Skycity Entertainment Group Limited · NZX:SKC
Skycity Entertainment — Investor Day (March 2018)
79 slides from Skycity Entertainment's investor day presentation, Mar 27, 2018
Slide 1: ASX/NZX announcement cover letter: Investor Day Presentation
27 March 2018 For personal use only Client Market Services NZX Limited Level 1, NZX Centre 11 Cable Street WELLINGTON Copy to: ASX Market Announcements Australian Stock Exchange Exchange Centre Level 6 20 Bridge Street Sydney NSW 2000 AUSTRALIA RE: SKYCITY ENTERTAINMENT GROUP LIMITED (SKC) INVESTOR
Slide 2: 2018 Investor Day Presentation
2018 Investor Day SKYCITY Entertainment Investor For personal use only Group Limited Presentation 27 March 2018
Slide 3: Disclaimer
Disclaimer All information included in this presentation is provided as at 27 March 2018 For personal use only This presentation includes a number of forward-looking statements. Forward-looking statements, by their nature, involve inherent risks and uncertainties. Many of those risks and uncerta
Slide 4: Agenda
Agenda Time Event For personal use only 9am Welcome and housekeeping 9.05am Strategic context 9.25am Strategic overview and portfolio review 9.45am Existing operations 10.30am Break: morning tea 10.45am Major projects 11.15am Capital allocation and financial settings 11.45am CSR / people and sustain
Slide 5: Today's presenters
Today’s presenters For personal use only Rob Campbell, Chairman Graeme Stephens, CEO Rob Hamilton, CFO Michael Ahearne, COO Claire Walker, GM Human Liza McNally, CMO Resources Stewart Neish, IB President Callum Mallett, GM NZICC Luke Walker, GM Adelaide Ben Kay, GM Corporate Operations Casino Develo
Slide 6: Strategic Context
For personal use only Strategic Context
Slide 7: What is SKYCITY? Our business
What is SKYCITY? Our business Location Opened / Acquired Activities Summary For personal use only Auckland, NZ Opened in 1996 1,877 EGMs, 150 tables, 240 ATGs ~630 hotel rooms ~20 restaurants and bars ~3,000 employees Hamilton, NZ Opened in 2002 339 EGMs, 23 tables Acquired 100% ownership in 2005 ~4
Slide 8: What is SKYCITY? Our licences
What is SKYCITY? Our licences Exclusive casino licence to 2036 Exclusive casino licence to 2048 For personal use only (for top 700kms of NT) Exclusive casino licence to 2027 Exclusive casino licence to 2035 (for entire state Exclusive casino licences to of SA) – full licence term to 2085 2024 (Wharf
Slide 9: What is SKYCITY? Our owners
What is SKYCITY? Our owners For personal use only Shareholder mix by geography (February 2018) (%) Shareholder mix by investor type (Retail vs. Institutional) (February 2018) (%) North Asia (3%) America (11%) Retail (21%) UK / Europe (11%) Australia (45%) NZ – institutional (10%) Institutional NZ –
Slide 10: What is SKYCITY? Our customers
What is SKYCITY? Our customers For personal use only Key Customer Themes Diverse by age, preferences and demographic Customer Customers shape how solutions / services are first designed to drive loyalty Experiences Aspire to deliver excellence at each customer touch point Increasing requirem
Slide 11: What is SKYCITY? Our employees
What is SKYCITY? Our employees Employees by age(1) For personal use only Over 55 Under 18 Employees by ethnicity(1) years (1%) 18-24 Other (5%) (10%) years Maori / Pasifika (21%) (11%) 36-55 years European (33%) (primarily NZ / 25-35 Australia) years (44%) (35%) Employees by gender(1) Asian (40%) Fe
Slide 12: What is SKYCITY? Financial metrics
What is SKYCITY? Financial metrics Group normalised EBITDA and NPAT: FY14-FY17 ($m) Group normalised EPS and DPS: FY14-FY17 (cps) For personal use only 350 30 300 25 250 20 200 15 150 10 100 50 5 0 0 FY14 FY15 FY16 FY17 FY14 FY15 FY16 FY17 Normalised EBITDA Normalised NPAT Normalised EPS DPS Earning
Slide 13: What are we good at?
