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

Thank you, for standing by, and welcome to the SkyCity Entertainment FY '22 Interim Results Announcement. [Operator Instructions] I'd like to now hand the conference over to CEO, Michael Ahearne. Please go ahead.

[Foreign Language] Thank you, operator, and welcome everyone to the SkyCity Entertainment Group first half '22 results investor call. With me today on the line in Auckland is Julie Amey, our Chief Financial Officer; and Ben Kay, General Manager of Strategy and Investor Relations. Our first half '22 presentation was released to the stock exchange earlier this morning, and is a comprehensive document. We're going to take the document as read and hence focus on key themes and our observations across the period and leave time for Q&A. Turning to the key features for the first half, I wanted to make some initial comments before asking Julie to provide an update on our financials and outlook. The first half was an unprecedented period due to the significant disruption from COVID-19 on our land-based casinos. The pandemic -- and then it continues to present challenges for SkyCity, but as CEO, I'm really proud of how the team has set up again in response. The COVID-19 settings and related property closures in New Zealand and Adelaide had a material impact on our financial performance during the period, with the group only modestly EBITDA positive and reporting a net loss at NPAT. Our flagship property in Auckland was closed for 107 days and similarly, Hamilton and Queenstown closed for lengthy periods and when able to open, operated under capacity limits and restrictions around social distancing. Our Adelaide property was remaining open for the majority of the period, had to operate in a highly restrictive environment due to COVID-19 settings, interstate border closures and then the emergence of the Omicron variant prior to Christmas, which materially impacted again on CBD visitation. Table games performance in particular has been impacted by COVID restrictions. Management continued to take steps in response to the COVID-19 disruptions with a focus on cost and CapEx control and initiatives to support our balance sheet, including securing covenant waivers, relief from our financiers, to address the significant earnings hedge experienced over the period. We maintained a flexible operating model over the period, focused on customer experience and engagement, even when we were closed, we were contacting and engaging with our customers, and focusing on our highest returning businesses. Clearly a continued priority for management and the board has been the health and well-being of our staff and customers. We took a leadership position in the hospitality and leisure industry on requiring vaccination certificates and work diligently to ensure a safe environment to operate in, to give our customers the confidence to return to our venues. Pleasingly, when able to operate during the period, the domestic businesses particularly local gaming remained resilient. July and the first half of August across our New Zealand properties were particularly strong following on from the momentum from the fourth quarter of the previous year and performance in December '21 when we reopened was encouraging. Of note, was the record New Year's eve EGM revenue achieved in Auckland and Hamilton. More specifically, trading in Auckland in December at the red setting under New Zealand's COVID protection framework was solid, particularly from AGMs with performance comparable to that experience when at Alert Level 2 during FY '21. Regrettably, Adelaide has not had the opportunity to deliver on its potential during the period, primarily due to COVID-19 disruption, which impacted significantly on its financial performance. However, the hotel has performed well relative to the market and EGMs -- well, it should be said that our expectations are significantly higher for this business over the medium term, it delivered stable share of 8% in a market that is growing at a double digit rate. The performance of the online casino was a highlight of the period, with strong revenue and EBITDA growth, despite the operational constraints in an increasingly competitive landscape. We experienced strong growth in active customers, our online casinos quickly become a meaningful earnings contributor to the group, approximately $7 million worth of EBITDA in the half. An exciting feature of the period was announcing the expansion of our strategic partnership with Gaming Innovation Group, having committed to provide EUR 25 million of new equity to support the funding of GIG's acquisition of Sportnco in return becoming a major shareholder and having a representative join the main GIG board. GIG is an established online operator we have come to know well since partnering in mid-2019 to launch our online casino. Partnership has provided us with access to a complementary and high growth gaming category and has enabled us to pursue an omnichannel strategy in New Zealand, which is a core pillar of our Group strategic plan. The combined GIG, Sportnco business will be licensed or certified in over 20 jurisdictions, including key growth markets such as the U.S., Canada and Latin America. We view the transaction as strategic, and a relatively low cost, cost of low-risk exposure to the fastest growing segment of our industry globally. Inorganic opportunities like this one that fit our strategic plan don't come around often and we felt the time was right for us to consolidate on our strategic alliance with GIG. We continue to support regulation in New Zealand and expect clarity from the New Zealand government in this half as regards to their intentions to regulate online gaming. We continue to believe that a significant omnichannel opportunity exists for SkyCity, it's a New Zealand online market regulates given the size of the addressable market, which already exists in New Zealand, which is expected to grow significantly and the unique opportunities SkyCity has to offer an integrated offline, online experience to our customers. Moving briefly on to the NZICC Horizon Hotel in Auckland, the project remains complex, with reinstatement progressing post to fire, we're expecting the Horizon Hotel and NZICC to be delivered in 2024 and 2025, respectively. As previously flagged, we are pursuing a significant AML enhancement program across the group, focused on continuous improvement. We continue to have regular dialog with AUSTRAC as we progress the program. Management remains fully committed to the enhancements which includes new senior AML resourcing now in place in New Zealand and Adelaide, improved governance and investment on ICT systems and AML processes amongst others. We continue to respond to the AUSTRAC enforcement investigation of Adelaide. We're fully cooperating with AUSTRAC and sharing information as required. The timetable for completion of the investigation remains unclear, but we expect it could be some time before the process reaches a conclusion. I'm now going to ask Julie to make some comments on our financials and recent trading before I close.

