be converted to -- from non-gaming to gaming. Function space is an obvious one is a significant function space there, which reflecting future demand. We might retrofit that space for gaming, which would take out our product beyond what we've guided to in the document. So it is an option -- I guess an option on the future is the way I'll describe to you. -------------------------------------------------------------------------------- Operator [59] -------------------------------------------------------------------------------- Your next question comes from Adrian Allbon from Jarden. -------------------------------------------------------------------------------- Adrian Allbon, Jarden Limited, Research Division - Director of Equity Research [60] -------------------------------------------------------------------------------- First question, can I just circle back to Slide 45, which -- yes, I don't know if there's been a lot of questions on Adelaide. But just when I look at the slide, would it be more normal for us to think about the EBITDA contribution, which has been incredibly strong, more like a full year kind of contribution in earlier years, like without the JobKeeper came because to Rob's earlier point, like first half '20 wasn't really COVID impacted and those sort of key operating revenues are not significantly down. And if that -- that's why those are sort of more correct, like, is that also sort of driving a little bit into sort of the cautiousness around the full year guidance? -------------------------------------------------------------------------------- Michael Ahearne, SkyCity Entertainment Group Limited - CEO [61] -------------------------------------------------------------------------------- Yes. I think the one-way to think about Adelaide's performance in the first half, Adrian, I think we've highlighted the impact of JobKeeper on that slide on the Adelaide business. If you take that out, then Adelaide was performing reasonably well under the circumstances, July through November, it was pretty close to pcp during that period, despite the disruption constraints, despite the COVID constraints that the property was still on bound. Obviously, we've got the benefit of December post the expansion opening, which was a much better month as highlighted in some of the earlier slides. So overall, for the half, Adelaide was pretty much in line at an EBITDA level with what it had done in the prior period. Clearly, we have our expectations for Adelaide in the second half are much higher than what we did in the prior period. So I'm not sure whether that's an answer to your question, but that's roughly how we're thinking about the Adelaide performance in the first half. -------------------------------------------------------------------------------- Adrian Allbon, Jarden Limited, Research Division - Director of Equity Research [62] -------------------------------------------------------------------------------- Well, maybe -- no, like it's a difficult question to ask in a sense because what is normal, but like just in terms of how we would think about our modeling into the full year, I guess, for the second half. But would you be expecting like an Adelaide second half performance like above this normalized EBITDA that you've just reported for the first half, which obviously includes JobKeeper? -------------------------------------------------------------------------------- Michael Ahearne, SkyCity Entertainment Group Limited - CEO [63] -------------------------------------------------------------------------------- Look, the JobKeeper number does distort the first half. So I don't think we expect to be below that first half number for the second half in Adelaide. Second half we expect to be meaningfully above what we did in the first half. -------------------------------------------------------------------------------- Adrian Allbon, Jarden Limited, Research Division - Director of Equity Research [64] -------------------------------------------------------------------------------- As there any JobKeeper that flows into the second half? -------------------------------------------------------------------------------- Michael Ahearne, SkyCity Entertainment Group Limited - CEO [65] -------------------------------------------------------------------------------- No, no. -------------------------------------------------------------------------------- Adrian Allbon, Jarden Limited, Research Division - Director of Equity Research [66] -------------------------------------------------------------------------------- Okay. Just second question, around just obviously, you had the review of the dividend policy, and you've given some guidelines. Just in terms of the look, again, this is caveated on lockdowns and all that sort of stuff, but how you would implement it for FY '21 when, obviously, you've had the restrictions on the first half. But would you be looking at like paying up -- potentially paying a proportion of the full year profit, not just the second half proportion? -------------------------------------------------------------------------------- Michael Ahearne, SkyCity Entertainment Group Limited - CEO [67] -------------------------------------------------------------------------------- So the rough way we're thinking about it is take the full year, apply the policy and then have it to give a split between interim, a normal interim and a normal final dividend. -------------------------------------------------------------------------------- Adrian Allbon, Jarden Limited, Research Division - Director of Equity Research [68] -------------------------------------------------------------------------------- But in the case of implementing that assuming that lockdown... -------------------------------------------------------------------------------- Michael Ahearne, SkyCity Entertainment Group Limited - CEO [69] -------------------------------------------------------------------------------- Yes. I would be -- I guess what I'm saying is a lockdown -- any lockdown obviously influence what the underlying impact and EPS number as towards the policy will be applied. -------------------------------------------------------------------------------- Ben Kay, SkyCity Entertainment Group Limited - General Manager of Corporate Development & IR [70] -------------------------------------------------------------------------------- Adrian, Ben here. I think it'll have to be a fairly prolonged lockdown for us not to meet the financial covenants for 30 June that we see in a row and hence been in a position to pay a dividend. So we're comfortable but a decent amount of hydro around covenant compliance specifically for the June test. -------------------------------------------------------------------------------- Adrian Allbon, Jarden Limited, Research Division - Director of Equity Research [71] -------------------------------------------------------------------------------- Yes. Just apologies, maybe I asked the question poorly. Like would you -- like when you come to opining on the dividend after your year-end performance, which I presume would be at the August result, like if it performed in line with the expectations, it wasn't onerous restrictions on lockdowns and stuff through that period. Like would you potentially look at paying a catch-up dividend for the fact that you couldn't pay it in the first half? -------------------------------------------------------------------------------- Michael Ahearne, SkyCity Entertainment Group Limited - CEO [72] -------------------------------------------------------------------------------- No, that's not how we're thinking about it, Adrian. What we want to do is to essentially establish a sustainable interim and final dividend pattern and consistent with the new policy outlined. So I don't think our performance in the first half justifies a catch-up dividend. Some of the retailers might have done in New Zealand and Australia in recent times. -------------------------------------------------------------------------------- Ben Kay, SkyCity Entertainment Group Limited - General Manager of Corporate Development & IR [73] -------------------------------------------------------------------------------- Well, I'll be coming to the end of our allotted time. So I might just thank everybody for your participation and on the call today and look forward to having further discussions with you and the one-on-one sessions that we're having over the next couple of days and weeks ahead. Thank you all. -------------------------------------------------------------------------------- Rob Hamilton, SkyCity Entertainment Group Limited - CFO [74] -------------------------------------------------------------------------------- Thanks all. -------------------------------------------------------------------------------- Operator [75] -------------------------------------------------------------------------------- Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.