Long Term View: Air New Zealand Ltd

In this series of posts I am going to be looking at stocks listed on the NZX in relation to their returns to shareholders over the life of their listing -what shareholders would now see in their back pockets if they had invested in the company IPO.

The calculation of returns includes dividends and tax credits.

Lets have a look at Air New Zealand Ltd [AIR.NZ] this time. Air NZ hasn't been a good investment for shareholders in terms of returns since its NZX recapitalisation in 2002. With 46 cents in net dividends (see chart above) paid and another 33% of that figure gained for those eligible for associated tax credits, an approx 6% return (see chart below for the share price percentage gain against the average of all NZX indexes) over the current 8 year listing gives an approx annual net return of 0.75%.

This is nearly 11 times worse than the return from the average of all NZX indexes over the same period.





Long Term View Series

Auckland International Airport
Air New Zealand
AMP Ltd
Briscoe Group Ltd
Contact Energy Ltd
Delegats Group Ltd
EBOS Group Ltd
Fletcher Building Ltd
Fisher & Paykel Appliances
Fisher & Paykel Healthcare
Freightways Ltd
Goodman Fielder Ltd
Hellaby Holdings Ltd
Mainfreight Ltd
Metlifecare Ltd
New Zealand Refining Ltd
Port Of Tauranga Ltd
Pumpkin Patch Ltd
Restaurant Brands Ltd
Ryman Healthcare Ltd
Sanford Ltd
Sky City Entertainment Group Ltd
Sky Network Television Ltd
Telecom NZ Ltd
Telstra Corp Ltd
The Warehouse Group Ltd


Air New Zealand @ Share Investor

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Air New Zealand wants another taxpayer bailout

Discuss this stock at Share Investor Forum - Register free

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c Share Investor 2010

Sky City Entertainment: CEO Nigel Morrison discusses 2010 Half Year

After the release of Sky City Entertainment Group [SKC.NZ] half year profit to 31 December 2009 yesterday, I though it might be worthwhile speaking to CEO Nigel Morrison again to get his view on the company that he leads.

The result was a record for the half year of NZ$71 million on revenue up by almost 6% and cost cutting due to a capital raising last year and other efficiencies.

With this in mind lets put some questions to Nigel to get a better picture on where the company was in the half year and why and where the company might be headed in 2010.

The interview was conducted by email and Nigel completed it late last night so he was working like a trouper yesterday dealing with folk like me.

Share Investor (SI) Congratulations Nigel, an excellent result on the surface and a record half from memory for the company. Where you surprised at all by how well the last half of 2009 went if when you look at the NZ$71 million profit headline?

Nigel Morrison (NM) I think the $71m on the face of it up nearly 30% is pleasing. I don’t think it’s an outstanding result – and would liked to have seen stronger revenues in Auckland. I thought the Australian results weren’t bad given the fiscal stimulus package benefits in the prior comparative period. And of course the savings in funding costs following the USPP debt repurchase. Other than the above the win rate on international – I would have thought the result was within most analysts ranges – albeit at the upper end.

SI - The main bulk of profit increase seems to come from lower interest costs, from lower debt levels paid down in 2009, where will growth come from in 2010?

NM - That is correct – funding cost savings represented about 60% of the increase in NPAT. We expect the benefit of the funding cost savings to flow into the rest of 2010 – and so will continue to enhance comparative performance. Beyond that it’s about increasing the appeal of our core businesses, driving visitation and growing revenues. We will continue to focus on the International business.

SI - Auckland Casino revenue appears to have been stagnant for some time. What are you going to do to increase real revenue beyond cost cutting?

NM - As above the challenge is to enhance the appeal of our core businesses, driving visitation and grow revenues – We have a new TV ad that we will run over the next few months, we are enhancing the quality of our restaurants and bars offerings, new bars TwentyOne, XO and new Cantonese restaurant Jade Dragon opening next week, continuing to invest in gaming product, and some management changes with Jane Hastings who oversaw the turnaround of our Cinemas business returning to our core business here, heading up our restaurants and bars, Sky Tower, entertainment and attractions focused on driving visitation.

SI -How much impact do you expect on the Darwin Casino from the full effect of the smoking bans introduced there?

NM - Experience would suggest gaming machine revenues would decline by 10-15 % following the introduction of smoking bans – early indications are that following the expansion and refurbishment of the Darwin casino last year we would expect to mitigate this effect.

SI - Your reasons for keeping Adelaide Casino within the group have turned out to be vindicated, in least in terms of revenue growth, where do you see this unit going in 2010 and beyond?

NM - I think Adelaide has great potential – a city with over a million people and we have an exclusive casino licence – our job is to maximise its potential and we will work to do that. There is an election in March.

SI - While always a wildly fluctuating part of Sky City's business, the international revenue or VIP business seems to have been a winner this year. Is it at all an important part of the business as a whole and can we expect better results from it considering its high risk and volatile nature?

NM - We are trying to manage this business with a lower risk profile – and focusing more on volume players. I think if we manage it appropriate it is totally legitimate for a leading casino group to operate in the VIP player space.

SI - SKC shares have been sold down by more than 10% over the last few weeks in a flat market, pre-profit announcement and are incidentally up strongly today on the announcement. Clearly the market was expecting a poor result. What do you put the drop down to and do you think the market is valuing Sky City shares appropriately given a record result this half and an indicative record for full year 2010?

NM - I’ll leave this judgement to other commentators – but I do think our result was very solid.

SI - Looking past 2010 and into winter 2011. How much positive impact, if any, do you expect from patronage from Rugby Word Cup supporters using your facilities nationwide?

NM - I think the Rugby world cup will be great for NZ we will be doing everything we can to support it – I think we will be incredibly busy over that period – the challenge will be to carry it forward beyond the immediate period of the World cup.

