SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT YEAR ENDED 3(cid:31) JUNE 2(cid:31)(cid:30)(cid:31) SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 CONTENTS FINANCIAL STATEMENTS Auditors’ Report Income Statements Statements of Comprehensive Income Balance Sheets Statements of Changes in Equity Statements of Cash Flows Notes to the Financial Statements CORPORATE GOVERNANCE AND OTHER DISCLOSURES Corporate Governance Shareholder Information Director and Employee Remuneration Directors’ Disclosures Noteholder Information SKYCITY ACES Information Company Disclosures Other Information Directory (cid:31)2 (cid:31)3 (cid:31)4 (cid:31)5 (cid:31)6 (cid:31)8 (cid:31)9 48 55 57 58 6(cid:31) 6(cid:30) 62 63 IBC ANNUAL MEETING The 2(cid:31)(cid:30)(cid:31) annual meeting of SKYCITY Entertainment Group Limited will be held in the New Zealand Room, SKYCITY Auckland Convention Centre, 88 Federal Street, Auckland, on Friday 29 October 2(cid:31)(cid:30)(cid:31), commencing at (cid:30)(cid:31).(cid:31)(cid:31)am. The notice of meeting, including agenda, will be mailed to shareholders on or before 8 October 2(cid:31)(cid:30)(cid:31). This report is dated 24 September 2(cid:31)(cid:30)(cid:31) and is signed on behalf of the board of directors of SKYCITY Entertainment Group Limited by: R H McGeoch Chairman C J D Moller Director For further information on the business operations and performance of SKYCITY Entertainment Group during the year ended 3(cid:31) June 2(cid:31)(cid:30)(cid:31), please refer to the SKYCITY Shareholder Review which has been sent to shareholders and is available in the Investor Centre section of the company’s website at www.skycityentertainmentgroup.com. 2 FINANCIAL STATEMENTS AND NOTES FOR THE YEAR ENDED 3(cid:31) JUNE 2(cid:31)(cid:30)(cid:31) 01 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 AUDITORS’ REPORT To the shareholders of SKYCITY Entertainment Group Limited We have audited the financial statements on pages 3 to 46. The financial statements provide information about the past financial performance and cash flows of the Company and Group for the year ended 3(cid:31) June 2(cid:31)(cid:30)(cid:31) and their financial position as at that date. This information is stated in accordance with the accounting policies set out on pages 9 to (cid:30)5. This report is made solely to the Company’s shareholders, as a body, in accordance with Section 2(cid:31)5((cid:30)) of the Companies Act (cid:30)993. Our audit work has been undertaken so that we might state to the Company’s shareholders those matters which we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s shareholders as a body, for our audit work, for this report, or for the opinions we have formed. 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 3(cid:31) June 2(cid:31)(cid:30)(cid:31) 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 capacity as auditors, tax and accounting advisors. 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 3 to 46: (i) comply with generally accepted accounting practice in New Zealand; (ii) comply with International Financial Reporting Standards; and (iii) give a true and fair view of the financial position of the Company and Group as at 3(cid:31) June 2(cid:31)(cid:30)(cid:31) and their financial performance and cash flows for the year ended on that date. Our audit was completed on (cid:30)7 August 2(cid:31)(cid:30)(cid:31) and our unqualified opinion is expressed as at that date. Chartered Accountants Chartered Accountants Auckland Auckland 02 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 INCOME STATEMENTS FOR THE YEAR ENDED 3(cid:31) JUNE 2(cid:31) (cid:30)(cid:31) Revenue including discontinued operations Less revenue from discontinued operations Continuing revenue Other income Shares of net profits of associates Employee benefits expense Other expenses Direct consumables Gaming taxes and levies Marketing and communications Directors’ fees Depreciation and amortisation expense Restructuring costs Finance costs – net Profit before income tax Tax expense pre Government Budget changes Profit before discontinued operations and tax expense relating to Government Budget changes CONSOLIDATED PARENT NOTES 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 23 3 4 5 5 5 6 7 83(cid:30),(cid:31)67 6(cid:30),(cid:30)3(cid:31) 838,895 76,629 769,937 762,266 92(cid:31) 5,868 (25(cid:30),655) (85,245) (47,45(cid:30)) (59,(cid:31)45) (42,(cid:30)63) (744) (67,5(cid:31)7) (2,(cid:31)(cid:30)9) (47,388) (cid:30),98(cid:30) 5,653 (24(cid:30),567) (92,926) (43,(cid:31)69) (58,(cid:31)57) (37,(cid:30)35) (836) (7(cid:31),(cid:30)26) (2,368) (66,94(cid:31)) – – – (cid:30)(cid:31)(cid:31),224 – ((cid:30)7,4(cid:30)4) (6,3(cid:31)3) – – (2,(cid:31)55) (744) (5,727) – (9,238) – – – (cid:30)(cid:31)(cid:31),(cid:30)99 – ((cid:30)5,2(cid:31)3) ((cid:30)(cid:31),(cid:31)89) – – (766) (836) (8,6(cid:31)3) – (9,878) (cid:30)73,5(cid:31)8 (cid:30)56,876 58,743 54,824 (45,43(cid:30)) (39,643) – – (cid:30)28,(cid:31)77 (cid:30)(cid:30)7,233 58,743 54,824 Profit/(loss) from discontinued operations – Cinemas 23 (cid:30)3,49(cid:30) ((cid:30),733) – – Profit for the year before tax expense relating to Government Budget changes (cid:30)4(cid:30),568 (cid:30)(cid:30)5,5(cid:31)(cid:31) 58,743 54,824 Tax expense relating to Government Budget changes 7 (39,7(cid:31)(cid:31)) – – – Profit for the year Total tax expense Attributable to: Profit attributable to shareholders of the company Non controlling interest Earnings per share for profit attributable to the shareholders of the company: Basic earnings per share Diluted earnings per share Attributable to continuing operations: Basic earnings per share Diluted earnings per share Attributable to discontinued operations: Basic earnings per share Diluted earnings per share (cid:30)(cid:31)(cid:30),868 (cid:30)(cid:30)5,5(cid:31)(cid:31) 58,743 54,824 7 (85,(cid:30)3(cid:30)) (39,643) – – 25 (cid:30)(cid:31)2,(cid:31)25 ((cid:30)57) (cid:30)(cid:30)5,3(cid:31)(cid:30) (cid:30)99 58,743 – (cid:30)(cid:31)(cid:30),868 (cid:30)(cid:30)5,5(cid:31)(cid:31) 58,743 54,824 – 54,824 CENTS CENTS 8 8 8 8 8 8 (cid:30)7.7 (cid:30)6.8 (cid:30)5.4 (cid:30)4.7 2.3 2.(cid:30) 23.4 2(cid:30).2 23.7 2(cid:30).4 ((cid:31).3) ((cid:31).2) The above income statements should be read in conjunction with the accompanying notes. 03 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 3(cid:31) JUNE 2(cid:31) (cid:30)(cid:31) Profit for the year Other comprehensive income Exchange differences on translation of overseas subsidiaries Effect of hedging the net investment of overseas subsidiaries Movement in cash flow hedges Income tax relating to components of other comprehensive income Other comprehensive income for the year Total comprehensive income for the year, net of tax Total comprehensive income for the year is attributable to: Shareholders of the company Minority interest CONSOLIDATED PARENT NOTES 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) (cid:30)(cid:31)(cid:30),868 (cid:30)(cid:30)5,5(cid:31)(cid:31) 58,743 54,824 24 24 24 24 25 (5,96(cid:31)) ((cid:30),22(cid:30)) 8,577 (2,(cid:30)98) (5,4(cid:30)8) 5,973 (3(cid:30),8(cid:31)7) 8,(cid:31)(cid:31)4 (8(cid:31)2) (23,248) – – – – – – – – – – (cid:30)(cid:31)(cid:30),(cid:31)66 92,252 58,743 54,824 (cid:30)(cid:31)(cid:30),223 ((cid:30)57) (cid:30)(cid:31)(cid:30),(cid:31)66 92,(cid:31)53 (cid:30)99 92,252 – – – – – – The above statements of comprehensive income should be read in conjunction with the accompanying notes. 04 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 BALANCE SHEETS AS AT 3(cid:31) JUNE 2(cid:31)(cid:30)(cid:31) ASSETS Current assets Cash and bank balances Receivables and prepayments Inventories Tax receivables Derivative financial instruments Total current assets Non-current assets Tax receivables Property, plant and equipment Investment in subsidiaries Intangible assets Investments in associates Derivative financial instruments Total non-current assets Total assets LIABILITIES Current liabilities Payables Current tax liabilities Derivative financial instruments Subordinated debt – capital notes Subordinated debt – SKYCITY ACES Total current liabilities Non-current liabilities Interest bearing liabilities Subordinated debt – capital notes Subordinated debt – SKYCITY ACES Deferred tax liabilities Derivative financial instruments Other non-current liabilities Total non-current liabilities Total liabilities Net assets EQUITY Share capital Reserves Retained profits/(losses) Parent entity interest Minority interest Total equity CONSOLIDATED PARENT NOTES 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 9 (cid:30)(cid:31) (cid:30)(cid:30) (cid:30)2 (cid:30)(cid:30) (cid:30)3 3(cid:30) (cid:30)4 (cid:30)5 (cid:30)2 (cid:30)6 (cid:30)(cid:30) (cid:30)2 (cid:30)8 (cid:30)9 (cid:30)7 (cid:30)8 (cid:30)9 2(cid:31) (cid:30)2 (cid:30)(cid:31)2,5(cid:31)6 23,(cid:30)8(cid:30) 7,(cid:30)62 (cid:30)8,255 – 275,6(cid:30)3 24,(cid:30)56 6,6(cid:30)7 (cid:30)7,922 6,552 (cid:30) 94,997 – – – (cid:30)5(cid:30),(cid:30)(cid:31)4 33(cid:31),86(cid:31) 94,998 25,(cid:30)4(cid:30) 953,(cid:30)79 – 397,226 83,549 26,(cid:31)4(cid:30) 5,7(cid:31)7 (cid:30),(cid:31)28,765 – 4(cid:31)6,274 84,637 (cid:30)6,6(cid:31)3 – 7,262 6(cid:30)8,775 (cid:30)3,(cid:31)53 – – 2 26,9(cid:30)8 – – – 26,92(cid:31) – 4,974 669,(cid:31)49 (cid:30)5,6(cid:30)(cid:31) – – (cid:30),485,(cid:30)36 (cid:30),54(cid:30),986 639,(cid:31)9(cid:31) 689,633 (cid:30),636,24(cid:31) (cid:30),872,846 734,(cid:31)88 7(cid:30)6,553 (cid:30)(cid:31)(cid:30),8(cid:31)(cid:31) 7,(cid:30)(cid:31)(cid:31) 523 – (cid:30)83,8(cid:31)6 (cid:30)(cid:30)(cid:31),343 9,(cid:30)54 5,673 (cid:30)25,23(cid:31) – 23(cid:31),2(cid:30)8 – – – – (cid:30)(cid:30)(cid:31),768 – – (cid:30)23,827 – 293,229 25(cid:31),4(cid:31)(cid:31) 23(cid:31),2(cid:30)8 234,595 4(cid:30)7,(cid:30)26 47,(cid:31)3(cid:31) – 95,347 23,99(cid:30) – 6(cid:30)(cid:31),(cid:30)8(cid:31) – (cid:30)84,5(cid:30)7 48,36(cid:31) 34,53(cid:31) 2,547 – 47,(cid:31)3(cid:31) – – – – 583,494 88(cid:31),(cid:30)34 47,(cid:31)3(cid:31) – – – – – – – 876,723 (cid:30),(cid:30)3(cid:31),534 277,248 234,595 759,5(cid:30)7 742,3(cid:30)2 456,84(cid:31) 48(cid:30),958 22 24(a) 24(b) 732,9(cid:30)(cid:31) 7,885 (cid:30)7,397 733,(cid:31)85 9,(cid:31)36 ((cid:30),29(cid:30)) 732,9(cid:30)(cid:31) – (276,(cid:31)7(cid:31)) 733,(cid:31)85 349 (25(cid:30),476) 758,(cid:30)92 74(cid:31),83(cid:31) 456,84(cid:31) 48(cid:30),958 25 (cid:30),325 (cid:30),482 – – 759,5(cid:30)7 742,3(cid:30)2 456,84(cid:31) 48(cid:30),958 The above balance sheets should be read in conjunction with the accompanying notes. 05 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 3(cid:31) JUNE 2(cid:31) (cid:30)(cid:31) NOTES SHARE CAPITAL $’(cid:31)(cid:31)(cid:31) RESERVES $’(cid:31)(cid:31)(cid:31) RETAINED LOSSES / PROFITS $’(cid:31)(cid:31)(cid:31) MINORITY INTEREST $’(cid:31)(cid:31)(cid:31) TOTAL EQUITY $’(cid:31)(cid:31)(cid:31) CONSOLIDATED Balance as at (cid:30) July 2(cid:31)(cid:31)8 46(cid:31),779 33,993 (24,3(cid:31)(cid:31)) (cid:30),883 472,355 Total comprehensive income/(expense) – (23,248) (cid:30)(cid:30)5,3(cid:31)(cid:30) (cid:30)99 92,252 Share placement Shares issued under Profit Distribution Plan Buyback and cancellation of shares under Profit Distribution Plan Share rights issued for employee services Employee share entitlements issued Distributions/dividends to owners Movement in employee share entitlement reserve Payment to minority interest Balance as at 3(cid:31) June 2(cid:31)(cid:31)9 Balance as at (cid:30) July 2(cid:31)(cid:31)9 Total comprehensive income/(expense) Share rights issued for employee services Employee share entitlements issued Dividends Movement in employee share entitlement reserve Movement in treasury shares 22 22 22 22 24 26 24 25 22 24 26 24 22 223,36(cid:31) 92,292 (45,5(cid:30)(cid:30)) 7(cid:31)6 (cid:30),459 – – – – – – – – – ((cid:30),7(cid:31)9) – – – – – – (92,292) – – – – 223,36(cid:31) 92,292 – – – – – (6(cid:31)(cid:31)) (45,5(cid:30)(cid:30)) 7(cid:31)6 (cid:30),459 (92,292) ((cid:30),7(cid:31)9) (6(cid:31)(cid:31)) 733,(cid:31)85 9,(cid:31)36 ((cid:30),29(cid:30)) (cid:30),482 742,3(cid:30)2 733,(cid:31)85 9,(cid:31)36 ((cid:30),29(cid:30)) (cid:30),482 742,3(cid:30)2 – (8(cid:31)2) (cid:30)(cid:31)2,(cid:31)25 ((cid:30)57) (cid:30)(cid:31)(cid:30),(cid:31)66 895 27(cid:31) – – ((cid:30),34(cid:31)) – – – (349) – – – (83,337) – – – – – – – 895 27(cid:31) (83,337) (349) ((cid:30),34(cid:31)) Balance as at 3(cid:31) June 2(cid:31)(cid:30)(cid:31) 732,9(cid:30)(cid:31) 7,885 (cid:30)7,397 (cid:30),325 759,5(cid:30)7 The above statements of changes in equity should be read in conjunction with the accompanying notes. 06 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 STATEMENTS OF CHANGES IN EQUITY CONTINUED FOR THE YEAR ENDED 3(cid:31) JUNE 2(cid:31) (cid:30)(cid:31) PARENT Balance as at (cid:30) July 2(cid:31)(cid:31)8 NOTES SHARE CAPITAL $’(cid:31)(cid:31)(cid:31) RESERVES $’(cid:31)(cid:31)(cid:31) RETAINED LOSSES $’(cid:31)(cid:31)(cid:31) TOTAL EQUITY $’(cid:31)(cid:31)(cid:31) 46(cid:31),779 2,(cid:31)58 (2(cid:30)4,(cid:31)(cid:31)8) 248,829 Total comprehensive income/(expense) – – 54,824 54,824 Share placement Shares issued under Profit Distribution Plan Buyback and cancellation of shares under Profit Distribution Plan Share rights issued for employee services Employee share entitlements issued Distributions to owners Movement in employee share entitlement reserve Balance as at 3(cid:31) June 2(cid:31)(cid:31)9 Balance as at (cid:30) July 2(cid:31)(cid:31)9 Total comprehensive income/(expense) Share rights issued for employee services Employee share entitlements issued Dividends Movement in employee share entitlement reserve Net movement in treasury shares 22 22 22 22 24 26 24 22 24 26 24 22 223,36(cid:31) 92,292 (45,5(cid:30)(cid:30)) 7(cid:31)6 (cid:30),459 – – – – – – – – ((cid:30),7(cid:31)9) – – – – – (92,292) – 223,36(cid:31) 92,292 (45,5(cid:30)(cid:30)) 7(cid:31)6 (cid:30),459 (92,292) ((cid:30),7(cid:31)9) 733,(cid:31)85 349 (25(cid:30),476) 48(cid:30),958 733,(cid:31)85 349 (25(cid:30),476) 48(cid:30),958 – – 58,743 58,743 895 27(cid:31) – – ((cid:30),34(cid:31)) – – – (349) – – – (83,337) – – 895 27(cid:31) (83,337) (349) ((cid:30),34(cid:31)) Balance as at 3(cid:31) June 2(cid:31)(cid:30)(cid:31) 732,9(cid:30)(cid:31) – (276,(cid:31)7(cid:31)) 456,84(cid:31) The above statements of changes in equity should be read in conjunction with the accompanying notes. 07 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 3(cid:31) JUNE 2(cid:31) (cid:30)(cid:31) Cash flows from operating activities Receipts from customers Payments to suppliers and employees Dividends received Interest received Gaming tax paid Income taxes paid CONSOLIDATED PARENT NOTES 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 83(cid:31),82(cid:30) (494,28(cid:31)) 836,872 (499,3(cid:30)8) – (26,(cid:31)8(cid:31)) – (26,377) 336,54(cid:30) 337,554 (26,(cid:31)8(cid:31)) (26,377) 3,347 (cid:30)82 (5(cid:30),828) (6(cid:31),633) 7,3(cid:30)2 764 (5(cid:30),375) ((cid:30)7,(cid:30)2(cid:31)) – – – – – – – – Net cash inflow / (outflow) from operating activities 35 227,6(cid:31)9 277,(cid:30)35 (26,(cid:31)8(cid:31)) (26,377) Cash flows from investing activities Purchase of/proceeds from property, plant and equipment Payments for intangible assets Loan repayment from Christchurch Hotels Limited Proceeds from sale of Cinemas Dividend from subsidiaries Payment to Minority Interest Net cash inflow / (outflow) from investing activities Cash flows from financing activities Share placement Cash flows associated with derivatives Repayment of borrowings Advances from subsidiaries Purchase of treasury shares Distributions paid to company shareholders Interest paid (55,(cid:31)74) ((cid:30),(cid:30)57) (cid:30),22(cid:31) 66,6(cid:31)(cid:31) – – (98,83(cid:30)) (4,(cid:30)44) 8,(cid:31)69 – – (6(cid:31)(cid:31)) – – – – (cid:30)(cid:31)(cid:31),224 – – – – – (cid:30)(cid:31)(cid:31),(cid:30)99 – (cid:30)(cid:30),589 (95,5(cid:31)6) (cid:30)(cid:31)(cid:31),224 (cid:30)(cid:31)(cid:31),(cid:30)99 – (3(cid:31),926) (254,377) – ((cid:30),34(cid:31)) (83,337) (42,325) 223,36(cid:31) 48,8(cid:31)3 ((cid:30)29,(cid:31)(cid:31)(cid:31)) – – (45,5(cid:30)(cid:30)) (65,582) – – (76,8(cid:30)7) 97,397 ((cid:30),34(cid:31)) (83,337) ((cid:30)(cid:31),(cid:31)48) 223,36(cid:31) – – (24(cid:30),8(cid:31)2) – (45,5(cid:30)(cid:30)) (9,869) 23 22 (cid:30)2 22 Net cash (outflows)/inflows from financing activities (4(cid:30)2,3(cid:31)5) 32,(cid:31)7(cid:31) (74,(cid:30)45) (73,822) Net (decrease)/increase in cash and bank balances Cash and bank balances at the beginning of the year ((cid:30)73,(cid:30)(cid:31)7) 275,6(cid:30)3 2(cid:30)3,699 6(cid:30),9(cid:30)4 Cash and bank balances at the end of the year 9 (cid:30)(cid:31)2,5(cid:31)6 275,6(cid:30)3 ((cid:30)) 2 (cid:30) – 2 2 The above statements of cash fl ows should be read in conjunction with the accompanying notes. 08 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS 1. GENERAL INFORMATION SKYCITY Entertainment Group Limited (SKYCITY or the company and its subsidiaries or the Group) operates in the gaming/ entertainment, hotel and convention, hospitality, recreation, and tourism sectors. The Group has operations in New Zealand and Australia. SKYCITY is a limited liability company incorporated and domiciled in New Zealand. The address of its registered office is Federal House, 86 Federal Street, Auckland. The company is dual-listed on the New Zealand and Australian stock exchanges. These financial statements have been approved for issue by the board of directors on (cid:30)7 August 2(cid:31)(cid:30)(cid:31). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These general purpose financial statements for the year ended 3(cid:31) June 2(cid:31)(cid:30)(cid:31) have been prepared in accordance with New Zealand generally accepted accounting practice (NZ GAAP). They comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and other applicable New Zealand Financial Reporting Standards. (a) Basis of Preparation The principal accounting policies adopted in the preparation of this financial report are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. Compliance with IFRS The separate and consolidated financial statements of SKYCITY also comply with International Financial Reporting Standards (IFRS). Entities Reporting The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of the Group as at 3(cid:31) June 2(cid:31)(cid:30)(cid:31) and the results of all subsidiaries, joint ventures and associates for the year then ended. The financial statements of the ‘Parent’ are for the company as a separate legal entity. The Parent company and the Group are designated as profit- oriented entities for financial reporting purposes. The Parent company has a negative net working capital balance. The Parent’s subsidiaries will continue to support it as required. The Group has negative net working capital but has the ability to fully pay all debts as they fall due through cash generated from operating activities, existing funding facilities and/or the refinancing of existing facilities as necessary (refer note (cid:30)7). Statutory Base SKYCITY is a company registered under the New Zealand Companies Act (cid:30)993 and is an issuer in terms of the Securities Act (cid:30)978 (New Zealand). These financial statements have been prepared in accordance with the requirements of the Financial Reporting Act (cid:30)993 (New Zealand) and the Companies Act (cid:30)993. Measurement Basis These financial statements have been prepared under the historical cost convention, as modified by the revaluation of available for sale financial assets, and financial assets and liabilities (including derivative instruments) at fair value through profit or loss. Critical Accounting Estimates and Judgements The preparation of financial statements requires the use of certain critical accounting estimates. It also requires the company to exercise its judgement in the process of applying the Group’s accounting policies. Judgement is used in the following areas: estimated impairment of goodwill, indefinite life casino licences and probability of utilisation of unused tax losses. The Group tests annually whether goodwill and indefinite licences have suffered any impairment, in accordance with the accounting policy stated in note 2(i). The recoverable amounts of cash- generating units have been determined based on value in use calculations. These calculations require the use of estimates (refer note (cid:30)4). There is significant headroom between the value in use calculations and the carrying value of the remaining assets such that reasonably possible changes in the assumptions used would not result in an impairment. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. (b) Principles of Consolidation (i) Subsidiaries Subsidiaries are all those entities (including special purpose entities) over which the company has the power to govern the financial and operating policies to obtain benefits generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are not consolidated from the date that control ceases. The Group financial statements consolidate the financial statements of subsidiaries, using the acquisition method. 09 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The acquisition method of accounting is used to account for the acquisition of subsidiaries and businesses by the Group. The consideration transferred in a business is measured at fair value, which is calculated as the sum of the acquisition date fair value of the assets transferred by the acquirer, the liabilities incurred by the acquirer to former owners of the acquiree and the equity interest issued by the acquirer. It includes any asset or liability arising from a contingent consideration arrangement. Acquisition related costs are expensed as incurred. Each identifiable asset and liability is generally measured at its acquisition date fair value except if an NZ IFRS requires another measurement basis. The excess of the consideration transferred over the Group’s share of the net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed is recognised as goodwill. If the consideration transferred is less than the acquisition date fair value of identifiable assets acquired and liabilities assumed, a gain is recognised directly in profit or loss. Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the company. Minority interests in the results and equity of subsidiaries are shown separately in the consolidated Income Statement and Balance Sheet respectively. Subsidiaries are accounted for at cost within the parent entity financial statements. (ii) Transactions with non-controlling interests The Group treats transactions with non-controlling interests as transactions with equity owners of the Group. For purchases from non-controlling interests, the differences between consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. (iii) Associates Associates are all entities over which the Group has significant influence but not control, generally evidenced by holdings of between 2(cid:31)% and 5(cid:31)% of the voting rights. Investments in associates are accounted for in the parent entity’s financial statements using the cost method and in the consolidated financial statements using the equity method of accounting, after initially being recognised at cost. The Group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition. The Group’s share of its associates’ post acquisition profits or losses is recognised in the Income Statement and its share of post acquisition movements in reserves is recognised in reserves. The cumulative post acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses unless it has incurred obligations or made payments on behalf of the associate. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group. (iv) Joint Ventures The proportionate interests in the assets, liabilities and expenses of a jointly controlled operation have been incorporated in the financial statements under the appropriate headings. (c) Segment Reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operation decision maker. The chief operating decision maker has been identified as the Chief Executive Officer/Managing Director. (d) Foreign Currency Translation (i) Functional and Presentation Currency Items included in the financial statements of each of the company’s operations are measured using the currency of the primary economic environment in which the entity operates (‘functional currency’). The consolidated and parent financial statements are presented in New Zealand dollars, which is the company’s functional and the Group’s presentation currency. (ii) Transactions and Balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Income Statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges. 10 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Translation differences on non-monetary items, such as equities held at fair value through profit or loss, are reported as part of the fair value gain or loss. Translation differences on non-monetary items, such as equities classified as available for sale financial assets, are included in the fair value reserve in equity. (iii) Foreign Operations The results and financial position of foreign entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency below: • • • assets and liabilities for each Balance Sheet presented are translated at the closing rate at the date of that balance sheet; income and expenses for each Income Statement are translated at average exchange rates; and all resulting exchange differences are recognised as a separate component of equity. Exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. (e) Revenue Recognition Revenue is recognised as summarised below. (i) Operating Revenue Operating revenues include casino, hotel, food and beverage, convention centre, tower admissions and other revenues. Casino revenues represent the net win to the casino from gaming activities, being the difference between amounts wagered and amounts won by casino patrons. Revenues exclude the retail value of rooms, food, beverage and other promotional allowances provided on a complimentary basis to customers. (ii) Interest Income Interest income is recognised on a time proportion basis using the effective interest method. (iii) Dividend Income Dividend income is recognised when the right to receive payment is established. (iv) Loyalty Programme A portion of revenue is allocated to the loyalty points scheme and is recognised when customers redeem their loyalty points. (f) Income Tax The income tax expense for the period is the tax payable on the current period’s taxable income, based on the income tax rate for each jurisdiction. This is then adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements and changes in unused tax losses. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in foreign operations where the company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. (g) Goods and Services Tax (GST) The Income Statement, Cash Flow Statement and Statement of Changes in Equity have been prepared so that all components are stated exclusive of GST. All items in the Balance Sheet are stated net of GST, with the exception of receivables and payables, which include GST invoiced. (h) Leases (i) The Group is the Lessee Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the Income Statement on a straight-line basis over the period of the lease. 11 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (ii) The Group is the Lessor Assets leased to third parties under operating leases are included in property, plant and equipment in the Balance Sheet. They are depreciated over their expected useful lives on a basis consistent with similar owned property, plant and equipment. Rental income (net of any incentives given to lessees) is recognised on a straight line basis over the lease term. (i) Impairment of Non Current Assets Goodwill and Intangible Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to depreciation or amortisation (property, plant and equipment and intangibles that have a finite useful life) are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount exceeds its recoverable amount. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). (j) Cash and Bank Balances Cash and bank balances include cash on hand, deposits held at call with financial institutions, other short term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the Balance Sheet. (k) Trade Receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for doubtful debts. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for doubtful debts is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of those receivables. (l) 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. (m) Investments and Other Financial Assets The Group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans and receivables, held to maturity investments, and available for sale financial assets. The classification depends on the purpose for which the investments were acquired. The company determines the classification of its investments at initial recognition and re-evaluates this designation at each reporting date. Investments are initially recognised at fair value plus transactions costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. (i) Financial Assets at Fair Value Through Profi t or Loss This category has two sub categories: financial assets classified as held for trading and financial assets designated as at fair value through profit or loss on initial recognition. A financial asset is classified as held for trading if acquired principally for the purpose of selling in the short term. Derivatives are also classified as held for trading unless they are designated as hedges. The Group does not hold any assets that are designated as at fair value on initial recognition. Financial assets at fair value through profit or loss are classified as current assets if they are either held for trading or are expected to be realised within (cid:30)2 months of the balance sheet date. (ii) Loans and Receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of selling the receivable. They are included in current assets, except for those with maturities greater than (cid:30)2 months after the balance sheet date which are classified as non-current assets. Loans and receivables are included in receivables in the Balance Sheet. (n) Derivatives Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. The Group designates certain derivatives as either hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedges) or hedges of exposures to variability in cash flows associated with recognised assets or liabilities or highly probable forecast transactions (cash flow hedges). 12 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED At the inception of the transaction, SKYCITY documents the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. (i) Fair Value Hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in the Income Statement together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. (ii) Cash Flow Hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in equity in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the Income Statement. Amounts accumulated in equity are recycled in the Income Statement in the periods when the hedged item will affect profit or loss (for instance when the forecast sale that is hedged takes place). However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory) or a non-financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the measurement of the initial cost or carrying amount of the asset or liability. When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised in the Income Statement when the forecast transaction is ultimately recognised in the Income Statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is transferred to the Income Statement. (iii) Derivatives that do not qualify for Hedge Accounting Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised in the Income Statement. (o) Property, Plant and Equipment Property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the Income Statement during the financial period in which they are incurred. Land is not depreciated. Depreciation on other assets is calculated using the straight line method to allocate their cost, net of their residual values, over their estimated useful lives, as below: – Buildings – Building fit out – Plant and equipment – Vehicles – Fixtures and fittings 5–75 years (cid:30)(cid:31) years 2–75 years 3 years 3–2(cid:31) years Assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 2(i)). Gains and losses on disposals are determined by comparing proceeds with carrying amount. (p) Intangible Assets (i) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired business/associate at the date of acquisition. Goodwill on acquisitions of businesses is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Goodwill acquired in business combinations is not amortised. Instead, goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash generating units for the purpose of impairment testing. (ii) Casino Licences The casino licences that have a finite useful life are carried at cost less accumulated amortisation. Amortisation of these casino licences is calculated on a straight line basis so as to expense the cost of the licences over their legal life. The casino licences that have been determined to have an indefinite useful life for amortisation purposes are not amortised but rather are tested for impairment annually or more frequently if events or changes in circumstances indicate that they might be impaired, and are carried at cost less accumulated impairment losses. 13 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (u) Share Capital Ordinary shares are classified as equity. (iii) Acquired Software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives (three to seven years). (q) Payables Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. Where any Group company purchases the company’s equity share capital, the consideration paid, including any directly attributable incremental costs (net of income taxes), is deducted from equity attributable to the company’s equity holders. Payables are stated at fair value or estimated liability where accrued. (v) Dividends (r) Borrowings Borrowings, including capital notes and the Group’s Adjustable Coupon Exchangeable Securities (SKYCITY ACES), are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost unless part of an effective hedging relationship. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the Income Statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least (cid:30)2 months after the balance sheet date. (s) Borrowing Costs Borrowing costs are expensed, except for costs incurred for the construction of any qualifying asset which are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Provision is made for the amount of any dividend declared on or before the end of the financial year but not distributed at balance date. (w) Earnings Per Share (i) Basic Earnings Per Share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the company by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year. (ii) Diluted Earnings Per Share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (t) Employee Benefits (x) Cash Flow Statement (i) Wages, Salaries and Annual Leave Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within (cid:30)2 months of the reporting date, are recognised in other payables in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. (ii) Share Based Payments SKYCITY operates an equity settled, share based compensation plan. The fair value of the employee services received in exchange for the grant of the share rights or shares is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the share rights or shares granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of share rights or shares that are expected to be distributed. At each balance sheet date, the entity revises its estimates of the number of shares expected to be distributed. It recognises the impact of the revision of original estimates, if any, in the Income Statement, and a corresponding adjustment to equity over the remaining vesting period. Cash flows associated with derivatives that are part of a hedging relationship are off-set against cash flows associated with the hedged item. (y) Standards, amendments and interpretations to existing standards that are not yet effective Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the Group’s accounting periods beginning on or after (cid:30) July 2(cid:31)(cid:30)(cid:31) or later periods, but which the Group has not early adopted. These are: • NZ IFRS 9, Financial Instruments (effective from annual periods beginning on or after (cid:30) January 2(cid:31)(cid:30)3). This standard is part of the IASB’s project to replace IAS 39 Financial Instruments: Recognition and Measurement. The standard applies to financial assets, their classification and measurement. All financial assets are required to be classified on the basis of the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial asset. Financial assets are initially measured at fair value plus, in the case of a financial asset not at fair value through profit or loss, particular transaction costs and subsequently measured at amortised cost or fair value. This standard is not expected to significantly impact the Group. 14 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED • Improvements to NZ Equivalents to IFRS, Amendments to New Zealand Accounting Standards arising from the Annual Improvements Project (effective from annual periods beginning on or after (cid:30) January 2(cid:31)(cid:30)(cid:31)). The amendments to some Standards result in accounting changes for presentation, recognition or measurement purposes, while some amendments that relate to terminology and editorial changes are expected to have no or minimal effect on accounting. (z) New Accounting Standards Adopted in the Year Other than as referred to below, there have been no significant changes in accounting policies during the current period. In the current year the cinemas business has been accounted for as a discontinued operation (note 23). As a result: • • • • The Income Statement has been adjusted (including 2��9) to disclose the results of the cinemas business for eight months as a single line (2(cid:31)(cid:31)9 full year). Revenue and expenses are separately disclosed in note 23 The 2��9 Balance Sheet is not adjusted The Statement of Cash Flows includes the cinemas business, eight months in 2(cid:31)(cid:30)(cid:31) and a full year in 2(cid:31)(cid:31)9 Income Statement and Balance Sheet notes are consistent with the relevant primary statement. During the year the Group changed the following accounting policies: (i) NZ IAS 1 (revised), Presentation of fi nancial statements The revised standard prohibits the presentation of items of income and expenses (that is “non owner changes in equity”) in the statement of changes in equity, requiring these items to be presented separately from owner changes in equity. All “non owner changes in equity” are required to be shown in a performance statement. Entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the income statement and the statement of comprehensive income). The Group has elected to present two statements. The financial statements have been prepared under the revised disclosure requirements. (ii) NZ IFRS 8, Operating segments NZ IFRS 8 replaces NZ IAS (cid:30)4 Segment Reporting. It requires a management approach under which segment information is presented on the same basis as that used for internal reporting purposes. This has resulted in one additional segment “Corporate / Group” which was previously reported within “Rest of New Zealand”. (iii) NZ IFRS 7, Financial Instruments: Disclosures – Revisions The revisions to NZ IFRS 7 have required additional information on the fair value of financial instruments. (iv) NZ IAS 27 (revised), Consolidated and separate fi nancial statements The revised standard requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is remeasured to fair value, and a gain or loss is recognised in profit or loss. As no transactions with non-controlling interests have occurred since adoption, the revision has no effect on the Group’s financial statements. 15 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 3. REVENUE Gaming Non-gaming CONSOLIDATED PARENT 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 6(cid:31)3,262 (cid:30)66,675 6(cid:31)4,278 (cid:30)57,988 769,937 762,266 – – – – – – Non-gaming revenue includes revenues from hotels, food and beverage, convention centre, car parking, property rentals, Sky Tower, and other non-gaming activities. Included within consolidated gaming revenue is revenue relating to loyalty action points of $9,56(cid:30),(cid:31)(cid:31)(cid:31) (3(cid:31) June 2(cid:31)(cid:31)9: $(cid:30)(cid:31),83(cid:31),(cid:31)(cid:31)(cid:31)). Included within consolidated non-gaming revenue is revenue relating to loyalty action points of $286,(cid:31)(cid:31)(cid:31) (3(cid:31) June 2(cid:31)(cid:31)9: $(cid:30)5(cid:30),(cid:31)(cid:31)(cid:31)). 4. OTHER INCOME Net gain on disposal of property, plant and equipment Interest income – Christchurch Hotels Limited Dividend income Dividends from wholly-owned entities 733 (cid:30)82 5 – 92(cid:31) (cid:30),2(cid:30)3 764 4 – – – – (cid:30)(cid:31)(cid:31),224 – – – (cid:30)(cid:31)(cid:31),(cid:30)99 (cid:30),98(cid:30) (cid:30)(cid:31)(cid:31),224 (cid:30)(cid:31)(cid:31),(cid:30)99 16 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 5. EXPENSES Profit before income tax includes the following specific expenses: Depreciation Buildings Plant and equipment Furniture and fittings Motor vehicles Total depreciation Amortisation Casino licences (Adelaide) Software Total amortisation Total depreciation and amortisation Other expenses includes: Utilities, insurance and rates Community Trust donations Minimum lease payments relating to operating leases Other property expenses Other items Provision for bad and doubtful debts Restructuring costs Redundancy and other payments CONSOLIDATED PARENT 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 22,932 3(cid:30),284 6,277 46(cid:30) 6(cid:31),954 2,62(cid:30) 3,932 6,553 67,5(cid:31)7 (cid:30)9,2(cid:30)2 2,839 4,269 (cid:30)4,445 44,(cid:30)(cid:31)7 373 (cid:30)9,283 32,839 7,733 2(cid:30)7 6(cid:31),(cid:31)72 2,576 7,478 (cid:30)(cid:31),(cid:31)54 7(cid:31),(cid:30)26 (cid:30)8,97(cid:30) 2,73(cid:31) 4,68(cid:30) (cid:30)5,6(cid:30)4 5(cid:31),4(cid:31)5 525 85,245 92,926 2,(cid:31)(cid:30)9 2,(cid:31)(cid:30)9 2,368 2,368 – (cid:30),977 – – (cid:30),977 – 3,75(cid:31) 3,75(cid:31) 5,727 93 – – – 6,2(cid:30)(cid:31) – 6,3(cid:31)3 – – – (cid:30),688 – – (cid:30),688 – 6,9(cid:30)5 6,9(cid:30)5 8,6(cid:31)3 75 – – – (cid:30)(cid:31),(cid:31)(cid:30)4 – (cid:30)(cid:31),(cid:31)89 – – 17 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 5. EXPENSES (continued) Auditors’ fees During the year the following fees were paid or are payable for services provided by the auditor of the parent entity, its related practices and non-related audit firms. (a) Assurance services Audit services PricewaterhouseCoopers Audit of Group financial statements Audit of subsidiary financial statements Half year review Total remuneration for audit services Other assurance services provided by PricewaterhouseCoopers Accounting advice and assistance Systems assurance Tax compliance services Total remuneration for other assurance services Total remuneration for assurance services (b) Other services PricewaterhouseCoopers Taxation advisory services Total remuneration for taxation services Total fees paid or payable to auditors CONSOLIDATED PARENT 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 4(cid:31)(cid:31) (cid:30)(cid:30)(cid:30) 8(cid:31) 59(cid:30) 64 25 93 (cid:30)82 773 4(cid:30)(cid:30) 4(cid:30)(cid:30) 586 (cid:30)32 (cid:30)38 856 93 95 7(cid:31) 258 (cid:30),(cid:30)(cid:30)4 564 564 (cid:30),(cid:30)84 (cid:30),678 4(cid:31)(cid:31) – 8(cid:31) 48(cid:31) 64 – 4(cid:31) (cid:30)(cid:31)4 584 (cid:30)95 (cid:30)95 779 586 – (cid:30)38 724 64 95 35 (cid:30)94 9(cid:30)8 265 265 (cid:30),(cid:30)83 The Group employs PricewaterhouseCoopers on assignments additional to their statutory audit duties where PricewaterhouseCoopers’ expertise and experience with the Group are important and auditor independence is not impaired. These assignments are principally tax advice. For other work, the company’s External Audit Independence Policy requires that advisers other than PricewaterhouseCoopers are engaged, unless otherwise approved by the Board’s Audit and Risk Committee. 