KEY POINTS:
SkyCity directors are coming under increasing pressure to provide answers after the casino company stunned the market by reporting substantial savings just six weeks after the company announced a cost-cutting programme.
Investors want to know how SkyCity could have made the $11.6 million in cost savings so quickly and why the were not told about scale and timing of the expected savings.
Some say they have yet to decide whether they will vote for the re-election of current directors at the company's annual meeting in October.
In May, managing director Evan Davies (who has since resigned) unveiled plans to cut costs by $33 million and to sell SkyCity's cinema business and underperforming casinos.
Some initiatives had been introduced during the financial year ending June 30 and the rest would follow during the next 12 to 18 months, the company said.
But last week acting chief executive Elmar Toime unveiled full-year net profit of $98.4 million, which was in line with guidance. But he said the figure included $11.6 million of savings from the programme announced six weeks earlier.
Paul Robertshawe, portfolio manager for equities at Tower Asset management, said no one in the market expected the level of saving during the first period.
"It is the top of the list of the questions I've written so far, to explain why better guidance wasn't given around the achievement of those cost savings," Robertshawe said.
SkyCity had had an opportunity to provide greater detail, he said.
"This is why I need to ask the question directly and get an understanding of what they thought they were saying versus what the market thought they'd been told. Can you put it down to a lost-in-translation [scenario] or can you put it down to something more sinister?"
Tower had not been agitating for boardroom changes but when other parties raised the subject it had not been against the suggestion, Robertshawe said.
Tower had not decided whether to vote in favour of the re-election of directors, he added.
Davies resigned just a week before the company's financial year ended in June after the company changed direction to a more conservative approach. Its acquisitive strategy, including buying cinemas, other casinos and internet gaming firm Canbet, had been criticised by commentators and investors during the past two years.
Simon Botherway, of Brook Asset Management, said the delivery of the cost saving last week was farcical.
"They simply can't claim by slightly under-achieving guidance that within that is a $12 million cost save of a programme that was announced six weeks before the end of the financial year," Botherway said. "It's just shambolic."
The delivery of the saving reflected very poorly on the board.
"This is very disappointing particularly when they've put their credibility on the line with a strategic review and a cost-cut programme, and then to claim that they've already achieved a significant portion of those [cost cuts] is farcical," he said.
Mark Brown, investment manager at ING, said there had been confusion as to whether the cost saving programme constituted a profit downgrade.
"Whilst they're saying that they performed in line with guidance, they just guided the market to a consensus number that didn't have those cost savings [built] in," Brown said. "In that way it's disappointing."
However, ING was not looking for boardroom changes.
"I'm not going to stand on a soap box and shout for heads," Brown said. "We've got some very disruptive changes at the moment and I'm not sure that the business would be better for further disruptive changes."
SkyCity's share price closed up 6c yesterday at $4.55, compared to a 12-month high of $5.52 a share and a twelve-month low of $4.16 after the results were announced.
SkyCity's board consists of chairman Rod McGeoch, and directors Patsy Reddy, Dryden Spring, Ron Trotter and acting chief executive Toime.
COST CONFUSION
* In May SkyCity announces $33 million cost-cutting plan.
* This month the company posted a $98.4 million net profit.
* Profit is in line with guidance but includes $11.6 million of savings.
* Before the profit announcement, analysts didn't think the guidance included cost cuts.
