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

Thank you for standing by, and welcome to the SkyCity Entertainment HY '25 Results. [Operator Instructions]. I would now like to hand the conference over to Mr. Jason Walbridge, Chief Executive Officer. Please go ahead.

Kia ora and welcome to SkyCity's presentation of its interim results for the financial year 2025. My name is Jason Walbridge, and I'm the Chief Executive Officer of SkyCity Entertainment Group. Before we begin, I would like to acknowledge the Tangata Whenua of our SkyCity sites, NgÄti WhÄtua ÅŒrÄkei, Waikato Tainui and Ngai Tahu and acknowledge the Ghana people, the traditional custodians of the land in Adelaide. With me today in Auckland is Peter Fredricson, our Chief Financial Officer; and Callum Mallett, our Chief Operating Officer. On this call, we will cover the first half of 2025 results we have released to the NZX and ASX this morning as well as update you on the significant amount of work that we have been doing across the group to refine our strategy. Over the past 6 months, we've been moving at pace to ensure we have a clear set of priorities that we are executing against to create a resilient business that will support an exciting future, including a return to growth in our earnings. Moving to Slide 4 for an overview of our results. In the first half, SkyCity has continued to deliver compelling customer experiences with a strong and competitive offering with more than 5.4 million visits to our precincts. Despite operational changes and broader market challenges, I am pleased to share that we have maintained attractive margins at 27%, demonstrating the resilience of our business. Our ability to adapt while keeping our customers at the center of what we do reflects the strength of our operations and the value of our brand. While gaming remains at our core, our non-gaming activities contributed close to 30% of our overall income and reflect our strategic approach to balancing revenue streams. By maintaining this balance, we not only strengthen our gaming position, but also mitigate risks and capitalize on growth opportunities across a range of complementary entertainment and leisure activities. We had anticipated improved market conditions for financial year 2025 when I spoke at our August 2024 full year briefing. Market conditions have remained difficult. And as a result, our financial performance is not where we had hoped it to be. For the group, underlying revenue was $422 million, down 5% compared to the prior corresponding period, primarily due to a reduction in spend levels at our Auckland gaming operations as customers continue to feel the impact of cost of living pressures on their discretionary spending. This, combined with the increased costs from our transformation program in Adelaide has resulted in an earnings before interest tax, depreciation and amortization result of $113 million. Our underlying net profit after tax was $38 million with our reported net profit after tax $6 million, driven by interest costs associated with the casino duty dispute, which we recently resolved with Revenue South Australia. Moving to the next slide. At a high level, the key drivers of our business are overall visitation across all activities, the average spend per visit and our ability to effectively manage our cost base. This slide outlines how we see the difficult economic environment having impacted our business from a lower spend per visit, along with the increase in costs we have seen from our risk transformation program. EBITDA per visit is down $7 on the prior corresponding period across the business, equating to around $30 million of reduced EBITDA for the half, inclusive of the $10 million of increased risk transformation costs. We will speak to these key drivers in more detail throughout the presentation. Moving to the next slide. Since becoming CEO in July of last year, we have been reviewing our strategy to ensure a clear path forward that drives earnings growth and delivers the returns our shareholders expect. As we navigate an evolving landscape, we are responding to the challenges and opportunities ahead with a clear strategic approach. Over the past 5 years, regulators have increased enforcement, focusing on operator accountability and taking action against land-based and online casinos for noncompliance with financial crime and host responsibility requirements. We are actively addressing these changes through a multiyear risk transformation program designed to safeguard our gaming licenses, remembering that operating gaming facilities is a privilege and not a right. We've also seen that historical capital investments previously targeted at the International business segment have affected our return on invested capital. To improve this, we are intending to recycle capital by monetizing select assets, reducing debt, investing in growth and moving toward the resumption of paying dividends to our shareholders. The land-based gaming landscape is becoming increasingly uneven, which makes the integration of our non-gaming activities and a seamless connection to online offerings more critical than ever. Our focus on the opening of the New Zealand International Convention Center and our omnichannel customer-focused strategy will be key drivers for increasing visitation and spend per visit. Looking ahead, New Zealand is expected to regulate online gaming in 2026. This is vital to bringing onshore an estimated $700 million gray market where currently Kiwis are not protected and the government is missing out on significant tax revenue. We are engaging with the government on a public health-based approach to the new regulatory framework with plans to apply for an online license to access this market. We are also strategically investing in technology, recognizing the immense potential that advancements in AI and other innovations hold to both enhance our customer proposition and drive improvements in operational productivity. This includes moving to 100% account-based play as well as enhancing our regulatory compliance tools to stay ahead of evolving requirements. At the heart of all of these is our company culture. It's more important now than ever, not only for the success of our business, but also for our relationships with regulators. To ensure we are future fit, we have launched an enterprise-wide culture change program that reinforces our commitment to caring for our customers and communities while ensuring we uphold the highest standards. SkyCity is finding a new balance, ensuring our license obligations are met while enhancing current business performance and customer experience and positioning the company to take