6. FINANCE COSTS – NET Finance costs Interest and finance charges paid/payable Exchange (gains)/losses on foreign currency borrowings Interest income Gain on repayment of USPP (note (cid:30)7) Total finance costs 56,455 (2,653) (4,495) ((cid:30),9(cid:30)9) 75,(cid:30)(cid:30)6 (884) (7,292) – 47,388 66,94(cid:31) 9,238 – – – 9,238 9,878 – – – 9,878 18 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 7. INCOME TAX EXPENSE (a) Income Tax Expense Current tax Deferred tax Income tax expense Deferred tax (note 2(cid:31)) Origination and reversal of temporary differences Change in New Zealand corporate tax rate and building depreciation Total deferred tax (b) Numerical Reconciliation of Income Tax Expense to Prima Facie Tax Payable CONSOLIDATED PARENT 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 39,236 45,895 45,833 (6,(cid:30)9(cid:31)) 85,(cid:30)3(cid:30) 39,643 6,(cid:30)95 39,7(cid:31)(cid:31) 45,895 (6,(cid:30)9(cid:31)) – (6,(cid:30)9(cid:31)) – – – – – – Profit from continuing operations before income tax expense (cid:30)73,5(cid:31)8 (cid:30)56,876 58,743 Tax at the New Zealand tax rate of 3(cid:31)% (2(cid:31)(cid:31)9: 3(cid:31)%) Tax effect of amounts which are not deductible/(taxable) in calculating taxable income: Inter-company eliminations Items not subject to tax Australian investment allowance Share of net profit of associates Foreign exchange rate differences Exempt dividends received Share of partnership expenditure Differences in overseas tax rates Under provision in prior years Write off tax losses Tax Expense pre Government Budget changes Change in New Zealand tax building depreciation Change in New Zealand corporate tax rate Tax Expense relating to Government Budget changes Total Tax Expense 52,(cid:31)52 47,(cid:31)63 (cid:30)9,385 – 525 (337) ((cid:30),76(cid:31)) ((cid:30)(cid:31)9) – (5,(cid:30)75) – (cid:30)3(cid:31) (cid:30)(cid:31)5 45,43(cid:30) 42,886 (3,(cid:30)86) 39,7(cid:31)(cid:31) 85,(cid:30)3(cid:30) – 93(cid:31) (74(cid:30)) ((cid:30),696) (245) – (4,(cid:30)(cid:30)9) (7(cid:31)(cid:30)) 3(cid:30)2 ((cid:30),(cid:30)6(cid:31)) 39,643 – – – 39,643 (cid:30)(cid:31),368 3(cid:30)4 – – – (3(cid:31),(cid:31)67) – – – – – – – – – The weighted average applicable tax rate was 49.(cid:30)% (26.2% excluding the impact of future change in corporate tax rate and building tax depreciation) (2(cid:31)(cid:31)9: 25.2%). The New Zealand corporate tax rate will be reduced from 3(cid:31)% to 28% and tax depreciation for buildings with an estimated life of 5(cid:31) or more years will be disallowed. Both of these changes are effective for the Group from (cid:30) July 2(cid:31)(cid:30)(cid:30). 19 – – – – – – 54,824 (cid:30)6,447 (cid:30)3,296 3(cid:30)7 – – – (3(cid:31),(cid:31)6(cid:31)) – – – – – – – – – SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 8. EARNINGS PER SHARE Basic earnings per share Profit for the year before tax expense relating to Government Budget changes Profit from continuing operations attributable to the ordinary equity holders of the company Profit from discontinued operations Profit attributable to the ordinary equity holders of the company Diluted earnings per share Profit from continuing operations attributable to the ordinary equity holders of the company Profit from discontinued operations Profit attributable to the ordinary equity holders of the company (a) Reconciliations of Earnings used in calculating Earnings Per Share Basic earnings per share Profit from continuing operations Profit attributable to minority interests Profit from continuing operations attributable to the ordinary equity holders of the company used in calculating basic earnings per share Profit/(loss) from discontinued operations Profit attributable to the ordinary equity holders of the company used in calculating basic earnings per share Diluted earnings per share Profit attributable to the ordinary equity holders of the company used in calculating basic earnings per share Interest savings on capital notes Interest savings on SKYCITY ACES In the money option/rights expense savings Tax on the above Profit from operations attributable to the ordinary equity holders of the company used in calculating diluted earnings per share None of the diluted earnings adjustments impact the discontinued operations. (b) Weighted Average number of shares used as the denominator Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share Adjustments for calculation of diluted earnings per share: Capital notes SKYCITY ACES Share rights and options Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share 20 CONSOLIDATED 2(cid:31)(cid:30)(cid:31) CENTS 2(cid:31)(cid:31)9 CENTS 24.6 (cid:30)5.4 2.3 (cid:30)7.7 (cid:30)4.7 2.(cid:30) (cid:30)6.8 23.4 23.7 ((cid:31).3) 23.4 2(cid:30).4 ((cid:31).2) 2(cid:30).2 88,377 (cid:30)57 (cid:30)(cid:30)7,233 ((cid:30)99) 88,534 (cid:30)3,49(cid:30) (cid:30)(cid:30)7,(cid:31)34 ((cid:30),733) (cid:30)(cid:31)2,(cid:31)25 (cid:30)(cid:30)5,3(cid:31)(cid:30) (cid:30)(cid:31)2,(cid:31)25 – 8,(cid:31)33 – (2,4(cid:30)(cid:31)) (cid:30)(cid:30)5,3(cid:31)(cid:30) 9,882 9,9(cid:30)4 422 (6,(cid:31)65) (cid:30)(cid:31)7,648 (cid:30)29,454 2(cid:31)(cid:30)(cid:31) NUMBER 2(cid:31)(cid:31)9 NUMBER 575,(cid:30)(cid:30)4,687 49(cid:30),824,34(cid:30) – 65,648,(cid:31)28 – 46,2(cid:30)6,4(cid:30)8 7(cid:31),83(cid:30),563 (cid:30),54(cid:30),(cid:30)32 64(cid:31),762,7(cid:30)5 6(cid:30)(cid:31),4(cid:30)3,454 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 8. EARNINGS PER SHARE (continued) (c) Information concerning the classification of Securities (i) SKYCITY ACES SKYCITY ACES are considered to be potential ordinary shares and are included in the determination of diluted earnings per share from their date of issue if they are dilutive. The SKYCITY ACES have not been included in the determination of basic earnings per share. The SKYCITY ACES are dilutive in both 2(cid:31)(cid:30)(cid:31) and 2(cid:31)(cid:31)9 and are therefore included in the determination of diluted earnings per share. Details relating to the SKYCITY ACES are set out in note (cid:30)9. (ii) Share Rights and Options Options and rights granted to employees under the SKYCITY Executive Share Option and Rights Plans are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent to which they are dilutive. In 2(cid:31)(cid:30)(cid:31) share rights are not dilutive and are therefore not included in the determination of diluted earnings per share. The options and rights have not been included in the determination of basic earnings per share. Details relating to the options and rights are set out in note 29. (iii) Capital Notes Capital notes are considered to be potential ordinary shares and are included in the determination of diluted earnings per share from their date of issue if they are dilutive. The notes have not been included in the determination of basic earnings per share. In 2(cid:31)(cid:30)(cid:31) they are not dilutive and are therefore not included in the determination of diluted earnings per share. Details relating to the notes are set out in note (cid:30)8. 9. CASH AND CASH EQUIVALENTS Cash at bank Cash in house CONSOLIDATED PARENT 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 64,3(cid:30)4 38,(cid:30)92 239,265 36,348 (cid:30)(cid:31)2,5(cid:31)6 275,6(cid:30)3 (cid:30) – (cid:30) 2 – 2 The significant decrease in cash at bank relates to the proceeds from the share placement (note 22) in the prior year being used to partially repay debt (note (cid:30)7). 10. RECEIVABLES AND PREPAYMENTS Trade receivables Advance to Christchurch Hotels Limited Sundry receivables Prepayments Interest receivable Amounts due from subsidiaries (note 3(cid:31)) There are no significant receivables past due date or impaired. (cid:30)(cid:31),434 6,429 3,(cid:30)52 3,(cid:30)66 – – 7,654 7,649 4,923 3,(cid:31)38 892 – – – 39 (cid:30),62(cid:30) – 93,337 23,(cid:30)8(cid:30) 24,(cid:30)56 94,997 3 – 282 (cid:30),(cid:30)38 – 25,495 26,9(cid:30)8 21 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 11. NET TAX RECEIVABLES Current tax receivables Non-current tax receivables Current tax liabilities Net tax receivables CONSOLIDATED PARENT 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) (cid:30)8,255 25,(cid:30)4(cid:30) (7,(cid:30)(cid:31)(cid:31)) (cid:30)7,922 5,7(cid:31)7 (9,(cid:30)54) 36,296 (cid:30)4,475 – – – – – – – – Tax is typically paid in advance to ensure the Group has positive imputation credits as at 3(cid:30) March of each year. 12. DERIVATIVE FINANCIAL INSTRUMENTS CONSOLIDATION Current assets Forward foreign exchange contracts – hedge of net investment of overseas subsidiaries Interest rate swaps – fair value hedges Total current derivative financial instrument assets Non-current assets Interest rate swaps – cash flow hedges Cross-currency interest rate swaps – cash flow hedges* Cross-currency interest rate swaps – fair value hedges* FAIR VALUE NOTIONAL PRINCIPAL 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) – – – – (cid:30)8,65(cid:30) 7,39(cid:31) 5,(cid:30)48 (cid:30),4(cid:31)4 6,552 (cid:30)5 (cid:30)5,639 949 – – – – (cid:30)35,(cid:31)28 64,348 (cid:30)48,92(cid:31) 3(cid:31),(cid:31)(cid:31)(cid:31) (cid:30)78,92(cid:31) 3(cid:30),(cid:31)25 365,(cid:31)28 2(cid:30),592 Total non-current derivative financial instrument assets 26,(cid:31)4(cid:30) (cid:30)6,6(cid:31)3 (cid:30)99,376 4(cid:30)7,645 Current liabilities Forward foreign currency contracts Interest rate swaps – cash flow hedges Electricity CFD – cash flow hedges Total current derivative financial instrument liabilities Non-current liabilities Interest rate swaps – cash flow hedges Cross-currency interest rate swaps – fair value hedges* 226 7(cid:31) 227 523 4,839 59(cid:31) 244 (cid:30)(cid:31),3(cid:30)6 92,(cid:30)(cid:31)3 – 5,673 (cid:30)(cid:31)2,4(cid:30)9 48,9(cid:31)4 3(cid:30),(cid:31)25 – 79,929 23,744 247 34,53(cid:31) – 4(cid:30)2,(cid:30)55 24,(cid:31)(cid:31)3 554,(cid:30)(cid:31)(cid:31) – Total non-current derivative financial instrument liabilities 23,99(cid:30) 34,53(cid:31) 436,(cid:30)58 554,(cid:30)(cid:31)(cid:31) During the year, $(cid:30),98(cid:30),796 of gains (2(cid:31)(cid:31)9: $3,5(cid:31)5,693 losses) on hedges items were offset in the Income Statement by $2,(cid:31)5(cid:31),6(cid:30)5 of losses (2(cid:31)(cid:31)9: $3,55(cid:30),622 gains) on derivatives in fair value hedging relationships. There is no cash flow hedge ineffectiveness in either the current or prior year. * These fair value amounts are net of collateral deposits received of nil (2009: $48.8 million). When the fair value of the cross-currency interest rate swaps exceeds certain levels, a payment is received from (if the CCIRS is an asset) or made to (if the CCIRS is a liability) the counter-party. 22 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 13. PROPERTY, PLANT AND EQUIPMENT LAND $’(cid:31)(cid:31)(cid:31) BUILDINGS $’(cid:31)(cid:31)(cid:31) PLANT AND EQUIPMENT $’(cid:31)(cid:31)(cid:31) FIXTURES AND FITTINGS $’(cid:31)(cid:31)(cid:31) MOTOR VEHICLES $’(cid:31)(cid:31)(cid:31) CAPITAL WORK IN PROGRESS $’(cid:31)(cid:31)(cid:31) TOTAL $’(cid:31)(cid:31)(cid:31) CONSOLIDATED At 3(cid:31) June 2(cid:31)(cid:31)8 Cost Accumulated depreciation (cid:30)68,(cid:30)5(cid:30) – 745,377 ((cid:30)37,349) 363,724 (25(cid:31),795) 79,738 (57,57(cid:30)) (cid:30),539 ((cid:30),(cid:30)85) 79,586 – (cid:30),438,(cid:30)(cid:30)5 (446,9(cid:31)(cid:31)) Net book value (cid:30)68,(cid:30)5(cid:30) 6(cid:31)8,(cid:31)28 (cid:30)(cid:30)2,929 22,(cid:30)67 354 79,586 99(cid:30),2(cid:30)5 Movements in the year ended 3(cid:31) June 2(cid:31)(cid:31)9 Opening net book value Exchange differences Net additions Transfers Depreciation charge (cid:30)68,(cid:30)5(cid:30) (268) (cid:30)7(cid:31) 7,65(cid:31) – 6(cid:31)8,(cid:31)28 (2,522) 7(cid:31),487 (cid:30),(cid:30)95 ((cid:30)9,283) (cid:30)(cid:30)2,929 (699) 63,(cid:30)52 – (4(cid:31),44(cid:31)) 22,(cid:30)67 (88) 2(cid:31),65(cid:30) – (7,733) Closing net book value (cid:30)75,7(cid:31)3 657,9(cid:31)5 (cid:30)34,942 34,997 354 (3) 224 – (2(cid:30)7) 358 79,586 (424) (54,3(cid:31)2) – – 99(cid:30),2(cid:30)5 (4,(cid:31)(cid:31)4) (cid:30)(cid:31)(cid:31),382 8,845 (67,673) 24,86(cid:31) (cid:30),(cid:31)28,765 At 3(cid:31) June 2(cid:31)(cid:31)9 Cost Accumulated depreciation (cid:30)75,7(cid:31)3 – 8(cid:30)6,6(cid:31)6 ((cid:30)58,7(cid:31)(cid:30)) 4(cid:31)9,964 (275,(cid:31)22) 98,788 (63,79(cid:30)) (cid:30),6(cid:30)8 ((cid:30),26(cid:31)) 24,86(cid:31) – (cid:30),527,539 (498,774) Net book value (cid:30)75,7(cid:31)3 657,9(cid:31)5 (cid:30)34,942 34,997 358 24,86(cid:31) (cid:30),(cid:31)28,765 Movements in the year ended 3(cid:31) June 2(cid:31)(cid:30)(cid:31) Opening net book value Exchange differences Net additions Discontinued operations Depreciation charge (cid:30)75,7(cid:31)3 ((cid:30)58) 4,44(cid:30) – – 657,9(cid:31)5 ((cid:30),68(cid:31)) (cid:30)3,(cid:31)(cid:31)(cid:31) ((cid:30)3,3(cid:31)5) (22,932) (cid:30)34,942 (33(cid:31)) 4(cid:30),9(cid:31)9 (56,(cid:30)(cid:30)(cid:31)) (3(cid:30),284) 34,997 (64) 4,683 – (6,277) 358 (3) (cid:30),(cid:31)9(cid:31) – (46(cid:30)) 24,86(cid:31) ((cid:30)23) (7,982) – – (cid:30),(cid:31)28,765 (2,358) 57,(cid:30)4(cid:30) (69,4(cid:30)5) (6(cid:31),954) Closing net book value (cid:30)79,986 632,988 89,(cid:30)27 33,339 984 (cid:30)6,755 953,(cid:30)79 At 3(cid:31) June 2(cid:31)(cid:30)(cid:31) Cost Accumulated depreciation (cid:30)79,986 – 8(cid:31)9,872 ((cid:30)76,884) 36(cid:30),35(cid:31) (272,223) (cid:30)(cid:31)3,794 (7(cid:31),455) 2,243 ((cid:30),259) (cid:30)6,755 – (cid:30),474,(cid:31)(cid:31)(cid:31) (52(cid:31),82(cid:30)) Net book value (cid:30)79,986 632,988 89,(cid:30)27 33,339 984 (cid:30)6,755 953,(cid:30)79 23 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 13. PROPERTY, PLANT AND EQUIPMENT (continued) PARENT COMPANY At 3(cid:31) June 2(cid:31)(cid:31)8 Cost Accumulated depreciation Net book value Movements in the year ended 3(cid:31) June 2(cid:31)(cid:31)9 Opening net book value Net additions Depreciation charge Closing net book value At 3(cid:31) June 2(cid:31)(cid:31)9 Cost Accumulated depreciation Net book value Movements in the year ended 3(cid:31) June 2(cid:31)(cid:30)(cid:31) Opening net book value Net additions Depreciation charge Closing net book value At 3(cid:31) June 2(cid:31)(cid:30)(cid:31) Cost Accumulated depreciation Net book value PLANT AND EQUIPMENT $’(cid:31)(cid:31)(cid:31) CAPITAL WORK IN PROGRESS $’(cid:31)(cid:31)(cid:31) TOTAL $’(cid:31)(cid:31)(cid:31) 2(cid:30),(cid:31)58 ((cid:30)9,634) (cid:30),424 (cid:30),424 834 ((cid:30),688) 57(cid:31) 2(cid:30),(cid:31)6(cid:30) (2(cid:31),49(cid:30)) 57(cid:31) 57(cid:31) 6,(cid:31)(cid:30)4 ((cid:30),977) 2,(cid:31)(cid:31)4 – 2,(cid:31)(cid:31)4 2,(cid:31)(cid:31)4 2,4(cid:31)(cid:31) – 4,4(cid:31)4 4,4(cid:31)4 – 4,4(cid:31)4 4,4(cid:31)4 ((cid:30),749) – 4,6(cid:31)7 2,655 28,(cid:30)7(cid:30) (23,564) 4,6(cid:31)7 2,655 – 2,655 23,(cid:31)62 ((cid:30)9,634) 3,428 3,428 3,234 ((cid:30),688) 4,974 25,465 (2(cid:31),49(cid:30)) 4,974 4,974 4,265 ((cid:30),977) 7,262 3(cid:31),826 (23,564) 7,262 No borrowing costs have been capitalised in the current year (2(cid:31)(cid:31)9: Darwin Stage One development $(cid:30),963,799 using the Group’s weighted average cost of debt). A memorandum of encumbrance is registered against the title of land for the 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 car parking and a vehicle tunnel. The encumbrance is to notify any transferee of the Council’s interest as lessor of the sub-soil areas. The SKYCITY Hamilton site is subject to the normal rights that the Crown reserves in respect of minerals and mining in relation to the sub-soil areas. The land title is subject to Section 27B of the State Owned Enterprises Act (cid:30)986 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 (cid:30)986. Drainage rights have been granted over parts of the land appurtenant to Lot 2 Plan 5.23789 (CT22C/(cid:30)428). There is also a right of way granted over part of Lot (cid:30) and part of Lot 2 DP58(cid:31)554. 24 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 14. INTANGIBLE ASSETS CONSOLIDATED At 3(cid:31) June 2(cid:31)(cid:31)8 Cost Accumulated amortisation Net book amount Movements in the year ended 3(cid:31) June 2(cid:31)(cid:31)9 Opening net book amount Exchange differences Additions Amortisation charge Closing net book amount At 3(cid:31) June 2(cid:31)(cid:31)9 Cost Accumulated amortisation Net book amount Movements in the year ended 3(cid:31) June 2(cid:31)(cid:30)(cid:31) Opening net book amount Exchange differences Additions Discontinued operations Amortisation charge Closing net book amount At 3(cid:31) June 2(cid:31)(cid:30)(cid:31) Cost Accumulated amortisation Net book amount Casino Licence Contract Term GOODWILL $’(cid:31)(cid:31)(cid:31) CASINO LICENCES $’(cid:31)(cid:31)(cid:31) COMPUTER SOFTWARE $’(cid:31)(cid:31)(cid:31) TOTAL $’(cid:31)(cid:31)(cid:31) (cid:30)55,249 – 268,744 (25,(cid:31)(cid:30)4) 52,927 (33,374) 476,92(cid:31) (58,388) (cid:30)55,249 243,73(cid:31) (cid:30)9,553 4(cid:30)8,532 (cid:30)55,249 (2,(cid:31)75) – – 243,73(cid:31) (4,259) – (2,576) (cid:30)9,553 ((cid:30)4) 4,(cid:30)44 (7,478) 4(cid:30)8,532 (6,348) 4,(cid:30)44 ((cid:30)(cid:31),(cid:31)54) (cid:30)53,(cid:30)74 236,895 (cid:30)6,2(cid:31)5 4(cid:31)6,274 (cid:30)53,(cid:30)74 – 264,(cid:31)75 (27,(cid:30)8(cid:31)) 57,(cid:31)(cid:31)8 (4(cid:31),8(cid:31)3) 474,257 (67,983) (cid:30)53,(cid:30)74 236,895 (cid:30)6,2(cid:31)5 4(cid:31)6,274 (cid:30)53,(cid:30)74 ((cid:30),225) – – – 236,895 (2,424) – – (2,62(cid:30)) (cid:30)6,2(cid:31)5 (3) (cid:30),44(cid:30) (284) (3,932) 4(cid:31)6,274 (3,652) (cid:30),44(cid:30) (284) (6,553) (cid:30)5(cid:30),949 23(cid:30),85(cid:31) (cid:30)3,427 397,226 (cid:30)5(cid:30),949 – 26(cid:30),3(cid:30)8 (29,468) 58,(cid:30)53 (44,726) 47(cid:30),42(cid:31) (74,(cid:30)94) (cid:30)5(cid:30),949 23(cid:30),85(cid:31) (cid:30)3,427 397,226 Darwin Adelaide The casino and associated operations are carried out by SKYCITY Darwin under a casino licence/operator agreement (the Casino Operator’s Agreement) with the NT Government. The current licence term was set in 2(cid:31)(cid:31)6 for a 2(cid:31) year period until 2(cid:31)26. The COA is subject to extension for a further 5 years once its period to maturity reaches (cid:30)5 years. The next licence extension date is 2(cid:31)(cid:30)(cid:30), at which time the licence term can be extended to 2(cid:31)3(cid:30). These licence extensions apply on a continuing five year basis so that, subject to certain criteria being met, the licence period is never less than (cid:30)5 years. The casino and associated operations are carried out by SKYCITY Adelaide under a casino licence (the Approved Licensing Agreement) dated October (cid:30)999 (as amended). Unless terminated earlier, the expiry date of the ALA is June 2(cid:31)85. The term of the ALA can be renewed for a further fixed term pursuant to section 9 of the Casino Act (cid:30)997 (SA). The casino licence includes an exclusive operating period which contractually ends 3(cid:31) June 2(cid:31)(cid:30)5. 25 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 14. INTANGIBLE ASSETS (continued) PARENT COMPANY At 3(cid:31) June 2(cid:31)(cid:31)8 Cost Accumulated amortisation Net book amount Movements in the year ended 3(cid:31) June 2(cid:31)(cid:31)9 Opening net book amount Additions Amortisation charge Closing net book amount At 3(cid:31) June 2(cid:31)(cid:31)9 Cost Accumulated amortisation Net book amount Movements in the year ended 3(cid:31) June 2(cid:31)(cid:30)(cid:31) Opening net book amount Additions Amortisation charge Closing net book amount At 3(cid:31) June 2(cid:31)(cid:30)(cid:31) Cost Accumulated amortisation Net book amount COMPUTER SOFTWARE $’(cid:31)(cid:31)(cid:31) TOTAL $’(cid:31)(cid:31)(cid:31) 45,857 (27,(cid:31)95) 45,857 (27,(cid:31)95) (cid:30)8,762 (cid:30)8,762 (cid:30)8,762 3,763 (6,9(cid:30)5) (cid:30)8,762 3,763 (6,9(cid:30)5) (cid:30)5,6(cid:30)(cid:31) (cid:30)5,6(cid:30)(cid:31) 49,62(cid:31) (34,(cid:31)(cid:30)(cid:31)) 49,62(cid:31) (34,(cid:31)(cid:30)(cid:31)) (cid:30)5,6(cid:30)(cid:31) (cid:30)5,6(cid:30)(cid:31) (cid:30)5,6(cid:30)(cid:31) (cid:30),(cid:30)93 (3,75(cid:31)) (cid:30)5,6(cid:30)(cid:31) (cid:30),(cid:30)93 (3,75(cid:31)) (cid:30)3,(cid:31)53 (cid:30)3,(cid:31)53 5(cid:31),8(cid:30)3 (37,76(cid:31)) 5(cid:31),8(cid:30)3 (37,76(cid:31)) (cid:30)3,(cid:31)53 (cid:30)3,(cid:31)53 (a) Impairment Tests for Intangibles with Indefinite Lives Goodwill and licences with indefinite lives are allocated to the Group’s cash generating units (CGU’s) identified below. 2(cid:31)(cid:30)(cid:31) Goodwill Casino Licence 2(cid:31)(cid:31)9 Goodwill Casino Licence SKYCITY HAMILTON* $’(cid:31)(cid:31)(cid:31) SKYCITY DARWIN $’(cid:31)(cid:31)(cid:31) TOTAL $’(cid:31)(cid:31)(cid:31) 35,786 – (cid:30)(cid:30)6,(cid:30)63 38,968 (cid:30)5(cid:30),949 38,968 35,786 (cid:30)55,(cid:30)3(cid:30) (cid:30)9(cid:31),9(cid:30)7 35,786 – (cid:30)(cid:30)7,388 39,379 (cid:30)53,(cid:30)74 39,379 35,786 (cid:30)56,767 (cid:30)92,553 The recoverable amount of a CGU is determined based on value in use calculations. These calculations use cash flow projections approved by directors covering a three year period. The growth rate does not exceed the long term average growth rate for the business in which the CGU operates. There is a surplus between the carrying values of indefinite life assets and value in use calculations. *SKYCITY Hamilton is included within the “Rest of New Zealand” segment in note 28. 