Coast Entertainment Holdings Limited (CEH) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Annual General Meeting of Ardent Leisure Group Limited. My name is Gary Weiss, and I'm the Chairman of Ardent. As with many company annual general meetings this year, due to the pandemic and restrictions on travel and physical gatherings, we have decided to conduct Ardent's meeting in a virtual format. Before I formally open the meeting, I will outline some procedural matters for conducting today's meeting. If you experience any technical issues during the meeting, we have published a virtual meeting guide on our website, which includes how to seek assistance if you are having difficulties. A recording of today's meeting will be available on our website later this afternoon. Shareholders will have the opportunity to ask questions in this virtual meeting format. [Operator Instructions] If you have questions already prepared, please submit them now on the platform so that I can answer as many questions as possible when I come to the relevant agenda item. You do not need to wait until the relevant item of business. I now confirm that a quorum is present, and I declare the meeting open. It is my pleasure to introduce you to the members of the Board here today. In the room with me is David Haslingden, and online from the United States is Brad Richmond and Randy Garfield. I would also like to welcome members of the executive team. Online from the United States is Darin Harper, Group Chief Financial Officer; together with Chris Morris, President and Chief Executive Officer of Main Event Entertainment. We also have online from the Gold Coast, John Osborne, Chief Executive Officer of our Theme Parks and Attractions business. The group's auditor, Ernst & Young, represented by John Robinson, is also here today and available to answer questions in relation to the auditor's report. The format for today's meeting will be as follows. I will shortly provide some opening remarks regarding the activity and performance of Ardent for the year, and we'll then hand over to Chris and John to provide more detailed updates on each of Main Events and Theme Parks. We will then move to the formal business of the meeting, which includes resolutions adopting the remuneration report and reelecting both myself and Randy Garfield as directors. All resolutions to be put to the meeting today will be decided by way of poll. Shareholders attending the meeting online will be able to cast their vote using the electronic voting card received when your online registration is validated. Further information and assistance with online voting can be found in the virtual meeting guide available on the group's website. This year has presented Ardent with the unexpected challenge of responding to the COVID-19 pandemic. With both businesses highly exposed to the economic effects of the pandemic, the ability of our team members to adjust and respond to the disruption has been critical. It is therefore encouraging that we are beginning to see positive signs of recovery as we approach the end of the first half of FY '21. When Ardent reported its half year results in February, there were clear signs of the efforts and initiatives undertaken in prior years to turn around the performance of both Main Event and our Theme Parks division. Dreamworld and Whitewater World experienced some of the best attendance levels over the Christmas/New Year period since the 2016 tragedy, and there was an exciting lineup of new events and attractions, including a new world-class roller coaster. At Main Event, guest traffic and sales trends had improved significantly. Team member and guest satisfaction scores were at an all-time high. And the real estate team had developed a pipeline of new sites to support 5 to 8 new centers a year. As the severity of the pandemic escalated in late February/early March and in line with government-mandated requirements, we temporarily closed all our Main Event centers on 17 March 2020, followed by Dreamworld, WhiteWater World and SkyPoint on 23 March 2020. Following the closures, cash preservation became a priority, and the Board and management took immediate steps to reduce spend across our businesses. All nonessential capital and operating expenditures ceased. Discussions commenced with suppliers and landlords for payment relief or deferrals. Covenant waivers were obtained from our lenders. Directors waived their fees, and senior management voluntarily agreed to salary reductions. As a result of the pandemic and venue closures, the group's financial performance was significantly impacted during the second half of the year. Ardent's 2020 financial results were outlined in our full year results presentation released to the ASX in August as well as our annual report, which has been sent to shareholders. Therefore, I will only provide a high-level overview of the financial results today. In August, Ardent reported a net loss of $136 million for FY '20. Total revenue for the year was $398 million, down by $85 million on the prior year. FY '20 group EBITDA, excluding specific items, was $5.7 million, down $48.5 million over the prior period. Our continued focus on reducing corporate costs resulted in a decrease of $9.4 million compared to the prior year. Chris and John will soon speak to their respective businesses. However, since March, the Board and management's focus was to secure sufficient liquidity to enable Ardent's businesses to navigate through the pandemic in anticipation of resuming operations and growth once conditions improve. Turning to Main Event. In February and prior to the onset of COVID-19, we announced our intention to commence a process to find a partner for Main Event. This process resulted in Ardent announcing in June that it had entered into a partnership transaction with RedBird Capital. RedBird are a well-established private equity firm based in the United States and have significant experience and expertise in the sports, media and entertainment industries. The ability to successfully enter this partnership during a global pandemic, and particularly when most of our centers were closed, is a remarkable achievement and testament to the capabilities and professionalism of Chris Morris and his team at Main Event. It is also evidence of the confidence that RedBird has in the future potential of the business. Since commencing the partnership with RedBird in June, we have already identified several opportunities to leverage RedBird's expertise and networks to enhance Main Event's offerings and improve the guest experience. We look forward to developing these initiatives and building our relationship with RedBird well into the future. Turning to Theme Parks. Our Theme Parks division, and despite the interruptions experienced this year, we remain committed to rebuilding Dreamworld and continuing the excellent progress that has been made by John and his team. We are grateful to the Queensland government for their support and financial assistance provided in August, which enabled us to reopen Dreamworld and WhiteWater World in mid-September. The theme park industry plays an important economic role in Queensland and the broader tourism industry in Australia. With our international borders expected to remain closed for some time, we strongly believe that there will be increased demand for domestic travel in the short to medium term and once all interstate borders are open. Safety. The health, safety and well-being of our guests and team members is our absolute priority. We recognize that the outbreak of a global health pandemic will create concern for our guests in deciding whether to visit our venues. I would like to take this opportunity to assure all guests and team members that we have implemented a wide range of cleaning and sanitization measures throughout our entire operations to keep you, your family and friends safe while visiting and working at our venues. This year, the major legal processes in relation to the tragedy that occurred at Dreamworld in 2016 concluded. The Coroner's Report was delivered in February, and the prosecution was finalized in September with Ardent being fined $3.6 million. Ardent publicly accepted responsibility for the incident without qualification or reservation. And both the Coroner and Magistrate acknowledged the considerable change at Dreamworld in relation to safety across the parks in the past few years. John, his leadership team and all Dreamworld team members have been unwavering in their dedication and commitment to restoring guest confidence in our parks. Our work continues in this regard with Workplace Health and Safety Queensland recently accepting the Safety Case Outlines submitted by Ardent for both Dreamworld and WhiteWater World, which are key milestones in implementing the Queensland government's new regulatory framework for major amusement parks. To conclude, looking ahead, it is difficult to predict what the future holds for many businesses impacted by the COVID-19 pandemic. While it has presented us with challenges rarely experienced before, we've also used this time as an opportunity to examine our operations to ensure we can emerge as a stronger and more cost-effective business. With both our businesses having now reopened and significant financial support in place, Ardent is well positioned to recommence the restoration of value in our assets and businesses for the benefit of all of our shareholders. On behalf of my Board colleagues, I would like to thank Chris and John and all their team members for their hard work, determination and resilience this year and especially their disciplined approach to managing costs and securing financial assistance without the need to call on shareholders to raise capital. It is now my pleasure to invite Chris Morris to talk about Main Event to then be followed by John Osborne to provide an update on our Theme Parks division. Following these updates, we will move to the formal business of the meeting. Chris?

