SkyCity Entertainment Group
Annual Report 2002

Plain-text annual report

SKY1705-An'Report-cover2 30/9/02 6:20 PM Page 1 S K Y C I T Y E N T E R T A I N M E N T G R O U P L I M I T E D A N N U A L R E P O R T 2 0 0 2 W O R R O M O T . T N E M N I A T R E T N E S K Y C I T Y E N T E R T A I N M E N T G R O U P L I M I T E D A N N U A L R E P O R T 2 0 0 2 SKY1705-Inside covers 30/9/02 6:27 PM Page 1 The Board of Directors is pleased to present the Annual Report of Sky City Entertainment Group Limited for the year ended 30 June 2002. For, and on behalf of, the Board. Jon Hartley Chairman 27 September 2002 Evan Davies Managing Director CONTENTS Financial Summary Chairman’s Report Managing Director’s Review Entertainment. Tomorrow Board of Directors Financial and Operating Report 1 2-5 6-9 10-19 20 21-28 Financial Statements and Statutory Information 29-75 Directory 76 Sky City Community Report Back Pocket W O R R O M O T . T N E M N I A T R E T N E Cover: Sky Tower, five years SKY1705-An'Report-Front.v32 30/9/02 6:35 PM Page 1 FINANCIAL SUMMARY 2001/02 We have created a platform through which Sky City is an increasingly important contributor to the New Zealand economy and also to each of the communities within which we operate. We are committed to ensuring that Sky City remains a company of which all stakeholders are justifiably and understandably proud. $85.1 million before non-recurring items net surplus after tax up 21% 2002 2001 Sales Revenues EBITDA+ Net Surplus After Tax* Earnings Per Share* Dividend Per Share * Before non-recurring item (Force write-off) of $27.9 million + Earnings before interest, taxation, depreciation and amortisation HIGHLIGHTS (cid:2) Superior pretax return to Sky City shareholders of 24.4% for the 2001/02 financial year compared with the NZSE average of 5.6% for the corresponding period. Sky City Entertainment Group Limited becomes a top ten NZSE listed company. The Sky City share price responds strongly to the continuing profit performance of the Group. (cid:2) Record dividend of 38 cents per share paid for the financial year (22.5cps final dividend paid on 4 October 2002) to more than 20,000 Sky City shareholders. Total dividends paid by Sky City since listing in February 1996 are $315 million. (cid:2) Record revenues and earnings for Sky City Auckland. Revenues up 9% to $347 million and EBITDA up 6% to $183 million. (cid:2) Strong second half performances across the Group operations, with Sky City Auckland and Sky City Adelaide strong in both revenues and earnings. Sky City Leisure Limited (formerly Force Corporation Limited) clear of capital restructuring in the second half of the year and strong cinema revenues and earnings clearly demonstrated. $510m $221m $85.1m 41.5cps 38.0cps $435m $192m $70.1m 35.7cps 31.5cps Change (%) +21% +15% +21% +16% +21% (cid:2) Sky City Hotel (Auckland) the best performing Auckland hotel property for the third year in succession at 88% occupancy for the year. (cid:2) Sky Riverside Hamilton complex opens on 19 September 2002. (cid:2) New attractions at Sky Tower included Sky Jump, the Vertigo mast climb and the new 120-seat Observatory restaurant. (cid:2) New product introductions at all operating locations – Auckland, Adelaide and Queenstown. (cid:2) Force Corporation changes its corporate name to Sky City Leisure Limited. Sky City well-positioned as a diverse gaming and entertainment company. Synergies between Sky City Auckland and Sky City Leisure’s cinema operations commenced. (cid:2) Canbet’s turnover increases 44% and, as a consequence, Canbet achieves a significant profit turnaround result for the 2001/02 year. (cid:2) Sky City Auckland Convention Centre construction commenced. New convention centre will provide over 5,000 sq.m of exhibition, banquet and conference space when it opens in December 2003. ENTERTAINMENT. TOMORROW 1 SKY1705-An'Report-Front.v32 30/9/02 6:35 PM Page 2 CHAIRMAN’S REPORT The 2001/02 year has seen significant progress in achieving our goals and objectives. We are pleased with the success of this focus and with our commitment to consolidating the business following a period of rapid growth and acquisition. Our result is particularly notable in that each sector of our operations recorded improved performance in what has become a generally more difficult business environment. The record surplus of $85.1 million, before the non-recurring item comprising the Force write-down of $27.9 million, represents our fifth consecutive year of profit growth. In line with our dividend payout policy, the final FY02 dividend is 22.5 cents per share, resulting in a full year dividend of 38 cents per share, fully imputed. This represents growth of 21% over 2001. As part of an ongoing focus on capital management, the board has decided to suspend the dividend reinvestment plan (DRP) after the October dividend. In a market context, Sky City’s financial performance during the 12 month period to 30 June 2002 represents a pretax annual return to shareholders of 24.4%, which compares very favourably with the NZSE40 Gross Index average of 5.6%. As a result the company’s market capitalisation, at the time of writing, has risen to $1.5 billion. Although Sky City Entertainment Group Limited has been listed on the Australian Stock Exchange since April 1999, this has been as a foreign exempt company listing. We are pleased to have full compliance-listings on both the Australian and New Zealand Stock Exchanges from 1 July 2002. Governance In general, this year has been difficult for business, whether one is operating globally or within Australasia. While the tragedy and impact of September 11 has been a catalyst for far-reaching personal and economic issues, significant financial uncertainty has been created following the emergence of a number of high-profile corporate failures. This has affected investor and business confidence locally and globally. The intense scrutiny on governance should be considered not solely in the context of the general business world, but more specifically for individual regions, countries and businesses. In light of these factors and related challenges, our ability to achieve such a strong result is, I believe, a credit to the hard work that has been undertaken on behalf of shareholders by the board, management and staff of Sky City. This performance is in part related to the governance structures that we have in place. In broad terms, our approach to governance can be characterised by an expectation of excellence and a determined focus on continued scrutiny, relentless questioning, honesty and improvement. From a more specific perspective, there are a number of factors that we view as important in ensuring we have in place the appropriate framework to be able to withstand the types of challenges that have confronted the corporate world over the past year and to continue to excel in how we operate. 2 ENTERTAINMENT. TOMORROW SKY1705-An'Report-Front.v32 30/9/02 6:35 PM Page 3 Jon Hartley These factors include: (cid:2) A determined focus on the creation and protection just on conventional concepts of business success, but also on performance in relation to the key strategic of value; drivers of that success, specifically our: (cid:2) An orthodoxy from a financial disclosure perspective, with the added advantage that the cash-based nature of the business further enhances the clarity of reporting; (cid:2) Open and frank communication with both external and internal stakeholders; (cid:2) Experienced independent non-executive directors and well-established committees of non-executive directors on Audit and Risk, and Governance and Remuneration; and (cid:2) A strong strategic focus by the board to identifying and understanding the drivers of business success. The success of this approach is well illustrated by the value that it has delivered to shareholders: (cid:2) Five consecutive years of growth in profit and dividends; (cid:2) An average return to shareholders of 20% per annum since listing; (cid:2) A share price that has appreciated by more than 100% over six years; and (cid:2) Customers; (cid:2) Products; and (cid:2) People. Each of these areas is vital to achieving and, more importantly, maintaining success. The board sets clear and ambitious goals in each area and expects management to deliver to the highest of standards. Our monitoring of this extends well beyond the financial. The overall performance achieved in 2001/02 demonstrates that the business is meeting, and in fact exceeding, its goals. Rather than viewing success as an end in itself, however, we continue to see it as merely a stepping-stone to reaching higher levels. In line with our challenge of continued improvement, the board has considered the issue of auditor independence. We have introduced policies to ensure that where services outside the assurance framework are sought, then they will be fully contestable. In addition, we have taken in-house some services which (cid:2) Earnings per share that have doubled over six years. were previously provided by our auditors; for example, The board and management are proud of this excellent and, in many ways, market-leading level of performance. That said, we will continue to challenge ourselves to do things better. An important component of this commitment is that, as a board, we set our expectations of management and measure their performance and results based, not routine taxation work. We will continue to use PricewaterhouseCoopers for our internal assurance programme which has reporting responsibilities to the company, the board and external regulators, because the level of expertise provided by PricewaterhouseCoopers in this important area is not easily replicated in-house. ENTERTAINMENT. TOMORROW 3 SKY1705-An'Report-Front.v32 30/9/02 6:35 PM Page 4 CHAIRMAN’S REPORT Directors The 2001/02 year was also notable for the retirement from the board of Waari Ward-Holmes and, as a result of his retirement at this year’s Annual Meeting, will be Sir Peter Elworthy’s last full year of service as a director. Waari and Sir Peter were our longest-serving directors, having served on the board of Sky City in its various forms since 1991. During this time Waari’s and Sir Peter’s contributions to the business have been significant and their institutional knowledge invaluable. On behalf of all shareholders, I would like to thank them both for their efforts and wish them well for the future. We are very pleased that Rod McGeoch has joined the board of the company. Rod is an Australian, based in Sydney, and is an experienced non-executive director. He has a particular interest and expertise in the sports and entertainment sectors within Australia and internationally. Rod, having been appointed as a director by the board, will be standing for election at the Annual Meeting on 30 October. Bridget Wickham will also be standing for re-election at the Annual Meeting. On behalf of the board, I have no hesitation in recommending both Bridget and Rod for re-election by shareholders. As a new initiative this year, shareholders are invited to send questions they would like to see addressed at this year’s Annual Meeting to Sky City in advance of the meeting. This may be done by visiting the Sky City corporate web site (www.skycitygroup.co.nz) and following the directions on the home page. Please post your questions to the web site before 5.00pm on the day prior to the meeting. Our objective is to facilitate communication with shareholders and enhance accountability by enabling directors to focus on the issues of particular importance to shareholders. Strategic Development The growth and success that Sky City has experienced to date has been driven by, and within, a clearly defined strategic framework and focus. At the heart of this focus is the creation and growth of shareholder wealth by achieving our vision of fun and entertainment through the provision of diverse experiences in a responsible manner. Over the last few years this strategic approach has delivered substantial operational and earnings growth. From 1999 to 2001 the board’s strategic focus was very much on operational expansion to extend, broaden and diversify the company’s entertainment profile. As a result of this phase, Sky City has been transformed from a single property undertaking to a more diverse entertainment and gaming business. A significant level of external attention and market commentary during the year focused on Force Corporation Limited. Without doubt the recapitalisation issues arising out of the Argentinian exposure provided Sky City with some of the most complex commercial challenges we have yet faced. We are extremely pleased with the quality of the outcomes that have been achieved. A difficult capital restructuring was secured and we are now focused on developing the profitable components of its operations and maximising the strategic entertainment synergies that this investment has the potential to deliver to the Sky City Entertainment Group. The change of name of Force Corporation Limited to Sky City Leisure Limited in September of this year will reinforce the important strategic relationship between the two companies. Going forward, our strategic framework retains its relevance. The focus for 2002/03 will be very much about realisation of value. The success that we have achieved during our growth and consolidation phases has created significant value and the focus for the current financial year is to build on this platform. From the perspective of further operational expansion and acquisitions beyond those already announced, our approach will remain consistent with that set out previously. We will continue to assess opportunities which fit with our strategic criteria while ensuring our focus on optimising the returns from our existing operations remains our priority. Sky City has delivered a combination of both yield and growth to its shareholders and it remains our intention to continue with this dual focus into the future. Sustainability and Responsibility By their very nature, businesses are focused on delivering returns to their shareholders, but to be truly successful, businesses must deliver returns on a sustainable basis. Sustainability is often misinterpreted as being a purely environmental concept, as opposed to the multifaceted concept that it actually is. For a company such as Sky City, an important component of sustainability is to understand the demand for our core products and their potential to have a negative impact on a small proportion of our customers. To operate our business in a way that ignores this risk would be an unsustainable and irresponsible approach that would not be in the best 4 ENTERTAINMENT. TOMORROW SKY1705-An'Report-Front.v32 30/9/02 6:35 PM Page 5 interests of our customers, our people, our shareholders or our stakeholders in general. Sky City has never taken such an approach and will continue to invest significant time and resource in ensuring that any potential for harm is minimised. As our business has expanded, the need to coordinate and centralise our host responsibility efforts and initiatives has also increased. For this reason, a Host Responsibility department has been established. This department is charged with ensuring that our expectations in the area of host responsibility are delivered group-wide and that the initiatives that Sky City has in place remain leading edge and continue to provide a benchmark for the wider gaming industry throughout Australasia. Related to this, a copy of the Sky City Community Report has been included with this Annual Report (see back of Report) for the information of shareholders. The Community Report profiles Sky City Entertainment Group, our economic and community contributions and the host responsibility initiatives that have been implemented. The Community Report provides a sense of our involvement in the communities in which we operate and the scope of some of the positive impacts that Sky City seeks to have on those communities. Conclusion The 2001/02 year has been an important one for the Sky City Entertainment Group. It has been a year in which we set out to demonstrate the substance of the initiatives and investments we had made in previous years. The results that are presented in this Annual Report provide a clear indication of our success in achieving our objectives. It was a year in which we set out to rise to the business challenges created by a company that has experienced rapid expansion – again, we believe we have. And it was a year in which we set out to continue the business’s success in achieving strong financial performance and growth - and clearly we did. We have created a platform through which Sky City is an increasingly important contributor to the New Zealand economy and to each of the communities in which we operate. Perhaps more importantly though, we are committed to continuing to ensure that Sky City remains a company of which all its stakeholders are justifiably and understandably proud. Jon Hartley Chairman ENTERTAINMENT. TOMORROW 5 SKY1705-An'Report-Front.v32 30/9/02 6:35 PM Page 6 MANAGING DIRECTOR'S REVIEW The commercial challenges resulting from the rapid expansion that Sky City achieved over a relatively short period of time meant that 2001/02 was a year in which the business faced a number of important challenges, from both a strategic and financial perspective. I am proud to report that we not only met but also, in many ways, exceeded those challenges. We have again delivered an exceptionally strong result to our shareholders and grown the significance of the Sky City business to the economies in which it operates. Just as importantly though, while 2001/02 was a good year for Sky City, our performance has laid the foundation for a strong 12 months for the 2002/03 financial year. A detailed analysis of the Group’s operations and financial results can be found on pages 21-28. However, it is appropriate here to focus on the objectives (both strategic and financial) that were set for the Group, and each of its components, and our results in achieving those targets. Sky City Entertainment Group In 2001/02 the focus for the Group had two main components. The first related to consolidating the investments made during the previous financial years. In effect, we set ourselves objectives to create a platform within each sector of the business to ensure each is positioned to deliver the medium and long-term strategic and financial targets set by the Group. The other, equally important, component of our focus was to ensure that we achieved strong and sustainable earnings growth from our core business. It is our view that the performance and results set out in this report demonstrate that we have been successful in delivering on the many challenges that the objectives we set for 2001/02 had created. The Group’s net surplus after tax of $85.1 million, before non-recurring items, represented growth in underlying earnings of 21%. In a year during which many corporates have struggled, and entities operating in the tourism and entertainment sectors faced difficult market conditions, this was an excellent result. This financial performance was achieved as a result of strong revenue growth – with Group operating revenues increasing to $510 million, up 21% – and margins being maintained or increased across the Group. Perhaps the most pleasing aspect of the 2001/02 performance was that we managed to achieve solid revenue growth in every business unit at every location that makes up the Sky City Entertainment Group. Going forward, the strategic focus for the Sky City Entertainment Group is best characterised by: (cid:2) Using the platform we have created over the last few years to continue to grow wealth; (cid:2) Continuing and increasing the organisational momentum we have achieved; and (cid:2) Growing the importance, positive impact and relevance of our business in, and to, each of the communities and economies within which it operates. Sky City Auckland Despite the expanded operational focus of the Group, management has not lost sight of the fact that what happens at Sky City Auckland is central to our brand and financial performance. The Group’s flagship property remains its key driver. In 2001/02 the focus was to continue to apply the innovative approach that we have traditionally and successfully taken to operating New Zealand’s largest and most visited tourism and entertainment destination, in order to achieve the revenue growth that remains the centrepiece of the Group’s results. 6 ENTERTAINMENT. TOMORROW SKY1705-An'Report-Front.v32 30/9/02 6:35 PM Page 7 As our Auckland product and markets increasingly mature, an important focus is to continually refresh and renew our offerings and to maintain our ability to achieve our fun and entertainment vision. Product innovation at Sky City Auckland included: (cid:2) The Observatory restaurant – we believe, one of the world’s most scenic buffet restaurants; (cid:2) Sky Jump and Vertigo – bringing an adventure tourism edge to Auckland’s most visual icon; (cid:2) New gaming products and promotions; (cid:2) The Noodle Bar on the main gaming floor; (cid:2) Refurbishment of Fortuna Buffet Restaurant; (cid:2) Completion of stage one of the Sky City Hotel refurbishment; and (cid:2) The introduction of film premieres at Sky City Theatre. Our success in maintaining a fresh and appealing product is well illustrated by the achievement of increased revenue in every component of Sky City Auckland, and overall revenue growth of 9%. Alongside that performance, a continuation of disciplined cost management saw the business hold its gross margin at 64% and maintain our market-leading EBITDA (earnings before interest, taxation, depreciation and amortisation) ratio at 53%. In the current year we expect that Sky City Auckland will again deliver across the board revenue growth, with attention being paid to achieving effective margin management. We are also confident that our plans for maximising the opportunities created by the Louis Vuitton series and America’s Cup will be successful. The major component of the next step in Sky City Auckland’s growth plan is the construction of the Sky City Auckland Convention Centre and the associated expansion of gaming to alleviate the capacity constraints that our success in growing the business has created. Evan Davies in the new 120-seat Observatory restaurant, Sky Tower Last year’s Annual Report foreshadowed the construction of a conference facility. During the 2001/02 year we were invited by Auckland City Council to explore the prospects of partnering with them in order to construct an expanded facility to compete in the convention market. While Council eventually decided to decline our proposal, we reached the view that the larger facility has as much potential to enhance value for our business as it does to fill a major and long-existing gap in Auckland’s tourism infrastructure. As a result, we have commenced construction of a complex that will provide 5,400 sq.m of exhibition, banquet and conference space adjacent to Sky City Auckland. Upon completion in December 2003, Auckland’s first dedicated convention centre will provide banquet capacity for 2,000 and plenary space for 1,500. Auckland will at last be able to provide world-class options to this market and, with the associated gaming expansion, Sky City Auckland will have again renewed itself and enhanced the platform for continuing growth. Sky City Adelaide 2001/02 was an important year for the Group in relation to its Adelaide property. We had made a considerable investment in the purchase of the Adelaide business and its rebranding and much needed reinvigoration. The challenge for the 2001/02 financial year was to deliver results that substantiated this investment, from both a brand and financial perspective. The business we now operate in South Australia is vastly different from that which we purchased just over two years ago. In the last year developments included: (cid:2) A significant upgrading of the gaming machine product; (cid:2) The opening of the West End Grandstand sports bar; and ENTERTAINMENT. TOMORROW 7 SKY1705-An'Report-Front.v32 30/9/02 6:35 PM Page 8 