SKYCITY announces record financial performance

MEDIA RELEASE

8 August 2018

SKYCITY announces record financial performance for FY18 period

SKYCITY Entertainment Group Limited (NZX/ASX:SKC) today announced a record normalised net profit after tax for the 2018 financial year of $169.9 million, driven by strong growth in its International Business and an improved performance by properties across the group.

Key features of result announcement

• Record financial performance – normalised Net Profit After Tax (NPAT) up 10.4% and normalised Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA) up 5.5% to $338.2m.

• Reported NPAT up 278% due to A$95m impairment of SKYCITY Darwin’s goodwill the previous year.

• Improved operational performance at all properties, led by International Business with turnover up 39.2% to $11.9 billion and normalised EBITDA up 71.2% to a record $32.6m.

• Refreshed strategic plan agreed in conjunction with the Board good progress on major projects in Auckland and Adelaide, and other key initiatives.

• Increased focus on social responsibility initiatives and sustainability.

• Fully-imputed final dividend of 10 cents per share bringing total FY18 dividends to 20 cents per share in line with existing dividend policy.

• Trading in FY19 is in-line with expectations following a positive finish to FY18.

On the full-year result, SKYCITY’s Chief Executive Officer Graeme Stephens comments:

“I’m really pleased with SKYCITY’s FY18 full-year result, which delivers a record year for the company both in terms of operating earnings and net profit. I’m particularly encouraged by both the strong rebound in our International Business and a return to earnings growth in Adelaide and Darwin on a like-for-like basis.

“Set alongside the continued growth of our flagship Auckland property on a record previous corresponding period and a solid result from our Hamilton site, the group’s performance provides us with confidence that we can continue to deliver on our key strategic initiatives and major projects over the coming year,’’ Mr Stephens says.

“In addition, our refreshed group strategy, developed in conjunction with the Board, has a clear focus on the creation of both sustainable shareholder returns and enhanced social and sustainability initiatives critical to the long-term viability and success of the company.”

Property results in summary

SKYCITY Auckland achieved record EBITDA of $260.7m, up 3.7%. Gaming revenue was up 2.6%, while non-gaming revenue rose 4.6% on the back of another strong performance from the precinct’s two hotels, with occupancy rates of approximately 90%, and Sky Tower visitation up 7%. A good performance across food and beverage was bolstered by the opening of premium Chinese restaurant Huami in July 2017 and South-East Asian outlet Spice Alley in January 2018.

Mr Stephens says the company’s masterplan for the Federal Street precinct is starting to take shape, with most of the property acquisitions needed now completed, including a majority interest in the AA Centre, which will become the group’s new headquarters. This will allow the existing head office site, Federal House, to become part of the broader precinct development.

“As we continue to consolidate our ownership of the Federal Street precinct, we are looking to develop new, non-gaming, family-oriented entertainment offerings consistent with our plans for the street,’’ Mr Stephens says. “Ultimately we would love to see Federal Street closed to through traffic so we can achieve our goal of a precinct for people, not vehicles.’’

Consistent with SKYCITY’s ‘capital lighter’ strategy, the company has sold the Federal Street car park in Auckland for $40m, and has commenced a process for the potential monetisation of the main site car parks in Auckland.

The New Zealand International Convention Centre (NZICC) and Horizon Hotel projects are continuing to benefit from positive momentum and Mr Stephens says SKYCITY is actively working with Fletcher Construction to assist the builder to achieve its target completion date of December 2019.

In May this year SKYCITY announced two New Zealand artists, Peata Larkin and Sara Hughes, would produce two of the largest pieces of public art ever created in New Zealand to adorn the exterior of the NZICC, including thousands of terracotta tiles and more than 550 glass panels.

There continues to be good progress made on-site, with the roof of the NZICC currently being installed and the first of the glass panels, designed by Sara Hughes, due to be lifted into place next month.

SKYCITY Hamilton achieved record earnings in FY18, up 4.3% to $26.9m, including a strong non-gaming performance led by the company’s bowling facility, Bowl & Social and effective cost management. The company is exploring further development opportunities to leverage the positive economic and tourism outlook in the Waikato region.

SKYCITY’s combined Queenstown properties grew earnings by 56.5% (off a small base) to $2.1m, driven by higher visitation and efficiencies from reduced operating hours at Wharf Casino. Mr Stephens says Wharf Casino is not meeting the full potential of its licence and the company is actively assessing its options to provide an enhanced customer experience.

