SKYCITY announces strong financial result for FY19

13 February 2019

SKYCITY announces strong financial result for FY19 first half

SKYCITY Entertainment Group Limited (NZX/ASX:SKC) today posted a strong financial result, with normalised net profit after tax up 11.4% for the first half of the year, driven by a solid performance in Auckland and significantly improved turnover in its International Business.

Key features of result announcement

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

“We’ve had a really positive first half of this financial year, aided by some strong gains in International Business turnover and a good result from our flagship Auckland property, particularly on the gaming floor.

“Positive EBITDA growth across all our other New Zealand sites – and Adelaide on a like-for-like basis - sets the group up well to deliver on our promises for the full financial year and to continue to press ahead with a range of strategic initiatives and projects,’’ Mr Stephens says.

“One of the initiatives I’m most excited about is the plan we’ve announced today to go carbon neutral in New Zealand this year and to put a price on all our carbon usage. Climate change is one of the biggest issues facing not just businesses but the entire planet and we’re determined to do our share in helping mitigate its effects and to create an awareness of its importance among our staff.’’

Property results in summary

SKYCITY Auckland achieved record EBITDA of $138m for the half-year, up 5.3%. Gaming activity was up 6.2% with a strong performance from both machines and main floor tables, while a positive non-gaming performance was led by food and beverage covers, up 4%.

Mr Stephens says it’s encouraging to see visitation continuing to increase at the key Auckland site, lending confidence to the company’s plans to unveil further accommodation, food and drink, and entertainment offerings on Federal Street.

“Late last year we announced the world-renowned digital effects studio Weta Workshop as a long-term tenant of our new entertainment precinct alongside the All Blacks Experience, with both set to open next year. We have more plans for this space which we hope to reveal soon,’’ Mr Stephens says.

“Plans to move the company’s headquarters to the adjacent AA Centre building from May remain on track, which will in time free up Federal House for redevelopment. In addition, plans to sell the company’s main site carpark are progressing well, which will help release capital to further diversify our business.’’

Progress continues on the New Zealand International Convention Centre (NZICC) and Horizon Hotel projects, with the first 600 car parks built under the NZICC handed over last December, and the glass façade of the building containing artwork by New Zealand artist Sara Hughes beginning installation this month. The new Horizon Hotel being built next to the NZICC is expected to be completed within 12 months, with NZICC now expected to open in the second half of next year.

Fletcher Building has now missed contractual completion deadlines, leading to liquidated damages payable by Fletcher Building under the NZICC contract. Following concerns raised around risks associated with Aluminium Composite Panel (ACP) used on many building facades, a decision has been taken to replace all ACP on the NZICC at an additional cost of around $25m.

Mr Stephens says SKYCITY and Fletcher Building are engaging positively and he remains comfortable that total project costs for SKYCITY (excluding ACP) will not be materially above the original budget of $703m.

SKYCITY Hamilton also achieved earnings growth in 1H19, up 2.4% on a strong previous period to $14m, including positive gaming performance and increased non-gaming contribution. The company is currently constrained by capacity issues and continues to explore opportunities to develop the riverbank precinct, including a potential hotel.

SKYCITY’s combined Queenstown properties grew earnings by 13.6% (off a small base), driven by increased table games activity and cost control. IB turnover was up 18%, highlighting the attractiveness of the location for VIP customers. Mr Stephens says plans to provide an enhanced customer experience in Queenstown are advancing, and SKYCITY has acquired a lakeside hotel development site, subject to Overseas Investment Office (OIO) approval.

Adelaide Casino achieved stable gaming revenue despite disruption from the construction of its expanded casino and new hotel, which remains on-time and on-budget. EBITDA grew 8% on a like-for-like basis, excluding A$1.7m of one-off restructuring costs incurred in 1H19. Refurbishment of the existing historic Railway Station building continues, with a new F&B venue planned to open this year.

SKYCITY Darwin’s EBITDA fell 7.7% to $15.4m in difficult trading conditions. SKYCITY has signed a binding agreement to sell Darwin to Delaware North for A$188m, with the regulatory approval process progressing well and the transaction expected to settle by the end of the financial year.

International Business

SKYCITY’s international VIP business had a record period, with turnover up 74.3% to $7.7b and record normalised EBITDA up 164.5% to $24.7m for the six months. Mr Stephens says the performance was driven by an increased use of third-party ‘junket’ operators, repeat visits from major customers, and higher average spend, together with continued low bad debts. Turnover was also likely aided by a win rate below the theoretical average.

“While at a reported level SKYCITY handed back much of these gains to customers who were luckier than normal, we look through this volatility and focus on the amount of play, which was very strong,’’ Mr Stephens says. “Last year we were the lucky ones, with a win rate well above theoretical.

“We remain happy with the prospects of our International Business and while it’s inherently difficult to predict, we’re targeting turnover of $13b-$14b for the full financial year. I’m also delighted we’ve managed to recruit one of the best IB sales strategists in the business, John Chong, who commenced last month as our President of Asia Sales and Commercial Strategy.’’

Progress on key strategic initiatives

Considerable progress has been achieved on the company’s refreshed group strategy across the four pillars of improved operating performance, an optimised existing portfolio, growth and diversification and Corporate Social Responsibility (CSR).

Mr Stephens says the company continues to advance plans for an online gaming offering, which would be located offshore initially while the New Zealand Government made decisions on regulation of the sector within the country, which SKYCITY strongly supported.

Master planning continues across all properties. The company’s hotels strategy is well advanced, with an independent hotel brand to be established and progress made on securing an investment partner to develop new hotels on its precincts in Auckland, Hamilton, and Queenstown. SKYCITY is also undergoing a group-wide review of brand and customer loyalty programmes, with changes likely to be unveiled from mid-year.

Further opportunities for new food and drink outlets in Auckland, including a new gin bar, a craft brewery, and a sports bar are under consideration, along with new family-friendly amusement offerings.

SKYCITY has now completed measurement of its carbon footprint and will go carbon neutral in New Zealand this year, and group-wide in FY2020. In addition, Mr Stephens says SKYCITY will create a green fund to help finance new ways of reducing carbon emissions with the assistance of its staff. For further details see click https://www.skycityentertainmentgroup.com/media-centre/skycity-unveils-green-fund-will-be-carbon-neutral-in-nz-this-year-13022019

Outlook

Commenting on the outlook for the remainder of FY19, Mr Stephens says that SKYCITY expects to achieve around 5% growth in normalised group EBITDA for the full financial year over the previous year, and normalised NPAT slightly above last year.**

Growth rates in Auckland and International Business are expected to moderate in the second half, due largely to a strong corresponding period, although growth in Adelaide is expected to increase. Corporate costs are expected to be in line with previous guidance.

“While the company continues to focus on achieving growth across all businesses, there’s no doubt that both the domestic and international macro-economic environment is becoming more challenging,’’ Mr Stephens says.

SKYCITY remains firmly focussed on increasing shareholder wealth, and due to surplus cash generated by asset sales including Darwin and the Auckland Federal Street car park, SKYCITY has decided to return some capital to shareholders. The company therefore intends to undertake an on-market share buy back of up to 5% of issued capital on the NZX during 2019.

The existing dividend policy will continue, with a fully-imputed interim dividend of 10 cents per share payable on 15 March 2019.

ENDS

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