SkyCity targets $90m hit to its bottom line in the wake of AUSTRAC civil action

SkyCity targets $90m hit to its bottom line in the wake of AUSTRAC civil action

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Adelaide Casino operator SkyCity Entertainment Group (ASX: SKC) has factored a financial hit of more than $90 million to bottom line in the expected fallout from civil proceedings launched by the Australian financial crimes watchdog late last year.

The New Zealand-headquartered casino group has decided to write down the value of its Adelaide casino licence by $45.6 million and has made provisions for a $45 million penalty from the civil action brought by AUSTRAC (Australian Transaction Reports and Analysis Centre).

The company notes that while its provision of $45 million for the FY23 accounts is an estimate, the actual figure could be ‘significantly higher or lower’ than this.

SkyCity, like its interstate counterparts Crown Resorts and The Star Entertainment Group (ASX: SGR), is alleged to have fallen foul of its obligations under anti-money laundering and counter-terrorism financing (AML/CTF) laws, leading AUSTRAC to launch civil action against the company in the Federal Court last December.

SkyCity says each of the alleged contraventions could result in a penalty of between $18 million and $22.2 million.

“As AUSTRAC alleges that SkyCity Adelaide contravened the AML Act on an innumerable number of occasions, it is not possible to determine a maximum penalty for the alleged breaches,” says the company.

“The proceedings remain at a relatively early stage with AUSTRAC and SkyCity Adelaide currently working towards agreeing facts and potential admissions before the court identifies a process for any remaining disputed issues and any potential penalty to be determined.

“Estimating the potential exposure to penalties with any degree of accuracy at this stage of that ongoing process remains challenging, particularly given the outcome is highly dependent on a range of factors which are not yet known.

“The size of any penalty SkyCity Adelaide is exposed to could vary materially from the amount of the provision and significant uncertainties remain.”

Meanwhile, the company says the writedown in the value of the Adelaide casino licence ‘considers both the value and the timing of future discounted cashflows generated by the licence as assessed at 30 June 2023’.

SkyCity’s Adelaide casino licence is still subject to review by South Australia’s casino authority, Consumer and Business Services, but the formal review process was suspended pending the outcome of AUSTRAC’s civil case.

In the meantime, Consumer and Business Services appointed an independent monitor to oversee anti-crime and corruption programs at the Adelaide casino – mirroring moves already in place at casinos operated by Crown Resorts and The Star.

Crown, which owns the Melbourne and Perth casinos, earlier this year announced it will pay a $450 million civil penalty after reaching an agreement with AUSTRAC in relation to similar court action. Civil proceedings by AUSTRAC against The Star remain in train.

SkyCity notes that the $90.6 million provision in its FY23 accounts is a non-cash impairment, which does not affect the company’s normalised earnings for FY23.

The company has confirmed normalised EBITDA is still on track to fall between NZ$300 million ($276.5 million) and NZ$310 million ($285.7 million) as previously indicated in May.

The company plans to release its full-year results on 23 August 2023.

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