SkyCity Announces Full Year Results 2020

SkyCity Entertainment Group (NZX/ASX:SKC) has announced its financial results for the financial year ended 30 June 2020. SkyCity has been significantly impacted by the COVID-19 pandemic that emerged in New Zealand and Australia in early 2020, with normalised EBITDA and NPAT for the Group for the period to 30 June 2020 negatively impacted but at the top end of the guidance range provided at the time of the equity raising (June 2020).

Reported results were up significantly over the prior year due to accounting for the New Zealand International Convention Centre (NZICC) fire and the gain from the sale of the long term concession of the SkyCity Auckland car park, partially offset by an A$150 million impairment of the Adelaide casino licence.

SkyCity’s domestic business, which has historically accounted for over 85% of Group EBITDA and is a key value driver for the Group, performed stronger than expectations when open and online gambling has performed well. International Business and the non-gaming businesses have experienced a slower return to pre-COVID-19 levels.

Key Features of FY20

• Group normalised profit after tax (NPAT) is down 59.7% and earnings before interest, tax, depreciation and amortisation (EBITDA) is down 37.7%, significantly impacted by the NZICC fire and COVID-19

• Reported EBITDA is up 16.9% and reported NPAT is up 62.8% due to the NZICC fire accounting and gain from the Auckland car park concession sale, offset by an A$150 million impairment of the Adelaide casino licence

• Challenging year due to NZICC fire and COVID-19 with significant operational and financial impacts

• Strong balance sheet following implementation of funding – able to withstand further downside shocks and/or COVID-19 disruptions

• Adelaide expansion on track to open by the end of 2020 and NZICC/Horizon Hotel reinstatement progressing satisfactorily

• SkyCity Online Casino has grown rapidly with over 35,000 customer registrations currently

• Trading ahead of expectations when properties open – resilient domestic gaming businesses

Commenting on the results, Chief Executive Graeme Stephens says that FY20 has been complex and challenging for SkyCity.

"A wide range of strategic decisions and actions have had to be taken to mitigate the impacts of, first, the fire and then the impacts of COVID-19. We have rapidly restructured our New Zealand workforce, downsizing it by around 25% to ensure SkyCity is positioned to be sustainable in the short to medium term; we have undertaken a capital raising and debt restructure to ensure that SkyCity has sufficient liquidity and funding capacity; and significant operational effort has been focused on closing and reopening our properties with rigorous health and safety measures in place.

"SkyCity was able to move quickly but with care in response to these events and is well positioned to deal with the foreseeable future. The wage subsidy in New Zealand and Australian JobKeeper scheme have been helpful and partially mitigated the impact of property closures and ongoing negligible international customer activity.

"Our domestic businesses in New Zealand and Adelaide have recovered more quickly than anticipated post reopening which has been encouraging, although the outlook remains unpredictable as we adjust to new social and economic settings.

"The other aspects of our business that are more reliant on international visitors (including VIP gaming, hotels and restaurants) can only fully recover when country borders reopen. Our International Business activities should recover once travel restrictions are lifted, but the parts of our business driven by corporate travel and by tourism, such as our hotels and the Sky Tower will take longer.

"SkyCity’s strategic plan is focused on managing the post-COVID-19 recovery and completing its major projects in Adelaide and Auckland, which will underpin medium-term earnings and cash flow growth," says Stephens.

Major Projects

Development work on the SkyCity Adelaide expansion and hotel projects and associated master planning projects was able to continue over the period.

"These projects continue to progress well and remain on-budget and on-time, with the SkyCity Adelaide expansion and Eos by SkyCity, the new 120-room luxury hotel, due to open towards the end of 2020. We will be recruiting up to 700 people through the phased opening period and have had strong expressions of interest from some great talent.

"Work recommenced in late May 2020 on the NZICC and Horizon Hotel projects following the move to Alert Level 3 of the COVID-19 Alert system in New Zealand and we now expect Horizon Hotel to be delivered during 2021 and the NZICC to be completed in 2023.

