Skycity Entertainment Announces $121.1m Profit
Skycity Entertainment Group Announces Annual Profit Of $121.1m
Trans-Tasman gaming and entertainment company SKYCITY Entertainment Group continues its strong growth record, reporting today a NZ$121.1 million profit before non-recurring item for the year ended 30 June 2004.
The result is a 13% increase over the FY03 year, when SKYCITY reported an annual profit of NZ$107.2 million. As in past years, SKYCITY shareholders will share in this surplus with 90% of the profit (before non-recurring item) to be paid in dividends. Of SKYCITY's shares, around 65% are held within New Zealand and 28% in Australia.
A fully-imputed final dividend of 15.5 cents per share has been declared, up from 13.0cps last year. SKYCITY's shareholders received an 11cps interim dividend at the half year.
The non-recurring item for the FY04 year is a NZ$20.9 million write off of SKYCITY's 33% interest in internet sports wagering company Canbet. The board of Canbet recently initiated a proposal to merge with Australian on-line sports betting company International All Sports Limited (IAS) and SKYCITY's Canbet holding will transfer to a 6.8% holding in IAS. This holding has a current value of A$2m, but SKYCITY has elected to write down the value of the investment to nil.
A one-off tax benefit of NZ$7.9m, achieved through the decision to takeover SKYCITY Leisure is also included in the result and demonstrates a significant financial benefit from SKYCITY's recent decision to take over the shares it did not already own in that company.
SKYCITY Managing Director Mr Evan Davies said the period had been a solid, although difficult, one for the Group during a year of significant corporate activity.
"The result is indicative of the success of the company's strategic vision. We are focused on diversifying risk and revenue streams to ensure SKYCITY's growth and success continues into the future."
"The last six month period, in particular, has been one of significant corporate activity. We have concluded the acquisition of our second Australian property, through the purchase of the Darwin hotel and casino, and expanded our New Zealand operations through a significant shareholding in Christchurch Casino, completed the takeover of SKYCITY Leisure and acquired a further 15% shareholding in SKYCITY Hamilton. While these acquisitions have all been concluded over a relatively close time frame, this is not indicative of the time period over which the board has assessed these decisions. Our commitment to continuing to grow the business will remain a focus moving forward." Group operating revenues for the year rose 6% from NZ$556m to NZ$590m. Total New Zealand operations contributed NZ$467m of this, with Australian operations contributing $A110m.
SKYCITY Auckland increased revenues by 4.1% to NZ$389m, SKYCITY Hamilton by 53% to NZ$31m and SKYCITY Queenstown by 6% to NZ$6.4m. SKYCITY Leisure was marginally down at NZ$39m.
SKYCITY Adelaide increased revenues by 7% to A$110m for the year, demonstrating an improved second half performance, with revenues lifting 8% from A$53m in the first half to A$57m in the second half. SKYCITY Darwin will contribute to the company's revenue streams for the first time in FY05.
Group EBITDA (operating profit before interest, tax, depreciation and amortisation) was up 4.2% on the corresponding period last year, with New Zealand operations up 4.4% and Australian operations up 2.7% compared to the corresponding prior period.
SKYCITY's largest New Zealand property, SKYCITY Auckland, showed a solid performance, but this was affected in the second half by issues associated with the introduction of note acceptor limitations. The property delivered an EBITDA of NZ$203m up 2.0% over FY03.
During the FY04 period, SKYCITY Auckland opened a third level of gaming and entertainment offerings with the addition of PLAY casino and the popular Bar3, along with commencement of the refurbishment of its Members' Club. A programme of extensive capital works continued at the Auckland property, including the NZ$65 million SKYCITY Auckland Convention Centre, which opened for business in May (officially launched in July), and the addition of smoking decks in preparation for the introduction of smokefree legislation. Hotel and convention revenues, at just 6% behind FY03, were pleasing given the closure of conference facilities for much of the year due to the construction of the new PLAY gaming facility. Construction of the NZ$85 million SKYCITY Grand Hotel continues above the convention centre.
Mr Davies said, "We are excited by the response to date to our new convention centre which is already encouraging increased visitation throughout the SKYCITY Auckland property. We also look forward to the opening of the five star, SKYCITY Grand Hotel, which we expect will begin to contribute to revenue streams from April 2005." Mr Davies said FY04 gaming operations were impacted by a range of factors including physical works relating to gaming expansion (PLAY and Bar3), the expansion of the Members' Club facilities, but primarily by the introduction of a $20 maximum note acceptor limitation on gaming machines (imposed in March this year by the Gambling Act 2003).
