SkyCity Entertainment Group Limited (SKC) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the SKYCITY Entertainment Annual Results Conference Call. [Operator Instructions] As a reminder, the call will close at 1:00 p.m. today, at which time, we will not be able to take any further questions. I would now like to hand the conference over to Mr. Graeme Stephens, Chief Executive Officer. Please go ahead.

Hi to everyone, and thank you. I'm joined in the room with me, Michael Ahearne, our Chief Operating Officer; Rob Hamilton, Chief Financial Officer; and obviously, Ben Kay here. We anticipate a lot of questions and focus around operations and also on balance sheet and liquidity in the circumstances we're in. So I got Rob and Michael with me. And the plan is to try and get through the opening preamble a little quicker than I'm used to doing and leave more time at the end for Q&A, so you can hear more directly from Rob and Michael. Yes. To state the obvious, our results are difficult to interpret in the year gone by, for us more than others. Everyone's got difficulties, but we took some strategic actions in FY '19 but at a tail end, the car park sales, et cetera, into the current year. We then had the fire in Auckland, and we've had COVID, anyone else has also had resulting in closures. So difficult to interpret. We've done our best. Yes. And any questions you've got on detail, obviously, between Rob and Ben, I think they can pick that up. I think in this forum, the results are really a historical view of the world that's no longer relevant. So probably not very helpful as a window to the future. So we want to try and dwell a little on our current and future. That being said, as a reflection on the year, it did start extremely well. And we were on track for record at the end of Q1, records in Auckland, records in Hamilton. The group was really good. And we offset the fire in October, we closed on Auckland, took a while to get back up and running. We only regained momentum early in 2020, but we were back up and running hard by February and at that moment in time COVID arrived. So it's been a stop/start sort of year, but when we've had the chance to running it, the business, the underlying operations have performed really well. When we were in the lockdown the first time, it was for an indefinite period, and we had an idea of what world we're going to emerge into or when for that matter. And we had to take a lot of big strategic decisions. Most of them without precedents and all of them under some time pressure. At a high level, we restructured the business to take out 25% of our workforce share in New Zealand and achieve a $50 million cost saving annualized, while $40 million of that is OpEx. We restructured New Zealand 200 salary people, 700 waged, fortunately within a wage, a lot of them taking voluntary. But that's an unprecedented restructure for this business, certainly not in memory. And we implemented that rapidly. With a view that we were going to reopen when we were able to enter a smaller, domestically focused world. And so we repositioned the business for that world and that is the world we're in. So the restructure we did anticipate in the circumstances we now find ourselves in, and we're not currently anticipating another restructure. We rightsized for the environment we find ourselves in. We also have to recapitalize the business. Everyone's lent about covenants and waivers and debt and equity related to that. I'd like to thank everyone on the call for the support we've got, how we ended up with a strong relationships, developed with the banks and other lenders and with our shareholders over the years, really making a meaningful difference to how we approached the restructure. We raised in the end, $160 million of extra debt facilities. We restructured the ones we had to get covenant waivers and raise the extra $230 million of equity. And I really -- we'll call out the relationships that came to play. And we're happy with the outcome. We restructured against forecasts that we prepared in June and put a bit of a buffer of liquidity into what we thought we might need at the time. And fortunately, trade since then, when we were able to reopen, has been significantly better than those forecasts. So the liquidity buffer that we had already provided for at the time the capital raise has grown as a consequence of stronger-than-expected trades since being able to reopen. So we feel that the balance sheet is in a good position. And then obviously, having restructured and recapitalized, we could reopen. It's been a year of lease. And we were able to reopen initially in New Zealand and then subsequently in Australia. And I'd like to call out the massive benefit from the team, Nevada team here, together with a really good working relationship with the various government bodies. We have very constructive engagements. Everyone trying to get the economy back up and running. And it was a massive effort from everyone. We managed to reopen, as I said, our trade, surprised us a little on the upside, which is always good. It's a domestic learning business, but it came back strongly. And it was all going really well, obviously, until we had to close down again in Auckland and get back to Level 2 in Hamilton and Queenstown. And fortunately, we are now back open in Auckland. So it is worthy of calling out. We are largely a domestic business. About 85% of our money comes from the domestic market. And it's worth quoting it up because the 15%-ish that is typically international, we don't believe it's coming back. Certainly, we're not planning for it in FY '21. That's the international business in our gaming side of the business. It's also the international tourists that would normally full hotels and Sky Towers. And for that matter, corporate travel looks like it's going to take a while to come back. But