SkyCity shares fall as results show struggle to squeeze growth out of Auckland

Wednesday 14th August 2013

SkyCity Entertainment Group shares fell to a seven-month low after the casino and hotel company posted an 8 percent drop in full-year profit that included weaker earnings from its Auckland business.

The shares dropped 3.7 percent to $3.95 after the company reported net profit fell to $127 million in the year ended June 30, from $138.9 million, a year earlier. Profit lagged behind First NZ Capital's forecast of $129.2 million.

In Auckland, the company's biggest operation, normalised earnings before interest, tax, depreciation and amortisation fell 1 percent to $210 million after adjusting for a $6 million Rugby World Cup benefit in 2012. Normalised EBITDA fell 1.3 percent in the second half from a year earlier.

"Clearly it has been very hard to stimulate growth out of the Auckland asset. They have tried a number of initiatives," said Matthew Goodson, managing director at Salt Funds Management. "Gambling is a tough industry in New Zealand and revenue is flat."

SkyCity has opened new restaurants at its Auckland site including well-known chef Peter Gordon's The Sugar Club this month, with a second restaurant planned by Al Brown, the TV celebrity chef, and another high-profile chef Nic Watt set to open a restaurant in the Grand Hotel complex in the first half of the current year. The company has also opened a new Baccarat Room and its Eight VIP gaming room.

"It was always going to be challenging to outperform Auckland's 2012 result," Morrison said. "The FY13 result reflects unpredictable consumer spending, particularly in 3Q13 during Auckland's long summer."

The Auckland win rate in the second half was 1.9 percent or $36.9 million, which was $10 million above the theoretical win rate and more than double the win rate in the second half of last year.

Electronic gaming machine revenue fell 6.1 percent due to an accounting adjustment for its Bally gaming system, while international business revenue grew 10.9 percent, restaurant and bar revenue was up an adjusted 5 percent and hotel and convention sales were up 10.7 percent.

Adding to a flat year, a group of Asian gamblers absconded from the casino after racking up $2.4 million of debts.

The biggest achievements of the past 12 months, winning legislative approval from the South Australian State Parliament to expand its Adelaide complex and increase its gaming platforms, and gaining buy-in from New Zealand's government for similar concessions in exchange for building an Auckland convention centre, won't show up for some years. Both deals, which extend the company's gaming licences, were effectively clinched in July, after balance date.

Returns "look ok" for the convention centre while Adelaide "looks to be a very strong project potentially - very big for them and for Adelaide," Goodson said.

Darwin was the brightest part of SkyCity's results, with a 13 percent gain in normalised revenue while sales were flat in Adelaide but any gains across the Tasman were eroded by the kiwi dollar's strength against its Australian counterpart. The cross-rate touched a five-year high after the end of the financial year, suggesting New Zealand firms will feel even more of an impact going forward.

"One of the key takeaways was that you did start to see a stronger kiwi cross rate having an impact," Goodson said. A high kiwi is going to be "a significant headwind" for New Zealand companies with businesses in Australia.

Nigel Morrison listed one-time factors that boosted profit a year earlier and made for a more unfavourable comparison. They included $4.7 million of earnings attributed to the 2011 Rugby World Cup, the sale last December of its 50 percent interest in the Christchurch Casino with consequent loss of that income, and a higher win rate in the second half of the latest year.

The company will pay a final dividend of 10 cents a share, up 2 cents from a year earlier and in line with estimates. Payments for the full year were 20 cents, up from 17 cents in 2012.

Normalised revenue in Hamilton was unchanged at $52 million while Queenstown Casino recorded normalised earnings of $1.4 million, also unchanged from a year earlier.

BusinessDesk.co.nz

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