SkyCity beats annual earnings forecast

SkyCity Entertainment Group increased full-year earnings more than forecast as its high-roller business recovered and its flagship Auckland casino improved. It expects "modest growth" in earnings in the current financial year.

The Auckland-based company said normalised earnings before interest, tax, depreciation and amortisation lifted 5.5 percent to $338.2 million in the year ended June 30, ahead of the company's forecast for growth of about 3 percent. SkyCity expects "modest growth" in normalised ebitda in its 2019 financial year, driven by higher earnings from international business and Auckland.

New Zealand's only listed casino company said its international VIP business of high roller gamblers has recovered strongly from a challenging 2017 financial year when it was hurt by Chinese restrictions on funds transfers and reduced visits by big-spending customers. The international business achieved turnover of $11.9 billion in the latest year, up 39 percent on the year earlier and ahead of its $10 billion target, which SkyCity said reflected a recovery of the sector across Asia-Pacific and its revamped international business team.

"It's been a bit of a rising tide that we have benefited from," said chief executive Graeme Stephens. “We’ve seen more visits from our major customers, and an increased use of third-party junket operators which led to a record six-month turnover in the second half of the financial year."

Margins in the international business lifted to 20.4 percent from 16.6 percent due to operating efficiencies and low bad debts, the company said.

SkyCity's Auckland casino complex, which accounts for the bulk of earnings, increased ebitda 3.7 percent to $260.7 million as gaming machine revenue rose 3.2 percent to $252.2 million, and table game revenue lifted 1.7 percent to $161.9 million, while non-gaming revenue rose 4.6 percent as its hotels benefited from occupancy rates of about 90 percent.

Stephens said he expected a similar "solid performance" from Auckland in the coming year.

In its other New Zealand properties, Hamilton ebitda lifted 4.3 percent to $26.9 million while its two casinos in the resort town of Queenstown grew earnings by 57 percent to $2.1 million.

In Australia, SkyCity's Adelaide casino, where it started an A$330 million expansion programme in June, increased ebitda 13 percent to A$22.5 million, which the company attributed to improved gaming machine market share in the latter part of the year, an increase in premium gaming activity, and effective cost management,  despite "considerable disruption" caused by building works.

Stephens expects to deliver "solid incremental growth" in group earnings until the Adelaide project is completed in the fourth quarter of calendar 2020, which he said will produce a step-change in earnings.

SkyCity is in the midst of a heavy period of investment, building the country's largest convention centre and a new hotel in Auckland, redeveloping its Adelaide casino, as well as eyeing hotel expansion and a move into online casinos. Its capital expenditure jumped to $261 million from $159 million a year earlier and its debt is expected to peak at around $1 billion in 2020, prompting the company to sell some assets to help fund the investment.

Its Darwin casino, which the company has earmarked for a potential sale, posted a 5.3 percent drop in ebitda to A$25.1 million. SkyCity said indicative bids from potential buyers were ahead of book value and a final decision on a sale will be taken within the next few months. SkyCity last year wrote down the value of Darwin by A$94.6 million to A$195 million saying it had been hurt by increased rivalry from gaming machines in local pubs and clubs over the previous two years.

On a net profit basis, SkyCity's boosted profitability to $169.5 million from $44.9 million the year earlier, which reflected the Darwin impairment.

Stephens said net profit is expected to weaken in the coming financial year, reflecting a higher tax rate of 29 percent from 26.6 percent and a lift in corporate costs.

The company will pay a 10 cent final dividend on Sept. 14, bringing the annual dividend to 20 cents, and said it plans to continue its policy of paying a minimum annual dividend of 20 cents.

SkyCity shares rose 2.3 percent to $4.07, having dropped 4.1 percent so far this year.

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