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Speaker 1: The information provided in this program is of a general

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Speaker 1: nature and is not intended to be personalized financial advice.

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Speaker 1: We encourage you to seek appropriate advice from a qualified

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Speaker 1: professional to suit your individual circumstances. Sky City Entertainment Group

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Speaker 1: has faced many challenges including it's still yet to be finished,

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Speaker 1: International Convention Center and Auckland. But it's chairman, it's excited

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Speaker 1: about its future.

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Speaker 2: We've got through this year and started to take quite

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Speaker 2: a few things off. So we've got a new CEO,

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Speaker 2: we've got a new CFO. We've settled the AML case,

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Speaker 2: we've settled the DEA host responsibility case, we've settled our OSTRAK.

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Speaker 1: Fine, how would you sum up the tone of the

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Speaker 1: action against this industry.

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Speaker 3: I think it was well deserved to be blunted.

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Speaker 2: This is huge's huge wow.

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Speaker 1: So wow wow, or you know what the Germans saying. Well,

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Speaker 1: it's been years since anyone outside of sky City and

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Speaker 1: Fletcher Building has been allowed inside their most troubled project,

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Speaker 1: Auckland's International Convention Center.

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Speaker 3: Thank you.

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Speaker 1: The build began in twenty sixteen. It was meant to

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Speaker 1: cost around seven hundred and fifty million dollars and open

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Speaker 1: three years later. Nine years on and over a billion

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Speaker 1: dollars spent. It's still not complete. This site caught on

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Speaker 1: fire in twenty nineteen, burning for ten days straight. No

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Speaker 1: one was hurt and what was deemed an accident, but

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Speaker 1: the damage was devastating. So these were the steel beams

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Speaker 1: that you had to scrape melted what off?

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Speaker 2: Yeah, So these were the steel beams which starts here

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Speaker 2: and goes all the way through the levels of the

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Speaker 2: convention center and then four levels of car park which

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Speaker 2: had to be scraped back after the fire.

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Speaker 3: So really really big piece of work.

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Speaker 1: Sky City's chairman Julian Cook took us inside, accompanied by

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Speaker 1: sky City's new CEO, Jason Wallbridge, and the project managers.

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Speaker 1: Jason only started in the job recently returning home from

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Speaker 1: Las Vegas. Really only sort of dormant on me.

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Speaker 2: I've actually visited at the word.

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Speaker 1: Our significant structure that can be called sky City and

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Speaker 1: the construction contractor, Fletcher Building have had a tense relationship.

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Speaker 1: They've been in a stache over liquidated damages. Effectively millions

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Speaker 1: of dollars in cost overruns that began before the fire

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Speaker 1: and what the workers on site.

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Speaker 2: What would be thousands a day, fifty fifty big.

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Speaker 1: Labor Cross's huge. You've been bigued in the country, very expensive,

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Speaker 1: but progress has been made. Signs of completion are almost evident.

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Speaker 3: Three different entries for this building.

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Speaker 4: You've You've got address at Hobson Street, address at Nelson

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Speaker 4: Street and an address at Wellesley Street that allows you

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Speaker 4: to separate groups out who are using the center and

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Speaker 4: can give them different arrival points.

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Speaker 1: They're hoping this site will welcome thirty three thousand international

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Speaker 1: visitors to major events annually, transforming Auckland's economy its revenue

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Speaker 1: sky City desperately needs. In the last financial year, it

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Speaker 1: made a net loss of one hundred and forty three

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Speaker 1: million dollars, with earnings down sixteen point seven percent. Its

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Speaker 1: suspended dividends and investors are unhappy, as are regulators. After

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Speaker 1: failing to help a problem gambler, Sky City was forced

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Speaker 1: to close its Auckland casino for five consecutive business days

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Speaker 1: in September, costing it millions in lost revenue. That's on

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Speaker 1: top of paying seventy eight million dollars in fines domestically

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Speaker 1: and in Australia are the anti money laundering compliance issues,

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Speaker 1: Its share price is hovering close to its lowest point

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Speaker 1: as investors reset their expectations on what an entertainment company

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Speaker 1: in this environment can earn. I sat down with Chim

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Speaker 1: and Julian Cook to discuss the disappointments and if the

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Speaker 1: company will ever return to its former glory. Julian, good

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Speaker 1: to see you.

