Aust assets weigh on SkyCity

Transtasman casino operator SkyCity has posted an almost 5% decline in revenue as its Australian assets’ revenues dropped around 20%, while its Darwin casino wore a $95million goodwill writedown.

Normalised revenue was down 4.9% to $1.03billion for the year to June and normalised after-tax profit rose 1.3% to $154.6million, but reported after-tax profit declined 69.2% to $44.9million, mainly due to the $95million Darwin impairment writedown.

The book value of Darwin was reduced to $A195million as at June.

Sweeping and unforeseen regulatory changes to gaming machines in the Northern Territory have led to a massive 75% increase in machines in Darwin pubs and clubs, reflected in a 20% decline in earnings before interest, tax, depreciation and amortisation (ebitda) at SkyCity’s Darwin casino.

SkyCity’s final 10c per share dividend took the year’s total to its minimum target of 20c.

SkyCity shares declined about 3.5% following the announcement, trading around $3.96.

Forsyth Barr broker Suzanne Kinnaird said the reported 2.5% decline in ebitda to $322million was ‘‘below expectations’’ and Adelaide’s performance was ‘‘materially weaker than anticipated’’, with ebitda down 17% at $21million.

However, there were positives in strong second-half growth in Hamilton and the international business, or high rollers, she said.

‘‘Outlook statements indicate SkyCity is expecting modest growth in full-year 2018 for the group, with growth in New Zealand and international business, but offset by weakness in Darwin and higher corporate costs, IT investment,’’ Mrs Kinnaird said.

SkyCity’s chief executive, Graeme Stephens, said Auckland, its largest contributor to group revenue, had achieved ‘‘modest revenue and earnings growth, up 1.6% to $566.7million, excluding international business, and ebitda was up 3.5% to $259.8million.

International business was adversely affected by increasing restrictions on fund transfers from China and fewer visits by larger customers, particularly following the arrests by the Chinese Government of 18 staff of Australian rival Crown Resorts in Macau, Mr Stephens said.

Despite a ‘‘strong’’ Chinese New Year, turnover for the full year was down 30% to $8.7billion and normalised ebitda was down 41.6% to $19.6million.

‘‘SkyCity remains committed to the international business and is confident in the medium-term outlook for the business,’’ Mr Stephens said.

Analysts have been increasingly running the rule over the Adelaide and Darwin operations, given the former’s redevelopment costs and revenue plunge and increased competition in Darwin.

Mrs Kinnaird said Adelaide ebitda was down 17% on a year ago, with further deterioration in the second half the ‘‘key negative’’: down 33% compared with just a 3.6% decline in the first half.

‘‘The result was negative across the board, not helped by the disruption in the area and increased promotional costs.’’

Darwin ‘‘remained a challenge’’ for SkyCity, given the highly competitive pubs and clubs market, she said.

Mr Stephens said Adelaide’s decline was ‘‘primarily’’ down to reduced visits and disruption of the early redevelopment programme, plus increased marketing and promotional costs.

He described the increased competition in Darwin as a ‘‘difficult economic environment’’, prompting a review ‘‘to identify strategic options’’ to maximise value from the property.

The Hamilton operation booked a 10.2% increase in revenue to $59.4million, excluding international business, while Queenstown’s combined operations ‘‘remain relatively modest’’ but had opportunity for future development.

Queenstown had a downturn in all visitors, including high rollers. Total revenue was down 9.8% to $10.5million and earnings before interest and tax were down 71.2% to $600,000.

Mrs Kinnaird had hoped for a capital expenditure update, and Mr Stephens said construction of the convention centre and hotel in Auckland was ‘‘on budget’’ and expected to be complete by mid-2019.

In Adelaide, SkyCity was committed to proceeding with its casino expansion, with certainty an adjacent car park development by another party would proceed.

Hotel construction costs in Adelaide had increased 10% to $A330million with an increase in rooms to 123, he said.

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