SkyCity Entertainment Group, the prominent New Zealand-based operator of casinos in Adelaide, Auckland, and Queenstown, has announced the suspension of its dividends and revised its earnings forecasts downward for the current and upcoming fiscal years due to a decline in customer activity.
In a recent communication with investors, SkyCity cited an “ongoing challenging economic environment impacting customer spending” as a major factor contributing to its lowered earnings outlook. Additionally, the company is grappling with delays in the opening of the Horizon Hotel, a significant new development at its flagship Auckland casino. Initially scheduled to open in March, the hotel’s opening was first postponed to May and is now expected to be in August, according to the Australian Financial Review.
Moreover, SkyCity has alerted investors to anticipated higher duty payments in South Australia following a Supreme Court ruling. The court determined that SkyCity had misinterpreted tax obligations associated with its loyalty program.
Despite the recent refurbishment of its Adelaide casino, SkyCity has agreed to pay a $67 million fine to settle accusations that it facilitated money laundering activities worth billions of dollars. This settlement reflects the serious compliance issues the company is addressing.
On Thursday, SkyCity’s shares plummeted nearly 20% at the beginning of trading but managed to recover slightly, ending the morning session down 13.4%, or 22¢, at $1.39. Over the past year, SkyCity’s stock has dropped by approximately one-third, significantly below its pre-pandemic peak of almost $4.
SkyCity is substantially owned by Australian institutional investors, with Allan Gray being the largest shareholder at 12.8%. Other major stakeholders include AustralianSuper, Investors Mutual, Yarra Capital Management, and KKR.
The gaming company forecasted its underlying earnings for the 12 months ending June 30 to be between $NZ280 million ($260 million) and $NZ285 million, a reduction from the previous guidance of $NZ290 million to $NZ310 million. Profits are projected to range from $NZ120 million to $NZ125 million, down from the earlier forecast of $NZ125 million to $NZ135 million.
This downward revision mirrors a broader trend among casino operators, with industry peers like Crown Resorts and Star Entertainment also reporting challenging business conditions. Regulatory crackdowns have deterred many international high-rollers, a once-lucrative segment for these casinos before the COVID-19 pandemic.
More Challenges Ahead
Looking ahead, SkyCity anticipates the next financial year to be even more challenging, with underlying earnings expected to fall between $NZ250 million and $NZ270 million. These estimates include expenses related to the Horizon Hotel and the implementation of online gaming regulations in New Zealand.
In a separate announcement to the ASX, SkyCity disclosed that it had been granted leave to appeal a judgment regarding casino duty payments owed in Adelaide. The company has been entangled in a protracted dispute with the South Australian government over the terms of converting loyalty points into gaming machine credits. Should SkyCity lose the appeal, it might face up to $22.8 million in penalty interest on the disputed duty payments.
SkyCity has suspended its dividends for the current and next fiscal year to “maintain a robust level of headroom” for its debt covenants, especially while addressing the $67 million fine from AUSTRAC and investing $NZ76 million in its Auckland casino. As of June, SkyCity’s net debt stood at $NZ443 million, with $NZ390 million available in undrawn debt facilities.
Last month, SkyCity agreed to pay the fine imposed by Australia’s financial crimes watchdog, acknowledging its failure to conduct proper due diligence on higher-risk customers at its Adelaide casino. AUSTRAC had accused SkyCity of enabling high-risk patrons to launder more than $4 billion through the casino.
The penalty settled is less than the $73 million provision SkyCity had accounted for in February. In the previous year, SkyCity wrote down the value of its Adelaide casino by $45.6 million, reflecting the ongoing financial and regulatory challenges the company faces.
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