SkyCity profit surges 30% as debt buyback slashes interest costs; stocks gains

Tuesday 16th February 2010

SkyCity Entertainment Group, boosted first-half profit 30% after slashing interest costs by buying back U.S. debt with a favourable exchange rate.

The shares gained 2.9% to $3.22 on the NZX today. Net income climbed to $71 million, or 11.5 cents a share, in the six months ended December 31, from $54.8 million, or 10.8 cents a share, a year earlier, the company said in a statement.

Chief executive Nigel Morrison said a significant contribution to the result was the 29% reduction in net interest costs to $27 million after it bought back $177 million of US Private Placement debt in July and August at an average discount of 0.92%.

“It’s a very solid result and modestly positive after a weak start to earnings season,” said Paul Robertshawe, who oversees $250 million at Tower Asset Management. “It’s a defensive stock that’s proven to be so – it’s done exactly what it should do.”

The first-half earnings season for companies listed on New Zealand’s stock exchange kicked off with a whimper last week when Steel & Tube Holdings slashed its profit by 85% and Telecom Corp.’s cost-cutting plans failed to hold back a 24% slump in underlying earnings. Analysts and investors are looking for greater guidance from companies after they cited the continued uncertainty amid the fall-out of the global financial crisis.

SkyCity’s revenue grew 5.9% to $447 million on the back of growth in its Australian and international businesses. The company’s New Zealand revenue was flat, with earnings kept in check as the casino operator clamped down on expenses.

Robertshawe said the company boosted its guidance slightly after it said its full-year normalised net profit will increase between 10% and 15%, excluding the $10 million gain from the sale of its cinema group.

“We expect our second-half earnings to be not dissimilar to the normalised earnings achieved in the second half last year,” Morrison said.

The company will pay an interim dividend of 8 cents a share, down from last year’s 9.5 cents, after it changed its dividend policy to pay between 60% and 70% of net profit, compared to the 90% benchmark last year.

Earnings before interest, taxation, depreciation and amortisation rose 7.8% to $160.1 million, ahead of broker Forsyth Barr’s forecast $153.6 million, in which analyst Jeremy Simpson said he expected to a strong result from the Australian casinos.

The gaming company will book a profit of $10 million from the sale of its cinema business to Australian company Amalgamated Holdings. The sale will be settled in two days after the Overseas Investment Office yesterday signed off on the deal.

View the NZX announcement for SkyCity Entertainment >>

Businesswire.co.nz

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