MANAGING DIRECTOR'S REVIEW (cid:2) Utilising the Marble Hall to provide concert, cabaret and nightclub facilities that attract on average 1,000 people every week. These initiatives, along with previous rebranding and refurbishment efforts, have turned Sky City Adelaide into South Australia’s most visited and high-profile entertainment destination. This is a significant achievement, particularly when compared to the run-down state of the business which we acquired in June 2000. In the Sky City 2002 Interim Report we recorded a healthy increase in revenue and identified bringing cost structures into line with revenues as the key priority for the second half of the year. The full year results illustrate that we have been successful in maintaining and growing visitation and revenue, and have achieved our cost objectives. For the full year we have achieved revenue growth of 15% and have increased EBITDA by 26%. While much has been achieved at Sky City Adelaide, it is very much a beginning, not an end. The advances that have been made will enable us to realise and grow the value-enhancing qualities of our Adelaide business and reinforce the Australasian nature of our brand. In the 2002/03 financial year our expectations are that Sky City Adelaide’s significance as an entertainment destination will be further increased, visitation and spend will again be grown, and the efficiency with which revenue is turned into profit will be improved. Sky City Leisure Limited (formerly Force Corporation Limited) As a result of successfully meeting the challenges that have been confronted during the year, Sky City Leisure Limited has now been positioned to deliver on the long-term strategic benefits to the Group that are behind this investment. During the year we worked to create a sustainable basis for the business as a result of the business’s exposure to the extraordinary and largely unpredicted economic collapse in Argentina. This involved negotiating a difficult but ultimately favourable capital restructuring. In addition, a number of long-standing commercial disputes were resolved. Sky City now holds 74.4% of Sky City Leisure Limited, on a fully diluted basis following the mandatory convertible note issue underwritten by Sky City in March 2002. Our focus has now turned to Sky City Leisure’s profitable businesses and their strategic importance to the Group. It is pleasing that, despite the structural issues, the business strengthened its performance. In New Zealand, cinema admissions increased by 18% and cinema revenues were up by 27%. The focus for the current financial year will be on realising the strategic and operational synergies on which the investment rationale was based and maximising the opportunities created by the extension of the Sky City brand. The rebranding of Force Corporation to Sky City Leisure Limited, the Force Entertainment Centre to Sky City Metro, and subsidiary company Force Cinemas Limited to Sky City Cinemas Limited is aimed at driving increased value for the Group. It is our intention to make the most of the strong upcoming movie product, increase the quality and quantity of marketing and promotional activity, and enhance the integration of these activities with those occurring at Sky City Auckland. Alongside efficient cost management we will explore and realise scale benefits that can be achieved through linkages with Sky City. Canbet Limited The past year saw Canbet Limited deliver improvements on all key performance indicators. Turnover was increased by 44% to A$410 million (in part driven by a 70% increase in bets placed) and an improvement in hold saw a profit of A$0.3 million recorded. While this level of profitability remains well below our long-term expectations, it represents a significant turnaround from the A$4 million loss recorded in the previous year. In March 2002, Sky City increased its shareholding in Canbet Limited from 21.6% to 32.4%. Our expectation for the 2002/03 year is that Canbet will deliver further increases in revenue, improved performance in relation to hold and, as a result, profitability growth. An important focus for the business during the current year will be the implementation of its United Kingdom strategy that will see operations commence in that country in the second half of the financial year. While a good deal more progress needs to be made at Canbet, we are confident that a base has been established from which strong and sustainable performance and growth can be achieved. Sky Alpine Queenstown During 2001/02 we have worked to improve the financial performance of our Queenstown business. While we have seen a growth in revenue, at $5.2 million it remains below our pre-licence expectations. The key objective identified for the year was a reduction in the cost base of the business to more appropriately reflect its revenue-generating performance and potential. To achieve this objective the business was restructured and table game operating hours were reduced. The objective for the 2002/03 financial year is to achieve breakeven at an EBIT level, and our long-term objective remains to achieve a net surplus after tax. Again it is our view that the progress made during 8 ENTERTAINMENT. TOMORROW SKY1705-An'Report-Front.v32 30/9/02 6:35 PM Page 9 2001/02 provides a sound base from which this objective can eventually be achieved. In considering the performance of Sky Alpine it is important that this is kept in context. The property is, and will remain, an important component of the Sky City Entertainment Group brand and overall product mix. As a result of its size, however, the financial performance of this business is not directly material to the financial performance of the Group. Sky Riverside Hamilton Sky Riverside Hamilton was officially opened on 19 September this year and began trading the following day. This is a significant milestone for the Sky City Group as it represents the culmination of more than four years of work (since the original licence application). The focus for the remainder of the financial year at Sky Riverside will be to ensure that the initial phase of operations is successful and that the structures we have in place are both appropriate and optimal. As is the case with all Sky City properties, we will also focus on ensuring that Sky Riverside’s positive involvement in the community grows both quickly and in a meaningful way. Regulatory Developments Given the nature of our business, regulatory developments continue to be an area of significance, and one that involves potential risks. Our approach to managing these risks remains to ensure that we have quality relationships at all levels of government. Over the past year, we have continued to work hard to develop and maintain these relationships, which assist us to understand the objectives behind government policy proposals and processes. This, in turn, enables us to involve ourselves in those processes, and contribute to outcomes being achieved that meet government objectives without having a negative impact on the business environment in which we operate. Customers, Products, People The Chairman’s Report identified the three key strategic drivers of Sky City as customers, products, and people. This strategic framework provides an indication of how we think about our business and the basic philosophy that we apply to developing and implementing business plans and strategies. To understand our business and how it is managed, it is necessary to understand our thinking in each of these areas. Each and every day customers and potential customers demonstrate their preferences through the behaviours they exhibit. We apply a great deal of time and resource to ensuring that we are accurately tuned in to our customers in order to make certain we provide experiences they want. This has been an important component of our success. Exceeding customers’ expectations requires innovation and quality in product development. Our focus will continue to be the generation of revenue growth by providing new experiences that are aimed at driving customer visitation. And finally, our people. Sky City’s people are the group who, through the outcome of their collective endeavours, deliver the experiences to our customers. Our challenge as a business is to ensure we have staff who are best placed to deliver what our customers want. This requires excellence across a wide range of disciplines including recruitment, training and development, communication, and remuneration. In our view, success can be judged by our ability to deliver compelling experiences to customers in a way that they find fun and entertaining, ensuring that they come more often and stay longer. A Bright Future The work we have undertaken during the year to consolidate Sky City’s operational expansion, continuing our record of strong financial growth, and establishing the framework for even stronger years to come is a credit to all those involved. My board colleagues and I are well aware of the contribution of all Sky City employees in achieving our objectives and this result. I would like to thank all of Sky City’s people on behalf of the board and shareholders. As a result of our efforts over the past six years, we have become a materially significant component of the New Zealand business and economic environment. We are now an NZSE top ten company and one of the largest remaining New Zealand-owned and operated listed companies. With the business strategies that we have in place the extent of this importance will only increase. This is an achievement of which we and all of our stakeholders can be proud. Evan Davies Managing Director ENTERTAINMENT. TOMORROW 9 SKY1705-An'Report-Front.v32 30/9/02 6:35 PM Page 10 R E M O T S U C R U O SKY1705-An'Report-Front.v32 30/9/02 6:35 PM Page 11 We’re planning and creating tomorrow’s entertainment today. tomorrow today The 2002/03 gaming year will be highlighted by Creating tomorrow’s gaming entertainment product two exciting events – the commencement of Sky City requires a thorough knowledge of our gaming customers Auckland’s main gaming floor expansion project and and their changing needs, expectations and preferences. the opening of Sky Riverside Hamilton. Sky City regularly conducts research of customers and the Sky City Auckland’s expansion project will see the general public. This research provides valuable market conference centre on Level 3 transformed into an upper analysis and by utilising a range of research tools, including floor of Sky City Casino. Linked by internal escalators population studies, market monitors and customer from within the existing main gaming floor area, the new segmentation, we can provide the gaming experiences our location will add a further 12 gaming tables and 230 gaming customers want, tailor promotions and the Action loyalty machines, together with bar and entertainment facilities. programme to encourage visitation, and develop marketing Driven by customer demand and our commitment to strategies to attract new customers. continually enhance the customer experience, the new Sky City Auckland’s main gaming floor expansion project is facility will offer a broad range of entertainment options in a direct result of customer demand. The new gaming area, gaming and live performance. The new facility is scheduled which will be designed to meet the needs and expectations for completion in December 2003. of customers and potential customers, will help to ensure Sky Riverside Hamilton became a reality when it opened in continuing access to favourite gaming products. September 2002, bringing to a close a four-year process to Across the Sky City Group, gaming machines have been establish the facility. The launch of Sky Riverside heralds updated and new games installed based on the preferences the beginning of a new entertainment era for Hamilton, of customers, and table game layouts and the games which is now home to a stunning gaming and offered have been refreshed during the year to meet entertainment complex. customer demand. Sky City Auckland: FY02 Gaming +10% Revenue Growth Tables Gaming Machines Sky City Adelaide: FY02 Gaming +14% Revenue Growth Tables Gaming Machines 13% 8% 14% 16% The Action programme’s policy to tailor its promotions and rewards based on market feedback has resulted in increased Action membership and visitation at Sky City properties, led by a 44% increase at Sky City Adelaide. Action has now been introduced to Sky City Metro. ENTERTAINMENT. TOMORROW 11 SKY1705-An'Report-Front.v32 30/9/02 6:36 PM Page 12 R E M O T S U C R U O SKY1705-An'Report-Front.v32 30/9/02 6:36 PM Page 13 tomorrow today Sky City’s vision to provide fun and entertainment has Entertainment seekers at all Sky City properties have been a key element of our success. enjoyed a range of live performance, dining, bar and Catering to a broad spectrum of the population has theatre options during the 2001/02 year. enabled us to provide new revenue streams, attract a Ever-changing choices of musicians and entertainers, customer mix that is representative of the communities exciting entertainment venues, new restaurant and bar within which we operate, and provide an entertainment options, and quality theatre performances have attracted destination the majority of the community can enjoy. thousands of customers to Sky City properties. Through targeted and regular research programmes we Entertainment highlights of the year include: will continue to develop detailed profiles of our customers. This research enables us to identify target markets and implement strategies to retain entertainment seekers and attract new customers. Research also assists us to continue developing the products and experiences these customers are looking for. We know that variety is a motivating factor for this entertainment-seeking customer base and our aim is to address that motivation and encourage repeat visits by providing a range of live entertainment and stage performance, continually refreshed and stimulating surroundings, and constantly varying cuisine and beverage options. Going forward, Sky City will continue to meet the demands of this customer group by targeting outstanding entertainers and stage productions, and by refurbishing Sky Tower’s Orbit restaurant and Sky Lounge, and The Grill (cid:2) Sky City Theatre is now a key film premiere venue, staging the premieres of Spiderman, Men In Black II, and Austin Powers In Goldmember. These premieres have resulted from joint promotional opportunities with Sky City Leisure. (cid:2) Sky City Adelaide launched a new concept in live entertainment when it transformed its Marble Hall entry area into Under The Dome, Adelaide’s newest live performance venue attracting on average an additional 1,000 people each weekend. Australian performing icons James Reyne, Daryl Braithwaite and Jimmy Barnes are among Under The Dome’s list of entertainers. (cid:2) Sky Alpine introduced popular comedy nights to complement its active live entertainment programme. Highlights of Sky City’s food and beverage year were: (cid:2) The opening of The Observatory premier buffet restaurant at Sky City Adelaide. We will also review and restaurant in Sky Tower in April 2002 has attracted update restaurant menus and beverage offerings, and a new dining market to Sky City. integrate Sky City Leisure and Sky City Metro promotions with Sky City Auckland and Sky Tower activities. (cid:2) Sky City Auckland’s Fortuna Buffet Restaurant has undergone a complete refurbishment, increasing capacity The opening of Sky Riverside’s The Post restaurant and to 420 seats. Number Eight bar in September this year is the first of the 2002/03 year’s new product offerings for this customer base. (cid:2) Sky City Adelaide opened The West End Grandstand, a themed sports bar on level one of the complex that has this year been home to Channel Ten’s ‘Simply Footy’ AFL football show. (cid:2) Sky Alpine Queenstown’s Wild Thyme restaurant continues to enhance its growing reputation for stylish local cuisine. ENTERTAINMENT. TOMORROW 13 SKY1705-An'Report-Front.v32 30/9/02 6:36 PM Page 14 R E M O T S U C R U O SKY1705-An'Report-Front.v32 30/9/02 6:36 PM Page 15 Vertigo mast climber, Sky Tower tomorrow today The tourist market represents a significant customer base Sky Jump and Vertigo are Sky Tower’s new adventure for Sky City in New Zealand and South Australia. tourism offerings and are attracting a new market to Tourism is one of New Zealand’s largest earners of foreign exchange, accounting for 9% of GDP and contributing 16% of New Zealand’s export earnings. In the year ended April 2002, international visitors to New Zealand numbered Sky City Auckland. Adventure seekers from Auckland and throughout New Zealand and the world have visited Sky Tower since its latest attractions were launched in early 2002. 1.946 million, an increase of 5% over the previous year. Aimed at enticing more visitors to Auckland and Sky City, Spending has increased to $5.7 billion annually and is Sky Jump and Vertigo are proving to be among the city’s expected to reach almost $10 billion by 2008. most popular adventure activities and are enhancing New In South Australia, more than A$3 billion of expenditure is Zealand’s reputation as the adventure capital of the world. generated by domestic and international tourism. For the Sky Jump and Vertigo have provided significant year ended June 2002, 8% of Australia’s international international media profiles for Sky City, Auckland and tourist arrivals visited South Australia, with interstate New Zealand, and will attract further exposure during the visitors numbering more than 1.8 million. forthcoming Louis Vuitton and America’s Cup events. Our record as a successful tourism operation is strong. Raising the profiles of New Zealand and South Australia Sky City Auckland was the 2001 Tourism New Zealand is a priority for Sky City’s sales department. Sky City has Supreme Award winner; Sky Tower attracts 53% of all marketed Auckland and New Zealand internationally since international visitors to New Zealand to be the most 1996 and now has one of the country’s largest sales teams. visited paid attraction in New Zealand; Sky City Adelaide With a programme that has expanded to include is a previous winner of three consecutive South Australian Queenstown, Hamilton and Adelaide, the Sky City sales Tourism Awards for premier tourist attraction; and team is directly promoting each destination to key Sky Alpine Queenstown is a key night-time entertainment international markets including the United States, Europe, venue in New Zealand’s premier tourist destination. Asia and Australia, and to emerging markets throughout the world. Latest figures show increased visitor arrivals for both New Zealand and South Australia and forecasts indicate that tourism will continue its strong growth. Forecast of Total Visitor Days - New Zealand South Australia Tourism Trends: Number of Total Arrivals ('000) Actual Forecast 3,500 3,000 2,500 2,000 1,500 1,000 500 0 84 86 88 90 92 94 96 98 00 02 04 06 08 Source: Tourism Research Council (cid:2) South Australia receives approximately 6 million visitors per year. (cid:2) International visitors for the year to June 2000 grew by 12%. (cid:2) Visitor nights for South Australia totalled 24 million. (cid:2) Interstate visitors contributed 8.3 million visitor nights. ENTERTAINMENT. TOMORROW 15 SKY1705-An'Report-Front.v32 30/9/02 6:36 PM Page 16 R E M O T S U C R U O SKY1705-An'Report-Front.v32 30/9/02 6:37 PM Page 17 PROMENADE 6 1 MAIN CONFERENCE ROOM 2 OVERBRIDGE TO SKY CITY AUCKLAND 3 EXHIBITION ROOMS 4 MAIN ENTRANCE AND BREAKOUT FACILITIES 5 CARPARK tomorrow today The opening of the Sky City Auckland Convention Centre Sky City Hotel is acknowledged as Auckland’s best in December 2003 will initiate the arrival of significant performing hotel, having achieved the city’s highest numbers of new customers to Sky City Auckland. occupancy rate during 2001/02 for the third The convention centre, which is currently under consecutive year. construction at a site immediately opposite Sky City The hotel is a priority product for Sky City’s sales team, Auckland, will host conventions of up to 1,500 from which largely focuses on promoting the hotel and its throughout New Zealand and Australia. It will be Auckland conference centre nationwide and internationally. The city’s largest convention facility and provide the impetus hotel’s clientele comprises both domestic and international for Auckland’s tourism industry to target the 500-1,500 tourists and corporate clients attracted to Sky City capacity convention market. Auckland’s extensive range of entertainment options. Comprising nine levels with two massive banquet and Acknowledgement of the hotel’s popularity, and consistent exhibition spaces, the Convention Centre will be linked with Sky City’s policy to continually refresh its products, a by an overbridge to Sky City Auckland, allowing convention staged refurbishment programme was commenced during delegates immediate access to gaming, restaurants and bars, the year. Stage one of the refurbishment has been Sky City Hotel, Sky City Theatre, and Sky Tower products. completed with 102 of the hotel’s 344 rooms receiving a Economic benefits created by the Convention Centre are expected to be significant with research indicating that Auckland city will host an additional 141,000 convention complete soft refurbishment. Stage two will be completed during the current financial year, with the third and final stage scheduled for the 2003/04 year. delegate days within the first five years, generating an Sky City Hotel and its conference centre are an important associated increase in international and domestic component of the Sky City Auckland product mix. As one of expenditure of $53.2 million. the country’s largest hotels, Sky City Hotel has enabled the business to target a broad range of customer markets from family holidaymakers to international tourists to corporate clients. Each of these markets remains loyal to Sky City Hotel, which will continue to make an important contribution to company revenues. Sky City Convention Centre Forecasts Incremental Delegate Days Incremental Expenditure - Auckland City 30k 27k 11 k 12k 15k 8k 18k 9 k 6k 5k 11,000 Year 1 23,000 Year 2 27,000 Year 3 38,000 Year 4 42,000 Year 5 Incremental Growth in Delegate/Guest days Conference/Convention Banquet 141,000 Total 96,000 45,000 Source: Sky City Forecasts 5.3 7.0 7.8 9.2 8.2 3.5 4.3 4.5 7.8 Year 2 9.8 Year 3 14.8 Year 4 17.4 Year 5 1.4 2.0 3.4 Year 1 Additional Expenditure - Auckland City ($ million) International Non-Auckland Domestic Source: Sky City Expenditure Analysis 53.2 Total 24.5 28.6 ENTERTAINMENT. TOMORROW 17 SKY1705-An'Report-Front.v32 30/9/02 6:37 PM Page 18 E L P O E P R U O SKY1705-An'Report-Front.v32 30/9/02 6:37 PM Page 19 tomorrow today Our vision is achieved through motivating and valuing Incentive reward programmes introduced to Sky City have our people. created a culture of shared team and individual performance. Creating fun, memorable customer experiences is the The Performance Pay Incentive (PPI) bonus scheme rewards responsibility of all Sky City staff, whether they are carpark salaried staff with company shares and cash based on attendants, cleaners, marketing executives, waiters, dealers, individual performance and achievement of company or accountants. As a company, it is our responsibility to targets. Initially a three-year programme introduced in create the kind of workplace and culture that fosters 1999, PPI has been extended in 2002 for a second term. enthusiasm, personal achievement, accountability, leadership and exceptional performance. The Customer Experience Incentive (CEI) scheme for waged staff, which is a unique reward programme for the Being in the business of providing entertainment hospitality industry, provides cash bonuses to staff when experiences means that a healthy internal culture customer service targets are met. has a direct correlation with the company’s bottom line performance. We are constantly reviewing staff programmes and have commenced a series of employee surveys aimed at redefining our internal brand to reflect our evolution from