"The recent regulatory imposition has had a significant operational impact, causing disruptions for higher-end gaming machine customers and creating a range of operational difficulties and inefficiencies - estimated to have impacted pre-tax operating earnings for the FY04 financial result by approximately NZ$7 million."
Mr Davies said that the inconvenience imposed by the note acceptor limitation has been most apparent for the company's higher-stakes customers in Auckland - those who prefer to use larger denomination bank notes. He said the company doubts the changes will have had a noticeable impact on the less than 2% of the population potentially at risk from gambling activity.
"If harm minimisation was the intention of the note acceptor limitation, then it's missing its target," said Mr Davies. "SKYCITY operates an extensive programme of host responsibility initiatives and the $20 limitation is not identified as contributing in any material way to the overall effectiveness of the various harm minimisation initiatives. Rather, the note acceptor limitation has detracted significantly from the gaming experience sought by our higher-end gaming customer group."
SKYCITY has implemented a number of measures to mitigate the adverse impacts of the note acceptor limitation but, due to timing issues, the benefit of these measures in the year ended 30 June 2004 has been limited. The note acceptor limitation appears not to have had any noticeable impact on SKYCITY's Hamilton or Queenstown operations.
Mr Davies also said that other regulatory effects on its operations in New Zealand included the delayed approval of a number of cashless ticketing technologies, resulting in further inefficiencies for the higher end gaming customer base. This matter was, however, resolved in August and the company is now in the process of installing an industry-leading ticket technology system.
SKYCITY Hamilton reported a very strong performance for the period. SKYCITY Hamilton revenues were up 22% on a per day basis and EBITDA at 44% of revenues was an excellent performance.
Mr Davies said, "We are very pleased with the success to date of SKYCITY Hamilton. The property is an excellent example of SKYCITY's successful business philosophy translated into a local environment."
The period also saw the acquisition of a further 15% shareholding in SKYCITY Hamilton from Tainui Group Holdings Limited - increasing SKYCITY's shareholding to 70%. A new function centre, located beneath the existing SKYCITY Hamilton complex, opened in April. The centre features two function rooms overlooking a paved promenade along the riverbank and can cater for up to 400 guests, and has been well-received by the local market.
Performance at the company's boutique property, SKYCITY Queenstown Casino, remained steady on its FY03 performance with EBITDA at NZ$1.1m. With two casinos competing in the same market, the focus for this property remains on achieving increased premium play activity and further enhancing the machine product offering.
SKYCITY Leisure recorded an improved second half - with the 2002 write-off associated with the Argentina operation meaning that SKYCITY Leisure's carrying value on the SKYCITY balance sheet is well below independent valuations.
In May SKYCITY initiated a successful takeover bid for the remaining 26% of equity in SKYCITY Leisure that SKYCITY did not already own. SKYCITY Leisure has since been de-listed from the New Zealand Exchange and is now wholly-owned by SKYCITY. The decision to bid for the remaining shares presented a range of advantages, such as reduced corporate and compliance costs and enhancement of SKYCITY Leisure's financial capacity to respond to market growth opportunities.
SKYCITY's New Zealand based operations were further expanded in June through the acquisition of a 40.5% interest in Christchurch Casino. Mr Davies said that this was a logical extension of SKYCITY's New Zealand operations and indicative of SKYCITY's focus on growth.
Mr Davies said, "We are pleased to have concluded this acquisition. Christchurch Casino is a well-managed, quality asset that has demonstrated strong growth performance over recent years and this is anticipated to continue. This acquisition represents an opportunity for growth in New Zealand gaming operations that would be difficult to achieve otherwise, given regulatory constraints."
In Australia, SKYCITY expanded its operations through the purchase of its second property in Darwin, and is increasing its entertainment offerings at SKYCITY Adelaide through a significant capital works programme, stage one of which commenced during the period. The Adelaide operation delivered an improved second half, with revenues up 8% on the first half and EBITDA at A$14.1m compared to A$12.5m in the first half, an increase of 13%. Mr Davies said, "SKYCITY Adelaide's second half showed improvement, and we look forward to a continuation of this in 2005 when the first stage of our A$70 million redevelopment is completed. The broadening of offerings at SKYCITY Adelaide will establish the complex as a favoured entertainment destination, driving customer visitation throughout the property."
