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Sky City reiterates profit forecast, gains BBB- rating

Monday 14th July 2008

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Sky City Entertainment Group, New Zealand’s biggest casino operator, reiterated its full-year profit forecast and said a Las Vegas-style downturn isn’t likely to dent its main complex in Auckland.

Full-year profit rose to between NZ$108 million and NZ$110 million, the company said in a statement. It first gave that forecast with its interim results in February. Sky City shares rose 1.7% to NZ$3.05.

Casino revenue in the Las Vegas Strip fell 16% in May, Nevada’s Gaming Control Board said this month, helping drive down shares of MGM Mirage, Las Vegas Sands Corp. and Wynn Resorts Ltd. Sky City has hired new managers for Auckland and today said it is concentrating on core gaming products to stoke returns.

“It still seems like Auckland is going reasonably well,” said Paul Richardson, who manages NZ$150 million of New Zealand shares and property at BT Funds Management. “What impresses us is the new management in Auckland and also Christchurch – they know exactly what they are doing.”

Today’s statement was an investor update from chief executive Nigel Morrison, who joined the company in March.

“We are a company with a unique collection of very valuable casino licenses – these assets rarely become available,” he said. “Our objective is to develop the full potential of these assets and we believe that there is significant opportunity to do so.”

Prior to Morrison’s appointment, the company had been criticized for chewing up too much of its resources on expansion, leaving it with some assets that needed more resources or that were hamstrung by regulation, such as its Adelaide, South Australia centre.

Spending Cap

“We are coming to the view that there is little point investing significant capital in our Adelaide property unless we can work with the South Australian government to improve the business model,” Morrison said in the statement.

The company opted to retain Adelaide during a review last year and will also keep its chain of SkyCity cinemas, which have twice the market share of their nearest New Zealand competitor, after a deal to sell the assets collapsed.

“The economic environment in New Zealand is now more challenging,” Morrison said. Still, he said he doesn’t expect Sky City to suffer as much as airlines and tourist operators, because its casinos mainly serve local communities.

The company also gained a BBB- rating at Standard & Poor’s, the lowest investment-grade rating available, and said its NZ$1 billion of debt places no undue pressure on Sky City.

By Jonathan Underhill

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