SkyCity Entertainment Group Annual Report 2002

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FY2002 Annual Report · SkyCity Entertainment Group

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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

2-5

6-9

10-19

21-28

Financial Statements and Statutory Information 29-75

Directory

Sky City Community Report

Back Pocket

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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.

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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.

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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.

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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

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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

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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.

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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

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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

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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

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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%

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.

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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.

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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

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.

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PROMENADE

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

18k

9 k

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

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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.

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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.

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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
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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

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SKY1705-An'Report-Front.v32 30/9/02 6:38 PM Page 23

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.

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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%.

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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.

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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

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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

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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.

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

35–36

37– 64

65–70

Shareholder and Noteholder Information

72–73

Limitations on Acquisition of Ordinary Shares

74 –75

Directory

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.

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

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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

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.

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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

–

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

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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

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

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.

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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

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

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)

–

112

15,708

14,140

–

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

–

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

–

6,402

93,890

90,858

–

2,726

193,876

–

34,894

109,723

144,617

49,259

(9,366)

9,367

(9,366)

–

The accompanying notes on pages 37 to 64 form part of and are to be read in conjunction with these financial statements.

ENTERTAINMENT. TOMORROW

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SKY CITY ENTERTAINMENT GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2002

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

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SKY CITY ENTERTAINMENT GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
for the year ended 30 June 2002

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.

ENTERTAINMENT. TOMORROW

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SKY CITY ENTERTAINMENT GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
for the year ended 30 June 2002

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

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SKY CITY ENTERTAINMENT GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
for the year ended 30 June 2002

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.

ENTERTAINMENT. TOMORROW

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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

149

–

360

744

377

–

333

222

–

92,000

5,719

944

–

512,956

442,414

99,106

–

265

–

28,000

5,878

6,714

–

361

43,265

ENTERTAINMENT. TOMORROW 41

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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

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
–

–

–
–

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

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

(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

–

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

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

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.

ENTERTAINMENT. TOMORROW

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SKY CITY ENTERTAINMENT GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
for the year ended 30 June 2002

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

February 2001

$0.37 / $0.45

March 2001

April 2001

August 2001

September 2001

$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

November 2001

Option
Value

$0.37

$0.82

$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

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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

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

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.

ENTERTAINMENT. TOMORROW

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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

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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

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

$1.00

$1.10

$1.40

Number

of Notes

5,619,888

4,683,240

3,746,592

18,732,960

Rate of

Interest

15%

13.64%

10.71%

ENTERTAINMENT. TOMORROW

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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

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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

–

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.

ENTERTAINMENT. TOMORROW

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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)

315

(228)

43,942

(28,682)

15,260

40,162

(24,101)

16,061

28,706

7,502

596,037

524,022

–

111

(98)

–

238

(99)

139

–

152

732,660

647,443

28,706

7,502

(165,329)

(130,923)

349

–

(197)

–

111

(87)

–

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

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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

223,389

257,795

–

ENTERTAINMENT. TOMORROW

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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

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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).

ENTERTAINMENT. TOMORROW

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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

–

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

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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

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.

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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.

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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%

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

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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

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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

–

(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)

–

3,974

495

(29)

–

(54)

–

6,614

(1,138)

–

550

(290)

251

–

NET CASH FLOW FROM OPERATING ACTIVITIES

122,732

126,247

(74,335)

(57,353)

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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.

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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.

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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)

729

–

2,674

–

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)

–

Advance from minority interests

(3,604)

(129)

Riverside uncalled capital

Riverside shareholder advance

Convertible notes

Net Carrying Amount of Recognised

–

(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.

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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

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

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.

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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

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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.

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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.

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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 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.

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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

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
–
–
–
–
–
–
–
–
–
–

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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.

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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.

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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.

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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

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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:

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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.

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.

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