I would now like to hand the conference over to Mr. Michael Ahern, CEO.
Please go ahead.
Kia ora and welcome everyone to the SkyCity FY 'twenty one result investor call. Firstly, I'd like to kick off by recognizing the local ewe in the locations where we operate. Natifato Araki in Oakland, Tainui in the Wakato, Naitahu in Queenstown and also like to pay respect to traditional landowners, the Ghana people of Adelaide Plains. Great to be presenting to you this morning as the Chief Executive of SkyCity. I've been in the role now for just over 9 months.
It's been a really busy period, but enjoyable period. And as a business, we've had many challenges over the past year. But certainly, we're dealing with those in a very progressive way and I'm feeling very positive about the business as we look forward. Today, we're actually presenting to you from our homes and not in our boardroom given the ongoing COVID lockdown in New Zealand. And regrettably, SkyCity is well practiced in responding to COVID-nine disruptions.
And our teams across New Zealand immediately swung into action about a week ago. SkyCity Oakland, as you probably know, has been confirmed as a location of interest due to a customer attending the site the weekend before last and testing positive. And we also had an employee test positive as well. So that's resulted in about 400 of our employees deemed close contacts and they've needed to self isolate and get tested. And of course, we're working very closely with the health authorities to support them in the processes around contact tracing.
And as you can imagine, we've done a very comprehensive deep clean in the areas where that guest was and where the employee was. Today, with me on the line in Auckland in her home is Julie Amie, our Chief Financial Officer. Callum Mallett, our Chief Operating Officer of New Zealand is also with us. Ben Kay, who is well known to you all at General Manager Strategy and Investor Relations. And David Christian is dialing in from Adelaide.
David is our Chief Operating Officer for Australia. Callum, Ben and David will be available for Q and A and between myself and Julie, we will handle the upfront presentation. So our FY 2021 presentation was released obviously this morning to the stock exchange and is as usual a comprehensive document. I'm going to take the document as read and hence between myself and Julie we'll focus on the key themes, our observations over the period and leave time for Q and A. So turning to the key features of FY 2021, a few comments from me.
Look, firstly, I would say it's another challenging year for SkyCity. COVID, obviously, a key feature of the year. But overall, I think the group delivered a solid performance with group normalized EBITDA and NPAS at the top end of the guidance we provided in early June. When I think of the quality of the result, we're reasonably pleased with that, given the operational challenges during the year. And probably the standout performer in the from a business point of view has been the domestic gaming business, the resilience of that business, particularly when we're at Alert Level 1 in New Zealand.
As noted in the presentation, FY 2021 Group EBITDA was well up on FY 2020, 25.5% up and around 83% of the FY 2019 like for like comparative. And a pretty good result giving the operating environment and disruptions that we had, in particular, the long period of lockdown in Oakland and a significant period at Level 2 as well. Clearly, an immediate priority for me as CEO has been to refresh our strategic plan, implement new management structure, bed down the team and in addition navigating through the uncertainty of COVID. And to this end, delighted to have secured some key management appointments over the particular over the period. And in particular, Julie, who commenced as CFO in May 2021, it certainly feels like longer than that for me, and I'm sure it does the same for ourselves.
And Calum and David, we've 2 very strong and capable operators who've been with SkyCity for a long period of time. And recently, we announced the appointment of Nirupa, George as Chief Corporate Affairs Officer. So look, really feeling good about the team that I have in place leading the business forward. Obviously, during the year, key component was Adelaide expansion, opened on time, on budget in December in a pretty challenging environment when it opened. But a really exciting milestone for the organization completing that project.
It's now a world class integrated resort or entertainment integrated entertainment facility. And it's performed pretty well since we've opened, albeit that performance has been curtailed more recently by the closure in late July in this current financial year. On the NZICC and Horizon Hotel project in Oakland, reinstatement is progressing post the fire, a bit slower than we'd expected. We have a program, an updated and actually a comprehensive program from Fletchers that delivers both of those now in 2020, 2024. As has been well documented, we've had to respond to the AUSTRAC enforcement investigation in Adelaide and managed heightened expectations from regulators across all our jurisdictions, both from host responsibility and AML compliance.
And I'll discuss this later in the presentation. And look, I'd also highlight, look, our balance sheet is in a really strong position and I'll leave Julie touch walk you through that in due course. I'm now going to ask Julie to make some more detailed comments around the FY 2021 financial performance and then I'll come back and update on group strategy, our strategic initiatives and some matters relating to ESG. I hand over to you now Julie.
Lanahi, Michael, and good day to everyone listening in. It is great to be able to speak with you today on the financial performance of our SkyCity Entertainment Group. And as Michael has already shared, we are quite happy with the full year 'twenty one financial performance, particularly given the challenges that our business has faced during the year. And of course, this includes our Auckland properties being closed for 29 days and spending quite some time operating within tight restrictions. And also Adelaide having around 6 months of restricted working due to COVID operating levels in South Australia.
