EVT Limited (EVT) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the EVT Half Year Results Call. [Operator Instructions] I would now like to hand the conference over to Ms. Jane Hastings, Managing Director and Chief Executive Officer. Please go ahead.

Good afternoon, everyone, and thanks for joining our first half results presentation today. Joining me is Greg Dean, our Director of Finance; David Stone, Company Secretary; and Mathew Duff, Director of Commercial and Entertainment Germany. First half was a challenging period due to materially greater government mandated COVID-19 restrictions when compared to the prior comparative period. To highlight a few of these restrictions, the combination of the New South Wales and Victoria lockdown from July to October 2021 and the continued impact of international border closures resulted in 31% of our overall available rooms in lockdown zone, and this compared to 18% in the prior year. In Australia, cinemas in Greater Sydney were impacted by 102 days of lockdown compared to none in the prior comparable half year. Auckland, New Zealand was a lockdown for 107 days compared to 19 days in the prior year. Other regions across Australia and New Zealand were also impacted by lockdown periods. Thredbo went to trading period was materially reduced because of the New South Wales government mandated closure impacting 5 big trading weeks from mid August to the end of the season. Despite all of this, the transformation strategies and actions we have undertaken over the past few years ensures we were agile and able to respond to these challenges. This is evident in the revenue growth and EBITDA turnaround for the group in this period, including $75 million of active cost management. We made good progress on our goals, divesting $250 million of property assets, achieving $194.4 million in gross proceeds to date. The combination of improved trading and divestments reduced net debt down to pre-COVID level, we have a strong balance sheet and are in a really good shape to navigate time changes and invest for growth. Whilst our income presented new challenges from end of December, we're confident based on evidence to date that we'll rebound quickly as COVID-19 restrictions are eased. And I'm incredibly proud of the entire EVT team for the way they continue to navigate the challenges, innovate and adapt to deliver the best possible results. Turning now to the group H1 overview. Despite the more challenging COVID-19 trading restrictions, the group's revenue was $438 million, 54.8% above the prior comparative period. Excluding the German government's Bridging Aid III support, which related to the prior year losses, group revenue was $382 million, up 35% on the prior comparable period. The turnaround was largely driven by our entertainment group, benefiting from customers' immediate return to the cinema when blockbuster titles were released and strong results from the execution of our summer of the future strategies. Entertainment revenue for Australia and New Zealand was $145.2 million, up 38.4%. And excluding subsidies, up to $64.8 million or 83.9% on the comparable year. Whilst EBITDA was negative, it was $20.7 million up on prior year and prior year also included $12.1 million of net retained JobKeeper support that was not available this year. As mentioned at the AGM, we applied for support from the German government's Bridging Aid program and the submission was successful, resulting in $56.2 million of revenue recognized in this period relating to losses incurred in the year end of 30th of June 2021. Hotels revenue was $80.4 million, down $6.2 million on prior year, which included $13.4 million of JobKeeper revenue not available this year. We were pleased to achieve strong average room rate growth and market share from all our EVT hotel brands. Through both underlying revenue, excluding beverage sales of [ $1 million ] was $26.5 million, down $23.3 million on prior year due to the 5-week mandated closure period. However, we are very pleased with the results from the new product and pricing strategies, delivering record levels of revenue prior to the foreclosure of the resort. The group's strong performance in active cost management continued with these strategies, delivering $75 million in savings in the half, mitigating around 69% of COVID impacted revenue decline. Since the commencement of pandemic in March 2020, active cost management strategies have delivered a total reduction in cost of $339 million. As you can see, unallocated costs increased to $10 million, but underlying costs were below the pre-COVID period. Increases related to -- material increases in insurance premiums, no JobKeeper benefit and the end of COVID salary sacrifices as we use to the recovery period. Group normalized EBITDA was $64 million, up $95 million in the prior comparable period. Excluding the German government support, underlying EBITDA for the half was $7.9 million, up $38.9 million on the prior comparable half year. Individually significant items were primarily related to profits recognized on property sales in the half year and total reported net profit was $33 million, up $94 million on the prior comparable period. Turning now to the Property division. We have a strong property portfolio, which based on the most recent valuations is valued at around $2 billion after the sale of the divestment properties. Our divestment goal of $250 million is on track. Today, we've achieved $194 million, including $107.9 million relating to