Sky City posts large profits jump

Wednesday, 8 August 2018

Artist's impression of the SkyCity International Convention Centre from the corner of Wellesley and Hobson Streets.

Sky City Entertainment Group has posted a huge jump in after tax profit.

The casino operator announced an after tax profit of $169.5 million in the 12 months to the end of June compared to $44.9m in the previous year.

Graeme Stephens, SkyCity's chief executive, has welcomed the return of high roller international gamblers.

In an announcement to the NZX sharemarket, the company said key reasons for the improvement were continued growth in Auckland revenues, the improved performance of its Adelaide casino, and effective cost management.

The 2017 result was blighted by a write-down of the value of the company's Darwin casino operation.

An artist's impression of a 300-room, 5-star hotel at the International Convention Centre in Auckland.

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That write-down came as a result of increased competitive pressures in the gaming machine business following what Sky City called the 'unforeseen' policy decision in December 2014 by the previous Northern Territory Government to remove the cap on gaming machines in the territory.

Since the implementation of that policy in July 2015 there had been a 75 per cent increase in the number of gaming machines in Darwin, Sky City said announcing its annual result last year.

Total revenue for the year to the end of June, excluding GST, was $996.8m, up 7.4 per cent on the $928.1m revenue earned in the previous year.

Sky City's performance continues to be a tale of two countries with large revenue rises on this side of the Tasman, and weak performance in its Australian casinos.

Auckland dominates the company, providing $584.7m of its total revenue.

Auckland revenue was up 3.2 per cent. Hamilton revenue ($60.6m) was up 2.1 per cent, and Queenstown revenue (12.7 per cent) was up 7.2 per cent.

But in Australia, revenue from Adelaide (A$149m, or NZ$164m) was up just 0.6 per cent, and revenue from Darwin (A$110.8m) was down 1.3 per cent.

Overall Australian revenue fell by 0.2 per cent.

The Auckland revenue rise was driven by an improvement in the performance of its hotel operator, while Hamilton's improvement was a result of better returns from its non-gambling entertainment operations.

Queenstown had seen a rise in visitor numbers, including from 'premium' wealthy customers, and tourists.

Adelaide's performance continued to be disrupted by building works in the area around its casino complex.

The forecast for the coming year for Sky City is one of modest growth.

But there are some big changes afoot.

The company, which is investing heavily in IT improvements, was also pursuing a 'capital-lighter' strategy, which involves selling off some of its properties.

It has already sold its Federal Street car park in Auckland for $40m, and commenced the marketing process for potential sale of Auckland main site car parks.

It was also hoping to soon complete the sale of its Darwin operation.

The Auckland International Convention Centre being built by Fletcher Construction was expected to be completed by December next year. There is some risk of a legal battle with Fletchers over the cost of the delays.

The expansion of the Adelaide casino and entertainment complex began in June with a fixed price contract protecting Sky City from the risk of cost blow-outs.

But Sky City isn't only hoping to build up its real-world assets.

It was exploring options to develop an online casino to compete with online casinos based offshore, which were already taking business from land-based casinos.

The company announced a fully-imputed final dividend of 10 cents per share, which will be paid in September.