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Edited Transcript of VRL.AX earnings conference call or presentation 29-Aug-19 4:00am GMT

Full Year 2019 Village Roadshow Ltd Earnings Call

OXENFORD , QUEENSLAND Sep 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Village Roadshow Ltd earnings conference call or presentation Thursday, August 29, 2019 at 4:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Graham William Burke

Village Roadshow Limited - CEO & Executive Director

* Julie E. Raffe

Village Roadshow Limited - Finance Director & Joint Company Secretary

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Conference Call Participants

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* Brian Han

Morningstar Inc., Research Division - Senior Equity Analyst

* John O'Shea

Ord Minnett Limited, Research Division - Senior Research Analyst

* Joshua Goodwill

Ord Minnett Limited, Research Division - Research Associate

* Nicholas Caley

Baillieu Holst Ltd, Research Division - Equity Research Analyst

* Sam Teeger

Citigroup Inc, Research Division - Analyst

* Wei-Weng Chen

JP Morgan Chase & Co, Research Division - Research Analyst

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Presentation

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Operator [1]

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Thank you for standing by, and welcome to the Village Roadshow Limited FY '19 Results. (Operator Instructions)

I would now like to hand the conference over to Mr. Graham Burke, Chief Executive Officer. Please go ahead.

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Graham William Burke, Village Roadshow Limited - CEO & Executive Director [2]

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Hi, good afternoon, everybody, and I'm here with the Finance Director, Julie Raffe. I'm going to rattle through this pretty quickly because I find that Q&A usually expands out the issues much more effectively than something many or most of you would have read anyway, but it does start with the most powerful statement. It's the essence of what we are. VRL is well positioned in what has become the experience economy. People won't necessarily buy a new handbag or a new shirt or a new refrigerator, but what they do want is quality experiences, they want to be entertained, they want to escape in a world that's very stressful. And with our theme parks and our theaters that are of the highest quality, we're very well positioned to take advantage of that.

Moving to the next page, VRL's EBITDA, as a group, is up 37% on last year. The operating cash flow the -- was self-evident, and Julie can explain that more if you want input. Theme Parks are up 100%. Cost reduction has occurred, strong balance sheet. Our leverage is now at about what I'd consider world's best practice. We've sold an asset which was noncore. And most importantly, we are a dividend-paying company. We're a yield company, and we've signaled a return to dividends. And certainly, that's the Board's intention to continue as such. So -- I'll get Julie now to walk you rapidly through the key earning metrics as it's called, so that we can get to Q&A.

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [3]

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Yes. So obviously, there's a lot more information on each of these in the divisional sections, but just calling out, obviously, the Theme Parks' ticket strategy, as Graham said, also impacted by the revenue accounting standard, would have been $2.9 million higher at the EBITDA line without that standard.

Similarly, in Cinema Exhibition, the negative impact of that revenue standard was $2.5 million. Notwithstanding that the second half was a little weaker than we had originally anticipated. Film distribution reflects the continued deterioration of physical DVD, and we could talk about that a little more in this section. And then in Corporate, you can see the impact of the cost program that was successfully impacted.

The only other thing that I would like to call out on that page is the interest expense number. So if you look at the group interest expense for FY '19, if you could do the math, it's $28.4 million for FY '19 and $29.3 million for FY '18. Although those numbers are very similar, the breakdown of that is quite different. We have saved roughly $5 million a year in bank debt interest because of -- partly because of the lower leverage and also because of better margins, as our leverage ratio has improved. The offset has come from the interest on the Oxenford finance lease, which was an extra $4 million for the year, there was only 6 months in the prior year. So that's why those 2 numbers are similar. But if you're trying to work out an interest margin, you need to take out the Oxenford lease in doing that.

So moving on to the cash flow. I think it's fair that we've called out all the working capital items, and we've pulled out the material items as a separate line item so that it's not blending into the working cap analysis. A much better working cap movement for FY '19, a better debtor and creditor management, and some timing differences in the prior year.

So debt, fairly self-explanatory, I don't need to expand on that. The material items have basically come around the refinancing that occurred at the half, plus the -- I guess the impairment that came out of the Roadshow business in goodwill and in inventory. And then obviously, the iPic situation, which we announced a few weeks ago occurred in July, but we've taken the liability back into the FY '19 year.

So Graham, I'm happy to hand back to you on Theme Parks. So we're now...

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Graham William Burke, Village Roadshow Limited - CEO & Executive Director [4]

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Okay. Page 12.

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [5]

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11.