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Speaker 3: Thank you for us again again, thank you.

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Speaker 1: This is actually your idea, so thank you very much

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Speaker 1: for having us in. I can't believe it was a

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Speaker 1: year ago that we did this last time. It feels

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Speaker 1: like a lot's changed, especially in this business.

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Speaker 2: Well, there's seeingly a lot of water under the bridge

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Speaker 2: in the last year, and I think it means since

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Speaker 2: we met last time, we had the Department Internal Affairs

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Speaker 2: take us to task for anti many laundering breaches and

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Speaker 2: host responsibitive breaches here in New Zealand, which we sort

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Speaker 2: of we knew we had weaknesses in those places, but

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Speaker 2: you know, they did their work thoroughly on us and

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Speaker 2: pulled us up where we were quite rightly short.

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Speaker 3: But I think encouragingly.

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Speaker 2: Actually, we've got through this year and started to take

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Speaker 2: quite a few things off. So we've got a new CEO,

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Speaker 2: we've got a new CFO, we've settled the DOAAML case,

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Speaker 2: we've settled the doa host responsibility case. We've settled our

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Speaker 2: Ostrak fine. We repurchased a car park which we were

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Speaker 2: about to go to care of years which was very messy.

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Speaker 2: That has been repurchased, and yeah, so I think actually

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Speaker 2: the business is whilst there still you know, oh no,

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Speaker 2: there's still some stuff ahead we need to work through.

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Speaker 3: We're in a much better place.

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Speaker 2: We've got a good team, we've got a really good

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Speaker 2: plan to take us forwards and we're just going to get.

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Speaker 1: Onto it so effectively. Excuse the pum but you were

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Speaker 1: dealt a pretty poor set of cards. You've now played

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Speaker 1: almost all of them. Now there's not much regulatory overhanging.

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Speaker 3: You'd say not we have one to go.

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Speaker 2: So we are still There is an inquiry in South

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Speaker 2: Australia being run by the regulator. It started in twenty

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Speaker 2: twenty two, it was put on pause and now they're

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Speaker 2: reopening that to make a determination towards the back end

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Speaker 2: of this year early next year. So look there's a

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Speaker 2: possibility there that is not favorable. But I would say

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Speaker 2: in South Australia we've put again, we've got a completely

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Speaker 2: fresh management team on that property which was from about

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Speaker 2: March of this year. We've got a good program of work,

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Speaker 2: which is a three year program of work to take

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Speaker 2: us to where we need to be. That program works

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Speaker 2: being signed off by the regulator and by a monitor,

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Speaker 2: so we're just focused on getting that done and fixing

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Speaker 2: ourselves up.

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Speaker 1: Given you can largely look in the review mirror on

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Speaker 1: most of this regulatory stuff. Now, what would you make

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Speaker 1: of the action both domestically in New Zealand and also

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Speaker 1: in Australia. How would you sum up the tone of

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Speaker 1: the action against this industry.

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Speaker 2: I think it was well deserved to be blunt, and

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Speaker 2: if you look back, I mean we've spent a lot

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Speaker 2: of time looking at why did this happen?

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Speaker 3: And how did this happen?

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Speaker 2: Because without actually properly interrogating that, you can't get on

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Speaker 2: the front foot.

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Speaker 3: And deal with it.

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Speaker 2: And whilst you don't want to meganize on the past

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Speaker 2: too much, you want to focus on the go forwards.

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Speaker 2: But we'd look at it and go there was just

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Speaker 2: a lack of focus on compliance.

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Speaker 3: There was a complacency.

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Speaker 2: The world changed around us, so money laundering got a

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Speaker 2: lot more sticated. We didn't really keep up with that,

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Speaker 2: and at its heart, compliance started to slip the back

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Speaker 2: behind profit in.

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Speaker 3: Terms of priority, which it shouldn't be.

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Speaker 2: It should be number one and then then you know,

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Speaker 2: comply and then go make some money. So the last

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Speaker 2: you know, two or three years is about putting that

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Speaker 2: back to where it should be and then taking it.

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Speaker 1: Well, now after all of this action, compliance is having

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Speaker 1: to be first and foremost. As you mentioned, how should

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Speaker 1: investors think about this? Because I assume that industries like entertainment,

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Speaker 1: so you call this, they're now going to have to

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Speaker 1: over index on compliance. It's an enormous cost. How is

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Speaker 1: that going to impact returns expected returns from this industry

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Speaker 1: going forward?

