SkyCity chairman Julian Cook stressed the dividend suspension wasn't linked to banking covenants. Photo / Cameron Pitney
SkyCity chairman Julian Cook stressed the dividend suspension wasn't linked to banking covenants. Photo / Cameron Pitney
SkyCity Entertainment bosses have sought to assure investors about the company’s liquidity position after it suspended dividends for two years and downgraded earnings guidance, sparking a dramatic share sell-off.
“I would like to stress that without making this decision the business was not heading towards any breaching of its covenants,”chairman Julian Cook told analysts on a conference call.
“There is no material change to our liquidity position.”
Hours earlier SkyCity shocked the market with its dividend suspension and second earnings guidance downgrade since December. The company cited the “challenging” economy, delays opening its new Horizon Hotel, and problems at its Adelaide casino.
SkyCity is also mired by regulatory issues, including a A$67 million ($73m) penalty for anti-money laundering breaches in Adelaide and a potential suspension of its operator’s licence in New Zealand.
The reaction from investors was savage with the shares hitting an intraday low of $1.34 – down 39c, or 22 per cent on Wednesday’s close – before recovering to $1.50, down about 13 per cent by early afternoon.
In a statement to the NZX, the company said it was now expecting “underlying” earnings before interest, tax, depreciation, and amortisation (ebitda) of $280m to $285m for the year to June 2024, instead of its earlier revised estimate of $290m to $310m.
Looking further out SkyCity said it expected 2025 underlying ebitda of $250m to $270m.
SkyCity said it now expected underlying group net profit of between $120m and $125m, compared to its earlier forecast of $125m-$135m.
The company said it was suspending dividend payments to shareholders until 2026, to “maintain a robust level of headroom with respect to SkyCity’s net debt / ebitda covenant”.
The latest revision follows a downgrade in December that saw its profit forecasts pegged back due to lower pokie machine revenue and higher compliance costs.
Questioned on the decision to suspend dividends, Cook said it was in light of weaker earnings and “also being mindful of our approach to capital structure, which is fairly conservative”.
SkyCity’s net debt at the end of December was $500m, representing borrowings of $521m and leases of $167m, offset by cash of $188m.
Liquidity headroom as of December 31 was $525m, reflecting an undrawn syndicated debt facility of $390m and cash reserves.
At today’s conference call, chief financial officer Julie Amey said the company currently has about $300m in debt liquidity headroom.
SkyCity, which will release full-year results in August, said the key factors influencing the new earnings guidance were threefold.
They included the ongoing challenging economic environment impacting customer spending, further delay in the opening of the Horizon Hotel, now expected in August, and a potential increase in the Adelaide casino duty expense.
The company said the Horizon hotel had experienced delayed completion of works by the contractor to the project, “which impacts hotel, food and beverage, and gaming contributions across the Auckland precinct”.
The hotel on Hobson Street beside the NZ International Convention Centre was meant to open in March, then delayed until May but now it has been pushed out to August.
The $703m NZICC (left) and Horizon Hotel (right) today. Photo / Jason Oxenham
Callum Mallett, SkyCity’s chief operating officer and interim chief executive, said economic conditions in New Zealand were biting hard. “The reality is, we really rely on gaming. So, if gaming revenue is down, that’s really going to have an impact.
“There’s already been revenue impacts in our business as we’ve implemented greater compliance activities across NZ and Australia.
“We’ve been pleased with visitation, but the spend we’re seeing is down consistently across all properties and across all areas.
“The reality is, like many, if not all companies in NZ we are just dealing with the economic conditions we’re faced with and it’s just too early at this stage to give any great confidence on exactly how the year will play out, there’s just too much water to go under the bridge.
“We’re dealing with an extreme economic cycle and we’re doing everything we can to mitigate the impact of that but ... we feel really confident about our business in the medium to long term.”
Callum Mallett. Photo/Doug Sherring
Asked about the timing of the opening of the New Zealand International Convention Centre, being rebuilt following fire damage to the site, he indicated it was still some time away.
“It hasn’t been great but we expect to get handover from Fletchers sometime in and around early next year and are still expecting to open that in the second half of next calendar year.”
In its market announcement, SkyCity said the outlook guidance does not include the impact of any potential temporary suspension of SkyCity Casino Management Limited’s casino operator’s licence in New Zealand (as previously flagged to the market by SkyCity on September 3, 2023).
A private hearing for that matter, previously set down for the week of April 15 this year had been delayed as a result of scheduling constraints, with a new private hearing set down for August.
Jarden analyst Adrian Allbon told BusinessDesk the fall in share price reflected shareholder patience being tested.
“It was a deep value case and unless the existing shareholders had some sort of income return while they waited for the value case to improve, like clearing all the regulatory overhangs and the opening up of new facilities ... Now that they [SkyCity’s board] have suspended the dividend, it makes it difficult for an investor or shareholder to continue to be patient.
“We might have been expecting a smallish downgrade like we saw in the second half, but we weren’t expecting the size of the early look of downgrade into ‘25.”
Madison Reidy is the host of the NZ Herald’s investment show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.
