What we Learned from SkyCity’s 2020 Financial Report

SkyCity has had an exceptionally complicated and challenging year, with considerable disruptions that lead to the closure of SkyCity’s properties in New Zealand and Adelaide in March 2020. Luckily, the company reopened the New Zealand facilities in May 2020, but with reduced operating hours and restrictions on mass gatherings due to the global pandemic.

Unfortunately, in the middle of August 2020, the Auckland casino and entertainment facilities had to close. According to the Chief Executive’s Officer Review, a substantial operational effort went into closing and reopening the properties, which lead to a total restructuring of the operations and facilities. The workforce in New Zealand was reduced by 25%, and the company implemented capital raising and debt restructures to ensure that SkyCity had the necessary liquidity and funding capacity. SkyCity’s more dependent sections on international guests will only fully recover when country borders reopen. Providentially, work on the SkyCity Adelaide development and hotel projects was able to resume over that period – the expansions continue to progress incredibly well and remain on-time and in-budget. Due to the COVID-19 Alert system in New Zealand, the company now estimates Horizon Hotel to be delivered during 2021 and the New Zealand International Convention Centre to be completed during 2023.

An upbeat highlight of the year has been SkyCity Online Casino‘s launch, which operates out of Malta but delivers desirable online entertainment to New Zealanders. The business increased significantly from March 2020 and has now grown into a lucrative operation. However, there was a slight reduction in online gaming revenue after reopening the New Zealand properties in May 2020. Still, there was an increase in activity, with customer registrations currently over 35,000. In the short to medium term, the company expects that weaker markets, reduced personal disposable income, and altered entertainment behaviours will result in SkyCity being a more locally concentrated business.

Customer satisfaction continues to be the main focus by substantially upgrading the tools that they have. The company will be investing further into digital technology to enhance the player’s experience. SkyCity’s strategic plan is focused on handling the post-COVID-19 revival and finishing the critical projects in Adelaide and Auckland, which will boost medium-term earnings and cash flow growth. The global pandemic has underlined how crucial business profitability is as the underpinning to any sustainability projects. The past financial year was exceedingly difficult for the entire SkyCity team, and the board had to make some meaningful but hard decisions to guarantee that the business survives.

SkyCity’s Financial Timeline Summary

July 2019- September 2019:

Refreshed SkyCity logo across land-based properties
SkyCity Online Casino launched in partnership with the Gaming Innovation Group.
Release of a new application for players and SkyCity Premier Rewards members
SkyCity proclaimed the ‘Official Hotels and Entertainment Partner’ in March 2021

October 2019- December 2019:

A fire broke out on the New Zealand International Convention Centre’s roof, resulting in a disruption to the Auckland CBD, a three-day closure of the SkyCity Auckland facility, and added delay to the completion dates for the New Zealand International Convention Centre and adjoining Horizon Hotel.
SkyCity entered the New Zealand Government’s Energy Efficiency and Conservation Authority’s Gen Less program, which encourages New Zealand enterprises to live a climate-friendly lifestyle by reducing energy consumption.

January 2020 – March 2020:

A new bar and restaurant (The Guardsman) launched at SkyCity Adelaide following a $6 million renovation of the Adelaide Railway Station’s former Great Dining Hall.
Fundraising events throughout the Auckland, Adelaide, and Hamilton properties raised over $55,000 for the South Australia Country Fire Service Foundation.
Finalized a $5.5 million renovation of EIGHT and a $6 million restoration of ‘Horizon’ gaming suites in Auckland.
All SkyCity properties closed in March 2020 in response to the global pandemic.

April 2020 – June 2020:

Substantially reduced capital outflow and decreased operating costs, including an abrupt restructure of the management team and salaried employees based in New Zealand.
Eos by SkyCity revealed the new luxury hotel’s name as part of the $330 million expansion plan.
The SkyCity Auckland, Hamilton, and Queenstown facilities (excluding Wharf Casino) reopened on the 14th of May 2020.
SkyCity further reduces the New Zealand workforce due to the considerable impact of COVID-19.
Launched a $230 million equity raising as part of a thorough funding plan to improve SkyCity’s balance sheet in reaction to the impacts of COVID-19.
Restructure of the waged workforce in New Zealand completed
Conferred a Silver Award in the 2020 Australasian Reporting Awards and a Silver Award in the 2020 Australasian Sustainability Reporting Awards for SkyCity’s 2019 annual report.
SkyCity Adelaide reopened on the 29th of June 2020 as part of the South Australian Government’s three-stage approach to easing the COVID-19 restrictions.

SkyCity’s Financial Statement

The financial statement report indicates that the amount of the damage and indemnity recovery of the NZICC fire was estimated by an independent external expert employed by the Group. Consequently, an insurance revival of $336.7 million documented as NZICC fire-related income and $193.9 million of capitalized work in headway has been derecognized. However, the capital structure and financing liquidity and the impact of the COVID-19 report state that as of the 30th of June 2020, the Group’s net liability was $583.7 million. The Group’s borrowings include a union bank facility and a retail bond.

Management’s revised prediction situations in the account of the impacts of COVID-19 indicated that it was fairly likely that gaps in financial agreements regarding the debt facilities could happen on the test date of 31st of December 2020. The Group has successively accepted agreement waivers for the test period from their banking and USPP partners. Furthermore, the Impairment considerations in respect of goodwill and other intangible assets specify that on the 30th of June 2020, the current amount of goodwill and casino licenses equalled $589.5 million. This is after a loss charge of $160.6 million has been documented against the Adelaide casino license. Moreover, accounting for the sale of the Auckland car park concession, details that on the 19th of August 2019, roughly 650 NZICC car parks were to be offered at a date no later than 31st of December 2020. Otherwise, penalty payments would be incurred under the concession agreement. A net gain of $66.4 million has been agreed in the income report, which exceeds the concession payment assigned to the leading unnested site and 600 NZICC car parks.

The assessment of the Group’s investment facilities held at fair value is intrinsically subjective, and an independent registered valuer presented the estimates. As disclosed in note 15 of the financial statements, the Group’s investment properties totaled $72.4 million, of which $45.3 million is measured at fair value as of June 2020. The remaining $27.1 million of investment property concerning the NZICC car park is held at cost, as disclosed in note 15 of the financial statements.

SkyCity’s Group Strategy Guide

Despite the obstacles presented by the global pandemic, SkyCity’s Group strategy remains applicable with an essential focus on managing the post-COVID-19 recovery and completing the critical projects in Adelaide and Auckland, which will underpin medium-term profits and cash flow increase. SkyCity has delivered a reasonably high dividend return for shareholders. However, shares are currently suspended due to bond waivers obtained as part of the funding plan revealed in June 2020. SkyCity will be reviewing its dividend policy over the coming months to restart dividend payments later in 2021.

SkyCity Sustainability Guide