26 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 14. INTANGIBLE ASSETS (continued) (b) Key Assumptions used for Value in Use Calculations of Cash Generating Units SKYCITY Hamilton SKYCITY Darwin EBITDA MARGIN GROWTH RATE DISCOUNT RATE 2(cid:31)(cid:30)(cid:31) % 43.(cid:30) 3(cid:30).5 2(cid:31)(cid:31)9 % 46.(cid:30) 36.4 2(cid:31)(cid:30)(cid:31) % 2.(cid:31) 2.(cid:31) 2(cid:31)(cid:31)9 % 2.5 2.5 2(cid:31)(cid:30)(cid:31) % (cid:30)(cid:31).(cid:31) (cid:30)(cid:31).(cid:31) 2(cid:31)(cid:31)9 % (cid:30)(cid:31).(cid:31) (cid:30)(cid:31).(cid:31) These assumptions are consistent with past experience adjusted for economic indicators. The discount rates are pre-tax and reflect specific risks relating to the relevant operating segment. The company does not expect a reasonably possible change in key assumptions would reduce recoverable amount below carrying amount. 15. INVESTMENTS IN ASSOCIATES (a) Carrying Amounts Information relating to associates is set out below. NAME OF COMPANY Unlisted Vista Entertainment Solutions Limited Christchurch Casinos Limited Group OWNERSHIP INTEREST CONSOLIDATED PARENT PRINCIPAL ACTIVITIES 2(cid:31)(cid:30)(cid:31) % 2(cid:31)(cid:31)9 % 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) Cinema ticket software systems – 5(cid:31).(cid:31) – 3,6(cid:30)4 Casino operator 45.7 45.7 83,549 83,549 8(cid:30),(cid:31)23 84,637 – – – – – – As part of the Cinemas disposal, SKYCITY sold its investment in Vista Entertainment Solutions Limited. Christchurch Casinos Limited Group (CCL) is incorporated in New Zealand and has a 3(cid:30) March balance date. The directors are not aware of any significant events or transactions since CCL’s 3(cid:30) March 2(cid:31)(cid:30)(cid:31) balance date that relate to the carrying value of SKYCITY’s ownership interest that should be recorded in these accounts. Included within CCL’s carrying value is goodwill of approximately $53 million. (b) Movements in carrying amounts Balance at the beginning of the year Share of profits after income tax Transfer from Available for Sale Financial Assets Dividends received/receivable Disposal (note 23) Balance at 3(cid:31) June (c) Summarised financial information of associates 2(cid:31)(cid:30)(cid:31) Christchurch Casinos Limited Group 2(cid:31)(cid:31)9 Christchurch Casinos Limited Group 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 84,637 5,868 – (3,342) (3,6(cid:30)4) 84,(cid:31)(cid:31)8 6,9(cid:30)3 (cid:30),(cid:31)22 (7,3(cid:31)6) – 83,549 84,637 GROUP’S SHARE OF: ASSETS $’(cid:31)(cid:31)(cid:31) LIABILITIES $’(cid:31)(cid:31)(cid:31) REVENUES $’(cid:31)(cid:31)(cid:31) PROFIT $’(cid:31)(cid:31)(cid:31) (cid:30)8,277 (cid:30)8,277 2(cid:31),886 2(cid:31),886 2,(cid:31)7(cid:30) 2,(cid:31)7(cid:30) 2,62(cid:31) 2,62(cid:31) (cid:30)9,(cid:31)66 (cid:30)9,(cid:31)66 2(cid:31),43(cid:30) 2(cid:31),43(cid:30) 3,969 3,969 4,(cid:30)72 4,(cid:30)72 27 The above are based on SKYCITY’s direct equity interest in Christchurch Casinos Limited of 3(cid:31).7%. SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 16. PAYABLES Trade payables Lease incentives and deferred income Accrued expenses Employee benefits Amounts due to subsidiaries (note 3(cid:31)) 17. NON-CURRENT LIABILITIES – INTEREST BEARING LIABILITIES Unsecured United States Private Placement Syndicated bank facility Deferred funding expenses Total unsecured non-current interest bearing borrowings (a) United States Private Placement (USPP) CONSOLIDATED PARENT 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) (cid:30)3,9(cid:31)(cid:30) 2,757 52,579 32,563 – (cid:30)7,835 (cid:30)(cid:31),984 46,475 35,(cid:31)49 – – – 5,36(cid:30) – 224,857 – – 6,334 – (cid:30)(cid:31)4,434 (cid:30)(cid:31)(cid:30),8(cid:31)(cid:31) (cid:30)(cid:30)(cid:31),343 23(cid:31),2(cid:30)8 (cid:30)(cid:30)(cid:31),768 4(cid:30)8,3(cid:30)3 – ((cid:30),(cid:30)87) 6(cid:30)2,284 – (2,(cid:30)(cid:31)4) 4(cid:30)7,(cid:30)26 6(cid:30)(cid:31),(cid:30)8(cid:31) – – – – – – – – On (cid:30)5 March 2(cid:31)(cid:31)5 SKYCITY borrowed NZ$96,57(cid:30),(cid:31)(cid:31)(cid:31), A$74,9(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) and US$274,5(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) with maturities between 2(cid:31)(cid:30)2 and 2(cid:31)2(cid:31) from private investors (primarily US based) on an unsecured basis. The USPP fixed rate US dollar borrowings have been converted to New Zealand dollar floating rate borrowings by use of cross currency interest rate swaps to eliminate foreign exchange exposure within the Income Statement. The offsetting value of the cross currency interest rate swap as at 3(cid:31) June 2(cid:31)(cid:30)(cid:31) is included within derivative financial instruments in note (cid:30)2. In July and August 2(cid:31)(cid:31)9, the Group repurchased USD(cid:30)(cid:30)5,5(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) of USPP debt. All repurchased debt was previously maturing in March 2(cid:31)(cid:30)2. Concurrent with the debt repurchase, all cross currency interest rate swaps and interest rate swaps hedging the relevant debt were closed out resulting in a gain of $(cid:30),9(cid:30)9,(cid:31)(cid:31)(cid:31) (note 6). The movement in the USPP from 3(cid:31) June 2(cid:31)(cid:31)9 relates to repayments and foreign exchange and interest rate movements. (b) Syndicated Bank Facility At 3(cid:31) June 2(cid:31)(cid:30)(cid:31), SKYCITY had in place a $5(cid:31)(cid:31),(cid:31)(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) (2(cid:31)(cid:31)9: $5(cid:31)(cid:31),(cid:31)(cid:31)(cid:31),(cid:31)(cid:31)(cid:31)) facility on an unsecured, negative pledge basis maturing April 2(cid:31)(cid:30)(cid:30). The funding syndicate is comprised of ANZ National Bank Limited, Bank of New Zealand Limited and Commonwealth Bank of Australia, New Zealand Branch. As at 3(cid:31) June 2(cid:31)(cid:30)(cid:31), the amount drawn on this facility was nil (2(cid:31)(cid:31)9: nil). (c) Fair values The fair value of the USPP is approximately $3(cid:30) million (2(cid:31)(cid:31)9: $44 million) more than the carrying value. Fair value has been determined on a discounted cash flow basis using current market interest rates. 28 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 18. SUBORDINATED DEBT – CAPITAL NOTES Balance at the beginning of the year Matured during the year Partial revaluation Balance at the end of the year Deferred expense CONSOLIDATED PARENT 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) (cid:30)25,263 (76,8(cid:30)7) ((cid:30),4(cid:31)3) (cid:30)23,84(cid:30) – (cid:30),422 (cid:30)23,86(cid:31) (76,8(cid:30)7) – (cid:30)23,86(cid:31) – – 47,(cid:31)43 (cid:30)25,263 47,(cid:31)43 (cid:30)23,86(cid:31) ((cid:30)3) (33) ((cid:30)3) (33) Net capital notes at the end of the year 47,(cid:31)3(cid:31) (cid:30)25,23(cid:31) 47,(cid:31)3(cid:31) (cid:30)23,827 In May 2(cid:31)(cid:30)(cid:31), the capital notes were renewed for a new term of five years to (cid:30)5 May 2(cid:31)(cid:30)5. The notes were reissued on the same terms and conditions except at a lower interest rate of 7.25% (previously 8.(cid:31)%). Prior to the next election date ((cid:30)5 May 2(cid:31)(cid:30)5), the company will 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 ordinary shares. The company 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 a SKYCITY ordinary share on the New Zealand stock exchange during the (cid:30)5 trading days prior to the election dates. The capital notes do not carry voting rights. Capital noteholders are not entitled to any distributions made by SKYCITY 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 SKYCITY’s issued shares. As at 3(cid:31) June 2(cid:31)(cid:30)(cid:31), there were (cid:30)5(cid:31),(cid:31)(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) (2(cid:31)(cid:31)9: (cid:30)5(cid:31),(cid:31)(cid:31)(cid:31),(cid:31)(cid:31)(cid:31)) capital notes on issue, of which (cid:30)(cid:31)2,957,5(cid:31)(cid:31) (2(cid:31)(cid:31)9: 26,(cid:30)4(cid:31),25(cid:31)) are held as treasury stock by the company. The capital notes are listed on the NZX. As at 3(cid:31) June 2(cid:31)(cid:30)(cid:31) the closing price was $(cid:30).(cid:31)(cid:31)78 per $(cid:30) note (2(cid:31)(cid:31)9: $(cid:30).(cid:31)(cid:31)6(cid:30)). The capital notes are carried at amortised cost. 29 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 19. SUBORDINATED DEBT – SKYCITY ACES SKYCITY ACES Deferred expenses CONSOLIDATED PARENT 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) (cid:30)84,2(cid:31)7 (4(cid:31)(cid:30)) (cid:30)86,(cid:30)5(cid:31) ((cid:30),633) (cid:30)83,8(cid:31)6 (cid:30)84,5(cid:30)7 – – – – – – In October 2(cid:31)(cid:31)5, SKYCITY Investments Australia Limited issued in Australia (cid:30).5 million unsecured subordinated perpetual reset exchangeable securities (SKYCITY ACES) at an issue price of A$(cid:30)(cid:31)(cid:31).(cid:31)(cid:31) per note. The SKYCITY ACES offer holders a fully franked variable rate coupon until the first reset date of (cid:30)5 December 2(cid:31)(cid:30)(cid:31). The coupon is reset quarterly at the Australian 9(cid:31) day bank bill rate (BBSW) plus 2.25%, net of the Australian corporate tax rate (3(cid:31)%) with franking credits attached. On any reset date (the first being (cid:30)5 December 2(cid:31)(cid:30)(cid:31) and every five years thereafter), SKYCITY may elect to exchange or redeem the SKYCITY ACES or change the coupon rate and certain other terms. The holder can request exchange of the SKYCITY ACES at any reset date. If the holder requests exchange SKYCITY may elect to exchange for ordinary shares or redeem or repurchase for cash. Coupons are payable unless the directors of the issuer determine that a coupon not be paid. If a coupon is not paid, the holder has no right to receive that coupon, as coupons are non-cumulative. However, if a coupon is not paid, SKYCITY will be prohibited from paying dividends on its ordinary shares until certain conditions are satisfied. SKYCITY ACES do not carry voting rights and holders are not entitled to any distributions made by SKYCITY in respect of its ordinary shares prior to exchange. There is a minimum exchange ratio which means that a SKYCITY ACES holder would participate in any increase in the SKYCITY ordinary share price above A$7.4(cid:31). The movement in the SKYCITY ACES debt from 2(cid:31)(cid:31)9 relates to foreign exchange movements and is offset by changes in the foreign currency translation reserve so that there is no foreign exchange impact on the Income Statement. The A$(cid:30)5(cid:31) million was converted at an exchange rate of (cid:31).8(cid:30)43 (2(cid:31)(cid:31)9: (cid:31).8(cid:31)58). SKYCITY ACES are listed on the ASX. As at 3(cid:31) June 2(cid:31)(cid:30)(cid:31) the closing price was A$98.6(cid:31) per A$(cid:30)(cid:31)(cid:31) note (2(cid:31)(cid:31)9: A$9(cid:30).5(cid:31)). The SKYCITY ACES are carried at amortised cost translated at the closing NZD/AUD exchange rate. 30 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 20. DEFERRED TAX LIABILITIES The balance comprises temporary differences attributable to: Prepayments and receivables Provision and accruals Depreciation Foreign exchange differences Tax losses Other Cash flow hedges Net deferred tax liabilities Movements: Balance at the beginning of the year Charged to the Income Statement (note 7) Charged to the Income Statement via discontinued operations Debited to equity Change in New Zealand corporate tax rate and building depreciation Foreign exchange differences Closing balance at 3(cid:31) June Within (cid:30)2 months In excess of (cid:30)2 months CONSOLIDATED PARENT 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 364 ((cid:30)(cid:30),97(cid:31)) (cid:30)(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) 9,4(cid:31)6 (2,299) 76 (23(cid:31)) 48(cid:30) ((cid:30)3,657) 57,589 5,343 – (2(cid:31)) ((cid:30),376) 95,347 48,36(cid:31) 48,36(cid:31) 6,2(cid:31)3 679 438 39,7(cid:31)(cid:31) (33) 95,347 3,3(cid:30)3 92,(cid:31)34 95,347 66,(cid:30)83 (6,(cid:30)9(cid:31)) (253) (9,796) – ((cid:30),584) 48,36(cid:31) ((cid:30)3,563) 6(cid:30),923 48,36(cid:31) – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – The Group has not recognised deferred tax assets of $(cid:30).7 million (2(cid:31)(cid:31)9: $5.3 million) in respect of losses that can be carried forward against future taxable income. 21. IMPUTATION CREDITS (New Zealand) Balance at the beginning of the year Tax payments, net of refunds Credits attached to dividends/distributions paid Credits attached to dividends received Balance at end of year Imputation credits available directly and indirectly to shareholders of the parent company, through: Parent company Subsidiaries Balance at end of year CONSOLIDATION 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) ((cid:30)2,(cid:30)3(cid:30)) 32,9(cid:31)7 (27,686) 65(cid:31) (4,(cid:30)82) 5,498 ((cid:30)3,695) 248 (6,26(cid:31)) ((cid:30)2,(cid:30)3(cid:30)) (7,(cid:30)83) 923 ((cid:30)(cid:30),954) ((cid:30)77) (6,26(cid:31)) ((cid:30)2,(cid:30)3(cid:30)) As required by relevant tax legislation, the imputation credit account had a credit balance as at 3(cid:30) March 2(cid:31)(cid:30)(cid:31). 31 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 22. SHARE CAPITAL Opening balance of ordinary shares issued Shares issued under Profit Distribution Plan Share rights issued for employee services CEO commencement Convertible Rights Employee share entitlements issued Movement in treasury shares Buyback and cancellation of shares under Profit Distribution Plan Share placement 2(cid:31)(cid:30)(cid:31) SHARES 2(cid:31)(cid:31)9 SHARES 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 575,(cid:30)(cid:30)4,687 47(cid:30),399,29(cid:30) 3(cid:31),746,8(cid:31)9 – – – – 2(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) 296,682 68,5(cid:31)2 (296,682) (268,5(cid:31)2) ((cid:30)4,5(cid:31)3,726) – 87,472,3(cid:30)3 – 733,(cid:31)85 – 895 – 27(cid:31) ((cid:30),34(cid:31)) – – 46(cid:31),779 92,292 7(cid:31)6 – (cid:30),459 – (45,5(cid:30)(cid:30)) 223,36(cid:31) Ending balance of ordinary shares issued 575,(cid:30)(cid:30)4,687 575,(cid:30)(cid:30)4,687 732,9(cid:30)(cid:31) 733,(cid:31)85 All ordinary shares rank equally with one vote attached to each fully paid ordinary share. Included within the number of shares is treasury shares (cid:30),(cid:31)46,8(cid:31)(cid:31) (2(cid:31)(cid:31)9: 9(cid:31)3,(cid:30)84) held by the company. The movement in treasury shares during the year related to the issuance of shares under the employee incentive plans and purchases of shares by an external trustee as part of the new executive long term incentive plan (refer note 29). Treasury shares may be used to issue shares under the company’s employee incentive plans or upon the exercise of share rights/options. Share placement During the prior year the company undertook an institutional share placement, a share purchase plan and a top up offer. As a result the company issued 87,472,3(cid:30)3 new shares at $2.6(cid:30) per share raising $228,3(cid:31)3,(cid:31)(cid:31)(cid:31). Costs incurred associated with the issue of these shares of $4,943,(cid:31)(cid:31)(cid:31) (including brokerage and legal and other fees) were reduced from the share proceeds. 23. DISCONTINUED OPERATIONS (a) Description During December 2(cid:31)(cid:31)9 the Group announced its intention to sell its Cinemas business. The Cinemas business (excluding New Zealand freehold land and the equity investment in Vista Entertainment Solutions Limited) was sold to Amalgamated Holdings Limited effective (cid:30)8 February 2(cid:31)(cid:30)(cid:31). The equity investment in Vista Entertainment Solutions Limited was sold to InVista Holdings Limited effective 26 March 2(cid:31)(cid:30)(cid:31). Accordingly the Cinemas business is reported in this financial report as a discontinued operation. Financial information relating to the discontinued operation for the period to the date of disposal is set out below. (b) Financial performance and cash flow information Revenue Expenses Profit/(loss) before income tax Income tax expense Profit/(loss) after income tax of discontinued operations Gain on sale before income tax Income tax benefit Gain on sale after income tax Profit from discontinued operations Cash flow: Net cash inflow from operating activities Net cash inflow (outflow) from investing activities Net cash (outflow) from financing activities CONSOLIDATED 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 6(cid:30),(cid:30)3(cid:31) (56,352) 76,629 (78,(cid:31)77) 4,778 ((cid:30),448) ((cid:30),632) 3,(cid:30)46 7,(cid:30)84 3,(cid:30)6(cid:30) (cid:30)(cid:31),345 (cid:30)3,49(cid:30) (cid:30)2,(cid:31)73 (2,4(cid:30)7) – (285) ((cid:30),733) – – – ((cid:30),733) 2,8(cid:30)(cid:30) ((cid:30)(cid:30),4(cid:31)7) (7) Net increase in cash generated by discontinued operations 9,656 (8,6(cid:31)3) 32 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 24. RESERVES AND RETAINED PROFITS/(LOSSES) (a) Reserves Hedging reserve – cash flow hedges Foreign currency translation reserve Employee share entitlement reserve Hedging reserve – cash fl ow hedges Balance at the beginning of the year Revaluation Transfer to net profit Deferred tax Balance at 3(cid:31) June Foreign currency translation reserve Balance at the beginning of the year Exchange difference on translation of overseas subsidiaries Effect of hedging the net investment of overseas subsidiaries Balance at 3(cid:31) June Employee Share Entitlement Reserve Balance at the beginning of the year Shares issued during the year Share entitlements for the year Balance at 3(cid:31) June CONSOLIDATED PARENT 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) (2,74(cid:31)) (cid:30)(cid:31),625 – (8,753) (cid:30)7,44(cid:31) 349 7,885 9,(cid:31)36 (8,753) (26,7(cid:31)7) 35,283 (2,563) (cid:30)3,258 (cid:30)4,785 (46,592) 9,796 (2,74(cid:31)) (8,753) (cid:30)7,44(cid:31) (5,96(cid:31)) (855) (cid:30)8,677 (5,4(cid:30)8) 4,(cid:30)8(cid:30) (cid:30)(cid:31),625 (cid:30)7,44(cid:31) – – – – – – – – – – – – – – – 349 349 – – – – – – – – – 349 (27(cid:31)) (79) – 2,(cid:31)58 ((cid:30),459) (25(cid:31)) 349 349 (27(cid:31)) (79) – 2,(cid:31)58 ((cid:30),459) (25(cid:31)) 349 (i) Hedging Reserve – Cash Flow Hedges The hedging reserve is used to record gains or losses on a hedging instrument in a cash flow hedge that are recognised directly in equity, as described in note 2(n). Amounts are recognised in the Income Statement when the associated hedged transaction affects the Income Statement. (ii) Foreign Currency Translation Reserve Exchange differences arising on translation of foreign controlled entities are taken to the foreign currency translation reserve, as described in note 2(d). The reserve is recognised in the Income Statement when the net investment is disposed of. (iii) Employee Share Entitlement Reserve Under the SKYCITY Performance Pay Incentive Plan (PPI), selected employees have been eligible for performance related bonuses in respect of each of the financial years ended 3(cid:31) June 2(cid:31)(cid:31)(cid:31) through 3(cid:31) June 2(cid:31)(cid:31)8. Shares under the PPI for the year ended 3(cid:31) June 2(cid:31)(cid:31)7 and before are issued in three equal instalments, being one third of the shares on the bonus declaration date and, provided eligibility criteria continue to be met, one third on the next entitlement date (approximately (cid:30)2 months later) and one third on the final entitlement date (approximately 24 months later). Shares under the PPI for the year ended 3(cid:31) June 2(cid:31)(cid:31)8 were issued on the bonus declaration date (October 2(cid:31)(cid:31)8). From (cid:30) July 2(cid:31)(cid:31)8 the PPI terms were changed to become a cash bonus scheme. 33 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 24. RESERVES AND RETAINED PROFITS/(LOSSES) (continued) (b) Retained Profits/(Losses) Movements in retained profits were as follows: Balance at the beginning of the year Net profit/(loss) for the year Distributions/dividends Balance at the end of the year 25. MINORITY INTEREST Balance at the beginning of the year Share of (deficit)/surpluses of subsidiaries Repayment of share capital of Queenstown Casinos Limited Balance at the end of the year CONSOLIDATED PARENT 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) ((cid:30),29(cid:30)) (cid:30)(cid:31)2,(cid:31)25 (83,337) (24,3(cid:31)(cid:31)) (cid:30)(cid:30)5,3(cid:31)(cid:30) (92,292) (25(cid:30),476) 58,743 (83,337) (2(cid:30)4,(cid:31)(cid:31)8) 54,824 (92,292) (cid:30)7,397 ((cid:30),29(cid:30)) (276,(cid:31)7(cid:31)) (25(cid:30),476) CONSOLIDATED 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) (cid:30),482 ((cid:30)57) – (cid:30),325 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) (cid:30),883 (cid:30)99 (6(cid:31)(cid:31)) (cid:30),482 The minority interest relates to the 4(cid:31)% of Queenstown Casinos Limited which is not owned by SKYCITY. 26. DISTRIBUTIONS/DIVIDENDS Prior year final distribution/dividend Current year interim distribution/dividend Total dividends provided for or paid Prior year final distribution/dividend (per share) Current year interim distribution/dividend (per share) CONSOLIDATED PARENT 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 37,328 46,(cid:31)(cid:31)9 49,434 42,858 37,328 46,(cid:31)(cid:31)9 83,337 92,292 83,337 6.5¢ 8.(cid:31)¢ (cid:30)(cid:31).5¢ 9.(cid:31)¢ 6.5¢ 8.(cid:31)¢ 49,434 42,858 92,292 (cid:30)(cid:31).5¢ 9.(cid:31)¢ On (cid:30)6 August 2(cid:31)(cid:30)(cid:31), the directors resolved to declare a final dividend of 9.25 cents per share in respect of the year ended 3(cid:31) June 2(cid:31)(cid:30)(cid:31) (refer to note 36 for further details). 