[Foreign Language] Michael and [Foreign Language] to everyone on the call. As you would have seen from our announcement, the group reported a normalized net loss of $19.5 million for the 6 month period and this material reduction from pcp is due to the significant impact on the group from COVID-19 that Michael has already referred too. So it's been a very tough period for the group, particularly with our Auckland business closed for 107 days. But, however, I do want to mention a few of the positives that have helped us to offset this result and preserve our balance sheet. The group's loss was offset in part by actions taken by management in the first half of the year to reduce our spend levels and secure COVID relief. And these decisions were made with a focus on ensuring the integrity of the Group's business model, that is quite fundamental to our future business performance and our customer experience. We also significantly reduced our operational CapEx with some $45 million of savings in the first half of the year, against where we expected our spend levels to be. So this coupled with some other cash initiatives to have further contributed to our balance sheet strength. During the first half of the year, we were also particularly pleased by the continued resilience of our EGM business segment. December in particular showed indications of a strong recovery with our group's EGM performance overall, only some 18% below pcp, despite Auckland actually operating under red settings during December. As Michael has shared, we have also seen some strong performance from our online casino with financial performance, making a meaningful contribution and a welcome offset to the COVID downsides that are impacting our land-based casino, which also reinforces the opportunity that the omnichannel brings to the group. And although it does seem like a long time ago and we did start full year '22 in a strong position with New Zealand business performance continuing the trend from the last quarter of '21, during the weakest part to New Zealand's lockdown, but performance exceeding our expectations. And you might recall that for the full year results announcements, we were on a pathway of earnings to return to our full year '19 levels. So from a balance sheet perspective, we were able to remove considerable funding risk for the Group in the first half of the year by working with our financier partners to secure debt covenant waivers for the 31st of December period. And while we were very pleased that the Group was able to pass the standard covenant tests for full year, for the half year '22, we still believe that securing the way, this was the right thing to do given the --- the significance of the uncertainty surrounding COVID-19 and of course the governmental responses that continue to remain outside of our control. So moving now to our outlook, we've now entered another period of uncertainty with the government again moving New Zealand into the red setting restrictions from 23rd of January. And this was only after Auckland being in an orange setting for about 3 weeks. So as highlighted on Slide 30 of the presentation, our New Zealand gaming business has actually performed quite well, while operating under the orange setting in January with activity being comparable to pre-COVID levels. And while Adelaide's performance remain quite subdued in January as the state navigated its COVID peak, business performance is now showing indications of recovery as the state's restrictions are being eased and the CBT visitations increasing. We are also very pleased to see the announcements and activities to enable the reopening of the borders for both Australia and New Zealand. Although, our expectation is that the ramp up in our New Zealand tourism businesses will be cautious. And on top of all of this, we still remain many uncertainties our business, including how long New Zealand will remain on the red sitting and with the Omicron variant, we have a materially detrimental impact on the behaviors of our customers and the health and well-being of our staff. We do, however, expect that our businesses will remain open during the second part of the year. So as a result of all of that, we continue to monitor our operational performance and customer visitation daily in order to deepen our understanding and to enable us to refine the multiple scenarios that we are running to stress test our financial resilience during the second half of '22. And, of course, our cost and saving initiatives that we spoke about in the first half of the year remain a key focus for the group into the foreseeable future as we navigate through these challenges and the pathway back to full year '19 earnings levels. So based on our current scenarios and assumptions and our current business performance, we believe that the Group's outlook and liquidity levels should remain sufficient to sustain the business and ensure we remain compliant with our financing obligations. However, due to the extent of the uncertainties that are out of our control, we are not able to provide a detailed guidance on earnings neither at this time. So now I'll hand over to Michael who will share his closing remarks.

