KEY POINTS:
SkyCity chief Evan Davies is disappointed with his performance as the head of the casino business but his plan to restore profit growth by cutting costs and jobs and selling underperforming assets has cheered investors.
SkyCity and managing director Davies have been facing criticism for some time, particularly after the company reported a weak interim result early this year and said its full-year net profit was likely to be at the lower end of expectations.
The company's profit for the year to last June was $120.1 million; yesterday it said it was comfortable with analyst forecasts of $98 million this year and $107 million to $122 million for next year.
Asked if he was satisfied with his performance, Davies said: "The only responsible answer to that is no.
"My performance ultimately is to be judged by the performance of the business, and both internally and externally there was disappointment with the last result recorded."
Excuses were not relevant, but the company was "very clearly on the road to recovery and improvement".
Yesterday, SkyCity gave a market update at which Davies announced plans to trim $33 million from costs over the next 12 to 18 months, upgrade the Auckland Casino's gaming facilities, cut 230 jobs and sell underperforming assets.
It will also immediately sell two Auckland properties and intends to reduce its sponsorships.
SkyCity shares closed 16c up yesterday at $5.08 after hitting $5.20 during the day.
Davies said that after 10 years of expansion, the company's focus was now on restoring operating margins by rationalising business structure and overheads.
He denied that was a u-turn from the company's acquisitive behaviour which led to it buying the Adelaide and Darwin casinos.
"We've said for some time that acquisition opportunities in the Australasian market place were not there and that our principal focus has been growing value from our existing asset base.
"We're reconfirming that focus today and explaining in some detail how we're going about it."
SkyCity's non-core assets were undergoing a detailed audit which was nearing completion.
"Any assets or businesses not delivering, or with the potential not to deliver, the required return on invested capital will be sold."
That would be done "reasonably quickly" and the company's cinemas business, its 40.5 per cent shareholding in Christchurch Casino and the Adelaide Casino were under particular scrutiny.
But the company also said it had received Government approval to build an underground car park at Adelaide and that A$30 million of capital expenditure would be completed at Darwin by 2009.
AMP Capital Investors head of equities Guy Elliffe said the news from yesterday's update was mixed.
Among the positives were the cost cuts, the "good clean look" at assets, the permission to build the Adelaide carpark, and the confirmed earnings guidance.
It was also encouraging to see the company admitting to problems and moving urgently to fix them.
But confirmation of guidance for next year appeared to largely depend on continued good fortune for the Auckland Casino's VIP business, which was by no means assured.
And the guidance for next year included the efficiency gains from the announced $33 million cost-cutting programme.
"I think the sharemarket probably got it close to right," said Elliffe.
"There was an initial burst of enthusiasm based on the $33 million in cost cuts and the confirmation of the earnings numbers, and then after the analysts' briefing it came back a wee bit because some of those negatives were more accurately understood."