the following properties in the half period: Canberra civic building, Rydges Bankstown, Newcastle Cinema Property and QT Falls Creek, which was an underperforming property and does not meet the QT brand standard. Overall divestments to date have exceeded the most recent valuations by 35.1%. During the half, we conducted a sale of proceeds to determine if we could attract a premium on disposal of Rydges North Sydney as a residential development site. Our expectations were not met during this process when measured against the benefit of retaining the asset as a hotel given the limited hotel supply in North Sydney and significant addition of office demand drivers for the present. Therefore, currently, we believe the highest and best use remains in operating hotel asset with potential mixed uses, and it is intended to be retained on that basis. As mentioned on several occasions, we will only divest assets if the expectations are met. In the next 12 months, we expect to sell Rydges Rotorua, Atura Albury, Atura Dandenong with the Atura properties intended to be sold with long-term management agreements. We made good progress on both major property developments, 525 George Street, which is the cinema site, as a priority product and we have progressed detailed designs for the retail cinema hotel and apartments in order to lodge the Stage 2 DA by June. We're in the process of appointing the sales agents to the residential marketing process. We expect the Stage 2 DA to take between 9 to 12 months for approval; following which will commence the marketing of the apartments for presale. And subject to successful residential presales, construction is expected to commence in financial year '24. We'll also be shortly running the -- submitting Stage 1 DA for the commercial office to our component of the 458-472 George Street property. We expect this to take up to 12 months for approval following which the design competition will be required before submitting a Stage 2 DA. As part of our strategic goal to maximize our assets, we've target a targeted capital plan to upgrade key assets. The QT Gold Coast refurbishment is well underway and will be completed later this calendar year. This upgrade includes the conversion of underutilized space into revenue-generating areas and an enhancement of guest friends and conference facilities. We closed Rydges Melbourne for an upgrade in January that will transform the hotel into our new Rydges flagship brand standard. The upgrade includes the expansion of our conference area by over 1,000 square meters. Completion is expected in early to mid-2023. Prior to COVID-19, Rydges Melbourne contributed around 15% of the group's owned total earnings. And as a result, this closure is expected to negatively impact the earnings in the short-term 2022 calendar year. We've also commenced upgrades at 2 of our top 5 cinema locations, Chermside and Innaloo, including cinema of the future context. In terms of other developments, we were pleased to unlock $7 million of value from our Thredbo property development activity through the release of a new development site and the expansion of an existing sublease property. We are currently in the process of reviewing and assessing a further land to lease and expect to lodge a DA in calendar 2022. During the half, we also entered into an agreement to increase our interest in Rydges Latimer Christchurch from 16% to 100% over a period of 2 years. The recently upgraded 175 rooms hotel opened in 2013 and has extensive confidence in food and beverage facilities, and we believe an excellent additions to the portfolio of our own hotels. Now turning to the Hotels division. As mentioned, first 4 months of the half year trading period were the toughest to date given increased government border closures and restrictions. The available room percentage as date was 31% in the current half compared to 18% in the prior half. This was calculated based on the number of available owned hotel rooms in each location lost by the days each of those locations were in lockdown. We were really pleased that the actions taken to mitigate the revenue impact with underlying revenue up 4.9% on the prior year. 3 and 6 months delivered revenue growth on the prior comparative in the half once JobKeeper is excluded. Whilst the market experienced hospitality labor shortages, actions taken earlier in 2021 calendar year to retain staff supported hotel operations through this period. Targeted retention incentives, flexible working arrangements, well-being leave and the unique benefits the group can offer staff were among the tactics deployed and we'll continue to invest in our people to ensure we remain in a leading position to retain and attract these people. Normalized EBITDA was a loss of $1.9 million. However, prior year EBITDA included the net benefit of $8.7 million from JobKeeper, which was not available this period. We were also pleased to welcome 3 new managed hotels into the independent collection, taking independent collection out of 10 properties. Overall, it was a period of weekend leisure demand and softer weekday trader with corporate travel impacted by company COVID policies to staffing and border closures. Occupancy across all brands was therefore impacted. However, pleasingly, all brands were able to achieve strong rate growth. The QT group average room rate was up 16% to $223, which is in line with pre-COVID levels. Rydges December RevPAR was above the prior comparable month and one of the strongest RevPAR results