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Graham William Burke, Village Roadshow Limited - CEO & Executive Director [6]

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The strategy with the Theme Parks has been and will continue to be powerfully going forward a 4-part strategy of winning. The first one is the high-yield ticket strategy. And basically, we're out of the discount business. We used to be competing with Dreamworld and their offering. And we're of the belief that our offering today with the all the enhancements we've made to our parks and the fact that we are offering a very important 4-Park Pass, which is one of the most lucrative categories, we're offering such a superior experience that the analogy is a little bit like buying a BMW as opposed to buying a Toyota. So we're no longer concerned about price competition. And also, sadly, the brand is damaged.

So we're now getting ticket yields of 25% up. And the key to the pricing strategy is the next 3 items: dynamic marketing, the marketing has to be absolutely irresistible. You've got to make kids and moms and grandparents just look at our ads and go, wow, we've just got to do that. And I think our HyperCoaster ad, our Sally Pearson ads have been very effective. We've got a whole new campaign that we're launching in September. It's under wraps still. But I've seen the first rough cut of the commercial. And I've got to tell you, it's emotional, it's very exciting because it's presenting our parks in a different way, and it's presenting the entire suite of attractions that we had, and emphasizing the Village Roadshow Theme Park of umbrella band -- brand under which they're located.

The third part of the winning strategy is smart CapEx and putting in attractions that excite people, cause them to buy tickets, cause kids to nag their parents to go. And the Spooky Coaster, which is the old Scooby Doo turned into a new dimension for very little money. But the #1 film of the January Christmas season Aquaman was and is an incredible attraction. Batmobile, Cyborg, the Australian Outback Spectacular, retweaking of the show. And if you've seen the show historically, I'd urge you to go again because the new show is fantastic and the word of mouth is reflecting that. Sea Jellies, Sky Flyer, Thunder Lake Stunt Show, Shaun The Sheep, and these are not big, expensive spends, but they're very effective crowd pullers and crowd pleasers.

Then the fourth part is delivering a great experience. Since Clark has taken over as CEO, and with Bikash Randhawa as his COO, they're obsessed about giving people a great experience. And our net promoter scores have gone up. And the whole thing that's set on this slide is creating joy and memories that last a lifetime. And we're delivering a great experience.

Then moving to the other assets, Sea World Resort. People want to stay at the park. If we had another 400 rooms, I think we could fill them. The Outback Spectacular, I referred to. The studios are doing well with overseas productions.

Topgolf Gold Coast is great experience. The net promoter scores are excellent. But the $3.6 million EBITDA is below our original expectations. And part of this is that we put this incredible new American concept that occupies about 10 acres with 400 new staff, and we're still shaking out the issues. The American experiences it takes a year or 2 to put to bed down properly. We're still getting quite a nice return on our money. And also, it's a total attraction to the Gold Coast Movie World, Wet'n'Wild, Paradise Country, Outback Spectacular location.

The Asian Theme Park opportunity. Asia is all about management fees and no equity. We're managing a park that's just opened, the Lionsgate Park, and we're pursuing a number of opportunities.

But if I go to Page 19 and summarize, the focus in FY '20 and beyond is the execution of our strategy of the 4-part -- the 4-pillars strategy. And Sea World used to be one of the great attractions of Australia. It's got a little tired. It's got a little lacking in new attractions. And Clark is implementing what he calls the New Atlantis project. And Sea World is, once again, going to be up there as one of the great parks along with Warner Bros. Movie World, of not only Australia but of the world. And if you look at that little photo, that's a tiny little photo. On the bottom right-hand corner, you see a strange looking yellow thing that is one of the most amazing theme park attractions in the world. It's a wooden rollercoaster. And those that know of it and have seen it in other territories, it's a very, very exciting attraction.

Moving on to Cinema Exhibition. The year has been finished off not quite as good as we'd hoped. But still a hell of a bloody year. I mean if you look at the admissions, that's more than the population of Australia, 25.2 million. And the EBITDA is only down quite marginally when you consider that around $2.5 million to $3 million of that was changes in recognition under the accounting standards. The Val Morgan screen advertising fell a little short, but that's picked up this year again, and also skewed by some of the product mix, et cetera. But it's still a terrific result.

One of the big contributors to that result, in Village Cinemas we have a new $15 ticket price, which makes cinema very affordable compared with the $22 for the rack rate price, and Event is doing a similar thing. And we are bringing more people back to the movies.

The important thing with our cinemas going forward is cinemas have to be places where people want to be. They have to be fashionable, they have to be contemporary, they have to be exciting. And we're refashioning our cinemas for the 2020. And if you go to Page 24, we've got some new developments, Clayton in Melbourne, a couple of sites in Sydney and in Innaloo, but it's all part of a program to refashion the cinemas and make them exciting.