So you can see the full scale of the COVID impact on operations in the full year 2021 investor presentation that we shared with you. So obviously, it's quite pleasing for us to have been able to navigate through the full year 'twenty one challenges so well. And let's face it, based on where we are today, this is our new normal. So it is important that we continue to embed our management of COVID into our daily operations and decisions. And with that in mind, I mean, I wanted to share that one of the reasons behind our resilient performance in full year 'twenty one has been our ability to constantly review and refine our operations to ensure that we continue to maximize the value that is available to us for the things in our control and of course closely manage those things that are not in our control and so that we can minimize those downside threats.
And I will speak later, as Michael said, about the financial resilience of the group. But before I speak more about full year 'twenty one financial performance, I mean, I did want to acknowledge that we are also very mindful that while it has been not been an easy year for us, it has also not been an easy year for you as our shareholders. So I did want to take this opportunity as well to thank you all for staying with us and engaging with us through this period. I mean it is important to us that you see the same pathway that we see to enable you to also make well informed decisions. So the engagements that we've had will of course continue into full year 'twenty two.
So coming back to the presentation, as you will see from the presentation that we shared in our core business, which is our domestic gaming, has performed well in full year 'twenty one. And this is particularly our gaming machines, which in Auckland are about 5% up on a like for like basis with full year 'nineteen. And this, of course, gives us some comfort as well over the effectiveness of our post COVID operating model that we have in place. So for Auckland overall, gaming revenue was up 11% on the prior year. And you will see from the presentation that our casino has been able to progressively bounce back quickly from lockdowns and respond quite well to the restricted working conditions.
As you'll appreciate, this has not been easy for our frontline team, so huge credit to them for their personal and professional resilience throughout the year. So while Wayne when we've been open, the visitation in New Zealand has been quite impressive. We are very happy to have been able to continue to provide a great experience to our customers despite some of these restrictions. And so you will see this through new products that we have in Auckland and Hamilton. And of course, our premium customers have been able to enjoy our new VIP facilities in Auckland as well.
So clearly, with borders closed or closely controlled, the tourism parts of our business, including the Sky Tower, have continued to be quite negatively impacted. Our Auckland Hotels profitability is around 30% below last year and around 50% below our full year 'nineteen levels. So this is not a great performance for us, but it is also really good to see that Kiwis are taking the opportunity for staycation and treating themselves. So there are certainly days when we are at full occupancy in our hotels. And if I move to Food and Beverage and New Zealand outlets, overall they are broadly at EBITDA breakeven for full year 'twenty one.
And I want to reinforce that while that is not in itself ideal when we look at it in isolation, we do have an integrated business model in the Auckland precinct. So our hotels and our food and beverage offerings remain very important to us as they further enhance the end to end experience of the customers. So during full year 'twenty one, a key focus for us was to be able to financially sustain our non gaming business segments in order to retain this important value proposition for our customers. And these non gaming aspects of our business really do complement our casino operations. Moving on to Hamilton, Michael has already mentioned it, but this business has really shown through in full year 2021.
We've seen a 24% increase in revenue against the prior year, and we're all very happy with the level of consistent growth that our team in Hamilton has managed to secure for the group, either through the operational performance and the changes that we've made to the floor, but also capitalizing on the growth in the Waikato regions. Similarly for Queenstown, as a key international tourist destination that clearly suffers when borders are closed. Our team in Queenstown managed to capitalize on the local and domestic tourism that is available, and they have delivered a 10% increase in revenue against the prior years. So moving on to Australia, we are all very proud of our Adelaide offering and what the team in South Australia have managed to achieve. Many of you will not have had the chance to see our property yet, but I have and I can say it's quite impressive.
And the growth and the financial performance in full year 2021 was strong with revenue about 50% up on a like for like basis when compared to the pre expansion levels and EBITDA margins in full year 2021 reaching around 20%. And this is all despite some quite prolonged operating restrictions due to COVID. So the Adelaide team has successfully completed the expansion project on time and on schedule. And since opening, we have continued to fine tune the property, including refining the post COVID operating model there and of course ensuring the successful opening of the car park. So this trajectory is really pleasing to see for us and we do feel confident that our guidance on post expansion EBITDA does continue to hold true for Adelaide.
And staying with Australia, our international business is of course based from there and it won't surprise you to see the significant impact from the closure of the international borders from the volatility around interstate travel and of course limitations across the trans Tasman bubbles. So the IB team are really focused on this and clearly looking at cost optimization across this time. And they're also taking the opportunity to further strengthen the processes and practices of this part of the business for us. So I move on to the online business. You now have for the first time seeing a full year's of financial performance, which again continues to highlight that this reinforces our belief in the value from this channel.
