Soft economies hit casino profits
Casino operator SkyCity's prospects for growth hinge on cashing in on concessions gained from building convention centres in Auckland and Adelaide, analysts say.
The observations came after SkyCity Entertainment Group yesterday posted an after-tax profit for the half-year to December 31 of $61.1 million. It was 8 per cent down on the same period in 2012.
Chief executive Nigel Morrison said the result was in line with guidance.
SkyCity, which has significant operations in Australia, blamed the lower profit on the high kiwi and soft economic conditions on both sides of the Tasman.
Morningstar senior equities analyst Nachi Moghe said while the profit drop was expected, it was "disappointing". Its flagship casino in Auckland experienced a flat six months, with profits nudged upwards after $2.5m in marketing costs were cut.
Moghe described the business as "mature" and noted total revenue was down, despite SkyCity's share of gaming revenue in Auckland increasing.
"The core gaming machine business is problematic and has been very sluggish," he said.
Moghe said the main prospects for growth, particularly with a subdued Australian economy, came from deals struck with governments in New Zealand and South Australia to build convention centres.
"That's the main area of growth - they'll get more machines and tables. Organic growth will be pretty subdued, and expansion is what's going to drive machine revenues up."
The Adelaide deal has been formally actioned, with new gaming machines and tables coming online later this week.
The Auckland deal is trailing further behind, with Moghe picking the second half of 2015 before SkyCity would be able to cash in concessions granted with the New Zealand International Convention Centre deal.
Morrison said concessions struck with the New Zealand Government would come into effect once a construction contract for the $402m centre was signed. He hoped to start receiving construction tenders in May.
According to the firm's own calculations, the high kiwi in relation to the Australian dollar was responsible for only $2.4m of the $8m fall in normalised net profit.
Operations at the group's major operations in Adelaide and Darwin were down 13 per cent and 10 per cent, respectively. It blamed the downturn on construction clogging its casino in Adelaide and "cost pressures" in Darwin.
Chief financial officer James Burrell told a media conference yesterday that while economic conditions were improving in New Zealand, the opposite was true in Australia. "In Australia, there are clearly still challenges for Australian businesses," he said.
"We would say it is more buoyant in New Zealand, from an economic point of view, and we do believe there's growing momentum."
An interim dividend of 10 cents will be paid on April 4, consistent with what was paid in the first half last year.
SkyCity said it had appointed managers and designers for its Auckland convention centre project, with Morrison saying the firm's outlay was "an investment in New Zealand's future".
SkyCity Auckland general manager Simon Jamieson will have overall responsibility for the project as group general manager, while Andrew Buckingham has been appointed project director.
Architect firm Warren and Mahoney will be the lead consultancy.
SkyCity's shares yesterday closed at $3.65, up 1.39 per cent.