What are we good at? 1 Operating a range of entertainment and hospitality businesses, including: casinos, hotels, F&B, conventions and For personal use only other entertainment 2 Operating in environments with long-term exclusive casino licences 3 Operating in “first world” countries such as NZ and
Slide 14: Where do we generate value for shareholders? (by property)
Where do we generate value for shareholders? FY17 group revenue by property (%): FY17 group EBITDA by property (%): For personal use only Group normalised revenue = $1,031m Group normalised EBITDA = $322m(1) IB (11%) IB (6%) Darwin (8%) Adelaide (6%) Darwin (12%) Queenstown (1%) Auckland Hamilton (7
Slide 15: Where do we generate value for shareholders? (by activity)
Where do we generate value for shareholders? FY17 group revenue by business activity (%): FY17 group EBITDA by business activity (%): For personal use only Group normalised revenue = $1,031m Group normalised EBITDA = $322m(1) F&B / Other F&B / Other (8%) (14%) Hotels (10%) Hotels (8%) Keno (1%) Keno
Slide 16: What environment do we operate in? NZ
What environment do we operate in? NZ Economy Regulatory For personal use only NZ has experienced a period of sustained economic growth, underpinned by: Relatively stable regulatory and political environment • Strong tourism inflows (Auckland and Queenstown Long-term casino licence primary ben
Slide 17: What environment do we operate in? Australia
What environment do we operate in? Australia Economy Regulatory For personal use only Australian economy continues to perform reasonably well, Regulatory environment less but growth primarily stable than NZ contained to eastern seaboard Growth of gaming in suburban venues (ex casinos) across
Slide 18: What environment do we operate in? Industry trends
What environment do we operate in? Industry trends 1 For personal use only Traditional land-based casinos typically exhibiting modest growth (outside of Asia) 2 Requirement to continually diversify offering to compete and capture broader customer base 3 Capital investment required to sustain / grow
Slide 19: What environment do we operate in? Shareholder views
What environment do we operate in? Shareholder views 1 Focus on improving operating performance For personal use only 2 Focus on leveraging assets which contribute meaningful value to group 3 Manage execution risks on major projects and leverage opportunities associated with investments 4 Maintain f
Slide 20: Strategic Overview and Portfolio Review
Strategic Overview and Portfolio Review For personal use only
Slide 21: Strategic overview
Strategic overview Key value drivers We are good at operating exclusive land-based casinos, hotels, F&B, conventions and broader only entertainment, but only casinos and hotels deliver meaningful earnings and value Complementary activities (i.e. F&B, conventions) contribute to overall success of
Slide 22: Strategic overview
Strategic overview Important to provide entertainment which appeals to existing and new customers entertainment New forms of For personal use only Intention to broaden emphasis on entertainment beyond traditional gaming (i.e. All Blacks experience, e-sports, AR / VR, online gaming) Requirement
Slide 23: Portfolio review – NZ
Portfolio review – NZ Casino licence extension to 2048 underpins long-term value for key property For personal use only NZICC and Hobson St hotel project – important to execute well and leverage benefits Master planning commenced – incorporates opportunities for further accommodation, F&B, new
Slide 24: Portfolio review – Australia & International Business
Portfolio review – Australia & International Business Expansion should significantly increase revenue and earnings at the property and deliver For personal use only acceptable return Upgrades to existing property important to ensure integration between old and new buildings and maximise overall
Slide 25: Existing Operations
For personal use only Existing Operations
Slide 26: COO's initial observations
COO’s initial observations 1 For personal use only Improving performance of EGM business a priority given importance to group earnings and value 2 Strong operational management teams in place – potential for additional EGM expertise, particularly in Auckland 3 Strong platform to pursue growth opport
Slide 27: Potential operational improvements
Potential operational improvements 1 Increase visitation via precinct activation and leveraging key For personal use only events 2 Improve visitor experience through high-quality customer service and innovation 3 Improve customer acquisition and loyalty 4 Investment in product mix and configuration
Slide 28: Potential operational improvements (cont.)
