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Local traffic helps Sky City come up trumps

By Deborah Hill Cone

Friday 29th August 2003

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Glamour stock Sky City Entertainment Group yesterday was trading at 8.81c, down from $9.32 two weeks ago despite reporting a stunning $107.2 million profit this week.

The gaming and entertainment company reported a profit of $107.2 million for the year ending June 30, up 26% from last year's after tax-paid profit of $85.1 million (that figure was before non-recurring items relating to the purchase of cinema chain Force Corporation).

Group revenue was up 9% from the previous year to $557 million and operating earnings were up 14%.

Managing director Evan Davies said that since Sky City opened it had delivered six consecutive years of profit increases.

"Key drivers of Sky City's strong 2003 performance were revenue increases from our Sky City Auckland, Sky City Adelaide and Sky City Queenstown operations. The opening of our Hamilton business in September last year added a new revenue stream and saw a solid first "year" (9.3 months) contribution from that property to the group's overall result," Mr Davies said.

The solid result was a sign Sky City was not particularly vulnerable to fluctuations in tourist numbers and could grow despite threats to the tourism industry.

Mr Davies said the result was an assurance of the business' resilience in times of external uncertainty, such as the Sars epidemic and the Iraqi war.

Sky City's survey of its various properties breaks down to about 30% international tourists and about 70% local or domestic leisure visitors.

Sky City had managed to improve its margins from a gross margin of 54% last year to 55% this year.

Gaming revenues at the flagship Auckland casino were up 8%, with table games showing growth of 7% and gaming machines 8%.

Food and beverage revenue at Auckland was up 10% at $30 million, Sky Tower revenue was up 7% at $7.6 million and the hotel and conference revenue in Auckland was up 7% to $20 million.

Sky City Adelaide was up 9% to $A103 million, with gaming revenue up 10% to $A92 million and food and beverage revenue in Adelaide was up 5% to $A13.2 million.

Sky City Hamilton, which opened in September last year, reported revenue for nine months of $20.4 million and Sky City Queenstown showed a significant improvement in profitability with revenue up 15% to $6 million.

Sky City's investment in the former Force Corporation, now renamed Sky City Leisure, also started to pay off, with that company showing a 27% improvement in net profit to $3.3 million.

On-line wagering company Canbet, in which Sky City has a 32.6% stake, showed an improvement profit of $A499,000, up from $A340,000 the previous year.

Sky City is preparing for changes to the smoking laws in New Zealand and Mr Davies said the company was well placed.

"As far as smoke-free restrictions go these have been increasingly inevitable for some time," Mr Davies said.

Sky City had known this had been coming for some time and had worked to minimise the downside and maximise the benefits from it, Mr Davies said.

"It's not something that keeps us awake at night ­ we know how to deal with it," Mr Davies said.

The company made no new statements about possible acquisitions including Perth's Burswood Casino, which it is reported to be interested in buying.

Sky City has not ruled out the potential deal, saying as a major participant in the Australasian gaming industry it is "naturally interested" in what is going on in the market but would make no specific comment on Burswood.

But Mr Davies said he was confident Sky City could continue to grow in the New Zealand market by enhancing the "entertainment experience" at its properties.

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