34 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 27. FINANCIAL RISK MANAGEMENT The Group’s activities expose it to a variety of financial risks: market risks (interest rate, currency and electricity price), liquidity risk, and credit risk. The Group’s overall risk management programme recognises the nature of these risks and seeks to minimise potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain risk exposures. Risk management is carried out by a central treasury department under a formal Treasury Policy approved annually by the board of directors. Treasury policy sets out written principles for overall risk management, as well as policies covering specific areas such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess funds. The Treasury Policy sets conservative limits for allowable risk exposures which are formally reviewed at least annually. (a) Market Risk (i) Currency Risk The Group operates internationally and is exposed to currency risk, primarily with respect to Australian and US dollars. Exposure to the Australian dollar arises from the Group’s net investment in its Australian operations. Exposure to the US dollar arises from funding denominated in that currency. The Group utilises natural hedges wherever possible (i.e. Australian dollar funding is used to partially hedge the net investment in Australian operations) with forward foreign exchange contracts used to manage any significant residual risk to the Income Statement. The Group’s exposure to the US dollar (refer to US dollar US Private Placement debt detailed in note (cid:30)7) has been fully hedged by way of cross-currency interest rate swaps (CCIRS), hedging US dollar exposure on both principal and interest. The CCIRS correspond in amount and maturity to the US dollar borrowings with no residual US dollar exposure. Movement in exchange rates will have no impact on the parent accounts as there are no currency exposures in that entity. (ii) Interest Rate Risk The Group’s interest rate exposures arise from long term borrowings. Interest rate swaps (IRS) and CCIRS are utilised to modify the interest repricing profile of the Group’s debt to match the profile required by Treasury Policy. All IRS and CCIRS are in designated hedging relationships that are highly effective. As the Group has no significant interest bearing assets, the Group’s revenue is substantially independent of changes in market interest rates. The following table sets out the Group’s exposure to interest rate risk, including the contractual repricing dates and the effective weighted average interest rate. 2(cid:31)(cid:30)(cid:31) Cash and deposits Advance to Christchurch Hotels Bank borrowings US Private Placement Capital notes (NZ) SKYCITY ACES (Aust) IRS/CCIRS* % 2.7(cid:31) 2.93 – 5.(cid:30)8 7.25 5.(cid:31)(cid:30) PRINCIPAL – INTEREST RATE REPRICING (cid:30) YEAR OR LESS $’(cid:31)(cid:31)(cid:31) (cid:30) – 2 YEARS $’(cid:31)(cid:31)(cid:31) 2 – 3 YEARS $’(cid:31)(cid:31)(cid:31) 3 – 4 YEARS $’(cid:31)(cid:31)(cid:31) 4 – 5 YEARS $’(cid:31)(cid:31)(cid:31) OVER 5 YEARS $’(cid:31)(cid:31)(cid:31) TOTAL $’(cid:31)(cid:31)(cid:31) 64,3(cid:30)4 6,429 – ((cid:30)88,843) – ((cid:30)84,2(cid:31)7) (cid:30)57,335 ((cid:30)44,972) – – – – – ((cid:30)22,673) – – (cid:30)22,673 – – – – ((cid:30)(cid:30)5,42(cid:30)) – ((cid:30)(cid:30)5,42(cid:30)) – – – – – – – – – – – (67,83(cid:30)) (47,(cid:31)43) – (88,56(cid:30)) – – 64,3(cid:30)4 6,429 – (38,966) – – (76,(cid:31)26) – (4(cid:30)8,3(cid:30)3) (47,(cid:31)43) ((cid:30)84,2(cid:31)7) – (2(cid:31)3,435) ((cid:30)(cid:30)4,992) (578,82(cid:31)) Weighted average debt interest rate 7.28% * Interest rate swaps and cross currency interest rate swaps, notional principal amounts. 35 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 27. FINANCIAL RISK MANAGEMENT (continued) 2(cid:31)(cid:31)9 Cash and deposits Advance to Christchurch Hotels US Private Placement Capital notes (NZ) SKYCITY ACES (Aust) IRS/CCIRS* % 3.52 2.78 5.23 8.(cid:31)(cid:31) 3.76 PRINCIPAL – INTEREST RATE REPRICING (cid:30) YEAR OR LESS $’(cid:31)(cid:31)(cid:31) (cid:30) – 2 YEARS $’(cid:31)(cid:31)(cid:31) 2 – 3 YEARS $’(cid:31)(cid:31)(cid:31) 3 – 4 YEARS $’(cid:31)(cid:31)(cid:31) 4 – 5 YEARS $’(cid:31)(cid:31)(cid:31) OVER 5 YEARS $’(cid:31)(cid:31)(cid:31) TOTAL $’(cid:31)(cid:31)(cid:31) 239,264 7,649 ((cid:30)89,522) ((cid:30)23,86(cid:31)) ((cid:30)86,(cid:30)5(cid:31)) (cid:30)64,3(cid:31)6 – – – – – – – (3(cid:30),(cid:31)25) (3(cid:31)9,3(cid:30)7) – – (cid:30)6,759 (88,3(cid:30)3) (3(cid:30),(cid:31)25) (292,558) – – – – – – – – – – – – – – – – 239,264 7,649 ((cid:30)(cid:30)3,445) – – ((cid:30)5(cid:31),(cid:31)4(cid:31)) (6(cid:30)2,284) ((cid:30)23,86(cid:31)) ((cid:30)86,(cid:30)5(cid:31)) – (263,485) (675,38(cid:30)) Weighted average debt interest rate 6.78% * Interest rate swaps and cross-currency interest rate swaps, notional principal amounts. For both 2(cid:31)(cid:30)(cid:31) and 2(cid:31)(cid:31)9 capital notes are the only interest bearing debt within the parent entity. The parent entity is not party to any derivatives. (iii) Electricity Price Risk SKYCITY has in place one electricity derivative (Contract For Differences) for approximately 8(cid:31)% of SKYCITY Auckland’s electricity consumption (2(cid:31)(cid:31)9: one contract) hedging an electricity supply contract at spot (floating) price. The CFD is a designated cash flow hedge with (cid:30)(cid:31)(cid:31)% effectiveness, fixing the electricity price until 3(cid:30) December 2(cid:31)(cid:30)(cid:31). Changes in the spot price of electricity will not impact on the Income Statement. Changes in fair value of the CFD will be reflected in Equity (Cash Flow Hedge Reserve) until released to the Income Statement to offset variability in the spot electricity price. (iv) Summarised sensitivity analysis The following table summarises the sensitivity of the Group’s financial assets and financial liabilities to interest rate risk and foreign exchange risk. The sensitivity analysis considers reasonably possible changes in each risk with all other variables held constant, taking into account all underlying exposures and related hedges at the reporting date. The impact calculated is based on a full year impact of each change. Sensitivities have been selected based on the current level of interest rates and exchange rates, volatility observed on an historical basis and market expectations for future movements. INTEREST RATE RISK FOREIGN EXCHANGE RISK –(cid:30)(cid:31)(cid:31)BPS (cid:30)(cid:31)(cid:31)BPS –5% 5% PROFIT $’(cid:31)(cid:31)(cid:31) EQUITY $’(cid:31)(cid:31)(cid:31) PROFIT $’(cid:31)(cid:31)(cid:31) EQUITY $’(cid:31)(cid:31)(cid:31) PROFIT $’(cid:31)(cid:31)(cid:31) EQUITY $’(cid:31)(cid:31)(cid:31) PROFIT $’(cid:31)(cid:31)(cid:31) EQUITY $’(cid:31)(cid:31)(cid:31) CONSOLIDATED 3(cid:31) June 2(cid:31)(cid:30)(cid:31) NZD/AUD movements NZ interest rate movement Australian interest rate movement – ((cid:30)(cid:31)(cid:31)) 726 – (9,489) (4,279) – (cid:30)(cid:31)(cid:31) (726) – 8,8(cid:30)3 4,(cid:31)62 (65(cid:31)) – – (cid:30)5,59(cid:31) – – Total increase/(decrease) 626 ((cid:30)3,768) (626) (cid:30)2,875 (65(cid:31)) (cid:30)5,59(cid:31) 588 – – 588 ((cid:30)4,(cid:30)(cid:31)5) – – ((cid:30)4,(cid:30)(cid:31)5) 3(cid:31) June 2(cid:31)(cid:31)9 NZD/AUD movements NZ interest rate movement Australian interest rate movement – ((cid:30),(cid:31)(cid:30)(cid:31)) 785 – ((cid:30)(cid:30),7(cid:30)6) (4,6(cid:31)3) – (cid:30),(cid:31)(cid:30)(cid:31) (785) – (cid:30)(cid:30),(cid:30)24 4,3(cid:30)3 Total increase/(decrease) (225) ((cid:30)6,3(cid:30)9) 225 (cid:30)5,437 (cid:30),223 – – (cid:30),223 8,(cid:30)64 – – 8,(cid:30)64 ((cid:30),(cid:30)(cid:31)6) – – (7,387) – – ((cid:30),(cid:30)(cid:31)6) (7,387) 36 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 27. FINANCIAL RISK MANAGEMENT (continued) (b) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its financial obligations. SKYCITY is largely a cash based business and its material credit risks arise mainly from financial instruments utilised in funding and International Business play. Financial instruments (other than International Business discussed below) that potentially create a credit exposure can only be entered into with counterparties that are explicitly approved by the board. Maximum credit limits for each of these parties are approved on the basis of long-term credit rating (Standard and Poor’s or Moody’s). A minimum long-term rating of A+ (S&P) or A(cid:30) (Moody’s) is required to approve individual counterparties. The maximum credit risk of any financial instrument at any time is the fair value where that instrument is an asset. All derivatives are carried at fair value in the balance sheet. Trade receivables are presented net of an allowance for estimated doubtful receivables. International players are managed in accordance with accepted industry practise. Settlement risk associated with international players is minimised through credit checking and a formal review and approval process. There are no significant concentrations of credit risk in the Group. (c) Liquidity risk Liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of unutilised committed credit facilities. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and maintaining flexibility in funding by keeping committed credit lines available with a variety of counterparties and maturities. Maturities of Committed Funding Facilities The tables below analyse the Group’s maturity profile of committed funding. The bank facility of $5(cid:31)(cid:31) million is not drawn down as at 3(cid:31) June 2(cid:31)(cid:30)(cid:31) (2(cid:31)(cid:31)9: nil drawn down). LESS THAN 6 MONTHS $’(cid:31)(cid:31)(cid:31) 6 – (cid:30)2 MONTHS $’(cid:31)(cid:31)(cid:31) BETWEEN (cid:30) AND 2 YEARS $’(cid:31)(cid:31)(cid:31) BETWEEN 2 AND 3 YEARS $’(cid:31)(cid:31)(cid:31) BETWEEN 3 AND 5 YEARS $’(cid:31)(cid:31)(cid:31) OVER 5 YEARS $’(cid:31)(cid:31)(cid:31) TOTAL FACILITY $’(cid:31)(cid:31)(cid:31) CONSOLIDATED At 3(cid:31) June 2(cid:31)(cid:30)(cid:31) Bank facility Capital notes SKYCITY ACES US Private Placement – – (cid:30)84,2(cid:31)7 – 5(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) – – – – – – 262,2(cid:30)9 Total debt facilities (cid:30)84,2(cid:31)7 5(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) 262,2(cid:30)9 – – – – – – 47,(cid:31)43 – 96,(cid:31)(cid:31)(cid:31) – – – 6(cid:31),(cid:31)94 5(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) 47,(cid:31)43 (cid:30)84,2(cid:31)7 4(cid:30)8,3(cid:30)3 (cid:30)43,(cid:31)43 6(cid:31),(cid:31)94 (cid:30),(cid:30)49,563 Payables Total drawn debt Future contracted interest on drawn debt Future contracted interest on CCIRS/IRS (cid:30)(cid:31)(cid:30),8(cid:31)(cid:31) (cid:30)84,2(cid:31)7 (cid:30)5,872 4,4(cid:31)8 At 3(cid:31) June 2(cid:31)(cid:31)9 Bank facility Capital notes SKYCITY ACES US Private Placement Total debt facilities – – – – – – – (cid:30)2,679 4,(cid:30)83 – (cid:30)23,86(cid:31) – – – 262,2(cid:30)9 2(cid:30),347 7,427 5(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) – (cid:30)86,(cid:30)5(cid:31) – – – (cid:30)(cid:30),548 5,(cid:30)3(cid:30) – (cid:30)43,(cid:31)43 2(cid:30),2(cid:31)4 9,578 – – – 449,543 – – – – – (cid:30)23,86(cid:31) 686,(cid:30)5(cid:31) 449,543 Payables Total drawn debt Future contracted interest on drawn debt Future contracted interest on CCIRS/IRS (cid:30)(cid:30)(cid:31),343 – 23,295 6,298 – (cid:30)23,86(cid:31) 22,(cid:31)(cid:31)5 6,228 – (cid:30)86,(cid:30)5(cid:31) 33,(cid:31)98 (cid:30)3,(cid:30)(cid:30)2 – 449,543 23,749 (cid:30)(cid:30),245 – – (cid:30)6,739 (cid:30)3,365 – 6(cid:31),(cid:31)94 8,(cid:30)48 4,576 – – – (cid:30)62,74(cid:30) (cid:30)(cid:31)(cid:30),8(cid:31)(cid:31) 649,563 9(cid:31),798 35,3(cid:31)3 5(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) (cid:30)23,86(cid:31) (cid:30)86,(cid:30)5(cid:31) 6(cid:30)2,284 (cid:30)62,74(cid:30) (cid:30),422,294 – (cid:30)62,74(cid:30) (cid:30)4,962 (cid:30)(cid:31),359 (cid:30)(cid:30)(cid:31),343 922,294 (cid:30)33,848 6(cid:31),6(cid:31)7 37 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 27. FINANCIAL RISK MANAGEMENT (continued) (d) Fair value estimation Effective (cid:30) July 2(cid:31)(cid:31)9, the Group adopted the amendment to NZ IFRS 7 for financial instruments that are measured in the balance sheet at fair value, this requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: – Quoted prices (unadjusted) in active markets for identical assets or liabilities (level (cid:30)). – Inputs other than quoted prices included within level (cid:30) that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2). – Inputs for the asset or liability that are not based on observable market data (that is unobservable inputs) (level 3). LEVEL (cid:30) $’(cid:31)(cid:31)(cid:31) LEVEL 2 $’(cid:31)(cid:31)(cid:31) LEVEL 3 $’(cid:31)(cid:31)(cid:31) TOTAL BALANCE $’(cid:31)(cid:31)(cid:31) CONSOLIDATED At 3(cid:31) June 2(cid:31)(cid:30)(cid:31) Assets Derivatives used for hedging Total assets Liabilities Financial liabilities at fair value through profit or loss – FX forward contracts Derivatives used for hedging Total liabilities At 3(cid:31) June 2(cid:31)(cid:31)9 Assets Derivatives used for hedging Total assets Liabilities Financial liabilities at fair value through profit or loss – FX forward contracts Derivatives used for hedging Total liabilities Further details on derivatives is provided in note (cid:30)2. – – – – – – – – – – 26,(cid:31)4(cid:30) 26,(cid:31)4(cid:30) 226 24,288 24,5(cid:30)4 23,(cid:30)55 23,(cid:30)55 4,839 35,364 4(cid:31),2(cid:31)3 – – – – – – – – – – 26,(cid:31)4(cid:30) 26,(cid:31)4(cid:30) 226 24,288 24,5(cid:30)4 23,(cid:30)55 23,(cid:30)55 4,839 35,364 4(cid:31),2(cid:31)3 The fair value of financial instruments that are not traded in an active market (for example, over the counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. Specific valuation techniques used to value financial instruments include: – The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves. – The fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date, with the resulting value discounted back to present value. – Other techniques, such as discounted cash flow analyses, are used to determine fair value for the remaining financial instruments. The parent company does not have any financial instruments measured in the balance sheet at fair value. 38 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 27. FINANCIAL RISK MANAGEMENT (continued) (e) Financial instruments by category CONSOLIDATED At 3(cid:31) June 2(cid:31)(cid:30)(cid:31) Cash and bank balances Trade receivables Advance to Christchurch Hotels Limited Derivative financial instruments Interest-bearing liabilities Capital notes SKYCITY ACES At 3(cid:31) June 2(cid:31)(cid:31)9 Cash and bank balances Trade receivables Advance to Christchurch Hotels Limited Derivative financial instruments Interest-bearing liabilities Capital notes SKYCITY ACES (f) Capital Risk Management ASSETS / (LIABILITIES) AT FAIR VALUE THROUGH THE INCOME STATEMENT $’(cid:31)(cid:31)(cid:31) LOANS AND RECEIVABLES $’(cid:31)(cid:31)(cid:31) DERIVATIVES USED FOR HEDGING $’(cid:31)(cid:31)(cid:31) LIABILITIES AT AMORTISED COST $’(cid:31)(cid:31)(cid:31) (cid:30)(cid:31)2,7(cid:31)6 (cid:30)(cid:31),435 6,429 – – – – (cid:30)(cid:30)9,57(cid:31) 275,6(cid:30)3 7,654 7,649 – – – – – – – (226) – – – (226) – – – (4,839) – – – – – – (cid:30),753 – – – – – – – (4(cid:30)7,(cid:30)26) (47,(cid:31)3(cid:31)) ((cid:30)83,88(cid:31)) (cid:30),753 (648,(cid:31)36) – – – ((cid:30)2,2(cid:31)9) – – – – – – – (6(cid:30)(cid:31),(cid:30)8(cid:31)) ((cid:30)25,23(cid:31)) ((cid:30)84,5(cid:30)7) 29(cid:31),9(cid:30)6 (4,839) ((cid:30)2,2(cid:31)9) (9(cid:30)9,927) The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern and to maximise returns for shareholders and benefits for other stakeholders over the long term. In order to optimise its capital structure, the Group manages actual and forecast operational cash flows, capital expenditure and equity distributions. The Group primarily manages capital on the basis of gearing ratios measured on the basis of net debt to EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) and interest coverage (EBITDA relative to net interest cost). As a secondary measure, gearing is also monitored on the basis of net debt to enterprise value (debt plus market capitalisation). The primary ratios were as follows at 3(cid:31) June Net debt to EBITDA Interest coverage 2(cid:31)(cid:30)(cid:31) 2(cid:31)(cid:31)9 2.(cid:31) x 5.7 x 2.3 x 4.4 x These types of ratios are consistent with the financial covenants in the Group’s various funding facilities. Actual gearing as at 3(cid:31) June 2(cid:31)(cid:30)(cid:31) was within covenant limits on funding facilities. Although both the New Zealand capital notes and the Australian SKYCITY ACES include the right for SKYCITY to convert them to equity they are both treated as debt for capital management and financial reporting purposes. The Group does not have any externally imposed capital requirements. 39 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 28. SEGMENT INFORMATION Management has determined the operating segments based on the reports reviewed by the Chief Executive Officer/Managing Director that are used to make strategic decisions. Segment information excludes discontinued operations (Cinemas) which were previously part of the “Rest of New Zealand” segment. The Group is organised into the following main operating segments: SKYCITY Auckland SKYCITY Auckland includes casino operations, hotels and convention, food and beverage, carparking and Sky Tower and a number of other related activities. Rest of New Zealand Rest of New Zealand includes the Group’s interest in SKYCITY Hamilton, SKYCITY Queenstown Casino and Christchurch Casino. SKYCITY Adelaide SKYCITY Adelaide includes casino operations and food and beverage. SKYCITY Darwin SKYCITY Darwin includes casino operations, food and beverage and hotel. International Business International Business includes commission and complimentary play. The international business segment is made up of customers sourced mainly from Asia, and the rest of the world. The revenue is generated at SKYCITY’s Auckland, Darwin, Adelaide and Queenstown locations. Corporate / Group Head office functions including legal and regulatory, group finance, human resources and information technology, the Chief Executive’s office and directors. AUCKLAND $’(cid:31)(cid:31)(cid:31) REST OF NEW ZEALAND $’(cid:31)(cid:31)(cid:31) ADELAIDE $’(cid:31)(cid:31)(cid:31) DARWIN $’(cid:31)(cid:31)(cid:31) INTER- NATIONAL BUSINESS $’(cid:31)(cid:31)(cid:31) CORPORATE/ GROUP $’(cid:31)(cid:31)(cid:31) TOTAL $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:30)(cid:31) Revenue from external customers and other income Shares of net profits of associates Less Expenses Depreciation and amortisation 393,326 – 47,26(cid:30) 5,868 (cid:30)69,263 – (cid:30)34,522 – 26,485 – – – 77(cid:31),857 5,868 ((cid:30)99,528) (35,(cid:30)(cid:31)6) (27,(cid:31)72) (5,2(cid:30)2) ((cid:30)29,862) (9,883) (86,698) ((cid:30)(cid:30),542) ((cid:30)7,572) – (27,59(cid:31)) (5,764) (488,322) (67,5(cid:31)7) Segment profit/EBIT (cid:30)58,692 2(cid:31),845 29,5(cid:30)8 36,282 8,9(cid:30)3 (33,354) 22(cid:31),896 Finance costs Profit before income tax Segment assets 649,28(cid:30) (cid:30)46,6(cid:31)7 268,424 344,52(cid:31) Investment in associates – 83,549 – – Additions to non-current assets (other than financial assets and deferred tax) 2(cid:30),737 2,699 (cid:30)3,428 (cid:30)6,(cid:30)7(cid:31) (47,388) (cid:30)73,5(cid:31)8 227,4(cid:31)8 (cid:30),636,24(cid:31) – 83,549 4,548 58,582 – – – 40 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 28. SEGMENT INFORMATION (continued) AUCKLAND $’(cid:31)(cid:31)(cid:31) REST OF NEW ZEALAND $’(cid:31)(cid:31)(cid:31) ADELAIDE $’(cid:31)(cid:31)(cid:31) DARWIN $’(cid:31)(cid:31)(cid:31) INTER- NATIONAL BUSINESS $’(cid:31)(cid:31)(cid:31) CORPORATE/ GROUP $’(cid:31)(cid:31)(cid:31) TOTAL $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 Revenue from external customers and other income Shares of net profits of associates Less Expenses Depreciation and amortisation 4(cid:31)4,6(cid:30)9 – 47,5(cid:31)2 5,653 (cid:30)6(cid:31),5(cid:30)(cid:31) – (cid:30)34,(cid:31)6(cid:31) – (cid:30)7,556 – – – 764,247 5,653 ((cid:30)97,294) (34,886) (27,623) (5,(cid:30)76) ((cid:30)24,372) ((cid:30)(cid:31),8(cid:31)(cid:30)) (85,(cid:31)7(cid:30)) ((cid:30)(cid:31),523) ((cid:30)5,(cid:30)(cid:30)(cid:31)) – (26,488) (8,74(cid:31)) (475,958) (7(cid:31),(cid:30)26) Segment profit/EBIT (cid:30)72,439 2(cid:31),356 25,337 38,466 2,446 (35,228) 223,8(cid:30)6 Finance costs Profit before income tax Segment assets 656,(cid:31)(cid:31)2 (cid:30)47,47(cid:31) 266,(cid:31)35 335,46(cid:31) Investment in associates – 8(cid:30),(cid:31)23 – – Additions to non-current assets (other than financial assets and deferred tax) 3(cid:31),373 4,533 (cid:30)(cid:31),(cid:31)36 38,782 – – – Reportable segments’ assets are reconciled to total assets as follows: Segment assets for reportable segments Assets of discontinued operations Total assets per the balance sheet Revenue – products and services Local gaming International business Non-gaming Total revenue Revenue – geographic New Zealand Australia Total revenue Non-current asset additions – geographic New Zealand Australia Total non-current asset additions Non-current assets excluding financial instruments – geographic New Zealand Australia Total non-current assets excluding financial instruments (66,94(cid:31)) (cid:30)56,876 384,887 (cid:30),789,854 – 8(cid:30),(cid:31)23 9,(cid:30)(cid:31)7 92,83(cid:30) CONSOLIDATED 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) (cid:30),636,24(cid:31) – (cid:30),789,854 82,992 (cid:30),636,24(cid:31) (cid:30),872,846 575,8(cid:31)2 26,485 (cid:30)67,65(cid:31) 586,722 (cid:30)7,556 (cid:30)57,988 769,937 762,266 452,7(cid:30)7 3(cid:30)7,22(cid:31) 455,884 3(cid:31)6,382 769,937 762,266 28,984 29,598 58,582 44,(cid:31)(cid:30)3 48,8(cid:30)8 92,83(cid:30) 879,473 579,622 948,59(cid:30) 576,792 (cid:30),459,(cid:31)95 (cid:30),525,383 41 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 29. SHARE-BASED PAYMENTS Executive Share Rights Plan 2005 The Executive Share Rights Plan (Rights Plan) was approved by directors in December 2(cid:31)(cid:31)4 and commenced on (cid:30) July 2(cid:31)(cid:31)5. Share rights issued under the Rights Plan are exercisable after the third anniversary of their date of issue provided the terms and conditions of the Plan are met, and lapse if not exercised within five years. The exercise price of the share rights is the base exercise price adjusted for the company’s estimated cost of equity and dividends/distributions between the issue date and the exercise date of the rights. Chief Executive Officer Convertible Rights A Commencement Grant of 2(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) convertible share rights was made to the CEO with effect from (cid:30) March 2(cid:31)(cid:31)8. Each right converted into one SKYCITY share on (cid:30) March 2(cid:31)(cid:30)(cid:31). Chief Executive Officer Long Term Incentive Plan The Chief Executive Officer Long Term Incentive Plan (CEO LTI) was approved by shareholders at the 3(cid:30) October 2(cid:31)(cid:31)8 Annual Meeting. Share rights are granted under the CEO LTI and (if exercisable) may be exercised at no cost. If exercised each share right corresponds to one fully paid ordinary share in company. Share rights only become exercisable when performance hurdles set by the board of directors are met. 49(cid:30),(cid:30)32 rights were issued in the prior year. Executive Long Term Incentive Plan 2008 The Executive Long Term Incentive Plan (Executive LTI) was approved by directors in December 2(cid:31)(cid:31)8. Share rights are granted under the Executive LTI and (if exercisable) may be exercised at no cost. If exercised each share right corresponds to one fully paid ordinary share in the company. Share rights only become exercisable when performance hurdles set by the board of directors are met. 875,(cid:31)(cid:31)(cid:31) rights were issued in the prior year. Chief Executive Officer and Executive Long Term Incentive Plan 2009 During the current year, the Group implemented a new long term incentive plan for a limited number of senior executives (including the Chief Executive Officer). This plan replaced the share based Chief Executive Officer Long Term Incentive Plan and the Executive Long Term Incentive Plan 2(cid:31)(cid:31)8. Under the new plan, executives purchase SKYCITY shares funded by an interest free loan from the Group. The shares purchased by the executives are held by a trustee company with executives entitled to exercise the voting rights attached to the shares and receive dividends, the proceeds of which are used to repay the interest free loan. At the end of the restricted period, the Group will pay a bonus to each executive to the extent their performance targets have been met which is sufficient to repay the initial interest free loan associated with the shares which vest. The shares upon which performance targets have been met will then fully vest to the executives. The loan owing on shares upon which performance targets have not been met (the forfeited shares) will be novated from the executives to the trustee company and will be fully repaid by the transfer of the forfeited shares. Performance targets relate to total shareholder return. At 3(cid:31) June 2(cid:31)(cid:30)(cid:31) the interest free loan on the CEO Long Term Incentive Plan is $(cid:30),(cid:30)73,(cid:31)39 and on the Executive Long Term Incentive Plan total $(cid:30),9(cid:31)4,372. 42 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 29. SHARE-BASED PAYMENTS (continued) Movements in the number of share rights outstanding are as follows: GRANT DATE EXPIRY DATE Consolidated and parent – 2(cid:31)(cid:30)(cid:31) (cid:31)8/(cid:31)9/(cid:31)4 (cid:31)5/(cid:31)9/(cid:31)5 (cid:31)4/(cid:31)9/(cid:31)6 (cid:31)(cid:30)/(cid:31)3/(cid:31)8 (cid:31)(cid:30)/(cid:31)3/(cid:31)8 (cid:31)(cid:30)/(cid:31)7/(cid:31)8 (cid:31)2/(cid:31)9/(cid:31)9 (cid:31)8/(cid:31)9/(cid:31)9 (cid:31)5/(cid:31)9/(cid:30)(cid:31) (cid:31)4/(cid:31)9/(cid:30)(cid:30) (cid:31)(cid:30)/(cid:31)3/(cid:30)(cid:31) (cid:31)(cid:30)/(cid:31)3/(cid:30)2 (cid:31)(cid:30)/(cid:31)7/(cid:30)2 (cid:31)2/(cid:31)9/(cid:30)3 EXERCISE PRICE BALANCE AT START OF THE YEAR NUMBER GRANTED DURING THE YEAR NUMBER EXERCISED DURING THE YEAR NUMBER EXPIRED DURING THE YEAR NUMBER BALANCE AT END OF THE YEAR NUMBER EXERCISABLE AT END OF THE YEAR NUMBER $4.44 $4.8(cid:30) $5.(cid:30)5 (cid:30)5(cid:31),(cid:31)(cid:31)(cid:31) 23(cid:30),(cid:31)(cid:31)(cid:31) 384,(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) 49(cid:30),(cid:30)32 85(cid:31),(cid:31)(cid:31)(cid:31) – – – – – – – (cid:30),(cid:31)46,8(cid:31)(cid:31) – – – (2(cid:31)(cid:31),(cid:31)(cid:31)(cid:31)) – – – ((cid:30)5(cid:31),(cid:31)(cid:31)(cid:31)) – (5(cid:30),(cid:31)(cid:31)(cid:31)) – – (25(cid:31),(cid:31)(cid:31)(cid:31)) (86,625) – 23(cid:30),(cid:31)(cid:31)(cid:31) 333,(cid:31)(cid:31)(cid:31) – 49(cid:30),(cid:30)32 6(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) 96(cid:31),(cid:30)75 – 23(cid:30),(cid:31)(cid:31)(cid:31) 333,(cid:31)(cid:31)(cid:31) – – – – Total 2,3(cid:31)6,(cid:30)32 (cid:30),(cid:31)46,8(cid:31)(cid:31) (2(cid:31)(cid:31),(cid:31)(cid:31)(cid:31)) (537,625) 2,6(cid:30)5,3(cid:31)7 564,(cid:31)(cid:31)(cid:31) Consolidated and parent – 2(cid:31)(cid:31)9 (cid:31)9/(cid:31)9/(cid:31)3 (cid:31)8/(cid:31)9/(cid:31)4 (cid:31)5/(cid:31)9/(cid:31)5 (cid:31)4/(cid:31)9/(cid:31)6 (cid:31)(cid:30)/(cid:31)3/(cid:31)8 (cid:31)(cid:30)/(cid:31)3/(cid:31)8 (cid:31)(cid:30)/(cid:31)7/(cid:31)8 (cid:31)9/(cid:31)9/(cid:31)8 (cid:31)8/(cid:31)9/(cid:31)9 (cid:31)5/(cid:31)9/(cid:30)(cid:31) (cid:31)4/(cid:31)9/(cid:30)(cid:30) (cid:31)(cid:30)/(cid:31)3/(cid:30)(cid:31) (cid:31)(cid:30)/(cid:31)3/(cid:30)2 (cid:31)(cid:30)/(cid:31)7/(cid:30)2 $4.42 $4.44 $4.8(cid:30) $5.(cid:30)5 238,(cid:31)(cid:31)(cid:31) 5(cid:30)(cid:30),(cid:31)(cid:31)(cid:31) 5(cid:31)7,666 (cid:30),395,3(cid:31)4 2(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) – – – – – – – 49(cid:30),(cid:30)32 875,(cid:31)(cid:31)(cid:31) Total 2,85(cid:30),97(cid:31) (cid:30),366,(cid:30)32 Exercise price The rights granted from 2(cid:31)(cid:31)8 onwards do not have an exercise price. – – – – – – – – (238,(cid:31)(cid:31)(cid:31)) (36(cid:30),(cid:31)(cid:31)(cid:31)) (276,666) ((cid:30),(cid:31)(cid:30)(cid:30),3(cid:31)4) – – (25,(cid:31)(cid:31)(cid:31)) – (cid:30)5(cid:31),(cid:31)(cid:31)(cid:31) 23(cid:30),(cid:31)(cid:31)(cid:31) 384,(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) 49(cid:30),(cid:30)32 85(cid:31),(cid:31)(cid:31)(cid:31) – (cid:30)5(cid:31),(cid:31)(cid:31)(cid:31) 23(cid:30),(cid:31)(cid:31)(cid:31) – – – – ((cid:30),9(cid:30)(cid:30),97(cid:31)) 2,3(cid:31)6,(cid:30)32 38(cid:30),(cid:31)(cid:31)(cid:31) The weighted average remaining contractual life of options and rights outstanding at the end of the period was 2.(cid:30)(cid:31) years (2(cid:31)(cid:31)9: (cid:30).76 years). Fair value of share rights granted The assessed fair value at grant date of the rights granted in the current year is 98.3 cents (CEO LTI rights granted during the year ended 3(cid:31) June 2(cid:31)(cid:31)9 was $(cid:30).2(cid:31) and Executive LTI rights was 88.(cid:31) cents). The valuation inputs for the rights (2(cid:31)(cid:31)9: CEO LTI Rights) granted during the year ended 3(cid:31) June 2(cid:31)(cid:31)9 included: (a) rights are granted for no consideration (b) exercise price: nil (2(cid:31)(cid:31)9 CEO LTI Rights: nil) (c) grant date: 2 September 2(cid:31)(cid:31)9 (2(cid:31)(cid:31)9 CEO LTI Rights: (cid:30) March 2(cid:31)(cid:31)8) (d) expiry date: (cid:30) September 2(cid:31)(cid:30)3 (2(cid:31)(cid:31)9 CEO LTI Rights: (cid:30) March 2(cid:31)(cid:30)2) (e) share price at valuation date $3.78 (2(cid:31)(cid:31)9 CEO LTI Rights: $3.96) (f) present value of expected dividend: 58.5 cents (2(cid:31)(cid:31)9 CEO LTI Rights: 57 cents) The expected price volatility is derived by analysing the historic volatility over a recent historical period similar to the term of the right. 43 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 29. SHARE-BASED PAYMENTS (continued) The valuation inputs for the Executive LTI Rights granted during the year ended 3(cid:31) June 2(cid:31)(cid:31)9 included: (a) rights are granted for no consideration (b) exercise price: nil (c) grant date: (cid:30) July 2(cid:31)(cid:31)8 (d) expiry date: (cid:30) July 2(cid:31)(cid:30)(cid:30) (e) share price at valuation date ((cid:30) July 2(cid:31)(cid:31)8): $3.(cid:30)2 (f) present value of expected dividend: 6(cid:31) cents The expected price volatility is derived by analysing the historic volatility over a recent historical period similar to the term of the right. Expenses arising from Share-Based Payment Transactions Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit expense were as below. Rights issued under Share Rights Plans 30. RELATED PARTY TRANSACTIONS CONSOLIDATED PARENT 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 895 895 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 7(cid:31)6 7(cid:31)6 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 895 895 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 7(cid:31)6 7(cid:31)6 There are no bad or doubtful debts associated with any related party of the Group or parent entity (2(cid:31)(cid:31)9: nil). (a) Key Management and Personnel Compensation Key management compensation for the years ended 3(cid:31) June 2(cid:31)(cid:30)(cid:31) and 2(cid:31)(cid:31)9 is set out below. The key management personnel are all the directors of the company, the Chief Executive Officer and the direct reports to the Chief Executive Officer. 2(cid:31)(cid:30)(cid:31) 2(cid:31)(cid:31)9 SHORT TERM BENEFITS $’(cid:31)(cid:31)(cid:31) TERMINATION PAYMENTS $’(cid:31)(cid:31)(cid:31) SHARE-BASED PAYMENTS $’(cid:31)(cid:31)(cid:31) 7,(cid:31)(cid:30)6 6,329 375 – 653 62(cid:31) TOTAL $’(cid:31)(cid:31)(cid:31) 8,(cid:31)44 6,949 (b) Other transactions with key management personnel or entities related to them Information on transactions with key management personnel or entities related to them, other than compensation, are set out below. Fees in the amount of $337,247 (2(cid:31)(cid:31)9: $457,948) were paid to Assignment Group New Zealand Limited for marketing assistance on normal commercial terms. P D Cullinane, who is a director of SKYCITY Entertainment Group Limited, is also a director of Assignment Group New Zealand Limited. Certain directors have relevant interests in a number of companies with which SKYCITY has transactions in the normal course of business. A number of SKYCITY directors are also non-executive directors of other companies. Any transactions undertaken with these entities have been entered into on an arms-length commercial basis. (c) Subsidiaries Interests in subsidiaries are set out in note 3(cid:30). (d) Parent The majority of the parent entity’s transactions are with its subsidiaries including the payment of dividends ($(cid:30)(cid:31)(cid:31).2 million; 2(cid:31)(cid:31)9: $(cid:30)(cid:31)(cid:31).2 million) and provision of employee services ($(cid:30)7.4 million; 2(cid:31)(cid:31)9: $(cid:30)5.2 million) on normal commercial terms. (e) Associates The Group has loaned Christchurch Hotels Limited $6,429,(cid:31)(cid:31)(cid:31) (2(cid:31)(cid:31)9: $7,649,(cid:31)(cid:31)(cid:31)) as set out in note (cid:30)(cid:31) on normal commercial terms. 44 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 31. SUBSIDIARIES The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 2(b): All wholly-owned subsidiary companies and significant partly-owned subsidiaries have balance dates of 3(cid:31) June. EQUITY HOLDING NAME OF ENTITY Planet Hollywood (Civic Centre) Limited Queenstown Casinos Limited SKYCITY Action Management Limited SKYCITY Auckland Holdings Limited SKYCITY Auckland Limited SKYCITY Casino Management Limited SKYCITY Cinema Holdings Limited SKYCITY Cinemas Limited SKYCITY Cinemas New Plymouth Limited SKYCITY Cinemas Nominees Limited SKYCITY Cinemas Queen Street Nominees Limited SKYCITY Distribution Limited SKYCITY Hamilton Limited SKYCITY International Holdings Limited SKYCITY Investments Australia Limited SKYCITY Investments Christchurch Limited SKYCITY Investments Queenstown Limited SKYCITY Management Limited SKYCITY Metro Limited SKYCITY Wellington Limited Sky Tower Limited Toptown Nominees Limited SKYCITY Adelaide Pty Limited SKYCITY Australia Finance Pty Limited SKYCITY Australian Limited Partnership SKYCITY Australia Pty Limited SKYCITY Treasury Australia Pty Limited SKYCITY Darwin Pty Limited SKYCITY International ApS SKYCITY Cinemas (Fiji) Limited 32. INTEREST IN JOINT VENTURES COUNTRY OF INCORPORATION CLASS OF SHARES New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand Australia Australia Australia Australia Australia Australia Denmark Fiji Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 2(cid:31)(cid:30)(cid:31) % (cid:30)(cid:31)(cid:31) 6(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) – – – – – – (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) – – 2(cid:31)(cid:31)9 % (cid:30)(cid:31)(cid:31) 6(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) (cid:30)(cid:31)(cid:31) The Group’s interest in joint ventures was included in the cinemas disposal. 33. CONTINGENCIES There are no significant contingencies at year end (2(cid:31)(cid:31)9: nil). 34. COMMITMENTS Capital Commitments Capital expenditure contracted for at the reporting date but not recognised as liabilities is as set out below. Property, plant and equipment CONSOLIDATED PARENT 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) (cid:30)2,94(cid:31) (cid:30)3,5(cid:31)6 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) – 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) – 45 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 34. COMMITMENTS (continued) Operating Lease Commitments The Group leases various offices and other premises under non-cancellable operating leases. These leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated. Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Within one year Later than one year but not later than five years Later than five years Commitments not recognised in the financial statements CONSOLIDATED PARENT 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 6,776 (cid:30)3,92(cid:30) 3(cid:30)9,443 (cid:30)7,75(cid:30) 59,635 4(cid:31)5,654 34(cid:31),(cid:30)4(cid:31) 483,(cid:31)4(cid:31) – – – – – – – – The above operating lease summary includes a large number of leases, the most significant of which are: SKYCITY Auckland – Hobson and Federal Streets sub-soil lease. This lease is for a period of 999 years from 3(cid:30) January (cid:30)996 with rent reviews every five years. SKYCITY Adelaide – Casino building lease. The initial lease term is until 3 March 2(cid:31)25 with 3 further rights of renewal for 2(cid:31) years each and annual rent reviews. 35. RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH INFLOW FROM OPERATING ACTIVITIES Profit/(loss) for the year, including discontinued operations Minority interest Depreciation and amortisation Interest expense Current period employee share entitlement Current period share options expense Gain on sale of fixed assets Gain on disposal of Cinemas Dividend from subsidiary Share of profits of associates not received as dividends or distributions Change in operating assets and liabilities (Increase)/decrease in receivables and prepayments (Increase) in inventories (Decrease)/increase in payables and accruals Increase/(decrease) in deferred tax liability (Increase)/decrease in tax receivable (Decrease) in other non-current liabilities Capital items included in working capital movements Subsidiary funding transactions CONSOLIDATED PARENT 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:30)(cid:31) $’(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31)9 $’(cid:31)(cid:31)(cid:31) (cid:30)(cid:31)2,(cid:31)25 ((cid:30)57) 67,5(cid:31)7 47,388 (79) 895 (733) ((cid:30)3,49(cid:30)) – (2,526) 974 (545) (8,543) 46,987 (2(cid:30),82(cid:30)) (2,547) (cid:30)2,275 – (cid:30)(cid:30)5,3(cid:31)(cid:30) (cid:30)99 77,727 67,35(cid:30) (25(cid:31)) 7(cid:31)6 ((cid:30),2(cid:30)5) – – 393 7,327 (7(cid:30)8) (8,778) ((cid:30)7,823) 3(cid:31),835 – 6,(cid:31)8(cid:31) – 58,743 – 5,727 (cid:30)(cid:31),(cid:31)68 (79) 895 – – ((cid:30)(cid:31)(cid:31),224) – (68,(cid:31)79) – (cid:30)(cid:30)9,45(cid:31) – – – – (52,58(cid:30)) 54,824 – 8,6(cid:31)3 9,9(cid:31)5 (25(cid:31)) 7(cid:31)6 – – ((cid:30)(cid:31)(cid:31),(cid:30)99) – 84 – (23(cid:31),754) – – – – 23(cid:31),7(cid:31)4 Net cash inflow/(outflow) from operating activities 227,6(cid:31)9 277,(cid:30)35 (26,(cid:31)8(cid:31)) (26,377) 36. EVENTS OCCURRING AFTER THE BALANCE SHEET DATE Dividend On (cid:30)6 August 2(cid:31)(cid:30)(cid:31), the directors resolved to provide for a final dividend to be paid in respect of the year ended 3(cid:31) June 2(cid:31)(cid:30)(cid:31). The fully imputed dividend of 9.25 cents per share will be paid on (cid:30)7 September 2(cid:31)(cid:30)(cid:31) to all shareholders on the company’s register at the close of business on (cid:30)(cid:31) September 2(cid:31)(cid:30)(cid:31). 46 CORPORATE GOVERNANCE AND OTHER DISCLOSURES FOR THE YEAR ENDED 3(cid:31) JUNE 2(cid:31)(cid:30)(cid:31) 47 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 CORPORATE GOVERNANCE SKYCITY Entertainment Group Limited is committed to maintaining the highest standards of corporate behaviour and responsibility, and has adopted governance policies and procedures reflecting this. In establishing its governance policies and procedures, the SKYCITY board has adopted ten governance parameters as the cornerstone principles of its corporate governance charter. As a New Zealand company listed on the Australian and New Zealand stock exchanges, these cornerstone principles, set out below and on the following pages, reflect the Listing Rules and Corporate Governance Best Practice Code of NZX Limited (NZX), the Listing Rules of ASX Limited (ASX), the Corporate Governance Principles and Recommendations of the ASX Corporate Governance Council, and the New Zealand Securities Commission’s Governance Principles and Guidelines. SKYCITY’s corporate governance framework is fully detailed in the Investor Centre section of the company’s website at www.skycityentertainmentgroup.com. 1. ROLES AND RESPONSIBILITIES OF THE BOARD AND MANAGEMENT SKYCITY’s procedures are designed to: • • • enable the board to provide strategic guidance for the company and effective oversight of management; clarify the respective roles and responsibilities of board members and senior executives in order to facilitate board and management accountability to both the company and its shareholders; and ensure a balance of authority so that no single individual has unfettered powers. The board establishes the company’s objectives, the major strategies for achieving those objectives and 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 all applicable company and casino law and regulation are complied with, and that the company is well managed for the benefit of its shareholders and other stakeholders. The board also oversees management’s risk profiling and business continuity plans. The board has responsibility for the affairs and activities of the company, which in practice is achieved through delegation to the Chief Executive Officer and others (including SKYCITY-appointed directors on subsidiary company boards) who are charged with the day-to-day leadership and management of the company. The Chief Executive Officer also has responsibility to manage and oversee the interfaces between the company and the public and to act as the principal representative of the company. The board maintains a formal set of delegated authorities that defines the responsibilities which are delegated to the Chief Executive Officer and management and those which are retained by the board. These delegated authorities are approved by the board and are subject to annual review by the board. 2. STRUCTURE THE BOARD TO ADD VALUE Board effectiveness requires the efficient discharge of the duties imposed by law on the directors and addition of value to the company. To achieve this, the SKYCITY board is structured to: • • • have a sound understanding of, and competence to deal with, the current and emerging issues of the business; effectively review and challenge the performance of management and exercise independent judgement; and assist in the selection of candidates to stand for election by shareholders at annual meetings. Board Composition The board ensures that it is of an effective composition and size to adequately discharge its responsibilities and duties and to add value to the company’s decision-making. In order to meet these requirements, the board membership comprises a range of skills and experience to ensure that it has a proper understanding of and competence to deal with the current and emerging issues of the business, to effectively review and challenge the performance of management, and to exercise independent judgement. As at 3(cid:31) June 2(cid:31)(cid:30)(cid:31), the board comprised five non-executive directors and a managing director. Biographical details of individual directors are set out in the company’s 2(cid:31)(cid:30)(cid:31) Shareholder Review. As at the date of this annual report, the board had approved the appointment of two additional non- executive directors, but their appointments remain subject to approval by regulatory authorities in each of the jurisdictions in which the company operates its gaming activities. Biographical details of these directors are set out in the company’s 2(cid:31)(cid:30)(cid:31) Shareholder Review. Directors are appointed under the company’s Terms of Appointment and Terms of Reference for Directors and Board Charter for a term of three years and are subject to re-election by shareholders in accordance with the rotation requirements of the NZX and the ASX. The board has established the Governance and Nominations Committee to make recommendations on the board’s size, selection and removal of directors, on appropriate procedures for director and board evaluation and performance review, the induction, orientation and training of new directors in the company’s operations and the gaming/entertainment sector generally, and on the board’s succession planning. 