Sky City operating earnings decline by 6.4%

Sky City gets more than 70 % of its pretax profit from its casino, conference center and tower in Auckland, where earnings fell 5.2 % as spending slowed amid New Zealand’s first recession in a decade. Earnings from Australia increased 7.6 %, boosted by an improvement at Adelaide and a weaker New Zealand dollar.

“It is very much, currently, a story of two economies,” CEO Nigel Morrison told journalists on a conference call. “From an Australian economy point of view, we’re very fortunate to be in South Australia and the Northern Territory.” Sky City shares were unchanged at us$ 1.39 at the 5 p.m. close of trading in Wellington. The benchmark NZX 50 Index fell 1.5 % the same time.

The company reduced its first-half dividend to 9 cents, from 11 cents a year earlier, and will lower its future payout ratio to at least 70 % of after-tax profit from 90 % to help reduce debt. Morrison wouldn’t comment on trading so far this year, except to say no issues had arisen to “distort” today’s presentation. Nor would he forecast second-half earnings, saying they would depend on how Australia and New Zealand fared in the global recession.

Half-year profit before interest, tax and depreciation at Auckland slipped to us$ 52.2 million, with costs rising as Sky transferred some expenses formerly accounted for at the group level and worked to lure visitors.

Revenue in the three months to December 31 rose 5.8 % from the preceding quarter. Hotel occupancy also improved and Auckland appears to be “gaining traction now,” Morrison said. “We have been focused on revenue growth,” he said. “It’s very important in this environment that we don’t give up on that.”

At Adelaide, the company’s second-largest casino by revenue, earnings jumped 18.3 % to us$ 9.1 million as new products helped lift revenue and the company reduced costs. December quarter revenues rose 8.7 % from a year earlier.

At Darwin, where the company is investing to lure Asian investors, earnings fell 5.1 % to us$ 14.3 million as an expansion project temporarily reduced gaming machine availability. That work has now been completed and Sky is now “poised” to benefit from increased earnings, Morrison said.

Earnings from high-value international gamblers also slumped in the period to us$ 409,600, from the unusually high us$ 6.4 million a year earlier. Revenue from the unit of us$ 3.8 million was in line with the theoretical win rate, Sky said.

Sky City has begun restructuring the international unit to boost turnover and cut earnings volatility by targeting a greater number of slightly lower-spending gamblers, Morrison said. Australia has a large number of commission-based players and Sky hasn’t done enough yet to market Auckland to them, he said. Darwin should also appeal to Asian gamblers, he said.