Investment in Auckland, RWC brings Strong Result for SKYCITY
15 August 2012
Growth in International, Capital investment in Auckland and RWC delivers Strong Result for SKYCITY
SKYCITY Entertainment Group (NZX:SKC) today announced its results for the full year ended 30 June 2012, delivering a strong result, with Normalised Net Profit after Tax of $141.4m, up 8.0% and Reported Net Profit after Tax of $138.5m up 12.6%.
Highlights of the 12 months ended 30 June 2012
• Net Profit after Tax $141.4m, up
• Group Revenues $950.7m, up 8.4%
• Auckland Revenues $527.4m, up 14.4%
• Strong Growth in Auckland International Business Revenues $50.7m, up 95%
• Group EBITDA $310.6m, up 6.8%
• $50m investment in Auckland delivering solid returns and underpinning good growth
• New Darwin Lagoon Resort opens with acclaim and positive outlook
• Normalised Earnings per share 24.5cps, up 1.8 cps (up 8%)
• Final dividend of 8 cents per share announced (full year dividend 17 cents per share)
Note: All above figures as “normalised”
SKYCITY Chief Executive Officer, Nigel Morrison says he is pleased with the full year result, particularly the growth in the core Auckland business, International Business, Hamilton and the return to growth of Darwin.
“The 2012 Financial Year is a strong result for SKYCITY, with normalised revenues of $950.7m, up $73.7 million (+8.4%). Normalised NPAT and EPS both increased by 8.0% over last year.
“Our flagship Auckland property, with normalised revenues of $527.4m, delivered revenue growth of $66.2m (+14.4%), with growth across all segments of the business, of which we attribute $10.7m to the Rugby World Cup. This encouraging Auckland result is underpinned by the strong opening of “Horizon”, our new international gaming suites and salons and “EIGHT” our new VIP table games precinct, together with the other capital enhancements completed in September last year There is no doubt the outstanding success of our new Federal Street award-winning restaurants “The Grill” by Sean Connelly and “Depot”, by Al Brown has been a highlight of the year. Our revenues in Auckland grew by 14% in the second half, from $226m to $259m with 65% of the growth (some $20m) coming from our international business and with our food and beverage revenues growing by 25% in the second half.
“Delivering $50.7m in international revenues in Auckland, up from $26.0m (up 95%) last year, shows the positive impact of our new “Horizon” suites and gaming salons, which opened in July 2011, with the momentum strengthening in the second half. Our international business in Auckland has trebled since FY10. The international gaming clientele who visit us from China, Hong Kong, Singapore, Thailand and Malaysia bring valuable export income to Auckland and New Zealand. They visit attractions around Auckland, Rotorua and Queenstown, demonstrating the further potential of New Zealand as an international tourist destination to high-spending Chinese and South East Asian tourists.”
“The success of “Depot” by Al Brown and “The Grill” by Sean Connelly and the many awards and recognition they have both received, has been overwhelming and a tribute to the vision of these two great chefs We will shortly be announcing our plans for the opening of new a Japanese Robata styled restaurant in Federal St with award winning international NZ Chef Nic Watt of Roca and Zuma fame. We hope that the Auckland Council will in the near term approve our investment of $10 million into Federal Street so we can get on and transform it into one of the great pedestrian / alfresco streetscapes in Auckland”.
“It is disappointing that we have not yet been able to conclude our negotiations with the NZ Government regarding the development of the New Zealand International Convention Centre, the process most recently stalling, while the Auditor-General reviews the Expression of Interest process undertaken by the Ministry of Economic Development. Our expectation is that the AG’s report will be completed in 1 to 2 months, following which we would hope to re-engage with the Government and conclude these negotiations. In good faith and to facilitate a development of the scale demanded by the Government, we have acquired additional land adjacent to our Hobson St site, costing some $30 million. We remain committed to the development of the New Zealand International Convention Centre in Auckland, a much needed tourism infrastructure development for Auckland and New Zealand, providing the ultimate terms of the transaction remain acceptable to SKYCITY”.
“In Darwin, our 5 star luxury lagoon resort development together with our new “Horizon” gaming salons and villas have just opened to much acclaim. We are very excited about the potential of having an international class VIP offering in Darwin for the first time, being so close to key Asian cities. Our Darwin property returned to growth in the second half, with revenues up 8%, with a bright future underpinned by the sound economic outlook for that region and the significant new infrastructure projects there, including the $32 billion Inpex LNG project”.
