Casino operator SkyCity Entertainment Group [SKC] says it's axing dividends till at least 2026 to preserve "headroom" for its borrowing covenants.
And it has also downgraded its earnings guidance for the 2024 financial year ending on June 30, saying it now expects "underlying" profits after tax of between $120 million and $125 million - down from a previous expectation of between $125 million and $135 million.
The SkyCity shares plunged in early trading on NZX on Thursday - and just kept going down. At time of writing they were 39 cents, or 22.5%, lower at $1.34. The shares are down 40% in the past 12 months.
The company has been facing numerous issues including troubles with anti-money laundering and counter-terrorism financing (AML/CTF) laws both here and in Australia, while it has also been affected by delays in completing the NZ International Convention Centre (NZICC) and Horizon Hotel in Auckland.
In a statement released on NZX SkyCity said, in relation to the Australian AML/CTF issue, that it expects to pay the AUSTRAC civil penalty of A$67 million in July 2024 (subject to Federal Court approval on 7 June 2024) and is also committed to approximately $76 million capex to complete the NZICC.
"In order to maintain a robust level of headroom with respect to SkyCity’s Net Debt / EBITDA [earnings before interest, tax, amortisation and depreciation] covenant of 3.75 times within its financing agreements, SkyCity’s Board has determined to suspend dividends for 2H24 and FY25," the statement said.
"SkyCity notes that it continues to hold prudent levels of committed liquidity headroom.
"The board currently expects, subject to satisfactory trading performance and market conditions, to resume paying dividends in FY26."
In terms of earnings performance, the company said it now expects "underlying" EBITDA for the current financial year of between $280 million and $285 million, compared with previous guidance of underlying EBITDA for FY24 of between $290 million and $310 million.
The company said the key drivers of this change in guidance are:
- the ongoing challenging economic environment impacting customer spend (although visitation numbers across all sites remain strong);
- a further delay in the opening of the Horizon Hotel (now expected in August 2024) due to delayed completion of works by the contractor to the project, which impacts hotel, food and beverage and gaming contributions across the Auckland precinct; and
- a potential increase in Adelaide casino duty expense (for FY24) following the South Australian Court of Appeal’s ruling on the interpretation of the relevant provisions in the Adelaide Casino Duty Agreement regarding the treatment of loyalty points, as announced by SkyCity on 22 February 2024.
In giving an early outlook for the forthcoming 2025 financial year, the company said current trading conditions "continue to reflect a challenging economic environment, particularly in Auckland".
"SkyCity expects this to continue throughout FY25. In addition, FY25 financial performance is expected to be impacted by a number of one-off items including ongoing delays to the completion of the Horizon Hotel, pre-opening operational costs for the New Zealand International Convention Centre (NZICC), preparing for online gaming regulation in New Zealand, and the ongoing risk and compliance uplift activities at SkyCity Adelaide."
The company currently expects underlying group EBITDA for FY25 to be between $250 million and $270 million.
"SkyCity will provide updates as required on this early guidance. This estimated range includes the one-off costs noted above of approximately $20 million to $30 million."
However, the company said the early outlook guidance does not include the impact of any potential temporary suspension of SkyCity Casino Management Limited’s casino operator’s licence in New Zealand (as previously flagged to the market by SkyCity on 3 September 2023).
"SkyCity notes that the private hearing for that matter, previously set down for the week of 15 April 2024, has been delayed as a result of scheduling constraints, with a new private hearing set down for August 2024."
10 Comments
The whole AML thing Is a nonsense, I had a bank account closed based on a bank fishing expedition, guilty until you prove yourself innocent, decided not to play, innocent until proven guilty.
Businesses like Sky City are just seen as cash cows to be milked by gready desperate governments.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.