fortunately, we're launching domestic business, and those are local domestic economy, so Hamilton is different to Auckland. And out of that domestic market, as I've said here, right above expectation, we've put some graphs to give you some sense of trade since we reopened into the pack, look at Slide 20. And if you look at that, we try to call out where our properties are relative to the prior period and where they are relative to the 8 months leading up to the initial closure. And as a generalization, you can say, we're sort of back where we were against PCP, including in Adelaide, and we are back in Auckland to the levels of trade we were experiencing up until February. And if you've got in front of, you could look at Hamilton's performance, which is above last year and above trade up until the first lockdown. Hamilton is a really good proxy for domestic market because it is almost pure domestic business. It's mostly gaming, hotels, anything else there that could confuse the numbers. And it's also, in the year gone by, only being affected by COVID. Auckland's been a bit confused by the fire in addition to COVID. So Hamilton, I'd encourage you to look at the detail we've given you there, it has a pretty good proxy. Yes. And we have enhanced the gaming floor layout there. There, we were doing that pre-COVID, we've refurbished and improved ERP gaming areas and import better marketing, more focused marketing tactics. These are things we're doing in Auckland. We took them out of Hamilton all pre COVID, and I'm sure they've been very helpful. I'd call out Hamilton again is ETM-dominated and strong recovery we've seen when open across the group has been led by ETMs. So Hamilton is ETM-dominated and it's another good reason to look at it as a proxy. ETMs do have high margins and came back rapidly. So that certainly helped the margins across the group and in Hamilton. And the tables have come back to regional levels, but they have come back slower. And then again, you can say as a sort of sweeping across the group segment. Tables, particularly at the Level-2-type scenarios we're operating adding New Zealand and in Australia are more limited, no more than 3 people to the table. Changes the dynamic. And obviously, if you have concerns around COVID, you're probably not rushing back to the table. So Tables has been a little slow, but it's come back to levels that we were close to PCP and prior to closure. We've had a focus across the group with our existing customers. And within that, the premium ended, then we, for obvious reasons, haven't been looking to have crowds in our properties. We have been very cognizant of health and safety requirements and very, very focused on just staying open. So not looking to create mass gatherings at all. So we've restricted access to members. Within that, we focused on the premium end, and we have been getting fewer visits but certainly higher spend per visit. So that would be a feature across the business. But perhaps turning to reflections on the COVID experience. The resilience of the local gaming business -- and there is a slide in effect, Slide 27. The resilience of the local gaming business has been reconfirmed. For those of you who followed the industry for decades, this isn't the first time that resilience has been demonstrated. And when we plan our capital raise, we're reasonably confident that would be the case, and I'm very pleased that it has been. So the resilience has demonstrated. That also gives a very comfort. When you look forward, the knowledge that it comes back when it can and comes back rapidly, it certainly facilitates planning looking forward. We've called out in the pack, obviously, important leadership. That's a statement that you read about everywhere. But I generally call it out something that without our plans, our benefits, when we came to making massive decisions rapidly. We have a culture where people are encouraged to put use on the table, even if they're contrary. We have people around the table that have very diverse backgrounds. I'm not talking to gender diversity here to meet diversity of thought, yes. So people from different backgrounds, putting views on the table, attempting to find consensus, which we managed to do on the big decisions, yes. I look back at the big decisions taken, and no doubt, we benefited from the process we went through to get there. And at a big picture level, at the moment, none of them are change. We also are able to move quickly and with care, empathy, hopefully that came through the way we restructured the business. We had the comfort not only that the business was resilient, but that we've got these long-term exclusive gaming licenses, our major destinations. We were heavily underpinned by property in terms of business that had strong reasons to be sustainable. We came to dealing with banks and the shareholders, a massive underpinning the property portfolio, and it's long-term exclusive license is incredibly helpful. Now we have learned, again, of the value of our VIP and premium gaming customers and have been leading our comeback. And as I've played earlier, I think everyone's learned about retaining flexibility in capital structures. I'm sure that's going to be a feature of any future capital raises or debt raises and as well as the relationships. So I haven't called out the online yet on this call. Got a feature of the last few months has been the growth in online. And we put some stats into the pack on Page 21, it gives you some insight. We'll look at the absolute dollars are still not eye watering. But if you look at the trends, it could to be encouraging and the closure of our land-based business is stimulated demand in the online space, no doubt, and it's given us a very unique opportunity to look at life with pure online, we had pure land base than we had pure online. Then we had a mix