SkyCity Entertainment Group
Annual Report 2003

Plain-text annual report

36120 Skycity Report Cover 24/9/03 9:40 AM Page 1 S K Y C I T Y E n t e r t a i n m e n t G r o u p L i m i t e d A n n u a l R e p o r t 2 0 0 3 SKYCITY Entertainment Group Limited Annual Report 2003 Current and historical financial information, including financial statements, news releases and presentations, is available online at www.skycitygroup.co.nz PLAY: Amuse, entertain, enjoy, have fun! A vision to 'create fun and entertainment' for customers is at the heart of every experience SKYCITY offers The Board of Directors is pleased to present the Annual Report of SKYCITY Entertainment Group Limited for the year ended 30 June 2003. For, and on behalf of, the Board. Jon Hartley Chairman 26 September 2003 Evan Davies Managing Director Financial Summary $107.2 million net surplus after tax up 26% * EBITDA: Earnings before interest, tax, depreciation and amortisation † before non-recurring item Sales Revenues EBITDA* Net Surplus after tax Earnings per Share ‡ including special dividend of 20cps paid November 2002 Dividends per Share 2003 $556m $252m $107.2m 51cps 67cps‡ 2002 $510m $221m $85.1m† 41.5cps† 38cps Change(%) +9% +14% +26% +23% +76% Highlights • Superior pre-tax returns to SKYCITY • New product innovations and a continuously shareholders of 72.2% for the 2002/03 financial year compared with the NZX50 average of 10.5% for the corresponding period • A record interim plus final dividend of 47 cents per share (cps) – up from 38cps in 2001/02 – increased to 67cps for the year, as a result of the special dividend of 20cps paid in November 2002 • $100 million capital management programme announced in November 2002, comprising a 20cps special dividend ($42 million) paid in November 2002 and a $40–$60 million on- market share buyback programme being undertaken during the 2003 calendar year • SKYCITY Hamilton opened on time and to budget in September 2002 and has performed to expectations for its initial trading period to 30 June 2003 • Record revenues and earnings were recorded across the Group. Group revenues were up 9% to $556 million and Group EBITDA increased by 14% to $252 million • Auckland revenues were up 8% to $374 million and EBITDA was up 9% to $199 million • Adelaide revenues were up 9% to A$103 million and EBITDA was up 31% to A$26 million • SKYCITY Hamilton added a new revenue stream of $20 million and EBITDA of $7 million (for its first trading period of 9.3 months) refreshed entertainment experience for customers at all SKYCITY properties continues to be the primary focus, leading to continuing increases in revenues across the Group Other highlights of the 2002/03 year included: • Cost management across the Group’s properties, resulting in improved margin performance, with SKYCITY Adelaide increasing its EBITDA ratio (to revenues) from 21% to 25% • SKYCITY Adelaide increased its entertainment profile in South Australia, with a number of popular entertainers performing on property • New Village SKYCITY Cinemas eight-screen multiplex opened at Westfield St Lukes (Auckland) in May 2003, with a new eight- screen complex scheduled to open in Tauranga in April/May 2004 Contents 2003 Highlights Chairman’s Report Managing Director’s Review Experiences Involvement Evolution Financial and Operating Review Corporate Goverance Financial Statements and Notes Additional Statutory Information Directory 1 2 – 5 6 – 9 10 – 13 14 – 17 18 – 21 22 – 28 29 – 39 41 – 76 77 – 87 88 SKYCITY Entertainment Group Limited Annual Report 2003 3 Shareholders and the investment community have come to expect outstanding results from SKYCITY and this year the company extended its record of growth and success Chairman’s Report This year’s strong financial result has demonstrated the company’s resilience in the face of a range of external influences and is confirmation of the value that can be delivered through providing relevant and integrated entertainment experiences. This result is a credit to all of our people and we thank them for a great year. Strategic Development SKYCITY has continued its strategic objective to extend, broaden and diversify its entertainment profile and to further capitalise on its transformation from a single property undertaking (SKYCITY Auckland) to a diverse entertainment and gaming business. In my 2002 report to shareholders, I referred to the focus for 2002/03 being on the realisation of value and on continuing to build on the growth and consolidation opportunities that had been established by the business. During the 2002/03 year, the Group expanded its activities through the opening of the SKYCITY Hamilton property in September 2002 and through the commencement of three major development projects at SKYCITY Auckland. The $25 million gaming expansion project is scheduled for completion in December 2003, the $65 million convention and exhibition centre for April 2004, and the $75 million five-star SKYCITY Grand Hotel for April 2005. Completion of the SKYCITY Grand will increase the number of hotel rooms at SKYCITY Auckland to 660 rooms. These major projects will enable the company to capitalise on growth opportunities in Auckland, and the new Hamilton business will make an important contribution to SKYCITY’s revenue streams. During the 2003/04 financial year, the company will consider the opportunities that may be able to be created at SKYCITY Adelaide through an increase in the range of services and facilities offered at that property. We continue to assess opportunities that fit within our strategic criteria while ensuring our focus on optimising the returns from our existing operations remains a priority. • Six consecutive years of profit and dividend growth • Return to shareholders of 455% in the 71/2 years since listing • Share price has appreciated by more than 250% since listing in 1996 • Earnings per share up from 18cps in FY97 to 51cps in FY03 In last year’s Annual Report I commented that SKYCITY has delivered a combination of both yield and growth to its shareholders and that it remained our intention to continue with this dual focus into the future. We are pleased to reflect on a significant increase in the market price of SKYCITY shares during the 12 months since the 2002 Annual Report was circulated to shareholders. At the same time 67 cents per share has been paid to shareholders as fully- imputed dividends and the number of shares on issue has been reduced via the company’s on-market share buyback programme. At an operational level, SKYCITY’s broad range of customer service and marketing initiatives is a key strategic driver for providing our customers with a range of exciting and memorable entertainment experiences. We are very aware that our customers enjoy their entertainment experience with us more if we meet or exceed their expectations. The company’s strategic objectives remain focused on ensuring that the best possible entertainment experience is provided for all customers at all times. Capital Management SKYCITY maintained its 90% dividend payout policy during the 2002/03 year and also paid out a special fully-imputed dividend of 20 cents per share in November 2002. Dividends for the year, including the special dividend, totalled 67 cents per share. The first period of SKYCITY’s share buyback programme was undertaken during March/April 2003. The second period of the buyback programme is being undertaken between August and November 2003. In the long term, the company remains committed to delivering value to shareholders through its capital management programmes and the judicious pursuit of investment opportunities. A number of new investments are being made at existing properties, including the major expansion and refurbishment projects currently underway at our flagship SKYCITY Auckland property. We will also look to invest in new opportunities that fit appropriately within the scope of our gaming and entertainment framework. Sustainability and Responsibility Governance Central to SKYCITY’s ongoing success has been a proactive industry-leading approach to community participation and host responsibility. We have in place effective corporate citizenship and host responsibility programmes at all properties. We are proud to report that SKYCITY continues to go much further than simply meeting legal obligations in this regard and that we consistently seek to enhance this area of our business. The board believes that showing leadership and best practice in these areas is central to the long-term sustainability and viability of not only SKYCITY’s business but also the wider gaming and hospitality sector. Proactive and innovative initiatives to minimise harm relating to the service of gaming and alcohol are critical business strategies, as are our community sponsorship and support activities. The 2002/03 Community Report, circulated to shareholders with this Annual Report, identifies the core areas of community participation and support undertaken by the various SKYCITY properties. SKYCITY Entertainment Group has been committed to international best practice in corporate governance since commencement. In March 2003 the Australian Stock Exchange Corporate Governance Council released its Principles of Good Corporate Governance and Best Practice Recommendations and in August 2003 the New Zealand Exchange released its Corporate Governance Best Practice Code. Such regulatory responses are to restore overall confidence, not to give rise to a ‘governance industry’. Of itself, governance is not black and white, nor is it satisfied by relentless box-ticking. The SKYCITY board has reviewed the ASX and NZX pronouncements on corporate governance best practice and we are pleased to report a high level of compliance with the requirements and recommendations as set out in those documents. The board of the company currently comprises six directors of whom five are non-executive and a majority of whom meet the independence tests of the ASX and the NZX. In 2002/03, in conditions that challenged many businesses, SKYCITY delivered a superior financial result: a record $107.2 million net surplus – up 26% on the previous year’s net surplus of $85.1 million (before non-recurring item). This excellent result is consistent with our record of growth and success, and recognises our strong and responsible strategic and operational focus on our customers, our people, and our business processes. In a wider market context, SKYCITY again outperformed: pre-tax annual return to shareholders for the year ended 30 June 2003 was 72.2%, compared to 10.5% for the NZX50. SKYCITY is one of New Zealand’s top companies by market capitalisation, with each separate business a significant regional economic contributor and employer in its own right. 2 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 3 Chairman’s Report (continued) All directors of the company are governed by formal terms of appointment and terms of reference, which identify the corporate and regulatory responsibilities of directors. The board has three committees – the Audit and Risk Committee, the Governance and Remuneration Committee and the Nomination Committee, each of which operates under a specific charter. In addition to the board and committee charters, the company has a formal code of business practice, which all personnel must comply with at all times, and a code for securities transactions which governs company personnel when buying or selling SKYCITY shares. SKYCITY receives favourable feedback from the investment community and from shareholders about the quality of the company’s information disclosure. Our objective is to ensure that the market, and the investment community in general, are well informed on the key performance parameters relevant to each of our major areas of business activity. Ultimately, strong corporate governance requires a set of practices and procedures which determine the actions and behaviours of all personnel, but which also incorporate actions and intentions that lead to increased value for shareholders and other stakeholders of the company and for the communities in which we operate. As such, good governance lies at the heart of our business. Whilst this increased focus on compliance with new governance standards is important, we continue to understand that the nature of business is one of risk-taking within appropriate frameworks. To this end, the wisdom, candour, commonsense and experience of our board is of primary importance. A ten-page section of this Annual Report is devoted to explaining SKYCITY's approach to, and current procedures with respect to, corporate governance best practice. For further information about the company’s corporate governance, please refer to the section of this Annual Report at pages 29-39. Shareholders are again encouraged (via the SKYCITY website www.skycitygroup.co.nz) to forward questions they would like addressed at this year’s Annual Meeting. Questions can be posted to the website by 5.00pm New Zealand time on 28 October, two days prior to the meeting. Due to major construction work, SKYCITY’s Auckland conference facilities are currently closed and the 2003 Annual Meeting will, as a consequence, be held at SKYCITY Hamilton. Adoption of International Financial Reporting Standards (IFRS) The New Zealand Accounting Standards Review Board has recommended that listed issuers should comply with IFRS for their 2007 financial years, or earlier, with early adoption permitted from 1 January 2005. The SKYCITY board has determined to adopt IFRS for its financial year commencing 1 July 2005. The first set of fully IFRS-compliant financial statements will therefore be the SKYCITY interim accounts for the half-year ending 31 December 2005. Directors This year, two directors – Patsy Reddy and Bill Trotter – are standing for re-election at the Annual Meeting. Both Patsy and Bill have provided excellent contribution to board and committee discussion, debate, and decision- making. On behalf of the board, I strongly endorse both directors for re-election. Directors’ Fees At the company’s 2000 Annual Meeting, shareholders approved a resolution for directors’ fees to be $450,000 plus GST (if any) in total in any financial year. In the year ended 30 June 2003, SKYCITY directors, other than the chairman of the board, were paid directors’ fees of $50,000 per annum. The chairman of the board was paid $100,000. In addition to directors’ fees, Sir Peter Elworthy, a founder director of the company who retired in October 2002 after 10 years of excellent service, was paid a retirement amount of $107,507. The amount of the retirement allowance paid to Sir Peter was calculated as a Looking Forward During 2002/03 SKYCITY demonstrated its resilience amid a set of challenging external business conditions and continued its track record of delivering outstanding results to shareholders. SKYCITY is a company of considerable economic significance to New Zealand and South Australia. At a regional level – in Auckland, Adelaide, Hamilton, and Queenstown – SKYCITY has established a presence as a significant employer and contributor to its local economies and communities. The company’s maturity as a pre-eminent entertainment destination in each of its locations has been demonstrated by extension of the SKYCITY brand identity across all properties. The platform has been set for the further expansion of SKYCITY’s interests and profile and we are well positioned to execute the growth strategies and plans we have in place at individual properties, and for the Group overall. At SKYCITY, we believe the way forward is both clear and exciting. Jon Hartley Chairman proportion of three years of his directors’ fees, as provided for by the company’s constitution. Agenda item 3 for the 2003 Annual Meeting proposes an increase in directors’ fees to $65,000 per non-executive director per annum (other than for the chairperson of the board), with the chairperson’s fee proposed at $130,000 per annum. In addition, to recognise the extra work undertaken by the chairpersons of the Audit and Risk and the Governance and Remuneration committees, a committee chairperson fee of an additional $10,000 per annum is proposed. The resolution for consideration at the 2003 Annual Meeting proposes a total directors’ fees amount of $600,000 per annum. This amount is calculated based on provision for up to six non- executive directors each at $65,000 per annum, the chairperson of the board at $130,000 per annum, two committee chairperson fees each at $10,000 per annum, and a provision for special work, which may be undertaken by one or more directors from time to time, of up to $60,000 per annum. Since the directors’ fees were set at the company’s Annual Meeting in 2000, the scope and scale of the SKYCITY Entertainment Group has expanded significantly and the returns to shareholders have been well in excess of the average of returns experienced by shareholders of NZX50 companies. On behalf of shareholders, the board has obtained independent advice when considering the fees proposal, which is being put to the Annual Meeting. The directors believe that the recommended fee levels are fair and reasonable, both for their stewardship of the company’s assets and as a reflection of their responsibilities under corporate and securities legislation and the ASX and NZX listing rules. A letter from John Egan Associates, which is included with the 2003 Notice of Annual Meeting, provides independent confirmation that the proposed fee levels are appropriate for a company of the scale of SKYCITY, when compared with directors’ fees for publicly-listed companies in Australasia. 4 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 5 With the Group in excellent financial health and with considerable opportunities ahead, SKYCITY is in a strong position to continue its growth record over the coming years Managing Director’s Review In 2002/03 more than 10 million visitors from throughout New Zealand, Australia and the world came out to play at SKYCITY - whether it was to hear live music, see a movie, relax in superior accommodation, play the tables and gaming machines, or enjoy a great variety of other entertainment and hospitality options. With the Group’s net surplus after tax reaching a record high of $107.2 million, 2002/03 was SKYCITY’s sixth consecutive year of profit increase and earnings growth. Behind these milestones is a single-minded focus on creating fun and entertainment for our customers and a robust philosophy: to provide an integrated entertainment experience – more than just gaming – at each of our properties. The year’s achievements also signal a decisive step in our growth as a multi-property Group that offers a broad range of entertainment experiences on both sides of the Tasman. SKYCITY Entertainment Group The 2002/03 year was a demanding but satisfying one for the Group. Strategically, our focus was on adding further depth to our broad entertainment business while sustaining earnings growth from our core gaming operations. Key to the Group’s result was a commitment to creating value from the extensive mix of entertainment offered at each of our properties. The company will continue to make the most of its gaming and non-gaming operations in order to provide a complete entertainment experience and to attract new and repeat visitors to our complexes. Our successes in 2002/03 are particularly pleasing. They provide further evidence of our business’s resilience to external uncertainty and our well-established position in the entertainment market. Highlights of the 2002/03 result included: • Operating revenues up 9% to $556 million • EBITDA* up 14% to $252 million • EBIT up 16% to $201 million * Earnings before interest, tax, depreciation and amortisation Our successes in 2002/03 are particularly pleasing. They provide further evidence of our business’s resilience to external uncertainty and our well- established position in the entertainment market SKYCITY Auckland Our flagship property SKYCITY Auckland recorded another outstanding performance in 2002/03, with revenue growth across all sectors of the business. Revenues were up 8% (to $374 million), with gaming revenues growing 8% (to $313 million). Table games recorded 7% growth and gaming machines were up 8%. Food and beverage revenues were up 10% (to $30 million), Sky Tower revenues were up 7% (to $7.6 million), and hotel and conference revenues also increased by 7% (to $20 million) despite the closure of our conference facilities, in mid-April 2003, in preparation for the expansion of the main gaming floor. Development of the new SKYCITY Auckland convention and exhibition centre, adjacent to SKYCITY Auckland, progressed well throughout the 2002/03 year. These two construction projects, along with the new five-star SKYCITY Grand Hotel, provide SKYCITY Auckland with a clear path for future growth. They represent a $165 million investment in Auckland and the largest commercial capital project currently underway in the city. Based on the track record of our Auckland business, this is an investment that we make with confidence – and, as a New Zealand business, with a great deal of pride. We expect SKYCITY Auckland to deliver further revenue growth in 2003/04 and beyond; supported by the additional gaming machines and tables on level three of the main complex and cross-promotional opportunities between the main site and the new developments. We will also further leverage our relationship with SKYCITY Leisure’s cinema operations and our association with organisations such as Auckland Rugby, with whom we announced a three-year sponsorship partnership in July 2003. SKYCITY Adelaide SKYCITY Adelaide continued to show solid growth in 2002/03. At A$15.2 million, EBIT was up 48% on the previous year. Product developments, marketing initiatives, and a continued focus on enhancing SKYCITY Adelaide’s reputation as a leading