Half-year results for the six months to 31 December 2016

SKYCITY Entertainment Group Limited (NZX/ASX:SKC) today announced its interim results for the six months ended 31 December 2016.

On the interim result, SKYCITY’s Interim Chief Executive Officer John Mortensen commented:

“The main drivers of the 1H17 performance were solid growth in our combined New Zealand properties, offset by reduced turnover in our International Business, continued competitive and economic pressures in Darwin and a weaker Australian dollar. Pleasingly however, trading at our flagship property at SKYCITY Auckland improved significantly in 2Q17, with strong growth across all business segments,” he says.

Results highlights

• Reported NPAT was up 18.0% to $83.8 million, reflecting a higher win rate for International Business for the period and one-off asset write-offs in the previous corresponding period. Reported EBITDA was down 1.5% to $169.1 million and reported revenue down 5.8% to $533.1 million.
• Normalised NPAT was $83.7 million, down 2.0% on the previous corresponding period. Normalised EBITDA was down 5.2% to $168.9 million and normalised revenue down 6.4% to $525.8 million.
• Reported earnings per share was up 5.8% to 12.7 cents per share. Normalised earnings per share fell 12.4% to 12.7 cents per share, largely due to increased shares on issue during the period compared to the prior period.
• An interim dividend of 10.0 cents per share has been declared, consistent with our existing dividend policy.
• Excluding our International Business and adjusting for a constant currency, group EBITDA was up 5.0% on the previous corresponding period, highlighting the robust overall performance of our local businesses, especially in New Zealand.

Property Results in Summary

SKYCITY Auckland returned to growth in 2Q17 across all business segments. Local gaming revenue in 2Q17 was up 11.6% on the prior period and was underpinned by strategic initiatives that were successful in increasing both visitation across the property and customer spend per visit. This result was achieved despite various capital works programmes across the city impacting traffic flows and access to our precinct. Revenue (excluding International Business) was up 3.7% to $283.9 million and EBITDA (excluding International Business) up 5.1% to $130.6 million.

SKYCITY Hamilton continued to trade strongly during the period underpinned by increased gaming activity and robust local macroeconomic conditions. Revenue (excluding International Business) was up 7.3% to $29.6 million and EBITDA (excluding International Business) up 15.1% to $13.4 million.

Adelaide Casino achieved a stable gaming machines performance and an increased market share. However, this was offset by a lower table games hold percentage and a reduced food and beverage contribution. Revenue (excluding International Business) was down 1.7% to A$77.1 million and EBITDA (excluding International Business) down 3.6% to A$13.5 million.

SKYCITY Darwin continues to face increased competition from pubs and clubs and a difficult economic environment in the Northern Territory. Regulatory changes have seen the permitted number of gaming machines in Darwin (outside the casino) increase by 60% since 1 July 2015. Revenue (excluding International Business) was down 4.1% to A$62.3 million and EBITDA (excluding International Business) down 13.5% to A$18.0 million.

Our International Business was adversely impacted by increased restrictions on funds transfers and reduced visits by larger customers. Turnover was down 38.7% to $4.4 billion and normalised EBITDA was down 68.6% to $7.1 million. Operating margins in our International Business were negatively impacted by the fixed cost base required to support the business and increased bad debt provisions. Costs in this business are being reviewed by management to offset the recent decline in activity. SKYCITY continues to comply with all relevant laws in China and take a conservative approach to issuing credit to VIP customers.

Major Growth Projects

The New Zealand International Convention Centre and Hobson St hotel projects remain on-budget and on-target for completion in the first quarter of 2019. Excavation commenced in June 2016 and is now over 80% completed.

We also completed a range of developments at SKYCITY Auckland during the period, including the opening of the ‘Grand Horizon’ gaming salons, which have been well received by VIP customers, and the completion of a major refurbishment of the main atrium area. Development of a new Cantonese restaurant on the ground floor of the atrium is progressing well and expected to open in June 2017. The new restaurant will complement the world-class Federal St dining precinct and underpin further visitation to the property.