All right. Thank you, Gary. Good morning, everyone. As Gary indicated in his remarks, we're encouraged by the consumers' increasing engagement with the category. We know there are still challenges ahead. But to date, we've been pleased with the pace of our recovery. We're particularly pleased with the resiliency of our operating and support center teams. We are blessed to have so many talented people in our organization, all with a passion for our business and a determination to overcome all obstacles. The silver lining in all of this is this pandemic has brought our teams closer together and more solidified in our direction than ever before. We continue to see team members at all levels adapting to the environment and bringing forward creative solutions. Our top priority has been and will continue to be the health and safety of our team members and guests. We're committed to supporting our team that's working so hard to take care of our guests each and every day. We have managed to retain most of our key management team members and have returned to work most of our hourly team members. Currently, 42 of our 44 centers are open. Orlando, Florida and Albuquerque, New Mexico are the 2 closed centers, and both are expected to be closed at least through the remainder of this calendar year. Prior to reopening our centers, we implemented our "Play Smart. Play Safe" plan, which included a complete overhaul of our operating procedures to further enhance safety and cleanliness standards throughout every step of the guest experience. We dedicated a percentage of our marketing spend to bring awareness to these new safety procedures as we know safety is top of mind for our core guests. We continue to receive strong guest feedback that our safety messages and procedures are working to bring guests back. Since our last update, sales trends have steadily improved. In particular, sales trends for our walk-in business have been strong. Excluding the negative impact from a Halloween mismatch, our total constant center revenue trend for the last 4 weeks, ending week 17, is down 15%, and walk-in revenue is up 6%. The event side of the business has proven to be more challenging given so many companies have cut budgets and are staying away from large group gatherings. We are now moving into the time of year where event sales are typically the highest. Consequently, we expect increasing headwinds between now and the end of the calendar year as we lap this traditionally high seasonal period of time for event sales. Leading through innovation is a cornerstone to our strategic positioning. With that in mind, in October, we rolled out virtual experiences in an effort to bring a creative solution to the market for our event customers. There are 4 brand-new event packages that deliver all the fun you would expect from Main Event but in a virtual world over video conference rather than the real world in one of our centers. We're excited about these and believe this is just the beginning as we continue to adapt our business and evolve our brand. Additionally, we've made several adjustments in in-center packages. First, we developed a "Play It Forward" corporate event package where the event coordinator has an opportunity to buy individual passes for company employees as a replacement for group events. Second, we rolled out 2 new birthday packages addressing parents' concerns of safety. The first is a "Weekday Your Way" package for parents who don't want the responsibility of a large group gathering. This is a self-guided party without the party host or reserve seating. The second is an "EPIC Birthday Bash" where a parent can reserve an entire center at a time convenient for our business for a private 3-hour event. As a further proof point of our commitment to lead through innovation, we rolled out birthday wishing wands to all our centers nationwide. These wands allow kids to extinguish birthday candles in a fun way without actually blowing out candles and potentially spreading germs, a strong signal to our guests how seriously we're taking their safety. These changes are a testament to the perseverance and creativity of our teams. While the headwinds in event business are strong, we're doing everything possible to make the most of the situation. We've continued to invest in technology as part of our commitment to lead through innovation. We recently launched a brand new e-commerce ecosystem, including the launch of a new website and mobile app. This is an important milestone for Main Event as we begin to use our size and resources as a competitive advantage in the family entertainment category. We will use this platform to engage with our guests and bring new and interesting solutions tailored for their needs. We are once again building out our new unit pipeline. It's incumbent upon us to commence this work now because of the significant lead time in opening a unit. We remain on track to open a new unit in Chesterfield, Missouri no later than September 2021 and are in active conversations with another 4 to 6 sites for future development. It's worth noting our recent new unit opening in Tampa Bay, Florida continues to be one of our highest-performing locations in our system. As we look out the remainder of this fiscal year, we're anticipating some volatility with the uncertainty surrounding COVID and the economy. We are pleased with the progress of our recovery to date and believe we will continue to see improvement in the second half of the fiscal year. We remain bullish on this category and believe we are well positioned to be the leading growth brand for many years to come. We know we can't control the world around us. So we're focused on the things we can control, taking great care of our team members, bringing creative solutions to our guests, delivering world-class hospitality, tightly managing costs and conserving cash. So with that, I'll turn it over to John.