when we reopened of online and land based. Then we went back into lockdown and we had another window to understand what that meant, will be almost pure online. The gross tell a story, you can see constant sign-ups. And we might have 35,000 active -- 35,000 customer registrations and within a decent proportion as active customers. The revenue shows the growth during lockdown. The way it came back a bit but not significantly when we reopened land base. And then the spike in August, which is partly the organic growth we would have expected, and I'm sure some of it to do with being lockdown again. So it is a business that's showing decent growth, very good growth. I'd also call it out as a business where there is no doubt. It's no major CapEx, there's no depreciation. So whatever gets to achieve that EBITDA tends to flow through more meaningfully at profit. So we're really pleased with the progress in that aspect of the business. I would flag, we continue to operate extremely conservatively against other online casinos targeting New Zealand that are way more aggressive in the way they're targeting New Zealand. We are being extremely conservative, huge emphasis on home minimization. It's a long game for us. We are looking through to regulate New Zealand. We want to be a regulated operator when that day arrives, and we are behaving and operating today as if we were regulated. We're working very constructively with the government. It will obviously be for them to determine when the regulation takes place, but we will work in step with them and cooperate with them wherever we can. So calling out the online, it's been a really interesting couple of months. And I think maybe another feature, I did mention constructive working relationships, helping to get us reopened. I think the importance of SKYCITY within our communities was absolutely recognized at a time when suddenly we weren't in a community. We've got a lot of people. There was sort of a dry run at that with the fire and all since when we closed down. And the recognition of our importance was really great. We often derated as an industry. But this was a time of crisis where the factory employed thousands of people was recognized the difference we make to Auckland and Hamilton and places where we operate, Adelaide and Adelaide, you're going to be -- more important to Adelaide with the new thing opens. I think it was gratifying to have some recognition of that. I'd also call out rate subsidies. I haven't covered that often in this call, but government initiatives like that were incredibly helpful. We were locked down with net income and burning every month and knowing needed to restructure, and the fact that there were wage subsidies and JobKeeper in Australia meant we could be a little more deliberate in our thinking, take a little longer to get there. And ultimately, we absolutely carried more people through to reopening than we might otherwise have done. And as we now know, when we reopened, we got busy. We needed those people, but we were able to carry them because of schemes like the wave subsidy and JobKeeper. So there's a second worthy of recognition. Maybe something else to call out as it crosses our mind is technology. We've invested heavy into technology, as we've explained over the past couple of years. And had we not -- we could not have functioned as efficiently as we managed to in lockdown. We didn't have a blip. We could all revert to working from home and our technology kicked in. More recently, over the last week or 2 probably worthy of calling out cyber attacks. There seem to be an increasing feature of the world. We've had and repelled 1 or 2 ourselves, and we feel comfortable for now that our technology is up to the task. I think that's a space you just got to keep abreast of. In the year gone past, technology has come into our properties in the form of facial recognition technology to work how the people are staying too long and individual slot machines, giving us warning bells. There are harm and host responsibility initiatives absolutely added by technology when it comes to technology that will help us grow our business. The CXM journey is getting some real traction now. We put a lot of things on hold. As we went into lockdown, we redirecting strategies on the CXM digital journey with a view to 1 day being omnichannel with online and land-based. So that journey is now getting some decent traction. We'll be rolling out RFID chips in Adelaide for the first time. We've had them here in Auckland for 5 years, and the technology works. We'll be running that out in Adelaide and in Adelaide multi protocol has gone in yesterday, and bill acceptors and TITA coming when the new expansion opens a couple of months from now. So technology, as a theme, has come into play in the year gone by. Maybe I should just quickly turn to some of the strategic things for the year ahead, and then we'll try and get to some questions. First and foremost, staying open is our strategy, and that's something we took for granted up until this year. You would have noticed, if you got into the sustainability section of the pack, we've added a new pillar, which as is dabbed our shareholders, but essentially, that's we'll go back down to the bottom of Maslow's pyramid, and we're back into food, security, safety, that sort of level of consideration in Maslow as well means just staying open. We know if we're open, we are cash positive. But as a strategy, just staying open, adapting to a fluid situation is paramount importance. And fluid means Level 1 to Level 2 to Level 3 to Level 1, we probably anticipate or to Level 2.5 as the case may now be in New Zealand. I think we're getting quite good at that open and closed stuff. We had crisis management meetings the first lockdown, and we had meetings, the second lockdown just to make sure who's allowed to track