of the pandemic to date. Upgrades are underway for Rydges owned and managed properties, which will mean we're in the best shape for recovery. The Atura rate offset any weakness in occupancy to achieve RevPAR in line with prior year, and we were particularly pleased with the demand for the Atura Adelaide for properties. The next half of charts are trying to provide some insight into the impact on occupancy and rate when lockdowns occur and then when restructuring ease. The underline represents pre-COVID financial year '19 occupancy. This entire period has incurred some level of government mandated restrictions or lockdowns borders. The blue and purple bars highlight the most restricted trading periods. In summary, you can see that as soon as the New South Wales and Victoria borders opened in early November, demand was tracking ahead of prior year December and January. The red dotted area in December and January represents booking cancellations due to Omicron wave. These cancellations are understated as they don't account for short lead business that would have also occurred during this period. Pleasingly, even with Omicron wave in January, occupancy was relatively in line with the prior January. As already discussed, rate growth is pleasing. The chart demonstrates the combination of a different market mix and smarter pricing strategies during the first half period of this year. In terms of mix, there's less wholesale and C&E business available, so we focus more on domestic leisure and maximize share of the available domestic corporate market, which is in the early stages of recovery. December and January achieved rate growth above the pre-COVID period and January rate was up 7.2% on January 2019. We were also pleased that all brands continue to outperform competitors. We will continue to adjust the right mix and rate to attract the greater share, meet customer expectations and deliver greater margins into the future. Turning now to Thredbo. The 5-week government mandated closure of the resorts at the end of winter resulted in ski days down 55.7% on prior year. Early winter season trading produced record levels of revenue, underpinned by the success of the revised business strategy, generating a return from the 2021 snow season despite a shorter season. We had a 1-week delayed start to the summer season due to adverse weather conditions, resulting in underlying revenue adjusted for bed sales down on prior year. The Omicron wave impact December with staff shortages due to isolation requirements causing some disruption to food and beverage venues. However, growth in mountain biking visitation resulted in an 18% increase in mountain biking revenue in November and December 2021 compared to prior year. We were really pleased with the response to the new BEGINNER's [indiscernible] trial, which was open the season, taking the total mountain biking trial to [indiscernible]. Despite the delayed summer opening, EBITDA for the summer season adjusted for bed sales improved 7% on prior year. Overall EBITDA for the half was $10 million and normalized profit was $5.2 million. Excluding property sales, JobKeeper income, the benefit of the prior year and certain other nonrecurring items, EBITDA was $3.7 million. This is a solid result in the context of COVID-19 closures. Development projects underway include construction of a further 3 mountain biking trails in the Cruiser area scheduled to be ready for the next summer season. Also major upgrades to snowmaking system, including the installation of 10 new snowmaking fanguns on Friday Flat is expected to be completed in time for 2022 winter season. The proposed Alpine Coaster installation will add a further year round attraction to the resort and schedule to be completed in the 2023 winter season, and we've got preparation work underway for the replacement of the 2-seater Snowgums chairlift with a new 6-seater chairlift scheduled for completion for the 2024 winter season. I would like to recognize and thank the Thredbo team for winning Australia's best ski resort at the World's Ski Awards for the fifth year in a row. We have no doubt that our future plans for Thredbo will only continue to enhance the experience. Now turning to entertainment. It was certainly a pleasing period despite increased COVID lockdowns and restrictions. The opening of cinemas globally resulted in studios releasing quality blockbuster films. And as expected, demand returned immediately. Entertainment Australia revenue was $120.3 million, a 36.9% increase on the prior comparable period. Excluding JobKeeper which was around $26.3 million in revenue which benefited the prior year, revenue increased 95.5% on the prior comparable period. Australian box office increased by 105.9% and the gross box office increased by 106.1% on the prior comparable period. 