SkyCity (ASX:SKC) share price climbs despite 33% FY21 profit drop

A fall in profits isn’t enough to detract SkyCity investors following its FY21 result…

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The SkyCity Entertainment Group Limited (ASX: SKC) share price is on the rise in lunchtime trade on Wednesday.

This follows the gaming and entertainment company releasing its FY21 annual report. At the time of writing, SkyCity shares are up 3.34% to $3.09.

SkyCity share price gains despite earnings hit

Here are the highlights from the Group’s results:

What happened in FY21 for SkyCity

The SkyCity share price is moving higher on Wednesday after releasing its annual report. Fair warning to any investors planning to peruse its document, it is spread across two parts with a total of 291 pages. As such, it is probably fair to say it is not exactly ‘light reading’.

The report shows it was certainly a challenging financial year for the company. Throughout FY2021, SkyCity suffered impacts from restrictions due to the pandemic.

This resulted in the temporary closure of SkyCity Auckland and SkyCity Adelaide. However, conditions improved enough for the company to declare a final dividend payment after having suspended its dividends from FY20.

According to the release, SkyCity pulled in $951.9 million in revenue during the year — representing a 15.4% reduction from FY20.

It appears investors had braced for poorer performance during the period, with the SkyCity share price rising today.

The extent of impacts from closures and the New Zealand International Convention Centre fire are demonstrated by the company’s normalised results.

For example, on a normalised basis, SkyCity reported a 36.3% increase to its earnings after adjustments. This compares to a 33.7% fall in earnings without accounting for adjustments.

Furthermore, the board advised it intends to progressively increase dividends over time as earnings grow.

What did management say?

Commenting on the result, the Chair and CEO, Rob Campbell and Michael Ahearne, said:

Despite the ongoing disruption and volatility, SkyCity has maintained a strong financial position over the period, delivered credible operating performance when open and protected the health and wellbeing of our people.

Critically, the SkyCity Board and management team recognise the importance of protecting our casino licences and enhancing our social licence to operate. Moreover, maintaining a strong balance sheet, meeting the interests of all stakeholders and keeping a disciplined allocation of capital to provide appropriate risk-adjusted returns to shareholders over the long term remain key priorities.

Additionally, regarding the company’s outlook, management said:

In terms of outlook for FY22, given the current unpredictable operating environment and uncertain near-term outlook due to COVID-19, SkyCity is unable to provide detailed earnings guidance at this time, but this will remain under regular review. Our performance over the next year will be underpinned by the ongoing recovery of local gaming, optimising SkyCity Adelaide post-expansion and robust cost control across all activities

What’s next for SkyCity?

As stated by management, SkyCity has not provided guidance for the year ahead due to the pandemic. However, the results discussed the outlook more broadly.

The New Zealand gaming businesses are expected to perform well once there are no restrictions. Meanwhile, businesses with exposure to tourism are expected to experience an ongoing impact.

Furthermore, SkyCity committed to a 60% to 90% payout policy for dividends.

SkyCity share price snapshot

Despite the challenging environment, the SkyCity share price has performed strongly in the past year. At the time of writing, shares have gained 33% over the past 12 months. For context, the S&P/ASX 200 Index (ASX: XJO) gained 22%.

As a result of its solid share price performance, SkyCity now holds a market capitalisation of $2.34 billion.

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