Share Investor: Sky City Cinemas

Showing posts with label Sky City Cinemas. Show all posts

Sunday, July 12, 2009

Sky City's Current Cinema "Boom" a Horror Story in Disguise

An interview in Granny NZ Herald yesterday with Jane Hastings, general manager of Sky City Entertainment's [SKC.NZ] cinema division prompted me to have another go at this part of the Sky City asset portfolio.

Long term readers of this blog (two years is a long time in the blog world) and the struggling Share Trader chat site will know that I wouldn't touch a movie chain business with a barge pole the length of a CinemaScope screen.

The Herald and its interviewee seem particularly bullish on the movie business at present. Strong attendances, a growing market share for Sky City Cinemas and good product coming up, like the latest Harry Potter and the Half-Blood Prince (2009) movie all look positive.

Add to this the very large capital expenditures that this division has made expanding the business over the last 5 years have been ameliorated of late because of oversupply and you might think you have a business that is a blockbuster ready to print money.

Balance the good news with this though.

Although cinemas are a good cash business, especially during these cash strapped hard economic times, extra revenue doesn't necessarily make for extra profit. Costs have risen along with higher attendance and there will always be more expense to improve technology and modernise facilities.

Recessions like the ones we are currently experiencing are boom times for the entertainment business and cinemas are no exception but investors in Sky City should be aware that the spike in fortunes for their cinema business are fleeting and in the normal cycles of business, the downs are far more frequent than the ups and more often than not the down times are when many cinema operators put up the going out of business sign.

Sustained acceptable returns for the cinema business are simply not the way this sector functions and history is littered with the carcasses of individuals and corporations who have sunk money into cinema that have gone bankrupt or no longer exist.

Best Sky City management use shareholders capital to repay debt as they did earlier last week.

Sky City Cinemas is no different from the rest and I must reiterate dear reader, for the sake of the shareholder, this part of the group's business must be given a Dirty Harry bullet before it drags the rest of the company down with it.

Disclosure I own SKC shares

Visit Sky City Cinemas

Sky City Entertainment Group @ Share Investor

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Wednesday, June 11, 2008

Sky City Assets: Buy, sell and hold

News out today that Sky City Entertainment[SKC.NZ] has sold a share in a the Christchurch Crowne Plaza Hotel and in turn received a larger stake in the Christchurch Casino that it owns with Skyline Enterprizes and cash in hand leaves this shareholder a happy man.

It adds to the news yesterday that the casino company will develop a "luxury resort" on the Little Mindal land it owns in front of the Darwin Casino.

The larger stake in the CHCH Casino takes the Sky City holding from 41% to a 46% holding.

The hotel was sold for $61.5 million, so one might presume that the Sky City share of the booty was $30.75 million. There was no breakdown of how much the extra 5% stake in the South Island Casino cost and therefore how much cash was left to disperse to debt pay downs or even a dividend to shareholders.

Shareholders in Sky City are entitled to know what the 5% cost.

The cash left over is more likely to be going towards subsidising Sky City Cinemas, a division that was on the block for a year but failed to sell as of last Friday because the buyer "failed to get financing", according to the Sky City Press release.

Any credible buyer interested in the cinema would only have to fork out about NZ$60 million and they would have known that was around the asking price when Sky City wrote down the assets of the division last year.

It is more likely that the deal fell through because the assets wouldn't have even got near the $60 million price tag rather than blaming the credit crunch for failing to sell a loss making business.

I'm naturally annoyed at management for not disposing with the cinemas, even for less than the asking price. It is going to be a continuing drain on capital expenditure and is never going to make any sort of decent return on assets or capital.

Cinemas as a business are on a par with the airline industry when it comes to losing money and track records for both show a history of company collapses, huge expense for owners and continued disappointment.

Nigel Morrison needs a boot in the head for that one.

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Tuesday, February 12, 2008

Sky City Cinemas no Blockbuster

Sky City Entertainment Group Li (SKC.NZ)

Sky City Entertainment's share price took a 9c drop today on news that it was writing
down its cinema division by NZ$ 60 Million.

The announcement today of a write down in the value of Sky City Entertainment Group [SKC.NZ] division has been a long time coming and is probably the only positive decision that management have made in a long while.

The loss has finally been realised-a NZ$60 million write down- and an extremely bad decision years back to buy this pig of an asset for an over inflated sum has been dealt with. A shame though that the only casualty of that bad decision was Evan Davies, the CEO who was sacked last year. Members of current management clearly need to fall on their swords over this latest waste of shareholder cash.

That ain't going to happen in this day and age of buck passing though.

I have been bitching and moaning about the cinema business since it was bought many years ago.

I loathe the cinema business, long-term it doesn't make money and is subject to continual capital expenditure due to changing technology and fierce competition, from not only other cinema operators, in a saturated multi-screen race to build more seats, but from many other sectors of the entertainment industry.

Those faceless suits at Sky City should have known these facts and run kicking and screaming along with shareholders checkbooks, from any such wrong headed deal.

The cinema business must be sold, it has over 100 screens and has 10 screens in limbo at the moment at the new Albany Westfield Mall, pending a possible sale.

The write down today values the cinema assets at around $50 million but it is highly unlikely that it is worth that much to a potential suitor.

There has been talk of Hoyts buying the cinema company but I don't think that could possibly happen given the dominance it would give a combined company in the current market.

It is more likely a company like Berkely or Reading Cinemas would be a better fit given their relatively small sizes.

Sky City have had a turbulent preceding 12 months and still have a number of issues to deal with in the future. The company have just started proceedings against the South Australian State Government, in tandem with the TAB, because the State has reneged on a contractually agreed limit in charges and taxes when they sold the Adelaide Casino to Sky back in 2000.

The 2008 General Election in New Zealand is also likely to be of great interest to shareholders as well, If the Labour/Green nanny statists get re-elected, further regulation against perceived "harm" to casino customers and higher gaming taxes are a likely scenario.

All this turbulence makes the job of new CEO Nigel Morrison all the more challenging when he takes up his position at the end of March 2008.

The half year profit is announced on 25 Feb and will include the cinema write down in its figures. Dividends will not be affected.

Sky City Entertainment shares were down more than 2% today (FEB 12, 5.00pm NZ time) on low volume.

Disclosure: I own SKC shares in the Share Investor Portfolio