Adelaide casino needs carparks, 'disappoints' SkyCity

Wednesday 12th August 2015

SkyCity Entertainment's Adelaide casino underperformed in the last financial year, in part because it doesn't currently have a carpark, although plans are in the works to fix that, chief executive Nigel Morrison told a conference call to discuss the company's earnings for the year to June 30.

New Zealand's only listed casino company posted a 31 percent rise in annual profit to $128.7 million as an improved win rate for its international business and strong growth in Auckland made up for a lacklustre Australian performance.

"It's fair to say we have been disappointed with the result in this second half" from the Adelaide casino. For eight months of the year, trading was affected by refurbishment work.

Not having a carpark was also a "tremendous impediment" to Adelaide as three quarters of pokie players commuted by car, he said.

SkyCity has agreed exclusive lease of 750 of the 1,560 carparks in the adjacent Adelaide Festival Plaza being developed by Walker Corp. It is in talks with Walker and the government about its A$350 million plan to further develop its riverside complex to include a hotel.

Adelaide showed some positive trends in the fourth quarter with higher visitation and improved Ebitda margins as the company eked out efficiencies, said Morrison.

"I can assure you we are totally focused on addressing that and taking some costs out of the business and returning that business to Ebitda growth for this year."

Morrison said the company had expected a greater revenue uplift from its spending in Adelaide, but regulations had unexpectedly hampered that growth and meant the company wasn't getting as many people into some of its gaming rooms as expected.

"We are working through those with the regulators and hopeful that we will get those dealt with so that will provide some revenue uplift," Morrison said, adding the company expects to provide further details in the next couple of months.

For the SkyCity group as a whole, sales rose 12 percent to $1 billion. SkyCity also provided 'normalised' figures, to reflect the performance of its underlying business, which showed revenue rose 8.7 percent and profit rose 8.8 percent.

The company has four casinos in New Zealand and two in Australia and benefited from an improved performance in Auckland, which accounts for 84 percent of earnings, as profit fell in Adelaide and Darwin. Revenue from its international business, the term it uses for 'high roller' gamblers, more than doubled.

"It was a mixed result, Auckland was strong as expected, while Adelaide and Darwin were a little concerning," said Matthew Goodson, who holds SkyCity shares among the $700 million he helps manage at Salt Funds Management. "Overall the result was in line to slightly below expectations. They have spent a lot of money at Adelaide and the earnings aren't really coming through at this point as one would hope. Darwin is just a little soft as well."

He said both Adelaide and Darwin are exposed to Australia's resource sector, which is being hurt by a slowdown in demand from China.

"The key is to get Adelaide working a lot better," Goodson said. "They have spent a lot of money on redevelopment there and they really do need to see better results. The pubs and clubs in that market have very significant market share and they have to get people out of them and into the Adelaide casino."

SkyCity shares fell 1.9 percent to $4.21.

In Adelaide, the company's second largest property by revenue, earnings before interest and tax dropped by two thirds to $6.9 million as 9 percent growth in expenses to $129.1 million outpaced a 1.2 percent increase in revenue to $152.3 million.

The company said its Adelaide business was impacted by refurbishment work completed in January, as well as flat local gaming revenue, consistent with other pubs and clubs in South Australia, and higher operating costs, which pushed down margins to 15.7 percent from 20.3 percent the year earlier on an earnings before interest, tax, depreciation and amortisation basis.

In Darwin, Ebit declined 1.2 percent to $26.7 million as revenue slipped 5.8 percent to $123.2 million while expenses dropped 8.4 percent to $82.7 million. The company said Darwin achieved a "satisfactory" result despite "a challenging local market".

SkyCity Auckland increased Ebit by 13 percent to $180.4 million as revenue rose 10 percent to $473.7 million and expenses gained 8.5 percent to $245.5 million.

The company said it had focused on keeping a lid on costs at its Auckland business, which ensured margins were maintained despite strong growth in international business, local tables and food and beverage.

"There is no doubt the Auckland property continues to benefit from the buoyant Auckland economy and the strong tourism market," Morrison said.

The Auckland business is expected to start benefiting from $458 million worth of gaming concessions granted by the government by the end of this year which were agreed as part of a deal for it to build an international convention centre. It expects to sign the building works contract by October and start construction by the end of this calendar year, it said.

SkyCity's other New Zealand businesses, located in Hamilton and Queenstown, increased Ebit 15 percent to $16.4 million.

The company said its international business for high rollers posted Ebit of $29.9 million, compared with a loss of $2.3 million a year earlier, as revenue more than doubled to $112.1 million from $55.8 million, while expenses rose 42 percent to $82.2 million. It said the win rate of 1.36 percent in the year was broadly in line with the theoretical win rate of 1.35 percent.

Meanwhile, local gaming revenue increased 3.8 percent to $592 million, while non-gaming revenue gained 9.2 percent to $212 million.

The company said trading in July showed "a continuation of the momentum" seen in the second half of the 2015 year, with "strong performances" in Auckland, Hamilton and international business.

SkyCity said it has enough debt funding to meet expected requirements until at least the start of 2018 but is continuing to investigate a potential New Zealand retail bond issue following the repayment of capital notes in May.

The company is exploring ways to finance its major property transactions, and is exploring "partnering options" with Jones Lang Lasalle in relation to the Hobson St hotel project in Auckland and other property potential developments. It is looking at how to use its $1.4 billion of property assets for efficient funding purposes and expects to "conclude something" on the issue in the next six months, it said.

The company will pay a final dividend of 10 cents a share on Oct. 2, unchanged from the year earlier.

BusinessDesk.co.nz

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