SkyCity Entertainment Group reported a boost in profit in the first half of the fiscal year. However, upon closer inspection, things don’t appear to be as rosy as the group would lead you to believe.
As per the figures released on Wednesday, SkyCity reported revenues of NZ $21.7 million in last the six months of 2019. This figure is three-quarters higher than what was achieved in last six months of 2018. The group experienced earnings of NZ $407.5 million which was more than double than what they achieved in 2018. The net profit after tax also moved in the right direction, quadrupling to NZ $328 million.
These numbers would seem to indicate that business is booming for the group. However, the figures begin to head south once you take away sales that were made and the insurance money that was collected. More specifically, the company sold its carpark concession in Auckland for NZ $220 million. It was also on the receiving end of NZ $226 million, an amount it collected from insurance companies following the fire at its NZ International Convention Center in downtown Auckland. To paint a more accurate picture, the company had to also endure additional costs of NZ $47.5 million incurred due to the fire.
The fire has caused significant delays in the construction of the convention center and adjoining Horizon Hotel. SkyCity must complete the project before the January 1, 2023 deadline or appeal to the government for an extension given the exceptional circumstances.
If we ignore the sale of SkyCity’s Darwin casino and the carpark as well as the money collected from insurance, we find that Asian VIP gambling was down at SkyCity casino. Referred to as the ‘International Business’, revenue from the VIPs was down 7.9% to NZ $491 million.
Earnings took a tumble, falling to 10.7% to NZ $153.3 million while net profit after tax slumped to just NZ $75 million (16.4% drop)
If we take International Business out of the equation, then the casino in Auckland did well despite the major disruptions caused by the fire. Revenue for the flagship casino stayed flat at NZ $305.6 million, as were earnings at NZ $137.4 million.
Both Hamilton and Queenstown casinos which are considerably smaller venues compared to Auckland reported a jump of 8% while the company’s only Australian casino in Adelaide stayed flat AU$77.4 million. Earnings were up by 2.7% to AU$12.8m.
SkyCity did admit to a slump in business experienced at the Auckland casino. They deemed the activity at the venue as being ‘significantly weaker’. The main reason was due to the low attendance of their VIPs resulting in a 40% drop in their revenues to NZ $4.6 billion. The group had projected the situation to be a lot worse with the IB theoretical growth projected at 1.35% rate.
In reality it came to slightly more of 1.43%. Despite this, the International Business earnings were down by nearly two-thirds to NZ $8.2 million.
The one big positive that can be taken from all of this is that SkyCity continues to maintain a conservative approach when it comes to credit. The volume of bad VIP debts has remained in the last six months of December. The casino in Auckland is also in the process of revamping its VIP mass facilities. The work is expected to last till May this year and will considerably improve the facilities given them an even more premium feel.
The obvious explanation on the drop in VIP attendance can be attributed to the coronavirus epidemic and SkyCity CEO Graeme Stephens had the following to say “too early and uncertain to estimate any future financial impacts, but based on past precedent, we expect any impact to be temporary.”
With respect to the online casino operated by SkyCity, as per the group the casino is growing nicely and has amassed 3,500 users in a short period of time. The company expects the online business to be “broadly earnings neutral” for the foreseeable future.