Sky City shares drop to year-low as first quarter revenue declines

Shares in SkyCity Entertainment Group dropped to a year low after the casino operator posted weaker first-quarter revenue due to lower gaming and high-roller activity in Auckland, difficult trading conditions in Darwin and the higher level of the kiwi dollar against the Aussie.

Revenue slipped 1.3% to $260.7 million in the three months ended September 30 compared with the same period a year earlier, the Auckland-based company said in a statement. On a normalised basis, which adjusts the high-roller win rate to a theoretically 1.35% from the actual rate of 1.29%, revenue fell 5.7% to $262.1 million, it said.

Its shares fell as low as $3.69 and were recently down 13% to $3.73.

At its largest complex in Auckland, revenue fell 1% $134 million as weaker gaming revenue offset growth in non-gaming revenue. The company said fewer gamblers had visited its Auckland facility than expected, and there was less activity from premium players and its automated table games weren't fully deployed. Still, it expects Auckland to return to growth for the remainder of the financial year.

In Australia, first-quarter revenue at the company's Darwin casino declined 7.2% to $A32.5 million due to continued difficult local economic conditions and increased rivalry from pubs and clubs, while revenue at Adelaide held unchanged at $A39.1 million. The company said an appreciation of the kiwi dollar against the Aussie had a $5 million impact on normalised revenue.

Meanwhile, normalised revenue at its international business unit, which include high-roller gamblers, dropped 20% due to fewer trips than expected from larger VIP customers. It expects international business activity to weaken further following recent developments in China, where employees of Australian casino company Crown were detained by the Chinese government. In China, it's illegal to arrange for more than 10 people to gamble overseas.

Sky City says it doesn't have an office in China or any China-based employees but does engage independent contractors, and is confident they comply with all relevant laws and regulations in China.

"Our continued focus on direct VIP customer relationships and conservative approach to credit are expected to mitigate adverse impacts from the Crown situation," the company said.

(BusinessDesk)