advantage of future opportunities. In summary, we are adapting to a changing landscape with a clear set of responses. We're a tremendous business that is very focused on and making progress to put things right, and we have much to be optimistic about. Moving to the next slide. This slide outlines our 6 priorities to achieve a balance ensuring we have learned from the past, make the most of now and create an exciting future for SkyCity. Our ongoing risk transformation programs in Adelaide and New Zealand, along with the introduction of mandatory carded play across our casinos ensure we will continuously meet our regulatory obligations and are a resilient business. We are well underway with our culture change program with the assistance of experts in assessing and changing cultures for preventing financial crime and minimizing gambling harm. This is a comprehensive multiyear program that is complementary to and part of our overall risk transformation program. We are fast becoming a technology company as much as we are a gaming, leisure and entertainment company with account-based play, both land and online, joining up all these customer touch points into a single view of the customer presents an unrivaled opportunity. You'll hear more shortly on how we are putting the customer first in the design of our mandatory carded play system. There has been a lot of change for our customers, and there is more to come. When disruption is happening, all your focus needs to be on your customer, focusing on where our customers want to spend their discretionary dollar and how they desire to be rewarded will drive visitation and spend per visit. Our core business is strong. We have fantastic assets, long-tenured gaming licenses and 4,500 engaged employees delivering great experiences for our customers. As we move forward, having a clear strategy for each of our properties will help us determine what we own and operate in each market. We have completed a review of all of our assets and have a 5-year master plan that we are beginning to execute against. This involves measured investment in our Auckland precinct to capitalize on the NZICC and drive visitation and spend per visit into our precinct. There are select assets that we are likely to monetize to recycle capital into new growth opportunities, pay down debt and bring us closer to returning to paying dividends. We expect to be able to update you on these decisions in the coming months. The NZICC is a game changer for us, having certainty on an opening date means we can now focus on securing forward bookings. Online gaming in New Zealand will reshape our marketplace and presents a significant opportunity for SkyCity to engage with players in a new way. I'm confident these 6 priorities will return us to growth over the medium term. They are grounded in the new reality that all casino operators face today. Our focus on preventing financial crime and minimizing gambling harm will not wane. These are fundamental facets that come with the privilege of holding a gaming license. At our core, we are a gaming company, and our aspiration is to become a leading land-based and online operator with multi-vertical entertainment and leisure options. Moving to the next slide. We've provided an overview of some of the progress over the half as we deliver on our key priorities. I won't go through all of these but would like to highlight the following. We have implemented a new gaming operating system, which gives us access to the latest EGM games and a larger library, and we've been upgrading our gaming floor to bring new and exciting games to our players. We have resolved the long-standing casino duty dispute with Revenue South Australia. The open and supportive communication with the South Australian government in resolving this matter has been much appreciated. We are continuing to build our team with new property and functional leadership roles joining in the areas of transformation, financial crime, anti-money laundering, gaming, data strategy and people and culture. During the half, we contributed $4.8 million in community contribution sponsorships and donations, including in Auckland, the PapatÅ«Änuku Marae, Koha Café in MÄngere, where young people learn to harvest their gardens and hone their hospitality skills. In Hamilton, we invested in organizations that support refugee and migrant communities. And in Queenstown, we contributed towards the Mana TÄhuna drop-in and [indiscernible] space in Frankton. And over in Adelaide, we contributed to the Advertiser Foundation Christmas Appeal, which supports disadvantaged children. I'm pleased with the progress we've made across the group during the first half of 2025 financial year, but acknowledge there is much to do, and we are very focused on the work ahead of us, most importantly of all, on our risk transformation. Moving to the next slide. We have a strong governance model in place at the Board and management levels for both the group in Adelaide, comprising separate and independent boards and management risk and AML steering committees that oversee the tactical implementation of our risk framework. SkyCity Adelaide is being fully resourced to deliver both its operating plan and the risk and remediation plan on a stand-alone basis with the communities of practice model in place to provide support from group functional teams. We've undertaken cultural audits to understand where we need to improve and are moving into execution mode with change plans before regulators in Adelaide for approval. In New Zealand, this rollout has already commenced. We're close to going live with critical tools to support our risk transformation, including an issues management system to track and close gap, AI to map legislative and regulatory obligations to ensure we're fully compliant. Our Board, my senior leadership team and I are meeting regularly with all financial and gaming regulators, providing full transparency on our progress, including the gaps that we still need to close. We're doubling down on our efforts to ensure we're making tangible progress over the coming months with our building a better business program in Adelaide under the supervision of our independent monitor. This has required incremental investment above what was planned originally in financial year 2025 and beyond. The Brian Martin QC independent review reporting date has been extended until May 2025, and we continue to fully cooperate with all their requests. I will now hand over to Peter, who will provide an overview of the group results and an update for our debt profile, plus talk about the impact on our underlying earnings from some of the activities we have underway.