Potential operational improvements (cont.) 5 For personal use only Investment in new gaming spaces, particularly in Auckland 6 Grow presence in international / interstate (eastern seaboard of Australia) EGM market 7 Leverage facilities which complement core activities (i.e. F&B, hotels, conventions)
Slide 29: Brand, loyalty and customer
Brand, loyalty and customer 1 Marketing and promotional initiatives important to appeal to For personal use only new (and retain existing) customers 2 Requirement to invest in digital offering to enhance end-to-end customer experience 3 Rewards and recognition important to retain loyalty – investing
Slide 30: International Business – Overview
International Business – Overview IB target high-net worth international players and junkets who visit casinos as part of their leisure activities For personal use only Key factors for success in IB: 1 Attractive destinations 2 Premium gaming facilities 3 Premium hotels and F&B 4 Outstanding lev
Slide 31: International Business – Market trends
International Business – Market trends Australian & NZ IB turnover: FY12-1H18 (A$bn) For personal use only 140 120 100 80 60 40 20 0 FY12 FY13 FY14 FY15 FY16 FY17 1H18 SKC SGR CWN The Australian / NZ IB market peaked in FY16 at ~A$125bn in turnover before falling by around 30% post the Crown arrests
Slide 32: International Business – Importance to group
International Business – Importance to group IB EBITDA ($m) and % of group normalised EBITDA: FY12-1H18 For personal use only 40 12% 35 10% 30 8% 25 20 6% 15 4% 10 2% 5 0 0% FY12 FY13 FY14 FY15 FY16 FY17 1H18 IB EBITDA (LHS, NZ$m) % of Group EBITDA (RHS, %) IB as a % of group normalised EBITDA has f
Slide 33: International Business – Recent performance
International Business – Recent performance IB achieved strong growth in both turnover and normalised EBITDA during 1H18 For personal use only Junkets becoming increasingly prominent – ~55% of total 1H18 turnover (vs. ~40% in FY17) Significant improvement in operating margins in 1H18 due to be
Slide 34: International Business – Growth opportunities
International Business – Growth opportunities 1 Grow and diversify customer base (particularly via junkets) to reduce reliance on small number of larger customers For personal use only and increase market share 2 Ensure high-quality customer service and continue to invest prudently in the business 3
Slide 35: Break: morning tea
For personal use only Break: morning tea
Slide 36: Major Projects
For personal use only Major Projects
Slide 37: Creating a brighter future together
For personal use only Creating a brighter future together
Slide 38: Vision for NZICC and Hobson St hotel project
Vision for NZICC and Hobson St hotel project Significant investment in future of Auckland For personal use only Significant job creation during construction phase and once operational Investment will support long-term growth in tourism expenditure from international and domestic visitors New
Slide 39: Project update
Project update Positive change in construction on-site over the past 9 months – experienced Fletcher Construction team now in For personal use only place Planning for completion late 2019 Construction contracts provide for liquidated damages which should mitigate losses through delay Expect
Slide 40: Project update – development site
Project update For personal use only Development site (as at March 2018) 39
Slide 41: Preparing for opening
Preparing for opening FY18 Further develop sales and marketing capability For personal use only Finalise design / functional considerations – FF&E, AV etc Focus on programme delivery – progress projects in coordination with Fletcher Construction FY19 Originate and execute new leads and Fin
Slide 42: NZICC marketing approach
NZICC marketing approach For personal use only Build Brand stakeholder creation partnerships and and communities marketing Share Building positive awareness stories of Auckland and NZ Presenting Networking and bidding with for business industries and clients 41
Slide 43: NZICC bookings
NZICC bookings 6 major bookings secured from 2020 – working on a number of new leads and opportunities For personal use only Customer Conference Timing Delegates (#) Tripartite Colorectal Meeting February 2020 1,200 delegates International Association for Prevention of Blindness March 2020 2,000 d
Slide 44: NZICC bookings – Positive benefits, an example
NZICC bookings – Positive benefits, an example 1 For personal use only 6,000 international visitors 2 15,000 hotel room nights 3 5 day conference in March 2020 ~$10m economic benefit to Auckland and NZ 4 $300+ in average spend per person, per day 43
Slide 45: Outlook for Hobson St hotel