entertainment destination, were central to the result. A focus on customer service and the successful integration of our Action loyalty programme into the Adelaide business were also important contributors to the growth in revenues. SKYCITY Adelaide revenues were up 9% (to A$103 million), with gaming revenues up 10% (to A$92 million). Revenue growth from tables increased by 10%, gaming machine revenues were up 9%, and food and beverage revenues were up 5% (to A$13 million). Converting revenue growth into profit performance continues to be a key focus at SKYCITY Adelaide and we are pleased to report that operating earnings (as measured by EBITDA) increased 31% from A$19.7 million to A$25.9 million. While the South Australian gaming market is more developed than in New Zealand, many opportunities remain. The Adelaide business is now tracking in line with our pre-acquisition expectations and we anticipate continuing growth in visitation, revenues and margins over the coming year. 2002/03 was SKYCITY’s sixth consecutive year of profit increase and earnings growth 6 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 7 Managing Director’s Review (continued) SKYCITY Hamilton Since opening on time and to budget in September 2002, SKYCITY Hamilton has delivered an excellent record of achievements. While the processes involved in establishing a new business are significant and require a concerted effort beyond the initial set-up period, we are confident that the customer interest SKYCITY Hamilton has attracted as a new complex will be sustained – and grown – over time. SKYCITY Hamilton enjoyed a very strong six-to-eight week period immediately post- opening, with visitation then settling into a more ‘business as usual’ pattern. Revenues were $20.4 million over the nine-month period, with earnings before interest and tax (EBIT) at $3.5 million. SKYCITY Hamilton has raised its profile in the Waikato community through its sponsorship of the Chiefs Super 12 and Waikato NPC rugby teams, and the property has also received two major building awards – one from the Property Council of New Zealand and the other from the Master Builders’ Association. A range of new initiatives provide for continued growth at SKYCITY Hamilton. These include the opening of a VIP gaming room in July 2003, extension of casino opening hours from August 2003, and the development of a full-service conference facility within the complex, expected to open in April/May 2004. SKYCITY Queenstown Casino SKYCITY Queenstown Casino recorded a significant turnaround in financial performance during the year, reducing an EBIT loss of $1.3 million in 2001/02 to an EBIT loss of $0.3 million for the 2002/03 year. In Queenstown, revenues were up 15% to $6.0 million and gross margin increased from 24% to 35%. Casino is establishing itself as a leading entertainment and function venue. Despite its small size, it remains an important part of the SKYCITY mix and we look forward to another improved result in 2003/04. SKYCITY Leisure SKYCITY Leisure made significant gains during 2002/03, based on the sound platform provided by the capital restructuring of the previous year and a strong focus on marketing, operational efficiency, and leveraging of its association with the SKYCITY Group. Significant achievements included the re-brand of IMAX/Force Entertainment Centre as SKYCITY Metro, re-opening of the IMAX theatre as Megascreen Queen Street, and the opening of the first Village SKYCITY Cinemas multiplex at Westfield St Lukes. The Village SKYCITY brand is also being progressively rolled out across other jointly-owned cinemas. Additional highlights included implementation of the management services agreement, which was approved at SKYCITY Leisure’s 2002 annual meeting. Under that agreement, SKYCITY Entertainment Group is responsible for managing SKYCITY Leisure’s business and corporate activities. SKYCITY Leisure announced a net profit of $3.4 million for 2002/03, the first fiscal year surplus by the company since 1999. In 2003/04 SKYCITY Leisure is poised for a further year of strong earnings performance. Canbet The past year saw ASX-listed Canbet Limited, in which SKYCITY holds a 32.6% shareholding, make a successful transition to a new base in the United Kingdom. The move to the U.K. will help the company to benefit from a more accommodating operational environment and greater growth opportunities. These gains are encouraging and our breakeven target is now well within range. In a town built on the leisure market, SKYCITY Queenstown Net surplus for the year was A$499,000, up from A$304,000 in 2001/02, on turnover of A$547 million (up 33%). Alongside our physical expansion, our involvement in the communities in which we participate, continues to grow Our People SKYCITY has developed a reputation as an employer of choice and a great place to work. Performance excellence is the SKYCITY standard and we are focused on ensuring that our customers’ experiences are second-to-none in the entertainment market. Highlights of the 2002/03 year included the recruitment and training of more than 200 staff in time for the opening of SKYCITY Hamilton in September 2002. At SKYCITY Auckland we also graduated our first cookery apprentices after three years of training under the Modern Apprenticeship programme. Following the success in Auckland of our unique employee incentive schemes – the ‘Customer Experience Incentive’ (CEI) and the ‘Performance Pay Incentive’ (PPI) – these programmes were rolled out across the Group in 2002/03 to include staff in Adelaide, Hamilton and Queenstown. A key priority is to further enhance the SKYCITY culture to support the delivery of excellent service at all of our properties. Regulatory Developments SKYCITY operates in a sector in which regulatory developments and issues will continue to be significant. Increased restrictions on environmental tobacco smoke and a greater focus by government on problem gambling management are considerations for business planning in New Zealand and South Australia. In both areas, changes have been signalled for some time, and SKYCITY is well placed to address these. Our existing host responsibility and problem gambling management initiatives are industry- leading, and are an important part of the way we conduct our operations. We welcome the introduction of clear, industry-wide guidelines in both New Zealand and Australia. With regard to environmental tobacco smoke, preparing customers for increased restrictions and making physical changes to our properties will be a primary focus in the time between the passage of the proposed legislation and it taking effect. Continuing the Momentum 2002/03 was a highly successful year for SKYCITY and one in which we further delivered on our ambitions as a serious trans-Tasman participant in the gaming and entertainment sector. We have cemented our position as one of New Zealand’s top listed companies, our brand has become significantly more visible and, with considerable growth opportunities remaining in both New Zealand and Australia, all of our properties and businesses are well positioned for future development. Alongside our physical expansion, our involvement in the communities in which we participate continues to grow. This year was notable for the establishment of the third SKYCITY community trust, in Hamilton. Further information about our operational achievements, new products and facilities, and our community involvement is available on pages 16 and 17 of this report. A separate Community Report is also available and has been distributed to shareholders with this Annual Report. SKYCITY has created a culture of performance and achievement, and I thank each member of staff for their commitment and contribution to creating the experiences we provide for our customers. We can look forward with confidence to the challenges of 2003/04 and beyond. Evan Davies Managing Director 8 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 9 PLAY: Customers, come out to play! SKYCITY’s entertainment and leisure options are endless: roulette to restaurants; hotels to hors d’oeuvres; movies to meetings In 2002/03 more than 10 million visitors enjoyed SKYCITY’s broad range of experiences Experiences A single-minded vision underpins every SKYCITY operation: to create fun and entertainment for our customers In line with this vision, our strategy is to offer integrated, locally-relevant entertainment at each of our properties – broad-based entertainment experiences that range from: gaming to theatre; dining to conferences; cocktails to dancing. Keeping our facilities and the experiences we offer compelling – providing new and different reasons for people to visit SKYCITY – is fundamental to our business. We continue to create new products and to refine our existing offerings based on customer feedback and extensive market research programmes. New Gaming Options New gaming options were a priority this year. SKYCITY Hamilton opened a VIP gaming area in June, adding to the property’s gaming options and providing customers with a more private and personalised gaming experience. New gaming machine products and technologies were also introduced in Queenstown during the year. In Adelaide, changes to machine layouts and a series of exclusive product launches, supported by strong advertising campaigns, created interest and excitement on the gaming floor. SKYCITY Auckland’s main gaming floor expansion is well underway and will be fully operational by December 2003. A new upper floor, and reconfigured existing facilities, will offer the latest technology in gaming machine products to complement customer favourites. A highlight of Auckland’s expanded gaming floor will be a new bar, featuring a dramatic floor-to-ceiling window over the gaming floor. Sky Tower In recent years Sky Tower’s adventure activities, Sky Jump and Vertigo, have added a new dimension to the Sky Tower experience. This year the enhancements continued, with Sky Tower’s signature restaurant, Orbit, being refurbished in September 2002. Since opening six years ago, Orbit has become a favourite à la carte dining option for New Zealanders and visitors alike, serving thousands of meals a year to satisfied diners, including former U.S. President Bill Clinton and movie star Michael Douglas. This year’s restaurant revitalisation included a complete interior refurbishment, an acclaimed new menu, and the appointment of a SKYCITY-led management team. A major redevelopment of the Sky Tower entry and exit areas has also been undertaken, including the construction of a new theatrette and a significant expansion of retail offerings. The changes have extended space for visitors on the main observation level, through the relocation of retail facilities, and enhanced Sky Tower’s appeal as a destination in its own right. This year all SKYCITY properties cemented their reputations as leading entertainment destinations Keeping our facilities and the experiences we offer compelling – providing new and different reasons for people to visit SKYCITY – is fundamental to our business Live Music, Film, Plays, and Concerts This year all SKYCITY properties cemented their reputations as leading entertainment destinations. At SKYCITY Auckland, we continued to provide Aucklanders with free live music and entertainment seven days a week. Highlights of the year included the film premieres of Whale Rider and Austin Powers – Goldmember; a very popular season of the Rocky Horror Show; a songwriters’ night in support of NZ Music Month; and the 2003 Auckland Film Festival. In addition, we brought the SKYCITY Starlight Symphony to more than 250,000 Aucklanders for the fifth time, with thousands of corporate guests enjoying out-catering under the stars, courtesy of SKYCITY Cuisine and Events. A series of major concerts and events at SKYCITY Adelaide enhanced the complex’s reputation as one of South Australia’s leading entertainment venues, with special highlights including three semi-acoustic concerts by rock icon Jimmy Barnes. SKYCITY Hamilton has quickly developed a reputation as one of Hamilton’s leading live music venues with local bands proving to be popular attractions. Stand-up comedy, local musicians, and quiz-nights are just some of the regular live entertainment featured at SKYCITY Queenstown. The Wild Thyme bar and restaurant is becoming a local favourite with the business market for functions and events, and the bar’s big screen is a fixture on major sporting occasions. Art and Architecture Special artistic and architectural highlights add to the visitor experience at all SKYCITY properties. Carefully selected local artworks and interior-design elements reflect the unique environs of each property and, in several instances, heritage and cultural considerations. Highlights this year included the restoration and raising of the superb art deco dome ceiling at SKYCITY Hamilton and a pre-dawn ceremony to unveil five carved Maori Pou (memorial posts) along the Waikato riverbank. Local students and connoisseurs of art have also come to frequent the property to view the 35 square metre glass artwork by well-known New Zealand artist Dick Frizzell, which depicts the Waikato River, clouds, rain and mist and adds to the visual appeal of SKYCITY’s newest entertainment complex. 12 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 13 PLAY: Each SKYCITY property plays a significant community role: from employment to sponsorship, purchasing local produce and services, to regional tourism generation Integral to each SKYCITY business is a commitment to community involvement Involvement SKYCITY is an active and positive contributor to the communities in which we operate As a leading corporate citizen, and the host of more than 10 million visitors each year, we have significant community responsibilities. Host Responsibility Our approach to host responsibility is widely acknowledged as industry-leading. Taking host responsibility seriously – doing more than we are required to do legislatively – makes sound business sense. A proactive approach to problem gambling support helps us deliver on our fun and entertainment promise to customers and aids our long-term sustainability as a business. Central to our approach is a commitment to train all of our 3,500-plus staff in awareness regarding responsible provision of gaming and service of alcohol. New host responsibility initiatives in 2002/03 included the roll-out of problem gambling support materials in multiple languages to all SKYCITY properties, and the production of information kits for medical practitioners. Developed with input from treatment providers, these kits are distributed free of charge to help the medical community identify and treat problem gamblers. SKYCITY Community Trusts Since establishing our first community trust in Auckland in 1996, SKYCITY operations have contributed nearly $12 million to a wide range of community initiatives. This year’s highlights included the establishment of the SKYCITY Hamilton trust and the first round of grants by the Queenstown trust. Grants by the Auckland trust reached a record annual level of $2.8 million. Major grants included $215,000 to restore the original Titirangi home of Colin McCahon, arguably New Zealand’s greatest artist, and $225,000 to the Auckland War Memorial Museum for the fit-out of its new auditorium. Community Sponsorship We focus our multi-million dollar sponsorship portfolio on three broad areas: health; the arts, culture and entertainment; and sport. We provide more than just financial support to the organisations with which we work. Our involvement extends to creating fundraising opportunities, making our facilities available free of charge or at cost, and providing our expertise in marketing, communications and project management. Our approach to host responsibility is widely acknowledged as industry-leading We believe longevity has also been a successful element of our community support. Our association with Starship Children’s Hospital is now entering its eighth year. Recent highlights included the opening of the SKYCITY-funded Puawaitahi multi-agency centre for abused children, and fundraising for the hospital’s paediatric heart unit. This year was also a significant one for our involvement with Kidz First Children’s Hospital in South Auckland, with an award-winning advertising campaign to improve public awareness about how to treat burns, and a special screening of Harry Potter and the Philosopher’s Stone for young burns patients. SKYCITY is the founding sponsor of Kidz First’s Burns and Plastics Unit. During the year Sky Tower and SKYCITY Hamilton were lit pink in support of breast cancer awareness and several new initiatives were implemented to raise funds for the Adelaide Woman’s and Children’s Hospital. Destination Marketing SKYCITY continues to lead national and regional efforts in promoting New Zealand and South Australia as tourist destinations. Our Auckland-based sales team, which supports the Group, is travelling constantly – internationally and nationally – marketing the destinations in which we do business, and promoting the broad-based offerings of all our properties. We take a leading role in tourism industry forums and work closely with other major tourism organisations and operators. Successes in the 2002/03 year included the tourism contribution of SKYCITY Hamilton – promoted alongside the new Waikato Stadium, Hobbiton tours, and the Novotel Tainui Hamilton hotel – in raising the profile of the Waikato region as a domestic and international destination. In addition, sales for our new Auckland convention centre and five-star hotel have been a focus, with significant interest We continue to lead national and regional efforts in promoting New Zealand and South Australia as tourist destinations The year was capped off with a highly successful trip by the New Zealand Special Olympics team to the World Summer Games in Dublin. Fundraising at the SKYCITY Starlight Symphony, the Sky Tower Vertical Challenge, and other SKYCITY events gave the team the extra lift needed to ‘Go for Gold’ in Dublin. SKYCITY has been the New Zealand Special Olympics Foundation’s key sponsor since 1996. from a variety of markets translating into strong advance bookings. It is also with great pleasure that we note Sky Tower’s receipt of the top Visitor Attractions award at the September 2003 New Zealand Tourism Awards, cementing its reputation as Auckland city’s favourite landmark. 16 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 17 PLAY: Whether it’s work or play, or a combination of both, SKYCITY presents the ideal solution for any occasion Continual evolution of products and experiences is central to SKYCITY’s success Evolution The 2002/03 year was one in which SKYCITY came of age as a truly diversified entertainment Group In just a few years, SKYCITY has rapidly evolved from a single-site gaming business based in Auckland, to a multi-property Group that offers a variety of entertainment experiences on both sides of the Tasman. We are one of New Zealand’s largest listed companies by market capitalisation, and each of our properties is a significant employer and business in its own right. A number of notable milestones were reached during the 2002/03 year. SKYCITY Hamilton Opening Our third New Zealand property, SKYCITY Hamilton, opened in September 2002 to an extremely favourable customer response. Since then the complex has continued to perform well, with opening hours being extended in response to customer demand. New conference facilities are due for completion in early 2004, further positioning SKYCITY Hamilton as the Waikato region’s leading entertainment and leisure venue. SKYCITY Adelaide We have accomplished the integration of SKYCITY Adelaide into the overall Group and, this year, the benefits were realised in the business’s strong performance. Group-wide ACTION 2002/03 was a watershed year for Action, SKYCITY’s award-winning customer loyalty programme. Action, which rewards customers for spend throughout SKYCITY’s business – from gaming to retail, restaurants to hotel accommodation – is a core customer-retention and acquisition tool across the Group. In place at SKYCITY Hamilton from opening day, in September 2002, Action has proved very popular with customers. It has also been integral in driving repeat visitation and customer acquisition at SKYCITY Adelaide over the past year. In November 2002, Action was recognised internationally as a top customer-loyalty programme, being the only non-American award winner at the 2002 U.S. National Centre for Database Marketing Awards. In February 2003, Action won five major awards from the New Zealand Direct Marketing Association. A number of notable milestones were reached during the year SKYCITY Auckland Expansion SKYCITY Leisure This year we made excellent progress on our $165 million SKYCITY Auckland expansion and refurbishment projects, with construction of the new SKYCITY Auckland Convention Centre, on target for completion in April 2004, and the new five-star SKYCITY Grand Hotel scheduled to open in April 2005. SKYCITY is continually refreshing and developing the products we offer to provide compelling customer experiences. Significant to SKYCITY Auckland is the development of a third public gaming area, incorporating the introduction of 12 additional tables and 230 more machines, which is on schedule to commence operation early in December 2003. The capital works programme in Auckland includes the refreshment of the Sky Tower entry and new retail facilities, as well as a major refurbishment of the existing SKYCITY Hotel – the last stage of which will be completed during 2003/04. One of the most visible indicators of SKYCITY’s maturity as a company has been the adoption of a master-brand strategy across all our operations Good progress was made during 2002/03 in maximising our operational, marketing and branding opportunities with cinema operator and property company SKYCITY Leisure. The re-naming of Force Corporation as SKYCITY Leisure, the re-branding of the Force Entertainment Centre as SKYCITY Metro and the opening of the first branded Village SKYCITY Cinemas multiplex, at Westfield St Lukes, were major achievements. The new brand will be applied progressively to existing and new sites, including a development at Fraser Cove, Tauranga, due to open in April/May 2004. SKYCITY = Entertainment Our vision to create fun and entertainment reached a new level this year. One of the most visible indicators of SKYCITY’s maturity as a company has been the adoption of a master- brand strategy across all our operations. This decision reflects our intention to build a robust and internationally recognised SKYCITY brand and creates significant value through increased visibility in the communities in which we operate. Central to the strategy is a desire to ensure our customers recognise and enjoy a distinctive SKYCITY experience at every one of our entertainment properties. The common brand identity also demonstrates SKYCITY’s clear corporate vision and the application of a consistent, proven approach to governance, performance and professional practice throughout the Group. 