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SkyCity FY profit falls 8 percent on flat Auckland result, one-off 2012 benefits

Wednesday 14th August 2013

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SkyCity Entertainment Group, which has won increased gaming concessions in Auckland and Adelaide, said full-year profit fell 8 percent, missing estimates, on a flat result in New Zealand's biggest city and one-time benefits the previous year, which weren't repeated.

Shares of SkyCity fell as much as 4.9 percent to $3.90 as soon as trading opened on the NZX, recovering to trade down 3.9 percent at $3.94.

Net profit fell to $127 million, or 22.1 cents a share, in the year ended June 30, from $138.9 million, or 23.8 cents, a year earlier, the Auckland-based casino and hotel company said in a statement. Sales fell 0.3 percent to about $948 million.

Profit lagged behind First NZ Capital's forecast $129.2 million, while normalised profit, which strips out one-time items and other adjustments was $136 million, below the "about $140 million" guidance SkyCity gave with its first-half results in February.

Chief executive Nigel Morrison listed one-time factors that boosted profit a year earlier, including $4.7 million 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.

In addition, he said, the benefits of strong growth in earnings from Darwin were eroded by the kiwi dollar's strength against its Australian counterpart.

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.

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 am 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.

"In FY13, important steps were taken to establish the foundations for growth in FY14 and beyond," Morrison said. Agreements with the governments in New Zealand and South Australia "will underpin the foundations of our long-term future growth."

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.

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.

"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."

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.

Darwin's revenue climbed 13 percent to A$133.5 million and Adelaide's was unchanged at A$160.4 million, which the company said was acceptable, "considering the economic climate in SA."

The stock is rated a 'buy' based on the consensus of nine analysts polled by Reuters, with a median price target of $4.68.

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