Sky City primed for growth, Adelaide proves its worth

Sky City Entertainment chief executive Nigel Morrison sees plenty of growth opportunities in the year ahead despite the slump in tourism and lingering unemployment concerns.

The casino operator today reported net profit of $115.3 million, up 13% on the previous year and at the top end of previous guidance.

Mr Morrison said Adelaide was a shining light, increasing its earnings before interest, tax, depreciation and amortisation (ebitda) by 42% in the June year, helped by a recent upgrade of its facilities and “cleaning up the crowd.”

This result was underpinned by steady revenue growth up 10.5% for the year to $160 million, which was up nearly 19% on the first quarter that ended at $80.9 million.

The company is budgeting for growth across all  businesses in both revenues and earnings next year.

Mr Morrison said there were further opportunities to grow the Adelaide casino and a purpose venue was on the radar, as it would improve facilities and the overall gaming experience.

Across the board table games such as poker, which was up 30% in Adelaide, and blackjack had improved to the year end.

Mr Morrison said although the company was battling slumping tourism figures and an unstable global economy the gaming industry was holding its head above water.

But he noted the effects of unemployment in New Zealand and Australia had not yet been fully felt and that could effect the 2010 results.

"Our capital raising and debt buy backs will enhance our net profit in 2010, reducing our net funding costs. While we achieved double digit growth in underlying net profit in 2009, we may not necessarily be able to replicate this in 2010 but it will certainly be our objective," Mr Morrison said.

The company improved its underlying net profit in the second quarter ending the year with a 13% increase to $115.3 million.

Sky City’s underlying revenues slightly increased by 6% to $847 million and Capital management initiatives improved gearing and reduced net finance costs by 11%.

In February is was announced that Sky City would reduce its distribution payout ratio from 90% of net profit after tax to between 60 – 70% of net profit after tax and give shareholders non-taxable bonus shares to make up the difference.

But Mr Morrison told NBR the board eventually voted against the proposal as it would dilute the value of its shares in the long run.

Mr Morrison said the company had focused to controlling capital expenditure and on repaying its debt – two weeks ago the company paid off $92 million of its US Private Placement debt, at US$1.00, that matures in 2012.

The company also paid off another $84.5 million in July.

Mr Morrison said this and other payments that total $300 million in repaid debt should give shareholders confidence in the company.

He said Sky City was now in a “solid and strong position.”

Another slice of good news for investors was Sky City's increase in earnings per share by 7% to 23.4c a share, its net tangible asset backing is up from 11c to 58c a share. Investors will receive a fully imputed cash divident was of 6.5c a share.

Last year’s annual results were slashed by the write down of about $60 million off the value of the company’s cinema interests but that has since revived with July being the best ever box office month for Sky City – largely thanks to crowd pleasers such as Terminator and Transformers.

Cinema revenue was up 16% to $77 million and earnings were up by 46% to $7 million for the year.

This was due to a strong performing second quarter and its Auckland cinemas, where it has a 65% market share, screening Bollywood and other Asian influenced and produced films.