Thanks, Jason. Good morning, everyone, and thank you for joining us today. As this is my first results presentation as SkyCity's CFO, I wanted to take a moment to say how pleased I am to have joined the company at such a pivotal time and alongside Jason, as we look to take the business forward on a longer-term growth trajectory. Under Jason's leadership, we have 4,500 people who can be excited about the path ahead and are engaged in making SkyCity a leading land-based and online gaming operator with multi-vertical entertainment and leisure options. Whilst the current half year has presented some challenges, we remain focused on delivering medium- to longer-term value through disciplined execution and strategic investment. I'm going to start at Slide 11. Overall, and in the context of a very challenging economy, particularly in New Zealand, we remain positive about where the business is going and our future prospects. The result is generally characterized by the business retaining historic levels of visitation, whilst like the vast majority of retail-focused businesses operating today, experiencing a relatively significant drop in spend per customer or visit. In any event, we do see the ultimate reversal of this dynamic and a positive outlook for the business going forward. Total revenue for the period is 5% lower than the previous corresponding period, primarily due to a 12% decline in Auckland gaming revenue, which did, of course, experience the impact of the 5-day shutdown during September. This revenue impact was partially offset by gaming revenue growth in Adelaide and Queenstown increasing by 5% and 4%, respectively, and a pleasing 5% uplift in non-gaming revenue across the group, reflecting solid demand for our broader customer offering. One thing that we would call out is the increased corporate spend where we are investing heavily across both Adelaide and New Zealand in the business transformation program, primarily in the areas of risk and ICT, including mandatory carded play. In Adelaide, in particular, we will spend in the order of $60 million on what we call the Building a Better business or B3 program over the 3 years being fiscal year '25, '26 and '27. This is a program of work that has been developed in conjunction with Kroll, has been approved by the commissioner in Adelaide, and we expect will incur expenditure of around $18 million in FY '25, but expenditure that we don't expect to repeat after completion of the program by the 30th of June 2027. In Auckland, we saw EBITDA decline by 14%, primarily due to the 5-day closure of gaming operations and softer market conditions compared to the prior corresponding period. This was partially offset by contributions from the Horizon Hotel, a full half year contribution from Auckland Car Park Income and an increased contribution from the Sky Tower. Importantly, our cost discipline remains a key focus with expenses down 3% on the prior period when adjusting for costs associated with our business transformation program and preparing for mandatory carded play. In Hamilton and Queenstown, EBITDA increased by 5%. Revenue was broadly in line with the prior period with market weakness in Hamilton somewhat offset by a stronger tourism market in Queenstown, while the result was supported by a 6% reduction in expenses. This highlights our ability to drive efficiency while maintaining stable revenue performance, something that will be important for us as we see an expected improvement in economic conditions in FY '26 and beyond. In Adelaide, EBITDA declined by 17% despite positive revenue trends. Gaming revenue grew by 4% and non-gaming revenue increased by in the order of 9%. However, these gains were offset by the increased investment in the business transformation and regulatory compliance program that we are implementing. Whilst representing only a small portion of our earnings, the EBITDA contribution from our online business was again lower as we continue to invest prior to the foreshadowed regulation of the New Zealand market in 2026 and our expected application for a license. One final comment relative to this slide would be that statutory result includes a $31.7 million impact from the settlement with Revenue South Australia of interest in respect of the long-standing legacy gaming duty issue. When adjusting for this matter, underlying earnings remained positive in a highly challenging economy and market. Turning to Slide 12. Our solid balance sheet reflects a disciplined approach to capital management. During the period, we successfully refinanced $464 million in debt, including raising an extra USD 50 million of 2031 USPP notes, further extending our weighted average debt maturity by over 2 years to 4.5 years. While this has resulted in a higher average borrowing cost of 5.96%, up 37 basis points, it provides long-term financial stability for the business with no further debt maturities until fiscal year 2027. We continue to invest both strategically and for the medium term. With in excess of $300 million of available liquidity, we remain confident that the business is in a strong position, notwithstanding the current challenging economic environment in New Zealand, in particular. Our leverage ratio stands at 2.8x, well within our banking covenants of 3.75x and in line with our BBB- investment-grade credit rating from Standard & Poor's Global Ratings. Total capital expenditure for the half was $60 million, consisting of around $30 million related to the NZICC, which does not include the capitalized interest and $30 million for business as usual capital expenditure. So looking ahead, our priorities remain clear: one, maintaining a sustainable, prudent and responsible capital position and ensuring we have sufficient capital to support our future growth whilst targeting a return to distributions for our shareholders at the earliest possible time. Two, undergoing a strategic shift to monetize assets and redeploy capital to deliver enhanced returns over the medium term; and 3, targeting financial metrics consistent with a BBB rating in the medium term, whilst balancing investment in strategic initiatives with appropriate returns to shareholders. Moving to Slide 13. Notwithstanding the challenging economic conditions, the business continues to show its resilience with solid operating cash flow for the period under review. Cash flows from operations of $78 million for the half were substantially in line with those reported in the prior period, while statutory operating cash flow reports as $2 million only after the payment in early July of historical regulatory fines of $76 million. In short, the business continues to generate significant positive cash flows from its operations, reinforcing our reliable and resilient financial model. Now on Slide 14. And as Jason has noted, when it comes down to it, the performance of SkyCity is driven by visitation, customer spend and controlling our costs. The current result includes several significant factors that have an immediate impact on our earnings but would be expected to have less impact in a more normalized operating environment. Today, we are investing for growth and sustainable value whilst also being impacted by challenging economic conditions in New Zealand, in particular. We have spent a significant amount of money over the past 5 years on another iconic building in Auckland, the NZICC, which we expect to deliver around 500,000 extra annual visits to our precinct once we open it in February '26. In my view, there's not another business like ours on the planet that can increase its visitation by in excess of 10% just by opening the doors of a facility that is closer to completion today than it has ever been as we presented results to shareholders in the past. We've, therefore, looked at what a pro forma FY '25 result might look like if all of these issues inherent in today's result and operating environment were effectively normalized. Adding back the almost $18 million of transformation costs expected in our FY '25 full year result, adding back the investment in online mandatory carded play and the Horizon preopening costs, adjusting for a full year of NZICC visitation, adjusting for increased spend by the current visitor cohort in a more positive economic environment and assuming appropriately some negative impact from MCP when it's implemented, all of these together could deliver what would be a significantly different FY '25 pro forma EBITDA if in place or happening today. The business is, in our view, in a strong position to deliver increasing and strong returns to shareholders as each of these matters reverse out. So in summary, our financial position remains solid with a robust balance sheet, disciplined capital management and access to appropriate levels of liquidity and debt capital markets. We are investing for the medium to longer term, and we have a clear focus on value creation through a strategy that will see the monetization of assets that we don't necessarily need to retain on our own balance sheet, all the previous car parks transaction undertaken in 2018. Whilst this reporting period has presented some challenges, we remain focused on managing costs, strengthening our compliance position and investing in areas that will drive sustainable growth. We are confident that our disciplined approach and ongoing initiatives will support improved performance in the medium to longer term. Thank you. And with that, I will hand over to Callum for an update on our operations.