a single site operation to a multi-site, multi-jurisdiction business. By offering incentive programmes, we are able to encourage exceptional performance, team culture, and leadership. Retaining staff is a key priority for the company, and PPI and CEI, together with an extensive range of employee benefits, fair employment conditions, and opportunities for professional development, ensure Results of the surveys will be utilised to support the exceptional people are working at Sky City. development of a brand that builds on our aims to increase staff satisfaction levels, attract and retain high-quality staff, reinforce our team orientation and people focus, and maintain our position as a best practice employer and a great place to work. e c n a by our perfo r m forour res u lts. judged rewarded erformance co u e b will Perfor m e W d n a n t s. P T e H a a m r d w o w m r o a k r k a k e n i s t d h p E n j o y i n g E n j o y t h e j o u r n ey. e a a r t d p i f o f e o f sitiv t h e e r e n c e. fu attitu n. de Successstartswith to new ideasandthe to makethem open happ n p e ss assio e n. n Opentonew id e a s. Learn The Sky City Spirit R e s p e c t I n i t t o g e t h e r. S t r i e v e s. k a t t i What e v e r d s. c e is y k C ity. n n S e a t g t a l e e c v i We ' r e s e r d i s a r Going t h e e x t t h i n g an eve r y d a y T h e w w h h o o r e t l e a h e r y o u ' r e i n a s p e s r e s r o v n i n c g o u a n p t r s o n. a t uit S k y City ENTERTAINMENT. TOMORROW 19 SKY1705-An'Report-Front.v32 30/9/02 6:37 PM Page 20 B O A R D O F D I R E C T O R S The Sky City Entertainment Group board of directors is responsible for supervising the management of the company and has a comprehensive set of corporate governance practices and procedures in place to ensure that its responsibilities to shareholders and other stakeholders are fully complied with. During the 2001/02 year, the board formally met on 11 occasions, the board’s Audit and Risk Committee met on four occasions, and the Governance and Risk Committee also met on four occasions. In addition, directors met informally on a number of occasions to consider specific issues. Waari Ward-Holmes, a founder director of the company, retired at the 2001 Annual Meeting. Waari’s fellow founder director, Sir Peter Elworthy, will retire at the 2002 Annual Meeting and is not seeking re-election. Matters entered in the company’s Interests Register are set out at pages 67-69 of this Annual Report. The number of board meetings attended by the directors during the year (including strategic planning meetings), with the number of meetings held while each director was in office shown in brackets, were: J.P. Hartley 11 (11), E.W. Davies 11 (11), P.H. Elworthy 9 (11), P.L. Reddy 11 (11). E. Toime 10 (11), W.R. Trotter 11 (11), W.G. Ward-Holmes 5 (5), B.M. Wickham 11 (11). The board membership currently comprises seven non-executive directors and one executive director. The chairpersons of the board and of the two board committees are non-executive directors. Jon Hartley, Chairman Rod McGeoch Jon Hartley was appointed a director and chairman of Sky City Entertainment Group Limited in February 1996 and is a member of the Sky City Audit and Risk, and the Governance and Remuneration Committees. Mr Hartley is deputy chairperson of Infinity Group Limited, chairman of Vertex Group Holdings Limited, and a director of The Great New Zealand Business Venture Limited. Evan Davies, Managing Director Evan Davies has been managing director of Sky City Entertainment Group Limited since February 1996. Mr Davies is an executive director of the board and is also a director of Sky City subsidiary companies. He served in 2001/02 as a director of the Tourism Industry Association of New Zealand and is a trustee of the Melanesian Mission Trust. Patsy Reddy, Deputy Chairperson Patsy Reddy has been a Sky City director since 1994. She is deputy chairperson of Sky City Entertainment Group Limited and chairperson of the Governance and Remuneration Committee. Ms Reddy is an executive director of Active Equities Limited, a director of Telecom Corporation of New Zealand Limited and of Infinity Group Limited. She is a trustee of the Sky City Community Trust and of the New Zealand International Festival of the Arts Trust. Sir Peter Elworthy Sir Peter Elworthy has served as a Sky City director since 1992 and is a member of Sky City’s Governance and Remuneration Committee. Sir Peter is also a director of a number of private companies and chairman of the Biological Organic Trust of Lincoln University. Sir Peter is a trustee of the New Zealand Institute of Economic Research, the Lincoln University Foundation and the Enterprise New Zealand Trust. Sir Peter will retire from the Sky City board at the 2002 Annual Meeting. Rod McGeoch was appointed a director in September 2002. Mr McGeoch is the national chairman and a partner of Corrs Chambers Westgarth, solicitors, of Sydney. Mr McGeoch is a director of Telecom Corporation of New Zealand, deputy chairman of Australian Pacific Airports Corporation Limited, chairman of Australian Growth Properties Limited, a director of Ramsey Health Care Limited and Sporting Frontiers Limited and a trustee of the Sydney Cricket and Sports Ground Trust. Mr McGeoch was chief executive officer of Sydney Olympics 2000 Bid Limited (until July 1995) and a director of the Sydney Organising Committee for the Olympic Games until November 1998. Elmar Toime Elmar Toime was appointed to the Sky City board in February 1996 and was appointed chairman of the Audit and Risk Committee following the retirement of Waari Ward-Holmes in October 2001. Mr Toime is chief executive officer of New Zealand Post Limited, a director of NRMA Insurance NZ Limited and Datacom Group Limited, and is a member of the State Sector Standards Board. Bill Trotter Bill Trotter was appointed to the Sky City board in March 2000 and is a member of Sky City’s Governance and Remuneration Committee. Mr Trotter is a director of First NZ Capital Group Limited and is a director of the New Zealand Stock Exchange. Bridget Wickham Bridget Wickham has been a Sky City director since March 2000 and is a member of the Sky City Audit and Risk Committee. Ms Wickham is chief executive of University of Auckland Development, and is a director of Fisher and Paykel Appliances Holding Limited, Industry New Zealand, Uniservices Limited and Competitive Auckland Limited. Alistair Ryan, Company Secretary Alistair Ryan has been Sky City Entertainment Group Limited’s company secretary since 1995 and is General Manager Corporate for the Sky City Group. 20 ENTERTAINMENT. TOMORROW SKY1705-An'Report-Front.v32 30/9/02 6:38 PM Page 21 F I N A N C I A L A N D O P E R A T I N G R E P O R T W O R R O M O T . T N E M N I A T R E T N E SKY1705-An'Report-Front.v32 30/9/02 6:38 PM Page 22 F I N A N C I A L A N D O P E R A T I N G R E P O R T C O N S O L I D A T E D F I N A N C I A L R E S U L T $ 2 9 4 $ 2 2 6 $ 2 3 9 $ 2 5 7 17 % T O T A L S A L E S R E V E N U E ( $ m i l l i o n ) $ 4 3 5 $ 5 1 0 $7 $42 A$95 $347 2 1 % $ 8 5 . 1 * $ 7 0 . 1 $ 6 0 . 3 $ 4 5 . 6 $ 3 6 . 1 $ 3 2 . 1 * N E T S U R P L U S A F T E R T A X* ( $ m i l l i o n ) F Y + 9 7 9 8 9 9 0 0 0 1 0 2 F Y + 9 7 9 8 9 9 0 0 0 1 0 2 * before non-recurring items 3 7 % E B I T D A º ( $ m i l l i o n ) F Y + $ 1 9 2 $ 2 2 1 $14 A$20 $183 2 1 % 3 8 3 1 . 5 2 8 $ 1 4 0 $ 1 2 1 $ 1 0 1 $ 8 8 2 1 . 5 1 6 . 2 5 1 4 . 5 9 7 9 8 9 9 0 0 0 1 0 2 F Y + 9 7 9 8 9 9 0 0 0 1 0 2 T O T A L DIV IDENDS ( c e n t s p e r s h a r e ) º earnings before interest, tax, depreciation and amortisation + FY — denotes financial year Sky City Entertainment Group Sky City Entertainment Group Sky City Auckland Sky City Auckland Sky City Adelaide Sky City Adelaide Sky City Leisure Sky City Leisure Sky Alpine Queenstown Sky Alpine Queenstown 22 ENTERTAINMENT. TOMORROW SKY1705-An'Report-Front.v32 30/9/02 6:38 PM Page 23 10 0 % 10 0 % 6 0 % 5 5 % 3 2 % 5 0 . 2 % * S K Y C I T Y A U C K L A N D S K Y C I T Y A D E L A I D E S K Y A L P I N E Q U E E N S T O W N S K Y R I V E R S I D E H A M I L T O N C A N B E T L I M I T E D S K Y C I T Y L E I S U R E L I M I T E D * 74.4% fully diluted The $85.1 million net surplus (before non-recurring item, being the Force write-off of $27.9 million) represents a 21% increase over the previous financial year and the fifth successive year of increased earnings for the company. Earnings per share (before non- recurring item) were 41.5 cents per share, a 16% increase over the 35.7 cents achieved in the prior year. The non-recurring item of $27.9 million represents the full write-off of Force Corporation’s investment in Village Cinemas SA (Argentina). The Force/Argentina write-off in the Sky City consolidated financial statements is shown as $39.2 million. This is made up of Force’s write-off of its investment in Village Cinemas SA ($12.2 million), Force’s write-off of its cash advance to Village Cinemas SA used to repay debt in March 2002 ($10.3 million) and Sky City’s write-off of its goodwill on acquisition of Force ($16.7 million). At 50.2% ownership, Sky City’s write-off, after excluding minority interests, was $27.9 million, being 50.2% of $12.2 million plus $10.3 million, and the goodwill write-off of $16.7 million. Whilst the full write-off to comply with the requirements of GAAP accounting has been taken to the financial statements for the FY02 year, and, as a consequence, the equity value of the Force investment in Sky City’s financial statements has been written down to zero, there has since been significant value recovery, on a mark to market basis, with respect to both the shares and the mandatory convertible notes. This value recovery has not been included in the financial statements of either Force Corporation or Sky City Entertainment Group Limited. After the non-recurring item, being the Force write-off, the net surplus of the Group reduced to $57.2 million. A final dividend for the 2001/02 financial year of 22.5 cents per share will be paid on 4 October 2002 to those shareholders on the Sky City register as at 5:00pm on 20 September 2002. The total dividend for the 2001/02 year of 38 cents per share represents a 21% increase over last year’s dividend of 31.5 cents per share (expressed on a post November 16 share split basis). The dividend for 2002 has been calculated at 90% of tax-paid earnings before non-recurring items, as has been the case in previous years. As for previous dividends, the FY02 final dividend is fully imputed. Total 2001/02 sales revenues increased by 17% to $510 million, reflecting the inclusion of Sky City Leisure Limited (formerly Force Corporation Limited) revenues for a full year and increased sales revenues at all properties – Auckland, Adelaide, and Queenstown. Sky City Leisure’s sales revenues were also well ahead of the previous year, with cinema revenues up by 27%. Sky City Auckland increased revenues by 9% to $347 million, accounting for just under 70% of total group revenues. Sky City Adelaide contributed A$95 million ($114 million), a 15% increase over its prior year. Sky City Leisure’s revenues were $42 million and Sky Alpine Queenstown and the Queenstown Hard Rock Café reported revenues of $7 million. Group earnings before rent, interest, tax, depreciation, and amortisation (and before non-recurring items) increased by 15% from $192 million to $221 million. Sky City Auckland’s EBITDA increased by 6% from $172 million to $183 million with the EBITDA ratio to revenues being maintained at well above 50%, maintaining the company’s leading EBITDA performance among gaming and entertainment operators in Australasia. Sky City Adelaide lifted its EBITDA ratio from 19% to 21% and this ratio is expected to increase progressively over future trading periods. Sky City Adelaide reported a significantly improved second half performance with its EBITDA ratio in the second six months of the financial year at 24%. Sky Alpine Queenstown reported a breakeven EBITDA result for the year and the objective is to bring the breakeven result through to the EBIT line for the FY03 financial year. Sky City Leisure reported an EBITDA result of $10 million, well ahead of its breakeven EBITDA in FY02. ENTERTAINMENT. TOMORROW 23 SKY1705-An'Report-Front.v32 30/9/02 6:38 PM Page 24 F I N A N C I A L A N D O P E R A T I N G R E P O R T S K Y C I T Y A U C K L A N D Strong revenue growth across all sectors of the Auckland operation - gaming, food and beverage, hotel, Sky Tower and carparking - combined with cost containment, led to increased gross income performance, up by more than 10% on the previous financial year. Gaming As was the case last year, the Auckland gaming result reflects significant growth in both table games and gaming machine revenues of 13% and 6% respectively. During the 2001/02 year, 56 new gaming machines were introduced, 260 existing machines were replaced by new machines, and 190 machines were modified to incorporate new games and new features. More than 1,300 jackpots of more than $10,000, and more than 150 cars were won by customers during 2001/02 on the Sky City gaming floors. Productivity measures introduced included continuous shuffling machines and a redesign of table game layouts to improve labour cost performance. The gaming floor expansion, which will introduce 230 new gaming machines, 12 new gaming tables and bar and entertainment facilities, is currently scheduled to open in December next year. The new facility will add significantly to the Sky City Auckland gaming experience for our customers and will provide an increase in gaming capacity of 15%. Food and Beverage Food and beverage revenues increased by 9% to just under $28 million, with gross margin at just under 20%. The very successful Sky City Auckland food and beverage operations served over one million restaurant meals during the 2001/02 year and two new outlets were added. The very popular Noodle Bar was introduced for main gaming floor customers and a new restaurant, the 120-seat Observatory on Sky Tower, was opened during the year. Sky City Catering is anticipating a strong year in 2002/03 with many hospitality functions scheduled in conjunction with the Louis Vuitton and America’s Cup yachting regattas. Sky City Hotel and Conference Sky City Hotel was the best performing hotel in Auckland for the third year in succession, achieving very strong support from domestic and international, and traveller and business sectors, which resulted in an 88% occupancy (up from 83% in 2001/02) being achieved for the year. As a consequence of this excellent occupancy level, hotel and conference revenues were up significantly by 9% to just under $19 million. Sky City Hotel is part-way through a three-phase refurbishment programme at a total cost of $3.5 million. Stage one has been completed and stage two will commence shortly, with the third and final stage scheduled for the 2003/04 year. The high occupancy rates being achieved by Sky City Hotel are not expected to be impacted because the refurbishment programme has been carefully planned to undertake the work on a continuous basis in six-room instalments. The new Sky City Auckland Convention Centre project has commenced, with construction scheduled for completion in December 2003. Once completed, Auckland and Sky City Auckland will have the ability to attract the larger conferences, exhibitions and banquets which the city has not been able to accommodate in the past. The total capital cost of the project will be $60 million, spread over the next two financial years. Sky City’s existing funding facilities are well able to meet the capital expenditure requirements of this project. Sky Tower Sky Tower celebrated its fifth birthday in August this year and, despite being five years old, is still attracting more visitors each year. Sky Tower visitation in 2001/02 was up 7% on the prior year with over half a million tower visitors and almost a quarter of a million tower restaurant diners to Orbit and The Observatory during the 12 months ended 30 June. As a consequence of increased visitor numbers, Sky Tower revenues were up 6% to just over $7 million. The new attractions of Sky Jump and Vertigo (the mast climb) have added to the level of local and visitor interest which Sky Tower inevitably generates within Auckland. Other Revenues Carparking revenues increased by 3% to more than $9 million, despite the number of available carparks being temporarily reduced by the demolition of the Federal Street carpark to make way for the Convention Centre development on that site. More than 120,000 patrons enjoyed another year of musicals, comedies, drama and other theatre events during the 2001/02 year. The Auckland International Film Festival was held at Sky City Theatre for the third successful year and Sky City Leisure hosted a number of film premieres at Sky City Theatre including Spiderman, Men in Black II and Austin Powers In Goldmember. Despite the significant success of the Action loyalty programme driving visitation at all properties, Group complimentaries were held at 2.3% of total revenues, up only marginally on last year’s 2.2%. 24 ENTERTAINMENT. TOMORROW SKY1705-An'Report-Front.v32 30/9/02 6:38 PM Page 25 S K Y C I T Y A D E L A I D E to continue into the 2002/03 financial year and beyond. The Sky City Adelaide property was extensively refurbished during the period from acquistion in late June 2000 to the relaunch of the property as Sky City Adelaide in April 2001. The year ended 30 June 2002 is therefore the first full year of trading as the renewed Adelaide facility. The initial refurbishment capital expenditure during the 2000/01 year of A$12 million was the first stage of redevelopment and renewal of the Adelaide facility, with A$8 million for further refurbishment work and new equipment committed during the 2001/02 year. During 2001/02, 170 new gaming machines were introduced and 140 existing gaming machines were converted to new formats. The new gaming machine product, introduced since acquisition in June 2000, means that Sky City Adelaide’s gaming machines are the market-leading offering in South Australia and are fully competitive with the machine offerings elsewhere in Australia. The introduction of new products, new facilities, a range of entertainment offerings and the Sky City Action loyalty card at Sky City Adelaide has led to increased visitation and spend per customer with overall revenues up by 15% over the previous 12 month period. Sky City Adelaide’s revenues have grown significantly since Sky City acquired the business from the State Government of South Australia just over two years ago, and the growth achieved to date is expected to be continued into the future. Sky City Adelaide’s 2001/02 revenues of A$95 million represent 22% of the Sky City Group total. The Adelaide operation has gone through a period of consolidation and renewal during the last two years and now, going forward, can be expected to be an increasingly important contributor to overall Sky City group performance. Financial performance was significantly stronger in the second half of the 2001/02 financial year than for the first half. This was a consequence of a range of cost reduction initiatives starting to show through to the bottom line and of effective cost management and containment as revenues continued to increase. Also, the necessary restructuring and repositioning expenditures that inevitably follow an acquisition of a business operation such as the Adelaide Casino were largely completed by the half year point. In this context, it is useful to note that second half EBITDA was A$11.4 million compared to A$8.3 million in the first half, and this flowed through to the EBIT line at A$6.5 million for the second half compared to A$3.8m million in the first six months of the year. This period on period financial improvement is expected Gaming Gaming revenues, which represent 88% of the Sky City Adelaide total, were up 14% in 2001/02 over the previous year, at A$84 million. This growth in gaming revenues was consistent, with table games revenues up 14% and gaming machine revenues up 16%. The split between visitation and spend per customer was also consistent, with visitation up 8% and spend up by 6%. Introduction of the Action loyalty programme to Sky City Adelaide has been a significant contributor to the increase in revenues, with more than 50,000 Action loyalty members in Adelaide. The Grange Room premium table play facility has been an important contributor to overall table games performance in Adelaide, with local and interstate membership of this prestigious and sophisticated facility at more than 600. Food and Beverage Sky City Adelaide’s bars and restaurants contributed revenues of A$12.5 million during 2001/02, up 13% on the prior year. Gross margin performance to date reflects the scale of the food and beverage operations in Adelaide and focus will continue on opportunities for lifting the gross margin ratio above the current 15% level. It is clear that the large number of entertainment seekers who have been drawn to the property as a result of the facilities and performances now on offer have had a significant impact on the overall revenue performance of both the gaming and food and beverage business units at Sky City Adelaide. ENTERTAINMENT. TOMORROW 25 SKY1705-An'Report-Front.v32 30/9/02 6:38 PM Page 26 F I N A N C I A L A N D O P E R A T I N G R E P O R T S K Y A L P I N E Q U E E N S T O W N (60% owned, Sky City as operator) S K Y C I T Y L E I S U R E L I M I T E D (formerly Force Corporation Limited) In its first full year of operations (Sky Alpine Queenstown opened in December 2000), the management team at Sky Alpine have worked hard to align costs with lower than expected revenues. The boutique size of Sky City’s Queenstown operation and the existence of a direct casino competitor in this tourist town makes the management of costs in line with revenues a difficult challenge. Sky Alpine achieved a breakeven at the EBITDA line and is targeted to achieve breakeven at the EBIT line in the 2002/03 year, with the objective being to achieve a net surplus in FY04. As in Adelaide, Sky Alpine achieved a significantly improved financial performance in the second half of the 2001/02 year and, if the business can sustain this trend into the 2002/03 year, then the financial breakeven target as referred to above will be a realistic and achievable objective. S K Y R I V E R S I D E H A M I L T O N (55% owned, Sky City as operator) The new 20 tables and 300 gaming machines Sky Riverside facility in Hamilton opened on 19 September this year and commenced trading operations the following day. Construction and fitout was completed on time and to budget and the initial reaction to the facility has been very favourable. The experience of Sky City, as an operator of gaming and entertainment facilities in New Zealand and Australia, has meant that the Sky Riverside establishment phase and the initial phase of operations have both gone according to plan. The Sky Riverside team is an excellent blend of experienced Sky City personnel brought in from Auckland and Queenstown, and local Hamilton and Waikato people who have been trained to provide the high standard of customer service that Sky City customers have become accustomed to at the company’s other properties. Until early this calendar year, Force Corporation had a high level of financial risk exposure, by way of a bank guarantee of US$15 million, through its 25% shareholding in cinema and property owner Village Cinemas SA in Argentina. As the economic situation in Argentina worsened during the later months of calendar year 2001 and then collapsed completely in December/January, Sky City was faced with a difficult reinvestment question with respect to its shareholding in Force and its participation (or otherwise) in a necessary recapitalisation of the company. The future of Force Corporation was entirely dependent on the company being able to negotiate significantly improved terms with respect to the debt funding of Village Cinemas SA, and then on being able to raise additional capital from its shareholders. The renegotiation of the bank guarantee was achieved