Economy, hotel delay, Adelaide: SkyCity Entertainment downgrade, suspends dividends

SkyCity cited economic conditions, particularly in Auckland, for hitting the profit outlook for the 2024 financial year.

SkyCity shares tumbled after it downgraded its earnings expectations for the 2024 financial year and suspended dividends for two years, citing the “challenging” economy, delays opening its new Horizon Hotel and problems in Adelaide.

The company’s stock initially shed 21c, or 15.6 per cent, to $1.46 in early trading, before falling further - recently trading down 37c (20.2 per cent) at $1.38. The share price fall wiped almost $300m off the company’s market value by capitalisation.

It’s the second earnings guidance downgrade for the casino company following one in December that saw its profit forecasts pegged back due to lower pokie machine revenue and higher compliance costs.

In a statement to the NZX, the company said it was now expecting “underlying” earnings before interest, tax, depreciation and amortisation (ebitda) of $280 million to $285m for the year to June 2024, instead of its earlier revised estimate of $290m to $310m. SkyCity said it now expected underlying group net profit of between $120m and $125m, compared to its earlier forecast of $125m-$135m.

The company also said it was suspending dividend payments to shareholders until 2026, noting that it expects to pay a penalty of A$67m ($73m) for anti-money laundering breaches at its Adelaide casino.

“SkyCity’s board has determined to suspend dividends for 2H24 and FY25. SkyCity notes that it continues to hold prudent levels of committed liquidity headroom,” it said today.

“This early outlook guidance does not include the impact of any potential temporary suspension of SkyCity Casino Management Limited’s casino operator’s licence in New Zealand (as previously flagged to the market by SkyCity on September 3, 2023).

“SkyCity notes that the private hearing for that matter, previously set down for the week of April 15, 2024, has been delayed as a result of scheduling constraints, with a new private hearing set down for August 2024.”

The company, which will release full-year results in August, said the key factors influencing the new earnings guidance were:

• The ongoing challenging economic environment impacting customer spending;
• A further delay in the opening of the Horizon Hotel, now expected in August 2024, due to delayed completion of works by the contractor to the project, which impacts hotel, food and beverage and gaming contributions across the Auckland precinct;
• A potential increase in Adelaide casino duty expense for FY24.

SkyCity said it expects to pay a civil penalty of A$67m next month, noting that the amount is subject to Federal Court approval in Australia, due tomorrow.

The company said it was also committed to approximately $76m capex to complete the NZICC.

The hotel on Hobson St beside the NZ International Convention Centre was meant to open in March, then delayed till May but now it has been pushed out to August.

Fletcher Construction won the contract to build that hotel and the NZICC.

SkyCity said current trading conditions reflected a challenging economic environment, particularly in Auckland where the company makes most of its revenue.

“SkyCity expects this to continue throughout FY25. In addition, FY25 financial performance is expected to be impacted by a number of one-off items including ongoing delays to the completion of the Horizon Hotel, pre-opening operational costs for the New Zealand International Convention Centre, preparing for online gaming regulation in New Zealand, and the ongoing risk and compliance uplift activities at SkyCity Adelaide,” the business said.

SkyCity shares closed yesterday at $1.73. On the back of today’s fall, the stock is down 36 per cent over the past 12 months.

Anne Gibson has been the Herald’s property editor for 24 years, has won many awards, written books and covered property extensively here and overseas.