Sky City creates own events to offset conference slump

A plan to cover Auckland’s Federal Street with an expanded conference centre is one step in Sky City entertainment’s goal of reviving a conference business that has been hit hard by the economic downturn.

The company reported a 4.7% boost in underlying group revenue for the first quarter at today’s annual meeting, with a 7% increase in revenue from its Australian operations offsetting local gaming revenues that remained flat.

It follows the 13% rise in annual net profit announced in August.

Chairman Rod McGeoch told shareholders the company was on track to achieve its goal of double-digit earnings growth for the year, based on the first quarter results, and said the company was set to “ride the economic wave of recovery”

Conference call

While punters are still willing to gamble in a recession, the number of conferences and large events has slumped in Auckland, with Sky City recording a drop of up to 8% in business.

But Sky City chief executive Nigel Morrison told NBR the company had been using the empty space to hold its own events.

“We’ve done it on and off over the past 12 months, creating events for things like A1 GP and charity functions that use our facilities.”

He said future events included an upcoming Melbourne Cup party and further special events would be looked at if the conference industry did not start picking up.

Despite reassuring shareholders the company was keeping a tight rein on capital expenditure, Mr Morrison said the company was keeping an eye on further conference facility opportunities in Auckland, including plans to expand its existing convention centre across and over Federal Street.

“We’re working with the council on developing that plan now, which would see an increase in our convention centre’s capacity from 1500 to 2500. If we get our skates on, we could have that up and running by the Rugby World Cup in 2011.”

High rollers

Sky City has also been taking care of its high rolling clientele and Mr Morrison said there had been strong volumes and high levels of growth amongst the top tier of gamblers.

“It has been a strong first quarter for that area of the business. While there has been a softer win percentage, it has still been better than we expected.”

Even with the credit crunch, gamblers are still willing to play with high stakes and Mr Morrison said the company would see more money out of that side of the business in this year than in the last.

Bringing debt down

Sky City’s goal of strengthening up its balance sheet has paid off over the past year, according to Mr Morrison.

He said the entertainment company had paid off more than $300 million of debt in the past year, reducing its gearing from 3.3x to 2.3x.

The company used $177 million of the $228 million raised in its May equity raising to pay off debt, with net debt reduced to $670 million as at October 22.

Despite $500 million in an undrawn facility, Mr Morrison said the company was not planning to pay off any further debt in the near future.

“We’re very comfortable with the current position.”

Cap on capital

Like many companies, Sky City is being very careful about capital expenditure and plans to keep its 2010 spend at around the same level as last year, with around $65 million spent on maintenance and $40 million allocated for project expenditure.

Some of the money it is spending is being used as part of the drive to improve flat gaming revenue at the Auckland casino, with new and refurbished bars and restaurants.

Its $40 million refurbishment of the Darwin Casino across the Tasman was completed in July and the company is planning to spend another $5 million on the activation of the ‘Marble Hall’ at its Adelaide casino.

Its Australian spend-up has seen revenue growth of 8% in Adelaide and and 7% in Darwin, although a Northern Australian smoking ban coming into effect on January 2 is expected to hit gaming revenues by around 15% in the second half of the year.