Skycity: Annual Profit Of $120.1 Million
21 August 2006
Skycity Entertainment Group Announces Annual Profit Of $120.1 Million
Entertainment Group has celebrated ten years of operation with a profit of $120.1 million for the year ended 30 June 2006, up 13% on 2005. This is at the upper end of expectations and reflects a good performance from SKYCITY’s key businesses. Revenue growth is up 12% from $678 million in 2005 to $758 million in 2006. Group earnings before income tax, depreciation and amortisation (EBITDA) are up 6% to $295 million, from $279 million in 2005.
“In the past ten years, SKYCITY has grown from a single construction site in Auckland to become a trans-Tasman entertainment and leisure business. We now have $1.7 billion in assets spanning tourism, cinema complexes, hotel and conference accommodation and casinos. It is a strong, truly diversified fun and entertainment brand,” SKYCITY Managing Director Evan Davies says. Mr Davies describes the 2006 result as a good one, given the environmental and regulatory challenges faced.
“Our strategy has been to invest in existing facilities and diversify our entertainment interests while maintaining strong capital management. This is generating new revenues and means we are well-placed for growth into 2007,” he says.
“This has, without question, been a challenging year with the impact of the smoking restrictions in New Zealand and Adelaide and ongoing regulatory measures. However the results show New Zealand operations have largely recovered from the impact of the smoking ban.” “We’ve had pleasing performances from our Australian businesses. SKYCITY Adelaide continued its first half momentum, with EBITDA up 53% on FY05 to $A27.3 million, while Darwin has benefited from positive economic growth under SKYCITY management.
In New Zealand, SKYCITY Auckland and Hamilton both delivered good revenue results, boosted by full year figures from the Grand Hotel in Auckland and the purchase of the Riverside Entertainment Centre in Hamilton.” 90% of profits distributed to shareholders Investors will continue to share in SKYCITY’s performance with 90% of the profit returned to shareholders through a final distribution of 14 cents per share (cps). This means the total distribution for 2006 is 26cps, compared to 24cps in 2005. As announced by SKYCITY in January, this distribution will be in the form of non-taxable bonus shares. The record date for the distribution bonus issue will be 8 September 2006, with payment on 6 October. A fully-imputed cash alternative to the bonus issue will be available to shareholders, who can elect to participate in an off-market buyback of all or some of their allocation of bonus shares. 2006 highlights •
Strong revenue growth for SKYCITY Auckland, with non-gaming revenues up 20% and gaming revenues up 5%, despite the smoking ban. • A turnaround performance from Adelaide Casino as a result of investment in new facilities. • Double-digit growth in earnings before income tax (EBIT) for SKYCITY Hamilton and SKYCITY Darwin. • The purchase of Village Roadshow’s New Zealand and Fijian cinema assets.
This extends SKYCITY’s position as a diversified entertainment brand. • Continued strengthening of host responsibility functions, with the appointment of four leading public health and addiction treatment specialists to drive and develop SKYCITY’s host responsibility programme. • Positive engagement with regulators in all jurisdictions on new initiatives. • A strong balance sheet, with a well-structured and efficient debt portfolio. • Total 2006 profit distribution to shareholders of 26 cents per share, up from 24 cents per share in 2005.
Strong business performances by sector SKYCITY Auckland’s revenue performance has been underpinned by non-gaming revenues, which rose 20% to $92.7 million. This was driven by excellent results from the convention centre (+22%), full year revenues from the Grand Hotel ($11.5 million) and increased food and beverage income (+11.3% to $37.4 million). Gaming revenues rose 5% to $334.8 million, with strong growth in table games following redevelopment of VIP rooms. However Auckland’s EBITDA was flat, due to increased regulatory compliance, host responsibility and corporate costs. SKYCITY Adelaide continued to stage a strong turnaround, after a disappointing performance in 2005. Adelaide’s performance directly reflects the success of the Southside redevelopment, as the expanded gaming area, North Restaurant and Loco Bar facilities attracted new customers and a positive response from existing customers. Total revenues increased 21% to $A131.2 million, with 18% growth in gaming and 50% growth in non-gaming revenues. This pushed EBITDA up 53% to $A27.3 million.
Evan Davies notes that non-smoking regulation will impact Adelaide earnings in 2008, but SKYCITY Adelaide is well prepared and will continue to benefit from the next stage of expansion and redevelopment. The Darwin complex has benefited from robust economic growth in the Northern Territory and improved tourist links. In the past year, SKYCITY Darwin has delivered 10% growth in revenues to $A89 million and 7% growth in EBITDA to $A33.6 million. In its first year of full ownership SKYCITY Hamilton delivered a good result, demonstrating a recovery from the smoking ban. Revenue was up 14% to $35 million, while EBITDA was up 15% to $17.4 million.
The 2006 result included a contribution from the operations within the Riverside Entertainment Centre purchased during the year. “Our strategy with SKYCITY Hamilton has been to invest in developing the business and growing revenues while maintaining margins. Following our purchase of the Riverside Entertainment Centre, we will be launching a new sports bar in September and planning further refurbishment of the facilities,” Evan Davies says. SKYCITY Queenstown’s result was impacted by a poor ski season, lower international tourist numbers and reduced visitation from international player groups.
The boutique casino’s EBITDA was a loss of $400,000. Evan Davies described these results as “disappointing, but not material to the overall SKYCITY Group result.” Christchurch Casino contributed $5.3 million to SKYCITY Group’s EBIT result. SKYCITY Leisure’s revenues were steady at $37.7 million. However an increased cost base and a reduced contribution from the SKYCITY Metro property resulted in EBITDA and EBIT being down $2 million and $2.3 million respectively.
“With the full acquisition of Village SKYCITY cinemas in July 2006, we are now in a position to optimise our investment and management of the cinema operation. SKYCITY is now New Zealand’s largest cinema operator, with a total of 120 screens and a further 26 screens scheduled for completion by December 2007. We expect customer reaction to new cinema complexes to help drive earnings performance,” Evan Davies says.
Strategic outlook for 2007 Evan Davies says SKYCITY’s management focus for 2007 will be to consolidate and capitalise on the company’s core asset base. “Looking forward, we expect SKYCITY Auckland and Hamilton to consolidate their performance trends, while SKYCITY Adelaide will continue to grow and capitalise on the benefits of redevelopment. However the smoking ban will inevitably have an impact on Adelaide’s revenue growth in the 2008 financial year,” he says.
“The planned redevelopment of the gaming floor in Auckland, the opening of a sports bar in Hamilton, the ongoing development of Adelaide and economic momentum in Darwin will all help grow earnings streams.”
The regulatory environment will continue to evolve, but Evan Davies describes the relationship with regulators and gambling treatment providers in all jurisdictions as being on a good footing.
“Host responsibility is a challenging and evolving area, particularly the issue of managing harm associated with problem gambling. It is an important part of our business and one we take seriously. Our approach is to work closely with the Government and treatment providers, and we have recruited a strong team of executives from the health and addiction treatment sectors to continue to drive this collaborative development,” Evan Davies says.
“We enter the 2007 financial year well-placed for further growth. We have expanded our balance sheet, enhanced shareholder value and the company is focused on further enhancing SKYCITY’s brand as an international entertainment company and a good investment for shareholders.”