20 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 21 Financial and Operating Review Net Surplus $107.2 million (+26%) $107.2m $85.1m* $70.1m* $60.3m $45.6m Total Dividend 67cps Special Dividend (11/02) 20cps Interim Dividend (4/03) 21cps Final Dividend (10/03) 26cps 47c 38c 31.5c 28c 21.5c 20c FY 99 00 01 02 03 FY 99 00 01 02 03 NET SURPLUS AFTER TAX ($m) TOTAL DIVIDEND (cents per share) The $107.2 million net surplus after tax reported for the year ended June 2003 was up 26% on the $85.1 million* reported for the prior year Earnings and Dividends Group Operating Revenues ($556 million) Earnings per share increased from 41.5 cents* to 51.0 cents per share (cps) in 2002/03 and, as a result, dividends paid to shareholders increased from 38cps in 2001/02 to 47cps, plus an additional 20cps special dividend for the 2002/03 year. The increased earnings for the Group were driven by increased revenue performance at SKYCITY’s Auckland, Adelaide and Queenstown properties and from the new revenue stream generated by SKYCITY Hamilton, following its opening in September 2002. A final dividend for the 2002/03 financial year of 26cps has been declared and will be paid on 3 October 2003 to those shareholders on the SKYCITY register as at 5:00pm on 19 September 2003. As for previous dividends, the FY03 final dividend will be fully imputed. Across the Group, operating revenues were up 9% (+$46 million) over the previous year, operating earnings (as measured by EBITDA – earnings before interest, tax, depreciation and amortisation) increased by 14% (+$31 million), and net surplus after tax increased by 26% (+$22.1 million). * before non-recurring items The revenue growth was accompanied by effective cost management with performance ratios improved across the Group – gross operating margin was increased from 54% to 55%, the EBITDA ratio (to revenue) was increased from 43% to 45%, and the EBIT ratio was increased from 34% to 36%. Effective interest rate management then helped convert the EBIT gain to a pre-tax profit gain, up from 25% to 28% of revenue. Group revenues increased by 9% to $556 million, with SKYCITY Auckland up 8% from $347 million to $374 million, SKYCITY Adelaide up 9% from A$95 million to A$103 million, and other New Zealand operations (SKYCITY Hamilton, SKYCITY Queenstown Casino, and SKYCITY Leisure) up 38% from $49 million to $68 million. Of Group revenues, SKYCITY Auckland provided 67% of the total, SKYCITY Adelaide 21%, SKYCITY Leisure 7%, SKYCITY Hamilton 4% (for its nine-month trading period), and SKYCITY Queenstown Casino 1%. Group Earnings • EBITDA • EBIT • NSBT $252m $201m $159m At the EBITDA level, the Group result was up 14% to $252 million, with SKYCITY Auckland up 9% from $183 million to $199 million, SKYCITY Adelaide up 31% from A$20 million to A$26 million, and other New Zealand operations up 63%, from $14 million to $24 million, with SKYCITY Hamilton contributing $7.2 million of that increase. Of particular note within the EBITDA results was the increase in the SKYCITY Adelaide ratio from 21% (of revenues) in FY02 to 25% in FY03. At the Group EBIT line, SKYCITY Auckland contributed 86% of total earnings ($173 million), SKYCITY Adelaide 9% (A$15.2 million), and other New Zealand operations 5% ($10.5 million). SKYCITY Auckland SKYCITY Auckland’s 2002/03 result was characterised by strong revenue growth across all business units, an increase in EBITDA ratio from 52.7% to 53.3%, and an increase in EBIT ratio by 1.3% points to 46.2%. The key results for SKYCITY Auckland showed revenue growth being converted into strong operating earnings performance, as set out below: • Revenues up $27 million (+8%) to $374 million • EBITDA up $16.6 million (+9%) to $199 million • EBIT up $17.4 million (+11%) to $173 million In Auckland, the three major expansion projects were commenced: the level three gaming expansion is due for completion in December 2003; the convention and exhibition centre was well advanced towards its scheduled opening in April 2004; and the new 320-room Qualmark-rated five-star hotel project was announced last November. The new hotel is currently scheduled to open in April 2005. Gaming As has been the case for the last two years, the 2002/03 Auckland gaming result reflects significant growth in both table games and gaming machine revenues of 7% and 8% respectively. During the year, 270 new gaming machines were introduced to replace existing machines. These new machines were from a range of suppliers including Aristocrat, Konami, AGT, and IGT and the new game types have been well received by customers. The gaming expansion will add a further 230 machines and 12 tables to the total gaming presentation in Auckland. Following the opening of the gaming expansion (and new bar) in December, SKYCITY Auckland will have increased its gaming supply from 98 tables and 1,417 machines to 110 tables and 1,647 machines, a 15% increase in overall gaming capacity. 22 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 23 Financial and Operating Review (continued) During the year, the company expanded its positioning in the premium play/VIP sector, which provides an important component of the overall revenue mix. demolished to make way for the gaming expansion. Conference revenues will not resume until the new facilities become operational in April 2004. On the cost management side, implementation of a new rostering system for scheduling labour is expected to produce ongoing cost efficiencies and improved flexibility. Food and Beverage Food and beverage revenues increased by 10% to $30 million during the 2002/03 financial year. During the year, Sky Tower’s Orbit restaurant was refurbished, with the restaurant closed during these renovations for only a short two- week period. The 2002/03 year was the first full year for the Observatory restaurant (the new seafood buffet restaurant in Sky Tower) which recorded more than 60,000 covers, 5% ahead of pre-opening expectations. SKYCITY Catering and SKYCITY Cuisine and Events both established excellent reputations for quality and service at off-site locations throughout the Auckland region. During the 2003/04 year, SKYCITY looks forward to the opening of the new bar on level three of the main complex as part of the new expanded gaming facility. Hotel and Conference Hotel and conference revenues were up 7% to $20 million, despite a number of pressures on the revenue stream exerted by a reduction in inbound visitors during the SARS period of concern, and the closure of the SKYCITY conference facilities in mid-April – being SKYCITY looks forward to the opening of the new bar on level three of the main complex as part of the new expanded gaming facility Despite SARS-related reductions in hotel patronage and the closure of the conference facilities, second-half FY03 hotel occupancy held up well at 80%, resulting in an overall average occupancy for the year of 84%. During the year, stage two of the three-stage hotel refurbishment programme was completed, with the third and final stage being undertaken during the 2003/04 year. Sky Tower Sky Tower revenues were up 7% to $7.6 million. This revenue performance continues an impressive trend of revenue growth, given that Sky Tower has now passed its sixth anniversary since opening in August 1997. Sky Tower attractions such as the Vertigo mast climb and the 192-metre Sky Jump are continuing to maintain a very high profile for Auckland’s most recognised landmark. The most recent addition to the Sky Tower experience has been the opening of a new retail and theatrette facility at the entry/exit station, in August 2003. Other Revenues As a result of car parking capacity being at peak at busy times, car parking revenue growth in the 2002/03 year was inevitably constrained. However, revenues still inched up to $9.3 million. During 2002/03 more than 120,000 theatre- goers were treated to a range of entertainment events at SKYCITY Theatre. Of this total, more than 35,000 attended the very successful season of Auckland Theatre Company’s Rocky Horror Picture Show and more than 20,000 attended the films presented at the Auckland International Film Festival. Other productions at SKYCITY Theatre during the year included: Roger Hall’s Middle Age Spread; the 70’s musical Boogie Nights; and NBR Opera’s production of the Barber of Seville. New Zealand film premieres staged at SKYCITY Theatre during the year included: Men in Black 2; Lilo and Stitch; Austin Powers – Goldmember; and the world premiere of Whale Rider. SKYCITY Adelaide’s 2002/03 result was characterised by strong revenue growth in both gaming and food and beverage with overall revenues up by 9% at A$103 million SKYCITY Adelaide During 2002/03 SKYCITY Adelaide’s earnings margins were improved and the growth and development of the business as a key entertainment destination in Adelaide was further progressed. A number of major entertainment events were hosted at SKYCITY Adelaide including performances by Jimmy Barnes, Marcia Hines, James Reyne, Diesel, Russell Morris, and Mark Seymour. A segment of the very popular Simply Footy show is filmed at SKYCITY Adelaide and the final eviction episode of the Australian Big Brother television programme included a live crossing to SKYCITY Adelaide’s Marble Hall. These, and other events, demonstrate that SKYCITY Adelaide has become one of the most popular entertainment venues in South Australia. Revenue growth and cost management were combined to increase the gross margin ratio from 32% in FY02 to 35% in FY03, the EBITDA ratio from 21% to 25%, and the EBIT ratio from 11% to 15%. As was the case for the Auckland operation, the key performance results for SKYCITY Adelaide showed continuing revenue growth being converted into strong operating earnings performance, as set out below: • Revenues up A$8.2 million (+9%) to A$103 million • EBITDA up A$6.2 million (+31%) to A$25.9 million • EBIT up A$4.9 million (+48%) to A$15.2 million Significant capital expenditure committed at SKYCITY Adelaide related to new gaming machines and gaming machine conversions, for a number of gaming floor reconfigurations (to more closely align layout with customer preference), and for refurbishment of the Pullman restaurant. Gaming Gaming revenue growth for the 2002/03 year of 10% was contributed to almost equally by table games at +10% and gaming machines at +9%. As a result of revenue growth and direct cost management, gaming gross margin was increased from 35% to 38%. During the year, 113 new gaming machines and 180 gaming machine conversions were introduced at SKYCITY Adelaide. Of the new machines, 58 were additional machines and 55 were replacements for existing machines. Total machine count increased during the year from 831 to 889. A number of new productivity initiatives introduced during the year assisted in achieving the increase in gross margin performance. These included a new table games rostering and scheduling system and the introduction of chipping machines, deck checkers, and shuffling machines. The Grange Room for premium/VIP players enjoyed a good year and this facility has become a popular venue for visiting higher-end players. The new TAB facility in the Westend Grandstand Bar on the second gaming level has also proved popular. Food and Beverage Food and beverage revenues increased by 5% to A$13 million during the 2002/03 financial year. The Pullman refurbishment was commenced during the year and will significantly enhance the attraction of this restaurant within the overall entertainment mix at the property. 24 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 25 Financial and Operating Review (continued) The Hamilton facility was completed on time, and to budget, and has generated a highly favourable response from the people of Hamilton and the Waikato/Bay of Plenty region SKYCITY Hamilton (55% ownership, SKYCITY as operator) Since opening on 19 September 2002, SKYCITY Hamilton has become a popular entertainment destination for local and regional visitors alike. The first few weeks post-opening proved very busy. After approximately six weeks, visitation eased back to more ‘business as usual’ levels. The busy opening period provided an excellent start for the business and the strong EBITDA result for the first ‘year’ (41 weeks) of 35% is expected to be maintainable at, or about, the same level into the 2003/04 year. Initial expectations for SKYCITY Hamilton were for first full-year revenues to be in the order of $27–$28 million at an EBITDA of around $10 million. Those expectations have been confirmed by the business result to date – at $20.4 million in revenues and $7.2 million in EBITDA for the initial operating period of 9.3 months. A comprehensive recruitment and training effort for SKYCITY’s Hamilton property produced excellent results in terms of the level of customer service and cost attitude, which has been delivered within the Hamilton operation during its first year. The Hamilton facility was completed on time, and to budget, and has generated a highly favourable response from the people of Hamilton and the Waikato/Bay of Plenty region. SKYCITY Hamilton is contributing to the Hamilton and Waikato communities including through sponsorship of both the Chiefs Super 12 and the Waikato NPC rugby teams. Since opening in September 2002, the gaming facilities have been extended from 20 gaming tables and 300 gaming machines to 23 tables and 339 machines. A new VIP room, comprising 4 tables and 6 machines, has been established and trading hours have been extended. A new conference fit-out of currently unused space within the Hamilton complex has been announced and this facility is scheduled to open in April/May next year. SKYCITY Queenstown Casino (60% owned, SKYCITY as operator) The 2002/03 financial statements report a significant improvement in the bottom-line performance of SKYCITY’s boutique gaming property in Queenstown. Although the targeted breakeven EBIT position was not achieved, the business did get close to this objective through a substantial gain in revenues, whilst maintaining a firm line on costs. SKYCITY Queenstown’s revenues were increased by 15% in FY03, gross margin was improved from 24% to 35%, and EBITDA was increased from $0.3 million to $1.2 million. The EBIT line loss of $1.3 million in FY02 was almost turned around with a $1.0 million recovery leading to a small EBIT loss of $0.3 million in 2002/03. A positive EBIT result for FY04 is anticipated. SKYCITY Leisure Limited (74% ownership on a fully diluted basis – MCNs and shares. SKYCITY provides operational and corporate services under a Management Services Agreement) SKYCITY Entertainment Group Limited, as majority shareholder (50.2% of Leisure’s shares and 77% of its Mandatory Convertible Notes: an effective holding of 74.4% on a fully diluted basis), consolidates the SKYCITY Leisure result and then accounts for the minority interest. SKYCITY Leisure reported a net surplus of $3.4 million for the 2002/03 year, well ahead of previous years’ results, which had been adversely impacted by significant non-recurring items and write-offs. Having attended to the historical problems during the 2001/02 year, 2002/03 was the first year in which the SKYCITY Leisure result was able to be reported unimpeded by significant one-off items. SKYCITY Leisure’s EBITDA of $12.2 million was up 17% on the prior year and at the EBIT line the result showed a 28% gain at $8.4 million. Net surplus (before non-recurring items re FY02) was up 16% on the previous year at $3.4 million. SKYCITY Leisure’s cinema operations performed well during 2002/03, with cinema revenues up 5% on the previous year (to $31.4 million) and cinema gross margin up 10% to $8.6 million. SKYCITY Metro (previously the Force Entertainment Centre) on Auckland’s Queen Street performed well, despite reduced revenue results by the IMAX theatre and losses incurred by the Planet Hollywood restaurant. During the year, the IMAX theatre was converted into the Queen Street Megascreen, which is proving to be a major attraction for movie-goers. The Planet Hollywood restaurant is being replaced by a new restaurant facility which will be operated by one of Auckland’s leading restaurateurs. Resolution of these two issues (IMAX and Planet Hollywood) and the impending fit-out of the previously vacant Theatro restaurant space will allow the SKYCITY Metro facility to show improved returns in 2003/04 and beyond. SKYCITY Leisure’s cinema operations performed well, during 2002/03, with cinema revenues up 5% on the previous year (to $31.4 million) and cinema gross margin up 10% to $8.6 million Commencing with the opening of the new eight-screen cinema complex at Westfield St Lukes in Auckland in May 2003, the cinema operations are being progressively re-branded as Village SKYCITY Cinemas. A new eight- screen Village SKYCITY Cinemas complex is scheduled to open in Tauranga in April/May 2004 and other relocations of existing cinema complexes into Westfield shopping centres are planned over the next four to five years. The cinema exhibition business is expanding and prospects for the near to medium term are looking very positive. Canbet Limited (32.6% shareholding) Canbet reported a net surplus of A$499k for the year ended 30 June 2003. Canbet relocated its internet sports wagering operations from Canberra, Australia to Fareham, England in April 2003. The relocation of the business was a major undertaking but the change-over from Canberra operations to U.K. operations was achieved without any significant downtime or other problems. During the 2002/03 year, revenues continued to grow strongly. Despite an adverse change in the USD/AUD exchange rate, Canbet still managed to grow its turnover by 33% to A$547 million. The internet sports wagering business is characterised by inherent volatility, but Canbet has shown the potential to create earnings based on a high-volume low-margin business model. The U.K. operations will result in an increased cost base for the company, but the prospects for continued growth in turnover remain strong. In last year’s Annual Report, it was stated that Canbet needed to improve its earnings performance before SKYCITY could confirm its longer-term intentions with respect to its investment. This position remains unchanged, with Canbet not able to improve its net earnings position to a significant extent during 2002/03, given the costs associated with moving its business operations to the United Kingdom. That relocation is complete and the business result for the 2003/04 year should reflect the medium-term prospects for Canbet’s sports wagering operations. 