We are very focused on ensuring that we maintain the operating and corporate capability to quickly grow our businesses as we emerge from COVID and take advantage of the recovery of local customer sentiment, CBD reactivations particularly Adelaide and Auckland and domestic and international tourism recovery. Looking out beyond FY '22, there's no material changes to our medium-term outlook and our target to return to FY '19 earnings levels approximately $300 million, EBITDA when fully operational and they grow from there. Our performance when open a trading with no restrictions gives us confidence in the earnings potential for the business and that we should trade similarly when visitation normalizes. So in summary, a really challenging period, but our key priorities as a management team remain unchanged. We have an absolute focus on continuing to navigate through the ongoing uncertainty of the COVID-19 operating environment, whilst ensuring our financial resilience and ability to manage the balance sheet and set the business up for success over the medium term to grow earnings and hence, shareholder value. Last but not least, I wanted to personally thank all of our investors and shareholders on this call more widely for their ongoing support. With that, I'm going to pause and open to questions.

[Operator Instructions] Your first question comes from Matt Ryan from Barrenjoey.

I just had a question on the cost base and how are you dealing with, I guess the challenges of the changing restrictions at the moment? Probably just curious about the labor costs and sort of how you're going with sort of planning around those sudden changes? And then just as a follow-on to that, there are quite a few comments around the Adelaide margins and perhaps some higher fixed costs in that business post the expansion. Just how long you think those costs will remain an issue for that property?

Yes, look on the, first question, it's a challenging time, but we made the decision to actually retain our employee base through this period. You'll recall, a 1.5 years or so, that we did a restructure and our numbers came down. Our numbers have stayed at a similar sort of level, we've about 4,000 headcount, as we speak, it has remained pretty static. We've got some flexibility. But right now, we flex on restaurants, for example, some restaurants are open, some are not in open. And as we head into this period now, we are dividing into -- the business into team. So really important that we have our security function able to open and operate surveillance. Those things are absolutely critical for us. So we flex our labor forces around to ensure the #1 priorities, we keep our gaming businesses open and then we flex around food and beverage. What you would typically see in Auckland right now is the majority of our restaurants are open at the weekends, but mid-week, many of our restaurants aren't open and certainly lunch time, many of the restaurants don't open. Look, in relation to Adelaide margins and I think this cost moving around in many ways across from inflation is what, our long-term view on Adelaide is that we will get a 20% margin there. And also some additional cost that we still have [ to keep another ] few.

Your next question comes from Larry Gandler from Credit Suisse.

Just a few questions from me. Looking at Auckland, the revenue -- are closed 107 days obviously, but the revenue per day was quite high, not higher perhaps than it was in 2019. I'm just wondering if I -- thinking about sort of as we go into the second half you expect to be open for the full half, do you expect the revenue intensity per day to diminish or do you think it will be kind of at that level that we saw in this first half?

Good questions, Larry. It's a pretty complex one. I think that the halves are very different because in this -- in the half that we've just had with some periods, July and August, which revenue was pre -- at very high levels, record levels actually in fact and December came back reasonably strong. As we look into this half, we're going to be at -- we had 3 weeks in amber and now we're in red for a period of time, so -- and then we should come out of that and be at amber, so it's sort of -- it's mixed, you can -- the 2 halves will be -- are quite different.

Okay, so perhaps, while you're open in the second half, because of the restrictions it might be a bit softer on a per day basis, I know you're not saying that I'm just thinking out loud there.

Just to give you some color probably, at the red setting in recent times, in the Omicron version red, our trading levels have been somewhere in the region 30% to 40% of normal earnings level. So it give you a bit of color on what's happening right now.

And Julie maybe a question for you. The COVID subsidies, I don't think anywhere received in Australia, but if there were, maybe you can shed light on that. And can you sort of walk through where in the business which divisions those COVID subsidies are impacting the results, so maybe next year I can normalize those?