Thanks, Peter, and good morning, everyone. As Jason and Peter have mentioned, the economic conditions, particularly in New Zealand, remained challenging across the half. Visitation to our precincts remained solid but spend per customer continued to track lower. Referring to the slide on Auckland, EGM play was lower due to win per unit per day dropping year-on-year by 6%. Tables play was also impacted by consumers reducing their spend per visit with both volume and hold impacting year-on-year performance. The hold-related impact was $3.4 million unfavorable for the half compared to the prior year. Carded visits across Auckland gaming were up 3.3%. However, the win was down 3% for the period. Our continued uplift in compliance, whilst relatively mature, did impact revenue as we further enhance our customer due diligence process. Premium tables revenue dropped year-on-year due to both volume and a hold percentage of 2.54% compared to 3.13% last year. Now turning to our non-gaming activities, which remain an important pillar of SkyCity's diversification and future growth. The successful opening of the Horizon Hotel in August 2024 has strengthened our accommodation offering, contributing to a 16% increase in total rooms sold. Our combined hotel occupancy reached 73%, outperforming the market by 4 percentage points. The Auckland market is continuing to see room rate pressure as the supply of rooms outstrips demand, and this has impacted on our average daily room rate. We remain focused on our volume strategy to increase footfall across the precinct. It was encouraging to see the significant impact the Coldplay concerts made in November and offer a good insight into the impact the NZICC, coupled with other large events will have in the future. It has been a challenging period for food and beverage in general, but we have been relatively pleased with the performance of our venues. Visitation and spend were both marginally down on the prior year with covers down 3% and spend per cover down 3.8%. We continue to focus on optimizing our offerings and enhancing experiences to drive stronger performance in this segment. We completed the Auckland production kitchen refurbishment, improving productivity and enhancing service capabilities. In the Sky Tower, we elevated the customer experience by converting the Sugar Club into a new observation deck called, The Lookout, designed to enhance visitor engagement and facilitate greater occupancy, future-proofing the tower for stronger visitation levels expected as both tourism numbers increase and the NZICC opens. Turning now to the next slide, the New Zealand International Convention Center. We are thrilled to confirm an opening of February 2026. This confirmation gives both our team and importantly, our customers, the confidence we have been waiting for. After the significant delays we have faced in opening the NZICC, it is exciting that we are now only 12 months away from opening this transformational asset. Our sales team is confident that the level of interest we are seeing in the market and bookings already confirmed are expected to deliver the 500,000 visitor days we expect in a fully ramped up year. The NZICC will be an important economic driver, not just to SkyCity, but to the wider Auckland and New Zealand economy. The NZICC, coupled with other regenerative assets such as the CRL has been an underlying premise for the significant growth in new hotel rooms across Auckland, and we look forward to playing our part helping to fill these. Turning now to the next slide on our Hamilton and Queenstown properties. Given the economic headwinds, the combined Hamilton and Queenstown results were pleasing. The key callouts can be summarized as a slight improvement to visitation across the combined properties with a lower spend per visit in Hamilton being offset by continued strength in the Queenstown tourism market, again, led by demand from the Australian market. The renovations to the bar and restaurant amuse on the casino floor in Hamilton have been well received by customers as have the introduction of new products across both properties. The team continued to adjust the operating model in line with demand whilst ensuring high levels of customer satisfaction, and this can be seen in the lower operating expenses for the period. The Queenstown Casino venue license renewal process continues. Turning now to Adelaide, where we continue to see positive momentum across both gaming and non-gaming operations. In gaming, visitation was up 4% year-on-year, supported by a number of major events across Adelaide. Our EGM market share remained steady at around 9%, and we saw a slight increase in win per unit per day and in tables and win per open hour, with solid growth from local play being offset by a decline in our premium tables segment. Our ongoing customer initiatives remain focused on enhancing engagement and driving long-term loyalty. In non-gaming, our Adelaide hotel occupancy and Eos is up 4%, though the competitive market has resulted in a 5% decline in our average daily rate. Food and beverage average spend remains flat, while covers have reduced slightly. Pleasingly, we have seen a 100% increase in event bookings. This underscores our emergence as South Australia's premier event space with these efforts being recognized with several industry awards. Turning to our online business. We are excited about the medium-term opportunities in New Zealand's growing online gaming market. As we have spoken about previously, the existing unregulated nature of the New Zealand online gaming market has created an uneven playing field where many of the participants are aggressively targeting players and ignoring local advertising regulations, which we adhere to. And this in equity is reflected in our financial performance. In 2024, we made strong progress in building our platform and capability and actively engaging with both New Zealand regulators and the government on market regulation. Looking ahead in 2025, our focus will be on optimizing our offshore operations while laying the groundwork for a regulated market. Our key priority will be building and owning our digital infrastructure, ensuring we have full control over the customer experience and platform capabilities. Additionally, we will work towards securing an online gaming license to strengthen our long-term market position. We are looking forward to a regulated online environment that supports a fairer competitive landscape. Turning to the next slide, mandatory carded play. Our commitment to delivering mandatory carded play across our New Zealand casinos by mid-July this year remains on track. Whilst it's a complex and challenging project, we have made significant progress working with numerous external providers to develop and execute a system that provides as little friction to our customers as possible whilst achieving the compliance outcomes we require. Importantly, the implementation of this technology automates many of the more manual processes our team currently deliver across our host responsibility and AML programs with the aim to simplify and further derisk our business. We are currently testing the technology for both sign-up, identity verification and play across EGMs and tables. Communication of change for both staff and customers is underway and a phased rollout plan across select areas prior to July will ensure we have time to learn and make appropriate changes prior to rollout. The team are working hard to sign up as many existing customers as we can to carded play today. And whilst still guide, we continue to estimate the impact on our business of 15% to 20% of uncarded revenue. I will now hand back to Jason.

