Surprise as SkyCity Ak casino revenue falls 1%

Suzanne Kinnaird.
Suzanne Kinnaird.
Auckland was the key property to surprise in first-half trading results from SkyCity when it released its market update last week, Forsyth Barr broker Suzanne Kinnaird said yesterday.

Revenue, including international business, from the Auckland casino was down 1%, as a fall in gaming revenue offset growth in non-gaming.

The fall came despite a strong macro backdrop, recent concessions from the New Zealand International Convention Centre agreement and solid growth in the pub and club market, she said.

The key issues were fewer visits to the casino and reduced activity from premium players.

''The macro environment remains favourable and recent market changes, in response to the weak start, have provided early positive signs. Accordingly, we expect growth to return for the remainder of 2017.''

SkyCity interim chief executive John Mortensen has warned there will be a drop in the immediate term in the business it gets from high-rollers after a Chinese Government corruption crackdown, which has led to detention of 18 Australian Crown employees.

Crown officials ordered media off Crown premises at the annual meeting in Perth as an unhappy shareholder spoke out about what he called a lack of transparency over the arrests.

Mr Mortensen said it was hard to determine what was going on, as Crown management was giving out little information because it had been given little information in China and no reason had been provided yet for the detainment of its staff.

''This is part of the Chinese Government's drive on corruption and they're viewing all of the movement of finances from the country. But we're aware of the rules and regulations and our independent contractors operate within those rules and respect the laws of China,'' he said.

Gaming companies were not allowed to explicitly advertise gambling in China and it was illegal to arrange for more than 10 people to gamble overseas. If convicted, the detained employees could face up to 10 years' prison.

International media reports say the latest arrests and those of 14 South Koreans, including casino employees, last year, suggest the Chinese Government is targeting foreign casino competitors.

The anti-corruption drive has caused a more than two-year decline in gambling revenue in the southern Chinese territory of Macau and VIP gaming revenue from Asia is down across the board.

The latest move sent casino stocks tumbling, including that of SkyCity which dropped to a year low after the casino operator posted weaker first-quarter revenue because of lower gaming and high-roller activity in Auckland, difficult trading conditions in Darwin and the higher level of the New Zealand dollar against the Australian currency.

Revenue slipped 1.3% to $260.7million in the three months ended September 30 compared with the same period a year earlier.

Mr Mortensen told shareholders at the company's packed annual meeting in Auckland, while international business was an important part of SkyCity's business, it represented only 15% of normalised group revenue and 10% of normalised operating profit.

In the 2016 financial year, SkyCity's share of the total international business market in Australasia was 9%, around half of the customers coming from China. It did not have any staff in China and used only independent contractors.

''It's important and one would expect in the immediate term, until we can find out what's going on, it will impact the business,'' he said.

A bigger push would be made in other Asian markets such as Singapore, Malaysia and Vietnam to attract more VIP players.

The 20% drop in international business in the first quarter of the 2017 financial year was unrelated to the Chinese crackdown, Mr Mortensen said.

Ms Kinnaird said local gaming conditions remained challenging for SkyCity's two Australian properties. There was a difficult macro backdrop and a competitive pub and club market and that was unlikely to change in the near term.

Darwin revenue was down 7% in the first quarter and Adelaide was flat.

SkyCity announced the appointment of a new general manager at Adelaide, Luke Walker, filling one of the key gaps in its executive team.

Mr Walker would bring gaming experience and looked a good addition for the company, although his start date was still six months away, Ms Kinnaird said.

Forsyth Barr had downgraded its earnings expectations after the disappointing trading update. The changes made included downgraded assumptions for Auckland and international business, after a weak start to the financial year, and for international business from the wider issues involving the recent detainment of Crown's employees in China, she said.

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