18 Dec 2013

Sky City sees upside to high NZ dollar

12:49 pm on 18 December 2013

The steep rise of the New Zealand dollar against its Australian counterpart is hurting Sky City Entertainment Group's profit, but the casino operator says there is an upside.

In an update to the market, the company said on Tuesday the appreciation of the kiwi against the Australian dollar was expected to wipe $3 million from its bottom line.

The group said it expected its normalised net profit after tax to be between $65 million and $68 million in the six months to the end of December, compared to $72 million for the same period a year earlier.

In the past six months, the New Zealand dollar has risen 18% against its Australian counterpart, from 78 cents to 92 cents.

But Sky City Entertainment chief executive Nigel Morrison said he was not concerned about the dollars earned in Australian casinos being worth less when translated into New Zealand dollars, because it also made the group more attractive to Australian investors.

"Any Australian institutions investing in major New Zealand public companies would benefit from that, be it Fletchers, Auckland Airport, Air New Zealand, who all report in New Zealand dollars, I would imagine those companies would be relatively attractive to Australian institutional investors," Mr Morrison said.

The group is due to start trading on the Australian Stock Exchange's 200 index next week.

Some commentators were predicting the New Zealand and Australian dollars would go dollar for dollar but Mr Morrison said Sky City was not worried about that.

"We've got a significant investment profile planned in South Australia, in Adelaide, where we're looking at spending $400 million. On one hand that becomes $NZ400 million instead of $NZ440, so there's swings and roundabouts but there's not much we can do about the currency," he said.

Forsyth Barr director of research Jeremy Simpson said investors would be looking at the company's underlying performance but that the dollar was expected to continue affecting its Australian earnings.

"What's really important is how the underlying businesses are tracking in the Australian market, rather than the translation, but the higher currency does impact clearly on the translation into New Zealand dollar earnings and then that impacts on their overall earnings growth that they're going to report," Mr Simpson said.

"Certainly the market had been expecting a higher currency for this year but the currency has strengthened dramatically in the last month, so that's potentially going to impact more on first-half earnings and certainly on the full-year earnings if the currency stays high."

However, the value of the business did not fundamentally change because of the dollar, he said.

Shares in Sky City Entertainment fell 7 cents to $3.82 on Tuesday.