SkyCity runs ruler over Darwin after 'tough year'
By Tina Morrison
Oct. 20 (BusinessDesk) - SkyCity Entertainment Group has hinted it may seek an investment partner to help develop its underperforming Darwin business in Australia, and hasn't ruled out a future sale of the asset.
New Zealand's largest casino operator bought the Darwin casino and hotel business from US-based MGM Mirage in 2004 for A$195 million ($230.6 million) including costs and taxes, as part of its Australian expansion following its purchase of Adelaide casino. In its latest financial year, the company wrote down its Darwin investment by A$95 million to A$195 million after it recognised the business had been hurt by increased rivalry from gaming machines in local pubs and clubs over the past two years.
SkyCity's new chief executive Graeme Stephens, who took the helm in April, told the company's annual meeting of shareholders in Auckland today that Darwin had "a tough year" following the Northern Territory decision to allow more gaming in local venues, which resulted in a 75 percent increase in the number of club and pub gaming machines in the casino's catchment area.
Still, he said the Darwin complex had "wonderful facilities" and the company also owned adjacent undeveloped land "which is an opportunity for further resort development".
"Given, however, the regulatory changes I've referred to, SkyCity won't entertain further development of Darwin on its own so we are conducting a strategic review of our options to create shareholder value," he said. "I have been asked whether a sale would be considered. This is obviously always a strategic option, but we are not there yet."
The company's annual accounts reflect the impact of the $99.5 million write-down, with the Darwin business posting an $85.2 million loss before interest and tax from an $22.5 million ebit profit a year earlier.
Stephens noted in his address to shareholders that when assessing development potential, the company is "acutely conscious" of its available debt capacity, the most appropriate use of its capital and deriving an appropriate risk-related return on any investment made. SkyCity is currently funding several major development projects, including the Auckland convention centre, and expects its debt to peak at $1 billion during its 2020 financial year.
The company expects to release a trading update, alongside a broader update on the progress of its major growth projects and key initiatives in mid-November.
SkyCity shares advanced 1.1 percent to $3.85 and have declined 3.1 percent this year.