SkyCity lowers FY24 guidance and provides Casino Duty dispute update

SkyCity Adelaide Casino
Image: Neil Cox/Shutterstock

SkyCity Entertainment Group has decreased its guidance for the fiscal year 2024 and has provided an update to its South Australian Casino Duty dispute.

In December last year, SkyCity stated that it expected underlying group EBITDA for FY24 to be between NZ$290m and $310m while underlying group net profit after tax for the same period was between $125m and $135m.

However, both of those guidance ranges have now changed, as the top of the underlying group EBITDA range has dropped by $25m, while the top of the underlying group net profit after tax range has fallen by $10m.

SkyCity now expects underlying group EBITDA of between $280m and $285m and underlying group net profit after tax of between $120m and $125m.

Reasons for FY24 guidance change

The operator listed three key drivers for the changes to the FY24 guidance – an ongoing challenging economic environment, delays to the opening of the Horizon Hotel and a potential increase in Adelaide casino duty expense.

Regarding the ongoing challenging economic environment affecting guidance, SkyCity stated that such conditions were “impacting customer spend” but visitation numbers across all sites “remain strong”.

As for the delays to the Horizon Hotel’s opening impacting guidance, the operator commented that it is expected to open in August 2024 “due to delayed completion of works by the contractor to the project, which impacts hotel, food and beverage and gaming contributions across the Auckland precinct”.

SkyCity added that a potential increase in Adelaide casino duty expense could affect guidance following the South Australian Court of Appeal’s “ruling on the interpretation of the relevant provisions in the Adelaide Casino Duty Agreement regarding the treatment of loyalty points”.

South Australian Casino Duty dispute

In a separate release, the operator provided an update to its South Australian Casino Duty dispute, reporting that the High Court of Australia granted SkyCity Adelaide “special leave to appeal the South Australian Court of Appeal’s earlier judgement on the interpretation of the relevant provisions in the Adelaide Casino Duty Agreement dated 27 October 1999 between SkyCity Adelaide and the Treasurer of South Australia”. 

This agreement would “determine the treatment of loyalty points converted to gaming machine play for the purpose of calculating casino duty at the SkyCity Adelaide casino”.

The matter is a longstanding contractual dispute regarding the agreement’s interpretation and given the complexity of the issues, both parties have agreed to seek declaratory relief on the agreement’s proper construction from the South Australian Supreme Court.

The High Court will now conduct a full hearing on the appeal from the decision of the Court of Appeal later this year.

SkyCity said in a statement: “The outcome of that decision could be that the High Court confirms the interpretation of the Agreement adopted by the Court of Appeal, or determines a different interpretation, such as that put by SkyCity Adelaide before the Court of Appeal.

“The question of the applicable interest rate for outstanding duty, and whether the contractual interest provision in the Casino Duty Agreement is enforceable, remains to be determined by a single Judge of the Supreme Court at a later date.”

If the decision by the Supreme Court on the applicable interest rate is unfavourable to SkyCity Adelaide and the casino is unsuccessful in its appeal to the High Court, SkyCity Adelaide “may be obliged to pay penalty interest on the additional casino duty”, which could be up to around A$22.8m (calculated as of May 31, 2024).

If SkyCity Adelaide is “successful in its appeal of the substantive issue to the High Court (but unsuccessful in its application to the Supreme Court regarding penalty interest) then penalty interest may still be applicable but would be reduced” to up to around A$2.4m (calculated as of May 31, 2024). 

FY25 outlook

The operator also provided an early outlook for the fiscal year 2025, where it expects the challenging economic environment conditions, particularly in Auckland, to continue.

Several one-off items are also expected to impact figures, including the aforementioned Horizon Hotel delays, New Zealand International Convention Centre pre-opening operational costs, New Zealand’s online gaming regulation, as well as SkyCity Adelaide’s ongoing risk and compliance uplift activities.

As a result, the operator currently expects FY25 underlying group EBITDA to be between $250m and $270m, which includes approximately $20m to $30m in one-off costs from the reasons listed above.

However, the guidance does not include the potential impact of a temporary suspension of SkyCity Casino Management’s casino operator’s licence in New Zealand, as a private hearing for this matter was pushed back from April 15, 2024, to August 2024 due to scheduling constraints.

Dividend update

SkyCity also provided a dividend update, noting that it will be suspending dividends for H2 24 and FY25 to “maintain a robust level of headroom,” with respect to its net debt/EBITDA covenant of 3.75 times within its financing agreements.

The operator noted that it expects to pay the Australian Transaction Reports and Analysis Centre civil penalty of A$67m in July 2024 for its violation of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006.

In addition, SkyCity is also committed to approximately $76m capex to complete the New Zealand International Convention Centre.

SkyCity added that it “continues to hold prudent levels of committed liquidity headroom” and that it expects to resume paying dividends in FY26, subject to satisfactory trading performance and market conditions.

The operator will release its FY24 full year results on August 22.