Yes. No we didn't receive any COVID support for Australia businesses and in New Zealand, I mean, it was just for Auckland and Hamilton, when they were closed and [indiscernible] when it was impacted.

And can you give the quantum for those 2 casinos?

So, we've received 17 in total, of which 13 was Auckland.

Your next question comes from Sacha Krien from Evans & Partners.

First question for me just wondering how the 3 weeks under the amber setting compared to trading in July and August, just a little bit hard to tell from the charts that's in the pack.

So, the amber setting was largely in line with what we would call the previous level, was that then level 1, normal so pretty strong, local gaming in particular. So the trends are nearly always the same, gaming machines it's the strongest, followed by tables and then hospitality weaker. But we were encouraged by the quick, the EGM business quickly got back to sort of normal, normal levels.

Got it. I think you mentioned that you were running ahead of FY '19's levels in July and August. And I think you now, you've got in the presentation today that you've got a medium term target of returning to FY '19, which is understandable. But I guess the question I have is, is there any reason why you wouldn't return to that run rate of FY '19 earnings when restrictions ease, has anything changed between that July and August period until now?

Look, suppose we always go back to FY '19 because that was the last period that we actually got open fully and had reasonable level trading, but like our aspirations actually go beyond that. But getting back there is our first. But you're right in terms of, if I look to April, May, June, July and that first half of August that trading level was probably above that level.

Got it. I think the last result you guys have mentioned that you're expecting structurally higher margins post COVID. There's a few references to sort of wage inflation and AML enhancements. I mean in the pack today. Has anything changed in terms of that margin guidance or margin expectation post COVID?

Yes, look, I think generally there is more inflation rate pressure across the board now than there what -- was when we probably made those statements that we are working out, how we deal with and push through the business. So I think we certainly expect to get back to comparable EBITDA margins. Our aspiration would be to have higher margin but there is, just general inflationary pressure that all businesses are dealing with right now.

And how much is our AML enhancements contributing to that?

Look, it's not material to be honest. I think the key factors on that will be wages, wage growth really over a period over the next period and what will that be. And we're also seeing through supply chain where the food costs, inputs and so on. That you can pass that on to pricing into food and beverage. Yes, so it's across the board.

Your next question comes from David Fabris from Macquarie.

I mean, thinking about this DIA review, I think you were talking about some clarity expected in the first half of calendar year 2022? Look, if the legislation changes favorable, can you kind of help us understand the CapEx requirements to onshore the business and then maybe talk through the earnings opportunity relative to other businesses today? I think you identified a $300 million revenue market. So can you kind of walk through that first please?

Sure. So the DIA review and DIA review into input, input into government has been delayed because of COVID, which is so disappointing but understandable, but the work is actually completed and we'd expect in this 6 months a decision will be made on how to go forward and the outcome of that we don't know that the outcome we're looking for is regulation, but -- and that could be, they don't decide to do that. But if they go forward with regulation, there'll be a consultation process and a process that's actually going to form the legislation, that's going to take some time to be on. So I think that would be certainly more than 1 year, that could be 18 months to 24 months potentially for the legislations in place and the new businesses are up and running and that would be reasonably normal in other markets as well. In terms of the size or the prize, when we look at the New Zealand market, our view now is that the addressable market today for online casinos is about $300 million and with recent work done, that would suggest that's going to grow over the next 5 to 7 years to double up to $600 million. So whether it's actually regulated or not, which is what's happening in markets around the world. The growth -- we've seen this grow in online gaming, casino gaming and sports betting. But I'm so specifically about online casino gaming here. So it's a significantly addressable market. The shape of the market what happened is that, then the question goes to what our market share we invest. We believe we'll be in a very strong position, and it will depend on how many operators are licensed ultimately on what the exact share will be, so that, the shape of the legislation and the framework of the government puts around it will determine that and that's something we're obviously going to be looking closely at when the government come out with their decision and the next steps.

Got you. But just to be clear, would there be a chunk of CapEx required to set up the business if it is not short?

That's not significant. No, not really, we've a model, technically the model that we have set up now, it could be just reshaped to bring here. So it's not a significant capital investment for us to move forward. Yes.