But the key, as our founder always used to say to me, it's what's on the screen that counts. And as we look through the year, boy, we've got some winners. I mean the next Star Wars, the next Jumanji, a James Bond, the next Wonder Woman and the next Avengers. So we feel good. However, if 1 or 2 of these movies don't turn out as we confidently expect they will given the talent involved with them, that's the movie business.

Moving on to Film Distribution. Film Distribution is and has always ever been a hit-driven business. Some of the releases we've had have skewed to the lower commission area of our business. And some of the high-yield attractions haven't worked so well in the last year. But going forward, it is a hit-driven business. And we will be doing what we've done well over many years, being master showman to cause people to want to see films that we have in our schedule for release. And the downturn, which we loosely call the Netflix piracy effect, has impacted some of our competitors. So we have a less competitive landscape. And we've also got smart with the costs in the way we run the business and the way we combine functions between theatrical and the home entertainment, et cetera. And the slide Roadshow is evolving, it's headed as a good one.

Piracy, since the Liberal Government with bipartisan support from Labor gave us site blocking, statistically from research, we're down -- Australia was down 42% reduction in piracy. But also social attitudes have changed towards piracy, so we feel a measure of encouragement there.

Our content strategy is through 3 investments, FilmNation out of New York, the Roadshow Rough Diamond and right now, if you haven't seen Les Norton, tune in at Sunday nights on the ABC, it's damn good. And we're also working on Eurovision.

So the outlook for Roadshow. The decline in sales of physical DVDs continues, but there is new avenues of revenue coming on stream. The overhead, we continue to downsize. But ultimately, it still comes down to hit movies. And if some of the movies we've got lined up we can turn into hits, it'll be a very good year. If we don't succeed, then it'll be a year more in line with the expectations of, I think, the market.

Marketing Solutions, we've sold Edge Loyalty, of course. But the important one is Opia. Opia is really a very unique business. And Julie and I are spending a lot of time on it these days because we think it can be a significant return of money and also eventually a sale. And why

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is the fact that these giant tech companies who are our customers, they spend a fortune on traditional media, but it's not working. It's not working for a host of reasons. In what we offer our promotions is getting them results, and they can measure it. And these customers are saying to us, hey, we like what you guys do for us. We want to do more. And also, we want you to expand it geographically for us. And so not only are we focusing on the U.K. and Europe but we're also expanding into the USA. And proof is in the pudding because the trade that's booked firm, solid is indicating that we're heading for a very good F '20 year.

Moving along so we can get to questions on time, Corporate & Other is the heading. And I think I might hand it over to Julie.

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [7]

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Sure. So obviously, the key here is the cost-saving program that we've put into place, so for -- that we've spoken about before. That was commenced when we did the capital raising with a reduction in the executive director salaries and the non-executive director fees. They were all implemented at the beginning of the year. So we are happy with the savings that we've achieved in '19. There are -- that will obviously annualize in FY '19, but it will be offset by the 2 dot points that we put down below. So in FY '18 and '19 there are no corporate bonuses in there. If we hit budget and budget is higher than FY '19, then we will return to paying bonuses to senior executives, and that is roughly $4 million. We also will have some one-off costs coming through FY '20 as we seek to upgrade our technology platforms. And we are in the process of doing that right now. So we will have some costs coming through FY '20, one of which will be dependent on performance.

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Graham William Burke, Village Roadshow Limited - CEO & Executive Director [8]

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You could go over this briefly.

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [9]

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Sure. So if we go to the group and the CapEx. So we've spoken a lot about what our CapEx strategy actually is. We stay true to our promise to spend approximately $50 million in FY '19. What we're saying is that with the desire to invest in Cinema Exhibition going forward to refurbish key sites, the CapEx will revert to roughly what our depreciation is that $70 million to $75 million. So the Theme Park CapEx will stay fairly stable, and there'll be some extra CapEx in exhibition, which will clearly generate additional earnings. But in FY '20, as we are opening the new site and the refurbishments during the second half of the year, those additional earnings will fall into the FY '21 year.

We've just put a note there about the leases. If you have a look at the financial statements, the lease commitment note pretty much says it all in terms of what the annual expense is. Essentially, we expect that -- although the line items will change the overall impact on VRL, at an NPAT level it won't change too much. But we're still working through the exact numbers at the moment.

In terms of the bank covenants, the impact of this accounting standard has been carved out. So we'll have no impact on that.

So do you want to do the summary?