in early February, reducing the maximum contingent liability exposure for Force with respect to Argentina to US$4 million. Subsequent to the bank liability agreement, Force was then able to proceed with its mandatory convertible notes issue to raise $31 million of new capital. This issue, underwritten by Sky City, was completed on 1 March 2002. Also achieved during the 2001/02 year, following acquisition of a majority shareholding by Sky City, was resolution of the long-standing ownership dispute over the Force Entertainment Centre in downtown Auckland, the successful sale of surplus property assets, closure of the loss-making IMAX cinema operation, and negotiation of leasing arrangements for new cinema facilities in Westfield shopping centres throughout the Auckland region. The results reported for the 2001/02 financial year show the cinema exhibition business in New Zealand to be on a strong footing, and with good product scheduled, the outlook for the 2002/03 year looks promising. The cross-property synergies between Sky City Auckland and the Force Entertainment Centre (renamed Sky City Metro in September) have been initiated and are expected to bring forward significant benefits to both operations in the future. Excluding IMAX, cinema revenues increased 27% on the prior year, at $30 million. EBITDA for the business, excluding non-recurring items relating to resolution of the Force Entertainment Centre dispute, write-offs relating to Argentina, and capital restructuring costs relating to the mandatory capital notes issue, was 26 ENTERTAINMENT. TOMORROW SKY1705-An'Report-Front.v32 30/9/02 6:38 PM Page 27 $10.1 million, an improvement of $9.8 million on the prior year. EBIT of $6.3 million compared favourably to a loss of $2.6 million for the 2000/01 year. Sky City Leisure Limited (formerly Force Corporation Limited) is carrying the Argentina investment in Village Cinemas SA at zero value on its statement of financial position at 30 June 2002. C A N B E T L I M I T E D Sky City increased its shareholding in ASX-listed company Canbet Limited, from 21.6% to 32.4%, in March 2002. Canbet achieved a significant turnaround during its 2001/02 year, achieving a net surplus of A$304k for the 12 months to 30 June. This profit compares favourably to the past performance of Canbet, turning around last year’s net loss of A$4 million. This profit result was achieved through the application of strong corporate governance and risk management practices and procedures, from a 44% increase in turnover at a hold of better than 2%, and as a result of close attention to costs within the business. Prospects for further growth in 2002/03 look promising although Canbet directors are mindful that internet bookmaking is an inherently volatile business in which the earnings in a financial period are not able to be predicted with any certainty. Canbet is looking at establishing operations in the United Kingdom during the second half of this financial year as a means of continuing its growth path. The Canbet business model must return appropriate profits, or will need to be reviewed. Whilst the Canbet directors are pleased to report a profit for 2001/02, the profit achieved needs to be increased before Sky City will be in a position to confirm its longer-term intentions with respect to Canbet. ENTERTAINMENT. TOMORROW 27 SKY1705-An'Report-Front.v32 30/9/02 6:38 PM Page 28 F I N A N C I A L A N D O P E R A T I N G R E P O R T L O O K I N G A H E A D Sky City’s priorities for the current financial year were advised to the market at the time of the 2001/02 result release in August. These priorities can be summarised as follows: Sky City Auckland (cid:2) Continue revenue growth initiatives across all business units. (cid:2) Achieve cross-property customer synergies with Sky City Leisure and, in particular, with the Sky City Metro centre in downtown Auckland. (cid:2) Undertake the Convention Centre development so that the new facility is available for operation by December 2003 and the expanded gaming facilities are available as soon as possible thereafter. Sky City Adelaide (cid:2) Grow visitation and spend per customer through effective marketing and promotions, introduction of new product offerings, and an enhanced entertainment experience for customers. (cid:2) Improve EBITDA and EBIT results through effective cost management. Sky Alpine Queenstown (cid:2) Grow revenues through enhanced product offerings and effective marketing, and manage costs, whilst maintaining the quality of the Sky Alpine experience for local customers and visitors to Queenstown alike. Achieve a breakeven EBIT result. Sky Riverside Hamilton (cid:2) Achieve a successful initial operating phase, then push forward to achieve profit targets for the first financial year. 28 ENTERTAINMENT. TOMORROW Sky City Leisure Limited (cid:2) Consolidate cinema earnings and drive revenues from the strong range of film product scheduled to be available during the 2002/03 year. (cid:2) Achieve cross-property customer synergies with Sky City Auckland. Canbet Limited (cid:2) Increase turnover and profitability. Sky City Communities (cid:2) Increase participation in all communities in which Sky City operates its gaming and entertainment businesses. sky 1705-financial-20/9 30/9/02 5:48 PM Page 29 FINANCIAL STATEMENTS AND STATUTORY INFORMATION CONTENTS Auditors’ Report Statements of Financial Performance Statements of Movements in Equity Statements of Financial Position Statements of Cash Flows Notes to the Financial Statements Additional Information Corporate Governance 30–31 32 33 34 35–36 37– 64 65–70 71 Shareholder and Noteholder Information 72–73 Limitations on Acquisition of Ordinary Shares 74 –75 Directory 76 The board of directors of Sky City Entertainment Group Limited authorised these financial statements for issue on 23 August 2002. J P Hartley, Chairman 23 August 2002 E W Davies, Managing Director 23 August 2002 ENTERTAINMENT. TOMORROW 29 sky 1705-financial-20/9 30/9/02 5:48 PM Page 30 PricewaterhouseCoopers 188 Quay Street Private Bag 92162 Auckland, New Zealand DX CP24073 Telephone +64 9 355 8000 Facsimile +64 9 355 8001 AUDITORS’ REPORT to the shareholders of Sky City Entertainment Group Limited We have audited the financial statements on pages 32 to 64. The financial statements provide information about the past financial performance and cash flows of the Company and Group for the year ended 30 June 2002 and their financial position as at that date. This information is stated in accordance with the accounting policies set out on pages 37 to 41. Directors' Responsibilities The Company's Directors are responsible for the preparation and presentation of the financial statements which give a true and fair view of the financial position of the Company and Group as at 30 June 2002 and their financial performance and cash flows for the year ended on that date. Auditors' Responsibilities We are responsible for expressing an independent opinion on the financial statements presented by the Directors and reporting our opinion to you. Basis of Opinion An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial statements. It also includes assessing: (a) the significant estimates and judgements made by the Directors in the preparation of the financial statements; and (b) whether the accounting policies are appropriate to the circumstances of the Company and Group, consistently applied and adequately disclosed. We conducted our audit in accordance with generally accepted auditing standards in New Zealand. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We have no relationship with or interests in the Company or any of its subsidiaries other than in our capacities as auditors under the Companies Act 1993, internal auditors, tax advisers and consultants. 30 ENTERTAINMENT. TOMORROW sky 1705-financial-20/9 30/9/02 5:48 PM Page 31 AUDITORS’ REPORT Unqualified Opinion We have obtained all the information and explanations we have required. In our opinion: (a) proper accounting records have been kept by the Company as far as appears from our examination of those records; and (b) the financial statements on pages 32 to 64: (i) (ii) comply with generally accepted accounting practice in New Zealand; and give a true and fair view of the financial position of the Company and Group as at 30 June 2002 and their financial performance and cash flows for the year ended on that date. Our audit was completed on 23 August 2002 and our unqualified opinion is expressed as at that date. Chartered Accountants Auckland ENTERTAINMENT. TOMORROW 31 sky 1705-financial-20/9 30/9/02 5:48 PM Page 32 SKY CITY ENTERTAINMENT GROUP LIMITED STATEMENTS OF FINANCIAL PERFORMANCE for the year ended 30 June 2002 Consolidated Parent Company 2002 $’000 2001 $’000 2002 $’000 2001 $’000 Revenue Expenses Operating Surplus Before Income Tax and Non-Recurring Expenses Non-recurring expenses Operating Surplus Before Income Tax Income tax Surplus After Income Tax Minority interest in deficits of subsidiaries Share of surpluses/(deficits) of associates Net Surplus 2 3 3 4 8 19 512,956 442,414 99,106 43,265 383,227 335,212 31,755 28,903 129,729 39,152 90,577 (44,286) 46,291 10,518 344 57,153 107,202 67,351 14,362 – – – 107,202 (39,829) 67,351 14,362 – – 67,373 67,351 14,362 1,832 (897) – – – – 68,308 67,351 14,362 The accompanying notes on pages 37 to 64 form part of and are to be read in conjunction with these financial statements. 32 ENTERTAINMENT. TOMORROW sky 1705-financial-20/9 30/9/02 5:48 PM Page 33 SKY CITY ENTERTAINMENT GROUP LIMITED STATEMENTS OF MOVEMENTS IN EQUITY for the year ended 30 June 2002 Consolidated Parent Company Note 2002 $’000 2001 $’000 2002 $’000 2001 $’000 Equity at the Beginning of the Year 232,075 157,394 191,367 172,847 Surplus and Revaluations Net surplus for the year, comprising: Parent shareholders’ interest Minority interest Foreign currency translation reserve movement Minority interest in change in foreign currency translation reserve Total Recognised Revenues and Expenses Other Movements Distributions to owners Exercise of share options Movement in share option reserve Movement in employee share entitlement reserve Shares issued under dividend reinvestment plan Employee share entitlements issued Minority interest in contributions from owners 57,153 (10,518) 46,635 (5,107) (45) 41,483 68,308 (1,832) 66,476 (223) (192) 66,061 67,351 14,362 – – 67,351 14,362 – – – – 67,351 14,362 (67,150) (27,715) (67,150) (27,715) 9,463 – 949 23,227 1,579 14,242 6,402 (399) 1,539 23,601 730 4,462 9,463 – 949 23,227 1,579 – 6,402 (399) 1,539 23,601 730 – 8 7 8 6 5 7 7 5 5 8 EQUITY AT THE END OF THE YEAR 255,868 232,075 226,786 191,367 Equity at Beginning of Year, comprising Parent shareholders’ interest Minority interest Equity at End of Year, comprising Parent shareholders’ interest Minority interest 230,433 158,190 191,367 172,847 1,642 (796) – – 232,075 157,394 191,367 172,847 250,547 230,433 226,786 191,367 5,321 1,642 – – 255,868 232,075 226,786 191,367 The accompanying notes on pages 37 to 64 form part of and are to be read in conjunction with these financial statements. ENTERTAINMENT. TOMORROW 33 sky 1705-financial-20/9 30/9/02 5:48 PM Page 34 SKY CITY ENTERTAINMENT GROUP LIMITED STATEMENTS OF FINANCIAL POSITION as at 30 June 2002 Consolidated Parent Company Note 2002 $’000 2001 $’000 2002 $’000 2001 $’000 5 7 6 8 10 11 12 18 19 13 14 15 4 9 9 15 232,180 197,911 232,180 (286) 18,653 250,547 5,321 3,872 28,650 230,433 1,642 5,044 (10,438) 226,786 — 197,911 4,095 (10,639) 191,367 — 255,868 232,075 226,786 191,367 48,456 19,970 3,066 — 42,684 46,149 3,296 66,550 1 1 171,872 140,100 — — — — 71,492 158,679 171,873 140,101 596,037 524,022 152 181 — 10,051 2,250 223,389 831,727 903,219 372 61,140 1,000 62,512 20,811 148,888 9,315 405,825 584,839 647,351 — 206,710 208,961 8,414 2,250 257,795 792,481 951,160 1,081 70,137 88,572 159,790 19,316 148,510 9,315 382,154 559,295 719,085 — — — — — — 206,862 378,735 209,142 349,243 — 3,061 — 3,061 — 9,366 — 9,366 — — 148,888 148,510 — — — — 148,888 151,949 148,510 157,876 255,868 232,075 226,786 191,367 Equity Issued and paid-up capital Reserves Retained earnings Parent Shareholders’ Equity Minority interests TOTAL EQUITY Current Assets Cash and bank Receivables and prepayments Inventories — finished goods Properties intended for sale Total Current Assets Non-Current Assets Property, plant and equipment Investments in subsidiaries Investments in associates Deferred expenditure — operator rights Intangible assets Total Non-Current Assets TOTAL ASSETS Current Liabilities Bank overdraft Creditors and accruals Short-term borrowings Total Current Liabilities Non-Current Liabilities Deferred tax Capital notes Convertible notes Borrowings Total Non-Current Liabilities TOTAL LIABILITIES TOTAL NET ASSETS The accompanying notes on pages 37 to 64 form part of and are to be read in conjunction with these financial statements. 34 ENTERTAINMENT. TOMORROW sky 1705-financial-20/9 30/9/02 5:48 PM Page 35 SKY CITY ENTERTAINMENT GROUP LIMITED STATEMENTS OF CASH FLOWS for the year ended 30 June 2002 Consolidated Parent Company Note 2002 $’000 2001 $’000 2002 $’000 2001 $’000 Cash Flows Related To Operating Activities Cash was provided from: Receipts from customers Interest received Dividends received Cash was applied to: 514,913 443,026 2,169 – 3,285 1 517,082 446,312 Payments to suppliers and employees 267,702 217,986 Interest paid Gaming taxes paid Income taxes paid Net GST paid/(received) Net Cash Flows from Operating Activities 21 Cash Flows Related To Investing Activities Cash was provided from: Sale of fixed assets Sale of investments Cash was applied to: Funding facility and capital notes costs deferred Purchase and construction of fixed assets Purchase of subsidiaries Purchase of investments Payment for other intangibles 45,575 32,202 48,124 747 394,350 122,732 40,793 30,244 33,006 (1,964) 320,065 126,247 3,384 21,878 25,262 – 51,199 563 8,853 – 60,615 554 – 554 2,166 52,172 19,667 17,099 287 91,391 Net Cash Flows from Investing Activities (35,353) (90,837) 76 36 – 112 15,708 14,140 – 27 2,080 – 2,107 12,951 12,049 – 44,639 34,530 (40) 74,447 (74,335) (70) 59,460 (57,353) – – – – – 4,202 – – 4,202 (4,202) – – – 1,245 27 – – – 1,272 (1,272) The accompanying notes on pages 37 to 64 form part of and are to be read in conjunction with these financial statements. ENTERTAINMENT. TOMORROW 35 sky 1705-financial-20/9 30/9/02 5:48 PM Page 36 SKY CITY ENTERTAINMENT GROUP LIMITED STATEMENTS OF CASH FLOWS (continued) for the year ended 30 June 2002 Cash Flows Related To Financing Activities Cash was provided from: Proceeds of long-term debt Exercise of share options Advances from subsidiaries Proceeds of capital notes Advances from minority interests Issue of shares in Queenstown Casinos Limited Issue of mandatory convertible notes by Force Corporation Limited Gains on foreign currency swaps hedging foreign operations Cash was applied to: Repayment of short-term debt Repayment of long-term debt Distributions to shareholders Advances to subsidiaries and associates Net Cash Flows from Financing Activities NET INCREASE/(DECREASE) IN CASH HELD RECONCILIATION OF CASH Opening cash and bank Net increase/(decrease) in cash held Foreign currency translation adjustment CLOSING CASH COMPOSITION OF CASH Cash and bank Bank overdraft Consolidated Parent Company 2002 $’000 2001 $’000 2002 $’000 2001 $’000 61,200 9,463 – – 7,203 880 7,196 2,251 88,193 88,969 21,095 43,923 14,103 168,090 (79,897) 7,482 41,603 7,482 (1,001) 48,084 48,456 (372) 48,084 860 6,402 – 9,463 – 155,979 90,858 3,338 – – 2,726 – – – – – 104,184 165,442 – 94,990 34,894 6,276 136,160 (31,976) 3,434 37,794 3,434 375 41,603 42,684 (1,081) 41,603 – – 43,923 42,982 86,905 78,537 – 1 – – 1 1 – 1 – 6,402 93,890 90,858 – – – 2,726 193,876 – – 34,894 109,723 144,617 49,259 (9,366) 9,367 (9,366) – 1 1 – 1 The accompanying notes on pages 37 to 64 form part of and are to be read in conjunction with these financial statements. 36 ENTERTAINMENT. TOMORROW sky 1705-financial-20/9 30/9/02 5:48 PM Page 37 SKY CITY ENTERTAINMENT GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2002 1. STATEMENT OF ACCOUNTING POLICIES The financial statements presented are for the reporting entity Sky City Entertainment Group Limited (the parent company) and the consolidated financial statements of the group comprising Sky City Entertainment Group Limited, its subsidiaries, associates and joint ventures. Sky City Entertainment Group Limited is a company registered under the Companies Act 1993 and is an issuer in terms of the Securities Act 1978. The financial statements have been prepared in accordance with the requirements of the Companies Act 1993 and the Financial Reporting Act 1993. The financial statements have been prepared on the basis of historical cost with the exception of certain items for which specific accounting policies are identified. Accounting Policies The financial statements are prepared in accordance with New Zealand generally accepted accounting practice. The accounting policies that materially affect the measurement of financial performance, financial position and cash flows are set out below. (i) Principles of Consolidation The consolidated financial statements include those of the parent company and its subsidiaries accounted for using the purchase method, and include the results of associates using the equity method. Subsidiaries are entities that are controlled, either directly or indirectly, by the parent. Associates are entities in which the parent, either directly or indirectly, has a significant but not controlling interest. All material intercompany transactions, balances and unrealised surpluses and deficits on transactions between group members have been eliminated on consolidation. The results of subsidiaries or associates acquired or disposed of during the year are included in the consolidated Statements of Financial Performance from the date of acquisition or up to the date of disposal. (ii) Goods and Services Tax (GST) The Statements of Financial Performance and Statements of Cash Flows have been prepared so that all components are stated net of GST. All items in the Statements of Financial Position are stated net of GST, with the exception of receivables and payables which include GST invoiced. (iii) Operating Revenue Recognition Revenues include casino, hotel, food and beverage, tower admissions, cinema admissions and other revenues. Casino revenues represent the net win to the casino from gaming activities, being the difference between amounts wagered and amounts won by casino patrons. Revenues exclude the retail value of rooms, food, beverage and other promotional allowances provided on a complimentary basis to customers. (iv) Income Tax The company follows the liability method of accounting for deferred taxation. The taxation charge against the surplus for the year is the estimated liability in respect of that surplus after allowance for permanent differences between accounting and tax rules. The impact of all timing differences between accounting and taxable income is recognised as a deferred tax liability or asset. This is the comprehensive basis for the calculation of deferred taxation. Timing differences relating to interest capitalised to buildings are determined on a net present value basis over the estimated life of the buildings. A deferred tax asset, or the effect of losses carried forward that exceed the deferred tax liability, is recognised in the financial statements only where there is virtual certainty that the benefit of the timing differences, or losses, will be utilised. ENTERTAINMENT. TOMORROW 37 sky 1705-financial-20/9 30/9/02 5:48 PM Page 38 SKY CITY ENTERTAINMENT GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 30 June 2002 1. STATEMENT OF ACCOUNTING POLICIES (continued) (v) Property, Plant and Equipment The cost of assets is the value of the consideration paid to acquire the assets and the value of other directly attributable costs which have been incurred in bringing the assets to the location and condition necessary for their intended service. Funding costs incurred during the period of construction are capitalised as part of the total cost of the assets. (vi) Depreciation As construction is completed and property, plant and equipment is used in operations, depreciation is charged on a straight line basis so as to write off the cost of the assets to their estimated residual value over their expected useful lives. The estimated economic lives are as follows: Buildings Building fitout Plant and equipment Fixtures and fittings Software Vehicles 5–75 years 10 years 2–75 years 3–20 years 3–5 years 3 years Gains and losses on disposals of property, plant and equipment are taken into account in determining the operating result for the year. (vii) Properties Intended for Sale Properties intended for sale are recognised at the lower of their net realisable value and cost. (viii) Deferred Expenditure Costs directly incurred in obtaining and operating funding arrangements, such as origination, commitment and transaction fees, are amortised to earnings over the period of the funding arrangement. If an arrangement does not proceed, costs incurred in setting up the arrangement are expensed to earnings immediately. Operator rights are expensed to earnings over the period of each management contract. (ix) Pre-Licence Expenditure Pre-licence expenditure relates to expenditure incurred to obtain a casino premises licence. Pre-licence expenditure is expensed as incurred. (x) Leased Assets Leases under which all the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Operating lease payments are recognised as an expense in the periods of expected benefit. (xi) Investments The parent company’s investment in the shares of its subsidiaries are stated at cost. (xii) Joint Ventures When a member of the group participates in a joint venture arrangement, that member recognises its proportionate interest in the individual assets, liabilities, revenues and expenses of the joint venture. The liabilities recognised indicate its share of those for which it is jointly liable. (xiii) Goodwill Goodwill represents the excess of purchase consideration over the fair value of net identifiable assets held by a subsidiary or associate at the time of acquisition of shares in that subsidiary or associate. Goodwill is capitalised and amortised over the period of expected benefit which may be up to twenty years from the time of acquisition. The directors review the carrying amount annually and adjust the value of goodwill if an impairment in value above normal amortisation has occurred. 38 ENTERTAINMENT. TOMORROW sky 1705-financial-20/9 30/9/02 5:48 PM Page 39 SKY CITY ENTERTAINMENT GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 30 June 2002 1. STATEMENT OF ACCOUNTING POLICIES (continued) (xiv) Amortisation of Casino Licences Acquired Amortisation of casino licences is calculated on a straight line basis so as to expense the cost of the licences over their legal lives. The directors review the carrying amounts annually and adjust the value of amortisation if an impairment in value above normal amortisation has occurred. (xv) Receivables Receivables are stated at estimated realisable value after providing against debts where collection is doubtful. Bad debts are written off during the year in which they are identified. (xvi) Inventories Inventories, all of which are finished goods, are stated at the lower of cost or net realisable value determined on a first-in first-out basis. (xvii) Foreign Currencies Transactions Transactions denominated in a foreign currency are converted to New Zealand dollars at the exchange rate at the date of the transactions, except when forward currency contracts have been taken out to cover short-term forward currency commitments. Where short-term forward currency contracts have been taken out, the transaction is translated at the rate contained in the contract. Translations Foreign currency receivables and payables at balance date are translated at exchange rates current at balance date. Exchange gains and losses are brought to account in determining the surplus for the year, except where monetary liabilities are treated as a hedge against an independent foreign operation. Foreign Operations Revenues and expenses of independent foreign operations are translated to New Zealand dollars at the exchange rates in effect at the date of the transactions, or at rates approximating them. Assets and liabilities are converted to New Zealand dollars at the rates of exchange ruling at balance date. Exchange differences arising from the translation of independent foreign operations are recognised in the foreign currency translation reserve, together with unrealised gains and losses on foreign currency monetary liabilities that are identified as hedges against these operations. (xviii) Employee Entitlements Employee entitlements to salaries and wages, non-monetary benefits, annual leave and other benefits are recognised when they accrue to employees. This includes the estimated liability for salaries and wages and annual leave as a result of services rendered by employees up to balance date. (xix) Financial Instruments Recognised Financial instruments carried on the Statements of Financial Position include cash and bank balances, investments, receivables, trade creditors and borrowings. These instruments are carried at their estimated fair value. For example, receivables are carried net of the estimated doubtful receivables. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. Where possible, financial assets are supported by collateral or other security. These arrangements are described in the individual policy statements associated with each item. ENTERTAINMENT. TOMORROW 39 sky 1705-financial-20/9 30/9/02 5:48 PM Page 40 SKY CITY ENTERTAINMENT GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 30 June 2002 1. STATEMENT OF ACCOUNTING POLICIES (continued) (xix) Financial Instruments (continued) Unrecognised The parent company and group are also parties to financial instruments that have not been recognised in the financial statements. These instruments reduce exposure to fluctuations in interest rates and include fixed rate borrowings, interest rate swap and forward rate agreements which have been transacted. Any risks associated with these instruments are not recorded in the financial statements. The net differential paid or received is recognised as a component of interest expense over the period of the agreement. Forward exchange contracts entered into as hedges of foreign exchange assets and liabilities are valued at exchange rates prevailing at period end. Any unrealised gains or losses are offset against foreign exchange gains and losses on the related asset or liability. Premiums paid on currency options are amortised over the period to maturity. Full disclosure of information about financial instruments to which the group is a party is provided in note 25. (xx) Statements of Cash Flows The following are definitions of the terms used in the consolidated and parent company Statements of Cash Flows: (cid:2) Operating Activities are those activities relating to the trading and management of the business and include all transactions and other events that are not Investing or Financing Activities. Cash receipts from customers are net of complimentaries. (cid:2) Investing Activities are those activities relating to the acquisition, holding and disposal of fixed assets and of investments. Investments can include securities not falling within the definition of cash. (cid:2) Financing Activities are those activities which result in changes in the size and composition of the capital structure of the company. This includes both equity and debt not falling within the definition of cash. Share issues/repurchases and dividends paid in relation to the capital structure are included in Financing Activities. (cid:2) Cash is considered to be cash on hand including cash for use within the casino and current accounts in banks net of bank overdrafts and short-term deposits. (xxi) Capital Note Interest Interest on capital notes is expensed to earnings consistent with other interest costs and is included in funding expenses in the Statements of Financial Performance. (xxii) Share Options No remuneration expense is recognised in respect of share options issued pursuant to Executive and Non-executive Director Share Option Plans. When the options are exercised, the proceeds received are credited to share capital. (xxiii) Impairment Annually, the directors assess the carrying value of each asset. Where the estimated recoverable amount of the asset is less than its carrying amount, the asset is written down. The impairment loss is recognised in the Statements of Financial Performance. (xxiv) Comparatives Subsequent to the share split all share values and share numbers for the previous financial year have been restated to be on an equivalent basis with the current year. 40 ENTERTAINMENT. TOMORROW sky 1705-financial-20/9 30/9/02 5:48 PM Page 41 SKY CITY ENTERTAINMENT GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 30 June 2002 Consolidated Parent Company 2002 $’000 2001 $’000 2002 $’000 2001 $’000 (xxv) Changes in Accounting Policies Early Adoption of Financial Reporting Standards FRS37 Consolidating Investments in Subsidiaries is applicable to periods ending on or after 31 December 2002. The Board of Directors has elected the requirements of FRS37 in the preparation of these financial statements. Consequently, the policy for accounting for minority interests has been changed so that negative amounts of minority interest are recognised separately as a negative component of equity in the Statements of Financial Position. The effect of this change is to recognise a further $292,874 as a negative amount of minority interest. Capital Notes Sky City Entertainment Group Limited issued long-term fixed interest unsecured subordinated capital notes during the period between May 2000 and July 2000. Historically these have been classified in the Statements of Financial Position as a component of equity and capital funds. Subsequent to the issue of the capital notes, the International Accounting Standard IAS39 “Financial Instruments: Recognition and Measurement” has come into effect. This pronouncement, which is an applicable source of New Zealand generally accepted accounting practice, requires instruments such as capital notes to be classified as debt. Accordingly, the company has reclassified its capital notes and associated costs from equity to debt in the financial statements for the year ended 30 June 2002. Comparative figures have been adjusted to comply with the new policy to assist readers of the financial statements. There have been no other significant changes in accounting policies during the year. 2. OPERATING REVENUE Sales Revenue Other Revenue Interest received Dividends received Foreign exchange gains Gains on disposal of property, plant and equipment Dividends received — group companies Administration fees — group companies Interest received — group companies Other sundry income — group companies Bad debts recovered Other sundry income Total Revenue 510,243 437,406 – – 2,150 3,331 367 2,047 2 149 52 – – – – – 360 1 744 377 – – – – 333 222 – – – 92,000 5,719 944 73 – 3 512,956 442,414 99,106 – 265 – 28,000 5,878 6,714 – – 361 43,265 ENTERTAINMENT. TOMORROW 41 sky 1705-financial-20/9 30/9/02 5:48 PM Page 42 SKY CITY ENTERTAINMENT GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 30 June 2002 3. OPERATING EXPENSES Included within Total Expenses are the following expense items Employee remuneration Depreciation: Buildings Plant and equipment Motor vehicles Fixtures and fittings Losses on disposal of property, plant and equipment Bad debts written-off Increase/(Decrease) in estimated doubtful debts Foreign exchange losses Amortisation — goodwill Amortisation — other intangibles Funding Expenses Interest paid Other funding expenses Leasing Costs Rental expense on operating leases Amounts Paid to Principal Auditor Assurance services: Statutory audit fees Compliance audit fees Accounting advice and assistance Taxation compliance services Other services: Taxation consulting services Due diligence assistance Consulting services Accounting assistance to group companies Audit fees paid to other auditors Total amounts paid to auditors Other Directors’ fees Community Trust and donations Non-recurring Costs Write-off of Argentinian investment by Force Write-off of goodwill on consolidation of Force Corporation Consolidated Parent Company 2002 $’000 2001 $’000 2002 $’000 2001 $’000 131,751 118,983 2,941 6,226 7,989 23,390 38 5,819 37,236 83 4 344 495 2,254 2,549 5,751 21,402 12 5,337 32,502 628 28 (3) 250 1,099 2,669 – 12 – 16 28 – – – 1,230 – – – 25 – 17 42 – – – 236 – – 44,030 1,678 45,859 1,857 13,675 378 13,705 726 7,668 5,637 17 48 228 367 108 339 1,042 512 – 83 331 926 88 2,056 321 2,620 22,422 16,730 39,152 245 182 209 330 966 573 385 222 27 1,207 75 2,248 350 2,084 – – – 80 – 87 266 433 246 – 62 94 402 – 835 337 111 – – – 22 – 158 250 430 273 385 201 27 886 – 1,316 320 – – – – 42 ENTERTAINMENT. TOMORROW sky 1705-financial-20/9 30/9/02 5:48 PM Page 43 SKY CITY ENTERTAINMENT GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 30 June 2002 Consolidated Parent Company 2002 $’000 2001 $’000 2002 $’000 2001 $’000 4. INCOME TAX The parent company, together with its New Zealand based wholly-owned subsidiary companies, excluding Sky City Management (Auckland) Limited, and Sky City Wellington Limited form a consolidated group for income tax purposes. Accordingly, income tax payments and imputation credit movements are generally reported on a consolidated basis and are available to shareholders through their shareholding in the parent company. (i) Income Tax Expense Operating surplus before tax Tax at 33% 90,577 29,890 107,202 35,377 67,351 22,226 14,362 4,739 Adjustments to tax for permanent differences: Dividends received – – (30,360) Non-deductible expenditure 12,015 1,337 Future income tax benefits not recognised Adjustment for other tax rates (Australia) Over-provision in prior years Capitalisation of prior year expenses Transfer of group losses Income Tax Attributable to Net Operating Surplus Comprising Current tax liability Future income tax benefit Deferred tax liability – – – (156) – 8,290 (9,240) (10) – – – 1,630 2,881 2,881 (85) (415) – – 1,545 133 (193) 1,630 – 44,286 39,829 – – 43,267 36,796 (476) 1,495 44,286 – 3,033 39,829 (ii) Current Tax Liability Tax on income has been derived by using tax rates applicable in the country of source. During the year ended 30 June 2001, discussions with the New Zealand Inland Revenue Department resulted in final settlement of outstanding issues on the deductibility of pre-opening costs in relation to the Auckland casino, covering the years 1994 to 1996. The net tax effect of this settlement after allowable loss offsets in those years culminated in a final tax payment of $1,629,831 (also see note 22) plus use of money interest of $152,169 being made during the year ended 30 June 2001. At 30 June 2002 the group has pre-paid income tax of $13,290,711 (2001: $9,628,000). (iii) Future income tax benefit Balance at 30 June 2001 Current year movement Balance at 30 June 2002 – 476 476 – – – ENTERTAINMENT. TOMORROW 43 sky 1705-financial-20/9 30/9/02 5:48 PM Page 44 SKY CITY ENTERTAINMENT GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 30 June 2002 Consolidated Parent Company 2002 $’000 2001 $’000 2002 $’000 2001 $’000 4. INCOME TAX (continued) (iv) Deferred Tax Liability Balance at 30 June 2001 Prior year timing differences Current year movement Balance at 30 June 2002 19,316 335 1,160 20,811 16,283 (305) 3,338 19,316 (v) Imputation Credit Memorandum Account Balance at 30 June 2001 Taxation payments made 23,817 44,294 18,017 30,700 Credits attached to dividends (32,930) (28,683) Supplementary tax credits Balance at 30 June 2002 3,687 38,868 3,783 23,817 5. SHARE CAPITAL (i) Issued and Paid-up Capital On 16 November 2001 the company had a 1 for 1 share split. Comparatives have been restated where appropriate to reflect the increase in shares on issue. 207,593,422 ordinary shares issued and fully paid (2001: 200,533,262 (restated)) Balance at 30 June 2001 197,911 167,178 197,911 167,178 Shares issued under employee bonus scheme Shares issued under dividend reinvestment scheme Exercise of share options Balance at 30 June 2002 1,579 730 1,579 730 23,227 9,463 23,601 6,402 23,227 9,463 23,601 6,402 232,180 197,911 232,180 197,911 All ordinary shares rank equally with one vote attached to each fully paid ordinary share. (ii) Dividend Reinvestment Scheme Pursuant to the Dividend Reinvestment Plan approved by the board of directors on 15 August 2000, 4,323,582 shares were issued in lieu of cash dividend (2001: 6,093,298). The strike price was $5.167 (2001: $3.393) for 2,364,674 shares issued on 5 October 2001 (2001: 3,534,328), and $5.620 (2001: $4.537) for 1,958,908 shares issued on 5 April 2002 (2001: 2,558,970). (iii) Executive Share Option Plan 1996 Plan All options issued pursuant to the Executive Share Option Plan approved by shareholders at the Annual Meeting of the company held on 5 December 1996 had been exercised by 30 June 2001. All options were exercised under the terms and conditions of the Plan, being exercisable two years after the date of issue. The last 155,000 options were exercised in the year ending 30 June 2001 at an average price of $3.01. 44 ENTERTAINMENT. TOMORROW sky 1705-financial-20/9 30/9/02 5:48 PM Page 45 SKY CITY ENTERTAINMENT GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 30 June 2002 5. SHARE CAPITAL (continued) (iii) Executive Share Option Plan (continued) 1999 Plan All options issued pursuant to the Executive Share Option Plan approved by shareholders at the Annual Meeting of the company held on 28 October 1999 are exercisable one year after the date of issue provided the terms and conditions of the Plan are met and lapse if not exercised within five years of issue. The exercise price of the options issued under the 1999 Plan is the relevant base exercise price of the option (as defined in the Plan), adjusted for the company’s estimated cost of equity and dividends between the issue date and the exercise date of the options. Subsequent to the share split all options exercised will receive 2 shares. Issue/Exercise Date August 1999 August 2000 September 2000 January 2001 Option Value $0.45 $0.37 $0.45 $0.45 February 2001 $0.37 / $0.45 March 2001 April 2001 August 2001 September 2001 September 2001 $0.45 $0.45 $0.37 $0.82 $0.37 Exercise Price Number Issued 986,000 1,362,000 Number Exercised Lapsed $7.89 $7.98 $8.02 to $8.04 $7.81 to $7.85 $8.00 $7.71 to $8.05 886,000 99,000 9,000 19,000 335,000 47,000 289,890 244,000 147,000 214,000 380,000 October 2001 $0.37 / $0.45 $7.73 to $7.96 November 2001 $0.37 / $0.45 $7.79 to $8.04 (iv) Non-Executive Directors’ Share Option Plan 3,234,000 1,675,890 108,000 Pursuant to the Non-Executive Directors’ Share Option Plan approved by shareholders at the Annual Meeting of the company held on 26 October 2000, 85,365 options are on issue to non-executive directors as at 30 June 2002 (2001: 216,216). Options are exercisable one year after the date of issue provided the terms and conditions of the Plan are met and lapse if not exercised within five years of issue. The exercise price of the options issued under this plan is the relevant base exercise price of the option (as defined in the Plan), adjusted for the company’s estimated cost of equity and dividends between the issue date and the exercise date of the options. Subsequent to the share split all options exercised will receive 2 shares. Issue/Exercise Date August 2000 September 2001 September 2001 November 2001 Option Value $0.37 $0.82 $0.37 $0.37 Exercise Price $8.01 $7.81 to $7.84 Number Issued 216,216 85,365 301,581 Number Exercised Lapsed 27,027 189,189 216,216 – (v) Option Valuation The options are valued using the Black-Scholes model. This calculation is prepared by First NZ Capital Group Limited, and reviewed by PricewaterhouseCoopers as auditors. Under this calculation the value of all options issued during the year was $796,519 (2001: $584,000). ENTERTAINMENT. TOMORROW 45 sky 1705-financial-20/9 30/9/02 5:48 PM Page 46 SKY CITY ENTERTAINMENT GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 30 June 2002 6. RETAINED EARNINGS AND DIVIDENDS (i) Retained Earnings Balance at 30 June 2001 Net surplus for the year Dividends paid/provided Balance at 30 June 2002 Comprising: Parent company and subsidiaries Associates (ii) Dividends Prior year final dividend paid Interim dividend paid Under provision of prior period dividend Dividend paid in cash Dividend reinvestment in shares 7. RESERVES Balances Employee share entitlement reserve Foreign currency translation reserve Employee Share Entitlement Reserve Balance at 30 June 2001 Less value of shares issued in year Less forfeiture of entitlements for prior years Plus value of share entitlements for current year Balance at 30 June 2002 Consolidated Parent Company 2002 $’000 2001 $’000 2002 $’000 2001 $’000 28,650 57,153 (67,150) 18,653 (11,943) 68,308 (27,715) 28,650 (10,639) 67,351 (67,150) (10,438) 2,714 14,362 (27,715) (10,639) 29,547 (10,438) (10,639) (897) – – 28,650 (10,438) (10,639) 18,309 344 18,653 35,277 31,873 – – 27,635 80 35,277 31,873 – 67,150 27,715 67,150 43,923 23,227 67,150 16,105 11,610 27,715 43,923 23,227 67,150 5,044 (5,330) (286) 4,095 (1,579) (80) 2,608 5,044 4,095 (223) 3,872 2,556 (730) (129) 2,398 4,095 5,044 – 5,044 4,095 (1,579) – 2,528 5,044 – 27,635 80 27,715 16,105 11,610 27,715 4,095 – 4,095 2,556 (730) (129) 2,398 4,095 Under the Sky City Performance Pay Incentive Plan, selected employees have been eligible for performance related bonuses in respect of the three financial years ending 30 June 2000, 30 June 2001 and 30 June 2002. The employee share entitlement reserve represents the value of ordinary shares to be issued in respect of the Plan for the years ended 30 June 2000, 30 June 2001, and 30 June 2002. 46 ENTERTAINMENT. TOMORROW sky 1705-financial-20/9 30/9/02 5:48 PM Page 47 SKY CITY ENTERTAINMENT GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 30 June 2002 Consolidated Parent Company 2002 $’000 2001 $’000 2002 $’000 2001 $’000 7. RESERVES (continued) Employee Share Entitlement Reserve (continued) Shares are issued in three equal instalments, being one third of the shares on the bonus declaration date, and provided eligibility criteria continue to be met, one third on the next entitlement date (approximately 12 months later) and one third on the final entitlement date (approximately 24 months later). Shares are issued at the average closing price of Sky City Entertainment Group Limited’s shares on the New Zealand Stock Exchange on the ten business days following the release to the New Zealand Stock Exchange of the Sky City Entertainment Group Limited annual result for the relevant year of the Plan. Shares issued have the same rights as existing ordinary shares and are issued as soon as possible after the tenth business day following the release of Sky City Entertainment Group Limited’s annual result to the New Zealand Stock Exchange for the relevant year of the Plan. Share Option Reserve Balance at 30 June 2001 Options issued Release of share options reserve Balance at 30 June 2002 – – – – Foreign Currency Translation Reserve Balance at 30 June 2001 (223) Effect of hedging the net investment of 399 584 (983) – – overseas subsidiaries (5,344) (49) Net exchange difference on translation of overseas subsidiary Balance at 30 June 2002 237 (5,330) (174) (223) 8. MINORITY INTERESTS Balance at 30 June 2001 Increase in shareholding of subsidiaries Acquisition of Force Corporation Limited Adjustment to fair value of assets acquired in Force Corporation Limited Acquisition of Planet Hollywood Share of losses in subsidiaries Share of movements in reserves Balance at 30 June 2002 1,642 8,076 3,563 1,485 1,118 (10,518) (45) 5,321 (796) 2,801 1,661 – – (1,832) (192) 1,642 – – – – – – – – – – – – – – – – 399 584 (983) – – – – – – – – – – – – – Subsequent to 30 June 2001 the fair values of Force Corporation Limited’s receivables was reduced by $1,575,000 and creditors and accruals were reduced by $4,556,000 as a result of the settlement with MTM Entertainment Trust of Australia in respect of the Force Entertainment Centre. ENTERTAINMENT. TOMORROW 47 sky 1705-financial-20/9 30/9/02 5:48 PM Page 48 SKY CITY ENTERTAINMENT GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 30 June 2002 Consolidated Parent Company 2002 $’000 2001 $’000 2002 $’000 2001 $’000 9. CAPITAL NOTES AND CONVERTIBLE NOTES (i) Capital Notes Balance at 30 June 2001 Issued during the year Balance at 30 June 2002 Deferred expenses at cost Accumulated amortisation Balance at 30 June 2002 150,000 – 60,072 89,928 150,000 – 60,072 89,928 150,000 150,000 150,000 150,000 1,875 (763) 1,112 1,875 (385) 1,490 1,875 (763) 1,112 1,875 (385) 1,490 Net Capital Notes at 30 June 2002 148,888 148,510 148,888 148,510 On 5 May 2000 Sky City Entertainment Group Limited issued a prospectus offering up to 150 million unsecured subordinated capital notes at an issue price of $1.00 per note. At 30 June 2000, 60.072 million of capital notes had been issued. The offer closed on 28 July 2000 and 150 million capital notes had been issued at that date. The capital notes offer holders a fixed interest rate until the first election date, being 15 May 2005. Election dates will occur every five years after the first election date. Prior to the election date, the company must notify holders of the proportion of their capital notes it will redeem (if any) and, if applicable, the new conditions (including as to interest rate, interest dates, new election date, and other modifications to the existing conditions) that will apply to the capital notes from the election date. Holders may then choose either to retain some or all of their capital notes on the new terms and/or to convert some or all of their capital notes into Sky City Entertainment Group Limited ordinary shares. Sky City Entertainment Group Limited may elect to redeem or purchase some or all of the capital notes that holders have elected to convert at an amount equal to the principal amount plus any accrued but unpaid interest. If capital notes are converted, holders will receive ordinary shares equal in value to the aggregate of the principal amount of the notes plus any accrued but unpaid interest. The value of the shares is determined on the basis of 95% of the weighted average sale price of an ordinary share on the New Zealand Stock Exchange during the 15 days prior to the election date. The capital notes do not carry voting rights. Capital notes are not entitled to any distributions made by Sky City Entertainment Group Limited in respect of its ordinary shares prior to the conversion date of the capital notes and do not participate in any change in value of the issued shares of Sky City Entertainment Group Limited. (ii) Convertible Notes Convertible notes were issued by the subsidiary company Riverside Casino Limited on 21 March 2000 as follows: Price/Principal Class Amount A B C D $1.00 $1.00 $1.10 $1.40 Number of Notes 5,619,888 4,683,240 4,683,240 3,746,592 18,732,960 Rate of Interest 15% 15% 13.64% 10.71% 48 ENTERTAINMENT. TOMORROW sky 1705-financial-20/9 30/9/02 5:48 PM Page 49 SKY CITY ENTERTAINMENT GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 30 June 2002 9. CAPITAL NOTES AND CONVERTIBLE NOTES (continued) (ii) Convertible Notes (continued) The amount appearing in the consolidated Statements of Financial Position ($9,315,000; 2001: $9,315,000) represents the minority shareholders’ portion of the notes issued by Riverside Casino Limited. Interest payable on the convertible notes will accrue after the casino opens to the public. The convertible notes have been issued on the basis that payments by note holders will be due at such time or times and in such instalments as is determined from time to time by the board of directors of Riverside Casino Limited. The convertible notes are unsecured and rank without any preference among the classes and all classes are pari passu in all respects. The convertible notes will be converted into ordinary shares on the maturity date (5 December 2007). Riverside Casino Limited may elect that all or some of the notes be converted at an earlier date. The convertible notes do not carry any voting rights. Convertible notes are not entitled to any distributions made by Riverside Casino Limited in respect of its ordinary shares prior to the conversion date of the convertible notes. (iii) Mandatory Convertible Notes On 1 March 2002 the subsidiary company Force Corporation Limited issued 30,980,023 Mandatory Convertible Notes (MCNs) for every five ordinary shares held at an issue price of $1.00 per MCN. Each MCN converts to ordinary shares on the earlier of the maturity date (31 December 2006) and the date selected by Force Corporation Limited following an election by a holder to convert as a result of a take-over offer. At this date each MCN will convert to 50 ordinary shares or such a number that is equal in value to the principal amount of MCNs converted, whichever is greater. The value of the shares is determined on the basis of 95% of the weighted average sale price of an ordinary share on the New Zealand Stock Exchange during the 20 days prior to maturity date. Each MCN carries an interest coupon equivalent to (i) the amount of the dividend paid in respect of each ordinary share multiplied by (ii) the sum of ordinary shares which a note would convert to if conversion occurred on that interest payment date, including any bonus issue the holder may have been entitled to. This interest is payable at the option of Force Corporation Limited. Upon consolidation, the MCNs are eliminated and represented by the assets and liabilities of Force Corporation group as included in the consolidated Statement of Financial Position. ENTERTAINMENT. TOMORROW 49 sky 1705-financial-20/9 30/9/02 5:49 PM Page 50 SKY CITY ENTERTAINMENT GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 30 June 2002 Consolidated Parent Company 2002 $’000 2001 $’000 2002 $’000 2001 $’000 10. RECEIVABLES AND PREPAYMENTS Current Trade receivables Property receivables Sundry receivables Advances to associates Other receivables Prepayments Income tax Future income tax benefit Foreign currency hedge Advances to subsidiaries 2,606 – 2,606 1,227 314 620 1,053 13,291 476 383 – 2,849 18,798 21,647 – 7,570 6,675 629 9,628 – – – Total Receivables and Prepayments 19,970 46,149 459 – 459 – – – 270 2,674 – – – – – 256 – – 36 4,556 – – 168,469 171,872 135,252 140,100 Subsequent to the acquisition of Force Corporation Limited and during the year ending 30 June 2002, the fair value of Force Corporation Limited’s receivables was reduced by $1,575,000 as a result of the settlement with MTM Entertainment Trust of Australia in respect of the Force Entertainment Centre. 