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SkyCity CEO sees no sign of slowdown yet, but is prepared

Article – BusinessDesk

Aug. 15 (BusinessDesk) – SkyCity Entertainment Group isnt yet seeing the impact of a slowdown in tourism but chief executive Graeme Stephens says he’s braced for the challenge.By Rebecca Howard

Aug. 15 (BusinessDesk) – SkyCity Entertainment Group isn’t yet seeing the impact of a slowdown in tourism but chief executive Graeme Stephens says he’s braced for the challenge.

The casino and hotel operator yesterday reported a 1.9 percent increase in normalised profit to $173 million, largely on the strength of its New Zealand properties in Auckland, Hamilton, and Queenstown. And while it predicted more growth in the current financial year, the company warned that the wider economic and tourism conditions may deteriorate.

“We haven’t yet seen it actually occur and with a bit of luck it doesn’t, but we are prepared for it,” Stephens told BusinessDesk.

“We’ve had a pretty solid set of results, so you are not seeing it in our numbers,” he said. “Early trade in the new year seems to say it’s still going.”

Stephens said the casino operator’s flagship Auckland property is the best barometer and “we have had a very solid performance in the gaming side of the business,” which represents the local mass market. He said the signature restaurants – which represent the other end of the scale – also fared well.

“We managed to get a good performance in both. I would say though, it hasn’t just happened. The team has been working really hard to get that performance” and it is “perhaps against the tide.”

Stephens said one area where they are seeing some softness – which he expects to continue – is the hotel sector in Auckland. “I think that is probably as much a feature of fewer tourists as it is of more hotels.”

He said there has been a significant increase in supply and there is now increased competition on rates.

Data this week showed New Zealand’s accommodation operators reported the fewest monthly international guest nights for three years in June, traditionally a quiet month for international visitors. The monthly hotel occupancy rate was also the lowest it’s been in four years.

Overall, Stephens is more cautious about the current financial year. “Everything you read and try to understand would point a more challenging environment,” he said.

Locally there is evidence of a slowdown in tourism and “internationally there is a lot of noise,” said Stephens. “Whether it is Trump, or Brexit or China, all of us are a little more uncertain about what the world is going to hold for us in the year ahead.”

The cautious guidance is largely because “everything you read is pretty negative right now.”

He said the company is opting to remain very conservatively geared – SkyCity’s net debt was 1.5 times earnings as at June 30, compared to 1.3 times a year earlier. While it has proceeds coming in from assets sales “we are not making any big commitments right now to any large new projects and we will just watch how trading goes.”

Net asset sale proceeds – from the sale of SkyCity Darwin, the Auckland car park concession and the Federal Street car park – stand at $450 million.

The casino operator is also emphasising the yield nature of its stock. “We pay a good dividend and yield is something that investors seem to be increasingly looking for,” in particular in a low interest-rate environment where New Zealand’s Reserve Bank is seriously contemplating whether it will introduce negative interest rates.

SkyCity declared a final dividend of 10 cents a share, bringing the total to 20 cents a share. The shares recently traded at $3.90, or a dividend yield of 7 percent. The record date for the final dividend is Aug. 30.

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