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Speaker 2: Yeah, look, there's absolutely a cost, right, So look at

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Speaker 2: the size of our compliance teams.

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Speaker 3: We're up to around one hundred and ten people.

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Speaker 2: We would have been twenty to thirty people, say three

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Speaker 2: or four years ago. Those team sizes will probably grow

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Speaker 2: for a little bit more. And there's a huge system

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Speaker 2: and risk investment going through the business. So you know

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Speaker 2: number one, yes, more costing. Number two. Whereas five or

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Speaker 2: six years ago, we would have had customers who might

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Speaker 2: have had more problem indicators for problem gambling, or might

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Speaker 2: have had issues around money laundering. Those customers are no

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Speaker 2: longer in the business. They are out and they are gone.

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Speaker 2: They will not be coming back. We do not take

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Speaker 2: any offshore junket business anymore. That business has gone. So

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Speaker 2: there's a revenue impact in there as well.

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Speaker 1: Well, because on that the junkets were pretty lucrative, won't they.

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Speaker 3: Yes, they were.

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Speaker 2: There was also a lot more risk you took with

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Speaker 2: them as well, so you did, like the reality is

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Speaker 2: of sometimes these guys would come and win, right, and

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Speaker 2: then I thought the house always won Joe well on

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Speaker 2: the long run, this man, but in the short term,

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Speaker 2: like these guys could actually come and win quite substantially.

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Speaker 2: So it wasn't as easy as you think, but it was.

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Speaker 2: There was definitely a fair bit of money in it

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Speaker 2: that's gone. So look, you've got a cost impact, a

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Speaker 2: revenue impact. But actually when you step back the businesses there,

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Speaker 2: the business is now a much safer business which will

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Speaker 2: be able to hopefully continue to hold as licenses.

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Speaker 3: Like the licenses were at risk, right.

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Speaker 2: And that is the most valuable thing with these businesses

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Speaker 2: is our license to run this place and run it properly.

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Speaker 2: So we'd go Actually the businesses are safer, right, which

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Speaker 2: is a good thing. Second thing, there is actually technology

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Speaker 2: coming which will make some big changes. So we will

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Speaker 2: be bringing in mandatory card to play in New Zealand

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Speaker 2: next year, and then it's Adelaide in the following year.

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Speaker 2: But nearly simply, it means if you want to play,

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Speaker 2: whether it's a machine or a table, you have to

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Speaker 2: have a card. We've id'd you, we know your address,

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Speaker 2: You insert that card into the machine and so we

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Speaker 2: know exactly how long you're playing for exactly how much

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Speaker 2: money you're spending. If you hit your time limit of

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Speaker 2: the maximum time, the machines will just shut off right

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Speaker 2: And so that just gives us a lot more control

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Speaker 2: in terms of what's happening in the floor. But it

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Speaker 2: also will actually help from a cross perspective as well.

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Speaker 3: At the moment, I mean, we have a.

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Speaker 2: Large part of the compliance teams, the host responsibility teams

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Speaker 2: who are roaming our floors looking for people who are

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Speaker 2: staying too long.

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Speaker 3: So all of a sudden that becomes a lot easier.

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Speaker 1: But there is going to be a revenue impact on

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Speaker 1: mandatory carded play coming in. I understand that at the

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Speaker 1: moment carded play is like sixty five percent of your

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Speaker 1: business in New Zealand, seventy percent in Adelaide. So what

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Speaker 1: would the potential revenue impact of this change be.

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Speaker 2: Yeah, so look, we look the carded play in New Zealand,

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Speaker 2: and by carded play we mean someone who has already

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Speaker 2: been ide has a card and can come in and

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Speaker 2: sert that into the machine. And the New Zealand is

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Speaker 2: sixty five percent of the business here, So those people

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Speaker 2: will just keep doing what they're doing. There's there's no

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Speaker 2: change for them. So we're really just talking about the

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Speaker 2: other thirty five percent. And so for those people, yep,

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Speaker 2: they will need to go and be id'd. We need

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Speaker 2: to see their address. It's a pretty quick process these days.

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Speaker 2: We'll give them a card and away you go and play.

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Speaker 2: So we do think there will be some impact on that.

