SkyCity still bets on growth

By Owen Hembry

The weakening economy has cut into SkyCity Entertainment's profits, but there is still room for longer-term growth, says managing director Evan Davies.

Speaking after yesterday's annual meeting, Davies said it was the first time in the company's 10-year history it had been influenced by domestic economic circumstances.

"I think that's a consequence of the changed nature of what's happened economically in some areas," he said.

He cited the combination of a slowing economy and big increases in cash costs such as buying fuel.

"If people don't have the money, they can't spend it," he said.

The price of fuel had dropped again "but it doesn't feel cheap to me".

Last week, SkyCity said it expected net profit for the year to June to be between $100 million and $110 million, down from last year's $120.1 million.

It was hard to predict when the economy would improve, Davies said.

"We are planning for a recovery in that space, but not this year."

Explaining the profit downgrade, he cited losses sustained in high-end table play, which accounted for less than 5 per cent of total revenue.

"The outcome of the previous game has no impact on the outcome of the next game," he said.

"So yes, conceivably this is something that could happen again, but the maths say that over time the house will win more often than it loses."

Davies saw significant opportunities for domestic growth.

The market was still relatively immature and action undertaken by the company to refurbish and develop its operations "all provide a foundation for some solid growth".

Growth opportunities in Australia and New Zealand would be principally organic.

"The sector has rationalised itself now, to the extent that there is a small number of reasonably large players and I think rationalisation or acquisition is going to be limited."

Four major companies - PBL, Tabcorp, Tattersall's and SkyCity - were operating in Australia and New Zealand and of these, SkyCity was the smallest.

"It's unlikely that we will be acquiring any of the other three, put it that way," Davies said.

Chairman Rod McGeoch said SkyCity had led the way in regulating gambling.

"We note that the Gaming Act brings the regulatory requirement into alignment with what SkyCity has, for a long time, been fully committed to," he said.

"It is certainly the case that some customers are not well placed to deal with the risks associated with their gaming behaviour, and it is these potentially at risk people who we must monitor, educate and engage as much as may be necessary."

McGeoch said he disagreed with comments that the company's borrowing was "somewhat high".

It was well placed to service its debt obligations and was comfortably inside its covenants, he said.

"The board considers that 34 per cent is an appropriate and prudent level of debt, and that less than 30 per cent would be inefficient use of equity capital to the detriment of shareholders."

SkyCity's share price closed up 4c at $5.14 yesterday.

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