Storms and rising costs hit Dreamworld operator’s profit despite visitor surge

Despite more visitors flooding through the gates of Dreamworld over the past six months, Gold Coast theme park operator Coast Entertainment Holdings (ASX: CEH) has revealed that rising costs and severe disruptions from storms over the Christmas holidays will drive underlying profit lower in the first half of FY24.

Prior to the storms hitting Southeast Queensland on Christmas Day and New Year’s Day, Coast Entertainment (formerly Ardent Leisure) says attendances at Dreamworld and WhiteWater World were up 22.9 per cent for December.

However, the Sydney-based company was forced to close Dreamworld for three days and WhiteWater World for five days in the aftermath of the storms which caused widespread damage across the region including blackouts for several weeks in some areas.

“As a result, the adverse impact on the trading performance of the business has been felt beyond the days of closure, with most of this falling into the second half of FY24,” says Coast Entertainment in a trading update issued to the ASX this morning.

The company has yet to reveal the financial cost of the damage to its properties as it is still in the process of working with insurers.

“Notwithstanding the adverse weather events, macroeconomic headwinds, and the business cycling a strong 1H23, the Theme Parks & Attractions business has reported continued attendance growth, up 6.5 per cent compared to the prior period,” the company says.

“This was driven by increased promotional activity throughout the period and the opening of new attractions in the new Kenny and Belinda’s Dreamland kid’s world.”

Coast Entertainment notes that its newest attractions, Dreamworld Flyer and Wiggles Big Red Boat coaster, will benefit the current half after opening in late December.

On the revenue front, an unaudited $43.5 million reported by the company is in line with the previous corresponding period and 12.5 per cent above the FY20 first half immediately before COVID.

This is despite the aggregate value of ticket sales rising 11.8 per cent compared to a year earlier and hitting their highest level since FY16.

“This was predominantly driven by an increase in annual pass sales, for which revenue is recognised over a 12-month period,” the company says.

The flat revenue result is due to a change in the sales mix and its impact on revenue recognition. Coast Entertainment also points out that the previous corresponding period benefitted from $2.4 million of annual pass revenue that filtered through the Queensland Government’s post-COVID stimulus packages.

Coast Entertainment, which also operates the SkyPoint observation deck atop Q1 in Surfers Paradise, has recorded an increase in international visitors to its attractions over the past year although they are still ‘well below’ historical levels.

“It is important to note that despite the ongoing recovery, the mix of international visitation is substantially different from pre-pandemic performance, with Asia visitation still representing a small fraction of prior business,” the company says.

“Further recovery in international visitation in the coming periods, particularly from Asian markets, presents upside for the business.”

Amid the growth in visitor numbers, Coast Entertainment says the gains have been achieved against a backdrop of consumers tightening their belts and a decrease in interstate travel to the Gold Coast as more Aussie holidaymakers head for offshore destinations.

Coast Entertainment is forecasting positive EBITDA for its Theme Parks & Attractions business, although lower than the FY23 December half due to higher costs, most notably wages and utilities. The company says SkyPoint has traded in line with expectations.

The company has reined in cost increases to below inflation, aided in part by head-office restructuring and a reduction in directors’ fees.

Coast Entertainment has welcomed the latest stimulus package form the Queensland Government in the wake of the summer storms.

The $2.5 million package will make available more than 50,000 vouchers for tourists and locals to use for Gold Coast attractions such as Dreamworld, Movie World and Sea World.

The theme park group ended the year with cash of $106.4 million, although it has since received US$8.03 million ($12.08 million) from Dave & Buster’s Entertainment Inc comprising the bulk of proceeds from the sale of its Main Event business in the US.

The company is expecting another US$550,000 ($827,000) later this year that will finalise the transaction announced in 2022.