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Graham William Burke, Village Roadshow Limited - CEO & Executive Director [10]

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Yes. So summarizing '19. Careful cost management, that's real, continuing, and we see as custodian of that. Under whose leadership it is administered is Mrs. Raffe and she's scary, I'll tell you. When she gets going on the group on the costs, they sit up and take notice. Above all, what we're about is free cash flow because free cash flow means dividends, maintaining prudence with our debt. And we're now at a level that we feel extremely conservative and comfortable with. And then, as I've referred to earlier, dividends. And I'll finish the presentation where I started with the statement, people want to go out, buying entertainment, escape and experiences. And with our high-quality cinemas and theme parks, we cater to that very real and great demand.

So that's the spiel. I'm happy to take questions, and happy to take difficult ones.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

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Graham William Burke, Village Roadshow Limited - CEO & Executive Director [2]

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And it'll either be Julie or I answer, depending on which one we deem most appropriate.

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Operator [3]

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(Operator Instructions) As there are no webcast questions at this time, we'll go to the phones.

Your first question comes from John O'Shea from Ord Minnett.

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John O'Shea, Ord Minnett Limited, Research Division - Senior Research Analyst [4]

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Julie, you are definitely not scary. So that's how I'd like to start off there. Just a couple of questions from me, I guess. A little bit more on the micro side. A bit of a sense as to how you think the sort of D&A in light of the CapEx numbers are moving, and you're cycling through your existing assets in terms of their write-offs. How do you sort of see that moving, Julie, as we enter FY '20 or in FY '20?

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [5]

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No. So I think FY '20, D&A is going to be fairly similar to FY '19. As you say, we've written a few things off. But the CapEx in FY '19 was quite small, so won't have a big D&A impact in FY '20. Going forward, it will depend on where they get spent. The D&A on Theme Parks assets is quite long because these assets last for a long time. And cinemas varies depending on where we spend. But wouldn't expect a massive change in D&A in '20 or '21.

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John O'Shea, Ord Minnett Limited, Research Division - Senior Research Analyst [6]

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Sure. Next one is interesting, in light of what you said, obviously, about the lease payments being in there, that will obviously continue. But obviously, the remaining debt profile has come down and will come down even further with the sale announced this morning. Would you expect that movement to just to sort of mirror the movement in the debt profile? Or how should we think about the interest levels?

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [7]

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Yes. Absolutely. The interest expense line should absolutely mirror what happens to the debt drawn number. So as that debt drawn comes down, the interest expense line should come down also.

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John O'Shea, Ord Minnett Limited, Research Division - Senior Research Analyst [8]

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Yes. And it should come down by a large amount, would you expect? Because this year...

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [9]

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It will come down in proportion to -- so free cash flow generally goes into debt. So it will come down in line with what the debt comes down.

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John O'Shea, Ord Minnett Limited, Research Division - Senior Research Analyst [10]

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Yes. Okay. That's fine. Anything funny going on with your effective tax rate? Or you should return -- it should return to normal this year and onwards?

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [11]

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FY '20 will revert back to normal. FY '19 was benefiting from tax losses carried forward from FY '18. So it's below the normal rate. But they've been utilized. So FY '20 should revert back to a more normal level.

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John O'Shea, Ord Minnett Limited, Research Division - Senior Research Analyst [12]

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Sure. And look, I see you obviously haven't given any -- the final one for me, any sort of guidance number around FY '20 at this particular stage. But as we look at the individual divisions, how do you think we should think about it? In other words, pluses and minuses, in a broad level, how do you think we should think about the divisions up, down or and just a sort of a brief comment on each division? Is that okay?

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [13]

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We don't give projections. We have given the outlook, which is, obviously, in the presentation. That's about as much as we wish to say at this point.

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John O'Shea, Ord Minnett Limited, Research Division - Senior Research Analyst [14]

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Okay. So no comment on the divisions generally?

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Graham William Burke, Village Roadshow Limited - CEO & Executive Director [15]

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John, July has got up to a great start in the Theme Parks. So really...

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John O'Shea, Ord Minnett Limited, Research Division - Senior Research Analyst [16]

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We have seen that before, Graham, to be fair?

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Graham William Burke, Village Roadshow Limited - CEO & Executive Director [17]

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Yes. Well -- it's well ahead of last year and well ahead of budget. And exhibition has had a record month. But then it's Lion King and the majority of the lineup going forward, I feel measure of confidence. But Julie summed it up.

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John O'Shea, Ord Minnett Limited, Research Division - Senior Research Analyst [18]

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Yes. Appreciate it. And you're definitely not scary, Julie, just remember that.

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Operator [19]

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Your next question comes from Sam Teeger from Citi.