11. PROPERTIES INTENDED FOR SALE Current Properties intended for sale – 66,550 – – Properties intended for sale as at 30 June 2001 included the Force Entertainment Centre (over which there was a first ranking registered mortgage (refer note 15)), Domain Terraces and the St James building. As a result of the settlement reached with MTM Entertainment Trust of Australia during the year the Force Entertainment Centre has been classified as property, plant and equipment. 50 ENTERTAINMENT. TOMORROW sky 1705-financial-20/9 30/9/02 5:49 PM Page 51 SKY CITY ENTERTAINMENT GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 30 June 2002 Consolidated Parent Company 2002 $’000 2001 $’000 2002 $’000 2001 $’000 12. PROPERTY, PLANT AND EQUIPMENT No interest has been capitalised to land and buildings under construction during the current financial year (2001: $nil). Total capitalised interest and facility fees included in the cost of land and buildings at 30 June 2002 is $32,975,000 (2001: $32,975,000). Freehold Land At cost Buildings (including fitout) At cost Accumulated depreciation Total carrying amount of buildings Plant and Equipment At cost Accumulated depreciation Total carrying amount of plant and equipment Motor Vehicles At cost Accumulated depreciation Total carrying amount of motor vehicles Fixtures and Fittings At cost Accumulated depreciation Total carrying amount of fixtures and fittings Capital Works in Progress At cost Total Carrying Amount of Property, Plant and Equipment Total Property, Plant and Equipment At cost Capital works in progress Accumulated depreciation Total Carrying Amount of Property, Plant and Equipment 79,481 71,466 419,360 (33,330) 386,030 362,506 (25,421) 337,085 189,521 (103,052) 86,469 172,994 (81,173) 91,821 356 (265) 91 315 (228) 87 43,942 (28,682) 15,260 40,162 (24,101) 16,061 28,706 7,502 596,037 524,022 – – – – 111 (98) 13 – – – 238 (99) 139 – 152 732,660 647,443 28,706 7,502 (165,329) (130,923) 349 – (197) – – – – 111 (87) 24 – – – 238 (81) 157 – 181 349 – (168) 596,037 524,022 152 181 As a result of the settlement with MTM Entertainment Trust of Australia, the Force Entertainment Centre is now classified as property, plant and equipment. Subsequent to the acquisition of Sky City Adelaide Pty Limited on 30 June 2000 and during the year ending 30 June 2001, the fair values of Sky City Adelaide Pty Limited’s property, plant and equipment were reduced by A$3,822,600 and the casino licence increased by A$3,822,600 as a result of the independent valuation being completed. ENTERTAINMENT. TOMORROW 51 sky 1705-financial-20/9 30/9/02 5:49 PM Page 52 SKY CITY ENTERTAINMENT GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 30 June 2002 Consolidated Parent Company 2002 $’000 2001 $’000 2002 $’000 2001 $’000 12. PROPERTY, PLANT AND EQUIPMENT (continued) A memorandum of encumbrance is registered against the title of land for Auckland casino in favour of Auckland City Council. Prior written consent is required by Auckland City Council before any transfer, assignment or disposition of the land. The intent of the covenant is to protect the council’s rights under the resource consent, relating to the provision of the bus terminus, public carpark and the provision of public footpaths around the complex. A further encumbrance records the council’s interest in relation to the sub-soil areas under Federal and Hobson Streets used by Sky City as carparking and a vehicle tunnel. The encumbrance is to notify any transferee of council’s interest as lessor of the sub-soil areas. Part of the Riverside Casino (Hamilton) property (an area of airspace over the land) is held on trust for Perry Developments Limited. This area will be used for strata title apartments to be held by Perry Developments Limited. Drainage rights have been granted over parts of the land appurtenant to Lot 2 Plan 5.23789 (CT22C/1428). There is also a right of way granted over part of Lot 1 and part of Lot 2 DP580554. The Riverside Casino site is also subject to the normal rights that the Crown reserves in respect of minerals and mining in relation to the sub-soil areas. Furthermore, the land title is subject to Section 27B of the State Owned Enterprises Act 1986 which does not provide for the owner of the land to be heard in relation to any recommendations of the Waitangi Tribunal for the resumption of the land. A first mortgage is registered against the Fijian cinema complex owned by Force Cinemas (Fiji) Limited and a registered mortgage debenture over Village Rialto Cinemas Limited (refer note 15). 13. INTANGIBLE ASSETS Goodwill on Consolidation Goodwill at cost Goodwill arising on acquisition of 37,889 6,110 subsidiaries and associates (note 18, 19) 8,394 31,779 Goodwill adjusted for fair value adjustments Impairment Foreign currency translation Accumulated amortisation Total Goodwill Casino Licence At cost Fair value adjustment on acquisition Foreign currency translation Accumulated amortisation Total Casino Licences Other Intangibles Franchise fees at cost Total Other Intangibles TOTAL INTANGIBLE ASSETS (1,580) (16,730) (647) (3,379) 23,947 – – (43) (1,099) 36,747 230,697 225,881 – (26,736) (4,806) 4,816 (7,267) (2,669) 199,155 220,761 287 287 287 287 223,389 257,795 – – – – – – – – – – – – – – – – 52 ENTERTAINMENT. TOMORROW sky 1705-financial-20/9 30/9/02 5:49 PM Page 53 SKY CITY ENTERTAINMENT GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 30 June 2002 Consolidated Parent Company 2002 $’000 2001 $’000 2002 $’000 2001 $’000 13. INTANGIBLE ASSETS (continued) Casino Licence Sky City Entertainment Group Limited acquired the Adelaide Casino licence on 30 June 2000 as a result of the acquisition of 100% of the shares in Sky City Adelaide Pty Limited through its wholly-owned subsidiary Sky City Australia Pty Limited on that date. The cost of the casino licence and other assets and liabilities of Sky City Adelaide Pty Limited have been determined by the directors applying fair value assessments to all assets (including the casino licence) and liabilities acquired as part of the acquisition of Sky City Adelaide Pty Limited. The casino licence is being amortised over 85 years, being the length of the licence. 14. CREDITORS AND ACCRUALS Current Trade creditors Accrued expenses Employee entitlements Foreign currency hedge Advance from minority interests Riverside Casino Limited — uncalled capital Riverside Casino Limited — shareholder advance 19,940 21,157 16,439 – 3,604 – – 19,621 33,687 16,126 574 129 – – 561 2,500 – – – – – Total Creditors and Accruals 61,140 70,137 3,061 615 2,738 400 574 – 5,123 (84) 9,366 Subsequent to the acquisition of Force Corporation Limited and during the year ended 30 June 2002, the fair value of Force Corporation Limited’s creditors and accruals was reduced by $4,556,000 as a result of the settlement with MTM Entertainment Trust of Australia in respect of the Force Entertainment Centre. 15. BORROWINGS Borrowings are recognised as follows: Current Liabilities Secured bank loans Other secured loans Unsecured loans Total Loans Non-Current Liabilities Secured bank loans Less deferred funding expenses Balance as 30 June 2002 1,000 – – 1,000 30,872 53,050 4,650 88,572 408,241 384,259 (2,416) (2,105) 405,825 382,154 – – – – – – – – – – – – – – ENTERTAINMENT. TOMORROW 53 sky 1705-financial-20/9 30/9/02 5:49 PM Page 54 SKY CITY ENTERTAINMENT GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 30 June 2002 15. BORROWINGS (continued) Sky City Funding Group At balance date, a bank loan secured by a composite debenture over the assets and undertakings of certain members of the group was outstanding to the amount of $344,533,654 (2001: $379,154,859). This bank loan comprises NZ$193,560,000 (2001: $206,780,000) borrowed in New Zealand and A$131,800,000 (2001: A$137,400,000) borrowed in Australia (converted at balance date using an exchange rate of NZ$1 = A$0.8730) (2001: NZ$1 = A$0.7971). The interest rates, inclusive of bank margin, at 30 June 2002 were 7.26% on the New Zealand borrowings and 7.31% on the Australian borrowings. A total facility of $513,262,176, secured by way of composite debenture, was available to the guaranteeing group as at 30 June 2002 (2001: $549,427,723). The facility comprises: (cid:2) A facility of NZ$293,560,000 (2001: NZ$301,780,000) comprising a fixed term facility of NZ$193,560,000 and a revolving credit facility of NZ$100,000,000 (2001: NZ$201,780,000 and NZ$100,000,000). (cid:2) A facility of A$191,800,000 (converted at 0.8730 to NZ$219,702,176; 2001: A$197,400,000 converted at 0.7971 to NZ$247,647,723), comprising a A$131,800,000 (NZ$150,973,654) (2001: A$137,400,000; NZ$172,374,859) fixed term facility and a revolving credit facility of A$60,000,000 (NZ$68,728,522) (2001: A$60,000,000; NZ$75,272,864). The fixed term facilities reduced pro-rata by an aggregate amount of NZ$15,000,000 on 31 March 2001 and NZ$15,000,000 on 31 March 2002. The fixed term facilities will also be reduced pro-rata by an aggregate amount of NZ$15,000,000 on 31 March 2003, 31 March 2004, and 31 March 2005. Both facilities mature on 30 November 2005. Queenstown Casinos Limited At balance date, Queenstown Casinos Limited had a bank facility of $6,000,000 (2001: $6,000,000), of which $3,000,000 was drawn down (2001: $3,500,000). The loan is secured by a debenture (floating charge) over the assets of the company. This facility expires on 31 December 2003. Force Corporation Group At balance date, Force Corporation Limited had four secured loans totalling $61,706,850 (2001: seven secured loans totalling $90,176,446). The loans are secured by a variety of registered mortgages or debentures over individual properties and the assets and undertakings of the Force group as follows: (cid:2) A new bank loan facility of $40,000,000 secured by an assignment by way of security of Force’s interest in the New Zealand and Fiji cinema joint ventures, assignment by way of security of Force’s interest in Planet Hollywood (Civic Centre) Limited, a first registered mortgage over and assignment by way of security of all lease agreements of the Force Entertainment Centre, and a first registered mortgage over 82 Symonds Street, Auckland. The interest rate at 30 June 2002 was 7.14%. Reductions to the facility are to be made half yearly based on the net rental of the Force Entertainment Centre. (cid:2) A new bank cash advance facility with a limit of $22,000,000, drawn to $20,500,000 as at 30 June 2002. This facility has the same security as the new bank term loan facility above. There are no scheduled amortisations and the interest rate at 30 June 2002 was 6.32%. (cid:2) A bank term loan facility of $1,127,000 (2001: $1,253,000) secured by first mortgage over the Fiji multiplex. The interest rate at 30 June 2002 was 7.75%. The final repayment is to be made on 30 September 2003. (cid:2) Term loan facility from ANZ to Village Rialto Cinemas Limited of $80,000 (2001: $351,000) secured by registered mortgage debenture over Village Rialto Cinemas Limited. Village Force Cinemas Limited provides a guarantee for 50% of the outstanding facility. The final payment is to be made on 30 September 2004. During the period the Force group of companies repaid the following loans: (cid:2) Force Entertainment Centre Limited repaid MTM Entertainment Trust of Australia as part of the settlement of matters relating to the Force Entertainment Centre (2001: $50,000,000). 54 ENTERTAINMENT. TOMORROW sky 1705-financial-20/9 30/9/02 5:49 PM Page 55 SKY CITY ENTERTAINMENT GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 30 June 2002 Consolidated Parent Company 2002 $’000 2001 $’000 2002 $’000 2001 $’000 15. BORROWINGS (continued) Force Corporation Group (continued) (cid:2) Ab Initio Holdings No. 13 Limited repaid Harvey Norman Holdings Limited and the ANZ from the final proceeds of the Mt. Wellington development (2001: $9,125,000). (cid:2) Force’s share of a loan to Domain Terraces joint venture was transferred to the purchaser of Force’s 25% in the joint venture (2001: $300,000). (cid:2) As part of the restructure of Force Corporation Limited’s debt facilities a bank loan was repaid and was replaced by the new bank loans above (2001: $29,147,000). The Sky City group has not provided any guarantees in relation to any of the Force group loans. Weighted Average Interest Rate The weighted average interest rate on banking facilities (inclusive of margin) on the group’s NZ$ debt, incurred during the year ended 30 June 2002, was 7.20% (2001: 7.58%). The weighted average interest rate (inclusive of margin) on the Australian debt incurred during the year ended 30 June 2002, was 7.13% (2001: 7.29%). 16. COMMITMENTS The following amounts have been committed by the group or parent company, but not recognised in the financial statements: (i) Capital Expenditure Contractual commitments of up to $16,512,315 are outstanding as at 30 June 2002 (2001: $39,009,106). These relate to purchases of plant and equipment for the Auckland, Adelaide and Queenstown complexes and construction and fitout costs associated with the Sky Riverside (Hamilton) complex. (ii) Non-Cancellable Operating Lease Commitments Payable not later than one year 6,921 6,928 Payable later than one, not later than two years 7,201 7,054 Payable later than two, not later than five years Payable later than five years 14,324 168,031 196,477 19,618 176,904 210,504 42 7 7 – 56 50 37 – – 87 Operating lease commitments include a sub-soil lease on the Auckland Casino site (18 years and 6 months remaining), a premises lease for the Adelaide Casino site (83 years remaining) and a premises lease for the Queenstown Casino site (5 years remaining). 17. EARNINGS PER SHARE Number of ordinary shares on issue (weighted average) Group surplus from operations per share Consolidated 2002 2001 (restated) 204,688,892 27.9 cents 196,556,214 34.8 cents Earnings per share is calculated by dividing the group operating surplus after income tax and minority interests by the weighted average of the number of ordinary shares on issue during the year. ENTERTAINMENT. TOMORROW 55 sky 1705-financial-20/9 30/9/02 5:49 PM Page 56 SKY CITY ENTERTAINMENT GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 30 June 2002 18. INVESTMENTS IN SUBSIDIARIES The following companies were wholly-owned subsidiaries of Sky City Entertainment Group Limited as at 30 June 2002: Sky City Auckland Holdings Limited Group funding Sky City Auckland Limited Casino premises licence holder Sky City Casino Management Limited Casino operator’s licence holder Sky City Management (Auckland) Limited Employment of staff Abdiel Investments Limited Sky City Construction Limited Sky Tower Limited Sky City Wellington Limited Riverside Fund Limited Property owner Non-trading Non-trading Promotion company Holding company Sky City International Holdings Limited Holding company Sky City International ApS Sky City Australia Pty Limited Sky City Adelaide Pty Limited Danish holding company, incorporated in Denmark Australian holding company, incorporated in Australia Adelaide Casino licence holder and operator, incorporated in Australia Sky City Investments Limited Holding company Sky City Action Management Limited Loyalty programme company Queenstown (Hard Rock) Investments Limited Joint venture partner All wholly-owned subsidiary companies have balance dates of 30 June. The following companies were the significant partly or indirectly owned subsidiaries of Sky City Entertainment Group Limited as at 30 June 2002: Queenstown Casinos Limited Casino premises licence holder (60%) Riverside Casino Limited Riverside Casino Construction Limited Force Corporation Limited Force Holdings Limited Force Cinemas Limited Force Entertainment Centre Limited Force Cinemas (Fiji) Limited Ab Initio Holdings No. 13 Limited Casino premises licence holder (55%) held 35% directly and 20% by Riverside Fund Limited Property owner (100% owned by Riverside Casino Limited) Holding company (74.36% ; 2001: 50.19%) Property/administration company (100% owned by Force Corporation Limited) Cinema company (100% owned by Force Corporation Limited) Property company (100% owned by Force Holdings Limited) Cinema company (100% owned by Force Cinemas Limited), incorporated in Fiji Property company (100% owned by Force Holdings Limited) All significant partly-owned subsidiaries of Sky City Entertainment Group Limited have balance dates of 30 June. On 26 November 2001, Force Cinema Investments Limited (100% owned by Force Cinemas Limited) and Force Investments Limited (100% owned by Force Corporation Limited) were wound up. On 18 September 2002 Force Corporation Limited changed its registered company name to Sky City Leisure Limited. 56 ENTERTAINMENT. TOMORROW sky 1705-financial-20/9 30/9/02 5:49 PM Page 57 SKY CITY ENTERTAINMENT GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 30 June 2002 18. INVESTMENTS IN SUBSIDIARIES (continued) SHAREHOLDING OF SUBSIDIARY COMPANIES Force Corporation Limited On 20 March 2001 Sky City Entertainment Group Limited acquired 50.19% of the shares in Force Corporation Limited (a public company listed with the New Zealand Stock Exchange). The shares were transferred to Sky City Investments Limited on 23 May 2001 following its incorporation on 11 May 2001. Sky City Investments Limited purchased 23,784,375 Mandatory Convertible Notes issued by Force Corporation Limited on 1 March 2002 for the consideration of $23,784,375. This takes the effective equity investment in Force Corporation Limited to 74.36%. The voting rights held in Force Corporation Limited remain at 50.19%. The net cash impact of acquisition was $23,784,375 with goodwill of $4,711,755. The operating result of Force Corporation Limited has been included in the Statements of Financial Performance from 20 March 2001. Summary of the effect of acquisition of initial 50.19% Force Corporation Limited on 20 March 2001 Net Assets acquired: Bank balances Other current assets Property for resale Property, plant and equipment Investments in associates Total liabilities Minority interest within Force Minority interest Goodwill on acquisition Consideration paid Capitalised costs accrued Funds acquired with subsidiary Net cash impact of acquisition 2001 $’000 859 8,829 81,883 17,015 5,059 (109,583) (362) 3,700 (1,661) 2,039 18,694 20,733 (550) (859) 19,324 Subsequent to 30 June 2001 the fair value of receivables was reduced by $1,575,000 and the fair value of creditors and accruals was reduced by $4,556,000 as a result of the settlement with MTM Entertainment Trust of Australia in respect of the Force Entertainment Centre. Other Subsidiaries Sky City Action Management Limited was incorporated on 22 March 2001. Queenstown (Hard Rock) Investments Limited was incorporated on 21 March 2001. Sky City Investments Limited was incorporated on 11 May 2001. The operating results of these companies have been included in the Statements of Financial Performance from these dates. On 20 March 2001 Adelaide Casino Pty Limited changed its name to Sky City Adelaide Pty Limited. Sky City Entertainment Group Limited holds a 60% share in Queenstown Casinos Limited, which is the holder of a casino premises licence in Queenstown. The casino opened to the public on 9 December 2000. The carrying value of the investment in Riverside Casino Limited of $18,760,369; (2001: $18,760,369), includes the deferred expenditure relating to operator rights of $2,250,000 (2001: $2,250,000). The shares and convertible notes issued but uncalled of $5,123,027 as at 30 June 2001 were called and paid during the 2002 year. ENTERTAINMENT. TOMORROW 57 sky 1705-financial-20/9 30/9/02 5:49 PM Page 58 SKY CITY ENTERTAINMENT GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 30 June 2002 18. INVESTMENTS IN SUBSIDIARIES (continued) SHAREHOLDING OF SUBSIDIARY COMPANIES (continued) Cost of investment in Riverside Casino Limited comprised: Shares and convertible notes issued and paid up Shares and convertible notes issued but uncalled Goodwill 19. INVESTMENTS IN ASSOCIATES Consolidated 2002 $’000 12,649 – 6,110 18,759 2001 $’000 7,526 5,123 6,110 18,759 As a result of acquiring shares in Force Corporation Limited on 20 March 2001, the Sky City group indirectly acquired holdings in the associate companies being Village Cinemas (SA) Argentina, Vista Entertainment Solutions Limited and South Pacific Pictures Limited. Significant Associates Canbet Limited Village Cinemas (S.A.) Argentina On-line wagering Movie exhibitor Vista Entertainment Solutions Limited Ticket software systems Percentage held by Group 32.41% 25.00% 25.00% All associates have balance dates of 30 June. On 11 August 2000, Sky City International ApS acquired 6.58% of the shares in Canbet Limited (a public company listed on the Australian Stock Exchange). This shareholding was increased to 21.58% on 7 February 2001, and further increased to 32.41% on 8 March 2002. South Pacific Pictures Limited was disposed of during the year. Results of Associate Companies Share of surplus/(deficit) Tax Share of surplus/(deficit) Interests in Associate Companies Balance at beginning of the year Shares at cost Goodwill (note 13) Associate disposed of during the year Write-off of Associate during the year Foreign currency translation impact Share of undistributed post-acquisition (deficit) Carrying amount Consolidated 2002 $’000 364 (20) 344 8,414 8,854 (3,597) (2,929) (736) (299) 344 10,051 2001 $’000 (896) (1) (897) – 22,160 (13,085) – – 236 (897) 8,414 Summary of net cash paid by the group relating to the investment in Canbet Limited Payments for shares Capitalised costs relating to share purchases 24,262 1,691 25,953 15,408 1,691 17,099 58 ENTERTAINMENT. TOMORROW sky 1705-financial-20/9 30/9/02 5:49 PM Page 59 SKY CITY ENTERTAINMENT GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 30 June 2002 20. JOINT VENTURES In December 2000 the group entered into a joint venture to operate the Hard Rock Café in Queenstown, New Zealand. The group has a 50% interest. The financial statements of the joint venture are unaudited. The joint venture has a balance date of 30 June. As a result of acquiring shares in Force Corporation Limited on 20 March 2001, the Sky City group acquired the following indirect joint venture interests: Village Force JV Village Force Hoyts Queen St JV Village Rialto Cinemas Ltd JV Damodar Village Force JV (Fiji) Cinema owner/operator Operator of Imax Cinemas Arthouse Cinema exhibitor Owner/operator of Cinemas in Fiji Percentage held by Group 50.0% 33.3% 25.0% 33.3% All of the above joint ventures have been audited. Financial Performance The Sky City group’s share of operating revenues and expenses, proportionately consolidated for the Hard Rock joint venture and for the indirect joint venture interests was: Revenue Expenses Net contribution to group operating surplus Consolidated 2002 $’000 30,807 (28,052) 2,755 2001 $’000 6,091 (5,607) 484 For the year ended 30 June 2001, the group’s share of operating revenues and expenses proportionately consolidated were for the period from 25 May 2001 for the Hard Rock venture and from 20 March 2001 for the indirect joint venture interests. Financial Position The group’s share of assets and liabilities, proportionately consolidated, is: Current assets Cash on hand and at bank Receivables Properties for sale Other current assets Non-current assets Property, plant and equipment Other Share of total assets included in group Liabilities Creditors Other Term loans Share of total liabilities included in group 1,948 911 – 135 2,994 13,577 782 14,359 17,353 1,626 892 1,207 3,725 1,489 1,062 4,510 256 7,317 14,989 288 15,277 22,594 2,215 1,001 1,905 5,121 Net assets employed in the joint ventures 13,628 17,473 ENTERTAINMENT. TOMORROW 59 sky 1705-financial-20/9 30/9/02 5:49 PM Page 60 SKY CITY ENTERTAINMENT GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 30 June 2002 Consolidated Parent Company 2002 $’000 2001 $’000 2002 $’000 2001 $’000 21. RECONCILIATION OF NET SURPLUS WITH CASH FLOW FROM OPERATING ACTIVITIES Reported surplus after taxation Less minority interests Less associated entity surpluses/(deficits) Items not involving cash flows Depreciation expense Amortisation expense (Decrease)/Increase in provisions Increase in deferred taxation Subsidiary transactions Increase in employee reserves Amortisation of deferred expenditure Movement in foreign exchange Write-off of investments Goodwill impairment Impact of changes in working capital items Decrease/(Increase) in accounts receivable and prepayments Decrease in properties intended for resale Decrease in inventory (Increase)/Decrease in pre-paid income tax (Decrease)/Increase in creditors and accruals Movement in GST payable Items classified as investing activities Net loss on disposal of property, plant and equipment Capitalised costs Surplus on sale of investments 57,153 10,518 344 46,291 37,236 4,803 239 1,495 – 2,528 1,430 (133) 22,422 16,730 2,175 – 230 (5,253) (6,358) (1,394) 68,308 67,351 14,362 1,832 (897) – – – – 67,373 67,351 14,362 32,502 3,768 (109) 3,033 28 – – – 42 – – – – (146,640) (81,689) 1,869 1,390 (881) – – (15,192) 15,395 477 1,542 13,126 1,703 2,528 378 1,230 – – (437) – – 1,882 (695) 40 – – – 3,974 495 (29) – – (54) – – 6,614 (1,138) 70 – – – 31 550 (290) 251 – – NET CASH FLOW FROM OPERATING ACTIVITIES 122,732 126,247 (74,335) (57,353) 60 ENTERTAINMENT. TOMORROW sky 1705-financial-20/9 30/9/02 5:49 PM Page 61 SKY CITY ENTERTAINMENT GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 30 June 2002 22. CONTINGENT LIABILITIES Taxation For the year ended 30 June 1998 income tax was recognised in the Statements of Financial Performance on the basis that various non-recurring expenditure items were deductible for tax purposes. The Inland Revenue Department has indicated that some or all of the approximately $6,700,000 (2001: $7,500,000) of income tax credit claimed in relation to the Harrah’s contract termination fee may be reassessed. The directors have received professional advice that it is not appropriate to recognise a liability and the company intends to contest any reassessment received. On 21 May 2001 agreement was reached with the Inland Revenue Department in relation to some of the prior years’ non-recurring costs (re pre-opening expenses). This resulted in a reduction in contingent liabilities recognised in earlier years by $7,500,000. Argentina Debt Force Corporation Limited is one of the guarantors for a loan facility being utilised by Village Cinemas (S.A.) Argentina, an associate company. The maximum liability and exposure at balance date under this guarantee is US$4 million (2001: US$15 million). 23. RELATED PARTY INFORMATION Sky City Entertainment Group Limited is a publicly-listed company on the New Zealand and Australian Stock Exchanges. Subsidiaries, Associates and Joint Ventures All members of the group as listed in notes 18, 19 and 20 are considered to be related parties of the parent company Sky City Entertainment Group Limited. During the year the company advanced and repaid loans and provided accounting and administrative services to its subsidiaries, associates and joint ventures. In presenting the financial statements of the group, the effect of transactions and balances between fellow subsidiaries and those with the parent company have been eliminated. All transactions with related parties are in the normal course of business and provided on commercial terms. As a result of the restructure of Planet Hollywood (Civic Centre) Limited during the year, the debt of $835,000 owed by Planet Hollywood Asia was forgiven (2001: $835,000). In return, Force Holdings Limited acquired the remaining shareholding in Planet Hollywood (Civic Centre) Limited of 20% on 28 June 2002. Interest of Directors in Certain Transactions Each company within the group maintains an interests register in which members of its board record all parties and transactions in which they may have a potential or actual self-interest (refer Interests Register in the Additional Information section of this Report). Fees were paid to First NZ Capital Group Limited (previously Credit Suisse First Boston NZ Limited), of which W R Trotter is a director, for advisory work and were made on normal commercial terms. ENTERTAINMENT. TOMORROW 61 sky 1705-financial-20/9 30/9/02 5:49 PM Page 62 SKY CITY ENTERTAINMENT GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 30 June 2002 24. SEGMENT INFORMATION Geographic Segments New Zealand 2002 $’000 2001 $’000 Australia 2002 $’000 2001 $’000 Total 2002 $’000 2001 $’000 Assets Revenue Segment Result Interest expense Unusual items 643,714 681,055 259,505 270,105 903,219 951,160 398,354 336,624 114,602 105,790 512,956 442,414 162,871 143,283 12,566 11,635 175,437 154,918 (31,847) (28,172) (13,861) (19,544) (45,708) (47,716) (39,152) – – – (39,152) – Net segment result 91,872 115,111 (1,295) (7,909) 90,577 107,202 Consolidated surplus before tax, minority interests & associates 91,872 115,111 (1,295) (7,909) 90,577 107,202 The surplus is that of the group before income tax and before equity accounted results of associated entities, minority interest and extraordinary items. Industry Segments The group currently operates in the entertainment, leisure and recreation sector. 25. FINANCIAL INSTRUMENTS (i) Credit Risk Financial assets which potentially subject the group and parent company to concentrations of credit risk consist principally of cash, short-term deposits, trade receivables and tax receivable. The parent company’s and group’s cash equivalents and short-term deposits are placed with high credit quality financial institutions. Trade receivables are presented net of the allowance for estimated doubtful receivables. Credit risk with respect to trade receivables is limited due to the relatively low value of receivables at any given time as the nature of the business is cash-oriented. The tax receivable is expected to be refunded by the Inland Revenue Department. Accordingly, the directors believe the group has no significant concentration of credit risk. (ii) Fair Values The carrying amount of cash and bank balances reflect their fair values. Information on the fair values of all other financial instruments recognised in the financial statements is included in the relevant notes to the financial statements. 62 ENTERTAINMENT. TOMORROW sky 1705-financial-20/9 30/9/02 5:49 PM Page 63 SKY CITY ENTERTAINMENT GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 30 June 2002 25. FINANCIAL INSTRUMENTS (continued) (ii) Fair Values (continued) Financial Assets and Liabilities Carrying Amounts Cash and bank Receivables and prepayments Receivables — related parties Income tax Foreign currency hedge Advances to subsidiaries Capital notes Creditors and accruals Borrowings — short-term Borrowings — long-term Consolidated Parent Company 2002 $’000 2001 $’000 2002 $’000 2001 $’000 48,084 4,279 1,541 13,291 383 – 41,603 28,951 7,570 9,628 (574) 1 729 – 2,674 – 1 36 256 4,556 (574) – 168,469 135,252 (148,888) (148,510) (148,888) (148,510) (57,536) (1,000) (69,434) (88,572) (405,825) (382,154) (3,061) (3,753) – – – – – – – – – (5,123) 84 – Advance from minority interests (3,604) (129) Riverside uncalled capital Riverside shareholder advance Convertible notes Net Carrying Amount of Recognised – – – – (9,315) (9,315) Financial Instruments (558,590) (610,936) 19,924 (17,775) Within the above carrying amounts of financial assets and liabilities, to the extent they are not hedged, the following values are denominated in Australian dollars: Carrying Amounts Assets Current assets Liabilities Current liabilities 10,158 4,173 (11,892) (13,583) – – – – The directors believe the carrying values of the financial assets and liabilities reflect the fair values of those assets and liabilities. The group was party to a financial instrument in respect of a guarantee not recognised above and this is disclosed in Note 22 at its fair value. ENTERTAINMENT. TOMORROW 63 sky 1705-financial-20/9 30/9/02 5:49 PM Page 64 SKY CITY ENTERTAINMENT GROUP LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 30 June 2002 25. FINANCIAL INSTRUMENTS (continued) (iii) Currency Risk and Interest Rate Risk Interest Rate Risk Short-term deposits were at call as at 30 June 2002. Deposits are held with major banking institutions. Interest rates on borrowings are a mix of fixed and floating. As at 30 June 2002 81% (2001: 80%) of total borrowings were hedged via long-term (exceeding 12 months) interest rate swap agreements with major banking institutions. A number of short-term (less than 12 months) interest rate swap agreements of varying maturities, with major banks, were in place over 10% (2001: 19%) of the balance of the total borrowing. Fixed versus Floating Interest Rate — Bank Facility At 30 June 2002, Sky City group had total borrowings of $409,240,654 (2001: $415,130,859), structured as below: 2002 % of Total % Rate $’000 2001 % of Total % Rate $’000 Term Borrowings (exceeding 12 months) – fixed by long-term (exceeding 12 months) interest rate swaps – fixed by short-term (less than 12 months) interest rate swaps – floating rate borrowings 331,709 42,455 35,077 77,532 81 10 9 19 Total Debt Facility 409,241 100 7.37 330,968 79,163 5,000 84,163 7.25 6.11 6.73 7.25 415,131 100 80 19 1 20 7.63 6.74 7.35 6.78 7.45 Rates shown above are inclusive of bank margin. Maturities The interest swap maturities are at various dates through to July 2007. The long term interest rate swap maturities occur between twelve months and six years and ten months from balance date. Interest Rate Swap Values: Mark to Market The swaps and forward rate agreements in place as at 30 June 2002 have been valued by the respective banks, on a mark to market basis, at a loss of $5,389,101 (2001: loss $6,389,973). Forward Exchange Cover Payments to overseas suppliers are made using the currency conversion rate as at the date of payment. The value of such transactions has been and will continue to be at a relatively low level. Funds advanced to overseas subsidiaries are hedged against translation risk. Foreign exchange contracts as at 30 June 2002: AU$15,900,000 (2001: $75,400,000). 26. EVENTS OCCURRING AFTER BALANCE DATE Provision for Dividend On 23 August 2002 the directors resolved to provide for a final dividend to be paid in respect of the year ended 30 June 2002. The dividend will be paid at a value of 22.5 cents per share on issue as at 20 September 2002 with full imputation credits attached. 64 ENTERTAINMENT. TOMORROW sky 1705-financial-20/9 30/9/02 5:49 PM Page 65 SKY CITY ENTERTAINMENT GROUP LIMITED ADDITIONAL INFORMATION 30 June 2002 SUBSIDIARY COMPANIES The changes to subsidiary company directorships during the 12 month period ended 30 June 2002 were as follows. On 13 March 2002, P.J. Mason ceased to be a director of Sky City Adelaide Pty Limited. On 15 March 2002, M.J. McConnell ceased to be a director of Sky City Leisure Limited (1). A.B. Ryan was a director of Sky City Leisure Holdings Limited,(2) Sky City Cinemas Limited,(3) Sky City Metro Limited,(4) Cine-Force Limited, Ab Initio Holdings No.13 Limited and Planet Hollywood (Civic Centre) Limited for the period from 15 February 2002 to 10 March 2002. On 27 June 2002, A.B. Ryan was appointed a director and M. Brunner resigned as a director of Planet Hollywood (Civic Centre) Limited. A.B. Ryan resigned as a director of Planet Hollywood (Civic Centre) Limited on 24 July 2002. The following people held office as directors of subsidiaries of Sky City Entertainment Group Limited as at the end of the 2002 financial year, being 30 June 2002. Sky City Auckland Holdings Limited, Sky City Auckland Limited, Sky City Casino Management Limited Directors: E.W. Davies, J.P. Hartley, A.B. Ryan Sky City Management (Auckland) Limited, Abdiel Investments Limited, Sky City Construction Limited, Sky Tower Limited, Sky City Wellington Limited, Sky City International Holdings Limited, Sky City International ApS, Sky City Investments Limited, Sky City Action Management Limited, Riverside Fund Limited, Queenstown (Hard Rock) Investments Limited Directors: E.W. Davies, A.B. Ryan Sky City Australia Pty Limited, Sky City Adelaide Pty Limited Directors: E.W. Davies, G.F. Hawkins, A.B. Ryan Queenstown Casinos Limited Directors: E.W. Davies, P.J. Hensman, A.B. Ryan, B.C. Thomas Riverside Casino Limited and Riverside Casino Construction Limited Directors: E.W. Davies, B.S. Nabbs, S. Perry, A.B. Ryan Sky City Leisure Limited (1) Directors: M.W. Daniel, E.W. Davies, P.J. Holdaway, D.I. Kennedy, A.B. Ryan Sky City Leisure Holdings Limited,(2) Sky City Cinemas Limited ,(3) Sky City Metro Limited ,(4) Cine-Force Limited, Ab Initio Holdings No.13 Limited Director: P. J. Holdaway Planet Hollywood (Civic Centre) Limited Directors: P. J. Holdaway, A.B. Ryan Sky City Cinemas (Fiji) Limited (5) Directors: D. Damodar, P.J. Holdaway (1) Formerly Force Corporation Limited (2) Formerly Force Holdings Limited (3) Formerly Force Cinemas Limited (4) Formerly Force Entertainment Centre Limited (5) Formerly Force Cinemas (Fiji) Limited ENTERTAINMENT. TOMORROW 65 sky 1705-financial-20/9 30/9/02 5:49 PM Page 66 SKY CITY ENTERTAINMENT GROUP LIMITED ADDITIONAL INFORMATION (continued) 30 June 2002 REMUNERATION OF DIRECTORS Remuneration paid to directors of Sky City Entertainment Group Limited during the year ended 30 June 2002 was: E.W. Davies P.H. Elworthy J.P. Hartley P.L. Reddy E. Toime W.R. Trotter W.G. Ward-Holmes B.M. Wickham $1,138,050 $50,000 $100,000 $50,000 $50,000 $50,000 $66,667 $50,000 The Managing Director, E.W. Davies, is not paid director’s fees. The amount shown next to his name represents the total of the remuneration and the value of other benefits received by him as an employee of the company. Directors’ fees, as above, were paid as to $10,000 for non-executive directors and $20,000 for the chairperson by way of options in the company issued in accordance with the Non-Executive Director Share Option Plan as approved at the company’s Annual Meeting on 26 October 2000. Remuneration paid to directors, or former directors, of Sky City Leisure Limited (1) during the year ended 30 June 2002 was: M.W. Daniel P. J. Holdaway M. J. McConnell $13,125 $164,000 $13,125 Peter Holdaway is not paid director’s fees. The amount shown next to his name represents the total of the remuneration and the value of other benefits received by him as an employee of Sky City Leisure Limited (1). Remuneration paid to directors of Queenstown Casinos Limited during the year ended 30 June 2002 was: E.W. Davies P. J. Hensman A.B. Ryan B.C. Thomas $7,500 $7,500 $7,500 $7,500 Director fees for E.W. Davies and A.B. Ryan were paid to Sky City Entertainment Group Limited and were not received personally by Messrs Davies or Ryan. Apart from the amounts listed above, no remuneration is received by the directors of the Sky City subsidiary companies in their capacity as directors of those companies. No director of the group or parent company has, since the end of the financial year, received or become entitled to receive a benefit other than the reimbursement of expenses incurred in relation to company matters, or as disclosed elsewhere in this Annual Report. (1) Formerly Force Corporation Limited DIRECTORS’ AND OFFICERS’ INDEMNITY AND INSURANCE On 30 September 2001 the company effected directors’ and officers’ liability insurance coverage through Royal and SunAlliance and American Home Assurance Company (AIG), for the period 30 September 2001 to 30 September 2002, with an aggregate limit of liability of $50 million. On 30 September 2001 the company effected statutory liability insurance through Royal and SunAlliance, for the period 30 September 2001 to 30 September 2002 with an aggregate limit of liability of $5 million. Indemnities have been given to directors and senior managers of the Sky City group to cover acts or omissions of directors or senior managers in their capacity as such. 66 ENTERTAINMENT. TOMORROW sky 1705-financial-20/9 30/9/02 5:49 PM Page 67 SKY CITY ENTERTAINMENT GROUP LIMITED ADDITIONAL INFORMATION (continued) 30 June 2002 INTERESTS REGISTER Disclosure of Directors’ Interests Section 140(1) of the Companies Act 1993 requires a director of a company to disclose certain interests. Under subsection (2) a director can make disclosure by giving a general notice in writing to the company of a position held by a director in another named company or entity. The following are particulars as entered in the company’s Interests Register as at 30 June 2002 with the notices given by directors during the period ended 30 June 2002 marked with an asterisk. Director Other Company Relationship P.H. Elworthy J.P. Hartley P.L. Reddy E. Toime E.W. Davies Melanesian Mission Trust Tourism Industry Association of New Zealand Enterprise New Zealand Trust Lincoln University Foundation Lincoln University Biological Organic Trust New Zealand Institute of Economic Research (Inc) Opuha Dam Company Limited Stanfield Oaks Limited Wild Peter Products Limited Willows Group Limited Trustee Director Trustee Trustee Chairman Trustee Chairman Director Chairman Chairman Infinity Group Limited and certain subsidiaries The Great New Zealand Business Venture Limited Trango Capital Limited Vertex Group Holdings Limited and certain subsidiaries* Director Director and Shareholder Director Director and Shareholder Active Equities Limited Infinity Group Limited MobilefoneRepair.com Limited Securefresh Pacific Limited Sky City Community Trust TeamTalk Limited Telecom Corporation of New Zealand Limited Vista Entertainment Solutions Limited Datacom Group Limited Datacom Investments Pty Limited New Zealand Post Limited and subsidiaries NRMA Insurance NZ Limited State Sector Standards Board Director and Shareholder Chairperson Associated Person of Shareholder Associated Person of Shareholder Trustee Associated Person of Shareholder Director Associated Person of Shareholder Director Director Chief Executive Officer Director Member W.R. Trotter First NZ Capital Group Limited and certain subsidiaries The New Zealand Stock Exchange Director Director B.M. Wickham Competitive Auckland Limited Fisher and Paykel Appliances Holdings Limited* Industry New Zealand International Centre for Entrepreneurship Limited Kings School The Great New Zealand Business Venture Limited Uniservices Limited Director Director Director Chairperson Governor Director Director The following details included in the Interests Register as at 30 June 2001, or entered during the year ended 30 June 2002, have been removed during the year ended 30 June 2002. P.H. Elworthy is no longer chairman of the Alan Duff Charitable Foundation or a trustee of the Link Foundation. P.L. Reddy is no longer a director of New Zealand Opera Limited or an alternate director of Richmond Limited. ENTERTAINMENT. TOMORROW 67 sky 1705-financial-20/9 30/9/02 5:49 PM Page 68 SKY CITY ENTERTAINMENT GROUP LIMITED ADDITIONAL INFORMATION (continued) 30 June 2002 INTERESTS REGISTER (continued) Disclosure of Directors’ Interests in Share Transactions Directors disclosed, pursuant to section 148 of the Companies Act 1993 and Rule 10.5.3 of the Listing Rules of the NZSE, the following acquisitions and disposals of relevant interests in Sky City shares during the period to 30 June 2002. Share transactions for the period 1 July 2001 to 16 November 2001 (prior to the share split on 16 November 2001) Director E.W. Davies P.H. Elworthy J.P. Hartley P.L. Reddy E. Toime W.R. Trotter Date of Acquisition or Disposal 1/7/01 to 16/11/01 5 October 2001(1) 12 November 2001(2) 12 November 2001 5 October 2001(1) 16 November 2001(2) 16 November 2001 28 September 2001 5 October 2001(1) 8 November 2001(2) 8 November 2001 5 October 2001(1) 8 November 2001(2) 8 November 2001 5 October 2000(1) 8 November 2001(2) 8-13 November 2001 Consideration Shares Acquired (Disposed of ) $78,147 $211,351 $213,975 $6,046 $423,243 $423,825 $11,150 $3,782 $211,081 $211,741 $1,436 $211,081 $211,741 $56,673 $211,081 $619,134 7,562 27,027 (17,227) 585 54,054 (33,454) (1000) 366 27,027 (17,000) 139 27,027 (17,027) 5,484 27,027 (50,000) Share transactions for the period 19 November 2001 to 30 June 2002 (after the share split on 16 November 2001) Director E.W. Davies J.P. Hartley P.L. Reddy E. Toime W.R. Trotter B.M. Wickham Date of Acquisition or Disposal 19/11/01 to 30/6/02 19 November 2001(2) 19 November 2001 30 November 2001 5 April 2002(1) 5 April 2002(1) 10 June 2002(3) 27 February 2002 5 April 2002(1) 5 April 2002(1) 5 April 2002(1) 20 November 2001(2) 20 November 2001 Consideration Shares Acquired (Disposed of ) $201,000 $325,000 $379,652 $62,006 $11,919 $513,715 $9,990 $6,564 $4,001 $36,398 $211,892 $211,305 50,000 (50,000) (61,116) 11,034 2,121 (79,033) 1,665 1,168 712 6,477 54,054 (34,054) (1) The transactions of Messrs Davies, Hartley, Toime and Trotter and Ms Reddy of 5 October 2001 and 5 April 2002 relate to the issue of shares to them in lieu of dividends pursuant to the Sky City Entertainment Group Limited Dividend Reinvestment Plan. (2) The transactions shown relate to the exercise of options granted to directors pursuant to the Non-Executive Director Share Option Plan approved by shareholders at the Annual Meeting of the company held on 26 October 2000. (3) The transaction shown relates to the transfer of shares to the trustees of the Hartley Family Trust in which Mr. Hartley retains a beneficial interest. 