SkyCity Entertainment Group Ltd has lowered its earnings forecast for the remaining 2024 financial year. Its profit is now expected to be lower than last year. 2023’s financial year saw SkyCity posting NZ$310 million for its operating profit. A year-on-year profit was anticipated, however due to several factors, SkyCity may see as much as a $20 million drop compared to FY2023.
So, why are profits projected to be slowing, rather than increasing as expected?
Cost of Living Pressures
Pokie takings were down across all of SkyCity’s casinos. Cost of living was cited as one of the four factors for SkyCity’s revised downward profit projection. Across the board, New Zealand’s economy has slowed as consumers are currently wary of spending. Shane Solly, a portfolio manager with Harbour Asset Management said, “Will there be others – I think so. The New Zealand economy is slowing down quite rapidly and the Reserve Bank may be working with a different set of data points when it comes back from holiday in the new year.”
Shane also mentioned that if the Bank of Japan did let interest rates rise, the flow of investment capital to New Zealand would be restricted. He also said that large New Zealand companies, like Air New Zealand and Kiwi Property and Freightways, were also experiencing reduced domestic activity and retail sales, not just SkyCity.
The drop in electronic gaming machine revenue was also said to be due to a drop in economic certainty amongst the population.
Adelaide
SkyCity Adelaide is still losing money, due to its ongoing legal costs and increased compliance measures. The Australian casino breached multiple anti-money laundering laws and is facing up to NZ$50 million in fines. Its Adelaide property also has a reduced profit outlook, along with its exorbitant legal fees, compliance upgrades and anticipated fines.
Auckland Carpark Stoush
The ongoing legal battle with Macquarie over the fire-damaged car park, will see SkyCity pay over $200 million to the investment company. The huge fire at the nearby New Zealand International Convention Centre construction site had spilled over into its car parks. Macquarie had sought to acquire the car parks as a profitable investment with an EBITDA of around NZ$15 to $20 million per year.
As SkyCity was unable to hand over an operational car park to Macquarie in 2022, a legal battle around compensation ensued. This has now been settledand SkyCity is set to leak another $200 million over it.
Online Gaming Investments
SkyCity is anticipating a change to online gambling legislation in New Zealand.. The incoming government made no secret of its intentions to overhaul the Gambling Act, particularly targeting online gambling. In discussion with the government, SkyCity has made large investments in its online gaming ventures. Though legislation change is still in the early stages, SkyCity has been spending big to get on board and get in early.
The New Year may look bleaker for SkyCity by $20 million, but its shareholders should still appreciate the anticipated $290 million or more in profits for FY24.