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Sam Teeger, Citigroup Inc, Research Division - Analyst [20]

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Maybe if we can start off in terms of Theme Parks. Just keen to understand what has driven the loan stake of The Trident being pushed back by 12 months? And also, to what extent in Theme Parks do you see it as a potential year of disruption, given Sea World is going to be a bit of a construction site?

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [21]

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I'm a little confused by them being push backed 12 months. We...

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Sam Teeger, Citigroup Inc, Research Division - Analyst [22]

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So I think -- in terms of being pushed back, I think the date in which you're saying in the current materials is 12 months later than what you said when you announced the whole project a few months ago.

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [23]

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So -- no, when we did the Investor Strategy Day, the time line that we've got in the presentation should be very similar to that. So the first, there are 3 components to the New Atlantis, one which will open fairly soon, or finishing with the wooden rollercoaster, which is December 2020, so falls into the FY '21 year. As far as I'm aware, that's -- I'm looking at Alex now, and as far as I'm aware, that's the same time line that we had to the investor presentation. So The Vortex in FY '20 and the wooden rollercoaster in FY '21 was what we said, and we're still holding to that.

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Graham William Burke, Village Roadshow Limited - CEO & Executive Director [24]

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And Sam, the construction site issue, I don't think will be major because it's contained in an area which is now being called the Atlantis area. And there's not a lot of other activity there.

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Sam Teeger, Citigroup Inc, Research Division - Analyst [25]

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All right. Okay. And then I guess we've seen Dreamworld's Sky Voyager that took 8 months longer than expected to get all the approvals they needed to open. And appreciate the safety records of both parks are not comparable. But just keen to hear your thoughts on whether you think the safety regulator out there may be taking longer to approve any new rides now? And as a result, do you think there's any risk that some of the time frames for the new Sea World rides may slip?

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Graham William Burke, Village Roadshow Limited - CEO & Executive Director [26]

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I'll run with it. Our safety record with the regulators is beyond here. I mean when the terrible tragedy occurred at Dreamworld, a host of people were sent into our park to try to desperately find things that they could justify their salaries and point to as being wrong but there was nothing wrong. We run at exceeding the industry norms and industry standards. It's outstanding, best practice on site. And we've had a habit of bringing attractions in like the colossal HyperCoaster, which is the biggest rollercoaster in the country, on time and on budget.

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [27]

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I think the other thing that we should say there is that we always allow -- we're quite conservative in our timing. So we -- and we always allow for a 12-month construction period. So we're building the time line that we need to get the regulations that we require. And we work with the government upfront to make sure that we get those. So we -- no, we would not expect a delay because of the regulatory environment. We absolutely build that into our planning process. And sorry, Sam, going back to your question on The Trident, that has been pushed out from December 2020 to April '21, and that's to allow for the construction period because it's such a big ride.

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Sam Teeger, Citigroup Inc, Research Division - Analyst [28]

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Right. Any other issues going there -- going on there with that ride?

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [29]

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No. It's just very big.

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Sam Teeger, Citigroup Inc, Research Division - Analyst [30]

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Okay. And I guess just keen to hear your thoughts on whether you think Dreamworld may take any market share back over the medium term once their new rides open? And just maybe your thoughts on the pulling power of their new Sky Voyager.

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Graham William Burke, Village Roadshow Limited - CEO & Executive Director [31]

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Well, Sam, I'm not going to comment on the pulling power of a competitor. I think that's not good spirited. But I believe that we've got such a critical massive attraction. And I believe that we're sort of a must buy if you want to go to Theme Parks with the range of things that we offer. I'm not overly concerned. And also, if Dreamworld does up their game and has more action, it will bring more people to the coast, more tourists to come for the theme park holiday. And simply stated, would I rather have a strong Dreamworld or a weak Dreamworld, I'd much rather have a strong Dreamworld.

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Sam Teeger, Citigroup Inc, Research Division - Analyst [32]

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Right. Okay. And yes, Julie, just double checking, just in terms of the date for The Trident. In the investor presentation at the Investor Day, Slide 26, it says, April 2020. And I'll think now, if you look in the 4A on Page 5, it's saying April 2021. So it looks like maybe 12-month pushback.

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [33]

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Okay. Okay. So we've actually just got a message from Clark to say, it's been pushed out so that it doesn't impact the release of the wooden rollercoaster.

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Operator [34]

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Your next question comes from Wei-Weng Chen from JPMorgan.

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Wei-Weng Chen, JP Morgan Chase & Co, Research Division - Research Analyst [35]

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Just a couple of questions from myself. So just on Topgolf, made $1 million of EBITDA in the second half. If we think about what it might make in '20, do you think that your prior $3 million to $3.5 million EBITDA range is reasonable?