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Speaker 2: Maybe we're looking at a ten to fifteen percent decline

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Speaker 2: for a period, but our expectation is over time people

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Speaker 2: will get used to it. Maybe you came to this

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Speaker 2: casino the first time and you had other things to

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Speaker 2: do and you didn't want to get a card at

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Speaker 2: that time, but the second time and you will get

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Speaker 2: a card, and slowly people will get into the swing

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Speaker 2: of things and we'll hopefully normalize back to normal.

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Speaker 1: Speaking of normal, the economic environment at the moment is

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Speaker 1: pretty abnormal. It's difficult out there. Entertainment is not on

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Speaker 1: the menu for a lot of people in this cost

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Speaker 1: of living environment. How is that impacting this business? And

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Speaker 1: when are you perhaps picking a recovery now that we've

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Speaker 1: seen at least one, if not another soon to be

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Speaker 1: interest rate card?

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Speaker 2: Yeah, well when is the recovery as a sixty four

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Speaker 2: dollars question, isn't it? So we saw probably from October

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Speaker 2: last year, we saw the first signs of that hitting

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Speaker 2: our business.

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Speaker 3: Here. You'd think that gaming was typically a bit more recession.

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Speaker 2: Proof, but we could see the patronage was holding up,

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Speaker 2: but spin per customers definitely starting to drop.

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Speaker 1: So just to jump in on that, why would you

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Speaker 1: think that gaming would be recession proof.

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Speaker 2: That's just the traditionally how so, Wow, Yeah, normal hospitality

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Speaker 2: will be a bit more cyclical, but gaming is a

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Speaker 2: bit more.

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Speaker 3: Of recession proof.

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Speaker 1: Incredible recovery then.

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Speaker 3: Well, we're not seeing it yet.

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Speaker 2: I mean I would look at a few sectors around

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Speaker 2: the country and would say, this is tough times.

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Speaker 3: We problem haven't seen this since the GFC.

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Speaker 2: I mean, this is no GFC, but this is pretty

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Speaker 2: tough times out there, so probably despite the fact their

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Speaker 2: interest rate decreases, you had happened and we'll come through

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Speaker 2: next year. We're probably not packing until back end of

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Speaker 2: next year.

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Speaker 1: Does it surprise you then? Did it go against your

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Speaker 1: modeling that this economic environment did impact gambling given historically

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Speaker 1: as you mentioned, it hasn't.

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Speaker 3: We were not expecting it.

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Speaker 2: No, But I think what we were not expecting is

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Speaker 2: just the depth of the downturn that we've seen.

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Speaker 1: So recovery then what twenty twenty five late stages of twenty.

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Speaker 2: Five late twenty five if we're lucky, if we're lucky, yep.

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Speaker 1: I want to talk about what's next door the New

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Speaker 1: Zealand International Convention Center, it's still not open, the Horizon Hotels,

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Speaker 1: which we're going to go and see soon. I'm looking

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Speaker 1: forward to that. What's happening with it and how far

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Speaker 1: over budget and over schedule are we now? Because forgive me,

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Speaker 1: I count Jewere, I'm being serious. I'm not kidding the

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Speaker 1: genuinely lost.

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Speaker 2: Count so so budget. So firstly, on budget, we have

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Speaker 2: a fixed price contract with Fletchers, so the budget for

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Speaker 2: us is still the same that has not changed. It's

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Speaker 2: no secret that Fletchers have run over cost on that project.

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Speaker 2: It's no secret that historically there have been significant issues

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Speaker 2: the Fletchers on that site, and it's also no secret

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Speaker 2: that that has cost us a lot of money the

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Speaker 2: delays which have happened. However, credit where credit is due.

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Speaker 2: For the last two to three years, Fletchers have been

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Speaker 2: running a good operation over there. They've got a great

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Speaker 2: project director, a great team, and they're saying to us

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Speaker 2: that will be handed over to us in the first

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Speaker 2: half of next year, So we'll take you through it later.

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Speaker 3: You'll see the progress that's being made.

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Speaker 2: We're really excited by We think it's going to be

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Speaker 2: a game changer for this business, but actually for Auckland generally.

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Speaker 1: I saw that you said in the annual shareholder meeting

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Speaker 1: today that there is quote a lot to be excited

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Speaker 1: about at sky City. Please tell me other than the

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Speaker 1: ins at ICC, what is there that you're excited about.