Okay, great. And just another question, just thinking about the growth options, then look, you're selling that land in Queenstown. It sounds like the digital pace is some time away with the DIA review and the implementation process. Is an expansion in Hamilton still possible? Is that been, I -- would you consider M&A, I mean, earnings will snap back. And I guess we're thinking about that additional growth that SkyCity could chase when framing this question?

Look, right now, that's not really on our agenda. That's -- I think that there is Hamilton, we want to get back to that the earnings potential it has. That's not a priority for us right now, David.

Okay, got you. And sorry, 1 final question. Can you just remind us on the Adelaide casino just the management targets over the medium term, it looks like things are tracking a little bit better than expected when we think about growth rates relative to market. So maybe just talk through those EBITDA management targets, please?

Yes, look, the $60 million has been the EBITDA number that we've sort of gone back to. I think it's fair to say the shape of that might be a little bit different as we look forward. You can say the EGM market is definitely going to be bigger than originally anticipated, but table games has been a little bit more challenging in recent times, but we -- that's our, target, the team are working too.

Your next question comes from Justin Barrett from CLSA.

Look, I just wanted to ask about progress on NZICC of -- I asked the question I guess a few times before, so I don't want to harp on the point, but it looks like NZICC, now the downside of it is going to be during 2025 rather than early 2025. How should we think about that project going forward? And I guess how confident should we be that it should actually be ready in 2025?

Look, the dates are as part at current guidance by Fletchers '24 and '24 for hotel, '25 for the Convention Center. COVID is making more it complex, it's complex enough. COVID is making it more complex. What I'd say, there is significant work happening there 500, 600, 700 people working on the ground there every day and progress is being made, but it is complex and challenging. And those dates are a reflective of the program that we currently have from Fletcher, and we are working closely with them to ensure that they're on -- keeping on track, but that's where it, but look, there is good progress and momentum on that project, things like roofs, the big-ticket items like roof, for example, all of those things are dealt with now, and it's actually just a matter of procuring and actually building.

Fantastic. And the other 1, I just wanted to ask, in relation to the recent announcements on New Zealand Board as well, Board has looked like they could be not really fully open until much later this calendar year. Do you have any concerns around I guess a really fulsome recovery in VIP given that New Zealand may sort of trail, I guess the globe in terms of reopening its borders at all?

I think New Zealand definitely will trail [indiscernible] and reopening its borders. We -- in terms of international tourism activity and international VIP activity in New Zealand, it's certainly I can see that there will be any in the current financial year. And I think it will start in the New Year, but will definitely be slower than Australia and no doubt about, we won't have a full year next year of international tourism. I think that's, that will be clear a bit of a ramp up.

Your next question comes from Marcus Curley from UBS.

2 questions, I just wanted to, if you can talk a little bit to these, I suppose the nature and scope of the AUSTRAC investigation. Has that changed at all in your mind, given the current line of questionings you're getting from AUSTRAC?

Look Marcus, there is no change that really, we're working on an uplift program for across the process group, particularly in relation to Adelaide, and I sort of mentioned in the presentation that we've hired some new people there particularly ahead of AML in the Adelaide business, where meeting the obligations we have in AUSTRAC in terms of providing information. I think at the 6, 9 months ago, would have said it could be up to 2 years, we're 6 months into that. So we don't really have any more information to add.

But that you would -- I suppose, there's a line of questions you're receiving at the moment, yes, would you say that the scope of that has changed yet from what you originally thought?

Not really. No, I wouldn't say it's changed. No, as I'd like to do comprehensive line of information requests, but which will be provided.

Okay and then yes, just secondly on the debt levels, maybe for Julie. Am I right in interpreting your statement of saying that you feel like you'll be able to meet the second half covenant test and if so, can you provide some details on what the covenant is and what the required EBITDA would need to be?

Thanks for the question. So based on the scenarios we are running, with -- which include our business has been open, but some uncertainties around how Omicron will impact visitation for example. So we believe we have sufficient liquidity headroom at the moment and our ability to meet the waivers, the variation to the debt covenant that we have in place for 30th of June. In terms of the amounts I mean, it varies because it's not a simple calculation, it does depend a lot on your balance sheet as well and so, I think I would be wrong to give you an EBITDA number, because it is changing quite frequently because of the balance sheet changing as well. So but, we do believe that based on the current outlook we have, that we would be able to meet that covenant. The uncertainty we see in some of the decisions made around whether we open or closed and then again on customer behavior and visitation.