Thanks, Peter and Callum. Turning now to the outlook for the remainder of financial year 2025. As I previously shared, our customers are facing a tough economy, and this has impacted their discretionary spending levels, and we have not been immune to these factors with the most obvious impact being the lower spend per visit. Whilst the Reserve Bank of New Zealand is well underway in lowering the official cash rate, including a further 50 basis points yesterday and mortgage rates have come down from their recent high levels, it is taking time for these changes to flow through into greater levels of spending by consumers, particularly given the high level of mortgages that are traditionally fixed in New Zealand. Lower business and consumer confidence in January also indicate a consumer that will potentially be holding back on increasing their spending levels for some time to come. We remain cautious about the second half of the financial year and are not assuming a significant recovery in consumer spending but note that conditions are heading in the right direction. We have also increased our financial year 2025 cost expectations related to the risk transformation program, particularly in Adelaide from around $10 million to $17.5 million. This program of work will require us to spend in the order of $60 million between this year and financial year 2027 when we then expect these costs to come out of the business as we complete the B3 program in Adelaide. We are updating our financial year 2025 underlying group earnings before interest, tax, depreciation and amortization guidance to between $225 million and $245 million from the previous range of $245 million to $265 million. We have maintained our previous guidance for capital expenditure of between $60 million to $70 million. As also noted previously, we are not expecting to pay a dividend for financial year 2025 based on our current earnings outlook. Let me reassure you, it is our absolute intention to resume paying a dividend as soon as our operating financial metrics are at levels that support this. As we now look ahead, I want to highlight the key drivers that will underpin our earnings growth over time and support strong returns to shareholders. An improving economic environment, increasing customer spend and visitation will drive sustainable growth and profitability. The opening of the NZICC represents a significant opportunity to attract more visitors and enhance cross spend in our Auckland precinct. With the increased foot traffic and engagement, this asset will be a key contributor to our earnings growth. The online gaming market presents a further significant growth opportunity, and we are focused on building our capability to position SkyCity as a top-tier online operator complementing our land-based operations. Finally, I want to highlight what makes SkyCity such a compelling investment opportunity. These are the key strengths that drew me to this business and the foundation for our future growth. This is what sets SkyCity apart and why we're so excited about the road ahead. We're a significant gaming operator across New Zealand and Australia, and we are undergoing a transformation that will strengthen our business for the future. Our exclusive and long-dated casino licenses provide a stable foundation for sustained operations, while our unmatched gaming experiences differentiate us across all markets. We own and operate world-class integrated resorts. We are more than a gaming company. We are a world-class entertainment and leisure operator. Our revenue mix is diverse, and our portfolio includes high-quality assets. We have over 10 million visitations annually, reflecting the scale and reach of our business, and we have an experienced team of over 4,500 people. We have significant growth opportunities, and our financial return profile provides attractive cash flows and business margins. In summary, SkyCity is a well-established business with strong fundamentals. It has a clear growth pathway and a disciplined financial approach, and we're confident in our ability to drive long-term value for shareholders. When I last spoke to you, I was only 6 weeks into this role, and I remarked on the high engagement and energy of our 4,500 employees, the pride in the work they do, how involved they are in giving back to their communities and their appetite to meet the challenges ahead. This hasn't changed. In fact, I'm even more impressed today than I was then and immensely grateful for all the hard work going on. There's a tremendous sacrifice being made by a lot of our employees who care deeply for our company, ensuring we are learning from our past, making the most of our now and helping create an exciting future for SkyCity. I know a lot of them listen to this call, and I want to let them know how proud I am of their efforts and thank them directly. Together, we are all truly excited about the future of our business. I also want to extend my thanks to our customers. We love entertaining you, and we appreciate you choosing us. I will now hand over to the operator to manage the Q&A.