our team through the fire and COVID, understands exactly what it's doing. And that has, as I've said a few times, we've got the covenant when the business opens. It's very quickly profitable. Anecdotally, I can tell you this last week in Auckland, we only knew at 1:00 p.m. on Sunday that we were definitely opening. We opened Monday midday with customers queuing to come in, and we wake up on Tuesday morning, cash positive. I think gives you a sense of the week just gone by in Auckland. So staying open and through this primary strategy. Online, obviously, we want to keep going with the momentum there. So that's a growth strategy that's still open to us and we'll be focused on. We have a pipeline of major projects. We put a lot of master planning and potential projects on hold, while we conserve our balance sheet, but we have an existing pipeline of major projects, which Adelaide is first and foremost, a major area of focus. We expect to open in phases towards the end of this year and the phase is determined by the COVID environment, ends at ICC. The deconstruction process post fire is largely behind us, still taking place, but it's starting to feel like a place that you can walk around without getting too depressed. The rebuild process is commencing shortly, the program is coming together with a degree of some confidence. And at a high level, we -- I'll predict the hotel will come back to us in 2021. We would look to open that into summer of 2021. So September, October, it may come back to us before then, but that's probably on the move to open it. The convention center itself 2023-ish and the long stop date was moved up to 2025. So there's a lot of comfort in that. But 2023 targeting -- getting the convention center. That's probably quite well-timed in relation to convention through the rating globally, so we'll be looking to take conventions for 2024. It feels like right about then. Hopefully, the world is more normal, people are traveling again. We do think, again, it's an observation that New Zealand has distanced itself positively as a country relative to other countries through the way the pandemic is being handled as has Australia. And within Australia, South Australia is been exemplary. So we do think we're operating in regions of the world that have shown a positive reaction to the pandemic that will be seem to be safe, and we do think there'll be curiosity as well as comfort in visiting both South Australia and New Zealand where the travel resumes. So the convention center is then to benefit from that when it's able to open. And coming in the near-term pipeline in the year ahead, we have been refurbishing, actually rebuilding and building some new VIP gaming spaces here in Auckland. Level 9 on the top of this SKYCITY Hotel is now our VIP sots area. Had a walk around yesterday. It's all good to go. We were about to open at just the night of the -- night before the last lockdown -- or the night after, sorry, the last lockdown, we should have our opening. So that's on the cards for the next few weeks. So brand-new VIP sots area, VIP gaming areas had a complete makeover for tables. And that frees up other spaces that where our VIP areas load are in the building to become ability to upgrade gold to plat, plat to gold to black, black gold to ultra, we can shift people up. And we know that, that's the sector of our customer base that we make a lot of our money from. So that's good news in the sense of our gaming world. We've also pushed ahead renovations of the food court and ASUs bar in Auckland. Those should open in the next few months, and we took the decision to push ahead during lockdown, we were disrupted or closed anyway. So those are really exciting offerings. The ASUs bar comes back. I think it will be New Zealand's longest bar, I heard yesterday, 50 meters of bar with an entertainment platform, and sufficient New Zealand entertainers to fill it when we open in a couple of months from now. So that's, again, good reasons to come back as customers, to entice customers back in the near term. We've got [ Wez ] and the [ Auplex ] 2 major attractions unique in the country, opening in December. We've got the Americas Cup, which looks like it's going to happen. The teams of both are in time, and that starts getting underway in December. So enough reasons to feel in the year ahead. We've got stuff to do, and we'll continue to evaluate some of the other stuff that was in our pipeline being very mindful of uncertainty and balance sheet. The way we're trading currently and assuming we can stay open, we can't give much guidance, but we are guiding towards being better than FY '20, but worse than FY '19, absent -- and we've assumed no return of international business, international travel. And for that reason, tough to be FY '19. I think if you did a domestic like-for-like FY '21, wouldn't be very different to FY '19, but we're missing the international aspects of our business. So guiding to being above FY '20 below FY '19. Our cash generation is ahead of expectation as long as we can stay open. And if it stays that way, we would expect to resume dividends at the end of FY '21, there won't be an interim dividend in December. But as I say, if things stay on track, we expect dividends to resume with, let's say, from June 30, 2021. So I'm going to pause there. If you trying to gauge mood, there's a lot of reasons to be optimistic, and we feel that way, given the pipeline of we've got given the -- where the business is positioned and given our experience of trade when we've been able to open. So I think the mood is positive. Caution is still there. No one knows where this thing is going to go. But we do feel we've taken some big steps that position us well to deal with what might still come. Maybe on that note, I'm going to pause, we try to open to Q&A, and we've got Mike and Rob standing by.

