Duncan Bridgeman: SkyCity rolls out the good, the bad and the ugly

Artist's impression of the NZ International Convention Centre when finished. Photo / Supplied

COMMENT:

SkyCity shareholders can look forward to more cash in their pockets and management increased bonuses after a year of solid underlying earnings growth for the casino operator.

But the headaches keep coming from the New Zealand International Convention Centre, which has been plagued by controversy since SkyCity struck its deal with the government to build the thing.

Given the problems previously outlined along with Fletcher Building's handling of the construction contract, delays to the completion date were inevitable.

Yesterday's announcement that it won't be ready until the second half of next year was a big blow nonetheless, not least for the thousands of delegates already booked in for conferences. The 32,0000 sq m centre was originally supposed to open this month.

A major consequence of the delay is the lack of large conference facilities in and around Auckland City at the moment.

Team New Zealand has already moved into their new base at the Viaduct Events Centre on the Halsey Wharf extension, removing that venue for at least three years.

The NZICC delay will likely cause some large events to move to another city, although both SkyCity and Auckland Council are trying to manage the situation.

It's a huge disappointment that will undoubtedly flow through to a fight with Fletcher Building, which is understood to be disputing SkyCity's claim for liquidated damages compensate for losses caused by delays.

To date SkyCity has withheld $39.5 million from payments to Fletcher. This has increased from the earlier $26.5m previously flagged and now includes $9.5m for losses caused by delays to the adjacent Horizon Hotel.

Of more surprise is the extra $25 million spent on removing aluminium composite panels part way through construction due to safety concerns highlighted by the Grenfell Tower fire in London.

It will be interesting to see if these additional costs are attributable to SkyCity or third parties.

Can anything else happen?

Yet despite all these setbacks, the concessions SkyCity received in its deal with the government, which included 230 additional pokie machines and a 28-year extension to its gambling licence, appear to be bearing fruit.

The company has seen steady incremental growth in its key Auckland and international business segments and is now gearing up for future growth investments in Queenstown and Hamilton.

(It has now acquired land for a future hotel development in Queenstown and submitted an Overseas Investment Office application.)

Auckland was the best performer in the six months to December 31, increasing revenue by 6.2 per cent to $307.7m and earnings before interest tax depreciation and amortisation (Ebitda) by 5.3 per cent to $138m.

The international business segment saw record six-month turnover of $7.7 billion and Ebitda growth of 164.5 per cent to $24.7m.

"We've had a really positive first half of this financial year, aided by some strong gains in International Business turnover and a good result from our flagship Auckland property, particularly on the gaming floor," chief executive Graeme Stephens said.

The other good news for shareholders was the announcement of a capital return via a share buyback worth about $135m over the course of 2019.

But there are signs of a slow down and SkyCity warned that both the domestic and international economic environment was becoming more challenging.

It has therefore watered down expectations for trading in the second half to about 5 per cent Ebitda growth.

SkyCity's strategy of developing hotels, convention centres and other non-gaming assets is designed to drive additional business into its casinos, which are its big profit-making vehicles.

Investors are looking to the convention centre to provide concrete evidence of that, which is why the delay to its completion is so disappointing.