Thank you, Chris, and good morning to everyone listening today. Immediately prior to the pandemic, Dreamworld and WhiteWater World experienced attendance, revenue and EBITDA growth for the first time since 2016, and it was clear that our transformation plan was delivering positive results. Due to the pandemic, all our venues closed on the 23rd of March. And during the closure, management focused on the preservation of cash, reducing the underlying cost base, refinancing and preparation for a successful reopening. On the 23rd of March, cash available to the Australian business was approximately $33 million, and this amount remained largely unchanged during the closure period, resulting in minimal cash burn. As just mentioned, while our venues were closed, we took the opportunity to review the operating cost base. We are able to identify aspects of our business where efficiencies could be gained, such as consolidating entertainment precincts and amending trading hours. This review has meant we have been able to reduce our cost base by between $10 million and $12 million per annum compared to normalized FY '20 levels. Discussions with the Queensland government of our financial assistance commenced in March, culminating in an announcement on the 7th of August that we had received support from the Queensland Treasury Corporation, in the form of secured loans and grants. This financial assistance enabled us to reopen Dreamworld and WhiteWater World to the local drive market on the 16th of September, and pent-up demand led to better-than-expected trading during September and October. The implementation of our approved COVID Safe plans continues to be a high priority for the team. The various COVID Safe initiatives, including short delays upon entry for contact tracing purposes, physical distancing on rides and queue lines and various additional hygiene measures, have been well received by our guests, even though they do impact service levels and waiting times. It is also important to report that recent changes to Queensland regulations have effectively removed capacity restrictions, subject to all other approved internal controls remaining in place. Turning to the performance of Dreamworld and WhiteWater World since reopening. Attendance by locals during the Queensland September school holidays was 35% better than the prior corresponding period. And overall attendance between the 16th of September and the 31st of October is 81% of the prior corresponding period. This is a great result given the Queensland border was closed. Due to the Queensland border being closed, locals were offered a discounted annual pass between the 12th of August and the 31st of October. This promotion was supported by a nostalgia-based marketing campaign and the staging of Happy Halloween, now in its second year. The results were outstanding with annual pass sales and associated cash receipts improving by 210% and 137%, respectively, compared to the prior corresponding period. Overall annual pass sales and associated cash receipts for the period to October are better than the prior corresponding period despite the parks being closed for nearly 3 months. This demonstrates that the local drive market is responding positively to the efforts made over the last few years -- the past 2 years to improve the guest experience and restore Dreamworld's reputation. November trading has been subdued as pent-up demand from locals subsides. Attendance has fallen well below the prior corresponding period, highlighting importance of the Queensland border reopening to Sydney and Melbourne in time for the Christmas holiday period. Turning to the performance of SkyPoint Observation Deck and Climb business in Surfers Paradise. SkyPoint reopened on the 10th of July. And due to the Queensland border remaining closed to both international and interstate guests, attendance has declined significantly compared to the prior corresponding period. The lower attendance has been offset by a higher yield, which is due to a focus on promotions aimed at the local drive market. The pandemic also halted construction of our $32 million new multi-launch roller coaster. It is pleasing to report that construction commenced in November, and we are targeting completion of this project in quarter 4 2021. The key features of the roller coaster include the world's first spinning gondola attached to the rear of the roller coaster train, and the Southern Hemisphere's first multiple launch with stall. In summary, the period to October trading -- in summary, for the period to October, trading has been cash positive, inclusive of the JobKeeper wage subsidy. The first drawdown on the Queensland Treasury Corporation loan facility occurred in October with the funds to be used mainly for the new roller coaster and the refurbishment of existing rides. For the immediate term, management will continue to focus on initiatives that encourage repeat visitation and increased spend by local pass holders, reducing costs wherever possible and execution of major projects, including the new roller coaster, ride refurbishments and the site master plan. At the date of this presentation, the Queensland border remains closed to the important markets of Sydney and Melbourne. November trading has shown that without access to these markets, FY '21 will be challenging, especially if the Queensland border remains closed for the Christmas holiday period. We are currently facing the toughest set of business conditions in decades, meaning that uncertainty is likely to prevail for some time. We believe we have put ourselves in a fit position to accept this challenge head-on and have demonstrated over the past year that we are able to adjust quickly as conditions evolve. Finally, I'd like to publicly acknowledge and thank our fantastic team for their dedication, resilience, hard work and support. I will now hand back to Gary, who will conduct the formal business of the meeting.

