Hotel and cinema struggles put EVENT $48m in the red despite record Thredbo result

Hotel and resort earnings fell by 45 per cent while lockdowns cut the bottom line for its cinemas in Australia and Germany by almost $59 million, but EVENT Hospitality & Entertainment (ASX: EVT) still managed to lift its result in FY21.

The company's $48 million loss is a 15.7 per cent improvement on the previous financial year, although government wage subsidies and other supports across its operations in Australia, New Zealand and Germany reached $112.6 million.

EVENT also reports business transformation initiatives reduced costs by $158 million, excluding government subsidies, with CEO Jane Hastings expecting new business models to deliver longer term benefits with improved margins post-pandemic.

"Our swift response to COVID-19 delivered strong results in the circumstances, with all open divisions reporting a positive EBITDA for the second half, and the Group reporting a positive EBITDA for the year," Hastings says.

"It is clear from the second half results that when government restrictions are lifted, demand returns.

"We haven’t allowed the pandemic to interrupt our longer-term strategies and we have continued to make excellent progress with future growth initiatives including hotel network expansion, right-sizing and improving the cinema portfolio, creating a stronger Thredbo business model, enhancing the customer experience and future-proofing our culture, capabilities and infrastructure."

For the Thredbo Alpine Resort, EVENT notes that whilst the capacity in the 2020 ski season was impacted by more than 50 per cent due to government restrictions, business model changes mitigated the impact, and record demand for the summer experience contributed to a full-year record result for the division.

Net profit for Thredbo was up close to 20 per cent at $25.14 million, and profit rose 120 per cent for the 'property and other investments' division to reach $14 million.

"The strength of the property market has been reflected in our updated independent valuations for our portfolio, with an adjusted increase after excluding certain properties to be upgraded or sold of 8.4 per cent, and a total portfolio value of $2.1 billion even after the sale of properties in the year," Hastings says.

Portfolio valuations increase 8.4 per cent when excluding Rydges Melbourne, Rydges Queenstown and Rydges North Sydney - the latter now identified as a non-core property which is due to be sold in the current financial year.

In contrast, Rydges Melbourne has been identified as a priority asset with a major upgrade programme required and, subject to cost assessments, is planned to close for works to commence and be completed next calendar year. The Rydges Queenstown accommodation wings were closed in February 2019 and work is underway to determine options for seismic strengthening.

These updates follow the company's July update on property divestments including the Forum Building in Brisbane, a serviced office in Double Bay and the Rydges Plaza Cairns Hotel, among other properties.

"Good progress has been made with non-core property sales, realising $79.6 million of gross proceeds before tax, of which $49.3 million was settled during the year," Hastings says.

"The total gross proceeds exceeded the most recent valuations for these properties by $29.8 million, a 60 per cent increase.

"Further non–core properties have been identified and are being prepared for sale, and we are on track to achieve the goal of realising proceeds of $250 million within two years."

She has also provided updates on two major property developments in Sydney.

"Stage 1 DA (development application) approval was obtained for the 525 George Street property, with the valuation of the property increasing by a significant $37 million (+54.4 per cent). The Stage 2 DA application will be lodged in the 2021/22 year, and subject to market conditions, development is expected to commence in 2023/24," she says.

"The DA for the podium component of the proposed 458-472 George Street development has also been approved, which will include retail space on George Street, and an extension of the QT Sydney hotel, conference centre and QT rooftop bar. The Stage 1 DA for the commercial office tower above the podium will be lodged this financial year.”

Much has changed in the eight weeks that have followed the FY21 results, with impacts from lockdowns in parts of Australia and more recently New Zealand, while in Germany cinemas have reopened with government restrictions in place. Group EBITDA for July was $400,000, up $6.7 million on July 2020, which which included $9.6 million in relevant government wage subsidies.

"Whilst the Delta variant outbreak and government lockdowns in Australia during June 2021 did not significantly impact the result for the year, it has materially impacted the results for our Australian divisions in July and August 2021," Hastings says.

"We managed to break even in July. However in August, for the first time in the Group's history, Thredbo was forced to close under the extended government orders, and the New Zealand market also entered a lockdown period.

"The speed of the various government vaccine rollout programs in Australia and New Zealand underpinned by a clear framework for reopening, will determine the timeline for recovery. We are pleased that the German market has reopened, as the vaccination response was more advanced, and continues to operate with COVID-19 restrictions."

Hastings has painted the government policies of New Zealand and Germany in a more favourable light than those of the company's base in Australia, highlighting EVENT's industries have been amongst the most impacted, with lockdowns reducing revenue by "almost 100 per cent".

"In Australia, we have been actively involved in supporting the position of our major industry bodies to ensure governments are informed on the financial burden of their decisions to the underlying businesses and employees of our industries," Hastings says.

"At this time, large businesses, with the most employees, are not eligible for direct government support.

"This is disappointing as the previous JobKeeper scheme enabled these larger employers to retain jobs and provide security for employees."

She says the group is pleased with the return of the wage subsidy scheme in New Zealand to support all businesses in retaining employees through the lockdown period, and explains Germany's Government Bridging Aid schemes, the Culture Fund and the Kurzabeit Short Time Work scheme have been essential for job retention, providing the support required during the reopening period whilst the company operates with constraints.

"We do not solely rely on government schemes and continue to do all we can with what we can control, as has been evident with the $264 million in active cost management achieved since the beginning of the pandemic," she clarifies.

"We remain confident that once restrictions are lifted, the swift and strong rebound experienced in the second half will continue.

"Our hotels are outperforming the local market, there is a strong lineup of films for release when cinemas can reopen and the new business model for Thredbo provides a solid foundation for growth."

During the year, the CEO and senior executives volunteered salary reductions, earned no short-term incentives and the long-term incentive plan did not vest. In addition, the chairman waived his fee for the period from April 2020 to June 2021 and other directors agreed to voluntary reductions in their fees during this period.

The Board confirmed there will be no final dividend for the year ended 30 June 2021, but the board aims to resume dividend payments in the next calendar year.

"Our strong balance sheet, underpinned by the growth in the property portfolio, and management’s swift response to COVID-19 positions the Group well to navigate through the current lockdowns and invest for future growth," says chairman Alan Rydge.

"On behalf of the Board, I would like to thank the management team for their incredible commitment and expertise in guiding the company through the most challenging period.

"We recognise the transformation in the company which is providing a strong foundation for our future. Future dividend payments will be subject to Board consideration and approval having regard to all relevant circumstances including lender gearing requirements and the Group’s trading performance."