Wednesday 26th July 2017
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SkyCity Entertainment Group will write off all the goodwill in its Darwin casino complex with an A$95 million impairment, saying increased competition for gaming machines in the Northern Territory hurt revenue and earnings.
The non-cash impairment will be recognised in the Auckland-based casino and hotel group's results for the year ended June 30 and will reduce the book value of the Darwin property to A$195 million, it said in a statement. The impairment amounts to the full value of goodwill recognised when SkyCity acquired the Darwin property in 2004 and was the result of a Northern Territory government decision to free up restrictions on gaming machines, it said.
The impairment "stems from the unforeseen policy decision in December 2014 by the previous Northern Territory government to remove the cap on gaming machines in the territory," SkyCity said. "Since the implementation of that policy in July 2015 there has been a 75 percent increase in the number of gaming machines in Darwin (outside of the casino). This significant increase in competing gaming machines in the catchment area of the casino has consequently had an increasingly adverse impact on revenue and earnings at SkyCity Darwin since the beginning of 2016."
As a result, the company has a review underway "to identify strategic opportunities to maximise value from the Darwin property," it said. The impairment won't affect SkyCity's final 2017 dividend payment and wasn't expected to impact the company's BBB- credit rating at Standard & Poor's, it said.
In April, SkyCity reported a 4 percent decline in third-quarter sales as its Australian businesses in Darwin and Adelaide continued to struggle while its flagship Auckland casino dealt with flat gaming revenue and the loss of its Air New Zealand Koru catering contract.
Sales at the Adelaide casino fell 1.8 percent to A$36 million and SkyCity said at the time the property will post a weaker second half as it deals with flat revenue and growing pressure on its margins, while its Darwin operation reported a 5 percent fall in revenue to A$23.2 million in the face of tough trading conditions and competitive pressures.
Separately today, SkyCity released an update of its plans to expand its facilities in Adelaide. The company said it was committed to proceeding with the expansion project in Adelaide following the signing of a development agreement with the South Australian government. Total project costs have increased to about A$330 million including contingencies, design changes and an additional hotel floor.
Work was expected to start in the first quarter of 2018. In a presentation, SkyCity said it "remain(s) confident in the investment thesis for Adelaide, supported by regulatory concessions agreed with the SA government." The deal with the state government gives it a casino licence until 2085 and exclusivity in South Australia until 2035.
The project represented a "significant opportunity to grow market share and to turn around an underperforming casino."
SkyCity shares last traded at $4.22 and have fallen about 15 percent in the past 12 months while the S&P/NZX 50 Index gained 5.5 percent. The stock is rated a 'hold' based on the consensus of eight analyst recommendations compiled by Reuters.
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