And the SkyCity brands and the great product offerings that we have in our online casino have really been key enablers for this performance. And it is certainly good to have an online alternative for New Zealand customers when our land based casinos are in lockdown. So given the volatility of the past couple of years due to COVID restrictions, we continue to measure ourselves and our performance against the full year 2019 baseline. And we remain very focused to exceeding these performance levels as quickly as possible. And as you will see from the graph that we shared with you, we do still have a gap, quite a significant gap at which we are very focused on.
But we do see a credible pathway to achieve this, even while we are navigating through our current COVID lockdowns. And so finally, before I hand back to Michael to talk about group strategy and CEO priorities, I did want to speak about cost. Cost continues to be a key measure of operational efficiency for us. You will recall that we managed to take out some $40,000,000 of fixed costs in response to our initial COVID lockdown. And of that, we have bought back around 25% of that into the business to support our opening hours.
And I also wanted to highlight that on the back of it, of course, there's pressure on spend from inflation around labor costs and other pressures that are coming to us and many other businesses across New Zealand and Australia on the back of the COVID economy. So it is an area that we will continue to remain vigilant in order to ensure that we continue to optimize our spend across both operating cost and capital cost and of course as a key value lever to our operational excellence pillars. So Michael back over to you to talk a bit more about the group strategy and your priorities. Thanks.
Thank you, Julie. Look, our refreshed group strategy was announced at the time of the interim results and as flagged prioritize the focus on the core business, executing the major projects in Adelaide and Auckland and delivering on the omnichannel opportunity and efficient allocation of capital. And I'm pleased to say, look, we've made progress during FY 2021 against those priorities. Specifically, I'd call out the ongoing management of COVID-nineteen and the operating environment and we've seen the measures that we've put in place and how we've dealt with it has allowed positive local gaming activity when we are open. And we've seen the benefits of those new assets that we invested in, particularly if I think of the VIP areas in Oakland as an example or some of the investment that we've made in upgrading Hamilton gaming floor, seen that really important seen that work well.
And cost execution, as Julie mentioned, cost execution is at the heart of driving operational excellence and that's been executed quite well over the course of the year. The Adelaide expansion completed on time and on budget and now the car park now online and been integrated. So getting beyond COVID and getting that property now realizing the benefits that we know it can is absolutely our key focus as we move forward. In relation to working with Fletcher's INS at ICC and Horizon projects, look, we have received a comprehensive plan from Fletcher's, probably the most comprehensive plan we've had for a long time on that project. We now expect the completion of the Horizon Hotel in early 2024 and ends at ICC at the end of 2024.
There's significant work taking place in the ground with well over 300 workers on-site every day or well up to moving to level 4. We had that level of workers on-site every day. We remain comfortable with our contractual position with Fletchers. It was really positive to receive and secure the long stop extension from the New Zealand government. So that's been now extended out to December 2027.
Just our intention is to get this finished in 2024, but it's good to have that long stop extension up our sleeve. And we don't have any change to the expected total project cost from a Scarcity's perspective to the $750,000,000 around $750,000,000 guidance that we've had now for quite some time. In relation to our online casino, I think the year and the performance has been very encouraging. And certainly, if I think back to when we looked at the original business case for this way ahead of any expectations we had a couple of years back from when we were looking at this initially. So, dollars 9,000,000 EBITDA, dollars 45,000 customers, it's been really a really positive feature, I think, of our results.
A lot of work goes on with Gig and actually making sure we have a very high quality product. And for example, we've got 1600 games live and they're very actively renewed. And we are very conscious about complying with the regulation that does exist in New Zealand and restrictions around marketing, whereas anybody else, the other offshore operators are operating in New Zealand, we don't believe are largely complying with those. Our position is the same
So on that note, I'm going to hand back to Michael who's going to give more an update on the current trading situation and outlook for full year 'twenty two. Thanks, Michael.
Yes. And look, in regards to recent trading, look, the local business in New Zealand up to the recent closure was performing really strongly with trends consistent with what we saw in the Q4. Really positive local gaming activity with EGM performance continued to be really resilient and the Hamilton and Greenstone businesses performing well. And even our non gaming business actually had come out of the blocks pretty positively benefiting from strong domestic tourism and weekend holiday activity. Negligible IB and interstate activity due to border closures as you'd imagine.
And with Adelaide, look, Adelaide has reopened in a staged manner with the restrictions on capacity and social distancing requirements. So our performance is sort of gradually improving post the reopening. Online performing consistently with the PCP. And as you can imagine, we've seen an uplift in activity since the New Zealand properties closed on 17th August. In terms of outlook, however, given where we're at with Oakland and our New Zealand business is currently shut and the changeability change of operating circumstances and uncertainty that we have on the very near term outlook on COVID, we're not able to provide earnings guidance for FY 'twenty two at this time.