26 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 27 Looking Ahead Corporate Governance At SKYCITY, governance reflects the tone and behaviour expectations that the board sets on behalf of stakeholders and encompasses the company’s decision-making structures and the mechanisms used to manage the organisation SKYCITY’s priorities for the current financial year were advised to the market at the time of the 2002/03 result release in August. These priorities are set out below: SKYCITY Auckland SKYCITY Leisure • Continue revenue growth initiatives across • Grow cinema earnings • Enhance the cinema offerings and facilities Canbet • Increase turnover and profitability Community Participation • Continue/increase the company’s participation in all the communities within which it operates all business units • Open the new gaming facilities (December 2003) and the convention and exhibition centre (April 2004) on time and to budget • Progress the hotel project towards its scheduled opening in April 2005 • Further develop/grow the premium play/VIP table games sector SKYCITY Adelaide • Enhance the gaming and entertainment attraction of the Adelaide property • Continue to grow revenues and improve profitability SKYCITY Hamilton • Consolidate/grow revenues and earnings, based on the first year’s successful operating period SKYCITY Queenstown Casino • Achieve a surplus EBIT result • Further develop VIP/commission table games play 28 SKYCITY Entertainment Group Limited Annual Report 2003 Board of Directors The SKYCITY 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 The board currently comprises five non- executive directors and one executive director. The chairpersons of the board and the board committees are non-executive directors. Patsy Reddy and Bill Trotter, current directors of the company, retire by rotation at the 2003 Annual Meeting and offer themselves for re- election. Sir Peter Elworthy, a founder director of the company, retired at the 2002 Annual Meeting. Bridget Wickham, former director, resigned in December 2002. During the 2002/03 year, the board formally met on eight occasions, the board’s Audit and Risk Committee met four times, and the Governance and Remuneration Committee met three times. In addition, directors met informally on a number of occasions to consider specific issues. Jon Hartley Chairman Evan Davies Managing Director Patsy Reddy Deputy Chairperson Jon Hartley was appointed a director and chairman of SKYCITY Entertainment Group Limited in February 1996 and is a member of the Audit and Risk Committee. In addition, he serves on several advisory groups. Evan Davies has been Managing Director of SKYCITY Entertainment Group Limited since February 1996. Mr Davies is an executive director of the board and is also a director of SKYCITY’s 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 is deputy chairperson of the board 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, Infinity Group Limited, and the Adam Art Gallery Advisory Board. She is a trustee of the New Zealand International Festival of the Arts and of the Victoria University of Wellington Art Collection Trust. Rod McGeoch Elmar Toime Bill Trotter Bill Trotter was appointed to the SKYCITY board in March 2000 and is a member of SKYCITY’s Governance and Remuneration Committee. Mr Trotter is chairman of First NZ Capital Group Limited, a director of New Zealand Exchange Limited and a director of NZX Index Management Limited. Elmar Toime was chairman of the Audit and Risk Committee until December 2002. Mr Toime is executive deputy chairman of Royal Mail Holdings plc. He was formerly the chief executive officer of New Zealand Post Limited. He is a director of Post Office Limited, chairman of General Logistics Systems, and a board member of the International Postal Corporation. Mr Toime has been based in London since March 2003. Rod McGeoch is the chairman emeritus of Corrs Chambers Westgarth, solicitors, of Australia. Mr McGeoch is a director of Telecom Corporation of New Zealand Limited, deputy chairman of Australian Pacific Airports Corporation Limited, chairman of Australian Growth Properties Limited and Saatchi & Saatchi’s Trans Tasman Advisory Board, a director of Ramsey Health Care Limited and Frontiers Group Limited and a trustee of the Sydney Cricket and Sports Ground Trust. Mr McGeoch is a member of SKYCITY’s Governance and Remuneration Committee. Alistair Ryan Company Secretary Alistair Ryan has been SKYCITY’s company secretary since 1995. Mr Ryan is General Manager Corporate for the SKYCITY Group and is a director of SKYCITY’s subsidiary companies. 30 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 31 Corporate Governance 100% 100% 60% 55% 50.2%* 32.6% SKYCITY Auckland SKYCITY Adelaide SKYCITY Queenstown SKYCITY Hamilton SKYCITY Leisure Limited Canbet Limited *74.4% fully diluted Governance at SKYCITY SKYCITY’s Governance Principles At SKYCITY governance reflects the tone and behaviour expectations that the board sets on behalf of stakeholders and encompasses the company’s decision-making structures and the mechanisms used to manage the organisation. The board has adopted the ten governance principles, as set out below. These principles reflect the Corporate Governance Guidelines of the ASX and the Corporate Governance Best Practice Code of the NZX. SKYCITY’s board and management are committed to ensuring that the company maintains best practice governance structures and principles. In this regard, the board is developing a Board Charter which will ensure that the recent ASX (Australian Stock Exchange) and NZX (New Zealand Exchange) corporate governance requirements, recommendations, and guidelines are embedded in the governance structures and principles of the company. This Charter will pull together many of the existing elements of corporate governance at SKYCITY. The Board Charter will be finalised before the end of the 2003 calendar year and a copy of the Charter will be posted on the company’s website for access by any interested party. The board will continue to monitor best practice recommendations and developments as they occur, as has been the case in the past. The board of SKYCITY Entertainment Group, through a set of formal policies and procedures comprising the corporate governance framework of the company: • establishes a clear framework for oversight and management of the company’s operations and for defining the respective roles and responsibilities of the board and management • structures itself to be effective in discharging its responsibilities and duties • sets standards of behaviour expected of company personnel • safeguards the integrity of the company’s financial reporting • ensures timely and balanced disclosure • respects and facilitates the rights of shareholders • recognises and manages risk • encourages board and management effectiveness • remunerates fairly and responsibly, and • recognises its obligations to all stakeholders. There are a number of supporting charters and policies already in place, which will combine with the Board Charter to comprise SKYCITY’s governance framework. These support charters and policy statements, in addition to the company’s constitution, comprise the following: • Terms of Appointment and Terms of Reference for Directors • Code of Business Practice • Audit and Risk Committee Charter • Governance and Remuneration Committee Charter • Nomination Committee Charter • Code for Securities Transactions and Insider Trading Policy • Delegated Authorities Policies • Protected Disclosures Policy • Risk Management Programme Role of the Board SKYCITY’s board of directors is responsible for supervising the management of the company on behalf of the shareholders. The board establishes the company’s objectives, the major strategies for achieving those 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 is also responsible for ensuring that the company’s assets are maintained under effective stewardship, that decision-making authorities within the organisation are clearly defined, 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. Specific responsibilities of the board include the following: • oversight of the company, including its control and accountability procedures and systems • appointment, performance, and removal of the Managing Director (chief executive officer) • confirmation of the appointment and removal of the senior executive group (being the direct reports to the Managing Director) • setting the remuneration of the Managing Director and approval of the remuneration of the senior executive group • approval of the corporate strategy and objectives and oversight of the adequacy of the company’s resources required to achieve the strategic objectives • approval of the annual plan/budget (including the capital expenditure plan) and monitoring of actual results against budget • review and ratification of the company’s systems of risk management and internal compliance and control, codes of conduct, and legal compliance • approval and monitoring of the progress of significant capital expenditure projects, capital management initiatives, and acquisitions and divestments. The board has appointed three committees, being: • The Audit and Risk Committee • The Governance and Remuneration Committee, and • The Nomination Committee. Each committee is authorised to deal with matters as set out in its committee charter and/or falling within its intended mandate, on the following basis; • to submit recommendations to the board on matters for which decision-making authority has not been delegated by the board • to make decisions on matters for which decision-making authority has been delegated by the board. The board maintains a formal set of delegated authorities (including a Treasury Policy) which clearly define the responsibilities that are delegated to management and those which are retained by the board. These delegated authorities are approved and are subject to annual review by the board. The board appoints new directors under formal terms of reference/appointment. Directors must comply with the terms of reference at all times. 32 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 33 Corporate Governance (continued) Structure of the Board and Commentary on 2002/03 Matters The board currently comprises six directors, five of whom are non-executive. Evan Davies, Managing Director of the company, is the only executive director. Board changes during the 2002/03 year were: • Rod McGeoch was appointed to the board in September 2002 and was then elected a director by shareholders at the company’s Annual Meeting on 30 October 2002 • Sir Peter Elworthy, a founder director of the company, retired after 10 years’ service as a director at the 2002 Annual Meeting. In accordance with provisions contained in the company’s constitution, the board resolved to make a retirement payment to Sir Peter of $107,507 (before tax). This payment represented a proportion of the director’s fees paid to Sir Peter during the three years prior to his retirement and was consistent with the retirement provisions for directors as set out in the company’s constitution • Bridget Wickham resigned from the board in December 2002. Bill Trotter and Patsy Reddy, current directors of the company, retire by rotation at the 2003 Annual Meeting and, being eligible, offer themselves for re-election. Following the resignation of Bridget Wickham as a director in December 2002 and until a new director is appointed, the Audit and Risk Committee has been constituted as comprising all non-executive directors of the company. Meetings of the Audit and Risk Committee held during the 2002/03 year and comprising all non-executive directors as the committee occurred in February and June 2003. The Governance and Remuneration Committee is chaired by Patsy Reddy. Rod McGeoch and Bill Trotter are the other members of the Committee. The Managing Director, Evan Davies, attends meetings of each of the board committees. The board is of the view that it has appropriate composition and competence to effectively deal with current and emerging issues of the business, can effectively review and challenge the performance of management, and can exercise independent judgement. Application for approval of an additional director by the regulatory authorities, to bring the board size up to seven directors, is currently in process. Directors are appointed for a term of three years or are subject to re-appointment on a more frequent basis in order for the company to comply with the listing rules of the NZX and the ASX. The board contains a majority of its number who are independent of management, substantial shareholders, or other parties with whom SKYCITY has a business or other relationship that could reasonably be perceived to interfere with the exercise of unfettered and independent judgement. The board chairperson, Jon Hartley, is an independent director, is not the company’s chief executive officer, and has ensured that he has the time necessary to discharge the role effectively. The board has established the Nomination Committee to recommend the appointment and removal of directors. The board meets at least six times per annum on a formal, scheduled basis and on other occasions as required. During the 2002/03 year, the board met formally on eight occasions, six of which were scheduled meetings and two of which were called to attend to particular items of business. The Audit and Risk Committee met four times and the Governance and Remuneration Committee met three times during the 2002/03 year. The number of board meetings attended by each director during the year ended 30 June 2003, with the number of meetings held while each director was in office shown in brackets, is noted on page 35. • J P Hartley • E W Davies • R H McGeoch • P L Reddy • E Toime • W R Trotter • P H Elworthy* • B M Wickham* 7 8 7 8 7 8 2 4 (8) (8) (7) (8) (8) (8) (2) (4) * Retired/resigned from the board during the 2002/03 year The non-executive directors met independently of the executive director and management personnel on a number of occasions during the course of the year to discuss a number of specific issues. During August 2003, the board was assisted by an external consultant in carrying out a formal review of its composition, performance, and effectiveness. Matters Relating to Directors Directors are required to advise the chairperson of all outside directorships or other appointments which, may have a bearing on their role as a SKYCITY director, prior to taking up any such appointment. Directors must ensure that all relationships and appointments bearing on their independence (whether generally or for a specific matter) are disclosed on a timely basis and must provide any further information required to enable the board to make an informed assessment of their independence on a continuous basis. The company has signed a deed of indemnity in favour of each director (and senior executives) which covers acts or omissions of directors (or executives) in their capacity as such. The company also provides professional indemnity insurance cover for directors acting in good faith in the conduct of the company’s affairs. On 23 September 2002, the company effected directors’ and officers’ liability insurance coverage through Royal and SunAlliance Liability Insurance Limited and American Home Assurance Company (AIG) for the period 30 September 2002 to 30 September 2003, with an aggregate limit of liability of $50 million. The premium cost of this cover was $72,000 (plus GST). Also on 23 September 2002, the company effected statutory liability insurance through Royal and SunAlliance for the period 30 September 2002 to 30 September 2003, with an aggregate limit of liability of $5 million, and employer’s liability insurance with an aggregate limit of liability of $1 million. The premium cost of these covers was $14,760 (plus GST) and $6,600 (plus GST) respectively. On 16 September 2003, the company renewed the three policies referred to above for a further period of 12 months (from 30 September 2003 to 30 September 2004) on the same terms and conditions and at the same premiums as applied for the year ending 30 September 2003. The disclosure of existing interests is an ongoing responsibility of each director. Where a conflict of interest arises (or where a potential conflict of interest may arise), each director must formally advise the company about any matter relating to that conflict (or potential conflict) of interest. Directors are entitled to obtain independent professional advice (at the expense of the company) on any matter relating to their responsibilities as a director or to the company’s affairs, provided they have previously notified the board chairperson of their intention to do so. No such requests or notifications occurred during the 2002/03 year. Committees of the Board During the 2002/03 year, the board had two committees: the Audit and Risk Committee; and the Governance and Remuneration Committee. In August 2003, the board resolved to establish a Nomination Committee. Each committee operates under a charter document as agreed by the board and each committee charter is subject to formal review by the board on an annual basis. The board appoints the chairperson of each committee. 34 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 35 Corporate Governance (continued) All directors are entitled to attend any committee meeting. All directors receive the agenda and the papers for each committee meeting and the minutes of each meeting. From time to time the board creates specific sub-committees to deal with a particular matter or matters and/or to have certain decision- making authority as the board may elect to delegate to that sub-committee. The minutes of any such sub-committee meetings are circulated to all directors. Integrity and Ethical Behaviour Expectations Members of the board (and management) must at all times comply with the express terms and spirit of their fiduciary obligations to the company, including acting honestly and in good faith and in what they reasonably believe to be the best interests of the company. Members of the board (and management) must ensure that sensitive information they hold about the company is treated in strict confidence and that property of the company (including information) is used solely in the best interests of the company. The company operates in accordance with a Code of Business Practice, which sets out the guiding principles of its relationships with stakeholder groups such as regulators, shareholders, customers, and employees. The company has adopted a policy for employees to report instances of suspected breaches of laws, or wrongdoing, by the company and/or any of its employees or directors, without fear of adverse consequences, and for such reporting to be properly investigated. The company maintains a code of practice for directors and senior executives which sets out the procedures that must be followed before trading in the company’s securities. The company’s insider trading policy is supported by education for directors and executives about their obligations when trading in the company’s securities. The current procedures are set out in the SKYCITY ‘Code for Securities Transactions and Insider Trading Policy’. Directors and staff are not permitted to participate in any gaming or wagering activity at any SKYCITY property or with any related company, eg Canbet. The board, through its committees and reporting structures, monitors compliance with the company’s regulatory obligations and internal policies and procedures. Financial Reporting The board ensures that effective policies and procedures are in place to ensure the integrity of the company’s financial reporting. The Audit and Risk Committee comprises at least three directors all of whom are independent non-executive directors and must be financially literate. At least one member of the committee must have financial expertise (ie has knowledge and experience of accounting, and of financial matters and regulations). The Audit and Risk Committee has responsibility for oversight of the quality, reliability, and accuracy of the company’s internal and external financial statements, for the quality of the company’s external result presentations, for its internal control environment and risk management programmes, and for its relationships with its internal and external auditors. The Audit and Risk Committee has a formal charter setting out its role and responsibilities, authority, relationship with the board, reporting requirements, composition, structure, and membership requirements. The board, on an annual basis, reviews the performance of the committee in accordance with its charter. The Audit and Risk Committee undertakes sufficient inquiry of the company’s management and the company’s internal and external auditors in order to be satisfied as to the validity and accuracy of the company’s financial reporting. The Audit and Risk Committee meets with the internal and external auditors independently of management as often as is appropriate, but not less than twice per annum. The Audit and Risk Committee oversees the independence of the company’s internal and external auditors and monitors the scope and quantum of work undertaken, and fees paid, to the auditor for other than audit work. During the 2002/03 year, John Harvey, PricewaterhouseCoopers’ SKYCITY audit partner since 1995, was replaced as audit partner by David Randell, consistent with the agreed policy for audit partner rotation. The Annual Report, at Note 3 to the Financial Statements, identifies the level of non-audit fees paid to PricewaterhouseCoopers during the 2002/03 financial year. In the year ended 30 June 2003, assurance services provided by PricewaterhouseCoopers totalled $823,000 and non-audit services (mainly tax advisory services) totalled $554,000. Non-audit services therefore represented 40% of the total fees paid to the company’s external audit firm, PricewaterhouseCoopers. Of that 40%, tax advisory services comprised 38%. In addition to external audit, PricewaterhouseCoopers also provides internal audit services. PricewaterhouseCoopers has developed expertise in the operational review of gaming and hospitality activities and it is the view of the committee and the board that a separation of external auditor and internal auditor is neither necessary nor of advantage to the business. The committee is satisfied that the independence of PricewaterhouseCoopers, as the company’s external auditor, is not compromised as a consequence of other than audit work undertaken for the company. PricewaterhouseCoopers has confirmed to the board that it is not aware of any matters that could affect its independence in performing its duties. Timely and Balanced Disclosure The company seeks to communicate its financial and key operational performance results (both positive and negative) in a clear, effective, balanced, and timely manner to its shareholders, analysts and other market commentators, and to the stock exchanges on which the company’s securities are listed. This information is available on the company’s website. The board ensures that all directors and senior management are aware of, and comply with, the company’s reporting responsibilities and disclosure requirements under stock exchange listing rules applicable to the company and in accordance with the company’s internal policies. The board (and the Audit and Risk Committee as appropriate) ensures that company announcements are made in a timely manner, are factual, do not omit any material information, and are expressed in a clear and objective manner. The agenda for each board meeting includes formal consideration of the company’s disclosure obligations and any matters relevant thereto. The company maintains internal policies and procedures, and monitors compliance with those policies and procedures, in order to protect the confidentiality of its commercially sensitive information. Recognition and Management of Risk The company maintains a programme for the identification, assessment, monitoring, and management of risk to the company’s business. The risk management programme is approved and overseen by the Audit and Risk Committee in accordance with the charter for that committee. The company maintains an up-to-date risk profile for each of its business operations and ensures that business continuity/disaster recovery plans are in place and are well understood throughout the organisation. 