Sky City Entertainment slashes earnings forecast

Casino operator Sky City Entertainment today slashed its earnings forecast for the 2004/05 year to between $100 million and $103 million.

In February, Sky forecast its full-year earnings to be between $114m and $119m, providing its pre-December predictions for the effect of smoking bans were accurate.

Earlier this month, Macquarie analyst Steve Wheen said he expected Sky to post a profit of between $108m and $112m.

Sky blamed the downgrade on three key factors, among them the impact of non-smoking legislation, which it now assessed to be "potentially greater" than previously thought.

There had been further delays experienced in introducing ticket technology at Sky City Auckland.

There has also been a delay in completing the first stage of the redevelopment and refurbishment of the Adelaide casino.

"These three factors are noted as being temporary in nature, with the most significant impacts being on second half earnings for full year 2005," Sky said in a statement to the sharemarket.

The impact of smoking legislation would also be felt in the first half of 2006, it said.

"The introduction of smoking bans in New Zealand in December 2004 has had, as expected, a significant revenue impact for hospitality and entertainment venues," the casino operator said.

The impact of these may prove "greater than the company's previously advised estimates, with the recovery/abatement period potentially more extended than originally anticipated."

Initially, Sky expected the impact of the smoking ban to abate over a 12 month period after their introduction, principally in the first three to four months.

"The Australian experience of smoking bans has been reasonably consistent and indicates an 18-21 month abatement period."

However, Sky held the view that the impact period of the smoking ban would be of a shorter duration than that in Australia.

Sky had underestimated the earnings recovery period following the legislation, which came with 12 months advanced warning.

The recovery would take more than 12 months, it said.

Meanwhile, the introduction of ticket technology at SkyCity Auckland was originally flagged to be complete by September 2004, but a string of technical issues had restricted its implementation.

Sky is introducing tokens and ticket technology to develop premium play spaces.

It now expects the ticket technology to be launched between late May and early July, the teething problems having been resolved.

Completion of the SkyCity Adelaide casino was now expected to be finished in the first week of June, about one month later than anticipated.

The "residual impact" of $20 note acceptors limits, which were imposed in March last year, was also affecting earnings.

Despite the profit downgrade, Sky said the final outcome for the 2004/05 year was "subject to trading performance during the period between now and the end of the financial year."

While gaming revenues were below the previous financial year, Sky advised that week-on-week revenue growth was starting to be sustained.

This suggested that the earnings recovery period had commenced, it said.

Sky's shares closed at $4.35 each yesterday, having ranged between $4.10 and $5.50 in the past year. They have been on a downward bent since March 8 when they closed at $5.35 each.

- NZPA