48 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 CORPORATE GOVERNANCE CONTINUED The company’s constitution also requires all potential directors to have satisfied the extensive probity requirements of each jurisdiction in which the company holds gaming licences. to the company’s key operations. The board also undertakes periodic educational trips to observe and receive briefings from other companies in the gaming and entertainment industries. Director Independence The Board Charter requires that the board contains a majority of its number who are independent directors. SKYCITY also supports the separation of the role of board chairperson from the Chief Executive Officer position. Directors are required to ensure all relationships and appointments bearing on their independence are disclosed to the Governance and Nominations Committee on a timely basis. In determining the independence of directors, the board has adopted the definition of independence set out in the NZX Corporate Governance Best Practice Code and has taken into account the independence guidelines (ASX Independence Guidelines) as recommended in the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations. At its 28 June 2(cid:31)(cid:30)(cid:31) meeting, the board reviewed the status of each director in accordance with the independence specification of the NZX Code and taking into account the ASX Independence Guidelines and determined that all current non-executive directors are independent. Access to Information and Advice New directors participate in an individual induction programme, tailored to meet their particular information requirements. Directors receive regular reports and comprehensive information on the company’s operations before each meeting and have unrestricted access to any other information they require. Senior management is available at and outside each meeting to address queries. 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. Directors are provided with updates on industry developments, and undertake regular visits 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 with respect to any aspect of the company’s affairs, provided they have previously notified the board chairperson of their intention to do so. Indemnities and Insurance The company provides a deed of indemnity in favour of each director and senior management personnel and provides professional indemnity insurance cover for directors and executives acting in good faith in the conduct of the company’s affairs. Board Committees The board has three formally appointed committees, being the Audit and Risk Committee, Governance and Nominations Committee and Remuneration Committee. The non-executive directors of the board appoint the chairperson of each committee. The current members and chairperson of each committee are set out in the company’s 2(cid:31)(cid:30)(cid:31) Shareholder Review and on the company’s website. Each committee operates under a charter document as agreed by the board. The charters, which are available on the company’s website, set out the role and responsibilities of each committee. Each committee charter and the performance of each committee are subject to formal review by the board on an annual basis. Meeting Attendance The following table shows attendances at board and committee meetings by directors during the year ended 3(cid:31) June 2(cid:31)(cid:30)(cid:31). Six board meetings were scheduled, and a further three meetings were called to consider matters as they arose during the year. APPOINTMENT TO OFFICE BOARD SCHEDULED BOARD UNSCHEDULED BOARD TOTAL AUDIT AND RISK HUMAN RESOURCES((cid:30)) REMUNERATION((cid:30)) GOVERNANCE AND NOMINATIONS NUMBER OF MEETINGS HELD R H McGeoch P D Cullinane J L Freeman(2) P B Harman C J D Moller N B Morrison Sir Dryden Spring E Toime(3) 2(cid:31) September 2(cid:31)(cid:31)2 26 March 2(cid:31)(cid:31)8 26 March 2(cid:31)(cid:31)8 (cid:30)8 December 2(cid:31)(cid:31)8 (cid:30)8 December 2(cid:31)(cid:31)8 (cid:30)8 December 2(cid:31)(cid:31)8 3(cid:30) October 2(cid:31)(cid:31)3 (cid:30) February (cid:30)996 6 6 6 3 6 6 6 5 2 3 3 2 2 3 3 3 2 (cid:30) 9 9 8 5 9 9 9 7 3 4 4 – – 4 4 – 3 – 2 2 2 (cid:30) (cid:30) – – – (cid:30) (cid:30) (cid:30) (cid:30) – (cid:30) – – (cid:30) – (1) The Human Resources Committee was disestablished and replaced with the Remuneration Committee on 22 April 2010. (2) J L Freeman resigned as a director of the company on 5 March 2010. (3) E Toime retired as a director of the company on 30 October 2009. (cid:30) (cid:30) (cid:30) (cid:30) (cid:30) (cid:30) (cid:30) (cid:30) – 49 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 CORPORATE GOVERNANCE CONTINUED 3. INTEGRITY AND ETHICAL BEHAVIOUR SKYCITY actively promotes ethical and responsible behaviour and decision-making by: • • clarifying and promoting observance of its guiding values; clarifying the standards of ethical behaviour required of company directors and key executives (that is, officers and employees who have the opportunity to materially influence the integrity, strategy and operations of the business and its financial performance) and encouraging the observance of those standards; and • communicating the requirements relating to trading in the company’s securities by directors and employees. The Governance and Nominations Committee is responsible for monitoring the organisational integrity of business operations to ensure the maintenance of a high standard of ethical behaviour. This includes ensuring that SKYCITY operates in compliance with its Code of Business Practice, which sets out the guiding principles of its relationships with stakeholder groups such as regulators, shareholders, suppliers, customers, community groups and employees. All senior managers are required annually to provide a confirmation to the company that to the best of their knowledge the company has complied with the Code of Business Practice and all other ethical responsibilities during the financial year. The company maintains a Securities Trading Policy for directors and employees that sets out guidelines in respect of trading in, or giving recommendations concerning, the company’s securities. In addition, prior consent must be obtained from the company secretary before directors and certain employees who may have access to material information undertake any trading in the company’s securities. Details of any securities trading by directors or executives who are subject to the company’s Securities Trading Policy are notified to the board. Officers of the company must formally disclose their SKYCITY shareholdings and other securities holdings to the NZX within five business days of any change in their holding of such securities. Directors and employees are not permitted to participate in any gaming or wagering activity at SKYCITY operated properties or at a related property, including Christchurch Casino. 4. SAFEGUARD THE INTEGRITY OF THE COMPANY’S FINANCIAL REPORTING The board is responsible for ensuring that effective policies and procedures are in place to provide confidence in the integrity of the company’s financial reporting. 50 The Audit and Risk Committee has responsibility for oversight of the quality, reliability, and accuracy of the company’s internal and external financial statements, the quality of the company’s external result presentations, its internal control environment and risk management programmes, and for its relationships with its internal and external auditors. The Audit and Risk Committee and the board undertake sufficient inquiry of the company’s management and the company’s internal and external auditors in order to enable them to be satisfied as to the validity and accuracy of the company’s financial reporting. The Chief Executive Officer and the Chief Financial Officer are required to confirm in writing to the Audit and Risk Committee that the annual and interim financial statements present a true and fair view of the company’s financial condition and results of operations, and comply with relevant accounting standards. The 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 auditors for other than audit work. The Committee has adopted an External Audit Independence Policy that sets out the framework for assessing and maintaining audit independence. The Committee has formally reviewed the independence status of PricewaterhouseCoopers and is satisfied that its objectivity and independence is not compromised as a consequence of other than audit work undertaken for the company. PricewaterhouseCoopers has confirmed to the Committee that it is not aware of any matters that could affect its independence in performing its duties as auditor of the company. Fees paid to PricewaterhouseCoopers during the 2(cid:31)(cid:31)9/(cid:30)(cid:31) year are set out in note 5 to the financial statements. Fees for audit and tax compliance work in the 2(cid:31)(cid:31)9/(cid:30)(cid:31) year represent 58% of total PricewaterhouseCoopers fees. 5. TIMELY AND BALANCED DISCLOSURE The board is committed to ensuring timely and balanced disclosure of all material matters concerning the company to ensure compliance with the letter and intent of NZX and ASX Listing Rules such that: • all investors have equal and timely access to material information concerning the company, including its financial situation, performance, ownership and governance; and • company announcements are factual and comprehensive. The company is committed to presenting its financial and key operational performance results in a clear, effective, balanced and timely manner to the stock exchanges on which the company’s securities are listed, and to its shareholders, analysts and other market commentators, and ensures that such information is available on the company’s website. SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 CORPORATE GOVERNANCE CONTINUED Peter Treacy, General Counsel, is Company Secretary and the Disclosure Officer for SKYCITY Entertainment Group Limited and is responsible for bringing to the attention of the board any matter relevant to the company’s disclosure obligations. The company maintains business continuity, material damage and liability insurance covers to ensure that the earnings of the business are well protected from adverse circumstances. 6. RESPECT AND FACILITATE THE RIGHTS OF SHAREHOLDERS The company’s shareholder communications strategy is designed to facilitate the effective exercise of shareholder rights by: • • • communicating effectively with shareholders; providing shareholders with ready access to balanced and understandable information about the company and corporate proposals; and facilitating participation by shareholders in general meetings of the company. The company achieves this by ensuring that information about the company is available to all shareholders by means of personal and/or website communication and through encouraging shareholders to attend general meetings of the company and making appropriate time available at such meetings for shareholders to ask questions of directors and management. Representatives of the company’s external auditors are also invited to attend the company’s annual meeting to answer any shareholder questions concerning their audit and external audit report. As for last year, this year the company has also provided all shareholders with a Shareholder Review, which contains much of the information previously included in the annual report in a more accessible document. 7. RECOGNISE AND MANAGE 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. SKYCITY maintains an independent, centrally-managed internal audit function which evaluates and reports on financial, operational and management controls across the Group. The Audit and Risk Committee approves the internal audit programme, with results and performance of the control environments regularly reviewed by both the committee and the external auditors. The Chief Executive Officer and the Chief Financial Officer are required to confirm in writing to the Audit and Risk Committee that the statement in respect of the integrity of the company’s financial statements referred to above is founded on a sound system of risk management and internal compliance and control which implements the policies of the board, and that the company’s risk management and internal compliance and control systems are operating efficiently and effectively in all material respects. 8. PERFORMANCE EVALUATION The board and committee charters require an evaluation of the board and the committee performance on an annual basis. The Governance and Nominations Committee determines and oversees the process for evaluation which includes assessment of the role and responsibilities, performance, composition, structure, training, and membership requirements of the board and its committees. The performance review of the board for 2(cid:31)(cid:31)9 was conducted by the chairman of the board (Rod McGeoch) and completed in February 2(cid:31)(cid:30)(cid:31). The review involved a formal response/feedback process with a one-on-one meeting involving the chairman and each director individually and involved input from external experts. The board undertakes the performance review of the Chief Executive Officer and those reporting directly to that position in accordance with the company’s performance review procedures, with the last review conducted in July 2(cid:31)(cid:30)(cid:31). 9. REMUNERATE FAIRLY AND RESPONSIBLY The Remuneration Committee’s responsibilities include the review of SKYCITY’s remuneration policies and procedures. The guiding principles that underpin SKYCITY’s remuneration policies are: • • • • • to be market-competitive at all levels to ensure the company can attract and retain the best available talent; to be performance-oriented so that remuneration practices recognise and reward high levels of performance and to avoid an entitlement culture; to provide a significant at-risk component of total remuneration which drives performance to achieve company goals and strategy; to manage remuneration within levels of cost efficiency and affordability; and to align remuneration for senior executives with the interests of shareholders. Non-Executive Director Remuneration Shareholders at the annual meeting determine the total remuneration available to non-executive directors. At the 2(cid:31)(cid:31)8 annual meeting, shareholders approved, effective from (cid:30) July 2(cid:31)(cid:31)8, a total remuneration amount for non-executive directors of $95(cid:31),(cid:31)(cid:31)(cid:31) per annum (plus GST if any). Current annual fees are $2(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) for the chairperson of the board and $9(cid:31),(cid:31)(cid:31)(cid:31) for non-executive directors. In addition, each member (including each chairperson) of the Audit and Risk and 51 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 CORPORATE GOVERNANCE CONTINUED Remuneration Committees receives $(cid:30)(cid:31),(cid:31)(cid:31)(cid:31) per annum. The chairperson of the Audit and Risk Committee also receives an additional $25,(cid:31)(cid:31)(cid:31) per annum for chairing that committee and the chairperson of the Remuneration Committee receives an additional $(cid:30)5,(cid:31)(cid:31)(cid:31) per annum for chairing that committee. For those directors who were in office on or before (cid:30) May 2(cid:31)(cid:31)4, SKYCITY’s constitution permits the company, at the discretion of the board, to make a retirement payment to a director (or to 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. Retirement allowances for SKYCITY directors were discontinued at 3(cid:31) June 2(cid:31)(cid:31)4 with retirement allowances accrued to that date frozen as to amount. Retirement allowances accrued as at 3(cid:31) June 2(cid:31)(cid:31)4 do not carry any interest entitlement between (cid:30) July 2(cid:31)(cid:31)4 and the date of payment. E Toime was paid $(cid:30)49,655.59 as a retirement payment in October 2(cid:31)(cid:31)9 following his retirement from the board. Chief Executive Officer Remuneration Employment Agreement Nigel Morrison has an employment agreement as Chief Executive Officer that commenced on (cid:30) March 2(cid:31)(cid:31)8. The agreement is not a fixed term contract. The terms of the agreement reflect standard conditions that are appropriate for a senior executive of a listed Australasian company. Mr Morrison may resign at any time giving six months’ notice. SKYCITY may terminate Mr Morrison’s employment with twelve months’ notice (or make a payment of the total base remuneration he would have received during such period in lieu of such notice). The agreement may be terminated by Mr Morrison on three months’ notice if there is a fundamental change so that there is a substantial diminution of his role, status and responsibility, including where he is no longer the Chief Executive Officer of a listed public company, and he will be entitled to receive payment as if SKYCITY had terminated his employment with notice as set out above. If SKYCITY terminates Mr Morrison’s employment on notice, or his employment terminates in the event of a fundamental change noted above, entitlements under the Long Term Incentive (LTI) referred to below that would otherwise be eligible to vest during the notice period will vest subject to satisfaction of the applicable performance hurdles. In the event of termination of Mr Morrison’s employment for serious misconduct or a serious breach of his employment agreement, no notice period will apply and Mr Morrison will not be eligible to receive any entitlements other than base remuneration then due, any accrued holiday pay, any accrued or vested Short Term Incentive (STI) which has been awarded but not yet paid, and any LTI where the vesting conditions have been satisfied but not yet tested. Except as set out above, any additional entitlement to STI or LTI on the termination of employment is at the discretion of the board, subject to the rules for those schemes. There is no redundancy entitlement under the agreement. Remuneration Mr Morrison’s remuneration for the year ended 3(cid:31) June 2(cid:31)(cid:30)(cid:31) of $2,556,4(cid:31)8 comprised base salary of $(cid:30),492,5(cid:31)(cid:31) plus a performance-related incentive payment of $(cid:30),(cid:31)63,9(cid:31)8 relating to the 2(cid:31)(cid:31)8/(cid:31)9 financial year. As a condition of his employment agreement, and under the terms of the Chief Executive Officer Long Term Incentive Plan approved by shareholders at the company’s 2(cid:31)(cid:31)9 annual meeting, Mr Morrison was provided with a $(cid:30),2(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) interest- free loan to purchase 366,3(cid:31)(cid:31) shares in the company (effective 2 September 2(cid:31)(cid:31)9). Under the plan, those shares are held by a trustee on behalf of Mr Morrison for a restrictive period of at least three years until certain performance hurdles are met. The performance hurdles involve comparison of the total shareholder return (TSR) achieved by SKYCITY against the shareholder returns achieved by a group of comparable Australasian companies (comparator group), and by the companies whose securities are in the NZSX5(cid:31) index (index group). Vesting of the shares in Mr Morrison requires achievement of certain levels of TSR relative to the comparator group and index group over a minimum three year restrictive period. Performance will be assessed three years after the issue of the shares, at which time the board will determine whether the performance hurdles have been satisfied and, if so, how many of the shares will vest in Mr Morrison. If the performance hurdles have not been met in full, the restrictive period will be automatically extended for a further period of up to one year for any unvested shares. During this period, the company will assess (after six months and after twelve months) whether the performance hurdles have been achieved. Mr Morrison had previously received a commencement grant of 2(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) convertible share rights which were to convert to ordinary shares provided he remained employed by the company on (cid:30) March 2(cid:31)(cid:30)(cid:31). On (cid:30) March 2(cid:31)(cid:30)(cid:31), these rights converted to 2(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) SKYCITY shares. SKYCITY employee remuneration All salaried roles within SKYCITY are job-sized using a recognised methodology to measure the impact, accountability, and complexity of each role as it contributes to the organisation. Remuneration data is obtained from a number of sources to determine remuneration ranges by job band or level to ensure competitiveness at both base salary and total remuneration levels. Individual remuneration is set within the appropriate range taking into account such matters as individual performance, scarcity/ availability of resource/skill, internal relativities and specific business needs. This process ensures internal equity between roles and allows comparison with the overall market. Remuneration ranges are reviewed annually to reflect market movements. 