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Speaker 3: Here to you, well, I think things will get us excited.

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Speaker 2: Firstly, we will get over these regular tree issues and

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Speaker 2: we will have a much better business for it. So

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Speaker 2: I think whilst some people wouldn't get excited by that,

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Speaker 2: I will The second thing is the inns ICC is

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Speaker 2: really going to change the shape I think of this business,

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Speaker 2: but particularly open that can take up to four thousand

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Speaker 2: people conferences, so it's going to be a real game

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Speaker 2: changer in the kind of events and hosting that we

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Speaker 2: can do in the city. And then we look at

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Speaker 2: the online business. So government is coming forward from online regulation.

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Speaker 2: We talked about the beginnings of it last year. They've

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Speaker 2: now said they are going to do it. This legislation

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Speaker 2: being drafted, so we sort of would like to be

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Speaker 2: a part of that, and I think that'll be quite

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Speaker 2: exciting as well.

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Speaker 1: You're probably quite excited now that you don't have to

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Speaker 1: be as operationally involved in this business because while there

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Speaker 1: was no CEO, you stepped in, you were working here.

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Speaker 1: How many days a week?

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Speaker 3: Well I was around two days a week, which.

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Speaker 1: Is a lot for achievement. It's more than achievement supposed

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Speaker 1: to be.

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Speaker 3: It's a lot for me. Well, I'm very excited by

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Speaker 3: this actually.

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Speaker 2: So you know, we've got Jason in as new CEO,

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Speaker 2: We've got Peter Fredrickson and both Kiwi's returning here back

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Speaker 2: home and as the CFO. You know, these guys can

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Speaker 2: do a really good job, and we've seen some really

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Speaker 2: good stuff from them, and I'm quite so excited by

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Speaker 2: letting them be able to do it and just step

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Speaker 2: back and govern as the chairship.

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Speaker 1: You're quite literally brought in the army because Jason is

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Speaker 1: ex military. Yes, tell we've have has capabilities because he's

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Speaker 1: from Vegas. He's spent the best part of the Vegas.

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Speaker 2: Yes, he's spent the last twenty years I think in Vegas.

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Speaker 2: So he's a key We originally it was in the

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Speaker 2: army actually a long time ago. He's got a couple

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Speaker 2: of daughters back here. He has been around twenty years

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Speaker 2: in the gaming industry. So started for aristocrats, so they

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Speaker 2: manufacture the machine.

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Speaker 3: So if you go on to our.

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Speaker 2: Floor you will see a number of Aristocrat machines around

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Speaker 2: the place. So knows gaming really well and for probably

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Speaker 2: the last four or five years, has spent a lot

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Speaker 2: of time in the online space, so been doing work

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Speaker 2: for various people.

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Speaker 3: In online gaming.

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Speaker 2: So that's obviously quite important for us going forward. And

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Speaker 2: so I think, you know, some really good skill sets

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Speaker 2: that he brings back to us.

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Speaker 1: Online gaming is something that Sky said has been pushing

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Speaker 1: for a number of years now, where is the legislation

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Speaker 1: at with this not so new now government and what's

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Speaker 1: the potential revenue opportunity that you see in that.

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Speaker 2: Well, the online market in New Zealand is a bigger

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Speaker 2: market than you think. So it's nearly the same size

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Speaker 2: as all of the land based casino and club gaming

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Speaker 2: in New Zealand. So yeah, lot bigger than you think,

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Speaker 2: and it grows and currently is it's an unregulated market.

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Speaker 2: It is one of the last unregulated markets in the OECD.

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Speaker 2: It is effectively a wild West out there at the moment.

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Speaker 2: So government has said they want to regulate this. Government

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Speaker 2: has said they want to Texas. So we encourage these things.

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Speaker 2: That is sort of working its way through government and

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Speaker 2: cabinet at the moment. The shape of how that regulation

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Speaker 2: is going to work. There has been an initial release

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Speaker 2: from the Minister for internal fears around what that sort

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Speaker 2: of regulation package looks like. And I think the focus

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Speaker 2: for the government and the Minister has been like New

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Speaker 2: Zealand has a sort of public health approach to gaming,

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Speaker 2: which effectively means, look, people should be free to gain.