[Operator Instructions] Your first question comes from Anthony Longo with CLSA.

Graeme, Rob and Michael. Just a couple of brief questions for me. In your trading commentary, you sort of talked to significant margin improvements that you have seen in the New Zealand properties. Are you able to give, I guess, an order of magnitude and maybe some context as to what level of improvement you are expecting? And then I guess as activity levels come back, will there be a need to ultimately bring more fixed cost back into the business? So I guess I'm trying to get at, is that margin sustainable improvement that you are seeing?

I'll take that one, Michael here. Look, we have seen a margin improvement. And probably July is the month that gives us a sort of a 3 month effectively. And what we're seeing is, well, there's a mix benefit we're getting, with the gaming business being significantly larger proportionally, it would have been prior years. But we're also seeing the benefits of the cost restructuring that we did earlier as well, flowing through nicely. And look, what I'd say is the margin improvement we saw in July is -- was substantial, but probably not sustainable in the long run. But we are, I would say, we have a structurally higher margin now in our business that we would see continuing into the future.

Okay. That's great. And look, I'm just mindful of time, but worth asking that online, I just -- I mean it's obviously not shape stations, but I just wanted to get a sense as to the guidance commentary on a more positive EBITDA contribution going forward. And then, I guess, the level of potential cannibalization between land-based and the digital opportunity, please.

