SkyCity Entertainment Group interim result shows $33.7m net loss

Pandemic-hit SkyCity Entertainment Group has reported a loss for its latest half-year of $33.7m, down 143 per cent on the previous corresponding profit of $77.9m.

Revenue fell 35 per cent from $449.9m to $289.8m, the business citing Covid disruptions and the material impact that has had on how it performed.

Construction of its $700m-plus NZ International Convention Centre and new Horizon Hotel in Auckland’s centre “remains complex but is progressing well” and the company is working closely with Fletcher Construction, it said.

The business which employs 4000 has just released the result for the six months to December 31, 2021 declaring no interim dividend for shareholders.

Michael Ahearne, SkyCity chief executive, has previously said that for every day Auckland is shut, the company loses around $1m revenue.

Today, Ahearne said: “Covid has continued to extensively impact the business and operations at each of SkyCity’s properties in the first half of the financial year. Government-mandated lockdowns resulted in the closure of SkyCity Auckland for 107 days, SkyCity Hamilton for 65 days, SkyCity Queenstown for 22 days and SkyCity Adelaide for eight days. When permitted to reopen, the properties have operated under significant constraints due to restrictions on mass gatherings and physical distancing requirements.

“What we have observed is that our New Zealand domestic gaming business demonstrates resilience and is quick to rebound when operating without restrictions.

“SkyCity Adelaide operated with significant capacity limits, CBD disruptions and workforce disruptions due to Covid. Performance is expected to improve as restrictions are relaxed, interstate borders progressively open and international tourists are welcomed back to Australia,” he said.

The company is looking towards the end of this month, citing the Government announcing a staged re-opening of our borders from the end of February. People from Australia, Britain, the United States, Singapore, Japan and Korea might be able to travel here again from July if they are vaccinated, the business noted.

“When we’re open and operating normally last July and August the gaming business performing well. However, tourism-related businesses are impacted by the border closure,” Ahearne told the Herald today.

Online gaming had resulted in 10,000 customers per week which is a positive feature of the trading period, he said.

New Zealand hotel mid-week occupancy was around 20 per cent but weekends could be as high as 60 per cent, he said.

In Adelaide, the hotel was 50 to 60 per cent occupied, Ahearne said.

Ahearne said he supported the Government’s vaccination mandate “but we’re a business that is significantly impacted – probably one of the most impacted – by restrictions.

“We are managing through a tricky time. We look forward to an environment getting through this period of Omicron quickly and re-opening activity levels. I think the Government has had tricky decisions to make. We back the Government on the vaccine policy. But we’re also looking forward to seeing the economic recovery and the CBD recovery. The next month to two months is really important”.

Adrian Allbon and Jason Cao, analysts at Jarden, released an in-depth analysis of the outlook for the company this month.

“Given the backdrop of its key Auckland property being closed for effectively 110 days due to Covid Delta restrictions, we expect EBITDA, including $17 million wage subsidies taken, to be down 75 per cent versus the previous corresponding period to $30m,” the analysts wrote.

Net profit after tax will be a $24m loss compared to the previous profit of $44m in the same half-year ended December 2020, they forecast.

The Jarden analysts said the sheer length of time its properties were shut would be the huge difference between the two half years, particularly in Auckland.

The 110-day closure compares to 19 days in the previous half-year so the latest result will be much harder hit, they said.

The company has been granted a balance sheet waiver.

The Jarden analysts noted that by the end of October, the company’s net debt was $648m, with $230m of liquidity available.

Key terms agreed with debt providers were for a full waiver of the company’s December gearing covenant.

The analysts said the company’s ability to pay dividends was restricted while such covenants were in place.

Nor could the company’s properties operate at capacity.

“Currently, New Zealand is operating at a red traffic light setting, which restricts group sizing to 100 people but allows SkyCity properties to be open,” they noted.

“We estimate under this setting Auckland is on an EBITDA rule of thumb of around $8m per month,” they said.

With no domestic restrictions, SkyCity’s Auckland properties would be earning around $20m/month so the business was generating less than half its usual revenue from its powerhouse base near the headquarters.

“Hamilton is also impacted and Adelaide continues to face capacity constraints as well. The further unknown for New Zealand is whether earnings prospects will be further dented as omicron cases lift and a greater proportion of CBD workers are bound to the home,” the analysts said.

On December 23, the company said it had done a deal with Europe’s Gaming Innovation Group, providing €25m of new equity to help fund the purchase of France-Pari/Sportnco.

Allbon and Cao said of that deal: “We view the GIG investment of around $40m as unfortunate timing for SkyCity but equally a necessary commitment to secure the ongoing focus of GIG as SkyCity’s exclusive online casino platform provider. Longer-term, the investment stake could prove to be accretive if GIG can successfully execute its own online and sport betting opportunity set.”

Shares were trading last week around $3.01, down from $3.77 in early 2020 before the pandemic’s restrictions. That trading price gives a market cap of around $2.2b.

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