UPDATED: SkyCity posts lower 1H profit as expected, signals 2H earnings growth

SkyCity Entertainment Group [NZX: SKC], New Zealand's only listed casino company, posted lower first half profit in line with guidance and said earnings will grow in all its businesses in the second half.

Normalised profit was $66.4 million in the six months ended Dec. 31, in line with the $65 million to $68 million forecast in December and down from $72.1 million a year earlier, the Auckland-based company said in a statement. The figures exclude earnings from the Christchurch casino stake sold in December 2012. Normalised revenue fell to $467 million from $493.4 million in the year earlier period.

SkyCity, which has four casinos in New Zealand and two in Australia, said it expects earnings growth in the second half year as positive changes at its Adelaide and Darwin casinos outweigh a challenging macro-economic environment in Australia and as the company benefits from a more buoyant New Zealand economy.

"While the 1H14 had been a challenging period due to the high NZD and continued soft consumer spending on both sides of the Tasman, solid progress had been made in establishing the platform for growth and the outlook for 2H14 is encouraging," chief executive Nigel Morrison said in a statement.

Shares in SkyCity were unchanged at $3.60. The stock is rated an average 'hold', according to analysts polled by Reuters.

The New Zealand dollar bought an average 88.20 Australian cents in the first half, compared with 78.36 cents in the year earlier period, reducing normalised group profit by about $2.4 million, the company said.

Normalised revenue in January, the first month of the second half, rose 5.4 percent from the year earlier with higher revenues in all the company's businesses, SkyCity said. Excluding the impact of a higher New Zealand dollar, revenue for the month increased 11.9 percent, the company said.

Trading in February has also started well compared to the prior year as the company's casinos benefited from strong Asian visitation over the Chinese New Year period, which started on Jan. 31, SkyCity said.

Auckland, the company's biggest operation, posted a 0.5 percent increase in earnings before interest, tax, depreciation and amortisation to $108.1 million in the first half as it benefited from cost cutting while revenue slipped 2.2 percent, the company said.

The trend in revenues and earnings improved through the second quarter and has firmed further in the third quarter, the company said. Auckland revenue rose 15 percent in January.

SkyCity said it is in talks with the government after handing over the concept design for its planned $402 million Auckland convention centre on Jan. 13.

Third quarter revenues at Hamilton casino have been bolstered by improvements to the main gaming floor, following a 19 percent drop in earnings to $9.2 million in the first half as revenue slid 10 percent, the company said.

SkyCity refurbished its Queenstown casinos in the first half, after buying rival Wharf Casino in July, and expects international business to continue to grow following the opening of its first Horizon International Business Salon.

Turnover in its international business is expected to exceed $6 billion in the current financial year from $5.7 billion last year, SkyCity said.

In Australia, normalised earnings slipped 7.5 percent to A$18.6 million at Adelaide casino as visitor numbers fell 5.9 percent following the closure of two key railway lines serving the city, softer economic conditions and disruption from the property's A$350 million refurbishment.

From Friday, Adelaide is expected to benefit from new regulations including a 20-year extension to its exclusive casino licence, more gaming machines and tables, new tax rates which will see a reduction for premium players and the lifting of restrictions on cashless technology.

SkyCity will gain an additional 1,000 new carparks adjacent to its Adelaide property as part of a lease agreement with the South Australia government announced yesterday.

In Darwin, normalised earnings fell 5.4 percent to A$21 million in the first half as margins contracted due to cost pressures, the company said. SkyCity expects the introduction of 'ticket-in ticket-out' technology, which is seen as more profitable than cash transactions, on all its electronic gaming machines in the second half will benefit earnings from the fourth quarter.

The company will pay a first half dividend of 10 cents a share on April 4, unchanged from the year earlier.

(BusinessDesk)