36 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 37 Corporate Governance (continued) The company also maintains comprehensive business continuity programmes, together with material damage and liability insurance covers to ensure that the earnings of the business are well protected from adverse circumstances. Performance Evaluation The Nomination Committee’s charter includes assessment of the role and responsibilities, performance, composition, structure, training, and membership requirements of the board, with this assesment to be formally undertaken on an annual basis. Directors are expected to maintain an up-to- date knowledge of the company’s business operations and of the industry sectors within which the company operates. Briefings, circulation of information, and site visits are organised as appropriate to assist directors to be aware of, and to understand, company and industry issues. The company operates remuneration structures, which are sufficient and reasonable to attract and retain talented and motivated directors and employees, and which define the relationship of remuneration to individual and corporate performance Remuneration The board is supported by the Governance and Remuneration Committee on matters relating to staffing and personnel (human resources) and remuneration. The role and responsibilities, composition, structure and membership of the Governance and Remuneration Committee is set out in the committee’s charter. • Non-Executive Director Fees Non-executive director remuneration is paid in the form of directors’ fees. Fees may be paid in cash or in shares. For the year ended 30 June 2003, directors’ fees were paid as a combination of cash and share options issued under the terms of the Non-Executive Director Share Option Plan approved by shareholders at the company’s 2000 Annual Meeting. The 2000 Non-Executive Director Share Option Plan had a term of three years which has now expired. It is not the intention of the directors to renew the Plan and director fees for the 2003/04 will be paid in cash. Non-executive directors are paid the same base fee but additional remuneration may be paid for additional work undertaken by any director, at the discretion of the board, and subject to the maximum remuneration amount which has been approved by the shareholders of the company. The chairpersons of the board and the committees are paid additional remuneration to reflect the additional responsibilities of their positions. Where the board chairperson is also the chair of the Nomination Committee, no additional remuneration is paid for that committee chairperson role. The company’s constitution permits the company to make a retirement payment to a director (or his or her dependants), provided that the total amount of the payment does not exceed the total remuneration of the director in his or her capacity as a director in any three years chosen by the company, or that the payment has been authorised by an ordinary resolution of the company’s shareholders. Internal and External Stakeholders and Community Responsibility All SKYCITY personnel must comply with the company’s Code of Business Practice which sets out how company personnel should undertake their business dealings and the behaviours that are expected of them. Non-executive directors are currently paid directors’ fees of $50,000 per annum plus GST (if any) and the chairperson of the board is paid $100,000 per annum plus GST (if any). From 1 July 2003, the board has resolved that the chairpersons of the Audit and Risk and Governance and Remuneration Committees should receive an additional payment of $10,000 per annum plus GST (if any), in recognition of the additional work required to discharge the responsibilities of the committee chairperson role. The directors’ fees currently prevailing are as authorised by the resolution passed by shareholders at the 2000 Annual Meeting, providing for up to $450,000 plus GST (if any), to be paid in total for director remuneration in any year. The Notice of Meeting for the 2003 Annual Meeting proposes that total director remuneration be increased from $450,000 per annum plus GST (if any) to $600,000 per annum plus GST (if any). Jon Hartley refers to the proposed fee increase in his chairman’s report included in this Annual Report and a letter from John Egan Associates providing an independent view in support of the proposal is included with the Notice of Annual Meeting. • Managing Director Remuneration The Managing Director is paid a salary plus annual performance-related remuneration, as approved by the board. Currently the performance-related remuneration is paid in cash. Following approval by shareholders at the 2002 Annual Meeting, a total of 2,338,530 share options were issued to the Managing Director, Evan Davies, under the terms of the Managing Director Share Option Plan 2002. These options, plus options issued between 1999 and 2002 and as approved by shareholders at the company’s 1999 Annual Meeting, comprise the longer-term, equity- based incentive plan for the Managing Director. 38 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 39 Financial Statements and Statutory Information Contents Auditors’ Report Statements of Financial Performance Statements of Movement in Equity Statements of Financial Position Statements of Cash Flows Statement of Accounting Policies Notes to the Financial Statements 42 43 44 45 46 49 54 The board of directors of SKYCITY Entertainment Group Limited authorised these financial statements for issue on 22 August 2003. J P Hartley Chairman E W Davies Managing Director STATEMENTS OF FINANCIAL PERFORMANCE For the year ended 30 June 2003 Consolidated Parent Company Notes 2003 $’000 2002 $’000 2003 $’000 2002 $’000 2 3 12 9 564,313 513,300 (405,693) (422,379) 139,494 (30,695) 99,106 (31,755) 158,620 (51,117) 90,921 (44,286) 108,799 67,351 – – 107,503 46,635 108,799 67,351 (286) 10,518 – – 107,217 57,153 108,799 67,351 Revenue Expenses Surplus before income tax Income tax Surplus for the year Net (surplus)/deficit attributable to minority interest Net Surplus Attributable to Parent Shareholders AUDITORS’ REPORT to the shareholders of SKYCITY Entertainment Group Limited We have audited the financial statements on pages 43 to 76. The financial statements provide information about the past financial performance and cash flows of the Company and Group for the year ended 30 June 2003 and their financial position as at that date. This information is stated in accordance with the accounting policies set out on pages 49 to 53. 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 2003 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 and accounting advisers. 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 43 to 76: (i) comply with generally accepted accounting practice in New Zealand; and (ii) give a true and fair view of the financial position of the Company and Group as at 30 June 2003 and their financial performance and cash flows for the year ended on that date. Our audit was completed on 22 August 2003 and our unqualified opinion is expressed as at that date. Chartered Accountants Auckland The above statements should be read in conjunction with the accompanying notes. 42 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 43 STATEMENTS OF MOVEMENTS IN EQUITY For the year ended 30 June 2003 STATEMENTS OF FINANCIAL POSITION As at 30 June 2003 Consolidated Parent Company Notes 2003 $’000 2002 $’000 2003 $’000 2002 $’000 6 9 5 4 5 4 4 4 7 9 Net surplus for the year, comprising Parent shareholders’ interest Minority interest Other recognised revenues and expenses Foreign currency translation reserve Total minority interest in changes in revaluation and foreign currency translation reserves Total recognised revenues and expenses Buyback of shares Movement in employee share entitlement reserve Exercise of share options Shares issued under dividend reinvestment plan Employee share entitlements issued Distributions to owners Minority interest in contributions from owners Movements in equity for the year Equity at the beginning of year, comprising Parent shareholders' interest Minority interest Equity at end of year, comprising Parent shareholders’ interest Minority interest 107,217 286 57,153 (10,518) 108,799 67,351 – – 107,503 46,635 108,799 67,351 1,111 (5,107) – (45) – – – – 108,614 41,483 108,799 67,351 (12,967) 1,107 2,555 22,372 2,378 – 949 9,463 23,227 1,579 (12,967) 1,107 2,555 22,372 2,378 – 949 9,463 23,227 1,579 (133,362) (67,150) (133,362) (67,150) – (9,303) 14,242 23,793 – – (9,118) 35,419 250,547 230,433 226,786 191,367 5,321 1,642 – – 255,868 232,075 226,786 191,367 240,958 250,547 217,668 226,786 5,607 5,321 – – 246,565 255,868 217,668 226,786 Consolidated Parent Company Notes 2003 $’000 2002 $’000 2003 $’000 2002 $’000 4 5 6 9 10 10 10 11 13 10 16 17 14 19 20 246,518 232,180 246,518 232,180 1,932 (7,492) (286) 18,653 6,151 5,044 (35,001) (10,438) 240,958 250,547 217,668 226,786 5,607 5,321 – – 246,565 255,868 217,668 226,786 437,113 13,365 149,266 24,683 405,825 9,315 148,888 20,811 – – – – 149,266 148,888 – – 624,427 584,839 149,266 148,888 – 64,836 1,000 65,836 372 61,140 1,000 62,512 – 2,378 – 2,378 – 3,061 – 3,061 690,263 647,351 151,644 151,949 936,828 903,219 369,312 378,735 – 21,586 636,990 207,844 – 209,860 206,710 23,306 596,037 212,384 – 137 – – 152 – 866,420 831,727 209,997 206,862 57,264 10,246 2,898 70,408 48,456 19,970 3,066 71,492 – 1 159,315 171,872 – – 159,315 171,873 936,828 903,219 369,312 378,735 Equity Share capital Reserves Retained earnings Shareholders’ equity Minority interests Total equity Liabilities Non-current liabilities Borrowings Convertible notes Capital notes Deferred tax Total non-current liabilities Current liabilities Bank overdraft Payables and accruals Borrowings Total current liabilities Total liabilities Total Equity and Liabilities Assets Non-current assets Investments in subsidiaries Investments in associates Property, plant, and equipment Intangible assets Total non-current assets Current assets Cash and bank balances Accounts receivable Inventories Total current assets Total Assets The above statements should be read in conjunction with the accompanying notes. The above statements should be read in conjunction with the accompanying notes. 44 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 45 STATEMENTS OF CASH FLOWS For the year ended 30 June 2003 STATEMENTS OF CASH FLOWS (CONTINUED) For the year ended 30 June 2003 Consolidated Parent Company 2003 $’000 2002 $’000 2003 $’000 2002 $’000 569,979 514,913 3,009 2,169 572,988 517,082 60 – 60 76 36 112 Operating activities Cash was provided from Receipts from customers Interest received Cash was applied to Payments to suppliers and employees (281,034) (267,702) Interest paid Net GST (paid) / received Gaming taxes paid Income taxes paid Net cash flows from operating activities Investment activities Cash was provided from Sale of fixed assets Sale of investments Cash was applied to Purchase and construction of fixed assets Capitalised interest paid Purchase of investments Purchase of subsidiaries Net Cash Flows from Investment Activities (44,847) (3,992) (34,114) (34,318) (45,575) (747) (32,202) (48,124) (398,305) (394,350) 174,683 122,732 – – – (80,760) (1,173) – – (81,933) (81,933) 3,384 21,878 25,262 (51,199) – (8,853) (563) (60,615) (35,353) (16,103) (13,982) (15,708) (14,140) 60 – (32,160) (62,185) (62,125) 40 – (44,639) (74,447) (74,335) – – – (7) – – – (7) (7) – – – – – – (4,202) (4,202) (4,202) Consolidated Parent Company 2003 $’000 2002 $’000 2003 $’000 2002 $’000 Financing activities Cash was provided from Proceeds from long-term debt Proceeds from issue of convertible notes Exercise of share options Dividends from subsidiaries Advances from subsidiaries Advances from minority interests Issue of shares in Queenstown Casinos Limited Issue of mandatory convertible notes by SKYCITY Leisure Limited Gains on foreign currency swaps hedging investment in foreign operations Cash was applied to Share repurchase Repayment of short-term debt Repayment of long-term debt Purchase of convertible notes Advances to subsidiaries and associates Distributions to shareholders 178,516 9,000 2,555 – – – – – 2,348 192,419 (12,967) (1,000) (146,947) (4,950) – (110,990) 61,200 – 9,463 – – 7,203 880 7,196 2,251 88,193 – – 2,555 125,000 58,533 – – – – – – 9,463 92,000 63,979 – – – – 186,088 165,442 – (12,967) (88,969) (21,095) – (14,103) (43,923) – – – – (110,990) Net cash flows from financing activities (84,435) (79,897) 62,131 (276,854) (168,090) (123,957) Net increase/(decrease) in cash held Foreign currency translation adjustment Opening cash and bank Cash at End of Year Composition of cash Cash and bank Bank overdraft 8,315 865 48,084 57,264 57,264 – 57,264 7,482 (1,001) 41,603 48,084 48,456 (372) 48,084 (1) – 1 – – – – – – – – (42,982) (43,923) (86,905) 78,537 – – 1 1 1 – 1 46 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 47 STATEMENTS OF CASH FLOWS (CONTINUED) For the year ended 30 June 2003 Reconciliation with operating surplus Reported surplus after tax Less associated entity deficits Less minority interests Items not involving cash flows and non-operating cash flows Depreciation expense Goodwill impairment Increase in provisions Increase in employee share entitlement reserve Amortisation expense Amortisation of deferred expenditure Increase in deferred taxation Write-off of investments Dividend from subsidiary Subsidiary transactions Movement in foreign exchange Impact of changes in working capital items (Increase)/decrease in accounts receivable (Increase)/decrease in inventory Increase/(decrease) in creditors and accruals (Increase)/decrease in pre-paid income tax Items classified as investing activities Net loss on disposal of fixed assets Loss on sale of investments Capitalised costs Consolidated Parent Company 2003 $’000 2002 $’000 2003 $’000 2002 $’000 107,217 57,153 108,799 67,351 (246) 286 107,257 (344) (10,518) 46,291 – – – – 108,799 67,351 40,980 – – 3,502 5,052 628 3,872 – – – (2,351) 51,683 (892) 168 3,696 10,617 13,589 – – 2,154 2,154 37,236 16,730 239 2,528 4,803 1,430 1,495 22,422 20 – – 3,502 – 378 – – 28 – – 2,528 – 378 – – – – (125,000) (61,834) (133) 136 (92,000) (54,640) 1,230 86,750 (182,798) (142,476) 2,175 230 (7,752) (5,253) 9,883 – (683) 2,674 (10,600) 11,874 31 (290) 550 291 – – – – (437) – (655) 1,882 790 – – – – Net Cash Flow from Operating Activities 174,683 122,732 (62,125) (74,335) STATEMENT OF ACCOUNTING POLICIES For the year ended 30 June 2003 ENTITIES REPORTING The financial statements presented are for the reporting entity SKYCITY Entertainment Group Limited (the parent company) and the consolidated financial statements of the group comprising SKYCITY Entertainment Group Limited, its subsidiaries, associates, and joint ventures. STATUTORY BASE SKYCITY 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 Financial Reporting Act 1993 and the Companies Act 1993. MEASUREMENT BASE 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. 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. 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 the casino patrons. Revenues exclude the retail value of rooms, food, beverage and other promotional allowances provided on a complimentary basis to customers. Income tax The company follows the liability method of accounting for deferred taxation. The taxation charge against 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 tax under the liability method. 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. 48 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 49 STATEMENT OF ACCOUNTING POLICIES (CONTINUED) For the year ended 30 June 2003 STATEMENT OF ACCOUNTING POLICIES (CONTINUED) For the year ended 30 June 2003 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. Foreign currencies Transactions Transactions denominated in a foreign currency are converted to New Zealand dollars at the exchange rates in effect at the date of the transaction, 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. 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 identified 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 transaction, 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. Property, plant, and equipment Initial recording The cost of assets is the value of the consideration given 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. The cost of self-constructed assets includes the cost of all materials used in construction, direct labour on the project, costs of obtaining Resource Management Act consents, financing costs that are directly attributable to the project and an appropriate proportion of variable and fixed overheads. Costs cease to be capitalised as soon as the asset is ready for productive use and do not include any inefficiency costs. Depreciation As construction is completed and property, plant, and equipment are used in operations, depreciation is charged on a straight-line basis (other than freehold land) so as to write off the cost of the assets to their estimated residual value over their expected useful lives. Gains and losses on disposals of property, plant, and equipment are taken into account in determining the operating result for the year. The estimated economic lives are as follows: Category Buildings Building fit-out Plant and equipment Fixtures and fittings Software Vehicles Estimated useful life 5–75 years 10 years 2–75 years 3–20 years 3–5 years 3 years 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. Leased assets – operating leases Leases under which the lessor effectively retains all the risks and benefits of ownership are classified as operating leases. Operating lease payments are recognised as an expense in the periods of expected benefit. Investments The parent company’s investment in the share of its subsidiaries are stated at cost in the Statements of Financial Position. 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 include its share of those for which it is jointly liable. Intangible assets 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 impairment in value above normal amortisation has occurred. Goodwill Goodwill represents the excess of purchase consideration over the fair value of the net identifiable assets held by a subsidiary at the time of acquisition of shares in that subsidiary. 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 impairment in value above normal amortisation has occurred. 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. Inventories Inventories, all of which are finished goods, are stated at the lower of cost and net realisable value determined on a first in, first out basis. Accounts receivable Accounts receivable are carried 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. 50 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 51 STATEMENT OF ACCOUNTING POLICIES (CONTINUED) For the year ended 30 June 2003 STATEMENT OF ACCOUNTING POLICIES (CONTINUED) For the year ended 30 June 2003 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. 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. 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, cross currency interest rate swaps, 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 21. Statements of Cash Flows The following are definitions of the terms used in the consolidated and parent company’s Statements of Cash Flows: • Operating activities are those activities relating to the trading and management of the business and include all transaction and other events that are not investing or financing activities. Cash receipts from customers are net of complimentaries. • 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. • Financing activities are those activities that result in changes in the size and composition of the capital structure of the group. 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. • 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. 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. 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. Pre-licence expenditure Pre-licence expenditure relates to expenditure incurred to obtain a casino premises licence. Pre-licence expenditure is expensed as incurred. CHANGES IN ACCOUNTING POLICIES During the year the Group and the Parent Company changed the following accounting policies. Investment in associates The board of directors has applied the requirements of Financial Reporting Standard No.38 Accounting for Investments in Associates in the preparation of these financial statements. As a consequence of adopting this financial reporting standard the following accounting policies have been changed: Goodwill on acquisition Under the new policy, goodwill attributable to the acquisition of an associate is recognised as part of the carrying amount of the investment and is not recognised separately in the Statements of Financial Position. Previously, such goodwill was separately recognised and classified as an intangible asset. This change in accounting policy has resulted in the unamortised balance of goodwill on acquisition of associates amounting to $11,536,400 (30 June 2002: $13,253,683) being transferred from intangible assets to investments in associates in the Statements of Financial Position. The comparative figures have been adjusted to comply with the new policy. Share of surpluses /(deficits) of associates Under the new policy the group’s share of the net surpluses of associates is recognised as part of operating surplus before income tax. Previously, the group recognised dividends received from associates in operating surplus before tax and recognised the group’s share of retained surpluses of associates in net surplus. This change in accounting policy has resulted in an increase in operating surplus before income tax of $246,066 (30 June 2002: $344,000). However, this change in accounting policy has had no effect on net surplus. Comparative figures have been adjusted to comply with the new policy. There have been no other changes in accounting policies. 