HALFYR: SKC: Summary half year to 31/12/07 $1.3m ($45.0m) -97.1%, 11.0 cps
SUMMARY OF PRELIMINARY HALF YEAR ANNOUNCEMENT
Name of Listed Issuer: SKYCITY Entertainment Group Limited
For half year ended: 31 December 2007
CONSOLIDATED OPERATING STATEMENT
Current Half Year NZ$'000; Up/Down %; Previous Corresponding Half Year NZ$'000
Total Revenue:
$424,189; up 1.0%; $419,973
OPERATING SURPLUS BEFORE UNUSUAL ITEMS AND TAX:
$82,616; up 28.8%; $64,123
Unusual items for separate disclosure:
$60,000 Cinemas write-down; $0
OPERATING SURPLUS BEFORE TAX:
$22,616; down 64.7%; $64,123
Less tax on operating profit:
$21,992; up 15.6%; $19,030
OPERATING SURPLUS AFTER TAX ATTRIBUTABLE TO MEMBERS OF LISTED ISSUER:
$1,287; down 97.1%; $45,045
Extraordinary items after tax attributable to Members of the Listed Issuer:
$0; nil%; $0
OPERATING SURPLUS AND EXTRAORDINARY ITEMS AFTER TAX ATTRIBUTABLE TO MEMBERS OF THE LISTED ISSUER:
$1,287; down 97.1%; $45,045
Earnings per share:
0.3 cps; 10.3 cps
Interim distribution:
11.0 cps
Record Date: 12 March 2008. Date Payable: 11 April 2008
Attachments: Appendix 1, 7 and related documents
--------------------------------------
SKYCITY ENTERTAINMENT GROUP LIMITED
Executive Director's Review
Half Year Ended 31 December 2007
1H08 Group Result
- Revenue up 1.0% to $424.2m (+$4.2m)
- EBITDA up 9.1% to $161.4m (+$13.4m)
- EBIT up 13.1% to $125.6m (+$14.5m)
- Net Profit (before Cinemas write-down) up 36.2% to $61.3m (+$16.3m)
- Net Profit after Cinemas write-down $1.3m.
Key Elements of 1H08 Result
- Focus on managing operating margins
- Strong results in Darwin and international VIP play
- Auckland steady through refurbishment
- Improving Adelaide performance
- Weak Cinemas result.
Distribution to Shareholders
- Interim 1H08 11 cents per share (9cps 1H07)
- Entitlement/record date 12 March, payment date 11 April
- Distribution continues at 90% x Net Profit after adding back Adelaide casino licence amortisation and excluding Cinemas write-down
- Distribution by way of non-taxable bonus shares with fully-imputed cash buyback alternative continued for 1H08
- Strike price for the bonus share issue for the 1H08 distribution will be the weighted average SKC price on the NZSX during the 5 day period 13-19 March
- Advice of the number of bonus shares to be issued in respect of the 1H08 distribution to shareholders on 26 March
- Shareholder elections (to elect the cash/buyback option) are due to the share registry (Computershare) by 9 April.
Underlying Net Profit
- Reported results include several elements that need to be separately identified to enable a like with like comparison of 1H08 core asset performance against 1H07
- Key elements adjusted for are:
- International VIP play above theoretical win rate
- Cinemas and Cinemas write-down
- Indirect expenses to cover one-off restructuring costs, due diligence costs involved in the takeover activity which has now ceased, and the Cinemas sale process
- Tax at the company's normalised rate of 28.5%
- Excluding these items show underlying operating earnings (EBITDA) growth at 3%, up from $148.2m to $152.7m and NPAT growth at 15%, up from $48.0m to $55.2m.
Cinemas Write-Down and Sale
- During 1H08 SKYCITY invited bids from parties interested in acquiring the Group's cinema assets
- Based on disappointing operating figures for 1H08 and negotiations with potential buyers, a $60m write-down in the carrying value of the Cinemas assets (market announcement 12/2/08) has been made in the FY08 interim financial statements
- The write-down includes all goodwill relating to Cinemas and a provision against non-performing cinema assets and potential sale or restructuring costs
- Negotiation with potential buyers continues. If a satisfactory price and sale structure is not able to be achieved the company will evaluate restructuring and revenue regeneration options
- Further information will be provided once negotiations are concluded and the final position determined.
Funding and Capital Management
- Control of capital expenditure and earnings retained under the profit distribution plan have reduced debt and lowered funding costs, down $4m (9%)
- SKYCITY's funding is not affected by the worldwide 'credit crunch' with long-term debt in place and no current refinancing requirements
- 1H08 average interest-bearing debt and average interest rate are $1.09 billion and 7.7% respectively.