Yes. So look, the cannibalization doesn't appear to be as significant as others have feared. We didn't think it was ever going to be significant. The chart set out show you some degree of drop-off in online when we reopened in June and July. So that will give you some proxy for that. And sorry, I'll...

The guidance comments.

The guidance -- sorry, yes, sorry. Yes, I'll now speak to your question. Look, we are quite cognizant that although growth percentages are great, the absolute dollars are still reasonably low. But given the flow-through to profit, if the trajectory we're on, not -- if we remain stablish and grow bits, it will start to become at an NPAT level, profit level, certainly a business you're going to notice. I can't give much more guidance there. And part of that's because we generally don't know. We've got a very expensive bottle of wine riding on the base case that where the business will finish at the end of the year. So we don't know ourselves because so much could change. But if it stays on track, it's profitable. It will add up to a reasonable number in relation to some of our smaller land-based businesses. And in particular, at an EBIT level because there is no depreciation.

That's great. Look, hopefully, the bottle of wine is a nice local product as well. So I know New Zealand P&L would be fantastic. But I'll over with the get other chance.

It's quite specific. It's a South Australian product that most of us normally wouldn't be able to afford.

Your next question is from Chelsea Leadbetter with Forsyth Barr.

Graeme and team. I guess, maybe again, sticking with the outlook side of things. Just interested in a little bit more context on, I guess, the backdrop or the settings that you sort of have provided your guidance on. I appreciate we don't really know exactly what the year is going to bring. But just interested from an economic backdrop standpoint and also just the COVID setting standpoint, what your guidance is predicated on?

Chelsea, Rob here. The guidance, as we've outlined, assumes we don't get any worse than what we currently have in terms of COVID settings in New Zealand or South Australia. So while we're cognizant of the risk of further shutdowns, we haven't factored any further shutdowns into our broader forecasts internally or in terms of our guidance statement. So at some stage, all going well. New Zealand drops from Level 2/2.5 back down to Level 1. And we see -- we essentially expect to see our business back performing to the same sorts of levels that we saw when we were at Level 1, June, July, first part of August. Adelaide, obviously, a little bit harder to predict, given we've got the expansion opening by the end of this year, and we're going to see some additional costs coming in there. We're anticipating still having some COVID restrictions in South Australia as well for the -- most probably at the time we opened the expansion. And we'll -- but that's not going to stop us bringing customers in, and we're still expecting to see a significant uplift in revenue from the Adelaide property once we get that open. Does that answer your question?

Yes. That's helpful. And then I guess just from an economic standpoint in terms of you commented -- or just Graeme's comment that FY '21 domestic like-for-like might look like FY '19-ish. I mean are you expecting any softness as we start to see, I guess, what are the economic outlook you have factored into thought process, would be quite interesting?

Yes. Look, I think we need to see some of the key economic stance for the New Zealand or Australia, in particular, for the last sort of couple of months. I think everyone's expecting us, both economies to go into a 10-fold recession. What we have seen is despite that, our businesses have been quite resilient. So it's a term that we've used a lot. We note the graphs that we've included on Page 20 of the pack appear to resonate with the analysts and investors, we sensed them in a lot of the commentaries so far this morning. And what they essentially show is despite some of the economic challenges across the broader economies, we are seeing our businesses come back to levels that we saw both in the previous year, but also during the first 8 months of FY '20. So that's encouraging. And we would expect to see those trends continue once we're back in Level 1 in New Zealand, although Level 2 trading, part of the period that we've highlighted in those graphs was Level 2. I think as we said we saw an uplift June through July as momentum continues to build. But we're sure, essentially, we're not -- we don't think the recession conditions are going to have a major impact on our business of that sort as we're coming from.

Okay. No, that's clear. And just quickly, last question from me in terms of, I guess, Adelaide side of things. I'm just interested in terms of how you're thinking about scaling up the cost structures. I mean, obviously, you've commented on how much -- how many, I think, we're hiring, et cetera. But just given, I guess, the evolving backdrop, I mean, how flexible you are in terms of responding to the demand and kind of what you're thinking about for when that opens? What has actually factored into your thought process about what the Adelaide expansion actually delivers in the first year or so?