“Economic conditions have been challenging in South Australia in the second half. Never-the –less, we remain committed to achieving our expansion and redevelopment aspirations for the Adelaide Casino. We aim to transform it into a truly world-class integrated entertainment facility, featuring a boutique 6 star hotel, expanded gaming facilities, including “Horizon” International gaming suites and salons, signature restaurants and bars, a spa and roof top pool lounge and large underground parking facility. This development will complement the tourism and recreational infrastructure investments being undertaken by the South Australian Government in the Riverbank precinct, with the expansion of the convention centre and the transformation of the Adelaide Oval. We are continuing to work closely with the South Australian Casino Task Force regarding the future taxation and regulatory framework for the Adelaide Casino. The outcome of these discussions, which we hope will transpire in this calendar year, will allow us to finalise our plans for transforming the Adelaide Casino”.
“Our Hamilton business grew strongly over the year, with revenues and EBTIDA up 9% and 8% respectively, underpinned by the strength of the Waikato economy. As a result of our confidence in the growth of the Waikato, we have approved the development of a $35 million, 135 room, 4+ star hotel to be constructed above our existing property in Hamilton.
“Our Christchurch Casino Joint Venture with Skyline continues to be challenged by a difficult operating environment. Following the recent release of the Christchurch Central Recovery Plan there is now further clarity around the rebuild of the city, with the planned convention centre and other civic buildings within the proximity of the casino.
“With our strong balance sheet and reliable cash flows from our core operations, we are confident that, should both our planned Adelaide and Auckland major development projects come to fruition, we will be able to finance these without calling on shareholders.”
“With the sound results for the full year we are pleased to declare a final dividend of 8.0 cps, taking the full year dividend to 17.0 cps, up 1.0 cps (+6.3%) on prior year”.
“The first six weeks of this financial year have been pleasing with normalised revenues up more than 5% on the same period last year, although we recognise the comparative for the first half FY13, will be some what challenging, given the revenues from the RWC in the first half last year”.
“We look forward to providing a further trading update to shareholders at our Annual Meeting on Friday 19 October 2012” Mr Morrison said.
SKYCITY’s Chief Financial Officer, James Burrell went on to add “Group normalised EBITDA increased to $310.6m, up $19.7m (+6.8%) over last year. We achieved a full year normalised Net Profit after Tax of $141.4m up $10.5m (+8.0%), in line with our market guidance of “in the low $140 millions”.
“Adjusting for lower than theoretical hold in the International Business and non-recurring items, reported EBITDA of $300.5m is up $6.2m on prior year (+2.1%). On a reported basis, we achieved NPAT of $138.5m, up $15.5m on prior year (+12.6%)”.
“The positive result was partly driven by the Rugby World Cup finals in New Zealand in October 2011, which we estimate delivered around $11.5m in revenues, $6.5m EBITDA and $4.7m in NPAT, primarily in our hotel operations.
“In FY12, we invested in important capital projects and maintenance capex across the Group, totalling $165m. This included completion of the $50m Auckland property capex, $32m on the Darwin Lagoon Resort and $10m on implementation of the new “Bally” gaming system in Auckland, all of which will position SKYCITY for growth in FY13”.
“Our balance sheet remains strong and well-funded, with net debt to normalised EBITDA of 2.1 times and $340m of available bank committed facilities undrawn at 30 June 2012. We also have $94m Capital Notes available but unissued in Treasury Stock. In May 2012, Standard & Poor’s reiterated their BBB- investment grade rating, with a stable outlook. Accordingly, SKYCITY is well positioned to fund future growth projects from existing facilities and operating cash flows”.
Normalised EBITDA from SKYCITY Auckland was $217.9m up 10.7%. Reported EBITDA was $210.6m up 1.8% reflecting the below theoretical win rate in Auckland of 1.03% (1.13% at a Group level), compared to the theoretical rate of 1.35% and average over the last 3 years of 1.34%.
FY12 has been a good year for SKYCITY Auckland in terms of growth and development, with the completion of a $50m capex programme enhancing our facilities:
• Launch of the exclusive “Horizon” gaming suites and salons for our International players, resulting in a 95% increase in IB revenues to $50.7m
• Opening the high-end entertainment area “Eight” for our premium tier table players, growing table volume by 10.6% and revenue by 2.7% in FY12 to $119.9m (albeit reflecting a lower hold rate in FY12)
• Completion of the new gaming machine room for our Diamond gaming tier, which supported the 10% revenue growth
• Opening the award winning restaurants “The Grill by Sean Connelly” and “Depot” by Al Brown, cementing Federal Street as a leading culinary destination in New Zealand, helping F&B revenue grow by 24.2% in FY12 to $45.1m
The 2011 Rugby World Cup created a solid start to the year, although the impact was less significant than expected, delivering approximately $10.7m revenue and $6m EBITDA to our Auckland property, mostly in our hotels business.
