SkyCity wins bigger share of high rollers but wants more

Friday 17th October 2014

SkyCity Entertainment Group wants to boost its share of the Australasian market for high-rollers from the current 5 to 8 percent to 15 percent, primarily through the redevelopment of its Adelaide Casino and stronger marketing in South East Asia.

At its annual meeting in Auckland today SkyCity said first quarter revenues were showing good momentum, up 6 percent on the first quarter of the previous financial year, despite continued construction disruption in Adelaide. The biggest growth has come in the high rollers from South East Asia, with a 55 per cent increase in international business to $2.2 billion.

Auckland continues to be the star performer with overall revenue in the first quarter up just over 12 percent and international business rising 41 percent to $1.39 billion. Auckland produces the lion’s share of the group’s revenue from international business at 64 percent, followed by Adelaide on 18 percent and Darwin with 16 percent.

In particular, there was good growth from Chinese players, its core VIP target, with turnover from Chinese domiciled players up more than 400 percent on the previous period last year.

Chief executive Nigel Morrison said the planned $350 million to $380 million capital expenditure on a new six-star hotel and additional gaming facilities and VIP rooms in Adelaide should see its international business grow to equal Auckland’s.

“Four years ago we made $15 million in international VIP table game return. Today it is $90 to $100 million. We’ve focused very much on building that business and won a lot in Auckland and Adelaide has great potential to attract international players once the hotel is built,” he said.

SkyCity is still a relatively small player in the competitive high-roller market compared to its Australian competitors Crown and Echo. Morrison said expanding the sales marketing staff in South East Asia had helped boost revenue along with now having world class restaurants within the Auckland casino precinct.

The group’s signature restaurants in Auckland – which include Sugar Club, Depot, Federal Deli, Masu, The Grill, Gusto Cucina, and Orbit – are profitable businesses in their own right, contributing annual revenues of over $40 million with healthy margins but Morrison said they were also critical to its international business success.

The win rate from the international business for the first quarter was 1.72 per cent, compared to 1.45 in the same quarter last year and Morrison said while international business wasn’t as profitable as some other segments it still returned a margin of between 15 and 20 percent net profit.

Morrison said the main focus for growth was on three key things – construction of the NZ International Convention Centre, the Adelaide redevelopment, and construction of a new 300-bed hotel in Auckland. A preliminary design for the convention centre is awaiting government approval and it hoped to then apply for consents. Morrison confirmed a planned airbridge between the convention centre and its existing casino was a “contentious issue” with the Auckland Council but he was still hoping for a “smooth consent process”.

The first stage of redevelopment at the Adelaide Casino is due for completion in December or January which should see revenues grow again in the second quarter and then plans get underway for an expanded $350 million to $380 million redevelopment that includes a six-star hotel, new VIP gaming facilities, additional signature restaurants and a bigger casino podium due for completion in 2018.

Morrison said the group expected to fund the expansions out of existing debt facilities although additional funding could be provided through the sale of the Federal St carpark in Auckland or entering into joint venture-type arrangements for some of the capital projects. He said they had been approached by a significant hotel operator, keen to run both the new Auckland and Adelaide hotels and that was being considered because of the strength of the brand involved.

Although SkyCity said it prided itself on being a leading employer, one staff member stood up at the annual meeting to complain of having her shifts reduced from two a week to one without consultation, which could mean she had to sell her Auckland house. The solo mother, Carolyn Alpine is a table games supervisor and has worked for SkyCity for more than 15 years. She said several other staff members had also had similar treatment.

She already had a scheduled meeting with the group’s human resources this afternoon and SkyCity said the proposal was to change the days she worked rather than reduce the number of shifts. Morrison said the staff member would be treated fairly, but the company had to ensure it had flexibility in its gaming operations to run efficiently and meet market demand.

Another shareholder Lynne Webber suggested the directors could forgo their proposed $65,000 or 5 percent increase in fees and apply it to some of the group’s lower paid workers. Chairman Chris Moller said that would be something he’d discuss with fellow directors.

SkyCity shares rose 3.5 percent to $3.59 today.

BusinessDesk.co.nz

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