SkyCity revenue, profit fall on weak VIP gambling demand


skycity-casino-vip-gambling-revenue-profitNew Zealand casino operator SkyCity Entertainment Group reported a profit surge in the first half of its fiscal year, but a closer inspection reveals things aren’t what they seem.

Figures released Wednesday show SkyCity’s revenue hitting NZ$721.7m (US$465.4m) in the six months ending December 31, 2019, more than three-quarters higher than the second half of 2018. Earnings more than doubled to NZ$407.5m while net profit after tax (NPAT) quadrupled to NZ$328m.

And now the catch: the company realized a NZ$220m windfall from the sale of its carpark concession in Auckland and collected around NZ$226m from insurance companies following last October’s devastating fire at its in-development NZ International Convention Center in downtown Auckland (although the latter also resulted in NZ$47.5m in additional costs).

So, unpacking all those major one-off items, ignoring the sale of SkyCity’s Darwin casino and performing the usual sleight of hand that smooths out the volatility in Asian VIP gambling – aka ‘International Business’ in SkyCity parlance – we learn that ‘normalized’ revenue was down 7.9% to NZ$491m, earnings fell 10.7% to NZ$153.3m and NPAT slumped 16.4% to NZ$75m.

Excluding the IB figures, SkyCity’s flagship Auckland casino fared not too badly considering the disruption caused by the fire, with revenue essentially flat at NZ$305.6m, as were earnings at NZ$137.4m.

The much smaller Hamilton and Queenstown venues were both up around 8% while revenue from the company’s lone remaining Australian casino in Adelaide was also essentially flat at AU$77.4m while earnings nudged up 2.7% to AU$12.8m.

As for those IB operations – which almost entirely involve the Auckland venue – SkyCity said activity was “significantly weaker” due to key customers making fewer visits, resulting in IB turnover falling 40% to NZ$4.6b. Things would have been worse had IB win not come in at 1.43%, above the theoretical 1.35% rate. Still, normalized IB earnings were down by two-thirds to NZ$8.2m.

If there’s an upside here, it’s that SkyCity continues to maintain a “conservative approach to credit,” so the volume of bad VIP debts in the period remains low. Also, the Auckland casino is currently upgrading its VIP/premium mass facilities and this work is expected to be done by April or May.

Every casino operator must offer some comment on the coronavirus crisis, but SkyCity CEO Graeme Stephens said it was “too early and uncertain to estimate any future financial impacts, but based on past precedent, we expect any impact to be temporary.”

As for SkyCity’s new Malta-licensed online casino operations, the company says the site has enjoyed sequential growth in registered users – currently sitting at around 3,500 – but the business “remains immaterial” at present. The company expects the online business to be “broadly earnings neutral” for the foreseeable future.

The Auckland fire has resulted in “significant” delays to completing construction of the convention center and the adjoining Horizon Hotel. SkyCity has until January 1, 2023 to finish the work, unless it can convince the government that it deserves an extension, given the circumstances.