8 titles were released that priced over $10 million compared to only 3 titles prior year. No Time to Die grossed $35.6 million at the Australian box office, which is in line with the previous James Bond title. Spider-Man: No Way From Home (sic) [ Spider-Man: No Way Home ] has cumulatively grossed over $79 million, actually almost $80 million, making it the fourth highest grossing film in Australia over the past 20 years, and grossing 109.9% more than the previous Spider-Man title. Fortunately, there were fewer government mandated COVID restrictions when both films were released. December box office revenue was down only 2% on the pre-COVID December results. And without the impact of the Omicron wave, box office revenue would have exceeded the December pre-COVID period. The Omicron wave over Christmas had some impact on family visitation with families appearing to consider self isolating before holiday or considering the vaccination option. We believe this is short term and expect this to normalize as COVID ends. Overall, customers spent more each visit. And as you can see from the 2 graphs, the combination of premium concepts and variable pricing strategies delivered a record yield result in average ticket price increasing 15.3% over the pre-COVID half year 2019. In addition, a period of record merchandising spend per head was achieved, increasing 16% over the prior period and by 49.9% over the pre-COVID half year 2019. Our new data led marketplace design, premium [indiscernible] range and new proprietary technology contributed to the results. The new variable operating model resulted in the EVT-managed cinema EBITDA margin improving more than 3 percentage points in December when compared to the pre-COVID December. It's important to note that whilst we are trying to create more effective and efficient operating models, the incremental cost of implementing government mandated requirements in the period was around $1 million in Australian cinemas. EBITDA was a loss for the year of $1.6 million, which compared favorably with an EBITDA loss of $18.9 million in the prior comparable period. Excluding the net benefit of JobKeeper in the prior comparable period, EBITDA improved by $29.4 million. For New Zealand, while prior year had substantially met government-mandated COVID restrictions like 19 days of Auckland closures versus 107 days this period, revenue was stronger. This is simply because in the prior year, global cinema closures due to coast cases in key global markets meant that studios delayed blockbuster releases. So New Zealand was [Technical Difficulty], but there were few releases. This year, New Zealand was closed or restricted, but when open, there were blockbusters on screen to attract customers. Entertainment New Zealand revenue was $24.9 million or 46% up on the comparable period. And excluding government wage subsidies, revenue increased 38.7%. New Zealand nationwide box office increased 42.2% on the prior period. The return of blockbuster films was the top 10 growth in $29.8 million, an increase of 97.9% on the collective growth of the top 10 in the prior comparable period. The top 2 films like Australia, No Time to Die and James Bond. James Bond -- sorry, No Time to Die grossed $5.6 million, which is only 3.1% prior James Bond, despite leasing when Auckland cinemas were closed. Spider-Man: No Way From Home (sic) [ Spider-Man: No Way Home ] has grossed more than $11 million, which is 98% up on the previous Spider-Man title. And as evidenced in Australia, the cinema of the future strategic initiatives result in customers spending more with us and the operational model changes reduced the cost to serve whilst customer sentiment improved relative to the COVID-19 -- pre-COVID period. As the graph demonstrates, these initiatives resulted in the average ticket price increasing which was actually represented a record month for every month of the half. And in addition, very strong results with spend per head growing 42% on the pre-COVID spend per head. The EBITDA result for the half year was a loss of [ $1 million ] which was a significant improvement on the EBITDA loss of $4.3 million in the prior comparable period. The impact on EBITDA from the Auckland closure this year is estimated to be around $2.6 billion. As you be aware, New Zealand is trailing Australia in terms of the COVID-19 wave. Therefore, we expect a greater impact on performance in the second half for New Zealand as a result of continued restrictions. Turning now to Germany. We were really pleased with the strong improvement in trading in Germany with underlying revenue adjusted for Bridging Aid III, up $83 million on the prior comparable period to $114.9 million with less closures than the first 5 months before the Omicron wave. Entertainment Germany unadjusted revenue was $171.1 million. Including government subsidies, 431% above the prior comparable half year. Excluding Bridging Aid III, which was EUR 35.5 million, which related to losses incurred in the 8-month mandated closure period than the prior half year, revenue was $114.9 million, 256.7% above the prior comparable half year. Initial trading results have been encouraging despite the capacity restrictions applicable across the various given states. 3G rules referring to customers needing to provide evidence that they are vaccinated, have a recent negative COVID-19 test or have recovered from COVID-19 to enter the cinema. Some states now apply a 2G class rule requiring customers to show evidence of vaccination and a negative COVID test. Despite these restrictions, July and October admissions exceeded the pre-COVID comparable months. In addition, No Time to Die reached 6 million admissions, which is the best-performing title since pre-COVID-19 Frozen 2. As evidenced in Australia and New Zealand, growth in key metrics was also achieved with AAP up 12% and spend per head up to 16%. EBITDA for the half year was $65.2 million, which compares favorably with an EBITDA loss of $42.1 million in the prior comparable period. Excluding the German government's Bridging Aid III program, EBITDA was $9 million or $51.2 million above the prior comparable half year. As a result of the Omicron outbreak, approximately 