STUFF.co.nz: Sky City under review

Sky City Entertainment has been busy in the first few weeks
of Nigel Morrison's time at the top. Business units are all
under review.


By GARETH VAUGHAN - The Dominion Post | Tuesday, 18 March 2008

News out About Sky City today

• SkyCity CEO sees cinema sale within 3 months - Stuff.co.nz
• Sky City reviews Adelaide plan - Bloomberg

SkyCity Entertainment Group's(SKC) new boss wants to double to $3 billion the annual value of bets placed by high-rolling Asian gamblers as he strives to turn around the casino operator's recent disappointing performance.

Nigel Morrison, who took SkyCity's helm as chief executive on March 3, says this is the best way to combat the volatile impact on SkyCity's earnings from wealthy overseas gamblers.

The house did well against SkyCity's primarily Asian overseas customers in the December half-year, with $12.6 million in operating earnings from them. This helped push up group net profit, before the $60 million write-down in the carrying value of SkyCity Cinemas, by 36 per cent to $61.3 million.

However, a winning streak by high rollers in the first half of last year led to a $2.9 million loss, helping slash group net profit 23 per cent to $45 million.

Mr Morrison said high-roller volatility stemmed from the fact that the $1.5 billion worth of total annual bets placed by international gamblers at SkyCity's casinos was not enough. SkyCity expects to win about 1.3 per cent of the $1.5 billion.

The challenge for SkyCity, therefore, was to double at least the value of annual high-roller bets: "We need to think outside the square about how we might do that," he said.

Mr Morrison, a 48-year-old Australian, quit a role as chief financial officer of Hong Kong and Macau Casino group Galaxy Entertainment to move to Auckland. He replaced Evan Davies, SkyCity's founding chief executive, who departed abruptly after 11 years with a $2 million payout last June. SkyCity director Elmar Toime held the fort as executive director in the interim.

Including the write-down on SkyCity Cinemas, SkyCity last month posted interim net profit of just $1.3 million. Mr Morrison said SkyCity was talking with two potential buyers of the cinema business and he hoped to have the protracted sale wrapped up within three months. SkyCity Cinemas produced operating earnings of just $2 million in the six months to December.

SkyCity, which owns casinos in Auckland, Hamilton, Darwin, Adelaide, 41 per cent of Christchurch Casino and 55 per cent of one of Queenstown's two casinos, would then be free to focus on improving the performance of those businesses.

Mr Morrison said his mandate from shareholders for the next 18 months was to get SkyCity's casinos "buzzing". The recent $40 million refurbishment of the flagship Auckland Casino's main gaming floor was a step toward this.

Auckland produced $107.7 million of $161.4 million group operating earnings in the December half, but this rose just 0.4 per cent as margins contracted. SkyCity would work on getting the lighting, music, food and service right at Auckland, now that the hard work on the "physical asset" was completed.

"I would hope that in six months we would have made a big impact into all those things."

Disclosure: I own SKC shares


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The Global Economy looks bad now? But wait there's more

JPMorgan scoops up troubled Bear 4:56am: The deal values Bear Stearns at just $2 a share. Regulators hope purchase will stave off wider chaos in financial markets. more

The Bear Stearns fire sale reveals the iceberg underneath the tip of current disclosed sub-prime losses.

Everyone is talking about it and I have written about it frequently for more than a year. The contagion from the reckless lending of the last 10 years still has time to play out its course.

Emergency rate cuts on Sunday(US time) in the United States and talk of another one on Monday 17, of perhaps 100 basis points, will do little to restore the faith in credit markets, housing, business, the stockmarket and every other sort of financial instrument that is traded, with the possible exceptions of some commodities and minerals.

In New Zealand a story out today shows the high exposure our banks have to our ever decreasing housing market and along with higher government spending promised by the Labour government and a whole host of other price increases, interest rates are clearly going to skyrocket.

Things are looking grim here but in the United States, where it all began, they are suffering worse than anyone else. High house foreclosures, defaults on loans and increasing unemployment are front page stories. One doesn't have to be Warren Buffett to figure out that America is already in recession. The official confirmation of two consecutive quarters of GDP stagnation will only be a matter of course when it is announced.

The real question is, how bad is it going to get in the US and how much is it going to affect us in New Zealand and other parts of the world?

I'm not an expert in global economics but do have a keen economic grounding and I think things in the US are going to get alot worse. We still haven't seen the full extent of losses that banks and other financial institutions have been hit with, and those losses will have to be accounted for somewhere in the US economy.

The selling of Bear Sterns to JP Morgan Chase for $2 a share is a good indicator of more financial institutions sitting on bigger than disclosed losses. The balance sheet of BS, who incidentally survived the Great Depression, must be grim indeed.

The impact on other countries is going to be felt more than it is now because these things take time to filter down. Of course immediate impacts on currency values, world sharemarkets etc are felt quickly but longer term impacts, like even higher interest rates oil prices and goods and services.

Some economists talk of a "disconnect" of Asian economies from the still dominant US beast but that really isn't probable to me because countries like China, India and Japan still rely on a strong United States to survive. Economic self sufficiency in Asia is still a decade or so away.

A key sign of a loss of faith in the global economy will be seen when the US stockmarket opens in a few hours time.

If another interest rate cut is announced by the Fed and it is a big one, one should expect a rise in the DOW. Having said that, the fact that such a large cut is being proposed will probably mean the market will rightly look at this scenario as a good reason to dump their shares.

The uncertainty will have investors hitting the sell button.

The feeling I have in this part of the world is that investors have already started to panic. The New Zealand market was down by 2% and Australia followed with a 2.5% drop. Asian markets, as usual in times of turmoil, were hit harder. Over a broad range of markets in Asia they were down around 4% on average.

