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UPDATE: SkyCity normalised FY profit rises 1.3% on modest NZ growth

Wednesday 9th August 2017

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(Adds details of earnings, updates shares)

SkyCity Entertainment Group, the casino and hotel group, posted a small gain in normalised full-year profit on modest growth in New Zealand and a lower net interest expense, offset by reduced turnover in its international business and ongoing weak trading conditions in Australia. 

Normalised net profit rose 1.3 percent to $154.6 million in the year ended June 30, the Auckland-based company said in a statement. The result is slightly lower than analysts were expecting.  First NZ Capital had forecast net profit of $155.3 million while Forsyth Barr was expecting $156.4 million. Normalised earnings before interest, taxes, depreciation and amortization were down 2.6 percent to $321.5 million while normalised revenue was down 4.9 percent to $1.03 billion. Normalised earnings per share fell 8.6 percent to 23.3 cents per share, largely due to increased shares on issue compared to the prior period.

Reported net profit fell 69 percent to $44.9 million, mainly on an A$95 million impairment of Darwin goodwill following an annual impairment review. Reported earnings per share fell 72 percent to 6.8 cents, also due to the Darwin impairment. 

SkyCity declared a final dividend of 10 cents per share, payable on Sept. 15, resulting in a total full year dividend of 20 cents per share. 

It said the international business was adversely impacted by increased restrictions on fund transfers from China and a reduced number of visits from larger customers, in particular after the arrest of staff employed by its Australian rival, Crown Resorts, by the Chinese government. Normalised ebitda was down 42 percent to $19.6 million while turnover for the full year was down 30 percent to $8.7 billion. It said it remains confident in the medium term outlook for the business. 

Overall, it said it expects group ebitda to "grow modestly" in the current financial year compared to the prior year. Key drivers are expected to be growth from its New Zealand businesses and a recovery in the international business, offset by further weakness in Darwin, said chief executive Graeme Stephens in a statement. 

It noted that the New Zealand International Convention Centre and Hobson Street hotel projects remain on-budget. As previously announced, practical completion is now expected by  mid-2019 due to changes in the construction programme proposed by Fletcher Construction. 

SkyCity Auckland - which accounts for around 80 percent of group ebitda - achieved "modest revenue and earnings growth" on a like-for-like basis, SkyCity said. It noted that record local gaming revenue was achieved for a full-year period despite various capital works programmes across the city impacted access to the precinct and lower premium gaming activity due to regulatory changes to smoking decks. Revenue rose 3.5 percent, adjusting for discontinued operations and an extra trading day in the prior year. Ebitda, excluding the international business, was up 3.5 percent to $259.8 million. It expects it to deliver "modest earnings" driven by ongoing initiatives to increase visitation in the current financial year. It said various capital works programmes will continue to impact the property. 

It said that SkyCity Hamilton continues to "trade strongly" during the period, underpinned by increased gaming activity, investment in a new tenpin bowling alley and "robust local macro economic conditions."  Ebitda, excluding the international business, rose 15 percent to $26.4 million.  It is also expected to deliver further earnings growth this year. 

It said its combined Queenstown operations remain "relatively modest" but represent an opportunity for future development. 

In Australia, it said Adelaide Casino's performance declined due to reduced visitation and disruption from a works programme that impacted revenue and increased marketing and promotional costs. Ebitda, excluding the international business, was down 17 percent to A$21.3 million. It expects it to return to modest earnings growth this year, underpinned by improved premium gaming access. 

It reiterated it has formally committed to proceeding with the Adelaide Casino expansion, after inking a Development Agreement with the South Australian Government in July. It has opted to increase the size of the hotel, increasing capacity to 123 rooms, to reflect a strong demand outlook in Adelaide. It also reduced the reliance of the project on the international business. Total costs for the project have increased to A$330 million from a prior estimate of A$300 million. 

Its Darwin casino, meanwhile, continued to face increased competition from pubs and clubs as well as a difficult economic environment in the Northern Territory.  It underscored that regulatory changes have seen the permitted number of gaming machines in Darwin rise by 75 percent since July 1, 2015.  Following the impairment of A$95 million of Darwin goodwill a review has commenced to identify strategic options to maximise value from the property.  Ebitda, excluding the international business, was down 20.1 percent to A$27.1 million. It said its performance is expected to be slightly weaker this year as challenges remain. 

On funding, it said it remains well positioned to fund its major growth projects out to the FY20. It expects total debt to peak during that year at around $1.0 billion.  It said it is considering further debt issues during the current financial year, including a second New Zealand bond issue and another United States Private Placement issue to refinance a US$75 million maturity in March 2019. 

The stock fell 3.7 percent to $3.95 and has shed 17 percent over the past 12 months.


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