Okay. And maybe I can sneak 1 more in. With the Australian borders reopening, could you talk a little bit to what plans you might have for reopening international VIP out of Adelaide in the next 6 months?

Yes, so I think it is good news in Australia and Adelaide should be a beneficiary of that. So I think our first step is the domestic VIP market, so Sydney, Melbourne markets and targeting the customers they are bringing in. We've done a lot of work, the team has done a lot of work on AML and making sure we actually have the process is done pre-opening, so that we have pre-work is done, so the customers can come any documentation they need to places is done. And so the first step will be domestic and then internationals, we have retained the capability and this is some of the team that we've kept and decided to keep over the last, effectively 2 years that we'll see the benefit off. So that -- the we've got the facilities, it's now about getting some customers in there. So I'd be anticipating that we will see some international activity, particularly in the last quarter of this year in Adelaide.

Your next question comes from Jason Cao from Jarden.

It's actually Adrian from Jarden. Just first question for Julie just follow-up, I guess a follow-up to the way Marcus was asking around covenant question. Just on the net debt side, we can -- well, in assuming what you said in the outlook statement around the property has been open, but if we take a view on the EBITDA and you've been reasonably explicit on the CapEx. Is there anything in the working capital items in terms of timing that we should be sort of factoring in or if they are pretty normal, should we therefore be expecting sort of the net debt to sort of hover a little higher and then may be peaked across the second half?

Yes, so no, I don't think there's anything major there. I mean, I think our big working capital item as you can probably see in our financial statements, the one that swings is the NZICC insurance proceeds, which is quite a big amount, which we are managing through, but I think other than that, there is nothing else in there in terms of, I think you should take into consideration.

Okay. And then just maybe a follow-up as well. Would you just -- like the corporate costs so has been rained down, and the D&A has dropped. And some of that stuff, I understand in both respects to the IT projects, can you just tell us a little bit of detail as to what's going on there in terms of which ones you related to the delay, relative to, I guess, your pretty disruption thinking?

So in terms of the corporate costs, I mean, yes, it is does stand out that these quite a big drop from the corporate costs. And it's not a sustainable savings we would say. So what you see in the corporate costs coming out is, in addition to us taking the action across the Group to defer some of our non-committed wage and salary increases, we've released the bonus provision, of course we -- to re-baseline it to actually the performance of the business and there is a one-off amount in there for the release of the New Zealand holiday provision that we had, on the back of a court case that was successfully negotiated by Metro Glass. So we've now released some of the provision we were holding, so it's non-cash, but that's having about a $4 million impact on those corporate costs there. I mean in terms of ICT costs, there is some savings, they're probably not a significant amount compared to some of the CapEx, because a lot of those costs are actually a baseline like-for-like costs being maintenance on ICT on our systems. But there's just a couple of deferrals of a few pieces of activity there.

And can you just, while I've got you, that's helpful, can you just talk to the sort of the drop in [indiscernible] D&A down about $10 million from when you last sort of guided?

D&A, I'm just wondering if that's [indiscernible] Yes, I think in part that will be the impairments coming through.

Okay, or is that -- they're not…

I think impairments on, we'll come back to you on that soon.

Okay, no problem. And maybe just final 1, just in terms of like I guess you did, like when you talk about the NZICC project going slightly slower than expectation. Has there kind of like the COVID disruption or the other elements in there that are sort of making it? And I know from a SkyCity perspective, the total cost is unchanged, but can you just give us a little bit more detail as to what those comments relate to?

Look, it's COVID, COVID is a complexity that's added to the complexity really in this period.

[Operator Instructions] Your next question comes from Rohan Sundram with MST Financial.

Just 1 housekeeping question, a follow-up on the corporate cost discussion earlier. Julie, in light of the second-half run rate, it's still quite low compared to pre-COVID. Do you expect your cost base to get back to pre-COVID level anytime soon?

Probably the second half of the year as I mentioned, we're still looking at our initiatives to reduce the cost as much as possible and that includes the timing of when we increase wage and salaries, the bonus calculation proposed again. And also we've actually got quite a high level of vacancies which we are selectively filling. So I would expect, there might be a slight increase, but I don't think it will be significant in the following second half of the year because we are still watching it very closely or managing that very tight. And I did mention that one-off release of the provisions so, of course that is -- you don't need to ring-fence that as well.

So just to confirm, was that in the first half or is that going to come through in the second half, that release?