Other Announcements/Updates
Adelaide
- The Company advises that the Adelaide casino will be retained as a core gaming asset
- performance in the half year has been encouraging
- cost control improved operating margins
- key focus remains on increasing market share in the competitive gaming machine market
Takeover Activity
- All discussions with interested parties have now ceased
- Directors and management remain focused on generating value for shareholders through improved performance
- due diligence costs (advisors, other) are provided for in the half year results
CEO Appointment
- New SKYCITY CEO Nigel Morrison commences on 3 March.
Profit Guidance FY08
- SKYCITY reaffirms its FY08 NPAT guidance as previously provided, namely in the range of $108m to $110m (excluding Cinemas write-down)
- Based on the half year result the company expects to be at the upper end of this range
- Factors to consider in the guidance include:
- international business performance for 2H08 budgeted at theoretical win levels
- customer reaction to the full opening of the Auckland main gaming floor
- ongoing effect of no smoking on Adelaide performance
- continued management focus on operating margins
- excludes Cinemas write-down.
Business Unit Results: 1H08
Auckland
- Total Revenue up 0.8% to $205.3m (+$1.6m)
- EBITDA up 0.4% to $107.7m (+$0.4m)
- EBIT up 1.6% to $91.2m (+$1.4m)
- Gaming revenues flat with a 4% decline in gaming machines, as a result of the main gaming floor refurbishment, offset by table games growth of 7%
- All non-gaming activities achieved modest revenue gains on 1H07
- Cost management held direct/indirect expenses to 1% increase, effectively absorbing inflationary wage and cost increases
- The new baccarat area, one of the early stages of the main gaming floor refurbishment, contributed to the improved local table games performance
- The main gaming floor refurbishment includes the redesigned Aces Bar and Deli, each achieving revenue growth of more than 60% over 1H07 and the new Baccarat Bar has also performed well
- SKYCITY Grand Hotel occupancy up from 44% to 50% for the half year
- Conventions revenue up 4.6% with number of events and delegates up 4% and 3% respectively over 1H07.
Adelaide
- Total Revenue down 2.2% to A$62.5m (-$1.4m)
- EBITDA up 7.1% to A$12.0m (+$0.8m)
- EBIT up 19.4% to A$7.4m (+$1.2m)
- SKYCITY board has confirmed retention of the Adelaide casino as a core gaming asset
- Smoke-free regulations introduced in South Australia from 1 November 2007. November/December 2007 revenues were down 8% on November/December 2006. Table games revenues were favourable by 1% but gaming machine revenues were unfavourable by 13%
- Smoke-free impact reduced in January 2008 with gaming machine revenue down 8% compared to January 2007
- Table games not significantly impacted as smoking restrictions within one metre of gaming tables have applied since December 2004
- Effective cost management with direct/indirect costs down 4%
- EBITDA/EBIT contribution and margins moving in the right direction with work still to be done.
Darwin
- Total Revenue up 10.9% to A$54.9m (+$5.4m)
- EBITDA up 25.7% to A$23.5m (+$4.8m)
- EBIT up 29.9% to A$20.0m (+$4.6m)
- Strong growth momentum continues with significant EBITDA/EBIT growth and improved margins
- Good overall performance with growth from gaming machines, food and beverage and hotel
- Gaming machines up 14% on 1H07 and 24% up on 2H07 due to increased visitation from lower to mid-range players
- Food and beverage revenue up 11% and convention revenue up 5%
- Strong hotel performance with occupancy of 88% (1H07 85%) and average room rate up 10% to A$189. Hotel was joint winner of 2007 AHA National Awards for Excellence "Best Superior Accommodation"
- Increased revenue and cost management lifted EBITDA margin from 38% to 43%
- A$30m stage 1 expansion of the Darwin property commenced October 2007. Includes an indoor/outdoor restaurant, destination bar and balconies with sea views, improvement of back of house support facilities and additional car parking. Completion estimated December 2008
- 2H08 growth not anticipated to continue at same rate with some disruption expected from the gaming floor expansion through peak season.
Hamilton
- Total Revenue up 2.6% to $20.0m (+$0.5m)
- EBITDA up 2.0% to $10.0m (+$0.2m)
- EBIT up 4.1% to $7.7m (+$0.3m)
- Gaming revenues up 3.1% with growth flowing through to EBIT
- New gaming machine product, plus the opening of the new Vue Bar in December 2007, has improved gaming floor visitation and average spend.
Group International Business (IB)
- Group total win net of commissions, comps and taxes $15.6m (1H07 $2.7m), theoretical $4.1m (1H07 $12.1m), above/(below) theoretical +$11.5m (1H07 -$9.4m), Group total EBIT contribution $12.6m (1H07 -$1.2m)
- Auckland win net of commissions, comps and taxes $5.4m (1H07 -$2.9m), theoretical $2.1m (1H07 $10.0m), above/(below) theoretical +$3.3m (1H07 -$12.9m), EBIT contribution $3.9m (1H07 -$5.0m). Auckland 1H07 saw significant commission programme play turnover, resulting in higher commission costs.