16% of our screens across the CineStar circuit were mandated to close during part or all of December. All screens have since reopened, and we're operating with restrictions at the end of January. The Omicron wave prompted a delay in the release of local German film to July onwards, which typically account for around 20% of box office. However, over the past few days, the government has announced an easing of restrictions in late March. So there's potential for some of the local film releases to perhaps move forward. The German government has implemented the Bridging Aid III damage compensation program for effective businesses for the January to September 2021 period. Further to this, in May 2021, the German government announced a $2.5 billion culture fund to help relaunch the country's cultural sector. The culture fund provides compensation in cases where there's a spike in coronavirus infections and it forces events to be canceled or compound or capacity restricted and the [indiscernible] is not mandated to close. The aim of the funds to help mitigate losses incurred to enable businesses to enjoy the COVID-impacted period and we'll participate in this program where relevant. The group continues to pursue legal advice in relation to the failure by the [ intermediate ] contractual [Technical Difficulty], which resulted in the sale of the German cinema operation being prohibited. The group has reserved its legal and all other rights in relation to the failure of [indiscernible] to complete the transaction. As a reminder, when we referenced the cinema of the future strategy, we're referring to 3 key focus areas: Firstly, offering a range of seats in every auditorium to maximize auditorium returns in addition to premium experiences; secondly, using data-driven optimization to form improved candy bar layouts, operating hours, pricing, rostering; and thirdly, development and deployment of technology such as service to seats, which is a mobile food and beverage ordering app resulting in a double-digit increase in average transaction value, satellite content distribution, enhanced e-commerce features. We're really pleased with the results to date, and we'll keep on innovating. The film lineup as it stands today looks good on paper. The slide highlights films that we would expect to deliver more than $10 million to $15 million at the Australian box office. Based on this, we anticipate that March with The Batman to perform well. But overall the month may be below the prior year, which included Godzilla vs Kong, Peter Rabbit 2 and Raya and the Last Dragon. April has 3 titles for the Easter period, including Fantastic Beasts, Morbius, and Sonic the Hedgehog compared to prior year with Tom and Jerry and Mortal Kombat. May looks good with the highly anticipated Doctor Strange in the Multiverse of Madness versus last year's biggest title Rapid Man. But in reality, it's all about June. The release of Jurassic World Dominion, Top Gun finally releasing, well the release is at 26th of May, so it will benefit June, Minions: The Rise of Gru, Buzz Lightyear versus [indiscernible] versus the prior year, which included Fast and Furious 9, Quiet Place 2 and The Conjuring 3. Release date is all subject to change in beyond doing still forming, but we're anticipating a strong Christmas period should Avatar 2 be released. In terms of an outlook for H2, it's extremely difficult to provide an outlook given the ever-changing COVID-19 restrictions. However, based on what we know today, we expect that the H2 EBITDA should deliver a strong improvement on the underlying EBITDA of approximately $15 million in the prior second half. We've highlighted some of the film releases, which we feel good about. Hotel should be relatively in line with prior year. The benefit of international borders opening is likely to have more of an impact when New Zealand borders are open, and with less restrictions to enable the Thredbo business to return. Thredbo winter season typically opens on the June weekend and are subject to snow conditions, and we expect property revenue will be lower on -- lower than H1 due to the success of the property divestment strategy. Being of restrictions in New South Wales and Germany is welcomed, and we really look forward to a future of less interrupted trading. We remain focused on our 3 key strategic priorities that are embedded in the group and division level: Grow revenue above market, continue to be agile with our COVID safe operations, enhance our brands and pricing models because we've seen good results and continue to innovate and expand across all of our divisions; secondly, maximizing our assets. Our divestment strategy is on track. We've got targeted investment in our core assets, and we're making good progress on our major developments; and thirdly, business transformation. Insight-led customer experience enhancement will continue. We're going to keep innovating in customer and operating technology for efficiency, and we've got a very focused ELEVATE people, social and environment program across the business. We are really proud of the way our teams have navigated the last 2 years, which has been the most challenging period in the company's history. We have a clear strategic plan. We are focused on ensuring that the changes we make today benefit the future. We're in a strong position to progress growth initiatives, and we really look forward to operating with less COVID-19 restrictions. Thanks for your time, and I'm now happy take your questions.

