SkyCity profit falls nearly 70% after Australian impairment

The NZICC and Hobson Street hotel projects remain on-budget, says SkyCity. Image: SkyCity

SkyCity Entertainment Group has this morning reported a net profit after tax for the year to June of $44.9m, down 69.2% on the previous period, off revenue of $1.02bn, which was down 7.2%.

The drop in performance has been largely attributed to a book write down of its Darwin casino by A$95m (NZ$102m), plus a fall in SkyCity’s international high-roller business.

Without the one-off Darwin impairment, normalised net profit after tax would have been up slightly by 1.3% to $154.6m. Normalised earnings before interest, tax, depreciation and amortisation (EBITDA) was $321.5m, down 2.6% on the previous year, and normalised revenue was down 4.9% to $1.03bn.

SkyCity chief executive Graeme Stephens said: “A number of factors contributed to our financial performance for the year including the modest growth at our New Zealand properties and lower net interest expense. This was offset by reduced turnover in our International Business, and ongoing weak trading conditions in our Australian properties.”

The company said its flagship Auckland property achieved “modest revenue and earnings growth” with EBITDA up 3.5% to $259.8m off revenue of $566.7m, up 1.6%.

The New Zealand International Convention Centre and Hobson Street hotel projects remain on-budget despite delays caused by ructions at contractor Fletcher Construction.

Good progress had been made during the year with excavation completed and the car park and hotel basement now under construction, said SkyCity.

“As previously announced, practical completion is now expected by the middle of 2019, due to changes to the construction programme proposed by Fletcher Construction. SkyCity remains comfortable with its contractual position with Fletcher Construction and is firmly committed to delivering world-class tourism infrastructure for Auckland and New Zealand.”

However, increased competition in Australia had seen the company undertake a review of its assets in Darwin.

“SkyCity Darwin continued to face increased competition from pubs and clubs and a difficult economic environment in the Northern Territory,” said the company.

“Regulatory changes have seen the permitted number of gaming machines in Darwin (at other properties within the catchment area of the casino) increase by 75% since 1 July 2015. Following the impairment of A$95m of Darwin goodwill a review has commenced to identify strategic options to maximise value from the property.”

SkyCity said its International Business, what it calls its VIP high-roller market, was adversely impacted by increased Chinese government restrictions on international funds transfers for gambling and a reduced number of visits by larger customers during the period.

The drop-off in custom was particularly felt following the arrest of 18 employees from magnate Kerry Packer’s Crown Resorts casino in Australia last year for allegedly organising gambling activities for Chinese nationals overseas.

“Despite a strong Chinese New Year period, turnover for the full-year was down 30.0% to $8.7bn and normalised EBITDA was down 41.6% to $19.6m,” said SkyCity.

However, margins improved in the second half of its 2017 financial year following a cost review resulting in normalised EBITDA growth of 16.4% on the previous corresponding period.

“SkyCity remains committed to the International Business and is confident in the medium-term outlook for the business,” said the company. A new president of International Business, Stewart Neish, started in May.

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