- Adelaide win net of commissions, comps and taxes A$4.1m (1H07 A$4.4m), theoretical A$1.2m (1H07 A$1.5m), above/(below) theoretical +A$2.9m (1H07 A$2.9m), EBIT contribution A$3.2m (1H07 A$3.2m)
- Darwin win net of commissions, comps and taxes A$4.6m (1H07 -A$0.3m), theoretical A$0.2m (1H07 A$0.2m), above/(below) theoretical +A$4.2m (1H07 -A$0.5m), EBIT contribution A$4.2m (1H07 -A$0.5m)
- IB EBIT comprises gross revenue $21.9m (1H07: $18.0m) less commissions, complimentaries and taxes $6.3m (1H07: $15.3m) equals net win after commissions complimentaries and taxes $15.6m (1H07: $2.7m) less IB expenses $3.0m (1H07: $3.9m) equals IB EBIT $12.6m (1H07: -$1.2m)
- The International Business model has been reviewed with improved/increased marketing bringing in a greater range of players across all programmes
- Significant individual and group play can produce volatility in International Business performance. The intent of marketing initiatives is to diversify and spread this risk across a broader customer base
- 1H08 experienced growth in visitation from key Asian markets, which has continued into 2H08 with group visits into Auckland and Darwin over Chinese New Year
- Win was $11.5m above theoretical compared to $9.4m below theoretical in 1H07.
SKYCITY Queenstown Casino (60% shareholding)
- Revenue growth of 20% over 1H07 with gains from gaming machines (+12%), table games (+22%) and food and beverage (+18%)
- Additional marketing activity has driven visitation and revenue with positive improvement to EBITDA and EBIT
- Strong January/February Queenstown tourist activity has seen a positive start to 2H08.
Christchurch Casino (41% shareholding)
- 1H08 contribution up $0.2m to $2.7m.
SKYCITY Cinemas
- Total Revenue $32.5m (1H07 $35.0m)
- EBITDA $2.0m (1H07 $4.6m)
- EBIT -$1.3m (1H07 $1.7m)
- Cinemas 1H07 includes revenue of $2.0m from SKYCITY Metro which was sold in June 2007. Adjusted, Cinemas revenue is down 1.5% on 1H07. Cinemas EBITDA is down 28.6% on 1H07 after excluding SKYCITY Metro 1H07 contribution
- Cinemas revenues continued to disappoint being flat against 1H07 with no uplift being achieved from a full six months operation from Chartwell, Hamilton (opened May 2007)
- Flat revenue compounded by increased costs and depreciation has led to a decline in profit and margin
- Poor performance during 1H08 has affected value which has led to the decision to write-down the Cinema assets by $60m.
Group/Unallocated
- Revenue of $2.7m relates mainly to interest received
- Indirect expenses of $17.3m include $3.1m of costs relating to takeover activity and the process to sell Cinemas, and $1.7m of restructuring costs
- After allowing for non-recurring costs, indirect expenses are down $2.9m, 19%.
Capital Expenditure
- 1H08 capital expenditure was at reduced levels as business plans and major projects underwent further review
- Material projects during 1H08 have been the Auckland main gaming floor refurbishment, Hamilton entertainment bar, commencement of Darwin Stage 1 expansion and new cinema developments
- Guidance provided with the FY07 result included the SKYCITY Adelaide redevelopment and car park project which is on hold pending a review of the Adelaide business plan
- Plans for the proposed SKYCITY resort and the associated Little Mindil site reclamation are yet to be finalised
- Main items of capital expenditure expected during 2H08 are completion of the Auckland main gaming floor refurbishment, Darwin Stage 1 expansion and purchase of the Little Mindil land
- Group (excluding Cinemas) maintenance capex for FY08 expected to be below or at the lower end of previous guidance of $37m-$45m
- FY08 depreciation and amortisation guidance (excluding Cinemas) is reduced from $72m to $68m.
Conclusion
- Looking past the disappointing Cinemas outcome, 1H08 has delivered more acceptable results given:
- the disruptions of management change, takeover approaches, and asset sale reviews
- work on the Auckland main gaming floor.
- Looking forward, the company anticipates continuing positive trends in performance, based on:
- appointment of Nigel Morrison
- completion of the Auckland renovation
- Adelaide opportunity and expansion in Darwin
- ongoing focus on the core gaming business.
Disclosure: I own SKC shares
Related Share Investor reading
Sky City Cinemas no Blockbuster
Sky City Entertainment share price drop
New Broom set to sweep
Sky City Management: Blind, deaf and numb
Sky City sale could be off
Opposition to takeover
Premium for control
Sky City receives takeover bid
Sky City Casino Full Year Profit to June 30 2007
Setting the record straight
Sky City CEO resigns
Sky City Casino: Underperforming
Sky City Casino 2007 HY Profit(analysis)
Sky City Casino 2007 HY Profit
No comments:
Post a Comment
Comment on Share Investor Stuff