Whatever happens to the global economy in the coming days, weeks, and months, you can be sure it will be volatile, fraught with emotional writing from people like me and bad for the back pocket.

It will however, be very interesting.


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Clark's push for Neo Muldoonism deja vu all over again

News out last week that a so-called "anti-obesity" bill put forward by the dangerous, corrupt, carbon footprint waving, anti-free speech, private property/business hating, and tofu munching socialists, the New Zealand Labour party has this correspondent jumping for joy, in a cynical sarcastic, toxic sort of way.

A Labour supporter at last Sunday's Electoral Finance Act protest will have too keep his mouth shut if he is a "junk food"
eater. Labour wants to tax it.

The bill seems to be at the peak of Labour's desires to control the New Zealand populous, as it will restrict, at a whim, by the PC Director of Health or Cabinet, to prescribe what we should be eating.

That means supermarkets could be asked to put the Moro bars under lock and key, the chips behind plate glass and the ice cream in a room where only thin people can buy it with a license and photo ID.

I have joked about this for years, but here is the unfunny part, it looks set to actually happen.

No "junk" food for those of us, like me, who love it.

I mean, give me a motherfucking break, who do these vermin think they are?

Like Micheal Cullen's attack on private owners of Auckland International Airport last week, why the hell don't you just buy the Airport or open state run supermarkets yourself oh great leader?

While you are at it why don't you follow Cullen's lead, as Mugabe followed his lead last week, and nationise all private companies.

We could get around high prices buy opening state run gas stations, real estate agencies, banks, gyms, brothels, travel agencies and corner dairies. They could all be as successful as our hospitals, education system, police force and parliament.

Hang on a second perhaps that is not such a good idea.

Imagine the shortages, red tape, long queues and jobs for the boys.

Get the point people!

The state, let alone the stooges at the head of the Labour party couldn't run a bath, let alone the additional government departments the great leader obviously wants us to have.

Why not have everyone working for the government, at least then we can go back to a simpler gentler time, when everyone was happy and we all held hands and sung kombaya around a spluttering State funded fire.

Helen Clark's wish to follow a Neo Muldonism, and reconstruct New Zealand the way it was in Robert Muldoon's time is a scary thought, but that is where we are heading.

Muldoon knew in 1983-84 that he was going to find the 1984 election a tough one and he plundered every resource at his disposal to enable him to control almost every aspect of New Zealand life.

He nationalised everything he could, controlled the economy with an iron fist and spent so much money in his tenure at the top and buying that election that NZ INC was broke when the new Labour government of the day came into office and looked at the books.

One Roger Douglas was the architect in that Labour governments resurrection of the country and economy as he embarked on a radical plan that transformed our country and economy almost overnight.

It seems to be deja vu all over again in 2008. Helen Clark has the platinum taxpayer credit card in her hand and she is going to go well over the limit to buy your vote with your money.

In a time warp back to, 1984 Sir Roger Douglas is going to take a position in the Act Party, his first foray into politics in over 20 years and this time he is on the opposite side to her former party mates Clark and Cullen et al.

It seems to be a case of a perfect storm of politics crashing against a crumbling economy and an out of control bunch of power drunk socialists who will say, do and spend anything to retain their naked lust for power.

The addition this year of a recession and a possible deep recession at that makes the likelihood of a repeat of the class of 1984 almost a certainty.

Bugger.


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The Warehouse set for a turbulent 2008

The Warehouse Group Ltd
(WHS.NZ: Quote, Profile, Research)

NZX 2008 Interim Result - NZX
HY Profit up 7% - Reuters
Warehouse profit rises 7% on warranties - Bloomberg

More Consumer Goods and Retail

eBay's Meg Whitman to co-chair McCain's campaign

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TABLE-China's Jiangling Motors 2007 net up 21 pct

More Consumer Goods and Retail News...

The Court of Appeal will hear on April 29, the Commerce Commission case in seeking to overturn a High Court ruling allowing Woolworths Australia [WOW.ASX] and Foodstuffs supermarket companies to bid for The Warehouse Group [WHS.NZ]

In the wake of flat profits reported on Friday14 (NZ Time) the outcome of this case will come under closer scrutiny by investors in a New Zealand sharemarket racked with uncertainties.

Unfavourable global market conditions, a dismal forward look at the New Zealand economy, a drop in profit forecast by The Warehouse itself, and local and foreign investors disgruntled over recent Government intervention in Auckland International Airport [AIA.NZ] and their assault on private property rights, makes the case for a quick decision by the court even more compelling.

Investors have voted overwhelmingly to sell their shares in Auckland International Airport on Thursday last week and the same will be the case when and if the 3 parties to The Warehouse saga are given the go ahead to make a deal.

As mentioned before in this column I have every belief that the deal will happen, even if it has to go the way of the Supreme Court sometime at the end of 2008.

The only drawback to a Supreme Court ruling though is that the bench is stacked with politically appointed Labour Party Judges, so a verdict there could be in question.

The motivation for the buyers in this process to acquire, I think, will be higher than before the current credit squeeze. Clearly if credit gets horrendously expensive, the weaker player in terms of finance capabilities, Foodstuffs, may find it difficult to offer a competitive price for The Warehouse and therefore have to drop out.

Woolworths still have the upper hand in terms of available financing so the fortune favours the Aussies and the credit mess we are facing may in actual fact go in their favour . They have large cash reserves and future cash revenue to boot.

We await with keenness for a decision from the High Court, but uncertainty over the decision, given current political overtones and issues over perceived "kiwi assets falling to filthy foreign control", with a decision to also be made by the overseas investment office, may leave investors in The Warehouse disappointed, in an election year filled with emotional baggage left over from the distant 1980s and a Socialist government bent on Neo Muldonism.


Disclosure: I own WHS shares


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