"Development opportunities in New Zealand continue to be refined but major decisions have been paused while we conserve our balance sheet and evaluate the uncertain outlook," says Stephens.

Online Gaming

A positive feature of the year has been the launch of SkyCity Online Casino, which operates out of Malta and provides a world-class online gaming experience to New Zealanders, with industry leading host responsibility features.

Mr Stephens says trading ramped up significantly from March 2020 and the business has now grown into a profitable operation despite the very conservative approach taken in comparison to other offshore online casinos targeting New Zealanders.

"We have observed a slight reduction in online gaming revenue following the reopening of our properties in May, but we saw an increase in activity during the second Auckland closure period in August. We now have over 35,000 customer registrations and we continue to prepare for a regulated online gaming industry in New Zealand. We are supportive of the Government’s ongoing policy review in this regard."

Sustainability Initiatives

SkyCity has continued with the many initiatives that are underway under six sustainability pillars. "We previously had five focus areas but the impact of COVID-19 on SkyCity has highlighted the need to preserve and grow sustainable profitability alongside progressing and enhancing our non-financial initiatives to ensure long-term viability and success.

"Minimising harm to our customers remains our core focus and we have made a number of investments into technology over the past year to keep our customers safe and improve their entertainment experience. We have made good progress in refocusing our SkyCity Community Trusts in New Zealand on initiatives that will develop and support our youth and we have upweighted strategies to ensure our supply chain is ethical and supports local business.

"We have followed through on our commitment to go carbon neutral in Australia as planned (having gone neutral in New Zealand last year) and we are well advanced with solutions to reduce waste to landfill.

"Importantly, we are nurturing our employee culture after a significant restructure and we are introducing new initiatives relating to workplace flexibility and diversity. We believe our business is now strategically well placed to deal with the significant uncertainty that still lies ahead for everyone and are extremely cognisant of addressing morale and mental wellbeing for our customers and employees." says Mr Stephens.

Outlook for FY21

Commenting on the outlook for FY21, Mr Stephens says assuming no adverse change to the current COVID-19 outlook in New Zealand and South Australia, SkyCity expects Group earnings to be above FY20, but still well below pre-COVID-19 and FY19 levels.

"We expect the domestic businesses to continue to perform well when open but remain prepared for the possibility of further closures. We are planning for international borders to be closed for the duration of FY21, and that there will be negligible International Business and international tourism activity.

"Auckland’s performance is expected to return to the positive trends observed prior to the second closure, driven by a resilient local gaming performance and cost savings but offset by weaker performance from non-gaming businesses. Over the coming months SkyCity Auckland will be opening new VIP gaming areas as well as new entertainment and F&B facilities on the Main Gaming Floor. We are also broadening our entertainment offering with the introduction of the All Blacks Experience and a new Weta Workshop created attraction – two large, unique attractions that will further cement SkyCity’s place as the number one entertainment destination for Auckland.

"Hamilton is expected to deliver a good performance versus the prior comparable period, underpinned by positive gaming machine activity and cost savings. Queenstown is expected to be adversely impacted by continuing international border restrictions. The Adelaide expansion is expected to open in phases during FY21 and we expect Adelaide’s operating performance to be broadly consistent with FY19 levels.

"In the year ahead, we expect International Business turnover to be minimal whilst borders remain closed and SkyCity Online Casino is expected to deliver a more meaningful EBIT contribution.

"Based on our current outlook we believe we are well positioned to deal with any further adversity, and we expect to achieve some growth, but there is something of a holding position across several aspects of our business. In FY21, SkyCity will be focused on progressing its committed projects, improving the quality and efficiency of our existing operations, being flexible to react to a fluid environment and to leverage opportunities which arise in the markets where we are present.

"SkyCity has maintained a strong asset, people and capital base and, barring any further significant negative external events, we expect we will recover and grow," says Stephens. 

A full copy of this year’s financial results is available here: https://www.skycityentertainmentgroup.com/investor-centre/financial-information/reports-presentations/2020