On-line wagering company Canbet Limited has not yet reported its FY04 result however result expectations foreshadowed at the half-year indicate a potentially unsatisfactory financial performance. SKYCITY, which had an investment of NZ$20.9m in Canbet, has resolved to write down its investment to nil, reflecting its intention to eventually exit the sports wagering sector.
Mr Davies said, "The decision to invest in on-line wagering was made in 2000, when internet gaming was viewed as a potentially serious competitor to land-based gaming opportunities, and it was appropriate to participate in this sector to assess risks or opportunities. However, those predictions have not eventuated and SKYCITY does not see its core business into the future as including internet wagering."
In February this year SKYCITY announced its intention to expand its Australian gaming 'footprint' and consolidated its position within the Australian gaming sector through the acquisition of the former MGM Grand Darwin hotel and casino. This purchase was completed in July at a price of A$195 million. The property has been rebranded SKYCITY Darwin.
Mr Davies said, "We are pleased that SKYCITY Darwin's revenue performance exceeded expectation over the period since the acquisition was announced, which means the operation was obviously secured at favourable pricing and will contribute positively to Group revenues in FY05. The EBITDA acquisition multiple, based on annualising the actual performance during the six month period ended 20 June 2004, is reduced to 6.1 times," said Mr Davies. "The Darwin operation already operates gaming, hotel and food and beverage facilities, a mix that obviously sits well with the SKYCITY Entertainment Group business model, which encompasses the provision of multi-faceted entertainment experiences.
"The casino complex is already a popular venue and recently underwent a major refurbishment, therefore no immediate significant capital expenditure is necessary. The business also presents the capacity for further development, especially regarding VIP play where Darwin's proximity to the Asian market is a definite advantage." Mr Davies is confident that FY05 will be another positive year for the company as it integrates its new operations and benefits from additional New Zealand and Australian revenue streams; opens its second Auckland hotel and continues to make significant contributions to the communities in which it operates.
While smokefree legislation will be introduced in New Zealand in December, Mr Davies reiterated the company's past statements of readiness for change.
"This will not be a surprise. It has been an inevitability for some time and we have been preparing both our business and customers for the changes required of them by law. The whole industry faces this change and we're comfortable that SKYCITY is as prepared as it can be."
"2004 was a landmark year in terms of the evolution of the SKYCITY group and the cementing of our position within the Australasian gaming and entertainment industry. We approach the 2005 year with confidence that our commitment to diversification and expansion is absolutely essential to the continued creation of shareholder value," said Mr Davies.
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Additional Facts: * $121.1m Net Surplus After Tax (NSAT) before Canbet write-off (up 13% on FY03). $100.2m NSAT after Canbet write-off (of $20.9m).
* SKYCITY Auckland strong in 1H04 but constrained in 2H04 by note acceptor restriction from mid March (2004). Corrective measures in place to restore gaming machine revenue patterns.
* Significant uplift in SKYCITY Adelaide performance in 2H04 after a somewhat disappointing first half. Adelaide redevelopment project will enhance revenue prospects from 4Q05.
* Strong performance by SKYCITY Hamilton continued.
* Continued growth in cinema revenues for SKYCITY Leisure. Full takeover will allow growth opportunities to be realised.
* Outperformance YTD by SKYCITY Darwin has lowered the acquisition multiple.
* Canbet has incurred substantial trading losses for FY04 and SKYCITY has written the value of its Canbet investment down to nil as at 30 June 2004. No longer a strategic positioning for SKYCITY and regulatory issues are becoming more difficult for sports wagering operations.
* FY05 prospects look strong, subject to impact of non-smoking legislation in New Zealand.
* SKYCITY comfortable with median analyst expectations for FY05 of $116m - $119m.
FY04 FY03* * Interim Dividend 11.0 cps 10.5 cps * Final Dividend 15.5 cps 13.0 cps 26.5 cps 23.5 cps
Entitlement date 24 September, Payment date 8 October. Fully imputed
* Dividends paid to shareholders since SKYCITY commenced operations in 1996: $1.39 per share, $570 million.
* Restated for 1:2 share split November 2003 Note: additional/special dividend of 10cps also paid in FY03 (November 2003)