But look, it remains under constant review. So with that, I'm just going to pause us here and I'm going to hand over to the operator for Q and A.
Thank Your first question comes from Larry Gandler with Credit Suisse. Please go
ahead. Michael, Julie, thanks for taking the questions. Good morning.
Good morning, Larry. Okay.
How are you doing? Thanks. Michael, first question on the RS2 on the Horizon Hotel. That delay was seems quite extensive. My understanding was the project is already topped off and you're working on the inside.
Can you just maybe give us some of the steps that have remained to complete the project?
Yes. Look, the issue there, Larry, is that it's the infrastructure is integrated to the Enzo ICC and particularly the roof. So all of the infrastructure sits on top of the roof. And you cannot operate it effectively without that in place. So when they've done the detailed project planning and they looked at a variety of different ways, was there another way around it, the only logical path was to go on the original plan.
So that's pushed out the timeline to early 2024 unfortunately.
Okay, understood. Thanks. And next question on AML. You mentioned I think a review was completed in New Zealand in May. I'm just wondering if you can contrast maybe the New Zealand approach to the Australian approach.
One of the areas that we analysts are concerned about is source of funds and the diligence required there in Australia versus New Zealand. Just wondering if you can contrast the 2 countries and how they're approaching it.
I wouldn't say there's any significant difference really and we won't be applying well, there's some minor technicalities in difference in relation to into the requirements. But our approach is to take the higher standard. And we're doing a lot of work in Adelaide as you can imagine at the moment. And where we see a higher standard, we will apply that.
Okay. So it seems like
the higher standard is you'll get a declaration of source of funds and some evidence to that. I think that's the approach Crown has taken?
Yes, that's right. Now there's obviously a different threshold. So it depends on where you apply that threshold. But yes, that's the approach.
Okay, great. Thank you.
Thank you. Your next question comes from Desmond Tsao with Goldman Sachs. Please go
ahead. Hi, Michael, Julie. Thanks for taking my questions. My first question is just on Slide 12. As you highlighted, very impressive trends through Adelaide since the expansion completed.
Just keen to hear your thoughts just around, I guess, a bit more detail around EGMs and as well as the non gaming trends on that chart. And then I see also you've put a comment there that you've taken about 9% share of the EGM market there. Can you also hear your thoughts as to whether there's an aspirational target in mind as to the percentage of share you could potentially get in that market over time?
Look, so what I would say in relation to EGMs, we're reasonably pleased with the early progress that we've made in EGMs in the half. I would characterize it, it's a market that's growing rapidly. I think the growth in the final quarter for the market was about 20%. So it's a market that's growing really rapidly, which is a good thing and that's been driven by the adoption bill acceptors. Our product has gone down pretty well locally with VIPs.
And look at the car park coming online, we see plenty of upside there. And in terms of aspiration, double digits, we definitely have double digit aspiration in the long term. I can see no reason why we're not getting into 11%, 12% market share. And relation to the non gaming, maybe I'll get David to comment on if you had anything else to add to the EGMs and anything else, if you wanted to add something in relation non gaming. Obviously, the EOS Hotel is a very large part of that.
David, did you want to make any remarks there?
Thank you, Michael. If I could just make one comment about EGMs. We've actually growing 3 times the rate of the pubs and clubs in Q3 and Q4. But as Michael indicated, the whole market is growing just above 20%, which is probably also due to banknote acceptors or no doubt due to banknote acceptors coming online. With EGMs too, we've been operating with 10 30 gaming machines.
As of September, we'll be going up to our full complement of 10 80. We've got another 50 machines coming online in our expanded VIP space. So we're hoping that, that combined with the car park and easier access will give us stronger growth as we get back to the double digit market share that Michael just alluded to. With regard to non gaming, the primary benefit at the moment of non gaming has been in some of our bars and also EOS. And of course, EOS, we have great trouble at the moment because the borders with New South Wales and Victoria have shut several times during the year and are currently both shut, and they are our core source markets for EOS.
However, we are making sure that we actually market the product locally, and we're getting very high occupancy on weekends and yielding very strongly. We're getting an average daily rate, just over $500 on Friday Saturday nights now. So we're still very bullish about Dios as well. And as the warmer months come on, I'm sure our bars are going to do significantly well as well. Thanks, Michael.
Thanks for the additional color. Second question, just on Slide 23, the near term strategic priorities. Are these, I guess, firstly, in order of priority? And then maybe focusing a bit more on the second point, just returning to FY 2019 level earnings. I appreciate there's obviously uncertainty with the current lockdowns, but
can you perhaps give us
a sense for when you think you could potentially get back to those levels? Is FY 2023 realistic? And if I just look at your FY 2019 earnings, I think there was $40,000,000 out of EBITDA from DIP. To the extent that that potentially comes back, how should we think about the pace at which you could, I guess, get back to those levels? Should we think of online casinos providing offset?