52 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 53 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2003 1. SEGMENT INFORMATION Geographic segments New Zealand Australia Total 2003 $’000 2002 $’000 2003 $’000 2002 $’000 2003 $’000 2002 $’000 673,671 643,714 263,157 259,505 936,828 903,219 448,328 398,698 115,985 114,602 564,313 513,300 189,964 163,215 17,922 12,566 207,886 175,781 (35,649) (31,847) (13,617) (13,861) (49,266) (45,708) Assets Revenue Result Segment Interest expense Unusual items Write-off of Argentina investment by SKYCITY Leisure Limited Write-off of goodwill on consolidation of SKYCITY Leisure Limited – – (22,422) (16,730) – – – – – – (22,422) (16,730) Net Segment Result 154,315 92,216 4,305 (1,295) 158,620 90,921 The surplus/(deficit) is that of the group before income tax, minority interest and extraordinary items. The group currently operates in the entertainment, leisure and recreation sector. Sales revenue Investment revenue Share of associated company profit before tax Dividends from wholly owned entities Interest received Inter-company interest received Other revenue Use of money interest received Foreign currency gains Gain on disposal of property, plant, and equipment Other – group companies Other revenue Total Revenue Consolidated Parent Company 2003 $’000 2002 $’000 2003 $’000 2002 $’000 556,493 510,243 246 – 2,795 – 2,046 2,212 – – 521 344 2 2,150 – – 149 52 – 360 – – – – 125,000 92,000 1,695 5,695 – – – – 7,104 367 944 – – – 73 5,722 564,313 513,300 139,494 99,106 2. REVENUE NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2003 3. EXPENSES Included within expenses are the following expense items: Operating expenses Depreciation – buildings Depreciation – plant and equipment Depreciation – motor vehicles Depreciation – furniture and fittings Total depreciation Amortisation of other intangibles, patents, and licenses Amortisation of goodwill Rental expense on operating leases Loss on disposal of property, plant, and equipment Employee remuneration Foreign currency translation losses Costs of offering credit Bad debts written off Increase in estimated doubtful debts Cost of borrowings Interest paid Other funding expenses Governance expenses Directors’ remuneration Amounts paid to auditors Fees paid to principal auditors Assurance services: Statutory audit fees Compliance audit fees Accounting advice and assistance Tax compliance services Other services: Taxation consulting services Consulting services Accounting assistance to group companies Audit fees paid to other auditors Total Amounts Paid to Auditors Consolidated Parent Company 2003 $’000 2002 $’000 2003 $’000 2002 $’000 7,501 26,890 47 6,542 40,980 2,680 2,372 6,897 – 7,989 23,390 38 5,819 37,236 2,549 2,254 7,668 83 – 5 – 15 20 – – 36 – 148,904 131,751 8,481 – 30 294 495 4 344 – – – – 12 – 16 28 – – 17 – 2,941 1,230 – – 47,592 1,674 44,030 1,678 13,837 – 13,675 378 466 321 436 337 232 349 21 221 823 518 36 – 554 114 228 367 108 339 1,042 512 83 331 926 88 1,491 2,056 35 – 88 226 349 212 – – 212 – 561 80 – 87 266 433 246 62 94 402 – 835 54 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 55 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2003 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2003 3. EXPENSES (continued) 4. SHARE CAPITAL (continued) Consolidated Parent Company Movements in the number of share options outstanding under the Executive Share Option Plan are as follows: Sundry expenses Community Trust and donations Unusual items Write-off of Argentinian investment by SKYCITY Leisure Limited Write-off of goodwill on consolidation of SKYCITY Leisure Limited 4. SHARE CAPITAL 2003 $'000 2002 $'000 2003 $'000 3,187 2,620 – – – 22,422 16,730 39,152 – – – – 2002 $'000 111 – – – Issued and Paid-up Capital Ordinary shares Balance at beginning of year Shares issued under dividend reinvestment scheme Exercise of share options Shares issued under employee bonus scheme Shares repurchased and cancelled 232,180 22,372 2,555 2,378 (12,967) 197,911 23,227 9,463 1,579 – 232,180 22,372 2,555 2,378 (12,967) 197,911 23,227 9,463 1,579 – Closing Share Capital 246,518 232,180 246,518 232,180 Ordinary shares As at 30 June 2003 there were 210,135,588 shares issued and fully paid (2002: 207,593,422). All ordinary shares rank equally with one vote attached to each fully paid ordinary share. Dividend Reinvestment Plan Pursuant to the Dividend Reinvestment Plan approved by the board of directors on 15 August 2000, 3,220,407 (2002: 4,323,582) shares were issued in lieu of cash dividend of $22,371,523 (2002: $23,227,334). The strike price was $6.95 per share (2002: 2,364,674 at $5.167; 1,958,908 at $5.620). The Dividend Reinvestment Plan ceased in October 2002. Executive Share Option Plan 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 on 16 November 2001 all options exercised will receive two shares. Balance at beginning of year Granted Exercised Lapsed Consolidated Parent Company 2003 2002 2003 2002 1,450,110 1,549,110 1,450,110 1,549,110 3,516,030 886,000 3,516,030 886,000 (152,000) (985,000) (152,000) (985,000) (16,000) – (16,000) – Balance at End of Year 4,798,140 1,450,110 4,798,140 1,450,110 Executive share options outstanding at the end of the year have the following terms: Vesting Date 26/08/99 30/08/00 04/09/01 10/09/02 Expiry Date 26/08/04 30/08/05 04/09/06 10/09/07 Base Exercise Option Price Value $7.52 $7.68 $11.61 $7.05 $0.45 $0.37 $0.82 $0.46 114,110 435,000 733,000 124,110 435,000 891,000 114,110 435,000 733,000 3,516,030 – 3,516,030 124,110 435,000 891,000 – Balance at End of Year 4,798,140 1,450,110 4,798,140 1,450,110 The 1999, 2000 and 2001 options all convert to two shares upon exercise. The 2002 options convert to one share upon exercise. The 2002 options include 2,338,530 options issued to the Managing Director as approved by shareholders by the 2002 Annual Meeting of the company. These options cannot be exercised prior to 10 September 2005. Non-Executive Directors’ Share Option Plan Pursuant to the Non-Executive Directors’ Share Option Plan approved by shareholders at the Annual Meeting of the company held on 26 October 2000, 150,175 options are on issue to non-executive directors as at 30 June 2003 (2002: 85,365). 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 on 16 November 2001 all options exercised will receive two shares. Movements in the number of share options outstanding under the Non-Executive Directors’ Share Option Plan are as follows: Balance at beginning of year Granted Exercised 85,365 125,785 (60,975) 216,216 85,365 (216,216) 85,365 125,785 (60,975) 216,216 85,365 (216,216) Balance at End of Year 150,175 85,365 150,175 85,365 56 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 57 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2003 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2003 4. SHARE CAPITAL (continued) 5. RESERVES Non-executive share options outstanding at the end of the year have the following terms: Consolidated Parent Company Vesting Date 04/09/01 10/09/02 Expiry Date Base Exercise Option Price Value 04/09/02 10/09/03 $11.61 $7.05 $0.82 $0.48 Balance at End of Year Consolidated Parent Company 2003 $’000 24,390 125,785 150,175 2002 $’000 85,365 – 2003 $’000 24,390 125,785 2002 $’000 85,365 – 85,365 150,175 85,365 Option valuation The options are valued using the Black-Scholes model, as at the vesting date. The calculations were prepared by First NZ Capital Group Limited and Deloitte Touche Tomatsu, and were reviewed by PricewaterhouseCoopers as auditors. Under this calculation the value of all options issued during the year was $1,655,182 (2002: $796,519). Repurchase and cancellation of shares On 5 November 2002 SKYCITY Entertainment Group Limited announced that it would commence an on-market share buyback programme of up to $60 million of the company’s shares. Details of the share buyback programme up until 30 June 2003 are detailed below. Date March 2003 April 2003 Shares Repurchased 1,390,283 168,370 Total Shares Repurchased 1,558,653 Average Purchase Price $8.36 $7.98 $8.31 Balances Foreign currency translation reserve Employee share entitlement reserve Total Reserves Analysis Foreign currency translation reserve Balance at beginning of year Effect of hedging the net investment of overseas subsidiaries Exchange difference on translation of overseas subsidiary Balance at End of Year Employee share entitlement reserve Balance at beginning of year Less value of shares issued during the year Less forfeiture of entitlements for prior years Less cash issued in lieu of shares Plus value of share entitlements for current year Balance at End of Year 2003 $’000 (4,219) 6,151 1,932 (5,330) (134) 1,245 (4,219) 5,044 (2,378) – (17) 3,502 6,151 2002 $’000 (5,330) 5,044 (286) (223) (5,344) 237 (5,330) 4,095 (1,571) (80) (8) 2,608 5,044 2003 $’000 – 6,151 6,151 – – – – 5,044 (2,378) – (17) 3,502 6,151 2002 $’000 – 5,044 5,044 – – – – 4,095 (1,571) (80) (8) 2,608 5,044 Under the SKYCITY Performance Pay Incentive Plan, selected employees have been eligible for performance related bonuses in respect of the financial years ending 30 June 2000, 2001, 2002 and 2003. 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, 2001, 2002 and 2003. Shares are issued in three equal installments, 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 SKYCITY Entertainment Group Limited’s shares on the New Zealand Exchange on the ten business days following the release to the New Zealand Exchange of the SKYCITY Entertainment Group Limited’s 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 SKYCITY Entertainment Group Limited’s annual result to the New Zealand Exchange for the relevant year of the Plan. 58 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 59 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2003 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2003 6. RETAINED EARNINGS 8. IMPUTATION BALANCES 7. DIVIDENDS Analysis Balance at beginning of year Net surplus for the year Dividends paid and provided Balance at End of Year Composition Parent and subsidiaries Associates Ordinary dividends Interim dividend paid Dividend paid in cash Dividend reinvestment in shares Prior year final dividend paid Dividend paid in cash Dividend reinvestment in shares Special dividend Total Dividends The dividends are fully imputed. Consolidated Parent Company 2003 $’000 2002 $’000 2003 $’000 2002 $’000 18,653 107,217 28,650 57,153 (10,438) 108,799 (133,362) (67,150) (133,362) (10,639) 67,351 (67,150) (7,492) 18,653 (35,001) (10,438) (8,082) 590 (7,492) 18,309 344 18,653 (35,001) (10,438) – – (35,001) (10,438) 44,217 – 24,478 22,372 42,295 20,864 11,009 23,059 12,218 – 44,217 – 24,478 22,372 42,295 20,864 11,009 23,059 12,218 – 133,362 67,150 133,362 67,150 On 22 August 2003 the board of directors resolved to pay a final dividend of 26 cents per ordinary share, a total at that date of $54,635,000. The actual total dividend will differ as a result of shares issued under the employee bonus scheme, and through the buyback and cancellation of shares, subsequent to 22 August 2003. The dividend will be paid on 3 October 2003 to all shareholders on the company’s share register at the close of business on Friday, 19 September 2003. Movements Imputation credit account Balance at beginning of year Tax payments, net of refunds Credits attached to dividends received Supplementary tax credits Balance at End of Year 9. MINORITY INTERESTS Balance at beginning of year Acquisition of SKYCITY Leisure Limited Share of surpluses/(losses) in subsidiaries Adjustment to fair value of assets acquired in SKYCITY Leisure Limited Increase in shareholding of subsidiaries Share of movements in reserves Acquisition of Planet Hollywood Balance at End of Year Consolidated 2003 $’000 2002 $’000 38,868 27,514 23,817 44,294 (65,688) (32,930) 6,741 7,435 3,687 38,868 5,321 – 286 1,642 3,563 (10,518) – – – – 5,607 1,485 8,076 (45) 1,118 5,321 Mandatory Convertible Notes As SKYCITY Leisure is part of the consolidated group, the Mandatory Convertible Notes (MCNs) are eliminated from the group financial statements on consolidation and are effectively represented by the assets and liabilities of the SKYCITY Leisure group as included in the consolidated Statements of Financial Position. On 1 March 2002 the subsidiary company SKYCITY Leisure Limited issued 30,980,023 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 SKYCITY Leisure 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 two 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 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 might have been entitled to. This interest is payable at the option of SKYCITY Leisure Limited. 60 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 61 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2003 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2003 10. BORROWINGS 10. BORROWINGS (continued) Borrowings due within 12 months Secured Bank loans (i) Total Borrowings Due Within 12 Months Non-current borrowings Secured Bank loans (i) Less deferred funding expenses Unsecured Convertible notes (ii) Capital notes (iii) Consolidated Parent Company 2003 $’000 1,000 1,000 439,810 (2,697) 437,113 13,365 149,266 162,631 2002 $’000 1,000 1,000 408,241 (2,416) 405,825 9,315 148,888 158,203 2003 $’000 2002 $’000 – – – – – – – – – – – – 149,266 149,266 148,888 148,888 Total Non-Current Borrowings 599,744 564,028 149,266 148,888 (i) Bank loans 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 $361,275,578 (2002: $344,533,654). The interest rate, inclusive of bank margin and hedging instruments, at 30 June 2003 was 7.38% on NZ borrowings (2002: 7.26% on New Zealand borrowings and 7.31% on Australian borrowings). A facility of NZ$493,615,645 (2002: NZ$513,262,176), secured by way of composite debenture, was available to the group as at 30 June 2003. The facility comprises: • A fixed term facility of NZ$326,275,578 and a revolving credit facility of NZ$167,340,067 (2002: NZ$193,560,000 and NZ$100,000,000). • The available fixed term facility reduces by NZ$15,000,000 every 31 March over the duration of the facility. The current maturity of the facility is November 2005. There is a one-year extension each anniversary at the option of the bank. • The Australian dollar facility of A$130,930,000 was repaid during the year and replaced by an increased NZ$ facility. The 30 June 2002 balance of this facility was A$191,800,000 converted at 0.8730 to NZ$219,702,176, comprising a A$131,800,000 (NZ$150,973,654) fixed term facility and a revolving credit facility of A$60,000,000 (NZ$68,728,522). Queenstown Casinos Limited • At balance date, Queenstown Casinos Limited had a bank facility of $5,500,000 (2002: $6,000,000), of which $3,000,000 was drawn down (2002: $3,000,000). The loan is secured by a debenture (floating charge) over the assets of the company. This facility expires on 31 December 2004. Riverside Casino Limited • At balance date, Riverside Casino Limited had a bank facility of $20,000,000 (2002: nil), of which $15,000,000 was drawn down (2002: nil). The loan is secured by a composite general security over the assets of the company and a mortgage over real property owned by the company. This facility expires on 16 September 2005. SKYCITY Leisure Group At balance date, SKYCITY Leisure Limited had four secured loans totalling $61,534,834 (2002: four secured loans totalling $61,706,850). The loans are secured by a variety of registered mortgages or debentures over individual properties and the assets and undertakings of the SKYCITY Leisure group as follows: • A bank term loan facility of $38,405,000 (2002: $40,000,000) secured by an assignment by way of security of SKYCITY Leisure’s interest in the New Zealand and Fiji cinema joint ventures, assignment by way of security of SKYCITY Leisure’s interest in Planet Hollywood (Civic Centre) Limited, a first registered mortgage over and assignment by way of security of all lease agreements of SKYCITY Metro, and a first registered mortgage over 82 Symonds Street, Auckland. The interest rate, inclusive of bank margin, at 30 June 2003 was 8.24% (2002: 8.09%). Reductions of $250,000 per quarter are made against the facility as well as half-yearly payments based on the net rental of SKYCITY Metro. • A bank cash advance facility with a limit of $22,000,000, drawn to $22,000,000 as at 30 June 2003 (2002: $20,500,000). This facility has the same security as the bank term loan facility above. There are no scheduled amortisations and the interest rate, inclusive of bank margin, at 30 June 2003 was 7.19% (2002: 7.57%). • A bank term loan facility of $1,062,334 (2002: $1,127,000) secured by first mortgage over the Fiji multiplex. The interest rate, inclusive of bank margin, at 30 June 2003 was 8.25% (2002: 9.00%). The final repayment is to be made on 30 September 2003. • A bank term loan facility to Village Rialto Cinemas Limited of $67,500 (2002: $80,000) secured by registered mortgage debenture over Village Rialto Cinemas Limited. Village SKYCITY Cinemas Limited provides a guarantee for 50% of the outstanding facility. The interest rate, inclusive of bank margin, at 30 June 2003 was 7.10% (2002: 7.60%). The final payment is to be made on 30 September 2004. The SKYCITY group has not provided any guarantees in relation to any of the SKYCITY Leisure group loans. Weighted Average Interest Rate The weighted average interest rate on banking facilities (inclusive of margin) on the group’s NZ$ debt, incurred during the year ended 30 June 2003, was 7.38% (2002: 7.20%). The weighted average interest rate (inclusive of margin) on the Australian debt incurred during the year ended 30 June 2003, was 7.10% (2002: 7.13%). (ii) Convertible notes Convertible notes were issued by subsidiary company Riverside Casino Limited as follows: Class A – issued 21 March 2000 A – issued 2 September 2002 B – issued 21 March 2000 B – issued 2 September 2002 C – issued 21 March 2000 C – issued 2 September 2002 D – issued 21 March 2000 D – issued 2 September 2002 Price $1.00 $1.00 $1.00 $1.00 $1.10 $1.00 $1.40 $1.00 Number of notes Rate of interest 5,619,888 2,700,000 4,683,240 2,250,000 4,683,240 2,250,000 3,746,592 1,800,000 27,732,960 15.00% 10.00% 15.00% 10.00% 15.00% 10.00% 15.00% 10.00% The amount appearing in the consolidated Statements of Financial Position ($13,365,000; 2002: $9,315,000) represents the minority shareholders’ portion of the notes issued by Riverside Casino Limited. 62 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 63 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2003 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2003 10. BORROWINGS (continued) 11. DEFERRED TAX LIABILITY A total of 9,000,000 convertible notes were issued during the year with an interest rate of 10%. Interest payable on the convertible notes accrues from 1 October 2002. Accrued interest will be paid quarterly in arrears. During the year convertible noteholders approved a change in interest rate to 15% for the C and D convertible notes (2002: C notes 13.64%, D notes 10.71%). 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 installments 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 21 March 2010. 