SkyCity posts $30m loss due to Covid-19 closures
The group’s boss admits its international VIP business is unlikely to recover from the crackdown on Australian casinos. This comes as gaming machine revenue is up 15pc.
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SkyCity Entertainment boss Michael Ahearne says the company’s international VIP business is unlikely to ever return to pre-Covid levels following a decision last year to permanently sever ties with controversial junket operators.
Amid two investigations into the New Zealand company’s management of its Adelaide Casino, Mr Ahearne said on Thursday that profits generated from high rollers visiting its venues from overseas would be affected by tighter controls put in place following a crackdown on Australian casino operators.
The comments came after SkyCity reported a full year loss of $NZ33.6m ($30.1m), down from a profit of $NZ155.8m in the previous year.
A 32.9 per cent fall in revenue to $NZ639m was largely the result of ongoing Covid-19 restrictions and property closures in New Zealand in the first half of the financial year.
Normalised EBITDA of $NZ137.9m and normalised net profit of $NZ9.7m were at the top end of guidance provided to the market in June, with the company noting that trading across the group had returned to pre-Covid levels in the fourth quarter.
However normalised revenue in SkyCity’s international business, which comprises VIP visitors to its Adelaide and three New Zealand casinos, fell 25.6 per cent to $NZ16.5m, resulting in a normalised loss before interest, tax, depreciation and amortisation of $NZ0.1m.
In April last year SkyCity announced it would permanently end all dealings with junket operators and bring its international VIP operations in-house.
Junkets are being phased out across Australian casinos after they were found to have been repeatedly used to launder money.
SkyCity said on Thursday that it had spent an extra $4m on its anti-money laundering program in Adelaide in 2021-22, including bringing in specialist staff and beefing up its due diligence on international visitors.
SkyCity chief executive Michael Ahearne admitted that changes to the company’s international business would affect its profitability.
“I think it’s highly unlikely the IB (international business) gets back to where it was previously from an earnings point of view – that’s our view,” he said.
“We obviously don’t deal with junkets anymore, we’ve reduced differentials, we have much stronger processes around source of wealth. We have to manage that business in a different way than we did in the past.”
SkyCity acknowledged that while a conclusion to AUSTRAC’s current investigation into potential money laundering breaches at its Adelaide Casino remained unclear, any potential enforcement action and penalties could have a “significant financial and reputational” impact on the company. A separate review by the South Australian Liquor and Gambling Commissioner was launched last month.
Meanwhile gaming machine revenue at Adelaide Casino was up 14.8 per cent to $NZ74.9m in 2021-22, but falls in table and non-gaming revenue meant overall turnover was 6.3 per cent lower at $NZ184.5m. Normalised EBITDA fell 43.4 per cent to $NZ21.9m.
Mr Ahearne said that following a $330m upgrade and expansion of the venue in 2020, the ambition was for it to reach annual EBITDA of $NZ60m.
SkyCity has previously denied that it is preparing the complex for a potential sale, following speculation that investment bank UBS was quietly working behind the scenes on a potential sell-off.
“Long term, we are not changing our view on the property getting to $NZ60m EBITDA – that has been our long term view on that property,” Mr Ahearne said.
“It’s going to ramp up, so it’s not getting there in FY23, but it should be well on the path to getting there.
“Adelaide is a business where the margin there is under even more pressure than the New Zealand margin, from a variety of costs including compliance costs, so we need the revenue to get there.
“The early start in revenues this year has been positive. What we have seen is a positive trend on visitation, recovery from March, April, May, June, July, continuous growth on visitation as the CBD recovers. So that has been pretty continuous, which is encouraging.”
SkyCity said electronic gaming machine revenue in Adelaide was up 70 per cent since the start of July, but that was due in part to an eight-day closure last year following an outbreak of the Delta Covid-19 variant in South Australia.
Covid-19 restrictions hit SkyCity’s New Zealand casinos harder last year with its Auckland venue closed for 107 days, Hamilton for 65 days and Queenstown for 22 days.
SkyCity flagged that dividends could be reinstated as early as the first half of 2022-23 after debt covenant restrictions prevented the company from making any payment to shareholders in 2021-22.
The company expects normalised EBITDA, which was less than half of its 2018-19 result, to return to pre-pandemic levels in 2022-23 on the back of stronger domestic visitation.
“SkyCity sees a credible pathway for a return to pre-Covid-19 earnings during FY23, underpinned by the ongoing recovery of local gaming, particularly in New Zealand, optimising SkyCity Adelaide post expansion, the reopening of international borders and robust cost control to counteract inflationary pressure on costs,” the company said.
SkyCity shares were trading 2.1 per cent lower on Thursday at $2.62.
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