The SkyCity Entertainment Group Limited (ASX: SKC) share price is falling this morning after the gaming group downgraded FY20 guidance. SkyCity reported that it has been negatively impacted by the global response to coronavirus, particularly since the first case was confirmed in New Zealand at the end of February.
Impact of coronavirus on SkyCity's operations
The current negative impacts are expected to be exacerbated by new border controls, social distancing requirements, and restrictions on mass gatherings recently imposed in New Zealand and Australia. CEO Graeme Stephens said current market conditions were unprecedented, "the focus for now is on reacting rapidly to the situation, which is evolving daily, and on ensuring we can continue to trade in a way that is responsible."
In March to date, visitation to the SkyCity precinct in Auckland is down 15%, with electronic gaming revenue down 14%, and table revenue down 43%. Food, beverage, and conventions revenue is down 32% and Sky Tower revenue is down 35%.
Recently announced enhanced border controls, social distancing requirements and restrictions on mass gatherings will have further negative impacts, in particular on the tourism-related aspects of the business. Additionally, it is possible a full-lock down will be implemented in New Zealand and/or Australia which would lead to the temporary closure of the SkyCity properties.
Downgraded FY20 forecasts
SkyCity currently estimates an earnings before interest, tax, depreciation and amortisation (EBITDA) impact of around NZ$55 million in relation to previous guidance for the full year. As a result of these impacts, SkyCity now expects normalised EBITDA for FY20 to be in the range of NZ$230 million to NZ$250 million and normalised net profit after tax (NPAT) to be in the range of NZ$85 million to NZ$100 million.
SkyCity's estimates are based on the best information currently available and reflect continued uncertainty on the impacts of coronavirus through to the end of FY20. The updated guidance assumes all SkyCity properties remain open for business.
In order to mitigate the impacts of the current situation on the business, SkyCity has taken a range of actions including rescheduling labour rosters in response to reduced customer visitation and encouraging all employees to take voluntary leave over the next few months. International travel by staff has been suspended and domestic business travel limited. Marketing activity that would drive spikes in visitation has been suspended and non-essential capital expenditure and corporate overheads are being reviewed.
While SkyCity has experienced a decline in visitation at its properties, it has observed a continued increase in sign-ups and activity on its online offshore casino which is available to New Zealand customers. "Perhaps this reflects that our New Zealand customers are choosing to gamble online in response to the social distancing requirements and restrictions on mass gatherings," Stephens said.
Foolish takeaway
SkyCity is the latest in a growing roster of ASX shares that have withdrawn or downgraded guidance due to the impacts of coronavirus. Whilst the epidemic will pass, its economic impacts are increasingly being felt in the meantime.