Michael here, I'll take that in relation to resourcing. So we are currently recruiting for Adelaide. I would say about Adelaide, we're taking a phased approach to how we're thinking about opening the property and being quite cautious in our approach on recruitment. We certainly have a far higher casual pool than we'd have anticipated in areas like table games. We're certainly going to be going slow there in terms of recruitment because we need the international and domestic orders down before we will be scaling up side dealers, as an example. So it's a far more phased approach that we're taking there. So I think the number of employees we get to -- we will get to over time. But it will take us a lot longer to get there.

I think the second half of your question is -- was, I think, earnings guidance for Adelaide or ramp up. And I guess all we can reiterate at this stage. And I'm sort of cognizant that some of the context you're looking for relates to impairments, I would think. But we've historically given guidance that we would expect an uplift of $30 million to $35-odd million EBITDA out of the expansion investments on top of whatever the existing business was doing, which has been 2025 is somewhere of that order. I don't think that's changed. I think it's going to take a little longer to get there, and we obviously are opening in phases. Once we'd hope to hit the ground running by the end of this year, most of this year will be spent opening in phases. So I don't think any views have changed on getting to that number, it might take a little longer. Further out, we were looking at valuations, the upside that would have come and may still -- and hopefully will still come through IB, that feels like it might take a little longer to come back. So Adelaide is a property that's got a heavier emphasis on IB than most of us. And we're just not sure when the IB business returns or reaches the levels that we had forecast, that's probably the 2 main drivers behind reaching a decision to impair the property now, and to do so by writing down the casino license. And hopefully, the announcement of the impairment of $150 million was sort of around where we set some expectations with guidance within the value of the casino license of $280 million. So yes, I think Adelaide's -- it's about taking longer to get in the forecast. But no, the sort of earlier $30 million shots, if you like, $30 million to $35 million uplift on this. We haven't changed our view of that.

The next question comes from David Fabris with Macquarie.

Graeme, Rob and Michael. Look, I'm just trying to better understand the cost savings. Firstly, with the cost savings, I can see it's largely labor-driven. But can you break that into segments like corporate, domestic and IB? And then it sounds like that $50 million is activity linked. I guess what I'm asking is, should we be assuming that if you do FY '19 revenue that you get $50 million less cost at that point? Or would the benefits be less than $50 million?

David, Rob here. The -- in terms of the $50 million, we've always called out that roughly $40 million of that is OpEx and $10 million of that is essentially capitalized labor costs. So capitalized labor relates to projects, development projects, some ICT projects, et cetera, which we have made changes to and saved the labor costs. So in terms of the OpEx savings, circa $40 million, we would expect to see that flow through into FY '21. And in terms of rough splits, you're going to see the bulk of that coming through from Auckland and the rest largely from Hamilton and the corporate team. There certainly have been significant savings in IB as well. We have the bulk of our IB team not in New Zealand stood down or on significantly reduced retainer, but we've also made some permanent reductions in that team as well.

Got you. But I guess what I'm trying to understand is just get back to FY '19 revenues, how much of that OpEx comes back into the business?

The OpEx savings were made on the basis of our expectations for activity levels in FY '21. We're obviously doing slightly better than that. So the team, Michael should comment as well, is running pretty lean at the moment. So we may see some cost come back in, but we're being very cautious about introducing any additional costs at this stage. Particularly, given the uncertainty around COVID.

I was, look -- just to give you some color with some modest thinking like food and beverage example is significantly hard with all sorts of, so we probably had some headcount there. Pretty modest. It would be -- I would describe what we're thinking about in terms of any additional headcount, which again, will be on a casual basis so that we retain the flexibility.