Or should we think that you guys could return to that sort of earnings profile for VIP?
Yes, sure. Look, the first question, they're not really in any order. They're all pretty important. Getting back to 'nineteen earnings, look, the reality was if we weren't locked down, if we didn't have a locked down and we were all open for the full year in Oakland, we would have been pretty confident we get back to that FY 2019 earnings in the year that we're in. So I'll answer that question without any meaningful IB business.
Okay. Got it. Thanks, Michael.
Thank you. Your next question comes from Sachin Crane with Evans and Partners. Please go ahead.
Good morning, Michael and Julie. Just got a question on your covenants. There's a comment in the presentation saying you've got sufficient headroom because it's the end of testing period. Just wondering if you can clarify whether that includes a scenario where you're shouting New Zealand for the whole of the house? And then secondly, you've mentioned you're discussing options around FY 'twenty two covenants.
I guess I'm wondering if you can provide any sort of color on at what point you're going to need to talk about potential capital raises? Or is that pretty much off the agenda?
I want to hand over to Julie on that question.
Thanks, Natya. Yes, so thank you for the question. So as you probably won't surprise you, our stress testing of our covenants is very comprehensive. And I would say it's probably much more comprehensive than the worst case scenarios that you might be running as well. And so in that regard, we do think that we have quite a bit of opportunity and headroom before we have to be looking externally or looking at equity raising.
And that is largely because of the work we've done over the last 12 18 months to get us to this position. So we have modeled quite prolonged lockdowns. And of course, that's missing for us, maybe which will become maybe a bit clearer over the next couple of weeks is the length of the lockdown, but also what a Level 2 might look like for us. We do believe that it's not going to be exactly the same as Level 2 that we've experienced before. So it is important we get that information as well.
The one key thing the other thing we're looking at before we look externally is, of course, our own resources and what we might be able to do to cover some of this up as one of our pathways. So it is a little bit early, but at this stage, I do think that it's we have a bit of time before we are having to take any sort of form of very, very serious action. And over the next few weeks, as I mentioned, we'll get a lot more clarity on what New Zealand lockdown looks like. Thanks, Sasha.
Okay. That's helpful. Thank you. Just my second question very quickly just on Adelaide EBITDA margins. It looks like they're about 16.5% in the second half.
I'm just wondering how you're thinking about those going forward and medium term, noting you've got some car park costs coming in?
Look, we're thinking about 20% mark. That's about where we're thinking Adelaide should be in a normal sort of operating environment.
Okay. Thank you.
Thank you. Your next question comes from David Fabrice with Macquarie. Please go ahead.
Good morning, Michael. Good morning, Julie. I've just got a couple of questions. Just can we flush out those comments you made around the cost control? How should we be thinking about margin expansion versus pre COVID levels in the New Zealand domestic businesses, please?
Look, I'll get maybe Calum or Julie to help. So, the changes if you look at the operating model, the changes we've made are largely a combination of labor and how we use labor resource, how we open and operate, the opening hours we run and marketing costs. They are the major areas of costs and we've seen us be effective pretty effective there. And when we look forward but we do have some cost pressures coming against that, particularly in the labor cost side with and we've recently announced that we're moving to a sustainable wage for frontline employees, but we see we'll be able to offset or at least partially offset that with some price rises in food and beverage and some other measures as well. So maybe I might get either Julie or Callum to make another any other comment on that.
Thanks, Michael. It's Callum here. Look, absolutely, as Michael has described, there are new operating models across all of our New Zealand operations. And without repeating what Michael has said, those areas remain a key focus for us as we move forward even when we get hopefully back into a post COVID world. It's unlikely that we would go back to operating our businesses in exactly the same way as we did pre COVID.
And then overlaying that obviously is that revenue growth from our higher margin businesses. So as you've seen significant strength in the local EGM market and then certainly as the likes of the hotels bounce back and the SkyTower which are both high margin businesses, that will help us maintain the margins that we're at despite, as Michael points out, cost pressures escalating.
Got you. Appreciate that. And just a second question for me. On Slide 31 in the pack, you talk about progressing sales of certain non core assets. Can we maybe talk about the level of proceeds you might receive from these sales and possibly the timing, please?
Maybe Julie, did you want to cover that?
Yes. Thanks, Michael. Yes, so we have a couple of assets that you would have seen probably even last year that have been for sale and we're just finalizing those two assets. So that's Little Mindal, which is the land that's in Darwin and our LPL business here. So the sale proceeds from that is in alignment with what I think we disclosed last time, which is in total for both of them around NZ13 $1,000,000 And on the back of that as well, of course, we are constantly looking across our portfolio of assets, the non core assets to look at opportunities to see whether they stay within our strategy or whether we should be divesting those as well.
And that's a process that is ongoing as a part of review of our investment properties, but also as a review of our potential OpCo, PropCo type discussions that we're having. Thanks, David.