[Operator Instructions] Our first question comes from Kieran Carling from Craigs Investment Partners.

First one from me. I see that your contingent asset has now lifted $20-odd million to $74 million in regard to costs that you're hoping to recover from contractors. Do you think there is a chance that gets settled in FY '25? And I guess, it'll be good to just get your level of confidence around recovering that full amount.

Kieran, it's Peter Fredricson here. Look, we're certainly confident in the amount. We know how it's made up. It's supported by invoices. It's supported by the fact that they are costs that we've incurred that we would not otherwise have incurred if not for the delays. I'm not really in a position to comment as to when we might be able to put that money in the bank. But certainly, it's a very, very clear focus for us.

Kieran, I'll just add a few comments. The thing that we need most is a fantastic building that's finished. And one of my challenges at the moment is being patient. This is going to be a standout asset for New Zealand, and we're really looking forward to getting the NZICC online in February next year.

And then the next one is just around getting some more clarification on the cost base going forward. So do you see any risk around the $60 million B3 cost estimate being too light, I suppose, as the $10 million estimate has been in FY '25? And how are you thinking about costs associated with the convention center now that there have been some further delays there?

Kieran, Jason here. I'll offer a couple of thoughts on the risk remediation costs in Adelaide, and then I'll hand over to Peter to cover that and NZICC. Look, over the last 6 months since Peter and I have been in the job, working with Callum and Avril Baynes, who leads the Adelaide business, we spent a lot of time in understanding exactly the program of work and the resources that we need there. And we've taken some decisions to ensure that we're fully resourcing that team, and that's reflective of the costs. And so we're very confident now that we've got the right level of resourcing that we're clear on the expenses. The team have got a very detailed execution plan over the next couple of years that they're working with our independent monitor on. And so we're really focused now on execution. I'll hand over to Peter to add to that.

I think we've spent a lot more time forensically understanding that number, Kieran. And with any forecast, you can't guarantee that's the outcome. But we're pretty comfortable that we've got enough contingency in there for it to reflect the spend. In respect of NZICC, again, we were talking at the August full year release, we were talking about a late calendar '25 opening. The February date that we've put in place is probably 3 months different to that. And when you take into consideration that December, January are months that we would not normally expect very much activity in a building like that or in a facility like that, we don't think that we've lost very much in the context of revenues. And indeed, in FY '26, we've probably pushed some costs out because we may not bring up on before December, the full number of people that we need to operate from February onwards. So look, it's a bit of swings and roundabouts there.

And then final question is just around your balance sheet positioning. So obviously, with the CBS review ongoing, the potential capital required to bid for an online license. How are you thinking about monetizing the assets and recycling capital as you've commented? And I guess as just a follow-on to that, can you give us a steer on how much you would be prepared to spend on an online license and what return you would hope to achieve?

Kieran, Jason here. As you can imagine, over the last 6 months, Peter and I have gone through and looked at all the different assets. And as I mentioned in my remarks, we've got a 5-year plan now, and we're starting to think through which select assets we're going to look to monetize and we'll share more about that in the coming months. On the online license investment, we're still waiting for more details on the regulatory framework and in particular, the auction process that will ultimately determine where the value lands for an online license. What I can tell you is we're focused on building our capabilities there to make sure that once those regulations come clear, we know what it will take to get a license. We're well positioned for that.

Could you potentially just give us a steer on where net debt might be sitting by the end of June or what your expectations are there?

A little bit hard to do that, with all due respect. We expect to be underway with the program that we talked about in the context of monetization. We can't sit here today and say X will be done by the 30th of June or the 30th of August because these processes take time and you're subject to what happens in the marketplace. But we're pretty comfortable that we will remain well within our covenant guidelines at the 30th of June. We're at 2.8x now. Our covenant guideline is 3.75. We're very comfortable that we'll be still well within those covenants.

Next question comes from David Fabris from Macquarie.

I just wanted to, I guess, hone in on the mandatory carded play thoughts and whether you can kind of walk through your assumptions around how you're coming up with your revenue impact there. I think previously, you spoke to assumptions on the non-carded level. I'm curious to know whether they've changed and how you're thinking about it at the moment.

David, Jason here. The assumptions that we shared at the full year results in August last year still remain in place. As we've continued to roll out the technology and test it in our test beds, as Callum mentioned, I think we're growing in confidence in terms of our ability to provide a smooth sign-up process for customers. And perhaps I'll hand over to Callum just to talk a little bit more about that.

Look, as we say, still an assumption, but we're really pleased with the technology decisions that we made and the partnerships we've created there. So we always talked about the enrollment piece being really important to offer as little friction as possible. And today, we believe that we'll be able to offer an enrollment process for the majority of people that will take less than 5 minutes and will be a relatively automated process. We're happy with how the testing is going for how MCP will work in situ on machines and tables. And probably really importantly, the processes that we will turn live with MCP in July are manual processes we operate today. So for the customers, it will be a similar experience to what they have today. We will just have better clarity and be able to execute from a staffing perspective much more easily than we can today. We've obviously had the opportunity to learn from others, teams. We've spent significant time over in Australia, where our counterparts have gone earlier. And so we've been able to take a number of learnings from those. As we've highlighted before, for New Zealand and where the assumption of that 15% to 20% of uncarded revenue comes from, we have a very different operating environment across New Zealand than we see in New South Wales and Victoria, particularly from a competitive perspective. We've got good growth drivers in New Zealand, you heard the recent news from the government around tourism and then obviously, more permanently for the Auckland site, the NZICC, but also things like the CRL are really important. And we've got a number of other exciting plans for our properties that we think will offer an even better experience for our customers. We'd also add that versus some of our competitors, the relative maturity of our compliance program means that we're not lay in 3 or 4 different things at the same time. As I say, most of the things that MCP or all the things MCP will automate are already in place. So we're not expecting other impacts at that same time.

And just one other question. Slide 14 is pretty telling with all the current factors on the business. And obviously, you've built up that pro forma EBITDA. Can we take it to the next level and maybe talk about where your margin expectations would be under those pro forma assumptions? I'm pretty keen to understand what a normal SkyCity Auckland margin would look like also in Adelaide.

To be fair, we haven't taken this slide back to that. I mean we can look at it and maybe we can roll that out a bit later. But at this stage, we're -- these are the things that are impacting us today that in the normal course, we wouldn't expect to be there. And I think as we unwind some of these, it just shows you that this business has got huge potential even as we sit here today. So we'll leave it there, I think.

