KEY POINTS:
The high rollers have taken SkyCity Entertainment to the cleaners, slashing interim profit at the listed gambling, hotel and entertainment company.
Net profit for the six months ending December 31 was $45 million down from $58.6 million the previous year, with revenue from Auckland falling 4.7 per cent to $213.1 million.
Managing director Evan Davies said the slightly disappointing result reflected poor VIP gaming performance and adverse economic conditions in Auckland, and an increase in the group tax rate.
Revenue from high spending VIP gamblers in Auckland was down 40 per cent to $9.4 million, which after commission was a $2.9 million loss compared to a net win of $11.3 million in last year's first half.
The number of VIP gamblers - hundreds of whom arrive each year generally from Asia with upwards of $100,000 in their pocket - had increased but too many had won, Davies said.
"The maths of that business says overall, over time the odds favour the house by a small margin but from time to time this is a business where luck plays a part.
"Certainly during the first half of the current year we were unlucky."
The Auckland VIP win rate had been more normal during the second quarter of the year and there were no plans to review the commission system, which paid players based on how much they bet.
"This is a business that is undertaken by all the significant properties in Australasia ... so if you don't offer the same terms you don't get the business."
Davies said he was happy about the fundamentals of the business.
"I think this is a very strong franchise, a very strong brand, I think we've set ourselves well to provide the kind of entertainment experience that our customers are looking for."
Operations in Adelaide, Darwin, Hamilton, Queenstown and Christchurch had all traded in line with expectations.
A normalised net profit of $48.2 million, removing VIP commission volatility and one-off transactions, gave a clearer indication of underlying performance, Davies said.
The full-year net profit result was expected to be around the bottom end of the previous forecast of between $100 million and $110 million.
Shares closed down 23c yesterday at $4.85.
Goldman Sachs JBWere analyst Marcus Curley said net profit was below market expectations which ranged from $48 million to $60 million.
Curley said once a one-off gain from restructuring in Australia and an asset sale in New Zealand were stripped out profit was $42 million "so it's not difficult to see why the stock's down".
However, the full-year profitability of the business hadn't changed significantly and some people had misread the impact of volatility on the first half versus the second.
Davies said the economic and trading conditions which had also affected the Auckland result were expected to continue for most of the second half.
"Clearly fuel prices, whilst they have dropped reasonably significantly from their peak, are nevertheless a great deal more expensive than they were in the quite short past."
Hotel revenue in Auckland was up 18 per cent to $15.4 million, with occupancy rates at the Grand Hotel growing on target from 36 per cent to 44 per cent, but a lack of strong films had hindered the cinema and metro operations where earnings before interest and tax were $1.8 million, down from $4.2 million.
The priority in Auckland now was to reinvigorate the gaming experience, Davies said.
"Our main Auckland gaming floor upgrade, the first in a decade, is critical to re-engaging our customer's sense of gaming excitement and fun," he said.
The upgrade would cost about $40 million with a refurbished deli and new bar already open and the project due for completion before Christmas.