In Adelaide, the early works programme for the Riverbank Precinct redevelopment has commenced and our current expectation is that these works will be completed by late 2017. The proposed expansion of Adelaide Casino remains under consideration by the Board.

Non-Executive Director and Management Appointments

SKYCITY made a number of key director and management appointments during the first half of the financial year.

Jennifer Owen and Murray Jordan were appointed as non-executive directors on 5 December 2016 following receipt of the required regulatory approvals. Jennifer has significant experience in the equity capital markets where she focused on the casino and gaming industry. She has consulted independently to gaming and wagering companies and industry bodies extensively since 2012. Murray has held top level executive roles in New Zealand and is a director of Chorus Limited, an NZX-listed telecommunications company, and Metcash Limited, an ASX-listed wholesale distributor.

Graeme Stephens was appointed as Chief Executive Officer. Graeme is currently Chief Executive Officer of Sun International, a casino, resorts and entertainment company listed on the Johannesburg Stock Exchange with interests in South Africa and Latin America. His extensive experience in the gaming, hospitality and leisure industries was the reason he was appointed by the Board to lead SKYCITY as we progress our major growth projects. We look forward to Graeme joining us by 1 May 2017.

Luke Walker was appointed General Manager Adelaide Casino. Luke is currently Executive General Manager – Gaming Machines at Crown Melbourne and has extensive experience in the casino and gaming industries across both single and multi-site venues. Luke commences with us on 16 February 2017, which is earlier than we had initially anticipated.

Our current Interim Chief Executive Officer, John Mortensen will step into the newly created role of Group Chief Operating Officer (upon Graeme Stephens’ commencement) with oversight across all six New Zealand and Australian properties. The impact that John had on the Auckland property performance when he was originally appointed and subsequently on Hamilton and Queenstown gives the Board confidence that he will have a positive impact on the performance of the Adelaide and Darwin properties in his new role.

Interim Dividend

The Board has declared an interim dividend of 10.0 cents per share, payable on 17 March 2017. The Dividend Reinvestment Plan will be available for this dividend, with a 2% discount applying, in-line with prior periods. Elections to participate in the company’s Dividend Reinvestment Plan for the interim dividend close at 5pm (NZ time) on 3 March 2017.

The interim dividend is in-line with our stated dividend policy of distributing at least 80% of normalised NPAT to shareholders each year, subject to a minimum of 20.0 cents per share per annum.

The Board advises that the payout calculation for future dividends from FY18 onwards will be adjusted to reflect the post-tax accounting impact of capitalised interest incurred on our major growth projects. This change will not impact other elements of our existing dividend policy and is considered prudent given the increasing amount of capitalised interest expected out to FY20. Further, this change is unlikely to have a material impact on actual dividends paid over this period.

We continue to believe that our dividend policy offers shareholders an attractive yield and is sustainable over the medium-term.

Outlook for Remainder of FY17

SKYCITY Auckland, which accounted for approximately 80% of Group EBITDA in the interim period, is expected to continue to deliver modest growth during the second half of FY17 on the previous corresponding period, driven by favourable macroeconomic drivers, new major events and ongoing initiatives to drive visitation. Disruption arising from various capital works programmes across the city is being proactively managed but will continue to impact the property.

SKYCITY Hamilton is expected to continue to deliver growth during the second half of FY17 on the previous corresponding period, underpinned by higher visitation and increased local gaming revenue.

Adelaide Casino is expected to remain stable in the second half of FY17 on the previous corresponding period. There is a risk of some disruption to the property from the early works programme, which commenced in late 2016.

Challenging trading conditions are expected to persist for SKYCITY Darwin during the second half of FY17 due to a soft local economy and increased gaming machine numbers in pubs and clubs.

Activity during the second half of FY17 is also expected to be weaker in our International Business on the previous corresponding period given reduced visits expected from larger VIP customers and recent developments in China. However, we have experienced favourable activity over the Chinese New Year period to-date.

Notes to editors:

All numbers in this release are unaudited. Further information on adjustments between normalised and reported information is available in SKYCITY’s investor presentation at: http://www.skycityentertainmentgroup.com.