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) Capital notes Balance at beginning of year Balance at end of year Deferred expenses at cost Accumulated amortisation Balance at end of year Consolidated Parent Company 2003 $’000 2002 $’000 150,000 150,000 150,000 150,000 1,875 (1,141) 734 1,875 (763) 1,112 2003 $’000 150,000 150,000 1,875 (1,141) 734 2002 $’000 150,000 150,000 1,875 (763) 1,112 Net Capital Notes at End of Year 149,266 148,888 149,266 148,888 On 5 May 2000 SKYCITY 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 SKYCITY Entertainment Group Limited ordinary shares. SKYCITY 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 Exchange during the 15 days prior to the election date. The capital notes do not carry voting rights. Capital note holders are not entitled to any distributions made by SKYCITY 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 SKYCITY Entertainment Group Limited. Non-current Balance at beginning of year Prior year timing differences Current year movements Balance at End of Year 12. INCOME TAX Surplus before tax Permanent differences Dividends received Inter-company eliminations Share of associates’ tax paid earnings Non-taxable income Expenditure not deductible for tax Additional depreciable value Future income tax benefits not recognised Adjustment for other tax rates (Australia) Over provision in prior years Surplus subject to tax Tax at 33% Income Tax Recognised in the Statements of Financial Performance Comprising Estimated current period tax assessment Future income tax benefit Deferred income tax liability Consolidated Parent Company 2003 $’000 20,811 1,049 2,823 24,683 2002 $’000 19,316 335 1,160 20,811 2003 $’000 2002 $’000 – – – – – – – – 158,620 90,921 108,799 67,351 – – – (3,724) 5,837 (3,010) 483 (220) (3,086) – – (125,000) 15,803 (92,000) 25,121 (344) – 36,409 – 8,730 (258) (1,258) – – 503 – – – – – – – – – (105) (472) 154,900 134,200 51,117 44,286 51,117 44,286 49,342 (2,096) 3,871 51,117 43,267 (476) 1,495 44,286 – – – – – – – – – – – – – – The parent company, together with its New Zealand based wholly-owned subsidiary companies, excluding SKYCITY Management (Auckland) Limited, and SKYCITY 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. At 30 June 2003 the group has income tax receivable of $315,071 (2002: pre-paid tax of $13,290,711). During the year the New Zealand Inland Revenue Department advised that it would allow the income tax credit claimed in relation to the Harrah’s contract termination fee. This resulted in use of money interest of $2,045,920 being transferred to pre-paid income tax. 64 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 65 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2003 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2003 13. PAYABLES AND ACCRUALS 14. PROPERTY, PLANT, AND EQUIPMENT (continued) Current Trade creditors Accrued expenses Advance from minority interests Employee entitlements Total Payables and Accruals 14. PROPERTY, PLANT, AND EQUIPMENT Consolidated Parent Company 2003 $’000 8,709 37,900 – 18,227 64,836 2002 $’000 19,940 21,157 3,604 16,439 61,140 2003 $’000 89 2,289 – – 2,378 2002 $’000 561 2,500 – – 3,061 Group Buildings Buildings at cost Land Land at cost Plant and equipment Plant and equipment at cost Motor vehicles Motor vehicles at cost Furniture, fixtures, and fittings Furniture, fixtures, and fittings at cost Other capital assets Capital work in progress Parent Plant and equipment Plant and equipment at cost Furniture, fixtures, and fittings Furniture, fixtures, and fittings at cost 2003 Acc Depn $’000 Cost $’000 Book Value $’000 Cost $’000 2002 Acc Depn $’000 Book Value $’000 447,770 (42,033) 405,737 419,360 (33,330) 386,030 84,296 – 84,296 79,481 – 79,481 214,078 (117,428) 96,650 189,521 (103,052) 86,469 334 (256) 78 356 (265) 91 58,413 (33,405) 25,008 43,942 (28,682) 15,260 25,221 – 25,221 28,706 – 28,706 830,112 (193,122) 636,990 761,366 (165,329) 596,037 153 201 354 (103) (114) (217) 50 87 137 111 238 349 (98) (99) (197) 13 139 152 Borrowing costs in relation to the funding of the SKYCITY Grand Hotel, convention and exhibition centre and the gaming expansion have been capitalised to these projects, $1,172,706 (2002: nil). Total capitalised interest and facility fees included in the cost of land and buildings at 30 June 2003 is $34,147,706 (2002: $32,975,000). A memorandum of encumbrance is registered against the title of land for Auckland casino in favour of Auckland City Council. Auckland City Council requires prior written consent 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 car park 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 SKYCITY 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 may 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. At balance date the company was not aware of any matters pertaining to the land under the State Owned Enterprises Act 1986. 15. COMMITMENTS The following amounts have been committed to by the Group or Parent, but not recognised in the financial statements. Operating leases Non-cancellable operating lease commitments: Payable not later than one year Payable later than one, not later than two years Payable later than two, not later than five years Payable later than five years Total Operating Lease Commitments Consolidated Parent Company 2003 $’000 2002 $’000 2003 $’000 2002 $’000 8,430 7,509 39,310 148,985 204,234 6,921 7,201 14,324 168,031 196,477 7 7 2 – 16 42 7 7 – 56 Operating lease commitments include a sub-soil lease on the Auckland Casino site (17 years and 6 months remaining), a premises lease for the Adelaide Casino site (82 years remaining) and a premises lease for the Queenstown Casino site (4 years remaining). Capital expenditure Amounts committed to capital expenditure Total Capital Expenditure Commitments 143,355 143,355 16,512 16,512 – – – – The above capital expenditure relates to purchases of plant and equipment for the Auckland, Adelaide and Queenstown complexes and construction and fit-out costs associated with the SKYCITY Grand Hotel, convention and exhibition centre and the gaming expansion. 66 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 67 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2003 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2003 16. INVESTMENTS IN SUBSIDIARIES 17. INVESTMENTS IN ASSOCIATES The Parent company’s investment in subsidiaries comprises shares at cost. Significant subsidiaries comprise: Name of entity Principle activities 2003 2002 Interest held by the group SKYCITY Auckland Holdings Limited Group funding SKYCITY Auckland Limited Casino premises licence holder SKYCITY Casino Management Limited Casino operator's licence holder SKYCITY Management (Auckland) Limited Employment of staff Abdiel Investments Limited SKYCITY Construction Limited Sky Tower Limited SKYCITY Wellington Limited Riverside Fund Limited SKYCITY International Holdings Limited SKYCITY International ApS SKYCITY Australia Pty Limited SKYCITY Adelaide Pty Limited Property owner Non-trading Non-trading Promotion company Holding company Holding company Danish holding company, incorporated in Denmark Australian holding company, incorporated in Australia Adelaide Casino licence holder and operator, incorporated in Australia SKYCITY Investments Limited Holding company SKYCITY Action Management Limited Loyalty programme Queenstown (Hard Rock) Investments Limited Joint venture partner Queenstown Casinos Limited Riverside Casino Limited Casino premises licence holder Casino premises licence holder Riverside Casino Construction Limited SKYCITY Leisure Limited Property owner Holding company SKYCITY Leisure Holdings Limited Property and administration SKYCITY Cinemas Limited SKYCITY Metro Limited Cinema exhibition Property SKYCITY Cinemas (Fiji) Limited Cinema exhibition, incorporated in Fiji Planet Hollywood (Civic Centre) Limited Restaurant 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 60% 55% 55% 74% 74% 74% 74% 74% 74% 100% 100% 100% 100% 60% 55% 55% 74% 74% 74% 74% 74% 74% All wholly owned subsidiary companies and significant partly-owned subsidiaries have balance dates of 30 June. Riverside Casino Construction Limited is a wholly owned subsidiary of Riverside Casino Limited. SKYCITY Leisure Holdings Limited and SKYCITY Cinemas Limited are wholly owned subsidiaries of SKYCITY Leisure Limited. SKYCITY Metro Limited and Planet Hollywood (Civic Centre) Limited are wholly owned subsidiaries of SKYCITY Leisure Holdings Limited. SKYCITY Cinemas (Fiji) Limited is a wholly owned subsidiary of SKYCITY Cinemas Limited. SKYCITY Entertainment Group Limited holds a 60% share in Queenstown Casinos Limited, which is the holder of a casino premises licence in Queenstown. Details of associates Significant associates comprise: Name of entity Principle activities 2003 2002 Interest held by the group Canbet Limited Village Cinemas SA (Argentina) On-line wagering Movie exhibitor Vista Entertainment Solutions Limited Ticket software systems 33% 25% 25% 32% 25% 25% Canbet Limited is incorporated in Australia and Village Cinemas SA is incorporated in Argentina. All entities have balance dates of 30 June with the exception of Vista Entertainment Solutions Limited, which has a 31 December balance date. The directors are not aware of any significant events or transactions since Vista Entertainment Solutions Limited’s balance date. On 11 August 2000, SKYCITY International ApS acquired 6.58% of the shares in Canbet Limited (a public company listed on the Australia Stock Exchange). This shareholding was increased to 21.58% on 7 February 2001, and further increased to 32.63% on 8 March 2002. As a result of acquiring the shares in SKYCITY Leisure Limited on 20 March 2001, the SKYCITY Entertainment Group indirectly acquired holdings in associated companies being Village Cinemas SA and Vista Entertainment Solutions Limited. Results of associates Share of surplus (less deficits) before income tax Income tax Total Recognised Revenues and Expenses Consolidated 2003 $’000 2002 $’000 298 (52) 246 364 (20) 344 68 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 69 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2003 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2003 17. INVESTMENTS IN ASSOCIATES (continued) 18. JOINT VENTURES (continued) Interests in associates Shares at cost Carrying value At beginning of year Associate disposed of during the year Share of total recognised revenues and expenses Goodwill on acquisition of associates Amortisation of goodwill on acquisition of associates Write-off of associate during the year Foreign currency translation impact Balance at end of year Total Investments in Associates Consolidated Parent Company 2003 $’000 2002 $’000 2003 $’000 2002 $’000 8,854 8,854 14,452 – 246 – (1,442) – (524) 12,732 21,586 8,414 (2,929) 344 13,254 (3,596) (736) (299) 14,452 23,306 – – – – – – – – – – – – – – – – – – – – As a result of adopting Financial Reporting Standard No. 38 Accounting for Investments in Associates goodwill on acquisition of associates is now included in the carrying value of the investment in associate, previously included in intangible assets (refer change in accounting policy note). The 2002 figures have been restated to comply with the new policy and show goodwill on acquisition of associates of $13,254,000. 18. JOINT VENTURES Hard Rock joint venture In December 2000 the group entered into a joint venture to operate the Hard Rock Cafe 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. The Hard Rock joint venture results are not significant to the group result. SKYCITY Leisure joint ventures As a result of acquiring shares in SKYCITY Leisure Limited on 20 March 2001, the SKYCITY group acquired the following indirect joint venture interests: Interest held by the group Name of entity Principle activities 2003 2002 Village SKYCITY Cinemas JV Cinema owner/operator Village SKYCITY Hoyts Queen St Cinemas JV Cinema owner/operator Village SKYCITY Rialto Cinemas JV Damodar Village SKYCITY Cinemas JV Cinema owner/operator Cinema owner/operator 50% 33% 25% 33% 50% 33% 25% 33% All the above joint ventures have been audited. Consolidated Parent Company 2003 $’000 2002 $’000 2003 $’000 2002 $’000 Financial performance The group’s operating revenues and share of expenses, proportionately consolidated, was: Revenue Expenses 33,857 (26,674) 30,807 (28,052) Net Contribution to Group Operating Surplus 7,183 2,755 Financial position The group’s share of assets and liabilities, proportionately consolidated, was: Current assets Cash on hand Receivables Other 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 2,282 743 239 3,264 16,541 296 16,837 20,101 2,563 415 1,130 4,108 1,948 911 135 2,994 13,577 782 14,359 17,353 1,626 892 1,207 3,725 Net Assets Employed in the Joint Venture 15,993 13,628 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 70 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 71 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2003 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2003 19. INTANGIBLE ASSETS 20. ACCOUNTS RECEIVABLE Consolidated Parent Company 2003 $’000 2002 $’000 2003 $’000 2002 $’000 Separable intangible assets Casino licence Casino licence at beginning of year Accumulated amortisation at beginning of year Unamortised balance at beginning of year Foreign currency translation Current year amortisation 203,961 (4,806) 199,155 (932) (2,343) 230,697 (2,669) 228,028 (26,736) (2,137) Unamortised balance at end of year 195,880 199,155 Rights and concessions Rights and concessions at beginning of year Current year amortisation Unamortised balance at end of year Goodwill on consolidation Goodwill on consolidation at beginning of year Accumulated amortisation at beginning of year Unamortised balance at beginning of year Goodwill arising on the acquisition of subsidiary Goodwill adjusted for fair value adjustments Impairment Foreign currency translation Current year amortisation Unamortised balance at end of year Other intangibles Franchise fees at cost Total Intangible Assets 2,250 (337) 1,913 14,071 (3,379) 10,692 – – – – (929) 9,763 2,250 – 2,250 24,635 (1,099) 23,536 8,394 (1,580) (16,730) (648) (2,280) 10,692 288 287 207,844 212,384 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Casino licence SKYCITY Entertainment Group Limited acquired the Adelaide Casino licence on 30 June 2000 as a result of the acquisition of 100% of the shares in SKYCITY Adelaide Pty Limited, through its wholly-owned subsidiary SKYCITY Australia Pty Limited on that date. The cost of the casino licence and other assets and liabilities of SKYCITY 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 SKYCITY Adelaide Pty Limited. The casino licence is being amortised over 85 years, being the length of the licence. Current Trade receivables Sundry receivables Amounts due from subsidiaries Other receivables Advances to associates Prepayments Future income tax benefit Income tax Foreign currency hedge Total Accounts Receivable 21. FINANCIAL INSTRUMENTS Consolidated Parent Company 2003 $’000 1,727 2,459 – 1,308 – 1,601 3,151 – – 10,246 2002 $’000 2,606 1,227 – 620 314 1,053 476 13,291 383 19,970 2003 $’000 – 144 2002 $’000 459 – 159,067 168,469 – – 104 – – – – – 270 – 2,674 – 159,315 171,872 Currency risk 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. For certain more significant committed expenditure it is the group’s policy to enter into foreign exchange forward contracts to manage the exposure to fluctuations in currency rates. Foreign exchange contracts as at 30 June 2003 were US$121,610 and AU$771,390 (2002: US$nil, AU$nil). The currency risk and interest rate risk associated with net Australian dollar investments is partially hedged through utilisation of cross currency interest rate swaps and interest rate swap contracts within the parameters set out in the group treasury policy. At 30 June 2003 there was AU$75,000,000 (2002: AU$nil) of cross currency interest rate swaps and AU$75,000,000 (2002: AU$120,000,000) of interest rate swaps. There were no foreign exchange contracts utilised to hedge the translation risk of funds advanced to overseas subsidiaries as at 30 June 2003 (2002: AU$15,900,000). Interest rate risk Short-term deposits were at call as at 30 June 2003. Deposits are held with major banking institutions. Interest rates on borrowings are a mix of fixed and floating. As at 30 June 2003 75% (2002: 81%) of total bank 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 9% (2002: 10%) of the balance of the total borrowing. 72 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 73 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2003 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2003 21. FINANCIAL INSTRUMENTS (continued) 21. FINANCIAL INSTRUMENTS (continued) Fixed versus floating interest rate – bank facility At 30 June 2003, SKYCITY group had total bank borrowings of $440,810,413 (2002: $409,240,654), structured as below: 2003 % of Total $’000 % Rate $’000 Term borrowings (exceeding 12 months) Fixed by long-term (exceeding 12 months) interest rate swaps 331,700 75 7.02 331,709 Fixed by short-term (less than 12 months) interest rate swaps Floating rate borrowings Total Debt Facility 40,000 69,110 109,110 9 16 25 440,810 100 6.24 6.14 6.17 6.81 Rates shown above are inclusive of bank margin and hedging costs. Maturities The interest swap maturities are at various dates through to June 2013. 2002 % of Total 81 10 9 19 % Rate 7.37 7.25 6.11 6.73 7.25 42,455 35,077 77,532 409,241 100 The long term interest rate swap maturities occur between eighteen months and ten years from balance date. Interest rate swap values – mark to market The swaps and forward rate agreements in place as at 30 June 2003 have been valued by the group’s bankers, and on a mark to market basis, is a loss of $18,595,093 (2002: loss of $5,389,101). 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, interest rate swaps, cross currency interest rate swaps and foreign currency contracts. 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. Accordingly, the directors believe the group has no significant concentration of credit risk. Fair values Methods and assumptions The following methods and assumptions were used to estimate the fair value of each class of financial instrument: Cash at bank, bank overdraft, term deposits, loans issued, receivables and trade creditors The carrying values of these items are equivalent to their fair value. As such, they have been excluded from the table below. Borrowings Borrowings are based on discounted cash flows using the borrowing rate the directors expect would be available to the group for debt of similar maturity at balance date. Fair value summary Carrying Amounts Assets Cash and bank Receivable and prepayments Receivables – related parties Income tax Advances to subsidiaries Liabilities Capital notes Creditors and accruals Borrowings – short-term Borrowings – long-term Advance from minority interests Convertible notes Income tax Consolidated Parent Company 2003 $’000 2002 $’000 2003 $’000 2002 $’000 57,264 7,095 – 7,275 – 48,084 4,279 1,541 13,291 – 248 – – – 159,067 1 729 – 2,674 168,469 71,634 67,195 159,315 171,873 149,266 148,888 149,266 64,533 1,000 57,536 1,000 437,113 405,825 – 13,365 4,427 3,604 9,315 – 2,378 – – – – – 148,888 3,061 – – – – – 669,704 626,168 151,644 151,949 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: Assets Current assets Liabilities Current liabilities 17,280 10,158 19,264 11,892 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. 74 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 75 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) For the year ended 30 June 2003 STOCK EXCHANGE LISTINGS AND SUBSIDIARY COMPANIES 22. CONTINGENT GAINS AND LOSSES STOCK EXCHANGE LISTINGS On 2 December 2002 the Inland Revenue Department advised that it would allow the income tax credit claimed in relation to the Harrah’s contract termination fee. This resulted in a reduction in contingent liabilities reported as 30 June 2002 by $6,700,000 to nil. SKYCITY Leisure Limited is one of the guarantors for a loan facility utilised by Village Cinemas SA Argentina (VCSA), an associate company. The maximum liability and exposure at 30 June 2003 under this guarantee is US$4,000,000 (30 June 2002: US$4,000,000). As part of the negotiations for recapitalisation of VCSA, SKYCITY Leisure Limited has granted an option to Village Roadshow Limited for it to acquire 40% of SKYCITY Leisure’s shareholding in VCSA (10% of total shares) for US$1.00. The option can be exercised at any time prior to the repayment of the VCSA funding facility. 23. RELATED PARTY INFORMATION Subsidiaries, Associates and Joint Ventures All members of the group as listed in notes 16, 17 and 18 are considered to be related parties of the parent company SKYCITY 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. SKYCITY Entertainment Group has entered into a Management Services Agreement with SKYCITY Leisure Limited to provide administration and management services. The agreement commenced on 1 July 2002 and the fees received by SKYCITY Entertainment Group for the year ended 30 June 2003 were $514,000. 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. 24. EVENTS OCCURRING AFTER BALANCE DATE Provision for dividend As disclosed in note 7 on 22 August 2003 the directors resolved to provide for a final dividend to be paid in respect of the year ended 30 June 2003. The dividend will be paid at a value of 26 cents per share on issue as at 19 September 2003 with full imputation credits attached. The dividend will be paid on 3 October 2003. 