68 ENTERTAINMENT. TOMORROW sky 1705-financial-20/9 30/9/02 5:49 PM Page 69 SKY CITY ENTERTAINMENT GROUP LIMITED ADDITIONAL INFORMATION (continued) 30 June 2002 INTERESTS REGISTER (continued) Disclosure of Directors’ Interests in Shares, Options and Capital Notes Directors disclosed, pursuant to Rule 10.5.3 of the Listing Rules of the NZSE, the following relevant interests in Sky City shares, options and capital notes as at 30 June 2002. Director Beneficially Held E.W. Davies P.H. Elworthy J.P. Hartley P.L. Reddy E. Toime W.R. Trotter B.M. Wickham 411,034 22,000 79,033 43,542 26,514 295,339 30,000 Shares Non- Beneficially Held Held By Associated Person Beneficially Held Options Non- Beneficially Held – – – 2,665 – – – – – – – 6,151 – – 839,110 12,195 24,390 12,195 12,195 12,195 12,195 – – – – – – – Held by Associated Person 104,000 – – – – – – W.R. Trotter is a trustee of a trust holding 200,000 capital notes. Options issued to Mr. Davies and associated persons of Mr. Davies are issued pursuant to the Executive Share Option Plan approved by shareholders at the Annual Meeting of the company held on 28 October 1999. Options issued to the non-executive directors are issued pursuant to the Non-Executive Director Share Option Plan approved by shareholders at the Annual Meeting of the company held on 26 October 2000. Options are exercisable one year after the date of issue, at the exercise price determined pursuant to the Plan, and lapse if they are not exercised within five years of the date of issue. EMPLOYEE REMUNERATION The number of employees or former employees of the company and its subsidiaries, not being directors of the company, who received remuneration and other benefits in their capacity as employees, the value of which was in excess of $100,000 during the financial year ended 30 June 2002, is listed below: Remuneration $100,000 – $109,999 $110,000 – $119,999 $120,000 – $129,999 $130,000 – $139,999 $140,000 – $149,999 $150,000 – $159,999 $160,000 – $169,999 $170,000 – $179,999 $180,000 – $189,999 $190,000 – $199,999 $200,000 – $209,999 Number of Employees Parent Company – – – – – – – – – – – Group 11 15 12 8 5 1 4 3 4 2 4 Number of Employees Remuneration $220,000 – $229,999 $230,000 – $239,999 $250,000 – $259,999 $280,000 – $289,999 $300,000 – $309,999 $310,000 – $319,999 $360,000 – $369,999 $370,000 – $379,999 $390,000 – $399,999 $480,000 – $489,999 Group 1 1 1 1 1 1 1 1 1 1 Parent Company – – – – – – – – – – ENTERTAINMENT. TOMORROW 69 sky 1705-financial-20/9 30/9/02 5:49 PM Page 70 SKY CITY ENTERTAINMENT GROUP LIMITED ADDITIONAL INFORMATION (continued) 30 June 2002 DONATIONS Donations are referred to in Note 3 of the financial statements. WAIVERS FROM THE NEW ZEALAND STOCK EXCHANGE (NZSE) LISTING RULES The following waivers from the NZSE Listing Rules were effective as at balance date. As part of the company’s Executive Share Option Plan, approved by shareholders at the 1999 Annual Meeting, the NZSE granted a waiver from compliance with Listing Rule 7.3.2 in respect of the issue of options to E.W. Davies the Managing Director of the company pursuant to the Plan. Listing Rule 7.3.2 would have required that all issues of options to Mr Davies under the Plan be made within 12 months of the shareholders’ resolution approving the issue. The waiver enabled the third issue of options specified in the shareholders’ resolution to be made more than 12 months after the date on which the resolution approving the issue was passed. As part of the Non-Executive Director Share Option Plan, approved by shareholders at the 2000 Annual Meeting, the NZSE granted a waiver from compliance with Listing Rule 7.3.2 enabling the issue of options to be made to each non-executive director under the Plan in the financial years ending on 30 June 2002 and 30 June 2003, being more than six months after the date on which the resolution approving the issue was passed. On 29 August 2001, the NZSE granted a waiver from compliance with Listing Rule 7.3.6 in respect of the participation by Ms. H.R. Shotter in the company’s Performance Pay Incentive Plan (PPI) and Executive Share Option Plan referred to above. Under the PPI, salaried employees of the company and its subsidiaries are entitled to bonuses, payable in cash and shares, if relevant financial and personal performance targets are met. Ms. Shotter is married to Mr. Davies, the Managing Director of the company. Accordingly, in the absence of the waiver, issues of shares under the PPI and options under the Executive Share Option Plan would have required shareholder approval. The NZSE granted the waiver on the condition that Ms. Shotter’s participation in the PPI and the Executive Share Option Plan is determined by an independent committee of the board of directors of the company, and that Mr. Davies does not participate in determining the benefits provided to Ms. Shotter. In addition, on 5 September 2002, the NZSE granted waivers from compliance with Listing Rule 7.3.6 in respect of the participation by Ms. Shotter in the company’s proposed new performance pay incentive plan (New PPI) and the proposed new executive share option plan (New Option Plan). As the terms of the New PPI and the New Option Plan are substantially the same as the existing PPI and Executive share Option Plan, in the absence of the waivers, issues of shares under the New PPI and options under the New Option Plan would require shareholder approval. The NZSE granted the waivers on the condition that Ms Shotter’s participation in the New PPI and the New Option Plan is determined by an independent committee, and that Mr Davies does not participate in determining the benefits provided to Ms. Shotter. The effect of all other waivers granted had ceased as at balance date. EVENTS SUBSEQUENT TO BALANCE DATE The directors are not aware of any matter or circumstance since the end of the financial year, not otherwise dealt with in this report, that has significantly or may significantly affect the operations of Sky City Entertainment Group Limited or any of its subsidiary companies. 70 ENTERTAINMENT. TOMORROW sky 1705-financial-20/9 30/9/02 5:49 PM Page 71 SKY CITY ENTERTAINMENT GROUP LIMITED CORPORATE GOVERNANCE 30 June 2002 CORPORATE GOVERNANCE Corporate governance at Sky City encompasses the company’s decision-making structures and the mechanisms used to manage the organisation. The board of Sky City has a comprehensive set of corporate governance practices and procedures in place to ensure that these responsibilities are met. Role of the Board Sky City’s board of directors is responsible for supervising the management of the company. The board establishes the company’s objectives, the major strategies for achieving these objectives, the overall policy framework within which the business of the company is conducted, and monitors management’s performance with respect to these matters. The board must also ensure that the company’s assets and resources are maintained under effective stewardship, that decision-making authorities within the organisation are clearly defined, that the social and business obligations of the company are met, that the letter and intent of New Zealand and Australian company and casino law is complied with, and that the company is well-managed for the benefit of its shareholders. The board currently comprises eight directors, including a non-executive chairman, an executive director and six non-executive directors. Director details are set out on page 20 of this Annual Report. Procedures for the operation of the board, including the appointment and removal of directors, are governed by the company’s constitution. The board met 11 times during the year to review company performance and consider strategic issues. Code of Business Practice The board and management of Sky City have developed a code of business practice, which sets out the standards of behaviour expected of Sky City people when carrying out their job responsibilities. The Code refers to behavioural requirements under the following headings: compliance with laws and regulations; honesty and fairness; human rights; health and safety; privacy and confidentiality; insider trading; conflicts of interest; bribes and favours; competition; promotion and advertising; community contributions; problem gambling; and the service of alcohol. Audit and Risk Committee The board’s Audit and Risk Committee, which met four times during the year, sets and monitors the company’s accounting and reporting practices and its internal control and risk management environments. During the year Elmar Toime assumed chairmanship of the Audit and Risk Committee following the retirement of Waari Ward-Holmes. Governance and Remuneration Committee The board’s Governance and Remuneration Committee, which met four times during the year, monitors board membership and effectiveness, senior executive performance and remuneration, the ethics of the organisation, protection of the company’s casino licences, statutory and regulatory compliance, and the identification of and planning for emerging issues. The company has a formal code of conduct governing the purchase of Sky City securities by directors and executive personnel and a prohibition on gaming by Sky City staff and directors on the company’s premises. Compliance with the Codes for Securities Transactions and Business Practice is overseen by the Governance and Remuneration Committee. The Committee is chaired by Patsy Reddy. Governance Charters and Policies Each of the Audit and Governance committees operates under a charter, which is reviewed and updated each year. The board itself operates under detailed terms of reference which set out the duties and responsibilities of directors. The board delegates authority to management for decision-making under a comprehensive delegated authorities policy, which is formally reviewed on a regular basis. A separate treasury policy covers treasury dealings, most of which relate to interest rate and foreign exchange management, treasury transaction authorities and procedures, and board reporting. Independent Professional Advice Directors are entitled to seek independent professional advice at any time on any aspect of their duties and responsibilities, at the company’s expense. ENTERTAINMENT. TOMORROW 71 sky 1705-financial-20/9 30/9/02 5:49 PM Page 72 SKY CITY ENTERTAINMENT GROUP LIMITED SHAREHOLDER AND NOTEHOLDER INFORMATION 30 June 2002 Twenty Largest Shareholders as at 23 August 2002 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Colonial First State Investment Managers Maple Brown Abbott AMP Henderson Global Investors Tower Asset Management ING New Zealand Tower Trust BT NZ Funds Management Accident Compensation Corporation Barclays Global Investors Guardian Trust Funds Management Morgan Stanley Investment Management Alliance Capital Management Sagitta Wealth Management State Street Global Advisors Brook Asset Management NZ Funds Management British Airways Pension Funds Investment Management Henderson Global Investors Legal & General Investment Management ING Investment Management Total Number of shares 34,363,340 9,573,818 8,407,142 8,185,528 5,535,140 4,731,284 4,027,409 3,980,000 3,908,305 3,600,359 3,440,292 3,110,731 2,987,782 2,512,635 2,085,512 1,836,306 1,724,541 1,319,441 1,243,112 1,181,000 107,257,880 % of issued shares 16.55% 4.61% 4.05% 3.94% 2.67% 2.28% 1.94% 1.92% 1.88% 1.73% 1.66% 1.50% 1.44% 1.21% 1.00% 0.88% 0.83% 0.64% 0.60% 0.57% 51.67% The analysis as set out above has been compiled based upon information provided by Computershare Analytics Pty Limited. Substantial Security Holders On 21 June 2002, Commonwealth Bank Group (Colonial First State Investment Managers) gave notice in accordance with the New Zealand Securities Amendment Act 1988, that it was a substantial security holder in the company and had a relevant interest in 35,104,507 ordinary shares in the company. Options on Issue As at 23 August 2002 there was a total of 1,535,475 options on issue, being 924,475 options issued to directors and 611,000 options issued to executives. These options have no voting rights but entitle the holder to two ordinary shares on the exercise of each option. Distribution of Ordinary Shares and Registered Shareholdings as at 23 August 2002 Size of holding 1 – 499 500 – 999 1,000 – 4,999 5,000 – 9,999 10,000 – 49,999 Over 50,000 Total Number of shareholders 1,393 1,405 13,636 2,341 1,612 179 20,566 Number of shares 346,313 961,304 27,378,990 15,451,761 27,189,248 136,265,806 207,593,422 As at 16 September 2002, there were 253 holdings of less than 83 shares, being the minimum marketable parcel of shares under ASX listing rules. ASX Listing Rules define the minimum parcel as having a value of A$500. The calculation of the minimum parcel of 83 shares is based on an exchange rate of A$0.8754 and a Sky City share price of NZ$7.05. 72 ENTERTAINMENT. TOMORROW sky 1705-financial-20/9 30/9/02 5:49 PM Page 73 SKY CITY ENTERTAINMENT GROUP LIMITED SHAREHOLDER AND NOTEHOLDER INFORMATION (continued) 30 June 2002 Twenty Largest Capital Noteholders as at 23 August 2002 Number of capital notes % of issued capital notes 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 New Zealand Central Securities Depository Limited Custodial Nominees Limited Investment Custodial Services Limited Cogent Nominees Limited Custodial Services Limited Account No.3 First NZ Securities Nominees Limited NZ Airline Pilots Mutual Benefit Fund J.R. Avery, P.G. Inger and J. A. Inger Adam Consultants and Administrators Wellington Limited Knox Home Trust Board Inc. Maori Education Trust ASB Nominees Limited Custodial Services Limited Account No.2 D.A. Smith, K.M. Smith and G.A. Smaill S.M. Auton and R. J. Auton C.A. Carran and P.A. Carran J.R. Matthews, R. J. Matthews and B.R. Perkins Sargood Bequest Nominee Limited A.G. Smart G.A. Walker and E.K. Walker 5,456,000 1,953,000 1,320,000 1,000,000 836,000 630,000 600,000 500,000 400,000 400,000 400,000 350,000 333,000 325,000 300,000 300,000 300,000 300,000 300,000 300,000 3.64% 1.30% 0.88% 0.67% 0.56% 0.42% 0.40% 0.33% 0.27% 0.27% 0.27% 0.23% 0.22% 0.22% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% Total 16,303,000 10.87% Distribution of Capital Notes holdings as at 23 August 2002 Size of holding 2,000 – 4,999 5,000 – 9,999 10,000 – 49,999 over 50,000 Total Number of noteholders 2 980 3,665 759 5,406 Number of capital notes 6,000 5,551,000 71,630,000 72,813,000 150,000,000 ENTERTAINMENT. TOMORROW 73 sky 1705-financial-20/9 30/9/02 5:49 PM Page 74 SKY CITY ENTERTAINMENT GROUP LIMITED LIMITATIONS ON ACQUISITION OF ORDINARY SHARES 30 June 2002 LIMITATIONS ON ACQUISITION OF ORDINARY SHARES The company’s constitution contains various provisions which were included in it to take into account the application of: (cid:2) the Casino Control Act 1990 of New Zealand (cid:2) the Casino Act 1997 of South Australia, and (cid:2) the legislation providing for the establishment, operation and regulation of casinos in any other jurisdiction in which Sky City or any of its subsidiaries may hold a casino licence to Sky City Entertainment Group Limited and any of its subsidiaries Sky City needs to ensure, when it participates in gaming activities: (cid:2) that it has the power under its constitution to take such action as may be necessary to ensure that its suitability to do so in a particular jurisdiction is not affected by the identity or actions (including share dealings) of a shareholder; and (cid:2) that there are appropriate protections to ensure that persons do not gain positions of significant influence or control over Sky City or its business activities without obtaining any necessary statutory or regulatory approvals in those jurisdictions. Accordingly, the constitution contains the following provisions restricting the acquisition of shares in the company to achieve this. Transfer of shares to an Associated Casino Person Clause 12.11 of the company’s constitution provides that a transfer of shares to an Associated Casino Person (as defined in the constitution) of a casino licence holder cannot take place until the transfer has been approved by the relevant regulatory authority. However, the clause will not apply if, as a result of the transfer, the number of shares held by the transferee or any person associated with it, remains below the level of shareholding (if any) which each regulatory authority has approved for that transferee and any person associated with it. If a transfer takes place in breach of clause 12.11, then the transferee, and the persons associated with it, are prevented from exercising votes in respect of the Affected Shares (as defined in the constitution) and their entitlement to a share in the profits of Sky City in respect of their respective Affected Shares (whether by way of dividend or other distribution) is suspended until such time as all approvals which needed to be obtained from the regulatory authorities to the increase in the total number of shares held by the transferee, and the persons associated with it, as a result of the transfer have been obtained. If a regulatory authority does not approve an increase in the number of shares held by the transferee, and the persons associated with it, Sky City may sell the shares which were acquired by the transferee under the relevant transfer or such other number of shares as may be required. The power of sale can only be exercised if Sky City has given one month’s notice to the transferee of its intention to exercise that power and the transferee has not, in that one month period, transferred the requisite number of shares in Sky City to a person who is not associated with the transferee. Transfer of shares (other than to an Associated Casino Person) Clause 12.12 of the constitution provides that if a transfer of shares results in the transferee, and the persons associated with that transferee, (cid:2) holding more than 5% of the shares in Sky City; or (cid:2) increasing their combined holding further beyond 5% if: – they already hold more than 5% of the shares in Sky City; and – the transferee has not been approved by the relevant regulatory authority as an Associated Casino Person of any casino licence holder; then the votes attaching to all shares held by the transferee, and the persons associated with it, are suspended unless and until either: 74 ENTERTAINMENT. TOMORROW sky 1705-financial-20/9 30/9/02 5:49 PM Page 75 SKY CITY ENTERTAINMENT GROUP LIMITED LIMITATIONS ON ACQUISITION OF ORDINARY SHARES AND OTHER REQUIRED DISCLOSURES 30 June 2002 LIMITATIONS ON ACQUISITION OF ORDINARY SHARES (continued) Transfer of shares (other than to an Associated Casino Person) (continued) (cid:2) each regulatory authority advises that approval is not needed; (cid:2) any regulatory authority which determines that its approval is required approves the transferee, together with the persons associated with it, as an Associated Casino Person of any applicable casino licence holder; (cid:2) the board of the company is satisfied that registration of the proposed transfer will not prejudice any casino licence; or (cid:2) the transferee, and the persons associated with it, disposes of such number of Sky City’s shares as will result in their combined holding falling below 5% or, if the regulatory authorities approve in respect of the transferee, and the persons associated with it, a higher percentage, the lowest such percentage approved by the regulatory authorities. If a regulatory authority does not grant its approval to the proposed transfer, Sky City may sell such number of the shares held by the transferee, and by any persons associated with it, as may be necessary to reduce their combined shareholding to a level that will not result in the transferee, and the persons associated with it, being an Associated Casino Person of that casino licence holder. The power of sale can only be exercised if Sky City has given one month’s notice to the transferee of its intention to exercise that power and the transferee has not, in that one month period, transferred the requisite number of shares in Sky City to a person who is not associated with the transferee. Other Legislation/Requirements General limitations on the acquisition of the securities imposed by the jurisdiction in which Sky City is incorporated (i.e. New Zealand law) are as below. Other than the provisions noted above the only significant restrictions or limitations in relation to the acquisition of securities are those imposed by New Zealand laws relating to takeovers, overseas investment and competition. The New Zealand Takeovers Code creates a general rule under which the acquisition of more then 20% of the voting rights in Sky City, or the increase of an existing holding of 20% or more of the voting rights in Sky City, can only occur in certain permitted ways. These include a full takeover offer in accordance with the Takeovers Code, a partial takeover offer in accordance with the Takeovers Code, an acquisition approved by an ordinary resolution, an allotment approved by an ordinary resolution, a creeping acquisition (in certain circumstances) or compulsory acquisition if a shareholder holds 90% or more of the shares in the company. The New Zealand Overseas Investment Act 1973 and the Overseas Investment Regulations 1995 regulate certain investments in New Zealand by overseas persons. In general terms, the consent of the New Zealand Overseas Investment Commission is likely to be required where an “overseas person” acquires shares or an interest in shares in Sky City Entertainment Group Limited that amount to more than 25% of the shares issued by the company or, if the overseas person already holds 25% or more, the acquisition increases that holding. The New Zealand Commerce Act 1986 is likely to prevent a person from acquiring shares in Sky City if the acquisition would have, or would be likely to have, the effect of substantially lessening competition in a market. OTHER REQUIRED DISCLOSURES Sky City Entertainment Group Limited has no securities subject to an escrow arrangement. Sky City Entertainment Group Limited is incorporated in New Zealand and is not subject to Chapters 6, 6A, 6B and 6C of the Corporations Act (Australia). Sky City Entertainment Group Limited does not have an on market buy-back arrangement in place. There are no material differences between the ASX Appendix 4B issued by Sky City Entertainment Group Limited for 30 June 2002 and this Annual Report. ENTERTAINMENT. TOMORROW 75 sky 1705-financial-20/9 30/9/02 5:49 PM Page 76 DIRECTORY REGISTERED OFFICE SHARE REGISTRARS AUDITOR Sky City Entertainment Group Limited Level 6 Federal House 86 Federal Street PO Box 6443 Wellesley Street Auckland Telephone +64 9 363 6141 Facsimile +64 9 363 6140 e-mail sceginfo@skycity.co.nz Sky City Entertainment Group Limited’s Registered Office in Australia is at: Finlaysons 81 Flinders Street GPO Box 1244 Adelaide SA Telephone +61 8 8235 7400 +61 8 8232 2944 Facsimile PricewaterhouseCoopers 188 Quay Street Auckland City Private Bag 92162 Auckland BANKERS ANZ Banking Group (New Zealand) Limited ASB Finance Limited Australia and New Zealand Banking Group Limited Bank of New Zealand Limited Commonwealth Bank of Australia National Australia Bank Limited The Hongkong and Shanghai Banking Corporation Limited CAPITAL NOTES TRUSTEE The New Zealand Guardian Trust Company Limited 48 Shortland Street PO Box 1934 Auckland Telephone +64 9 379 3630 +64 9 377 7477 Facsimile New Zealand Computershare Investor Services Limited Level 2 159 Hurstmere Road Takapuna Auckland Private Bag 92119 Auckland Telephone +64 9 488 8700 +64 9 488 8787 Facsimile Australia Computershare Investor Services Pty Limited Level 3 60 Carrington Road Sydney NSW 2000 GPO Box 7045 Sydney NSW 1115 Telephone +61 2 8234 5000 +61 2 8234 5050 Facsimile SOLICITORS Bell Gully Buddle Weir IBM Centre 171 Featherston Street PO Box 1291 Wellington Minter Ellison Rudd Watts BNZ Tower 125 Queen Street PO Box 3798 Auckland Finlaysons 81 Flinders Street GPO Box 1244 Adelaide SA For shareholder and corporate enquiries please phone +64 9 363 6141 or fax +64 9 363 6140 or e-mail sceginfo@skycity.co.nz For customer enquiries and reservations please phone +64 9 363 6000 or 0800 SKY CITY (0800 759 2489) or fax +64 9 363 6010 or e-mail reservations@skycity.co.nz Sky City web site: www.skycity.co.nz 76 ENTERTAINMENT. 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