Overachiever Sky City becomes a takeover target

Friday 24th August 2001

By Deborah Hill Cone

Listed casino operator Sky City was looking like even more of an attractive takeover target yesterday after it reported another record profit and its share price dipped slightly.

For the year to the end of June, Sky City made an after- tax profit of $68.3 million, up 16% on the $60.3 million profit the previous year. The group's total revenue was up 47% to $431 million, with Sky City Auckland accounting for $318 million, an increase of 8% on the previous year.

Sky City has no single major shareholder with a strategic large stake in the company, making it more of an accessible target for a takeover bid. The largest shareholder is Colonial First State Investment Managers with 14.9%, which bought in shortly after it listed on the ASX when the shares were at the $7.50 mark.

Colonial First State senior portfolio manager for Australasian equities Ian Harding said there would be a "certain attraction" in Sky City for any group looking for secure cashflow, maybe with the option of using Sky City's qualified management. "I believe the margin the other casinos earn is substantially under Sky City - they are probably scratching their heads saying 'how can we make our site run as well as that one?' " he said.

The problems with Sky City's investment in problematic cinema chain Force Corporation were a minor issue and should not overshadow its stellar result. "It's a modest amount we're talking about [in Force]," Mr Harding said.

Sky City shares opened at $11.15 on Wednesday and closed at $11.

Mr Harding said the slight retracement after a "rocket trajectory" might reflect concern about Sky City's peripheral investments, such as Force.

Sky City's expansion last year with the acquisition of the Adelaide casino and the opening of its Queenstown venture has not dragged down profits.

Sky City managing director Evan Davies said the Sky City Auckland result showed revenue had grown and costs had been contained. Gaming revenue in Auckland was up 10% and non-gaming revenue was also up.

The exception was the Sky City hotel, which had increased occupancy but had been forced to drop its room rate due to tough competition.

Results from Sky City's Adelaide investment reflected the fact the casino had been undergoing a renovation and refurbishment programme from August 2000 to March this year.

"Despite careful planning and project management, it was inevitable the construction programme would have some impact on customers," Mr Davies said. He said while the Adelaide bottom-line performance was down on previous years it was expected. The complex was under construction for much of the year.

The Sky Alpine boutique casino, which is 50% owned by Sky City and opened last December, has not produced trading revenue expected. The company plans to reduce the Queenstown casino's trading hours to reduce costs and will also review its positioning and product.

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