UPDATE: SkyCity convention centre could be delayed, CEO says

UPDATE: SkyCity CEO says convention centre could be delayed by six months if consents are non-notified

(recasts, adds CEO comment)

By Fiona Rotherham

May 27 (BusinessDesk) - SkyCity Entertainment Group, the listed casino company, says it won’t know for another month or so if resource consents for the New Zealand International Convention Centre will be non-notified or not, with a notified consent adding six months to the process.

Chief executive Nigel Morrison said the Auckland-based company lodged a consent with the Auckland Council for the preliminary design last December but is still waiting to hear if the new design for a smaller centre capable of seating 2,850 plenary delegates will be non-notified. If so, the building contract for the centre could be signed as soon as September with construction starting soon after, he said.

SkyCity estimated the total project cost of the re-designed centre to be between $450 million to $470 million, down from the earlier $530 million estimated last December. The group has already invested $113 million, mainly in land, and has an estimated future capital commitment to complete the development of between $430 million to $450 million.

Morrison said SkyCity was already in talks with four construction firms including a couple that are considering a joint venture with international company and he’s hopeful of getting a “finely priced” contract in place once consents are through.

The timing matters to SkyCity as the $458 million worth of gaming concessions it negotiated as part of the convention centre deal kick in as soon as the building contract is signed.

In an investor presentation today, SkyCity said plans to activate the gaming concessions are well-advance and in the first stage 70 percent of the new product will be on the existing gaming floor within three months of the building works contract being signed. Morrison said it is likely to take six months to get the full benefits of the gaming concessions as further capital works are required to expand the Auckland gaming floor. The extension of its Auckland venue licence, worth an estimated $75 million, is effective immediately.

The company also gave a trading update today, saying group revenue is up 17.9 percent to $415.6 million for the second half of the 2015 year-to-date, accelerating from the pace of sales growth posted in the first half.

The revenue rise is mainly attributed to strong growth in its international business which has had a 63 percent turnover boost in the second half of the 2015 financial year to $8.62 billion. The rise in international business reflected an improved win rate of 1.37 percent compared to 1.12 percent in the previous corresponding period.

The shares rose 2.3 percent to $4.45 and have gained 14 percent this year. The stock is rated an average 'hold' based on 11 analyst recommendations compiled by Reuters, with a median target price of $4.15.

SkyCity said it was expecting a “step-change in earnings delivered” from the International Convention Centre project and expansion of its Adelaide casino in Australia.

Morrison wouldn’t be more specific on how much that step-change may be but said most of it would come from the Adelaide expansion which includes a larger casino and six-star hotel that will allow it to attract more high-rollers. He expected revenue could double at least in Adelaide once the expansion is completed.

Chief financial officer Rob Hamilton said it was also exploring various options to fund major projects and reduce its reliance on debt. Outstanding debt is currently sitting at $696 million – including $399 million of bank debt - and it has unutilised debt funding of $190 million that it expects will meet funding requirements out to the start of the 2018 financial year.

Hamilton said funding options for the projects include partnering with external investors to develop or own the Hobson St hotel in Auckland, other property-related options which are mutually beneficial for SkyCity and investors, and potential divestment of the Federal St carpark which is expected to be worth about $40 million.

(BusinessDesk)

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