FY12 normalised revenues at our flagship Auckland property were $527.4m, up $66.2m (+14.4%) from $461.2m in FY11. Normalised EBITDA of $217.9m grew by $21.0m (+10.7%) from $196.9m in FY11. EBITDA margin has softened slightly from 42.7% to 41.3%, attributable to the increasing proportion of international business.
Excluding RWC, our Auckland business still showed strong underlying growth trends, with revenue up by 12.0% and EBITDA up 7.6% on FY11.
We successfully launched a new customer loyalty programme, Premier Rewards, as well as a new customer and gaming management system, Bally Gaming System. Whilst these caused some interruption to growth in the fourth quarter of the year, both initiatives are now fully functioning and are improving our approach to customer loyalty, marketing and segmentation. We expect to see the benefits of these initiatives in FY13.
2012 was an award winning year for SKYCITY Auckland. The Grill won 2012 Cuisine Magazine’s “New Zealand Restaurant of the Year” and “Best New Restaurant”. Depot won “Restaurant of the Year”, “Best New Restaurant” and “Best Bistro” in the 2012 Metro Awards in New Zealand. Both confirm SKYCITY’s position as Auckland’s leading entertainment precinct. In addition, Peter Gordon’s Dine continues to feature as one of New Zealand’s best restaurants and Peter as one of New Zealand’s most recognised chefs.
Despite a strong first half in Adelaide, the challenging economic conditions in South Australia put some pressure on consumer spending in 2H12, softening full year revenue growth to A$4.0m (+2.6%) to A$160.8m. FY12 normalised EBITDA was A$36.7m, up A$0.7m (+1.9%) on FY11. Gaming machines revenues grew consistently over the year at around 8%, while table games revenues were flat, albeit drop (volumes) was up 4% with a slightly softer win percentage. Adelaide’s EBITDA margin continues to hold up well at 22.8%.
After several years of softness and a flat performance in 1H12, Darwin has now started to show sustained signs of growth. Full year FY12 revenues of A$117.9m are up A$4.3m (+3.8%) on FY11 and EBITDA is up 1.2% to $34.7m.
Encouragingly, 2H12 had revenue growth of 8.4% to $54.3m, showing improvements across all segments of the business. Silk Air’s business class flights direct from Singapore have commenced and are starting to increase visitation to the property. Work on the $32 billion Inpex Ichthys LNG project has not yet had any significant impact on Darwin’s revenues, but this is expected by calendar year end.
In July 2012, we opened
Darwin’s only luxury 5-star beachfront resort. This resort
complements our existing 120 bedroom hotel and
• 32 suites, around a 3 million litre heated swimming lagoon pool, with swim-up bar,
• 2 deluxe “Horizon” villas of approx 100 sqm, with adjoining private gaming salons for International VIP gaming customers,
• 30m white sandy beach, Endota day spa, “Cove” restaurant and bar
The resort is attracting Australian domestic tourists (early bookings indicate strong interest), corporate incentives / retreats and affluent Asian gaming clients. It opened with 100% occupancy and forward bookings indicate occupancy rates of 80% over at least the coming months.
The new facilities in SKYCITY Darwin and the much improved macroeconomic outlook bode well for Darwin’s domestic growth. In addition, Darwin’s proximity to Asia for attracting high end players and the new Horizon VIP suites and salons, provide our Darwin property the opportunity to really compete in the International VIP market for the first time.
Our Hamilton property continues to perform well, with revenues of $52.1 million up $4.2m (+8.8%) on FY11. Of this, we estimate revenue of circa $0.8 million is due to Rugby World Cup. Excluding RWC, underlying revenue growth remains strong at circa 7.1% on FY11.
Hamilton FY12 EBITDA of $21.8m is a good result, showing growth of $1.6m (+7.9%) on FY11. Excluding RWC EBITDA of c.$0.5m, EBITDA still grew by 5.5% in FY12, a pleasing outcome.
Nigel Morrison, CEO of SKYCITY commented, “We are pleased to announce that plans will be finalised shortly for a 4+ star hotel development, with 135 rooms above our Hamilton property. The hotel will include 8 luxury duplex suites for our premium customers and 16 large suites with river frontage balconies, in addition to 111 standard rooms. The hotel plans also include a 5-lane swimming pool, sauna and gymnasium. We anticipate the total cost to be around $35m.
“Our Hamilton property goes from strength to strength, as does the broader Hamilton and Waikato economy. We support investment into the Hamilton growth story and believe this development brings much needed quality hotel accommodation to central Hamilton. It will significantly improve the facilities that we are able to offer to our existing and future customers.