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Sky City looks forward to more growth, AM cup role downplayed


Tuesday 25th February 2003

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Gaming operator Sky City Entertainment continued to please investors by bettering market forecasts for its interim profit result today, and promised more to come.

"Auckland has a very clear path that will lead to sustainable ongoing revenue growth for several years to come," managing director Evan Davies said in a briefing today.

A turnaround at the company's Adelaide casino also helped to fuel its profit of $52.8 million, a 39 percent increase on the previous half year to December.

Shares in the casino operator rose 3c to 833 in midday trading.

"Sky City was very good, better than expected ... people were picking a profit in the $40 millions," Stephen Wright of ASB Securities said. Analysts expected a result of around $50 million. But Mr Davies was staying coy about expectations for the full year profit, repeating an earlier statement that he was comfortable with market forecasts.

Previous estimates have put Sky City at between $95 and $105 million .

Mr Davies said the America's Cup, whilst good for the city's entertainment sector as a whole, was not the major factor in Sky City's success, as much of that money was being spent in the Viaduct Basin.

"To be quite honest, the America's Cup is one event which provides that kind of atmosphere in the community but there are number of others ... We look forward to a great winter of rugby providing exactly the same kind of optimism."

The company delivered a strong, fully imputed interim dividend of 21c per share, up from 15.5cps in 2001.

Despite this, Sky City hopes investors will be willing to sell their shares back to the company in a $60 million buyback scheme confirmed today.

The buyback begins on March 3 and will continue until April 30, then resume after the full year result in late August to the end of November.

The buyback scheme completes a $100 million capital return to shareholders, adding to a special 20cps dividend paid in November last year.

Stronger gaming revenues were evident in today's interim result, with gaming at its flagship Auckland casino rising 14 percent, and Adelaide gaming up 15 percent.

Operating revenues at Auckland and Adelaide both rose 13 percent, taking the total revenue to $280 million, up 12 percent.

Mr Davies said Auckland's growth would be stoked by a $20 million extension to its gaming, bar and food facilities due to be completed at the end of the year. Auckland city also had a major accommodation shortage, which was why Sky City was building a $75 million hotel above its new $60 million convention centre, which was to due to opened in the first quarter of next year.

The new hotel was scheduled for completion in December 2004.

Sky City's higher interim profit compared well with a $37.9 million surplus in first half surplus in the previous corresponding period -- and that was before a $27 million writedown in Sky City Leisure, formerly Force Corp, was subtracted from the 2001 result.

This year Sky City Leisure was a no longer a drain, with cinema revenues steady and a half year profit of $1 million compared to a $5.1 million loss in the previous period.

But the group was still having a hard time in Queenstown, where it owns one of two casinos. Margins were up and revenues at Sky Alpine rose 23 percent to $3 million but earnings before interest and tax (ebit) showed a reduced loss of $300,000.

The new Riverside casino in Hamilton made a strong initial contribution since its September opening, making $7.8 million in its first three months.

Canbet, an Internet sports betting agency in which Sky City holds a third stake, was relocating to Britain, although its listing is in Australia. Turnover had risen 55 percent to $A300,000 ($NZ325,485).

Strong margin growth at Sky City's other Australian investment, Adelaide, had confirmed its turnaround, and its revenues increased 13 percent to $A53 million.

Auckland's revenue rose 13 percent to $22 million.

Group ebitda (earnings before interest, tax, depreciation and amortisation) was up 21 percent at $126 million.

In answer to a question about how many of the casino's gaming patrons were from overseas, Mr Davies said it was about 15 percent and 10 to 15 percent were domestic tourists.

"We get one in three international arrivals at Auckland International ... I think that's an extraordinary statistic... and the Sky Tower gets one in two international arrivals."

But he rejected assertions that tourism had been the main justification for the Auckland casino licence.

" The original justification for (casino) licensing in New Zealand was three-pronged and certainly tourism was one of those three prongs but of equal consequence were employment creation ... and overall economic `bang' if you like. Clearly as the city's largest ratepayer among other statistics of contribution, we've created economic value.

"That being said ... By any reasonable measure, Sky City is New Zealand's pre-eminent tourism business ."

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