Outlook for Hobson St hotel For personal use only Hobson St hotel expected to deliver attractive return on investment and earnings of around $20m per year post opening • Value for shareholders enhanced by decision to develop and retain asset Current SKYCITY Auckland hotels operating at 90% occup
Slide 46: Adelaide Expansion
For personal use only Adelaide Expansion
Slide 47: Overview of Adelaide expansion
Overview of Adelaide expansion Vision to transform the Adelaide Casino into a world-class casino and entertainment complex For personal use only Riverbank precinct to be the centre of entertainment for Adelaide Significant opportunity to grow market share and turn around underperforming casino
Slide 48: Project update
Project update Tender process for construction contract nearing For personal use only completion – in discussions with preferred party Construction contract to be largely fixed-price, lump-sum – build only contract Total project costs expected to be ~A$330m (including appropriate contingency),
Slide 49: Project update – early works programme progress
Project update For personal use only Early works programme progress (February 2018) 48
Slide 50: Adelaide Riverbank Precinct
Adelaide Riverbank Precinct For personal use only Existing heritage Adelaide Casino building expansion Adelaide Convention Centre Upgraded Adelaide Festival Centre Parliament House New 20-storey office tower ~1,500 space car park below ground Adelaide Oval, via Festival Plaza bridge across the Torre
Slide 51: Operating plans pre-expansion
Operating plans pre-expansion For personal use only FY18 New leadership team established Implement strategies to offset construction disruption Expand premium gaming rooms to accommodate increased demand Leverage premium gaming concessions Launch international and interstate EGM Grow tab
Slide 52: Preparing for opening
Preparing for opening FY18 For personal use only Conclude master planning – focus on product mix and configuration Focus on programme delivery Work with precinct partners to leverage strategic location Develop relationships with broader SA tourism industry FY19/20 Develop communications /
Slide 53: Auckland master plan – Auckland's fundamentals
Auckland master plan – Auckland’s fundamentals 1 Population expected to increase from 1.5m to 2m by For personal use only 2030 (and account for ~40% of total NZ population) 2 Significant tourism growth expected over next 5-10 years 3 Demand for hotel rooms expected to exceed supply out to 2025(1) 4
Slide 54: Auckland master plan – precinct map
For personal use only Grand Hotel + 5,000 m2 of existing convention space (available from 2019) Main site, SKY Tower and SKYCITY Hotel Aotea Station for Acquisition of majority CRL open from interest in AA Centre settles 2023 /24 in July 2018
Slide 55: Auckland master plan – Our plan
Auckland master plan – Our plan Multi-year vision for the precinct For personal use only Opportunities for further accommodation, F&B, new gaming spaces, and entertainment (including broader emphasis on non-gaming entertainment) Critical property acquisitions complete Any investment needs to
Slide 56: Capital Allocation and Financial Settings
Capital Allocation and Financial Settings For personal use only
Slide 57: Group financial profile
Group financial profile Continue to expect modest growth (vs. pcp) in FY18 group EBITDA For personal use only Near-term growth to be achieved by improving operating performance of existing assets Medium-term earnings profile largely driven by major projects Earnings from NZICC and Hobson St
Slide 58: Financial settings
Financial settings only Committed to maintaining BBB- S&P credit rating Gearing Maximum gearing of 3x Net Debt / EBITDA (including capitalised leases) Expect total debt to peak at around $1bn in FY20, with S&P gearing peaking at slightly above 2.5x personal use Committed to maintaining exist
Slide 59: Future capex
Future capex Major projects capex: FY17-FY21 ($m) For personal use only 300 Updated capex profile for major projects provided 248 250 • Assumes NZICC and Hobson St hotel 224 project completes late 2019 and Adelaide 198 200 expansion completes in 1H21 • No change in previous guidance for total 150
Slide 60: Future debt funding
Future debt funding Hedged debt maturity profile (as at March 2018) ($m) For personal use only Committed debt facilities (at hedged exchange rates) of $1.1bn New US$150m USPP debt issue now completed and drawn Average debt maturity of 4.3 years $120 $300 Debt either fixed rate or currently f
Slide 61: IT investment
IT investment Investing in IT to upgrade aging infrastructure, create robust platform for further growth and enhance only customer experience New finance and supply chain system Infrastructure upgrade (i.e. cloud network, data centres, cyber-security, Wi-Fi) Current projects use End-user com