The next question comes from Adrian Allbon from Jarden.

I've got a couple of questions in a few areas. Just firstly, and this may be aimed at Callum. Just in Auckland, just trying to understand, can you give us a sense of what the profile of spend levels has been across the half? I'm just trying to understand relative to Jason's outlook comments, just whether we've seen a bottom or it's hard to make the deduction at this moment in time.

It's hard to make the deduction, although we knew that the second half of '24 was when Auckland really saw the cost of living really beginning to hit. And we certainly saw that obviously track out in the first 6 months. We're beginning to see spend and that drop in spend appear to start bottoming out. So we would like to think that we have hit the base. And that obviously, as Jason mentioned, the further cuts yesterday begin to flow through. Certainly, it's been pleasing seeing some of the tourism over the summer months top up a bit from where it was last year in Auckland. So yes, we would like to think that if we're not at bottom, we're very close to it.

I think, Adrian, the other thing that I'd add to it is that every economic indicator that I've seen in the last 4 months is guided to where we are today and is sort of driven us to our revised guidance. We've seen retailers come out. We've seen credit card spend come out over the Christmas period, over Black Friday and really no change in the patterns that we've seen in the last 12 months where spend in this country, New Zealand has been significantly down year-on-year. We saw credit card spend information come out from NZ the other day that said January '25 is 1.2% up on January '24 in an environment where inflation is nearly double that. So I think that all we're seeing is that same thing. And when you think about what people spend and what people have to spend, the thing that gives us confidence is the fact that the same number of people are turning up. They're just spending a little bit less and that will change.

Can I just ask a couple more questions just around at this point? Like on Slide 11, when you break out the Auckland softer conditions, you also talked about a change in customer composition. Can you just describe what that means?

So there's a little bit at the top, Adrian, in our premium play both where we continue compliance uplift, and we've talked about it before in these sessions where each year, it becomes harder to be a customer at SkyCity, and we certainly hope that actually the implementation of MCP makes that easier. But also because of the economic drivers, particularly in those local premium tiers, we've got a lot of small to medium-sized business owners. And a, they've got a bit less to spend themselves, but b, we're obviously finding a number of them are having to spend longer in their businesses as they cut their costs as well. So that's what that really talks to, as well as from that premium tables play, a little bit less in this half than we had in the corresponding period.

And then just finally on the sort of section on the outlook. And this might relate back to the question that Kieran was asking. But when I looked at your last statement in August, I think you were assuming the preopening operational investment for the ICC of $11 million. Now given what you've spoken about the delay, are you still anticipating that level of spend through the second half? Or is that being shifted to '26?

No, some of it shifts into '26, not a lot to be absolutely fair. I think we said around $10 million. That $20 million to $30 million we guided to in August was sort of 10, 10-ish and $10 million of it was relative to NZICC. Some of that cost has been incurred in the preopening costs and the continuation of preopening costs of the Horizon Hotel, which is part of that whole precinct as you'll appreciate, given that you can walk up the road and see it all sort of locked together. But yes, a little bit of it pushes out into FY '26, but it's not going to move the needle a lot.

And just while I've got you, Peter, a couple of questions. Just in terms of when you were describing the monetizing asset process, you kind of made a reference to the car park. Is the reference there that that's like a sale and leaseback is kind of what you're looking at as a mechanism for part of that program? Is that the reference that we should take from your comment there or?

It is a reference that you can take. I mean you look at the car parks transaction in 2018, it was a 30-year concession that we monetized because very difficult to separate the physical car parks from the titles of the land that we own on this precinct. And so it was a transaction that enabled that to happen. You need to keep in mind the reason why we own the car parks today or we have them back on our balance sheet today was because that transaction in 2018 was dependent on the delivery of a significant number of those car parks by a certain date that because of the fire, that didn't happen. And so those car parks were -- the transaction was effectively put back to us. We don't have those car parks today because we wanted them back. We have them because they were put back to us because we weren't able to deliver what we were supposed to under the 2018 contract. So again, it's a little bit more input for you to think your way through, but that's the sort of asset we're talking about.

And then I presume you've got the Queenstown surplus land, which is also in that mix.

We previously announced in the results last year that we proceeded with the sale of that property, Adrian. So that was concluded right around the end of last year, the beginning of this year.

Financial year. And it is due to settle in the next little while.

So that's effectively done, but to settle because I think I saw it on the balance sheet is still held for sale.

Yes. Maybe it was announced before we got here, but I thought the announcement was for a settlement in the early part of 2025.

This might be a question for you, Jason. Just thinking about the Adelaide situation with the risk transformation program, like it's a $60 million kind of program that I think as you spoke to earlier or what maybe Peter spoke to as well, you sort of agreed with Kroll and the commissioner. My understanding of that Martin review, one of the principal components of it was the suitability for the SkyCity Group to hold the license. Is this program that you've agreed mostly focusing on narrowing the gap to what they now consider best practice on that basis over 3 years?

Absolutely, yes, it's about fulfilling all of our obligations under the license around preventing financial crime and host responsibility. So the program was developed in consultation with our independent monitor and then approved by the CBS Commissioner. And so we're well underway with that. And the incremental cost that we spoke about is resourcing the team to deliver on that program. It's people and it's technology. There's costs related to Kroll in there as well and also Mr. Martin himself and the costs related to his inquiry.