Yes. Greg, can I just flush out that answer there just around the OpCoPropCo? Can you sort of let us know that thought process there? Because I was on the understanding the OpCoPropCo wasn't as attractive in New Zealand given tax
complications? Thanks, David. So yes, we actually we are looking at OpCo PropCo, but it's not it is something that we look at constantly. And I think we have had a lot of conversation about it before that we will look at this in terms of what the opportunities there are, but of our investment assets apologies, investment assets. For our casinos, it is a bit more difficult because we do have 2 licenses that we need to be mindful of.
So it is just part of the strategy of where we could release some value that way.
Okay, great. Appreciate the answer.
Yes, great. That's more of a more we're not looking that's not something we're seeing as a priority right now. That's more of a midterm review we're looking at. Thanks.
Thank you. Your next question comes from Adrian Orbon with Jarden. Please go ahead.
Good afternoon, team. Just first question, just wondering maybe perhaps either Michael Callum. Just wondering like if you could kind of give us your thoughts on how you sort of see the reopening path for the New Zealand properties? I think you've mandatory COVID tracing and what you sort of foresee or might be planning for on the vaccination type front?
Yes. Look, I'll cover that off. Certainly, mandatory COVID entry will be a requirement. That was that is a requirement or was a requirement level 2 in the past. I think that I'm very supportive of that.
I don't think that makes any difference to us. I think it's a benefit. I think if I think we're doing a lot of work on incentivizing our employees to become vaccinated. And I think that's something a course of direction of I think all businesses in the future. And I think we mentioned earlier on Alert Level 2 made and maybe some changes to Alert Level 2, what that looks like maybe a little bit different to what it was before that still to be worked through.
But I think there's a little bit of movement there. So look, I think we're waiting for it to see what government is doing here. What we do know is we see the resilience of our customers. And every time we go to reopen, it's our VIP customers that come back and we have really good mechanisms of protecting those customers. And that's obviously a substantial part of our local businesses.
So that's we'll be doing that again.
Okay. That's great. Just second question, like just on Slide 41 where you have a breakout of Auckland and you compare your AGM revenue versus FY 2019 comparative. Are you able to give us like have you broken down, I guess, or can you
give us a breakdown of
like visitation versus what the improvements you made versus spend?
So, you might as well, I'll get maybe, Calum, did you want to sort of give a bit of color on gaming machines and what we've been doing there?
Sure. Thanks, Michael, and thanks for the question, Adrian. So look, obviously, the challenging years to compare just given the bouncing around of alert levels that we face, particularly in the Auckland's property versus Hamilton and Queenstown during the FY 2021 year. But there's been significant work done both on intra floor layouts, but obviously also the new VIP room. And one of the decisions we made when under level 3 when construction could continue on-site was to push forward with VIP room completion and also the completion of Fleabar and Food Republic on the main gaming floor.
So obviously, having the new black and ultra rooms available just pre Christmas was a significant benefit. And we've seen still good new products coming out of suppliers in that space. So obviously, a resilient economy is a backbone to it. But to Michael's point, we're very much focused out of each alert level change of having a VIP led recovery. And before we've worried about the mass market ensuring that VIPs have felt safe and well communicated with to come back.
Thanks, Adrian.
Adrian, just being okay here in terms of your question around that 5% growth at EGMs in 2021 versus the 2019 comparatives. The like for like adjustment there is effectively just adjusting the trading days because obviously we were closed for 29 days in FY 2021. Obviously, we were closed for a few days and due to the fire. So it's just it's aligning like for like in terms of opening days in terms of that comparison.
Understood.
Your next question comes from Justin Barrett with CLSA. Justin, your line is live. Please go ahead.
Sorry, if you got me now. I think you do. Apologies. Thanks for your time today. I just wanted to ask in relation to the NZ ICC, Michael, I know you made a couple of comments and apologies my line has had a few issues today.
But could you mention, is the construction there continuing through this current lockdown? And if not, if the lockdown does continue for an extended period, could completion of that site be delayed even further?
So at level 4, it's not progressing. No construction can happen at level 4. Level 3, construction can go ahead. So it's not there's no construction there at the minute. Yes, look, an extended lockdown obviously would play into the program there.
So we'll wait and see. Hopefully, this lockdown isn't too long. Like there is contingency in Fletcher's programs. There's built in contingency generally in it. So obviously a short lockdown could be absorbed, but longer would be potentially more challenging.
Great. Thanks very much for that. And then just quickly on your online casino, I was just wondering if you could provide a little bit more commentary there. I just note that you had pretty steady increases in customer registration throughout FY 2021 and you note that you've got stable ARPU. But then you sort of note also that you've got to it's going to be quite challenging to improve on FY 2021 performance.
So I just wanted to try and reconcile that sort of commentary there.