Thank you, John. We will now move, as John said, to the formal business of the meeting. The resolutions for consideration today may only be voted on by shareholders, proxy holders and shareholder company representatives. I propose to call a poll on each of the resolutions. As a reminder, shareholders online via the virtual meeting website have the opportunity to ask questions on each matter being put to the meeting. If you have questions already prepared, please go ahead and submit them now. The first item of ordinary business is to receive the directors' report, auditor's report and financial statements of the company for the year ended 30 June 2020. The remuneration report will be put to a vote for adoption separately. In relation to this item of business, Bronwyn, have we received any questions in relation to the directors' report or financial statements?

Chair, we haven't received any questions in relation to this item.

Thank you. We now proceed to resolution 1. The directors' report contains a separate remuneration report, and this report is on the notice of meeting for adoption as resolution 1. The remuneration report to 30 June 2020 is included in the annual report and has been made available to shareholders. Investors should note that the vote in relation to the adoption of the remuneration report is not binding on the company or the directors. I move that the remuneration report for the year ended 30 June 2020 be received, considered and adopted. For the purposes of the Corporations Act, the company will disregard any undirected proxy votes cast on resolution 1 by any key management personnel and any closely related party of such personnel. However, the company need not disregard a vote if it is cast by a person acting as a proxy in accordance with the directions on the proxy form and the vote is not cast by any of the key management personnel or their associates. The proxy results received for this resolution are on the screen. Bronwyn, have we received any questions in relation to the remuneration report?

Chair, we have received a question from Richard McDonald of the Australian Shareholders' Association. Richard's question is, after receiving a grant from the Queensland government, Ardent is still paying bonuses. Why?

Thank you for the question. I'll ask David Haslingden, the Chair of our Remuneration and Nominations Committee, to provide a response.

Thank you for the question, Richard. The first point I would make is that the only bonuses that were paid by the company in this period were paid to executives of our Main Event business. And they related specifically to the successful completion of the transaction with RedBird. I think Gary has already spoken to the remarkable contribution made by Chris and Darin to get that transaction completed. And I'd add to that, that the payment of transaction success bonuses is common practice, both in Australia and the United States, but particularly in the United States. Our overall bonus policy makes a distinction between the Australian businesses and the United States businesses, and we only take into account the performance of those specific businesses in determining our bonuses. In the case of the Australian business, one of the factors we considered was the grant of support by the federal government and other agencies, and no bonuses were paid.

Thank you, David. Are there any other questions in relation to the remuneration report?

No further questions.

Thank you. I'll now move on to the next item of business. The next 2 resolutions concern the reelection of myself and Randy Garfield as directors of the company. I will now hand over the chair of the meeting to David Haslingden to read resolution 2.