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UPDATE: SkyCity 1H earnings rise 18% on improvement in Auckland casino trading

Thursday 9th February 2017

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SkyCity Entertainment Group, New Zealand's only listed casino company, posted an 18 percent lift in first-half profit as improved trading at its key Auckland casino offset a weaker performance from its Australian and high-roller businesses, while the year-earlier profit was hit by writedowns.

Net profit rose to $83.8 million, or 12.7 cents per share, in the six months ended Dec. 31, from $71 million, or 12 cents, a year earlier, the Auckland-based company said in a statement. The year-earlier earnings included a $2.8 million write-down of its Hamilton hotel project costs and a $7.6 million write-off of its Auckland property to make way for a convention centre. Earnings before interest, tax, depreciation and amortisation slid 2.5 percent to $169.1 million, while revenue dropped 5.8 percent to $533.1 million.

SkyCity's Auckland casino, which accounts for the bulk of its earnings, is benefiting from New Zealand's record tourism and migration, and additional gaming concessions that it won from the government in return for agreeing to build a convention centre for the city. However the company's Australian business posted a decline in earnings due to weaker trading and the lower value of the Australian dollar, while its international business, the term it uses for 'high roller' gamblers, was hurt by a drop in the number of big-spenders following a clamp down in China.

"The main drivers of the 1H17 performance were solid growth in our combined New Zealand properties, with Auckland trading improving significantly in 2Q17, offset by reduced turnover in our international business, continued competitive and economic pressures in Darwin and a weaker Australian dollar," the company said.

"SkyCity Auckland, which accounted for approximately 80 percent of group ebitda in the interim period, is expected to continue to deliver modest growth during the second half of FY17 on the previous corresponding period, driven by favourable macroeconomic drivers, new major events and ongoing initiatives to drive visitation."

The shares advanced 3.7 percent to $3.88, having slid 4.8 percent so far this year. 

SkyCity said challenging trading conditions would persist in Darwin during the second half due to a soft local economy and increased gaming machine numbers in pubs and clubs, while Adelaide would likely remain stable. Second-half activity was likely to be weaker in its international business due to reduced visits from larger VIP customers, although trading had been favourable over the Chinese New Year period to date, it said.

Excluding its international business, the company's Auckland unit increased ebitda 5.1 percent to $130.6 million and lifted its profit margin to 46 percent from 45.4 percent. Its Hamilton business increased ebitda 15 percent to $13.4 million and improved its profit margin to 45.1 percent from 42.1 percent. Bucking the trend, its two Queenstown casinos experienced a 36 percent drop in ebitda to $1 million, with the margin slipping to 16.3 percent from 23.6 percent, reflecting fixed costs required to support the business even as gambling activity slowed.

In Australia, ebitda at the company's Darwin business dropped 14 percent to A$18 million, with the profit margin slipping to 28.9 percent from 32 percent due to weaker local gambling activity and increased gaming machine rivalry from pubs and clubs. In Adelaide, ebitda declined 3.6 percent to A$13.5 million and the profit margin edged lower to 17.5 percent from 17.8 percent.

Meanwhile, ebitda more than halved at SkyCity's international business, falling to $7.2 million from $16.2 million as turnover dropped 39 percent to $4.4 billion. The company cited reduced visits from larger customers and increased restrictions on fund transfers, and said its margins were impacted by a fixed cost base required to support the business and an increase in bad debt provisions. It said it was reviewing its costs to offset the decline in activity.

The company will pay a first-half dividend of 10 cents a share on March 17, down from 10.5 cents a year earlier.

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