Casino and hospitality giant SkyCity Entertainment has shared a trading update with projections that suggest a potential earnings slump in the fiscal year 2024. The company has estimated that its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) will range between AU$290.0 million and AU$310.0 million, hinging primarily on its performance throughout the initial five months of the fiscal year.
In the previous fiscal year, SkyCity achieved an adjusted EBITDA of $310.0 million and had initially anticipated a modest growth for FY24. Despite these earlier forecasts, an array of challenges has compelled the company to revise its guidance, raising the specter of a year-on-year earnings decrease.
Among the factors influencing this outlook is the notable reduction in revenue from electronic gaming machines (EGMs) across New Zealand-based venues. Consumer spending in this sector has been significantly affected by the ongoing cost-of-living pressures coupled with pervasive economic uncertainty, which SkyCity links to the observed revenue dip.
Furthermore, SkyCity’s Adelaide property in Australia has not met performance expectations, contributing to the subdued revenue projections. This come at a time when the company contends with persistent legal and compliance costs. As part of efforts to address these financial headwinds, a thorough review of cost structures at the Adelaide location is currently underway.
Notably, SkyCity also cited a decrease in car park income due to the cessation of a prior agreement, which has further impacted earnings. This has been compounded by the company’s strategic investments in readiness for the prospective regulation of online gambling in New Zealand. While the legislative process in this area is still in its infancy, SkyCity views the online market as a significant opportunity for growth and remains “optimistic” about the medium-term earnings boost that could arise from future regulatory changes.
Based on the financial performance for the five-month period, SkyCity has forecast its net profit after tax to fall within the range of $125.0 million to $135.0 million. More comprehensive details will be outlined in the interim results release for FY24, which the company will issue in February.
The provided guidance, however, does not take into account the potential ramifications of a prospective license suspension in New Zealand. In a recent development, the Department of Internal Affairs’ secretary moved to suspend SkyCity’s casino license for a period estimated to be around 10 days, impacting SkyCity Casino Management Limited, which supervises SkyCity’s operator license for the SkyCity Auckland, SkyCity Hamilton, and SkyCity Queenstown venues in New Zealand. The outcome of this proposal is still pending.
Over the course of 2023, SkyCity has encountered several challenges. Last year concluded with the Australia’s Transaction Reports and Analysis Centre initiating federal proceedings against SkyCity Adelaide concerning shortcomings in anti-money laundering (AML) procedures.
In response to regulatory scrutiny, SkyCity undertook a review of its counter-terrorist financing and AML programs as directed by Consumer and Business Services, the gaming regulator for South Australia. Anticipating a civil penalty from Austrac, SkyCity set aside a provision of AU$45 million in August.
Adding to the year’s events, SkyCity announced the upcoming departure of Michael Ahearne from his role as chief executive. Scheduled to leave in March 2024, Ahearne plans to return to Europe and devote more time to his family. Since taking the helm as CEO in November 2020, after a tenure as chief operating officer, Ahearne has led the company through a period of both growth and tumult. The search for his successor is already in motion, signifying the dawn of a new era for this industry mainstay.
