Casino operator Sky City Entertainment is the latest company to reduce its dividend to shareholders but, this time, the move appears to have the backing of brokers.
The company yesterday reported earnings before interest, tax, depreciation and amortisation of $148.5 million for the six months ended December, down 6.4% on the $158.7 million reported in the previous corresponding period.
Profit after tax fell 7.1% to $54.8 million.
Sky City said it was moving from a 90% of net profit dividend payout to between 60% and 70% to account for the state of the capital markets and to increase the focus on reducing debt.
It is to pay an interim dividend of 9c per share, compared to 11cps in the first half of the 2008 financial year, and said that in future it planned to reduce its distribution payout ratio.
The company said it would increasingly focus on a more conservative capital management positioning.
"Priorities have changed in the current environment from a high payout ratio to an increased focus on using funds available to reduce debt," Sky City chief executive Nigel Morrison said.
The possibility of introducing the new payout ratio from the first half had been debated.
"We thought people had invested in Sky City on the basis of a policy that had been enunciated in the past, and we thought it important that we didn't want to retrospectively surprise anybody," he said.
Forsyth Barr broker Tony Conroy said it appeared the company was being conservative which was unsurprising in the current environment.
"They have no debt issues at all, but they are being prudent in pulling debt back a little - and it also matches their strategy of tighter capital expenditure controls.
"The stock is still on a gross dividend yield of 10% and this makes the dividend very sustainable - again good to see."
The result could be described as "solid" given the difficult operating conditions.
Revenue of $422.2 million was in line or stronger than most expected across operations, except for the international business, he said.
Australian casinos performed well given smoking bans in Adelaide and refurbishment disruption in Darwin.
Those economies continued to hold up well and Sky City's initiatives appeared to be well received.
Auckland Casino was close to expectations and boosted by stronger non-gaming (hotel and convention) revenue than forecast, he said.
Margins were down for all major casinos, except Adelaide.
Sky City was focusing on building market share at the top line and also gaming machines had generally performed worse than tables, which was typical in a slowing environment.
That affected margins, Mr Conroy said.
"Sky City is cautious about the outlook given the state of the New Zealand and Australian economies, in particular the risk of higher unemployment.
"We do not expect to make substantial changes to our forecasts and continue to view Sky City as a positive turnaround story."