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Speaker 2: You know a lot of people have a lot of fun,

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Speaker 2: but equally there's an acknowledgment that harm can come from

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Speaker 2: some for some people, right, and so it needs to.

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Speaker 3: Be controlled and done in a considered fashion.

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Speaker 2: And we really encourage that approach, and we'd actually like

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Speaker 2: them to go sort of further down that approach. So

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Speaker 2: things that we think really need to be considered is

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Speaker 2: the number of licenses. We don't want to have a

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Speaker 2: sort of free for all in the market out there.

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Speaker 2: We think we should have a smaller market, less licenses,

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Speaker 2: less marketing, less advertising, much tighter anti money and wandering controls,

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Speaker 2: and much tighter controls around host responsibility and problem.

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Speaker 1: Gameling, fewer licenses. Aren't you one of very few as

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Speaker 1: a sky city, not a monopoly, but almost market.

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Speaker 3: Well, obviously we don't have an online.

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Speaker 1: License, right, specifically in the online specifically an online yeah, yeah,

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Speaker 1: because historically you would have been losing revenue to online

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Speaker 1: game and I major do you have a figure? Have

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Speaker 1: you done any research on that?

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Speaker 3: In terms? Very hard to tell, Like it is quite

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Speaker 3: a different experience.

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Speaker 2: Most people will play on their phones, maybe a third

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Speaker 2: of the people or less will sort of play on

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Speaker 2: a desktop, so there is some crossover between the two markets.

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Speaker 3: How much of that has drifted out of our business? Then?

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Speaker 3: Onto online. It's very difficult to tell.

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Speaker 2: I mean, we haven't seen revenue declines, right, yeah, but

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Speaker 2: quite a different.

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Speaker 3: Sort of product.

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Speaker 1: What would the balance sheet have to look like beyond

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Speaker 1: that for this company to start paying dividends to investors?

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Speaker 2: Again, Well, look, we acknowledge that shareholders have had a

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Speaker 2: pretty rough time with this business. Right We've had share

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Speaker 2: price consistently declining for a few years, We've paid a

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Speaker 2: number of large fines two people, and now we've stopped

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Speaker 2: the dividends. So, I mean, that's pretty tough, tough for shareholders. However,

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Speaker 2: you know, it is important that we put this business

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Speaker 2: on the right bookling going forward. So we have the

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Speaker 2: capital structure which isn't under too much strain, so we

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Speaker 2: definitely won't be paying for f y twenty five.

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Speaker 3: I look, hopefully we pay beyond that.

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Speaker 2: But what we really need to see is we need

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Speaker 2: to see a path to just reduce our leverage slightly

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Speaker 2: over time. We're currently sitting on a triple B minus rating.

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Speaker 2: We want to see ourselves be able to get to

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Speaker 2: triple B flat. Now we don't have to get there

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Speaker 2: before we pay dividends, but we just need to be

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Speaker 2: able to see that path.

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Speaker 1: What would debt to earnings look like on that path,

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Speaker 1: it's currently two point three times, took seven hundred and

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Speaker 1: sixty three mil of.

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Speaker 3: Debt, it'd be in the low twos, the low tos.

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Speaker 1: So you're almost there.

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Speaker 3: We're almost there.

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Speaker 2: But that two point three was based on earnings for

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Speaker 2: the twenty four year, and we're earnings of coming back

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Speaker 2: in the twenty five year because of the economy and

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Speaker 2: because of the investment and compliance.

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Speaker 1: What would you say to investors that have stuck with

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Speaker 1: you because investor appetite in this industry is as you've

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Speaker 1: mentioned Waynan.

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Speaker 2: Look, it is, but it's us of course, is that

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Speaker 2: we get a lot of interest from you know, from

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Speaker 2: people in New Zealand and offshore. I mean, we have

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Speaker 2: a lot of long suffering SKY shareholders that that is

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Speaker 2: really die in my small way, and one of those

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Speaker 2: shaholders as well as I would like us.

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Speaker 3: To return to to be at times.

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Speaker 2: Look, I would look at us and say, when you

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Speaker 2: look at our valuation on the market, if you assume

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Speaker 2: we can deal with our regulatory issues and put those

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Speaker 2: behind us, then we're looking pretty cheap.

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Speaker 1: Thanks a look for your time. This was fun.

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Speaker 3: Thank you