[Operator Instructions] The first question comes from Nick McGarrigle from Barrenjoey.

I just wanted to run through a bit on the property side to start with. I think I might have missed what Jane mentioned, but I think you covered off on Atura or Atura Dandenong, and maybe Geelong. Can you just run through those hotels that you mentioned will be up for sale over the remainder of this calendar year?

Sure. It is Rydges Rotorua, Atura Albury and Atura Dandenong. And the Atura property would be sold with management agreements in place.

Right. Okay. And then just -- I mean, those are relatively new properties or sort of refurbishments. Is it something that we should read into the Atura brand? Or are you happy with the brand, it's just those particular sites that you don't think are core?

Yes, nothing to read into that at all. Very happy with the brand, and we actually just signed a new property at Oran Park, which we're excited about opening as well. No, this is just purely the fact that they're regional properties.

Okay. And as an extension, do you see places like Geelong, Hobart, Cronulla as regional or they're close enough to the set so be considered core properties?

Well, we consider -- we're still reviewing them, but we consider that Cronulla is quite a strong city location attached to Sydney. Hobart is a city location. And I'm sorry, and?

Geelong.

Yes. And Geelong, whilst it is more regional has a strong local market. At this point in time, it's not in our consideration set.

Cool. And then just maybe an update on the German properties, which I think you acquired them for about $40 million as that the last valuation there in that property presentation at $68 million. So just to confirm what the strategy is around those sites as they compare to the operating assets of the German cinema?

So we do have a plan to divest those sites, but we're just wanting to see some recovery in the German market before we do that because we are the tenants in those sites.

And is that just in the context of you engage in a sale and leaseback of those sites and you want to see a bit more demand from potential investors? Is that the idea?

We just think the German market -- I mean you'll read across Europe is kind of coming out of COVID and recovering and so we want to sell for this possible time for those properties. But they are listed as potential divestment properties in the future.

Okay. Cool. I mean if I add up my assessment of Dandenong, Rotorua, Albury, I think you've got the Adelaide and Townsville cinemas for sale. I guess that gets you to over $250 million, which is great against the target that you laid out last year. I mean we've touched on a fair -- few things just now. But is there -- are there further noncore assets that you think across the network like Darwin needs more [ work ] on Mackay cinemas that you would also consider selling?