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [36]

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We would anticipate that EBITDA for this attraction should continue to grow over time. So yes, we do think it's reasonable.

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Graham William Burke, Village Roadshow Limited - CEO & Executive Director [37]

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Yes. And just to supplement what Julie said, we're tightening up so many things, Australian wages, pricing, group events, which we didn't had in the first year. So no, I feel confident that we can look to improving.

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [38]

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I mean we're also including it now with the Theme Parks. So the Theme Parks marketing, that Graham was talking about before, will now include Topgolf. We think one of the issues, notwithstanding that it's had a pretty good attendance rate, I think that one of the issues is that people are still unsure what it is. And so we want to get all of the people who go and visit the Theme Parks to go and give it a go. And that will build word of mouth, and that will help to build the EBITDA.

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Wei-Weng Chen, JP Morgan Chase & Co, Research Division - Research Analyst [39]

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Right. And then just on the distribution business, you had a $7.7 million inventory return liability, so what was that? And what's the risk of this occurring again next year?

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [40]

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So the risk of it occurring again next year is minimal because this is a one-off correction. So effectively, what this is, we look at the level of inventory that we have, and it's predominantly back catalog. And we have spoken about back catalog sales at -- are the areas that's declining the most. We have put a provisioning to say, what if we can't sell the back catalog that we're currently holding. And what if we -- what is the rate of return to sale on return business. What if the retailers can't move that inventory and we get some of it back. So we've taken a very long in-depth look at the level of inventory that we're carrying and that are feeding in retailers. And that's the full amount that we believe is at risk.

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Wei-Weng Chen, JP Morgan Chase & Co, Research Division - Research Analyst [41]

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Yes. Okay. Great. And then the IT upgrades that you flagged for FY '20, what are they? And is the spend expected to sort of carry over into subsequent years? Or what is it exactly? And then is the spend going to result in any cost or revenue synergies?

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [42]

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So these are the IT projects that are called out in the corporate section?

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Wei-Weng Chen, JP Morgan Chase & Co, Research Division - Research Analyst [43]

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That's right.

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [44]

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Yes. Okay. So essentially, that is group-wide projects. So this is actually the infrastructure. So this is -- essentially, this is moving all of our systems into the cloud. We do believe that there will be some cost savings from us doing that, but it is probably a 12-, maybe 15-month project to be able to do that. But the benefits to us are, obviously, a stronger backup system, a stronger cybersecurity system. And we do believe that there are cost synergies going forward. But I wouldn't like to try and quantify that at this point in time.

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Wei-Weng Chen, JP Morgan Chase & Co, Research Division - Research Analyst [45]

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Okay. And then just one last quick one from me. Can we expect any more business sales from Village in the coming year?

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Graham William Burke, Village Roadshow Limited - CEO & Executive Director [46]

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Probably not. And -- however, we're open and flexible to maximize any exits that may occur. But I don't see anything in the short term.

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Operator [47]

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Your next question comes from Nick Caley from E.L. & C. Baillieu.

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Nicholas Caley, Baillieu Holst Ltd, Research Division - Equity Research Analyst [48]

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Just -- if I look at Marketing Solutions, the EBITDA for the year is in $5 million. So if you take off Edge $3 million, am I right in saying, Opia is just only $2 million?

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [49]

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Yes. But if you look at the prior year, Nick, which is why we've given both FY '18 and FY '19 numbers for Edge in the presentation. Opia did not have a good year. In FY '19, there are a number of promotions that kind of fell on the wrong side of the year-end line. We do expect Opia to be able to come back around and certainly do what it did in FY '18 and hopefully, improve on it a bit.

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Graham William Burke, Village Roadshow Limited - CEO & Executive Director [50]

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I second that strongly.

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Nicholas Caley, Baillieu Holst Ltd, Research Division - Equity Research Analyst [51]

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Okay. Second one, any help on the dividend payout ratio going forward?

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [52]

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We don't have a dividend payout ratio. The Board will look at dividends on a 6-monthly basis. We'll look at trading cash flow generated and debt levels, and make a decision on a 6-monthly basis.

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Nicholas Caley, Baillieu Holst Ltd, Research Division - Equity Research Analyst [53]

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And any update on a new chairman?

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Graham William Burke, Village Roadshow Limited - CEO & Executive Director [54]

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No.

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [55]

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Continuing to work through it.

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Operator [56]

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Your next question comes from Brian Han from Morningstar.

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Brian Han, Morningstar Inc., Research Division - Senior Equity Analyst [57]

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Graham, the bumper start to admissions to your Gold Coast properties so far this year, can you elaborate on the driver of that? And how much of it was due to any soft prior year comparison?

