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SkyCity sees further delays to convention centre, says contract will mitigate losses

Tuesday 1st May 2018

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SkyCity Entertainment Group said its $703 million New Zealand International Convention Centre and Hobson Street hotel project under construction by beleaguered Fletcher Building will be delayed a further six months.


The projects are now expected to be completed in December 2019, the Auckland-based company said in a presentation delivered to the Macquarie Investor Conference in Sydney today. When Fletcher won the contract in October 2015, construction was predicted to start in late December that year and last 38 months, meaning the centre would have been delivered in February 2019, however after Fletcher ran into problems with cost blowouts, SkyCity said last year that the project deadline had been pushed out to mid-2019.


SkyCity said today that its investment in the projects is expected to be in-line with the original budget of about $703 million, and it remains comfortable with the contractual arrangements. The construction contracts provide for liquidated damages which should mitigate losses through delay, the company said.


Fletcher has faced cost blowouts in some major projects, including SkyCity's convention centre and the Justice and Emergency precinct in Christchurch, which led to earnings downgrades and the firing of chief executive Mark Adamson. It has signalled a move away from future vertical construction projects and is selling assets and raising money from share sales to strengthen its balance sheet. 


SkyCity said today that the first stage of its convention centre carpark in Auckland, of about 600 carparks, would be completed before the end of June. The company said it has secured three major convention centre bookings since March, in addition to the six previously announced, and continues to work on numerous leads and opportunities. The 33,000 square metre facility will be the largest purpose-built convention centre in the country.


New Zealand's only listed casino company is undergoing a period of heavy investment, with A$330 million earmarked for the redevelopment of its underperforming Adelaide casino, $703 million in the convention centre and Hobson St hotel in Auckland, a commitment to buy the neighbouring AA Centre for $47 million, and potential further developments in accommodation, food and beverage, new gaming spaces and entertainment. It's also considering enhancement at its Hamilton casino to include accommodation and Riverbank development and is investing in IT to upgrade ageing infrastructure and allow for future growth.


The company is looking to free up cash from its existing assets to protect dividend payouts. It has appointed investment bank Goldman Sachs to test interest from "selected parties" in its Darwin casino, and said today that Goldman Sachs is testing potential for a full sale of the business, with "encouraging early interest" from a broad range of buyers.


SkyCity said it expects to post about 3 percent growth in normalised group earnings before interest, tax, depreciation and amortisation for the 2018 financial year.


It said normalised revenue for its 2018 year so far to April 28 was up 4.6 percent on the previous corresponding period, while domestic revenue excluding international business (IB) was up 2.6 percent. So far in the second half of its financial year, covering the period from Jan. 1 to April 28, group normalised revenue was up 7.2 percent with domestic revenue excluding IB up 2.1 percent. 


In New Zealand, its Auckland business performed well in the third quarter but experienced weaker table games during April, the company said. Hamilton's performance was stable in the second half to date with strong non-gaming performance offsetting slightly weaker gaming activity, it said.


In Australia, the performance of its Adelaide business improved in the second half to date due to increased premium gaming activity and operating efficiencies while its Darwin business stabilised and delivered an improved performance, it said.


The company said its international business remained on track to achieve at least $10 billion in turnover for the 2018 financial year despite adjustments it had made due to an error in the way it had been calculating turnover which caused it to overstate turnover the past three years.


SkyCity shares last traded at $4.05, and have dropped 7.1 percent over the past year. Fletcher shares slipped $6.26 and have shed 22 percent over the past year.



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