Yes, they're on the list, but they've been much smaller properties. I mean we've got a few cinema locations, but they're small.

Yes. Okay. Maybe just changing back to the actual operating results of cinema. So just maybe if you can just talk through the December month in terms of what you saw in average ticket price, F&B attachment and the EBITDA margin? And how much of that 3 percentage point improvement do you think is something that you can hold on to in the longer term and maybe some of the learnings from what might have been a busier month than you've had for a couple of years?

I guess, I think we were really pleased that it was probably the first month that we've had with our new operating model in place, our new pricing in our F&B in-house in some place. And even though revenue was -- margin down in revenue is about 6% for the December month, that our margin improvement was really pleasing. We feel quite confident that, that margin improvement we could sustain. We didn't see anything in the model that we thought didn't work. And we track that [Technical Difficulty] sentiment. So -- and we're feeling pretty good about that model. So we've had a 1-month trial is what I'd say. We still got many months coming up with that unrestricted that we can put the new model to test, but we're pleased with the December results.

And sorry, just to clarify, the revenue in December was down 6% on December '19 as in a pre-COVID month, but you still grew margin?

Yes.

Great. And in terms of the German cinema, the underlying result there was really strong. Can you talk -- was that predominantly on the back of -- I guess, box office recovered not amazingly, but is it more around the active cost management and new operating model that drove a better underlying result in Germany?

Yes, both of those things. In fact, Matt, you're here and you cover Germany. Talk about that business.

Yes. I think Germany afternoon closed for 8 months, we reopened in July, and we were pleased with how bounced back. And clearly, the result in Bond was outstanding. And we had a lot of momentum going into Christmas, but unfortunately, overcome here, [Technical Difficulty] December really sort of slowed us down. But those first 5 months, we're encouraging coming out of such an extended lockdown period.

And I think as we've highlighted in the presentation, if there's a good film [ is a strong film ] as has always been the case, and we're very confident that will be the case going forward.

That's great. And I mean just in terms of the -- given the momentum that we're seeing in Germany and that the operating earnings do bounce back quite quickly when there is a good content, do you think that, that puts the business in a stronger position to consider reinvigorating the divestment strategy around that offer?

I think that we've highlighted that it's a noncore asset and we would be open to divesting that asset at the right price. So all improvements in trading support that strategy. But we still need a clear period of solid trading. Omicron kind of cut that down for us a little bit in December, but we are pleased with those results prior.

The next question comes from John O'Shea from Odd Minnett.

Just for me, and I'll be pretty brief and conscious of others behind, for me, the key question that I want to focus on is around what's happened post Omicron? Because obviously, these results have very little Omicron in them. Obviously, December, we saw some impact that, that was relatively muted in the sense that people that really didn't start to behave much until we really got well in this cinema business in terms of consumer behavior. And indeed the Australian Hotels business and because we've seen lots of evidence of fear amongst consumers. And forget about the restrictions and lockdowns and all those sorts of things. But what have you seen? What's been -- has there been a change? Has there been more of the same? Or what are you seeing in terms of consumer behavior and willingness to go and attend cinemas or go to hotels and all those sorts of things that are a core part of your network in Australia?

So our view on that is the Omicron wave on cinema is a relatively short-term impact over the Christmas period with families and holidays and return to school. We think as people are returning schools, people returning to cinemas, we need to see some of the films in March like The Batman come out to have a look at that. But if we take a film like, yes. Jack? Yes, Jack was making sure not a reveal. Jack House is a film, that outperformed work should do at the Australian box office. We -- so we're putting it from a cinema perspective. We think it was more of a shorter-term impact over the summer period, but we're probably getting more evidence as we hit into the kind of April period with Easter, et cetera, to test that theory. But that's our view at this point.

Sure. So just to clarify, so you did see obviously a negative impact from that in terms of attendances in January and February so far?

Not every January. So we had more -- the family films that released in January, there was about a 3-week period where we think those films -- the box office was impacted with families hesitating to disrupt travel plans, et cetera, and isolating. But the releases that we've had subsequent to that, we're not seeing any impact of Omicron against what we would expect those to -- how we would expect those ones to before.

