At a time when the regulatory spotlight is firmly targeting Australia and New Zealand’s casino operators, SkyCity Entertainment Group Limited (ASX: SKC) has notified the market of an earnings downgrade as regulation and cost of living pressures limit gambling spend.
SkyCity’s revised earnings guidance for FY24, forecasts an underlying Group EBITDA between $280 million and $285 million, and an underlying Group NPAT between $120 million and $125 million. This update follows a previous projection of $290 million to $310 million for EBITDA and $125 million to $135 million for NPAT.
The delay in the opening of the Horizon Hotel, now anticipated in August 2024 due to contractor delays, has notably impacted earnings. This delay affects contributions from the hotel, food and beverage services, and gaming activities within the Auckland precinct. Additionally, a recent ruling by the South Australian Court of Appeal concerning the Adelaide Casino Duty Agreement could lead to increased casino duty expenses, further influencing the FY24 financial outcome.
SkyCity’s outlook for FY25 remains cautious. The company anticipates continued economic challenges, particularly in Auckland, alongside several one-off costs. These include ongoing delays with the Horizon Hotel, pre-opening costs for the New Zealand International Convention Centre (NZICC), preparations for online gaming regulation in New Zealand, and risk and compliance enhancements at SkyCity Adelaide.
Consequently, SkyCity forecasts an underlying Group EBITDA for FY25 between $250 million and $270 million, incorporating estimated one-off costs of $20 million to $30 million.
However, this outlook does not account for potential impacts from the temporary suspension of SkyCity Casino Management Limited’s casino operator’s licence in New Zealand. The private hearing concerning this matter, initially scheduled for April 2024, has been postponed to August 2024.
SkyCity’s financial prudence extends to its dividend policy, with the Board deciding to suspend dividends for the second half of FY24 and the entirety of FY25. This decision is aimed at maintaining a robust Net Debt/EBITDA covenant ratio of 3.75 times, ensuring financial stability.
The Board plans to resume dividend payments in FY26, contingent on satisfactory trading performance and market conditions.
SkyCity’s situation mirrors the regulatory hurdles that have plagued rivals Crown Resorts and Star Entertainment, severely damaging their credibility. Both companies have faced intense scrutiny over regulatory compliance around their social licence to operate, leading to significant operational and reputational setbacks.
Crown Resorts, for instance, has been embroiled in multiple inquiries revealing serious breaches of anti-money laundering laws and governance failures. These revelations resulted in the suspension of their casino licences in Sydney and Melbourne, along with a comprehensive overhaul of their operations and management.
Similarly, Star Entertainment has been under the regulatory microscope for failing to manage money laundering risks adequately and for governance lapses. These issues prompted a series of investigations, fines, and operational restrictions, significantly affecting their market standing and financial performance.
SkyCity, while not immune to regulatory and operational challenges, has proactively addressed compliance issues and maintained a focus on transparency and risk management. The ongoing compliance and risk uplift activities at SkyCity Adelaide and preparations for New Zealand’s online gaming regulation reflect the company’s commitment to meeting regulatory standards.
Alfred Chan is a Business Reporter at The Sentiment specialising in ASX-listed small cap companies, a bloodstock enthusiast and former equities analyst.
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