Yes. Look, the reality with our online business, I think of any digital business and online casinos or online gaming is no different. Really the engine of growth is marketing. And we're not marketing. We've effectively organic customer acquisition, which is really based on the strength of Scotcity's brand.
So we're not conducting CRM activity to reactivate customers that don't participate. So effectively, that is a real hamstring, an artificial hamstring, but we are taking a conservative approach there. So really, we're at an organic the organic mercy of what consumers are doing. And hence, why we need regulation here that we have a level playing field.
Great. Thank you very much
for that. Really appreciate it.
Thank you. Your next question comes from Chelsea Ledbetter with Forsyth Baugh. Please go
ahead. Hi, team. I guess maybe coming back to one of the questions that I touched on earlier around cost inflation and margin outlook in Solon. I'm just interested maybe if I focus on kind of New Zealand properties. Obviously, it's been a really strong result for margin expansion and I appreciate some of this or a good portion of this is due to mix around EGM performance.
But guess what I'm trying to understand is how I should or how we should be thinking about the margin outlook from here. There's a lot of moving pieces, I appreciate that. But just more on a sort of a medium term basis, the levels in Hamilton as an example, is that an abnormal level that we should expect to come back at some point to sort of pre COVID levels? Or are you suggesting that there is a sustainable long term benefit here still?
Yes. Lucas, I'll answer it. So it's complicated because if you go it depends on how far out you go, you've got things coming in that are beneficial from a margin point of view, hotel recovery, tower, and as examples. But NZICC will be low margin business and that will be dilutive. I think of it if you go back to FY 2019 and I look forward from there, the initiatives that we've put in place are overall should help our margin on a continuous basis, on an ongoing basis, even though there's things offsetting there as well.
So, I see that we've structurally improved our margin from FY 2019 as a result of the changes we've made to the operating model. It's giving exact numbers in the future is really, really difficult to do.
Yes. Okay. Another clear. Thank you. And just second question, you speak a bit in the presentation about capital discipline.
It's been consistent thematic through the last few presentations. I'm just interested in your views on kind of optimal capital structure. I mean, clearly trying to think a little bit beyond COVID here in terms of what gearing range you think is appropriate for the business and those type of drivers?
Maybe I'll get Julie to comment on that question.
Thanks, Chelsea, for the question. I mean, it's an interesting one because the gearing we have a clear target for our gearing that we want to work within and it really does depend on some of the more strategic decisions that we make around that as well. So I don't think our expectation or our targets have changed from that perspective. I think we will see some going through situations like lockdowns. Of course, you see some short term changes coming through.
But overall, what we have already positioned as our expectations around that are not changing substantially from there. So no sort of changes in the pipeline for that.
Okay. And just to be clear, have you published that target? Or are
you prepared to talk about that publicly?
Chelsea, this is
Steve here. So what we've said publicly in the past is our sort of long run target for gearing is sort of between 2 times and 2.5 times in terms of net debt to EBITDA in terms of sort of optimizing our capital structure. That's obviously what Judy is referring to then in terms of no material change to that being our sort of long run target. And bearing in mind obviously we're going to be minus credit rating with S and P, which sets an upper limit of 3 times net debt to EBITDA and particularly that upper limit is more applicable when we're going through periods of high capital intensity. But a long run target for gearing around 2 to 2.5 times is how we view as being optimal.
Okay.
Thank you very much for your time.
Thank you. Your next question comes from Marcus Curley with UBS. Please go ahead.
Good afternoon. I just wondered if I could ask David a question on Adelaide and just understand the importance and the strategy behind the car park availability in the next 12 months?
David, I'll leave you answer that directly.
Thanks, Michael, and thanks, Marcus. Yes, the we've got 7 50 bays in the car park, which is a total of almost 15 50 bays. And we, at the moment, have very strong take up with our membership base. So we've still got plenty of opportunity with non members, which we are promoting to. And we're taking the attitude at the moment that we have a very low threshold to earn free parking.
We want to get people used to parking, know it's there and activate it. So it's really it was really only open to us a few weeks before we shut down. Unfortunately, post shutdown, we're seeing significant decline in CBD visitation. My understanding from the government as recent as only last week was CBD visitation is only sitting at about 50% of what it was pre COVID, so 18 months ago. So there's still plenty of upside with people coming back into the city with the car park.
But with 750 bays, we are absolutely making sure that we can fill them as often as possible. So lots of upside from the car park to come. Does that answer your question, Marcus? Or would you like some more detail?
Just to be clear, David, so if you think in a normal operating environment, how much of the $750,000,000 would be available for the public?
Probably $300,000,000 to $400,000,000 of those, which obviously we would prefer to be public coming into our building because there's another 750 on top of that for the public as well.
Sure. And what's the minimum spend to get free car parking?