25. EARNINGS PER SHARE Number of ordinary shares on issue — weighted average (‘000) Group surplus from operations per share (cents) Consolidated 2003 2002 210,147 204,689 51.0 27.9 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. SKYCITY Entertainment Group Limited is listed on both the New Zealand and Australian Stock Exchanges. SUBSIDIARY COMPANIES The changes to subsidiary company directorships during the 12 month period ended 30 June 2003 were as follows. On 24 July 2002, A.B. Ryan resigned as a director of Planet Hollywood (Civic Centre) Limited. On 15 August 2002, D.R.K. Gascoigne was appointed a director of SKYCITY Leisure Limited. On 8 November 2002, P.J. Holdaway resigned as a director of SKYCITY Leisure Limited. On 6 June 2003, D.B. Henry was appointed a director of SKYCITY Leisure Limited. The following people held office as directors of subsidiaries of SKYCITY Entertainment Group Limited as at the end of the 2003 financial year, being 30 June 2003. SKYCITY Auckland Holdings Limited, SKYCITY Auckland Limited, SKYCITY Casino Management Limited Directors: E.W. Davies, J.P. Hartley, A.B. Ryan SKYCITY Management (Auckland) Limited, Abdiel Investments Limited, SKYCITY Construction Limited, Sky Tower Limited, SKYCITY Wellington Limited, SKYCITY International Holdings Limited, SKYCITY International ApS, SKYCITY Investments Limited, SKYCITY Action Management Limited, Riverside Fund Limited, Queenstown (Hard Rock) Investments Limited Directors: E.W. Davies, A.B. Ryan SKYCITY Australia Pty Limited, SKYCITY 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 Directors: E.W. Davies, B.S. Nabbs, S. Perry, A.B. Ryan Riverside Casino Construction Limited Directors: E.W. Davies, B.S. Nabbs, S. Perry, A.B. Ryan SKYCITY Leisure Limited Directors: M.W. Daniel, E.W. Davies, D.R.K. Gascoigne, D.B. Henry, D.I. Kennedy, A.B. Ryan SKYCITY Leisure Holdings Limited, SKYCITY Cinemas Limited, SKYCITY Metro Limited, Cine-Force Limited, Ab Initio Holdings No.13 Limited, Planet Hollywood (Civic Centre) Limited Director: P.J. Holdaway SKYCITY Cinemas (Fiji) Limited Directors: D. Damodar, P.J. Holdaway 76 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 77 DIRECTOR REMUNERATION 30 June 2003 REMUNERATION OF DIRECTORS DIRECTORS: INTERESTS REGISTER 30 June 2003 INTERESTS REGISTER Remuneration paid to directors of SKYCITY Entertainment Group Limited during the year ended 30 June 2003 was: Disclosure of Directors’ Interests E.W. Davies P.H. Elworthy J.P. Hartley R.H. McGeoch P.L. Reddy E. Toime W.R. Trotter B.M. Wickham $1,058,000 $124,356 $100,000 $40,000 $50,000 $50,000 $50,000 $22,050 Evan Davies is not paid director’s fees. The amount shown next to his name represents the salary and performance bonus paid to him as an employee of the company. The remuneration paid to Mr Davies comprised a base salary of $700,000 plus a performance-related incentive payment of $283,250 relating to the 2001/02 year. Mr Davies’ remuneration also included a performance-related incentive payment of $74,750 which was a 25% retention from his 2000/01 remuneration. In addition, Mr. Davies became entitled to exercise 375,000 options in the company which were issued to him in September 2001. These options, at the date of issue, had an assessed value of 82 cents per option. In August 2003, the company resolved to pay additional remuneration of $10,000 per annum to the chairpersons of the Audit and Risk Committee and the Governance and Remuneration Committee, effective from 1 July 2003 for the chair of the Governance and Remuneration Committee and from the date when the Audit and Risk Committee is reconvened as a committee of the board rather than as is currently the case (September 2003) where all directors comprise the committee. Remuneration paid to directors, or former directors, of SKYCITY Leisure Limited during the year ended 30 June 2003 was: M.W. Daniel P.J. Holdaway D.B. Henry D.R.K. Gascoigne $25,000 $118,098 $1,712 $39,545 Peter Holdaway resigned as a director of SKYCITY Leisure Limited on 8 November 2002. Mr Holdaway was not paid director’s fees. The amount shown next to his name represents the total of the remuneration and the value of other benefits paid to him as an employee of SKYCITY Leisure Limited. Remuneration paid to directors of Queenstown Casinos Limited during the year ended 30 June 2003 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 SKYCITY 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 SKYCITY 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 director’s fees and committee chairperson’s fees for the 2003/04 financial year or for the reimbursement of expenses incurred in relation to company matters, or as disclosed elsewhere in this Annual Report. 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 SKYCITY Interests Register as at 30 June 2003 with the notices given by directors during the period ended 30 June 2003 marked with an asterisk. Director E.W. Davies J.P. Hartley P.L. Reddy R.H. McGeoch Other Company Melanesian Mission Trust Bluestone Mortgages Limited* Infinity Group Limited and certain subsidiaries Pacific Road Corporate Finance* RMB Ventures Limited and various investee companies* TeleTech Holdings Limited* The Great New Zealand Business Venture Limited Trango Capital Limited Vista Entertainment Limited* Active Equities Limited Infinity Group Limited MobilefoneRepair.com Limited Securefresh Pacific Limited SKYCITY Auckland Community Trust TeamTalk Limited Telecom Corporation of New Zealand Limited The New Zealand International Festival of the Arts* Vista Entertainment Solutions Limited Aon Risk Services Limited* Australian Growth Properties Limited* Australian Pacific Airports Corporation Limited* Corrs Chambers Westgarth, Solicitors* Relationship Trustee Director Director and Shareholder Advisory Board Member Advisory Board Member Advisory Board Member Director Director and Shareholder Director Director and Shareholder Director Associated Person of Shareholder Associated Person of Shareholder Trustee Associated Person of Shareholder Director Trustee Associated Person of Shareholder Member NSW Board of Advice Chairman Deputy Chairman Consultant and Chairman Emeritus of the firm Pacific Healthcare Australia Limited* Ramsay Health Care Limited* Saatchi & Saatchi Trans Tasman Advisory Board* Frontiers Group Australasia Limited* Frontiers Group Limited* Telecom Corporation of New Zealand Limited* Telecom Corporation of New Zealand Australia Limited* Chairman Director Chairman Chairman Director Director Chairman E. Toime W.R. Trotter Royal Mail Holdings PLC* Royal Mail Group PLC* Post Office Limited* Executive Deputy Chairman Director Director First NZ Capital Group Limited and certain subsidiaries New Zealand Exchange Limited NZX Funds Management Limited* Director Director Director 78 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 79 DIRECTORS: INTERESTS REGISTER AND SHARE TRANSACTIONS 30 June 2003 DIRECTOR SHARES, OPTIONS AND CAPITAL NOTES, AND EMPLOYEE REMUNERATION 30 June 2003 INTERESTS REGISTER (continued) INTERESTS REGISTER (continued) Disclosure of Directors’ Interests (continued) The following details included in the Interests Register as at 30 June 2002, or entered during the year ended 30 June 2003, have been removed during the year ended 30 June 2003. E.W. Davies is no longer a director of the Tourism Industry Association of New Zealand. J.P. Hartley is no longer a director of Vertex Group Holdings Limited and certain subsidiaries. R.H. McGeoch is no longer an advisor to Collette Dinnignan Pty Limited. E. Toime is no longer a director of Datacom Group Limited, Datacom Investments Pty Limited, New Zealand Post Limited and subsidiaries, NRMA Insurance Limited or the State Sector Standards Board. 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 NZX, the following acquisitions and disposals of relevant interests in SKYCITY shares during the period to 30 June 2003. Director E W Davies P H Elworthy J P Hartley P L Reddy E Toime W R Trotter B M Wickham Date of Acquisition/ Disposal during Period to 30/6/03 Consideration Shares Acquired (Disposed of) 4 October 2002(1)(2) 30 April 2003(1) 18 September 2002(3) 18 September 2002(3) 4 October 2002(2) 4 October 2002(2)(4) 6 September 2002(3) 4 October 2002(2)(4) 9 September 2002(3) 4 October 2002(2) 6 September 2002(3) 4 October 2002(2)(4) 4 October 2002(2) $92,475.80 $830,006.00 $149,266.80 $153,168.00 $5,668.59 $17,776.86 $149,144.85 $15,282.96 $149,266.80 $11,455.27 $149,144.85 $59,777.21 $6,745.34 13,312 (100,000) 24,390 (21,190) 816 2,559 24,390 2,200 24,390 1,649 24,390 8,605 971 (1) (2) (3) The transactions shown relate to shares held by a trust of which Mr Davies is a discretionary beneficiary. The transactions shown relate to the issue of shares in lieu of dividends pursuant to the SKYCITY Entertainment Group Limited Dividend Reinvestment Plan. The transactions shown relate to the exercise of options granted to directors pursuant to the Non-Executive Director Share Option Plan approved by shareholder at the Annual Meeting of the company held on 26 October 2000. (4) The transactions shown relate to shares held by separate trusts of which Mr Hartley, Ms Reddy or Mr Trotter are trustees and discretionary beneficiaries. Disclosure of Directors’ Interests in Shares, Options and Capital Notes Directors disclosed, pursuant to Rule 10.5.3 of the Listing Rules of the NZX, the following relevant interests in SKYCITY shares, options and capital notes during the period to 30 June 2003. Director Beneficially Held E.W. Davies J.P. Hartley R.H. McGeoch P.L. Reddy E. Toime W.R. Trotter 324,346 81,592 - 70,132 52,553 328,334 Shares Non- Beneficially Held Held By Associated Person - - - 2,665 - - 9,827 - - - 4,240 - W.R. Trotter is a trustee of a trust holding 200,000 capital notes. Beneficially Held 3,177,640 66,319 20,964 20,964 20,964 20,964 Options Non- Beneficially Held - - - - - - Held By Associated Person 193,000 - - - - - Options issued to Mr. Davies are issued pursuant to the Executive Share Option Plan (1999 Executive Plan) approved by shareholders at the Annual Meeting of the company held on 28 October 1999 and the Managing Director Share Option Plan (Managing Director Plan) approved by shareholders at the Annual Meeting of the company held on 30 October 2002. Options issued to associated persons of Mr. Davies are issued pursuant to the 1999 Executive Plan and the Executive Share Option Plan approved by the board of the company in 2002 (2002 Executive Plan). Options issued to the non-executive directors are issued pursuant to the Non-Executive Director Share Option Plan (Non- Executive Director Plan) approved by shareholders at the Annual Meeting of the company held on 26 October 2000. Options issued under the 1999 Executive Plan and the Non-Executive Director Plan are exercisable one year after the date of issue, at the exercise price determined pursuant to the Plans, and lapse if they are not exercised within five years of the date of issue. Options issued under the Managing Director Plan and the 2002 Executive Plan are exercisable three years after the date of issue, except that some options issued under the 2002 Executive Plan may be exercised after one year from date of issue under special circumstances as described in the Plan, at the exercise price determined pursuant to the Plans and lapse if not exercised within five years of the date of issue. EMPLOYEE REMUNERATION The numbers 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 2003, are listed below. Number of Employees Number of Employees Remuneration Group Parent Company Remuneration Group Parent Company $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 $190,000 - $199,999 $200,000 - $209,999 $210,000 - $219,999 $220,000 - $229,999 14 10 13 4 2 7 4 5 2 2 1 1 $230,000 - $239,999 $240,000 - $249,999 $260,000 - $269,999 $270,000 - $279,999 $280,000 - $289,999 $290,000 - $299,999 $300,000 - $309,999 $330,000 - $339,999 $370,000 - $379,999 $410,000 - $419,999 $480,000 - $489,999 - - - - - - - - - - - - 1 3 1 1 1 1 1 1 1 1 1 - - - - - - - - - - - 80 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 81 ADDITIONAL INFORMATION SHARE REGISTER INFORMATION DONATIONS Twenty Largest Shareholders as at 22 August 2003 Donations are referred to in Note 3 of the financial statements. WAIVERS FROM THE NEW ZEALAND EXCHANGE (NZX) LISTING RULES The following waivers from the NZX Listing Rules were effective as at balance date. As part of the Non-Executive Director Share Option Plan, approved by shareholders at the 2000 Annual Meeting, the NZX 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 year ending on 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 NZX 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 the 1999 Executive Share Option Plan. 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 NZX 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 NZX granted waivers from compliance with Listing Rule 7.3.6 in respect of the participation by Ms. Shotter in the company’s renewed Performance Pay Incentive Plan (2002 PPI) and the renewed executive share option plan (2002 Option Plan). As the terms of the 2002 PPI and the 2002 Option Plan are substantially the same as the previous PPI and Executive Share Option Plan, in the absence of the waivers, issues of shares under the 2002 PPI and options under the 2002 Option Plan would require shareholder approval. The NZX granted the waivers on the condition that Ms. Shotter’s participation in the 2002 PPI and the 2002 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 SKYCITY Entertainment Group Limited or any of its subsidiary companies. Colonial First State Investment Managers Maple Brown Abbott Capital Group AMP Henderson Global Investors Tower Asset Management Morgan Stanley Investment Management Accident Compensation Corporation Liberty Wagner Asset Management ING Investment Management Guardian Trust Funds Management Tower Trust State Street Global Advisors AXA Group BT Funds Management Bank of New Zealand Structured Finance Queensland Investment Corporation Barclays Global Investors Legal & General Investment Management Lloyd George Management Commerical General Norwich Union Group 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Total Number of shares 32,362,674 9,883,904 9,824,600 7,512,727 5,200,124 4,186,222 4,136,926 3,680,000 3,638,123 2,952,680 2,833,658 2,806,596 2,727,043 2,598,966 2,100,000 2,000,000 1,743,758 1,267,905 1,262,553 1,165,923 103,884,382 % of issued shares 15.40% 4.70% 4.68% 3.58% 2.47% 1.99% 1.97% 1.75% 1.73% 1.41% 1.35% 1.34% 1.30% 1.24% 1.00% 0.95% 0.83% 0.60% 0.60% 0.55% 49.44% The analysis as set out above has been compiled based upon information provided by Computershare Analytics Pty Limited. The total number of shares on issue as at 22 August 2003 was 210,135,588. Distribution of Ordinary Shares and Registered Shareholdings as at 22 August 2003 Size of holding 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 over 100,000 Total Number of shareholders 6,380 11,301 2,194 1,243 57 21,175 Number of shares 4,443,904 26,552,494 16,180,916 26,789,465 136,168,809 210,135,588 As at 22 August 2003 there were 226 holdings of less than 64 shares, being the minimum marketable parcel of shares under ASX Listing Rules. The ASX Listing Rules define the minimum parcel as having a value of A$500. The calculation of the minimum parcel of 64 shares is based on an exchange rate of A$0.8961 and a SKYCITY share price of NZ$8.78. 82 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 83 CAPITAL NOTEHOLDER INFORMATION SHAREHOLDER AND OPTION HOLDER INFORMATION Substantial Security Holders As at 27 November 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 32,620,863 ordinary shares in the company. Option Holders As at 22 August 2003 there were: • 1,282,110 Options, issued under the Executive Share Option Plan which was approved by shareholders at the Annual Meeting of the company held on 28 October 1999, held by 18 holders. These options have no voting rights but entitle the holder to two shares on the exercise of each option • 150,175 Options, issued under the Non-Executive Director Share Option Plan approved by shareholders at the Annual Meeting of the company held on 26 October 2000, held by 5 holders. These options have no voting rights but 24,900 of the options entitle the holder to two shares on exercise of the option and the balance entitle the holder to one share on exercise of the option • 2,338,530 Options, issued under the Managing Director Share Option Plan approved by shareholders at the Annual Meeting of the company held on 30 October 2002, held by one holder. These options have no voting rights but entitle the holder to one share on the exercise of the option • 1,777,500 Options, issued under the Executive Share Option Plan approved by directors of the company in August 2002, held by 31 holders. The options have no voting rights but entitle the holder to one share on the exercise of the option. Twenty Largest Capital Noteholders as at 22 August 2003 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 Custodial Services Limited Account No.3 First NZ Capital Custodians Limited N Z Airline Pilots Mutual Benefit Fund – Air Traffic Controllers J.R. Avery, P.G. Inger and J.A. Inger Cogent Nominees Limited Adam Consultants and Administrators Wellington Limited Knox Home Trust Board Inc. Maori Education Trust ASB Nominees Limited Custodial Services Limited Account No.2 S.M. Auton and R.J. Auton C.A. Carran and P.A. Carran J.A. Hood and E.A. Hood and C.R. Darlow J.R. Matthews, R.J. Matthews and B.R. Perkins Sargood Bequest Nominee Limited A.G. Smart G.A. Walker and E.K. Walker 6,417,000 1,686,000 1,590,000 952,000 634,000 600,000 500,000 500,000 400,000 400,000 400,000 350,000 308,000 300,000 300,000 300,000 300,000 300,000 300,000 300,000 4.28% 1.12% 1.06% 0.63% 0.42% 0.40% 0.33% 0.33% 0.27% 0.27% 0.27% 0.23% 0.21% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% Total 16,837,000 11.22% As at 22 August 2003, 150 million SKYCITY Capital Notes (each Capital Note having an issue value of $1.00) were on issue. The Capital Notes have a maturity date of 15 May 2005. Distribution of Capital Note holdings as at 22 August 2003 Size of holding 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 over 100,000 Total Number of noteholders Number of capital notes - 676 1,310 3,286 107 5,379 - 3,377,000 12,247,250 103,338,750 31,037,000 150,000,000 84 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 85 LIMITATIONS ON SHARES LIMITATIONS ON SHARES AND OTHER DISCLOSURES Limitations on Acquisition of Ordinary Shares Transfer of shares (other than to an Associated Casino Person) (continued) The company’s constitution contains various provisions which were included in it to take into account the application of: • the Casino Control Act 1990 of New Zealand • the Casino Act 1997 of South Australia, and • the legislation providing for the establishment, operation and regulation of casinos in any other jurisdiction in which SKYCITY or any of its subsidiaries may hold a casino licence to SKYCITY Entertainment Group Limited and any of its subsidiaries SKYCITY needs to ensure, when it participates in gaming activities: • 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 • that there are appropriate protections to ensure that persons do not gain positions of significant influence or control over SKYCITY 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 can not 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 SKYCITY 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, SKYCITY 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 SKYCITY 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 SKYCITY 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, • Holding more than 5% of the shares in SKYCITY; or • Increasing their combined holding further beyond 5% if: – they already hold more than 5% of the shares in SKYCITY; 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: • each regulatory authority advises that approval is not needed; • 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; • the board of the company is satisfied that registration of the proposed transfer will not prejudice any casino licence; or • the transferee, and the persons associated with it, disposes of such number of SKYCITY’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, SKYCITY may sell such number of the shares held by the transferee, and by any persons associated with it, as may be necessary to reduce their combined shareholding to a level that will not result in the transferee, and the persons associated with it, being an Associated Casino Person of that casino licence holder. The power of sale can only be exercised if SKYCITY 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 SKYCITY to a person who is not associated with the transferee. Other Legislation/Requirements General limitations on the acquisition of the securities imposed by the jurisdiction in which SKYCITY 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 than 20% of the voting rights in SKYCITY, or the increase of an existing holding of 20% or more of the voting rights in SKYCITY, 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 when an “overseas person” acquires shares or an interest in shares in SKYCITY 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 SKYCITY if the acquisition would have, or would be likely to have, the effect of substantially lessening competition in a market. OTHER REQUIRED DISCLOSURES SKYCITY Entertainment Group Limited has no securities subject to an escrow arrangement. SKYCITY Entertainment Group Limited is incorporated in New Zealand and is not subject to Chapters 6, 6A, 6B and 6C of the Corporations Act (Australia). SKYCITY Entertainment Group Limited currently has in place an on market buy-back arrangement. There are no material differences between the ASX Appendix 4E issued by SKYCITY Entertainment Group Limited for 30 June 2003 and this Annual Report. 86 SKYCITY Entertainment Group Limited Annual Report 2003 SKYCITY Entertainment Group Limited Annual Report 2003 87 DIRECTORY REGISTERED OFFICE SHARE REGISTRARS AUDITOR PricewaterhouseCoopers 188 Quay Street Auckland City Private Bag 92162 Auckland BANKERS ANZ Banking Group (New Zealand) Limited ASB Bank Limited Bank of New Zealand Limited The Hongkong and Shanghai Banking Corporation Limited CAPITAL NOTES TRUSTEE The New Zealand Guardian Trust Company Limited 48 Shortland Street PO Box 1934 Auckland Telephone +64 9 379 3630 Facsimile +64 9 377 7477 SKYCITY Entertainment Group Limited Level 6 Federal House 86 Federal Street PO Box 6443 Wellesley Street Auckland New Zealand Telephone +64 9 363 6141 Facsimile +64 9 363 6140 e-mail sceginfo@skycity.co.nz SKYCITY Entertainment Group Limited’s Registered Office in Australia Finlaysons 81 Flinders Street GPO Box 1244 Adelaide South Australia Telephone +61 8 8235 7400 Facsimile +61 8 8232 2944 New Zealand Computershare Investor Services Limited Level 2 159 Hurstmere Road Takapuna Auckland Private Bag 92119 Auckland Telephone +64 9 488 8700 Facsimile +64 9 488 8787 Australia Computershare Investor Services Pty Limited Level 3 60 Carrington Street Sydney NSW 2000 GPO Box 7045 Sydney NSW 1115 Telephone +61 2 8234 5000 Facsimile +61 2 8234 5050 SOLICITORS Bell Gully Buddle Weir H P Tower 171 Featherston Street PO Box 1291 Wellington Minter Ellison Rudd Watts BNZ Tower 125 Queen Street PO Box 3798 Auckland Finlaysons 81 Flinders Street GPO Box 1244 Adelaide South Australia For shareholder and corporate enquiries please phone +64 9 363 6141 or fax +64 9 363 6140 or e-mail sceginfo@skycity.co.nz For customer enquiries and reservations please phone +64 9 363 6000 or 0800 SKYCITY (0800 759 2489) or fax +64 9 363 6010 or e-mail reservations@skycity.co.nz SKYCITY web site: www.skycitygroup.co.nz 88 SKYCITY Entertainment Group Limited Annual Report 2003 This report is printed using vegetable based inks on chlorine free bleached paper, sourced from a renewable forest. 

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