KEY POINTS:
Deposed SkyCity boss Evan Davies stands to make up to $7 million on top of his $1.7 million severance pay by cashing up share options accumulated during his 11 years in the job.
Davies, who owns more than 450,000 SkyCity shares, also holds 4.7 million options, the company confirmed yesterday.
SkyCity chairman Rod McGeoch said Davies' outstanding options had a weighted average exercise price of about $3.88. SkyCity shares closed 3c lower at $5.16 yesterday.
ABN Amro analyst Carolyn Holmes said should Davies exercise his options he stood to make "a book profit of about $7 million".
"These are his, he's earned them," said McGeoch.
Pressure on Davies to step down increased in March after the company produced a weaker first-half result and said its full-year net profit was likely to be towards the bottom of the range of market forecasts.
The company was criticised for pursuing an aggressive debt-funded acquisition strategy while the performance of its core Auckland casino operation softened.
In response, Davies last month announced plans to cut $33 million in costs over the next 1 1/2 years, upgrade the Auckland casino, cut 230 jobs and sell underperforming assets.
The company said it was comfortable with net profit forecasts of $98 million for this year and $107 million to $122 million for next year but that included the effect of the changes.
Macquarie analyst Steve Wheen said SkyCity's board had reinforced its commitment to the plans, but "we regard the $33 million of cost savings to be at risk considering the entrance of a new chief executive is likely to re-base any expectations created by the outgoing chief executive".
Given it was likely to be some time before a new chief executive was appointed, "they're probably not going to be that happy accepting that sort of responsibility to deliver that kind of cost saving".
That could leave the company at risk of not delivering the full benefits of the plan and therefore disappointing investors with a softer than forecast performance.
The ability of the company to deliver in line with guidance was already looking less than secure.
Wheen believed the company had narrowly avoided having to downgrade its full year earnings guidance, due to "a run of luck" at its Auckland VIP gambling operation during the second half which made up for the divisions' first half high-roller losses.
Macquarie's present valuation on the company is $4.93. Wheen said the current price indicated the market had begun pricing in a number of positives for the company well before there was any sign they would be successfully delivered.
ABN Amro currently values the company at $5.74 but should it successfully divest its Adelaide Casinos, its cinemas and its 40.5 per cent share in Christchurch Casino, that would rise to $5.94.