At the moment, what we're doing is the minimum spend on gaming is really only one reward point. So it's really only dollar. In the food and beverage areas, we're also keeping it very low at the moment to basically just anybody who visits and spends in the restaurants.
Yes. So Mark, as you can see, the initial strategy is to drive awareness of the car parking facility and then all of those thresholds will be reviewed and up. So look, I think there's a lot of capacity, not only the 750 spaces that we have direct access to, but the other spaces are available to the public as well. So we really haven't seen any benefit of the car park yet. That's all upside.
That's how we think of that in relation to Adelaide.
Great. And secondly, just a quick one. What's the current thinking behind taking the waste subsidy scheme in New Zealand under the current lockdown?
Look, we haven't made any decision on that yet, Marcus. That will be something we'll consider with the Board in due course.
Okay. Thank you.
Thank you. Your next question comes from Rowan Sundram with MST Financial. Please go ahead.
Afternoon, Michael and Julie. Just a couple from me. Firstly, Michael, I was wondering if you would be able to just share a bit more insight into the DIA review outcome. I take it as no surprise that was the feedback consistent with previous reviews in terms of, say, you guys were all keep doing what you're doing? Or are there new items that the DIA is making a look at on this occasion?
Is this the DIA review into online or are you referring to the AML review?
Into the AML, sorry, Michael.
Into AML, look, it was Keith I think we've a pretty open process with the DIA on improvement on not AML, but also host responsibility. And it was a keep doing what we're doing and they made it was actually one recommendation on an area that we refined and improved. So yes, that's how this growth continues improvement process that we're working collaboratively together together on.
Okay. Thanks, Michael. And last one, just a quick one for Julie. Sorry if
I've already missed this, but can
I just confirm the AML response costs that you're provisioning for, are you planning to expense that and will that or won't that be in the corporate cost guidance?
So we don't have any provision in full year 2021 for cost, just to be clear. So what we are expecting is our outlook for full year 2022 that we will have costs. It will be an expense coming through with maybe a little bit of CapEx for maybe some systems work we will do, but it is largely an expense will pick up for year 2022.
Understood. Thanks, Julie.
Thanks. Thank you. Your next question comes from Wade Gardiner with Craig's Investment Partners. Please go ahead.
Hi, there. A couple of questions from me. You've talked about the impact of the current lockdown being $1,000,000 per day. That's on level 4. Can you give us a bit of color on what you would expect at say level 3 and level 2?
I mean I know you're talking about level 2 looking different to what it was before, but maybe using that past experience as a proxy.
I can sort of give you maybe give a high level of cover. Julie, do you want to take that?
Well, just yes, so our rule of thumb around that. Level 3, we're actually shut down as well. So Level 4 and 3 are the same. And then for Level 2, we look at around 50%. Conservatively, we would say it's 50%.
So, dollars 500,000 a day?
And then that is the profitability.
Yes, 50% versus the level 1 equivalent, Wade, in terms of what we would expect to earn a level 1. Level 2 would be sort of 50% of that as a proxy.
Okay. And another question just following up on the question on online earlier. Go to Slide 13. Am I reading that slide right? On the right hand side, you've got active customers going up quite consistently.
Yet on the left hand side, the gaming revenue is essentially flat. Does that mean that the so this hand actually an ARPU? Or is that just mean that there's a core group of customers who are gaming and the additional that you're taking on is not making really having an increase
in revenue? Yes. So what I would say is that your active customer has a cumulative growth there and you will have customers over time that actually aren't as active as they were in the past. So that's a feature. And what you're seeing on the left hand side is the monthly is just a monthly average revenue in the business.
Right. So it does look like there's this core at the beginning that is driving most of the revenue or the average spend per person is actually therefore dropping over time.
Yes. And any of the churn factor with those with the customers as well? Remember, we're only in business here for a short period of time here as well. And now Ben, did you want to give some color there? You probably put these slides together.
Yes. Look, it's yes, so the chart on the right hand side is essentially the cumulative actives weighted you identified. And the chart on the left hand side is obviously the actual kind of gross gaming revenue. So as some of those customers are active, but some of them obviously do churn, right? So there isn't a direct correlation between the cumulative actives and obviously what translates into revenue on a per customer basis.
I'm happy to kind of pick
it up
with a few more detail offline, if that's going to be helpful.
Okay, cool. Thank you.
Thank you. We have reached our allocated time for questions. I'll now hand back to Mr.
Hearn for closing remarks.
Look, in closing, look, I'd like to firstly thank everyone in the investment community, our shareholders and the analyst group for your support over the past year. That's been really encouraging. And look, I'll finish as I started, while there's many challenges, I think, given what you've seen or we've seen in the business in the year and the strength of our balance sheet, we feel confident as we look forward. And of course, over the next week or so, look forward to the engagements that we'll be having with our shareholders over the coming weeks ahead. Thank you all.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.