SkyCity Entertainment Group Ltd chief executive Graeme Stephens outlined how the casino & hospitality company would handle its immediate future in a staff update today.
One feature of it is that salary cuts for senior executives will be used to set up an employee hardship fund of around $1 million, initially to help redundant employees.
Current state of business
“All casinos, hotels, restaurants, bars & attractions are closed across the 5 SkyCity properties in New Zealand & Adelaide, South Australia. We have over 5000 people on our payroll and we are a tight-knit team – even more so after dealing with the fire at the NZ International Convention Centre late last year.
“During the closure, we face almost $90 million in lost revenue/month whilst still incurring significant costs such as utilities, lease payments & labour, with labour costs alone around $20 million/month.
“This is a storm we could, and would, weather if we were to reopen within a few months in a pre-Covid-19 world. Unfortunately, the impact of Covid-19 is not limited to the short-term consequences of closure.
“Even when we fully open, we reasonably expect that weaker economies, lower personal disposable income & changed entertainment habits, as well as longer-term travel restrictions, will result in us recommencing as a smaller, domestically focused business.
“Our international business activities might recover reasonably quickly once travel restrictions are lifted, but the parts of our business driven by corporate travel and by tourism, such as our hotels & the Sky Tower, will take longer to recover.
“Given that our business has fundamentally changed for the foreseeable future, we need to take action now to address this. We have conducted an intensive evaluation of our strategic options and will be implementing a wide range of changes across all our businesses to reduce our operating costs and preserve funding liquidity.
“Our objective is to right-size & refocus the business now so that it is sustainable through the crisis. When we reopen, our business will already be tailored to the market we are operating in, and we expect it to grow again as our economy recovers.”
Mr Stephens said the changes being implemented would include significantly reducing capital expenditure & minimising operating costs, including restructuring the management team & salaried employee base immediately.
“It is also highly likely that we will have to reduce our rostered (waged) workforce in the coming months. The relatively easy decisions have revolved around reducing costs that are not directly related to people, and these include:
Reducing capital expenditure:
- A $15 million reduction in stay-in-business capital expenditure for the remainder of the financial year ending 30 June, with the remaining stay-in-business capital expenditure in this financial year relating solely to essential ICT projects that can be continued remotely and to Adelaide masterplan projects
- Except for the NZICC & Horizon Hotel project, all capital development projects in New Zealand have been put “on hold” at least until our properties reopen. Some of these about 50 different small capital projects could assist our return to profitable operations and may be able to continue in an alert level 2 or level 3 environment
- No work is currently possible on the NZICC & Horizon Hotel project. This means payments for this project will be delayed, which is helpful to our debt position. It is worth noting that, for now, the Adelaide expansion & masterplan projects are continuing as construction is deemed an essential service in Australia. However, should this status change and the construction site shut down, then the budgeted capital expenditure will cease as well as several related work streams that are required to complete those projects.
Minimising other operating costs:
- Other operating costs (excluding labour costs) across all properties & corporate functions have been reviewed and all non-essential costs eliminated for the remainder of the financial year
- Executive salary cuts ranging from 20-40% have been volunteered by the leadership team at group & property level for the remainder of the financial year. The chief executive, chief financial officer & chief operating officer’s salaries will be cut by 40% for the remainder of the financial year
- The SkyCity board of directors has also volunteered to cut its fees for the remainder of the financial year by 50%.
The big call is how to treat the majority of SkyCity’s workforce, on salaries & wages.
Mr Stephens summed the workforce up this way: “The entertainment business typically attracts passionate people and we have thousands of them from very diverse backgrounds. SkyCity people work hard, they always go the extra mile, and many have been with us for years. But, unfortunately, we are not going to be able to retain all of them. We are determined to try & maintain our culture & values through this period and how we treat our people, those that are having to leave and those that remain, has been front of mind.
“The NZ Government’s wage subsidy scheme is providing significant assistance in being able to retain our lower level waged staff in New Zealand for as long as the subsidy is in place. We have asked waged staff to cut to 80% of normal wages and, on this basis, we can carry their cost.
“Those not wishing to reduce wages have been offered the option of voluntary redundancy. This provides us with some time to assess how the impact of Covid-19 evolves. Based on our current assessment of the likely operating environment, were it not for the subsidy we would be forced to make some 700 waged people redundant now in order to right-size our labour workforce for the future.
“For our salaried employees in New Zealand, the subsidy is less meaningful and, consequently, we will need to reduce our headcount to a level more commensurate with our anticipated levels of trade once we reopen.
“This will lead to redundancies for about 200 of our people and we will be starting this process with immediate effect. In Australia, around 90% of our workforce has been stood down and no decisions have yet been made about potential redundancies. We welcome the Australian Government’s new JobKeeper payment scheme and expect to access this scheme for all our Australian staff.
“We still expect to complete the new Adelaide expansion in the reasonably near term and reopen (still on track for later this year) as a significant employer.
“We have restructured the senior leadership team and the role of chief property officer, held by Peter Alexander, has been made redundant (see On the move, April 2020). It will be some years before we can invest into the vision that Peter has helped to develop for our property portfolio, but it remains as significant latent value for the company to unlock at the relevant time.
“In regard to the other members of the leadership team, the board has endorsed my view that they individually & collectively contribute the critical skills that will steer the company through this phase.”
What happens to the leaders’ salary cut?
Mr Stephens expanded on the salary cuts he & other senior executives have agreed to take: it will be used to establish an employee hardship fund of around $1 million to initially assist departing New Zealand employees who find themselves in financial difficulties that can’t fully be addressed by their redundancy payments. Other SkyCity staff members will also be able to voluntarily contribute to the fund.
“Beyond financial assistance, we are also committed to supporting our departing staff as they transition out of the business. We have collaborated with essential service providers in the healthcare & grocery sectors, where employment demand has increased, to set up the Keep New Zealand Working job portal, and will offer free independent services, such as out-placement assistance, counselling support & budgeting advice.
“If our view of the future state of the business remains unchanged over the next 3 months, then we will also be forced to take action to reduce our waged staff as identified above.
“The fully implemented cost reduction plan for salaried & waged staff will impact around 900 people and generate labour savings of close to $50 million/year – a reduction of some 20%, which aligns with the currently anticipated reduced business activity over the next 12-18 months. The estimated cost of the redundancies is $11 million.
“We will review our outlook as the crisis evolves and may need to make further changes, especially if our properties remain closed beyond 30 June 2020 and/or travel restrictions remain in place for an extended period.”
Attribution: Company release.