Slide 62: Initiatives to release capital
Initiatives to release capital Seeking to monetise selected property assets and divest non-core businesses as part of “asset-lighter” only approach Capital released used to repay debt (in short-term) and fund strategic / growth initiatives use St car park Sale process being managed by Colliers
Slide 63: CSR / People and Sustainability Initiatives
CSR / People and Sustainability Initiatives For personal use only
Slide 64: Commitment to CSR and sustainability
Commitment to CSR and sustainability CSR / sustainability increasing in importance for asset owners when making investment decisions For personal use only Strive to be a responsible member of every community in which we operate Focus on protecting social licence to operate via a range of CSR i
Slide 65: CSR pillars / initiatives
CSR pillars / initiatives Community use only responsibility Continue to deliver comprehensive and well respected host responsibility programme Host Responsibility to minimise risk and harm from problem gaming Significant investment in customer support initiatives, training, security and survei
Slide 66: CSR pillars / initiatives
CSR pillars / initiatives The environment Fair operating use only Actively measuring and reporting against environmental footprint (i.e. carbon, energy, water and waste) Actively pursuing energy savings through infrastructure and technology improvements Improving approach to recycling, includi
Slide 67: View from the Chairman
View from the Chairman For personal use only
Slide 68: Background to the Chairman
Background to the Chairman For personal use only 1 Over 30 years’ experience in business and capital markets 2 Chairman of Summerset Group and Tourism Holdings, and director of Precinct Properties – NZX-50 companies 3 Director of (or advisor to) a range of investment funds and private equity groups
Slide 69: The Board's commitment to shareholders
The Board’s commitment to shareholders For personal use only 1 Overseeing the development and execution of group strategy 2 Optimise creation of value from properties, lifting return on equity 3 Delivering sustainable shareholder returns – focus on returns on capital and effective capital allocation
Slide 70: Chairman's initial impressions
Chairman’s initial impressions Strong platform created to unlock value: For personal use only • Exclusive long-term casino licences in all jurisdictions • Properties are major entertainment destinations • Major projects will transform Auckland and Adelaide properties • Strong management team in pl
Slide 71: Perspectives on Corporate Governance
Perspectives on Corporate Governance 1 For personal use only Important to establish clear framework for oversight and management of operations 2 Focus on effective allocation and discharging of responsibilities and duties 3 Important role to play in setting standards of behaviour and culture 4 Impor
Slide 72: Closing remarks
For personal use only Closing remarks
Slide 73: Closing remarks
Closing remarks 1 Significant opportunity to unlock value leveraging strong platform For personal use only 2 Opportunities to improve performance of existing businesses 3 On-going focus on effective capital allocation and improving returns on capital – intention to go “asset-lighter” 4 Focus on leve
Slide 74: Break: lunch
For personal use only Break: lunch
Slide 75: Appendix I – Accounting Workshop
Appendix I – Accounting Workshop For personal use only
Slide 76: Accounting treatment of major projects
Accounting treatment of major projects Recognise fair value of new regulatory concessions on balance sheet For personal use only • Include as increase in casino licence (intangible asset) when concessions granted • Recognise corresponding deferred licence value (liability) prior to development of
Slide 77: Accounting impact post completion
Accounting impact post completion Once each project is completed PP&E (excluding land, but including capitalised interest) starts to be depreciated For personal use only and interest is no longer capitalised Earnings from NZICC & Hobson St hotel project unlikely to be sufficient to offset higher
Slide 78: Effective tax rate
Effective tax rate Australian Limited Partnership (“ALP”) has been part of group funding structure since 2004 For personal use only • Established as part of acquisition of SKYCITY Darwin • Issuer of USPP notes Proposed changes to tax legislation in NZ and Australia will impact the treatment of t
Slide 79: SKYCITY Entertainment Group Limited
SKYCITY Entertainment For personal use only Group Limited
SKYCITY Entertainment Group — Investor Day (March 2018) on 6ix