I think we need to keep in mind that when we spoke to you with the full year results in August 2024, that program was still in its development. It was still being developed at the time. It wasn't approved. It wasn't confirmed and completed in its design with Kroll until sometime after August 2024, I think it was late September.

Yes, in September, it was approved by the regulator.

And then subsequently approved by the regulator. So it's only subsequent to that, that we've been able to think about what the cost and to formulate the cost of that as we've resourced that up.

And I think referencing back to what you said, Peter, about an element of this cost drops out in '27, and I'm presuming that refers to some of the Kroll cost and Mr. Martin. Can you give us a steer of how much of it is an ongoing in the base versus drops out?

Well, what we said, and just to be clear, we said that there's about $18 million of this program in this financial year, and we don't expect that $18 million to be there beyond the 30th of June 2027. So the $60 million is the total cost we will spend over a period of '25, '26 and '27. If you take the annual number, that's pretty much $18 million a year, $20 million a year, isn't it? 3x $20 million. But we don't expect that to be there in 2028.

And then just coming back to the AUSTRAC again, maybe with you, Jason. I'm just kind of conscious in this space like we are layering up risk thoughts like the $60 million here, which feels like it's very much aimed at closing the gap to making sure that they're comfortable that you're suitable to hold the license. In terms of this fine regime that they have in the review, isn't that more focused on most things of the past and possibly covered more by the AUSTRAC part of it. Is that the right way to think about it?

You're asking specific regarding Adelaide, Adrian?

Yes. Just Adelaide because like I guess we've had AUSTRAC which you've settled, which was more about a look back. And obviously, they provided input into the Martin review and probably conversations you've had with the commissioner and other people. Outside of this, you've separately settled that casino duty stuff. And like there's a big program of work where you've had an indent monitor in the establishment for a while. I'm assuming which we just talked about, that is more about closing the gap between what was happening to what they consider needs to happen for best practice and extending it, which is the $60 million program. Like in the Martin review, like is it focused on look back and find for that kind of stuff? Noting that also in your slides, the threshold for that stuff has gone from $100,000 now to $75 million. I'm just trying to work out where the risk sits here.

So the program that we're running is absolutely about closing the gaps so that we meet all of our obligations. And Mr. Martin's inquiry is looking -- he's answering 3 questions: Adelaide's suitability to hold the license, SkyCity Entertainment Group's suitability to be an associate. And the third question is, if the answer to any of the first 2 are not suitable, what do we need to do? And so our building a better business program there is making sure we're doing all the things that we need to do. And Mr. Martin's inquiry is certainly looking back historically at what we've been doing as well as where are we at today and what do we still need to do. With respect to fines, my understanding is that will be a determination by the commissioner. And I have no visibility into what the commissioner may or may not choose to do at the time Mr. Martin hands down his inquiries.

I wouldn't expect you to comment on that part, but the commissioner obviously has been ticking off this B3 program, as you call it. And obviously, that's aimed at the first 2 elements that you spoke about in terms of the key questions.

Yes.

Your next question comes from Eric Wolff from Gumshoe Capital.

This is [ Shalin ] here. Just wanted to ask a quick follow-up here on the asset monetization piece and great to hear that you're looking to monetize some of these assets. I know you addressed this briefly, but can you discuss the urgency with which you're approaching this? Are you confident that you can do something ahead of mandatory carded play rollout? Just wanted to check because you've had a dividend cut and, in the past, equity raises, I wanted to see if you're confident you can avoid that risk here even if unlikely.

We're confident in the concept of monetizing assets that we don't necessarily need to hold on our own balance sheet. But we're not going to do it to the point where we degrade value or dilute value to our business. We don't have to do that. We're very comfortable with our liquidity. We're very comfortable with our operating liquidity in our business. We're delivering close to $80 million every 6 months in terms of operating cash flow. So we don't have to do something tomorrow at a price that would dilute value for shareholders. We're going to work with advisers in respect of whatever we determine we're going to do from an asset perspective, and we'll do it in a way that adds value going forward. I think the mandatory carded play; we've got a view on what that might be in terms of impact on revenues. But we're not looking to -- it doesn't scare us. And it doesn't scare us to the point where we think we've got to have an asset sold tomorrow to cover it. I think that at the end of the day, in the context of our modeling, in the context of our confidence with the MCP process that we're targeting, implementing, we're pretty comfortable that we can continue to operate without it having an overly material impact on our business.

And just one more quick question, if I may. Do you think some of the harm minimization activity that you've been doing, that could be driving people to the unregulated online vendors at the moment? Like to the degree that is happening, it would seem bad for New Zealand, both from a harm minimization and tax standpoint. Do you think that is happening? And can you and the regulator better balance this than has happened so far?

Shalin, Jason here. I think your question was regarding online gaming and harm minimization, pushing people to online gaming, the answer is no. From a land-based perspective, we don't believe so. What we do see going on in the online space is our business being impacted by the fact that offshore unregulated operators are targeting New Zealanders outside of the boundaries of the regulations ahead of the market being regulated, and that's certainly impacting our online business. And so we're eager to see this market regulated. We're eager to see the controls put in place to ensure Kiwis are looked after from a host responsibility perspective in the online space and being able to fully participate in the market, which we're not able to do today.

We take that as our last question for today. I'll now hand the conference over to Mr. Jason Walbridge for closing comments.

Thank you for your questions today. I'd like to extend my thanks to all our Board and executives for their hard work and support of SkyCity. And thanks to everyone listening in today and for your interest in SkyCity. We look forward to engaging with many of you over the next week or as we complete our investor roadshow. Thank you.

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