Sky City posts flat profit as smoking ban dents earnings

New Zealand's biggest casino operator, Sky City Entertainment, today reported a full year net profit of $104 million.

The result was up just 4 per cent on the previous year as new legislation, including a ban on smoking and delays in the redevelopment of its Adelaide casino, dented earnings.

Analysts had expected the firm, which dominates the $2 billion gaming industry with an interest in five of the country's six casinos and two casinos in Australia, to post of profit of $102 million.

Shares in Sky City, which will pay a dividend of 12 cents per share on October 7, tumbled 6c to $4.70 on the news, against a year high of $5.50 and a low of $4.05.

The smoking ban was imposed in December at a time when Sky City's operations were facing increasingly tougher gaming regulations.

One issue is a ban on using notes larger than $20 in slot machines.

The company also faces earnings risks from plans to implement pop-up messages to warn players of time spent on slot machines and the amount gambled.

Regulators plan to introduce the new pop-up rules over a four-year period from October this year.

A ban on new casinos in New Zealand has given the company a virtual monopoly. In Australia it faces rivals such as Tabcorp and Publishing and Broadcasting, both of which are seeking to expa nd.

Sky City has been redeveloping its Adelaide casino in a bid to make a profit on its five-year investment.

The firm said delays in the introduction of ticket technology and completion of Stage 1 of the refurbishment dented today's result.

The impact of the smoking ban was also greater than anticipated.

Managing director Evan Davies described the period as "challenging", and warned the worst is not yet over.

"The impact of smoking bans will continue to restrain earnings growth for our New Zealand operations during full year 2006, and regulatory restrictions are likely to continue to confine business development until they settle within satisfactory frameworks where co-ordinated, targeted and effective policy can be initiated," he said.

Group revenue for the year rose 15 per cent to $684 million, with the New Zealand operations contributing the lion's share at $485 million.

Sky City Auckland increased revenues by 3 per cent to $402 million, Hamilton was steady at $31 million, Queenstown increased 15 per cent to $7.5 million and Sky City Leisure eased 4 per cent to $37.4 million.

In Australia, Darwin revenues lifted 9 per cent to A$77 million ($84.29 million) and Adelaide revenues eased 2 per cent to A$108 million.

Group earnings before interest, tax, depreciation and amortisation (ebidta) were up 10 per cent on the prior period to $286 million.

Gaming revenue at Sky City's flagship Auckland casino fell 3 per cent due to the smoking ban and the delayed introduction of ticket technology .

Mr Davies expects that the impact of the smoking bans in New Zealand to abate over the next 18 months.

- NZPA