Sky City - A for Auckland not Alpine

By Phil Boeyen, ShareChat Business News Editor

Tuesday 21st August 2001

Sky City (NZSE: SKC) has once again delivered a growth story to shareholders thanks to its Auckland operations, although the new Queenstown venture is not up to scratch.

For the year to June the company made a net profit of $68.3 million, up 13% on last year's $60.3 million. Turnover was $435 million compared to $293.88 million previously.

The company says it achieved significant growth and development during the 2001 financial year with earnings per share increasing from 63c last year to 70cps this year and earnings augmented by the acquisition of its Adelaide and Queenstown businesses.

In Auckland revenues grew 8% to $318 million while earnings before interest, tax, depreciation and amortisation jumped 54%. This compares to group Ebitda which rose 23% to $172 million.

"The key drivers of the Sky City Auckland result have once again been revenue growth and cost containment," the company says.

It recorded revenue growth across all divisions - gaming, food and beverage, Sky Tower and carparking - with only the hotel showing a reduction in revenue compared to last year due to competitive price pressure on rates.

In Adelaide the company says the financial year was significantly impacted by the renovation and refurbishment programme carried out between August 2000 and March 2001.

Overall, Adelaide 2001 revenues were up 4% on the 2000 year at A$82.5 million, but revenues since relaunch were up over 12% compared to the corresponding period last year.

However because the company is having to spend money to make money, it says Ebitda is down significantly on the prior period at A$15.6 million and earnings before interest and tax is similarly affected at A$8.3 million.

"Our objective during the FY02 year will be to drive revenue performance in order to achieve a significant recovery in these key financial performance ratios."

A disappointment for the group is the operation of its Sky Alpine Casino in Queenstown where trading revenues have fallen significantly below expectations, totalling $3 million for the seven months trading since December.

"Despite a number of initial issues, we remain committed to our Queenstown operation as a new entertainment option for visitors, as an important additional component of Queenstown's tourism portfolio, and as an important element in Sky City's premium player strategy," the company says.

SKC also holds equity stakes in two listed companies, Canbet Limited and Force Corporation.

The company will be increasing its equity position in Canbet to 33% in February and reports that its directors are very positive about the earnings prospects of the company in 2002 and in subsequent years.

Despite significant asset writedowns in its latest result Sky City says its Force investment has reported that cinema operations are trading well and it should be a good year ahead at the box office.

However SKC admits there have been concerns over FOR's capital structure and it is willing to support a $30 million equity raising.

"Force has been over-geared and its debt facilities have not been well-structured, particularly in respect of the Argentinean operations.

"In response to these circumstances Force has renegotiated its New Zealand debt facilities, is well-advanced in renegotiating the Argentina debt facility and is planning an equity raising of $30 million.

"Sky City has advised Force that, subject to a number of conditions and the terms of the equity raising being satisfactory, it is willing to take up its 50.2% entitlement and also to underwrite the equity raising on commercial terms.

SKC is paying a final dividend of 35 cent per share.

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