Casino operator fires without the smoke - Friday 12th of August 2005

New Zealands biggest casino operator Sky City Entertainment beat its own expectations with a slight rise in its annual profit yesterday, despite the hit to its pocket from smoking bans and delays to its Adelaide casino refurbishment.

The company - which dominates the $2 billion gaming industry with an interest in five of the countrys six casinos and two in Australia - saw its net profit rise $4 million or 4 per cent on last year.

That was ahead of its May downgrade when it said profits would be 13 per cent lower than previous forecasts at between $100 million and $103 million due to the effect of the ban on smoking in pubs, bars, restaurants and casinos introduced in December. Refurbishment delays and technology problems were also likely to dent earnings.

Sky City shares initially fell on the news, but recovered to close up 6c at $4.82, against a year high of $5.50 and a low of $4.05.

Managing director Evan Davies said the impact of the ban had been greater than expected.

Gaming revenue at the companys flagship Auckland casino fell 3 per cent as a result and due to delayed introduction of ticket technology.

However, non-gaming revenue was up $14 million, with the biggest contribution coming from the new convention centre.

Davies described the period as "challenging" and warned the worst was not yet over.

"The impact of smoking bans will continue to restrain earnings growth for our New Zealand operations during full year 2006," he said.

However, a steady recovery from the effect of the bans was expected to continue during the year and any residual impacts would be minimal in 2007.

The ban coincided with the company facing increasingly tougher gaming regulations.

One issue is a ban on using notes larger than $20 in slot machines.

Another earnings risk is from regulator plans to implement pop-up messages to warn players of time spent on slot machines and the amount gambled over a four-year period from October.

Davies said it was difficult to estimate the impact this would have on earnings as it had not been done in the same way anywhere else in the world.

A ban on new casinos has given Sky City a virtual monopoly. In Australia, it faces rivals such as Tabcorp and Publishing & Broadcasting, both of which are seeking to expand.

Sky City has been redeveloping its Adelaide casino in a bid to make a profit on its five-year investment.

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