Adelaide Casino achieved EBITDA growth of 12.5% to A$22.5m, assisted by improved gaming machine market share in the latter part of the year, an increase in premium gaming activity, and effective cost management. This was despite considerable disruption caused by building works around the property, including the company’s A$330m expansion project which commenced in June.

The expansion will deliver a luxury hotel and spa, new VIP gaming facilities, signature bars and restaurants.

“We signed a construction contract with Hansen Yuncken in May this year and they are now on-site and on-track for completion in the third quarter of 2020. This project will help secure the future of our Adelaide business and deliver jobs and tourists into South Australia,’’ Mr Stephens says.

SKYCITY Darwin’s performance stabilised over the year, with visitation up in response to broadening on-site entertainment. While EBITDA fell 5.3% to A$25.1m, adjusting for the higher-than average number of Keno 10-spot jackpot wins at the property (three in FY18) would see Darwin earnings up 6.7% on the previous year.

SKYCITY has sought expressions of interest in its Darwin property and this process is progressing well, with indicative bids from potential buyers ahead of book value. A final decision will be taken within the next few months.

International Business

SKYCITY’s international VIP business has recovered strongly from a challenging FY17, achieving turnover of $11.9b, up 39.2%, and record normalised EBITDA of $32.6m, up 71.2%, with a win rate very close to the long-term theoretical.

Mr Stephens says the result reflects both the recovery of the sector across Asia-Pacific and the performance of the company’s restructured International Business team, led by President of International Business Stewart Neish.

“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. We’ve managed to increase our margins due to operating efficiencies and low bad debts.’’

Progress on key strategic initiatives

The SKYCITY Board has approved a refreshed group strategy. The key pillars are improved operating performance, an optimised existing portfolio, and the growth and diversification of the business to maximise returns for shareholders in a sustainable manner, while ensuring SKYCITY remains a responsible corporate citizen.

“Within the company’s existing portfolio, the two key projects currently underway (NZICC and Adelaide) are transformational in nature and master planning exercises in both Auckland and Adelaide are aimed at maximising the opportunities that remain at these two sites,’’ Mr Stephens says.

“For the foreseeable future the company’s main geographic focus will likely remain New Zealand and Australia and in this context the possibility of developing further hotels is being explored, with an active initiative to identify potential investment partners.’’

SKYCITY is developing an online gaming strategy as a logical extension of its land-based casino operations. Online delivery of goods and services is increasingly the norm and it is currently permissible for offshore online casinos to offer gaming to New Zealand customers. SKYCITY is aware that a number of its customers are accessing these websites.

The company also continues to seek entertainment opportunities beyond traditional gaming and entertainment, acquiring an interest in Let’s Play Live Media, New Zealand’s leading broadcaster and operator of esports during the period, in addition to securing the All Blacks Experience for one part of the existing convention centre site in Auckland from 2020. SKYCITY is discussing other interactive entertainment possibilities for the remaining areas of the site, with more details to be announced soon.

SKYCITY continues to make good progress on investment in ICT systems and platforms to enhance customer experience. This has contributed to higher corporate costs during FY18.

A review of the company’s brand, data analytics, and loyalty programmes is also underway under the supervision of Liza McNally, SKYCITY’s Chief Marketing Officer, who commenced work in January 2018.

SKYCITY has made significant investments in its people, communities and the environment during FY18, including a commitment to lift its minimum New Zealand wage to $20 per hour by 2020, becoming a principal partner of Global Women, and becoming a signatory to the Climate Change Leaders Statement alongside more than 60 other companies.

SKYCITY is committed to reducing its greenhouse gas emissions in line with the stated aim of the Paris Agreement, which is to limit global warming to 2 degrees. New initiatives and details on how this will be achieved will be announced over the next few months. The company is moving to integrated reporting, starting with this year’s Annual Report.

Outlook

Commenting on the outlook for FY19, Mr Stephens says that, consistent with FY18, SKYCITY is expected to achieve modest growth in group normalised EBITDA in FY19, with key drivers expected to be further growth in International Business and Auckland, offset by higher corporate costs.

Trading in early FY19 is in-line with expectations following a positive finish to FY18 and the company plans to continue its existing dividend policy with a minimum annual dividend of 20 cents per share.

ENDS

© Scoop Media