KEY POINTS:
Managers at SkyCity Entertainment seem to have pulled $12 million out of thin air - the sort of feat many would love to achieve at its gambling tables.
This week the casino company announced an 18 per cent drop in full-year net profit. That was no great surprise. In May SkyCity warned its profit would fall by about that much thanks to a poor performance at its mainstay Auckland casino and a few lucky high rollers.
But what was surprising was that on Tuesday SkyCity announced it had made nearly $12 million in cost savings in the year to June, a good chunk of the $34 million it announced in May that it was going to save over the next 18 months. This is a spectacular effort as the June 30 balance date came just six weeks after SkyCity had announced its savings target.
SkyCity's announcement in May that it was aiming to save $34 million came as chief executive Evan Davies was struggling to hold on to his job amid increasing investor dissatisfaction with the company's lacklustre performance.
At the time, Davies could provide only scant detail on where the savings would come from, but analysts upgraded their earnings forecasts nonetheless.
Davies ultimately lost his job, but SkyCity and acting chief executive Elmar Toime decided to hold on to the cost-cutting programme.
The fact that over a third of the cost reduction has already been achieved certainly makes Toime's job over the next year much easier - he only has to find a further $22 million in the current year.
But it raises questions about the profit in the year just ended. At $98 million, the full-year net profit was pretty what the market had expected - but that was without any cost reductions. With cost reductions, the profit should have been quite a bit stronger.
A lot of people are scratching their heads.
Tough dilemma
What sort of debate was there around the boardroom table when Nathans Finance was deciding who to lend its investors' money to?
On the board were Roger Moses, Mervyn Doolan, Donald Young and John Hotchin. With chairman Gary Stevens, all those people were on the board of the VTL Group, which owns Nathans.
Of the $170 million Nathans had raised from investors, $110 million was lent to VTL to fund its expansion. Investors who face losing some or all of their money in Nathans must be wondering where Nathans directors saw their obligations: to VTL or to Nathans?
Even with the best will in the world, the Nathans directors must always have had at the back of their minds their other role as directors of VTL.
As directors of Nathans, they had a duty to do their best to protect the finance company and its investors. But how likely would they have been to stop funding to VTL, when that could have sunk it.
Expect more questions like this as more finance companies get the wobbles.
* Christopher Niesche is business editor of the Herald
