SkyCity first-half earnings rise on improvement in casino trading

SkyCity chairman Chris Moller

SkyCity faces 'tough competition,' Forbarr analyst Jeremy Simpson says

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UPDATED: SkyCity Entertainment Group, New Zealand's only listed casino company, posted an 18% 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 12.7c a share, in the six months ended December. 31, from $71 million, or 12c, 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 writeoff of its Auckland property to make way for a convention centre. Earnings before interest, tax, depreciation and amortisation slid 2.5% to $169.1 million while revenue dropped 5.8% 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 clampdown in China.

"The main drivers of the first half performance were solid growth in our combined New Zealand properties, with Auckland trading improving significantly in2017 second quarter

"SkyCity Auckland, which accounted for approximately 80% of group ebitda in the interim period, is expected to continue to deliver modest growth during the second half of the 2017 financial year on the previous corresponding period, driven by favourable macroeconomic drivers, new major events and ongoing initiatives to drive visitation."

The shares advanced 3.7% to $3.88, having slid 4.8% 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% to $130.6 million and lifted its profit margin to 46% from 45.4%. Its Hamilton business increased ebitda 15% to $13.4 million and improved its profit margin to 45.1% from 42.1%. Bucking the trend, its two Queenstown casinos experienced a 36% drop in ebitda to $1 million, with the margin slipping to 16.3% from 23.6%, reflecting fixed costs required to support the business even as gambling activity slowed.

In Australia, ebitda at the company's Darwin business dropped 14% to $A18 million, with the profit margin slipping to 28.9% from 32% due to weaker local gambling activity and increased gaming machine rivalry from pubs and clubs. In Adelaide, ebitda declined 3.6% to $A13.5 million and the profit margin edged lower to 17.5% from 17.8%.

Meanwhile, ebitda more than halved at SkyCity's international business, falling to $7.2 million from $16.2 million as turnover dropped 39% 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 10c a share on March 17, down from 10.5c a year earlier.


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