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Graham William Burke, Village Roadshow Limited - CEO & Executive Director [58]

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I might let Julie cover it.

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [59]

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Sorry, I didn't quite catch the first half you presented, what was it?

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Brian Han, Morningstar Inc., Research Division - Senior Equity Analyst [60]

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You had a strong start in terms of admissions to your Gold Coast parks so far this year. I'm just wondering whether you can elaborate on the drivers of that.

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [61]

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So remember that because of the new accounting standard, we're now recognizing revenues on a month-by-month basis. So previously, we used to recognize revenues on an admission basis. So it all comes down to when people buy tickets now rather than when they come through the door. December, January still remains our biggest trading period. But it comes down to how many tickets have we actually sold over the course of the 12 months, and then driving in part spend through the admission numbers. So what we would expect to see now is a much more even balance between the first half and the second half than we've had before. And that will then obviously impact FY '20. So I think you'll see much less difference between the first and second half going forward.

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Brian Han, Morningstar Inc., Research Division - Senior Equity Analyst [62]

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Okay. And in terms of Topgolf, what do you think the attendance level can reach up to on a sustainable basis?

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [63]

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I think Topgolf is actually -- yes, we want to drive the admission numbers, but more importantly, we want to drive the spend. So it's about getting that per cap up to where our expectations were, and that obviously will then drop through to the EBITDA levels. So -- can I just go back to your question on the Theme Parks and just expand on that a way bit more? As Graham said, they've had a really good July. They have had an increase in ticket sales in FY '19. Deferred revenue in FY '19 is up about $7 million on FY '18. So I don't want to give you the impression that ticket sales are flattening out. They are not. We are continuing to sell more tickets.

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Operator [64]

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(Operator Instructions) Your next question comes from Sam Teeger, again, from Citi.

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Sam Teeger, Citigroup Inc, Research Division - Analyst [65]

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So I have come back for a round 2. Given how strong the box office has started for this December half, is it possible that it's going to finish up double digits, or are you expecting a slowdown, in double digits in terms of percentages?

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [66]

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In exhibition.

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Graham William Burke, Village Roadshow Limited - CEO & Executive Director [67]

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Yes. It's -- Sam, it's product driven. It's do the movies work. And there's some really good stuff coming up. For example, there's an Aussie movie it's called Ride Like A Girl. That -- it's got a chance that it could just be an unexpected sleeper. The Joker, I've seen. And boy, like it shook me to my foundations. It's such an awesome, awesome piece of filmmaking, but will the public buy it? I think strongly so. So it's going to be determined by products, Sam.

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Sam Teeger, Citigroup Inc, Research Division - Analyst [68]

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All right. And just in terms of Opia. So the EBITDA in '19 was around $2 million. I appreciate there's some timing issues impacting that. But it seems well below -- around about the $12 million of EBITDA that it was doing when you bought it. So just keen to understand some color what's happened to this business? And how long do you think you need to get it back to the earnings it was doing when you bought it? And you just staged to 80%.

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [69]

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Okay. I think FY '19 is an aberration. So it did do much more than that in FY '18, as I mentioned before. We are -- we've put a number of additional costs into that business, which is all about building up their capability. So they are looking to expand internationally. So with the FY '19 you did also have the impact of some of those additional costs. Those costs are there for a reason, and that is to allow Opia to move to the next level and the next stage of its business plan. So we would expect to see that starting to come through in FY '20. We certainly expect FY '20 to be much, much stronger than FY '19. And then in FY '21, we should really see the impact of that growth program.

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Sam Teeger, Citigroup Inc, Research Division - Analyst [70]

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Got it. And then just also, just keen to talk about the cinema refurbs. How much of the refurbs do you think is required just to stand still, given some of these pressures that the industry is facing? And just how much will it deliver earnings growth?

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Graham William Burke, Village Roadshow Limited - CEO & Executive Director [71]

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The money that our competitor HOYTS spent on refurbs and refashioning and new seating, et cetera, for the most part they've got -- and they're private, so they don't declare anything. But talking to their managing director, he's a good friend of mine, for the most part, and certainly, it's evident in their box office takings, which we swap. They've got very good returns on the work that they did. We're -- especially in the event side of the circuit, we're a little behind them in terms of refurbs, but I'm confident that the money that we'll spend, we will see a return because it'll -- of course, it'll re-kickstart people in the various regions going back to the cinema.

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Operator [72]

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Your next question comes from John O'Shea from Ord Minnett.