Got you. And just one more question for me. I know the timing is probably not right. But just thinking about some of those other growth developments. You've made comments that you've paused looking at them. But what do you need to see before you revisit the likes of the Hamilton Hotel?

I think that decision is probably driven more by comfort around balance sheet and liquidity than feasibility around Hamilton, if that makes sense. So it's -- the Hamilton property is proving itself over and over again, it definitely could do an extra facilities. The feasibility had been run and look pretty good. But committing balance sheets to big projects right now doesn't feel prudent so we're comfortable that we've got sufficient liquidity and a buffer that enables us to do that. We revisit Hamilton pretty high for the list of things we put on hold for now.

Yes. I'd add, as Graeme said, I mean, we're currently in a period where we're reliant on debt covenant waivers and aren't able to pay dividends. We didn't expect on the 12th of August, have to shut our Auckland property again, there's national borders are still closed, and nongaming revenues to our gaming revenues are doing really well. Relative to expectations, nongame revenues are still down below pre-COVID levels. So there's a few things that we just need to work our way through over the next 6 months, 12 months. Before I think some of those opportunities will logically come back on the table.

And maybe some observations on not Hamilton but the Waikato. It's -- now I stressed earlier, we had a domestic economy-driven business. And the economy of Hamilton is different to that of Auckland, yes, they're primary food producers that have continue to full strength through lockdowns, if anything, there are more demands. So that local economy is in reasonable shape, and that will obviously be helpful if we even -- when we get to the point of saying, what projects are we going to push on with. In our lives, it says local has got people driving to us within 30 minutes to an hour.

Your next question is from Desmond Tsao with Goldman Sachs.

Graeme and team, a couple of quick ones from me. Maybe just touching on a bit around the outlook again. Appreciate the clarification around sort of what you're expecting from the sort of COVID outlook. Interested in comments that you've made around the assumptions of no international travel for the remainder of FY '21, I think that was made with reference to the IB side of the business. Interested to sort of hear your thoughts around the impact from the trans-Tasman bubble if that comes through in '21, and whether or not that sort of back into some of the group EBITDA guidance that you provided today.

Yes. Look, so everybody is guessing at what's going to happen. We're just planning for not to happen in FY '21, the international business. And if the trans-Tasman bubble comes a little sooner as it might, I mean, my understanding is it's sort of ready to go, waiting for the right moment. We wouldn't expect that in this calendar year. And we certainly haven't factored in anything meaningful from that source of business FY '21. The Board is being closed, it certainly impacts the national business in terms of bringing Asian customers to our properties. It obviously restricts the trans-Tasman flow of into state customers, for example, as well. It doesn't particularly -- well, it doesn't impact our domestic gaming business, but it does impact hotels. It does impact the Sky Tower. So we certainly -- that's one of the reasons why nongaming revenues have been down in the charts we've shown on Page 20.

And maybe as another observation on one of the benefits, if you like, of borders closed, is we've got some of our high-end customers that would typically spend time outside of New Zealand and some of that time in Australia. And we are seeing the benefit of the full attention right now because they are in New Zealand. So that's also coming into some of the performance we're now achieving. We've got 100% of play that would otherwise no doubt spend some time in Australia. So it's not all one way.

Sure. No, I appreciate that. So it sort of feels like, so net-net on balance, if that trans-Tasman bubble was to come to fruition in '21, it's not going to make a significant impact to the '21 EBITDA guidance that you've provided today. Is that a fair comment?

We haven't given you much guidance. But there's a broad range of guidance in the cautious statements we've made. We would look at it internally as upside if the trans-Tasman bubble came around early 2021. That will be upside. We haven't factored into our own internal forecast. And certainly, IB, if anything could happen to an IB, that's upside. Probably our best hope is that interstate business in Australia comes about -- it'd be fair to say we're planning. We're expecting that to happen during FY '21, which at least enable some of the higher-end play within Australia to come down and see Adelaide and the new facilities.