SI - Just as an aside, can we see Sky City looking at online gaming if legislation allowing New Zealand companies to do that is passed and is that something Sky City would lobby Government for considering the loss of revenue from Kiwis gambling on overseas based gaming offers?

NM - We will stay close to this and open minded – but I can tell every major casino operator in Australia has looked at this and at the end of the day gone back to focusing on their core businesses – and most after investing and tearing up some $20m. So we will proceed with caution.

SI - Finally, as you say 2010 looks to be a challenging year for the company and economy as a whole, what new things, if any, can we expect to see as shareholders as a reaction to that challenge.

NM - We will continue to invest in our core facilities – new restaurants, bars, technology, systems, etc – we have a new TV ad that we will launch in March April in Auckland, communicating and presenting the enhanced Auckland facility to Aucklanders and New Zealanders. We have made some management changes that we think will help and as part of that we are welcoming Jane Hastings back to our core management team to run our restaurants and bars and entertainment and attractions at Auckland, after the great job she has done for the last 2 years turning round our cinemas business.

SI - Cheers Nigel and thanks for your time.

NM - Cheers Darren – hope this helps.

Sky City shares were up 6c yesterday to NZ$3.19 on roughly double the normal volume traded, in a market up 28 points.


Disclosure: I own SKC shares in the Share Investor Portfolio


Share Investor Interview

Share Investor Interview: Sky City CEO, Nigel Morrison - November 2009

Sky City Profit Attachments



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c Share Investor 2010

Sky City Entertainment Group 2010 Interim Profit Review

One of the best results this reporting season, so far was the interim 2010 profit for the six months ended 31 December 2009 for Sky City Entertainment Group Ltd [SKC.NZ] which was revealed this morning.

While most companies that have already reported in February have recorded lower or stagnant profits, Sky City has delivered net profit of $NZ71 million for the half year, compared to $55 million for the first half last year - around 30% up on last year. A figure to be quite proud of if you are a shareholder, especially in these tough economic conditions.

Of particular interest to me was that this profit was produced on revenue that was up only 6%.

The increased profit has come mainly from cost savings due to much lower interest costs and from higher revenue from their Australian casinos. Their other properties in New Zealand were slightly up with the exception of the big money spinner, Auckland, which was even on last year.

The dividend, at 8c is down from 9c and pleasing to see more money being returned to pay down more debt.

The focus by Nigel Morrison in his next 12 months as CEO is continue to keep costs down, the efficient use of capital, maximising returns on existing assets and finding ways to grow revenue and profit rather than rely on savings in the business to get more bang for shareholders. As I mentioned above, this is especially true of the Auckland Casino where this asset has been in a lull revenue wise for several years and has more that can be squeezed out of it.

Company indications for the next 6 months of operations are to expect a $10-15 million increase on last years $115 million full year profit and for the company to operate in a "challenging environment". Nothing earth shattering about that but I think this will continue until well into 2011 when an impact on patronage from Rugby World Cup visitors kicks in.



Sky City shares were up 6c to NZ$3.19 on roughly double the normal volume traded, in a market up 28 points. Shares were initially up 12c this morning on the announcement.

Disclosure: I own SKC shares in the Share Investor Portfolio


Share Investor Interview

Share Investor Interview: Sky City CEO, Nigel Morrison

Sky City Profit Attachments



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2010 Interim Result Presentation
NZX Announcement

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Sky City Entertainment 2008 Full Year profit results , NZX release, 2008 full year presentation, result briefing webcast, financial statements
Sky City 2008 profit preamble
Sky City outlines a clear future plan
As recession bites Sky City bites back
Sky City Assets: Buy, sell and hold
Why did you buy that stock? [Sky City Entertainment]
Sky City Share Volumes set tongues wagging
Sky City half year exceptional on cost cutting
NZX Press release: Sky City profit to HY end Dec 2007
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c Share Investor 2010

Freightways Ltd: 2010 Half Year profit commentary

The half year profit to December 31 2010 that came out this morning from Freightways Ltd [FRE.NZ] is a clear indication that life is not only tough for the company but it also shows that the economy as a whole is still in the doldrums and shows little sign of positivity.

Revenue was down by 7% to NZ $164.9 million and net profit after tax down by 15% to just over $14.45 million.

A healthy dividend of 7c is to be paid compared with last years half of 8c, so little attention has been made to keeping cash within the business. Very important at this time in my not so humble opinion.

Financing costs for a sizable company debt have also been considerable but a capital raising from earlier last year has been used to pay down some bank debt so this cost was lessened for this period.

In comments about capital management, nothing was said about the sizable dividend being paid when profit was down. The company is borrowing heavily to fund this dividend and it should have been cut by more than it has. Other companies have done this during 2009 and will again in 2010 and for Freightway's management not to address this is poor considering economic constraints surrounding listed company spending.

The courier businesses have been hit the hardest, while the company's purchase of document management businesses over the last several years continues to pay off as these are achieving growth even when other parts of the the company have slowed.

Naturally management are cagey about company prospects for the coming year given economic uncertainty but I would have to say that business operations and therefore revenue will probably remain down over the rest of 2010 and into 2011. Profit levels will depend on cost savings until the New Zealand economy bounces back and real growth for the company can return.

Overall, the half year 2010 result has been a good indicator of a patchy 2009 and an indicator that there is more patchiness to come for Freightways. The same can also be said about the New Zealand economy as a whole.



Investors have reacted by marking down shares by 11c to $3.10 this morning at time of writing.

7.5 out of ten.


Disc I own FRE shares in the Share Investor Portfolio



Freightways @ Share Investor

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c Share Investor 2010