Monday, August 08, 2022

SkyCity cuts forecasts as fire, Coronavirus hit

SkyCity Entertainment, New Zealand’s only listed gaming company, has cut forecasts for the year and says the near-term outlook is gloomy, as it grapples with the aftermath of a fire in a key project and now the impact of the Coronavirus.

The operator, which has properties in both New Zealand and Australia, hit the headlines in October after a fire devastated the Auckland International Convention Centre, whose completion will now be delayed until 2022.

The company reported a more than 16 percent drop in normalized profits in the half year to December 31, which reflect the impact of the fire, but do not yet factor in the Coronavirus.

The effects of the virus on inbound travel from Asia to New Zealand and Australia are still to be fully felt, although the company acknowledges that it has already seen some damage with international business described as “weak.”

Chief Executive Graeme Stephens told an analysts’ briefing that group turnover was down about 8 percent as a result. “We had an appalling November and a weak December,” he said. Turnover in international business was down 40 percent, with visitation from China down and with major players staying away.

He expects international business to remain weak and the target for turnover for the year has been reduced from $14 billion to just $10 billion. This equates to a $15 million drop in forecast EBITDA for the full year.

Table games are “soft” but EGMs were not showing any impact. Unlike some regional operators, SkyCity has strong domestic support and the New Zealand business had been showing double-digit growth prior to the fire and outbreak.

Less than five percent of the company’s EBITDA came from China-based travellers, with 90 percent of the business revenue being generated locally. However, Stephens was careful to say that figure excluded international business which makes up ten percent of the group’s EBITDA.

In headline terms, the company’s reported profit was up nearly three-fold to $328 million ($213 million), but the reality is that on a normalised basis net profit after tax is down 16 percent to just $75 million ($49 million).

The main reason for the sharper than normal disparity between reported profit and normalised profit is that SkyCity has already received insurance payouts for damage to the convention centre, the associated hotel development and for the reduced revenue from the sale of its carparks.

This is worth a total of $226 million and has been booked as revenue but so far there is no compensating payout for repairs.

SkyCity has now hired an independent expert to quantify the cost of making good the damage, which has been estimated at between $220 million and $250 million.

A note to the company’s accounts says that the SkyCity group has assumed an insurance recovery for both buildings of $220 million, and recovery is stated to be “virtually certain.” Damage to the new hotel which is part of the convention centre development is valued at another $6 million.

The fire has had a negative effect on the value of the sale of carparks by SkyCity to a subsidiary of the Macquarie bank. The bank is not able to access the carpark due to damage to the building and is losing revenue, and SkyCity has written down the value of the sale by $66.5 million. This is the first time these figures have been disclosed.

Fletcher Construction said yesterday that construction work on the damaged SkyCity convention centre would begin in mid-year, and Stephens said the company would get a re-instatement plan from Fletcher’s by the end of February.

Fletcher’s Chief executive Peter Reidy said Thursday that the damage from the fire was extremely complex to deal with and just preparing for the rebuild had taken months of work.

“Areas of the façade adjacent to the roof may need to be replaced. If this is the case, it will require a 12 to 14-month work programme by a specialist glass manufacturer who is in the United States.”

“There has been extensive water damage throughout the building which, combined with the summer heat, has created conditions for mould. That requires the replacement of many of the services and fittings that were installed and has restricted normal access to the site,” Reidy said.

Auckland was due to host a large APEC leaders meeting in mid 2021, and there had been hopes that a new construction timetable would still enable that target to be met.

However, “the fire and water damage that we have found, and the long-lead product we need to source from overseas, makes completion by that date highly unlikely,” Reidy said.

Stephens said that it was now expected that the deadline would be missed by at least a couple of months, and the convention centre would now be ready in 2022.

SkyCity shares closed at NZ$3.67 on Thursday, an 11.1 percent fall from its peak of $4.13 on 15 January just four weeks ago and one of the largest falls in the NZX, although all tourism and related companies and others with large exposures to China have been hit following the spread of the coronavirus.


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