The pandemic shut Auckland's casino for 110 days. Photo / Peter Meecham
The pandemic shut Auckland's casino for 110 days. Photo / Peter Meecham
SkyCity Entertainment Group is forecast to record a 75 per cent operating earnings drop and a net loss in its half-year result out this month because of harsh pandemic restrictions and property closures.
Adrian Allbon and Jason Cao, analysts at Jarden, released an in-depth analysis of the outlook for the company due to report its interim result for the half-year July 1 to December 31, 2021 on February 14.
"Given the backdrop of its key Auckland property being closed for effectively 110 days due to Covid Delta restrictions, we expect EBITDA, including $17 million wage subsidies taken, to be down 75 per cent versus the previous corresponding period to $30m," the analysts wrote.
Net profit after tax will be a $24m loss compared to the previous profit of $44m in the same half-year ended December 2020.
Michael Ahearne, SkyCity chief executive, has previously said that for every day Auckland is shut, the company loses around $1m revenue.
Ahearne has previously been specific about what the pandemic is costing yet he has also previously firmly backed the Government move, saying he had no questions about the country's strategy.
A SkyCity spokesperson said today it could not comment on the analysis because it was now in the pre-result blackout period.
The two Jarden analysts said the sheer length of time its properties were shut would be the huge difference between the two half years, particularly in Auckland.
The 110-day closure compares to 19 days in the previous half-year so the latest result will be much harder hit, they said.
The company has been granted a balance sheet waiver.
The Herald reported Ahearne saying last October: "In response to the ongoing Covid-19 disruptions in New Zealand and in particular the prolonged lockdown in Auckland, we have prudently engaged with our financiers to discuss a debt gearing covenant waiver for our December 2021 testing period to enable full access to our committed liquidity headroom."
Michael Ahearne runs SkyCity. Photo / Peter Meecham
The Jarden analysts noted that by the end of October, its net debt was $648m, with $230m of liquidity available.
Key terms agreed with debt providers were for a full waiver of the company's December gearing covenant.
The analysts said the company's ability to pay dividends was restricted while such covenants were in place.
Nor could the company's properties operate at capacity.
"Currently, New Zealand is operating at a red traffic light setting, which restricts group sizing to 100 people but allows SkyCity properties to be open, they noted.
"We estimate under this setting Auckland is on an EBITDA rule of thumb of around $8m per month," they said.
With no domestic restrictions, SkyCity's Auckland properties would be earning around $20m/month so the business was generating less than half its usual revenue from its powerhouse base near the headquarters.
"Hamilton is also impacted and Adelaide continues to face capacity constraints as well. The further unknown for New Zealand is whether earnings prospects will be further dented as omicron cases lift and a greater proportion of CBD workers are bound to the home," the analysts said.
On December 23, the company said it had done a deal with Europe's Gaming Innovation Group, providing €25m of new equity to help fund the purchase of France-Pari/Sportnco.
Allbon and Cao said of that deal: "We view the GIG investment of around $40m as unfortunate timing for SkyCity but equally a necessary commitment to secure the ongoing focus of GIG as SkyCity's exclusive online casino platform provider. Longer-term, the investment stake could prove to be accretive if GIG can successfully execute its own online and sport betting opportunity set."
SkyCity's earnings' forecast for the outlook for the current half-year from January 1 to June 30 has been nearly halved.
"To better capture omicron disruption across the second half, we have materially cut our FY22 EBITDA to $115m," they said.
"At this level and assuming less restrictions from late 2H, we think the SkyCity balance sheet still has sufficient buffer before more equity is required, albeit we suspect May will be a key review date," they said.
Shares are trading around $2.70, down from $3.77 in early 2020.