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Joshua Goodwill, Ord Minnett Limited, Research Division - Research Associate [73]

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It's actually Josh Goodwill here. Just turning to the Theme Parks and the high-yield ticketing strategy that's been ongoing. I'm just wondering if we could get some comments around the potential scale of the pricing increases going forward?

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Graham William Burke, Village Roadshow Limited - CEO & Executive Director [74]

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The intention is to keep comfortably abreast of inflation. And we will be continuing to increase on the scale, Julie, like can you tell that?

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [75]

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No. It could depend on a year-by-year basis on how they're going. But absolutely, we -- so we went up $10, which was more than the inflation last year. I -- we got to keep pushing it more until we see that we've perhaps hit the supply and demand chain. But it'll be a year-by-year review. But absolutely, we'll be in front of inflation. So that -- and you'll see from the numbers in FY '19, the margin improvement as well as the price improvement.

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Joshua Goodwill, Ord Minnett Limited, Research Division - Research Associate [76]

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Yes. So that $10 increase you mentioned, just remind me, what type of ticket was that on?

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [77]

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So that's on Multi-Day and predominantly, it's on the Village One Pass, which is our biggest seller.

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Joshua Goodwill, Ord Minnett Limited, Research Division - Research Associate [78]

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Sure. And are you expecting to also put prices up in a similar fashion for all ticket prices going forward?

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Graham William Burke, Village Roadshow Limited - CEO & Executive Director [79]

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It's right across the whole range. One of the critically important things is to keep our pricing abreast, and our pricing will able to keep it abreast if we are doing 2 things. We've got marketing that creates pressure and want to attend, want to see. And we're giving an experience that is great. If people really like something, they sort of don't care with any reason what it costs. My friend Paul Dainty's just done the Hugh Jackman show around Australia, which was a phenomenal show by the way. And the pricing was extraordinary. And all the most expensive tickets went first. If we deliver a great experience, that's our future. And that's what we're about.

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Joshua Goodwill, Ord Minnett Limited, Research Division - Research Associate [80]

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And so just in terms of that $10 that we've already seen, would we be saying that, that is probably a one-off in terms of the magnitude of the increase, and it would drop back to some inflation plus from there on?

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Graham William Burke, Village Roadshow Limited - CEO & Executive Director [81]

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That's something that we'll be measuring year-by-year, but not necessarily.

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Joshua Goodwill, Ord Minnett Limited, Research Division - Research Associate [82]

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Okay. And one last on the price increases. Can you give us some idea of the typical timing pattern, like when in the year we're talking these price increases would be put through to the market?

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [83]

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Yes. So we're usually looking at it around the end of the first quarter to implement before our biggest trading period which is December, January. So towards usually during the month of November or early December.

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Graham William Burke, Village Roadshow Limited - CEO & Executive Director [84]

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Yes, for Christmas.

Yes, I'd just like to ask a question. No, no, I have a question to ask. One of our dear friends in many, many years, I believe is in attendance. Roger, if you'd like to ask something, you still can. He's maybe not in attendance. There you go.

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [85]

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But we do have a question from CCZ, do we not?

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Graham William Burke, Village Roadshow Limited - CEO & Executive Director [86]

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Of course, we're still open for questions.

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Operator [87]

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All right. So there is an online question. This is from Chris Macrow at CCZ.

We are all confident that they can maintain EBITDA margins in the Cinema Exhibition business going forward. What strategies that they are employing to increase average spend per head?

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Graham William Burke, Village Roadshow Limited - CEO & Executive Director [88]

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Yes. We -- there's no reason not to be confident. And the area of enormous focus by both diligent event management is maximizing return on food and beverage because that's very, very lucrative.

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [89]

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And that is both the answer to why we're confident on the margin because we are seeing an improving spend per person. And as we do that, as Graham says, that clearly carries the higher margins. So the strategy has always been to invest in the premium-priced product. And Graham has talked about the refashioning for the 2020s. And predominantly, that is around the premium-priced product. So that gives us a higher box office ticket price. And it also means that we do get a higher F&B spend as well. So if you look at the Gold Class, which is the obvious one, our investment in the Gold Class has absolutely been very lucrative for us, and that's a continuation that we see going forward.

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Operator [90]

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There are no further questions at this time. I'll now hand back to Mr. Burke for closing remarks.

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Graham William Burke, Village Roadshow Limited - CEO & Executive Director [91]

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Thank you for all of your questions team. We appreciate them. And some of you, look forward to seeing you on the road shortly. Okay.

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [92]

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Thanks, everybody.

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Graham William Burke, Village Roadshow Limited - CEO & Executive Director [93]

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Cheers.

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Julie E. Raffe, Village Roadshow Limited - Finance Director & Joint Company Secretary [94]

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Bye-bye.