That's been booked in the first half. I mean, the other piece of course is wage subsidies as well, which will be featuring here there as well.

Okay. So it sounds like the FY '23 corporate cost will still be running at a rate lower than pre-COVID. Is that correct?

I think the second half of full year '22 will be higher, but still lower than what we would call normal and then the full-year '23, it will come back.

Understood.

So, we get back to sort of mid-30s sort of number.

Your next question comes from Sacha Krien from Evans & Partners.

I just had a quick follow-up question, one of which you just answered with Rohan. But I just also wanted to ask, I mean in terms of the covenants, I'm sure there are some reasonable scenarios where you don't meet that June 2022 test. So just wondering what the process is, as you get closer to that, it looks like you may miss it. And what your expectations are, and what will be -- what you could negotiate to sort of get through that if it occurs?

Thanks for the question. And of course we are watching this daily, so I mean I think in this scenario well, first of all, we have a great relationship with our financiers and I think that is held true through even negotiating and agreeing the way that we have today. And that was a quite straightforward process for us, but we are of course talking to our financiers regularly and especially under the restrictions that we have. So as we are monitoring this and we want to get a couple more weeks of performance under our belt as well to understand how we move those scenarios, what we would be looking to do is talk of course basically to our financiers again about what that would mean for them and how we would navigate it because we have -- what we have at 30th of June is the variation, it's quite a strong variation, but it's not a waiver, that would be the piece that we would pick up with our financiers.

Your next question comes from Matt Montgomerie from Forsyth Barr.

Maybe just on Adelaide, I was just wondering if it'd be possible to make some comments with respect to initiatives that you're putting in place to grow the EGM market share? How many more machines are yet to be deployed on the property, and what sort of gives you confidence in growing that sort of 13%, 14% that you have spoken to previously?

Yes, look, to be honest, it's the same initiatives. I just think we've lost time in Adelaide like the CBD, as we've been significantly disrupted, there COVID has been very disruptive. We haven't had a clean run. So in this half and we won't have a clean run the next couple of months either, but heading into hopefully with the momentum coming out of the quarter, but that the initiatives that are in place will largely be around marketing and think -- well, first is organic, organic activity coming back, customers coming back into the CBD and that just has not been placed all by customers and we go to clubs and in their local regions, they haven't been willing to go to CBD, so that's an organic feature that should happen. Then it comes down to marketing and we have a strong loyalty program there and leveraging that. Obviously, we've got the car park, which we haven't really seen the benefit of it at all, yes. The latest product, I wouldn't say new additional machines, we could put additional product in the property if we -- I'd love to get to the point where we needed to put more machines in there, but we've got plenty of machines for even the targets you were talking about there. But that opportunity does exist we needed to do. We've done some work on actually expanding VIP facilities, so that we actually have more machines in our VIP areas, which is -- and as the market grows, more VIP should be created and we also have the benefit of the preferential tax rate in the VIP areas as well. So look, that's a bit of color that -- and I'll probably also add the, just a general property, the property has won, the hotel has won many awards over this period, the restaurants have won awards. It's a great proposition that local strategy, but we're also seeing when we say domestic VIP, we're also targeting domestic VIP EGM play as well and all of that adds to get our -- to get us into that much, much larger EGM business.

Your next question comes from Larry Gandler from Credit Suisse.

1 follow-up from me. In your presentation, you called out that you think the online market is about $300 million. In 2019, the New Zealand government survey of that online market was almost $400 million. I'm just wondering, I know it hasn't gone backwards, but I'm just wondering how are you coming up with your market size? Do you think it might be very conservative? Just curious there.

I'm thinking Larry that number, $400 million included is sports betting. So the $300 million I'm talking about is purely online casino. We use a company in the U.K. that specializes in sizing gray market, casino markets around the world and they have been ones that have been guiding us on market size. It's not an exact size, there is often [indiscernible] with that. Their view is this market moves from $200 million to $300 million over last sort of couple, 3 years. But you'd see numbers thrown around and some of those include sports betting up, when we talk to the number, we're offshoring sports betting, we're talking about casino. I think that's what the difference is.

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

Thank you all for joining us this morning and afternoon. And over the course of the next couple of days, looking forward to interaction with you all. Thank you.

Thank you.

That does conclude our conference for today. Thank you for participating. You now may disconnect.