Next week’s fiscal year announcement to be made by New Zealand’s Sky City Entertainment Group Ltd. is expected to show that net profits are only slightly up on the previous year. This earnings plateau has been created by new legislation and a so far less than adequate return on its casino acquisition in Adelaide, Australia. 2006 may also be difficult for the company, so investors will have to wait until 2007 to see if the Sky City consolidations and expansion projects at existing casinos drive profits forward.

The smoking ban in public places, introduced in New Zealand last December, has had a greater effect than anticipated, which led to Sky City issuing a profits warning in May that reduced its earnings forecast by 16%. New regulations, such as a NZ$20 note limit on slot machines, have also had a negative influence on revenues, and the proposed pop-up warning messages on slot machines is expected to impact play.

In Australia the Darwin Casino, acquired last year, is doing well but the Adelaide Casino has not performed well in the 5 years since Sky City started operations there. An initial phase of redevelopment has now been completed and is to be followed by expansion projects, plans that Sky City hope will bring better returns on its investment in Adelaide. Most analysts seem to predict that by 2007 earnings for Sky City will recover their upward trend but that 2006 will be another flat year. (E-08.16.05)

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