SkyCity profit expected to slide 60 per cent after pandemic, casino closures hit bottom line

Last October's NZICC fire. Photo / file

Casino closures because of Covid-19 restrictions have hurt entertainment giant SkyCity Entertainment, which expects to post a 60 per cent decline in net profit when it reports tomorrow. The company, which was granted a waiver to extend its reporting date, indicated in June that its after-tax net profit for the June year would be between $52 million and $67m, compared to last year's $144.6m.

It expects "normalised ebitda" to be in the range of $185m-$205m and reported ebitda to be in the range of $440m-$480m.

Last year, revenue was $822.3m and ebit was $297m but SkyCity normalises results where unusual aspects are stripped from the accounts.

The company has suffered casino closures, staff layoffs and last October's disastrous NZ International Convention Centre fire, although the latter has an upside.

Graeme Stephens, SkyCity CEO. Photo / Jason Oxenham

On June 17, the company said it expected the centre to be fully covered by insurance. It has already received $105m in insurance payouts, expects the full repairs to cost at least $275m and says the total project cost for the job by Fletcher Construction is now $750m, up from $703m.

Five weeks of alert level 4 lockdown halted all repair work on the centre and Fletcher left the site - although construction continued during Auckland's alert level 3 lockdown last month. SkyCity chief executive Graeme Stephens has previously said that the Work and Income wage subsidy was helpful but did not cover all of the company's wage and salary costs.

The scheme covers the wages of workers at Covid-affected businesses and is paid at a flat weekly rate of $585 for full-time staff - with companies required to top it up to at least 80 per cent of a worker's normal wage.

When the Covid outbreak struck, SkyCity laid off 200 people, mostly in management positions. It claimed $21.3m in the first tranche of the wage subsidy. When that 12-week subsidy ran out, it began cutting another 700 waged staff - around half of whom took voluntary redundancy.

Fletcher told the company that Covid-19 would significantly affect the construction industry so SkyCity and the Government has now agreed to extend the long stop date for the centre to January 2, 2025.

But SkyCity is optimistic it will be completed by mid-2023 and the neighbouring Horizon Hotel behind TVNZ will be completed by mid-2022.

Three months ago, the business launched a $230m equity raising offer to strengthen its balance sheet and secure more liquidity in response to uncertainty from the impacts of Covid-19.

It garnered support from existing lenders by way of covenant waivers or relief, extensions to upcoming debt maturities and additional debt facilities.

It highlighted its strengths in documents released in June, including exclusive long-term casino licences and high-quality and defensive earnings. Major new projects in Adelaide and Auckland would underpin medium/long-term earnings and free cash flow growth, it said.

It cited its opportunity to become a multi-channel gaming operator, online and land-based and said it had significant investment in property assets of about $2b of land and buildings at the end of March as well as a sustainable business over the long-term and an experienced management team.

Shares are trading around $2.50, down from $4.12 in January leaving the business with a market capitalisation of $1.9b.