Sure. And what about the hotel side? What did you see there in the impact of Omicron and how is that playing out?

Well, therefore, we try to put those diagrams and provide some insights. We were tracking well ahead. We saw that short-term immediate cancellation period with holidays and people testing positive, et cetera. However, we feel that once again, so it's starting to pick up a bit. In the last 10 days, we've had encouraged in pack up of corporate relative to prior year, same month prior year. So try putting it down to late December, January February impact -- beginning of February impact, but we're seeing good signs that, that may have -- that we've moved on from that.

The next question comes from Sam Teeger from Citi.

I appreciate there's multiple different initiatives in this new cinema operating model. But I guess, help us visualize what's actually happening here. Really helpful if you're able to provide maybe the 1 or 2 biggest drivers to the 3% margin benefit compared to pre-COVID.

So I really do think that it's our variable operating model. That's one of the biggest drivers. So we are programming everything, opening out rostering and how we operate the cinema based on what we think the lineup looks like. So it's far more variable than what it was. I think that's definitely helping margins. [ technologies ].

Sorry, just on that, is that mainly around wages?

That's mainly around wages, yes. The second thing is technology, which is helping that. So kiosks and the pickup of kiosks, online booking even in gold plans with our service to seat model. So we're getting higher spend and it's less resource intensive. So I think technology is also helping our labor model and also our [Technical Difficulty] spend. And then from a spend perspective, we are [indiscernible]. We're focused on selling popcorn, ice creams and soda drinks and water. Of course, water's gold. And we have really re-merchandised our areas to make sure that you have got maximum access to those at peak times, and we're seeing a good increase with that. So it simply is data-led retail layouts. The offerings is just variable product model. So we've got a price point in a cinema for all different premium coming out of auditoriums, but we've still got the affordable price yet for those that want the standard seat. And I think that's really, really supported us as well. So it's not one, it's those 3 things which have really driven the improvement.

Right. Okay. Cool. And just in terms of CapEx for the second half, there's quite a few hotel refurbishments which are happening, what should we expect for CapEx for the second half? And just so we can get a sense of future refurbishments, how much are you spending on QT Gold Coast and Rydges Melbourne?

Dan, we're not giving out what we're spending on those. But for the CapEx spend for the second half, which is obviously it's difficult to tell in this market when work will be completed, but we're sort of giving a range of roughly at or above the first half spend, which was around $30 million.

All right. And then last question, just corporate costs. How do we think about that in the second half versus the first half?

Cost on second half? Yes, yes, very similar, Sam.

[Operator Instructions] The next question comes from Brian Han from Morningstar.

Jane, the 15% increase in average cinema admission price in Australia, how much of that do you attribute to variable pricing as opposed to charging more premium experiences?

So I suppose charging more for premium experiences is part of the variable pricing. So I guess what really helps that is having a blockbuster film. I think that's probably a driver as well because a high-demand film enables our model to work well. So I think that -- I think that's probably more of a driver to support that model than kind of premium versus variable pricing.

Jane, can you remind me, that variable pricing, is that variable also to session times or session times is not a driver in that variable pricing model?

In some areas, sometimes it is. So it depends what the mix of product is. So we've got -- we understand the senior market as more price sensitive. We've got areas where some families are more pricing sensitive. We've got areas where we can kind of alter that price based on time of day. So it's probably more market than this time of day, than who's coming in the door.

Okay. Jane, if you don't mind, just one last question in the hotel space. I can't get a handle in this space, but are there many boutique chains or independent operators that are struggling? And if so, is that presenting any opportunities for event?

Well, we actually think across entertainment and hotels. We thought there would be more companies struggling through COVID. But that does appear to be the case at this point. We've got our ear into the ground, and we've had a look at various businesses, but it's actually quite the opposite. There's probably people seeking a premium that rather than a desperate sell. There's no guidance to be here that we can find at this point.

Thank you. There are no further questions at this time. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now disconnect. Thank you.