52 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 CORPORATE GOVERNANCE CONTINUED The Remuneration Committee approves remuneration increases for the senior executive group. Short Term Incentive Arrangements Salaried Incentive Plans To drive outstanding company and individual performance, SKYCITY operates a Short Term Incentive Plan (STI) for selected senior salaried employees and those with operational accountability for a department or business unit. For each individual, a minimum of 6(cid:31)% of their STI target is linked to the achievement of minimum financial targets with the remaining percentage dependent on the achievement of individual, role- specific targets. Payments under the STI have a minimum trigger point based on company and business unit financial targets and increase according to the degree by which the company performs relative to these financial targets. For the year ended 3(cid:31) June 2(cid:31)(cid:30)(cid:31), 238 salaried staff participated in the STI scheme. Based on achievement of individual and financial targets, (cid:30)75 staff received an average STI payment of (cid:30)2% of their fixed salaries. All other permanent salaried employees who were not eligible to participate in the STI participated in a discretionary bonus plan known as the Individual Bonus Plan (IBP). Under this plan, bonuses were awarded to those staff that consistently exceeded the key performance indicators that were set for them at the commencement of the financial year. A total of 334 SKYCITY salaried personnel were paid incentives totalling $4.2(cid:30)m under the STI and IBP. This number includes incentives received by senior executives but excludes incentives received by the Chief Executive Officer. The board has approved the continuation of both the STI and IBP for 2(cid:31)(cid:30)(cid:31)/(cid:30)(cid:30) with minimal changes. Long Term Incentive Arrangements Executive Share Plan 2009 A new Long Term Incentive Plan (LTI Plan 2(cid:31)(cid:31)9) for senior executives was introduced in 2(cid:31)(cid:31)9, which is similar to the Long Term Incentive Plan approved for the Chief Executive Officer at the annual meeting in 2(cid:31)(cid:31)9. The LTI Plan 2(cid:31)(cid:31)9 replaced the Rights Plan 2(cid:31)(cid:31)8 referred to below with effect from (cid:30) July 2(cid:31)(cid:31)9 for the 2(cid:31)(cid:31)9/(cid:30)(cid:31) financial year and subsequent years. The LTI Plan 2(cid:31)(cid:31)9 differs from the Rights Plan 2(cid:31)(cid:31)8 in two key respects. Firstly, it includes the provision of financial assistance to selected senior executives by way of an interest-free loan by a subsidiary of the company and, secondly, it includes the immediate issue, or acquisition on-market, of shares in the company by such participants rather than the issue of share rights (being rights to acquire ordinary shares in the company). A trustee holds legal title to the relevant shares on behalf of such participants for a restrictive period until certain performance hurdles are met. In all other material respects, the LTI Plan 2(cid:31)(cid:31)9 is unchanged from the Rights Plan 2(cid:31)(cid:31)8. Details of the shares issued under the LTI Plan 2(cid:31)(cid:31)9 and outstanding as at 6 September 2(cid:31)(cid:30)(cid:31) are set out on page 63 of this annual report. Executive Share Rights Plan 2008 The Long Term Incentive Plan (Rights Plan 2(cid:31)(cid:31)8) for senior executives was introduced in respect of the 2(cid:31)(cid:31)8/(cid:31)9 financial year, which was similar to the Long Term Incentive Plan approved for the Chief Executive Officer at the annual meeting in 2(cid:31)(cid:31)8. Under the Rights Plan 2(cid:31)(cid:31)8, selected senior executives were issued share rights entitling them to receive shares based on the company’s achievement of designated performance hurdles. The performance hurdles involve comparison of the total shareholder return (TSR) achieved by SKYCITY against the shareholder returns achieved by a group of comparable Australasian companies (comparator group), and by the companies whose securities are in the NZSX5(cid:31) index (index group). For share rights to become exercisable, the company must achieve a TSR greater than or equal to the average of the TSRs representing the 5(cid:31)th percentile of the TSRs of the members of the comparator group and of the index group (Average Median TSR) during the relevant assessment period. The number of rights that will become exercisable will depend on where the SKYCITY TSR is relative to the Average Medium TSR (at which point 5(cid:31)% of share rights become exercisable) and the average of the TSRs representing the 75th percentiles of the TSRs achieved by the comparator group and the index group (at or above which point (cid:30)(cid:31)(cid:31)% of share rights will become exercisable). In addition, the board has discretion to determine that up to 25% of share rights will become exercisable if the company’s TSR for the relevant period does not exceed the Average Median TSR, but exceeds one or other of the TSRs representing the 5(cid:31)th percentile of TSRs of the members of the comparator group and of the index group. Performance will be assessed three years after the issue of the rights, and (provided rights have not lapsed and all performance hurdles have not been satisfied) after a further six and twelve months. Special assessment may occur in the event of a takeover offer, amalgamation or scheme of arrangement involving the company. Rights which have not previously become exercisable will lapse to the extent performance hurdles have not been fully satisfied in respect of the period to the fourth anniversary of the issue date. Details of the share rights issued under the Rights Plan 2(cid:31)(cid:31)8 and outstanding as at 6 September 2(cid:31)(cid:30)(cid:31) are set out on page 63 of this annual report. Executive Share Rights Plan 2005 The SKYCITY Executive Share Rights Plan (Rights Plan 2(cid:31)(cid:31)5) commenced on (cid:30) July 2(cid:31)(cid:31)5, following expiry of the Executive Share Option Plan 2(cid:31)(cid:31)2 for senior executives as a long-term incentive to encourage retention and value creation. The Rights Plan 2(cid:31)(cid:31)5 was only for a three year period to 3(cid:31) June 2(cid:31)(cid:31)8. However, certain share rights issued to senior executives under the Rights Plan 2(cid:31)(cid:31)5 remain outstanding as at 6 September 2(cid:31)(cid:30)(cid:31), as detailed on page 63 of this annual report. 53 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 CORPORATE GOVERNANCE CONTINUED The Rights Plan 2(cid:31)(cid:31)5 was structured to align executive interests with shareholder interests, to motivate executives to drive company performance and to reward executives for loyalty and commitment. chairpersons of its board committees, in this annual report. Their details are contained in the company’s 2(cid:31)(cid:30)(cid:31) Shareholder Review and are available at all times on the company’s website. • • Rights issued under the Rights Plan 2(cid:31)(cid:31)5, except in special circumstances, cannot be exercised until three years from the date of issue. Rights issued under the Rights Plan 2(cid:31)(cid:31)5 lapse if not exercised on or before the fifth anniversary of their date of issue. The exercise value of executive share rights is structured so that the employee benefits only if the total return received by the company’s shareholders, measured as the combination of share price appreciation and dividends/distributions, exceeds the company’s cost of equity over the same period. The company’s cost of equity used in the calculation is equivalent to the market’s return expectations for a company with the risk profile and prospects of SKYCITY Entertainment Group Limited. The base exercise value for executive share rights is the average closing price of SKYCITY shares on the NZSX over the ten trading days following release of the company’s result to the NZX and the ASX for the financial year to 3(cid:31) June. The base exercise value is escalated by the company’s estimated cost of equity capital adjusted for dividends/distributions between the date the right was issued and its exercise date. At exercise, the net benefit of the share right is calculated and then the required number of shares are issued. 10. RECOGNISE THE OBLIGATIONS TO ALL STAKEHOLDERS SKYCITY acknowledges legal and other obligations to non- shareholder stakeholders such as employees, suppliers, customers, regulators, and the community as a whole. The SKYCITY Code of Business Practice sets out the company’s commitment to the community and the standards of behaviour that can be expected by all stakeholders, including employees and shareholders. SKYCITY is aware that its business may be associated with gambling and alcohol-related harm for some customers. Effective and pro-active customer care are the cornerstone principles of SKYCITY’s approach to host responsibility. COMPLIANCE WITH NZX BEST PRACTICE CODE AND ASX CORPORATE GOVERNANCE COUNCIL PRINCIPLES AND RECOMMENDATIONS SKYCITY confirms that other than as set out below it has complied with the NZX Corporate Governance Best Practice Code and the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations during the 2(cid:31)(cid:31)9/(cid:30)(cid:31) year: • The company has not included the biographical details of its current directors, or details of current members and 54 The company does not make available to external parties certain internal policies and procedures. SKYCITY believes that the board charter and the comprehensive references to governance in this annual report and on the company’s website provide good disclosure of the company’s internal processes and mechanisms and that the underlying intention of the ASX Corporate Governance Council’s recommendations on reporting of internal mechanisms have been met. Shareholders have not approved extensions of the SKYCITY senior executive options/rights/share plans. The original SKYCITY executive share option plan was approved by shareholders at the (cid:30)999 annual meeting of the company and was subsequently extended by the board in August 2(cid:31)(cid:31)2. The major difference in the 2(cid:31)(cid:31)2 renewal was that the period prior to exercise of options was extended from one year to three years. The Executive Share Rights Plan 2(cid:31)(cid:31)5 (which replaced the Executive Share Option Plan 2(cid:31)(cid:31)2) was approved by the board in December 2(cid:31)(cid:31)4 and was essentially a renewal of the company’s longer-term incentive remuneration structure for senior executives but, due to changes in the mechanism within the plan, was a preferred structure in that the number of new shares that were to be issued (for the same benefit to executives) was significantly reduced. The Executive Share Rights Plan 2(cid:31)(cid:31)5 imposed a three year restriction before benefits could be realised by participants. The Executive Share Rights Plan 2(cid:31)(cid:31)8 (which replaced the Executive Share Rights Plan 2(cid:31)(cid:31)5) was approved by the board in December 2(cid:31)(cid:31)8 in respect of the 2(cid:31)(cid:31)8/(cid:31)9 financial year and, as noted above, is similar to the Long Term Incentive Plan approved for the Chief Executive Officer at the annual meeting in 2(cid:31)(cid:31)8. The Executive Share Rights Plan 2(cid:31)(cid:31)8 sets out a remuneration structure for senior executives entitling them to receive shares based on the company’s achievement of designated performance hurdles, which involve comparison of the total shareholder return achieved by SKYCITY against the shareholder returns achieved by a group of comparable Australasian companies, and by the companies whose securities are in the NZSX5(cid:31) index. As with the Executive Share Rights Plan 2(cid:31)(cid:31)5, the Executive Share Rights Plan 2(cid:31)(cid:31)8 imposes a three year restriction before benefits can be realised by participants. The Executive Share Plan 2(cid:31)(cid:31)9 (which replaced the Executive Share Rights Plan 2(cid:31)(cid:31)8) was approved by the board in September 2(cid:31)(cid:31)9 in respect of the 2(cid:31)(cid:31)9/(cid:30)(cid:31) financial year and subsequent years and, other than the two key differences detailed above, the terms remain unchanged from the Executive Share Rights Plan 2(cid:31)(cid:31)8. SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 SHAREHOLDER INFORMATION TWENTY LARGEST SHAREHOLDERS AS AT (cid:29)9 AUGUST 2010 Investors Mutual Limited Integrity Investment Management Limited (cid:30). 2. 3. BT Funds Mgt (Institutional Group) 4. Accident Compensation Corporation 5. AMP Capital Investors (New Zealand) 6. BlackRock Advisors (Institutional Group) 7. Lazard Asset Management Pacific Company 8. State Street Global Advisors (Institutional Group) 9. Mondrian Investment Partners Limited (cid:30)(cid:31). Paradice Investment Management Pty Ltd (cid:30)(cid:30). Macquarie (Institutional Group) (cid:30)2. Ellerston Capital Limited (cid:30)3. ING (Institutional Group) (cid:30)4. Perpetual Investments Ltd (cid:30)5. Vanguard Investment (Institutional Group) (cid:30)6. Craigs Investment Partners – Private Clients (cid:30)7. Tyndall Investment Management New Zealand Ltd (cid:30)8. New Zealand Superannuation Fund (cid:30)9. PM CAPITAL, Ltd 2(cid:31). Forsyth Barr – Private Clients Total NUMBER OF SHARES % OF SHARES 32,(cid:30)(cid:30)3,535 22,743,757 2(cid:30),354,5(cid:30)5 (cid:30)9,839,29(cid:30) (cid:30)8,355,953 (cid:30)6,469,829 (cid:30)5,257,7(cid:31)4 (cid:30)3,99(cid:30),69(cid:30) (cid:30)3,954,(cid:31)45 (cid:30)3,62(cid:30),(cid:30)(cid:31)7 (cid:30)2,859,75(cid:30) (cid:30)2,68(cid:30),534 (cid:30)(cid:30),334,9(cid:30)2 (cid:30)(cid:31),5(cid:31)(cid:31),95(cid:31) (cid:30)(cid:31),(cid:30)48,845 9,292,(cid:30)(cid:30)9 8,566,969 8,2(cid:31)6,79(cid:31) 8,(cid:31)95,355 6,6(cid:31)2,959 5.58% 3.95% 3.7(cid:30)% 3.45% 3.(cid:30)9% 2.86% 2.65% 2.43% 2.43% 2.37% 2.24% 2.2(cid:30)% (cid:30).97% (cid:30).83% (cid:30).76% (cid:30).62% (cid:30).49% (cid:30).43% (cid:30).4(cid:30)% (cid:30).(cid:30)5% 285,99(cid:30),6(cid:30)(cid:30) 49.73% The analysis as set out above has been compiled based on information provided to the company by Thomson Reuters. Total shares on issue as at (cid:30)9 August 2(cid:31)(cid:30)(cid:31) were 575,(cid:30)(cid:30)4,687 of which (cid:30),346,8(cid:31)(cid:31) were held by Public Trust on behalf of eligible and future participants pursuant to the Chief Executive Officer Long Term Incentive Plan 2(cid:31)(cid:31)9 and the Executive Long Term Incentive Plan 2(cid:31)(cid:31)9. No shares were held by the company directly as treasury stock. 55 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 SHAREHOLDER INFORMATION CONTINUED DISTRIBUTION OF ORDINARY SHARES AND REGISTERED SHAREHOLDINGS AS AT 19 AUGUST 2010 (cid:30) – (cid:30),(cid:31)(cid:31)(cid:31) (cid:30),(cid:31)(cid:31)(cid:30) – 5,(cid:31)(cid:31)(cid:31) 5,(cid:31)(cid:31)(cid:30) – (cid:30)(cid:31),(cid:31)(cid:31)(cid:31) (cid:30)(cid:31),(cid:31)(cid:31)(cid:30) – (cid:30)(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) > (cid:30)(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) Total NUMBER OF SHAREHOLDERS NUMBER OF SHARES 3,757 (cid:30)(cid:31),29(cid:30) 3,789 3,468 (cid:30),5(cid:30)7,38(cid:31) 28,582,832 27,(cid:31)48,932 78,674,4(cid:30)3 (cid:30)97 439,29(cid:30),(cid:30)3(cid:31) 2(cid:30),5(cid:31)2 575,(cid:30)(cid:30)4,687 As at (cid:30)9 August 2(cid:31)(cid:30)(cid:31), there were (cid:30),393 shareholders (with a total of (cid:30)(cid:30)7,974 shares) holding less than a marketable parcel of shares under the ASX Listing Rules, based on the closing share price of A$2.29. The ASX Listing Rules define a marketable parcel of shares as a parcel of shares of not less than A$5(cid:31)(cid:31). SUBSTANTIAL SECURITY HOLDERS In accordance with section 26((cid:30)) of the Securities Markets Act (cid:30)988, the following persons had given notice as at (cid:30)9 August 2(cid:31)(cid:30)(cid:31) that they were substantial security holders in the company and held a relevant interest in the number of ordinary shares shown below. DATE OF SUBSTANTIAL SECURITY NOTICE RELEVANT INTEREST IN NUMBER OF SHARES % OF SHARES HELD AT DATE OF NOTICE Investors Mutual Limited 3(cid:31) October 2(cid:31)(cid:31)9 35,953,(cid:31)9(cid:30) 6.25% No further substantial security holder notices had been received as at 24 September 2(cid:31)(cid:30)(cid:31). 56 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 DIRECTOR AND EMPLOYEE REMUNERATION REMUNERATION OF DIRECTORS EMPLOYEE REMUNERATION Non-Executive Directors Remuneration paid to directors for services in their capacity as directors of SKYCITY Entertainment Group Limited during the year ended 3(cid:31) June 2(cid:31)(cid:30)(cid:31) is as listed below: R H McGeoch (Chairman) P D Cullinane J L Freeman ((cid:30)) P B Harman C J D Moller Sir Dryden Spring E Toime (2) $2(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) $(cid:30)(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) $78,878 $(cid:30)(cid:31)4,792 $(cid:30)25,(cid:31)(cid:31)(cid:31) $(cid:30)(cid:31)(cid:30),9(cid:30)7 $33,333 (1) J L Freeman resigned as a director on 5 March 2010. (2) E Toime retired as a director on 30 October 2009. In addition to remuneration paid for services in his capacity as a director, he was paid $149,655.59 as a retirement payment (as previously accrued) in October 2009 following retirement from the board. See page 52 of this annual report for further details. No other non-executive 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 for the 2(cid:31)(cid:31)9/2(cid:31)(cid:30)(cid:31) financial year or reimbursement of expenses incurred in relation to company matters, or as is disclosed elsewhere in this annual report. Other Directorships Christchurch Casinos Limited, in which SKYCITY has a 45.7% interest, paid director’s fees of $4(cid:31),(cid:31)(cid:31)(cid:31) each for A B Ryan and N B Morrison. These fees were paid to SKYCITY and were not received personally by either Messrs Ryan or Morrison. Queenstown Casinos Limited, in which SKYCITY has a 6(cid:31)% interest, paid director’s fees of $7,5(cid:31)(cid:31) each for A B Ryan and N B Morrison. These fees were paid to SKYCITY and were not received personally by either Messrs Ryan or Morrison. 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 $(cid:30)(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) and was paid to those employees during the financial year ended 3(cid:31) June 2(cid:31)(cid:30)(cid:31), are listed below. Remuneration includes salary, incentive payments under the SKYCITY performance pay incentive plan and short term cash bonuses and, where applicable, the value of executive share options, rights and shares expensed during the year ended 3(cid:31) June 2(cid:31)(cid:30)(cid:31). Remuneration shown below also includes settlement payments and payments in lieu of notice with respect to certain employees upon their departure from the company. REMUNERATION EMPLOYEES $(cid:30)(cid:31)(cid:31),(cid:31)(cid:31)(cid:31)–$(cid:30)(cid:31)9,999 $(cid:30)(cid:30)(cid:31),(cid:31)(cid:31)(cid:31)–$(cid:30)(cid:30)9,999 $(cid:30)2(cid:31),(cid:31)(cid:31)(cid:31)–$(cid:30)29,999 $(cid:30)3(cid:31),(cid:31)(cid:31)(cid:31)–$(cid:30)39,999 $(cid:30)4(cid:31),(cid:31)(cid:31)(cid:31)–$(cid:30)49,999 $(cid:30)5(cid:31),(cid:31)(cid:31)(cid:31)–$(cid:30)59,999 $(cid:30)6(cid:31),(cid:31)(cid:31)(cid:31)–$(cid:30)69,999 $(cid:30)7(cid:31),(cid:31)(cid:31)(cid:31)–$(cid:30)79,999 $(cid:30)8(cid:31),(cid:31)(cid:31)(cid:31)–$(cid:30)89,999 $(cid:30)9(cid:31),(cid:31)(cid:31)(cid:31)–$(cid:30)99,999 $2(cid:31)(cid:31),(cid:31)(cid:31)(cid:31)–$2(cid:31)9,999 $2(cid:30)(cid:31),(cid:31)(cid:31)(cid:31)–$2(cid:30)9,999 $23(cid:31),(cid:31)(cid:31)(cid:31)–$239,999 $24(cid:31),(cid:31)(cid:31)(cid:31)–$249,999 $25(cid:31),(cid:31)(cid:31)(cid:31)–$259,999 $27(cid:31),(cid:31)(cid:31)(cid:31)–$279,999 $33(cid:31),(cid:31)(cid:31)(cid:31)–$339,999 $34(cid:31),(cid:31)(cid:31)(cid:31)–$349,999 $35(cid:31),(cid:31)(cid:31)(cid:31)–$359,999 $36(cid:31),(cid:31)(cid:31)(cid:31)–$369,999 $38(cid:31),(cid:31)(cid:31)(cid:31)–$389,999 $43(cid:31),(cid:31)(cid:31)(cid:31)–$439,999 $44(cid:31),(cid:31)(cid:31)(cid:31)–$449,999 $52(cid:31),(cid:31)(cid:31)(cid:31)–$529,999 $53(cid:31),(cid:31)(cid:31)(cid:31)–$539,999 $54(cid:31),(cid:31)(cid:31)(cid:31)–$549,999 $58(cid:31),(cid:31)(cid:31)(cid:31)–$589,999 $62(cid:31),(cid:31)(cid:31)(cid:31)–$629,999 Total 4(cid:31) 29 (cid:30)8 (cid:30)6 7 (cid:30)(cid:31) 8 6 4 (cid:30) 2 3 3 2 4 2 (cid:30) (cid:30) (cid:30) 2 (cid:30) 2 (cid:30) (cid:30) (cid:30) (cid:30) (cid:30) (cid:30) (cid:30)69 57 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 DIRECTORS’ DISCLOSURES INTERESTS REGISTER Disclosure of Directors’ Interests Section (cid:30)4(cid:31)((cid:30)) of the New Zealand Companies Act (cid:30)993 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 included in the company’s Interests Register as at 3(cid:31) June 2(cid:31)(cid:30)(cid:31) (notices given by directors during the year ended 3(cid:31) June 2(cid:31)(cid:30)(cid:31) are marked with an asterisk): R H McGeoch Aon New Zealand Limited (previously Aon Risk Services Limited) BGP Holdings plc (Malta) BGP Investments S.a.r.l (Luxembourg) Communica Pty Limited McGeoch Holdings Pty Limited Ramsay Health Care Limited Sydney Cricket and Sports Ground Trust Telecom Corporation of New Zealand Limited Vantage Private Equity Growth Limited P D Cullinane Assignment Group New Zealand Limited Low Flying Kiwis Limited STW Communications Group Limited The Antipodes Water Company Limited Talk Me Into It Limited P B Harman G R Media Holdings Limited and certain subsidiaries Harman Consulting Limited Harman Investments Limited Metlifecare Limited Member NSW Board of Advice Director* Director* Director* Chairman Director Trustee Director Chairman Director Director and Shareholder* Director* Director Director Director* Director* Director* Director C J D Moller Meridian Energy Limited New Zealand Cricket (Inc.) New Zealand Transport Agency NZX Limited Rugby New Zealand 2(cid:31)(cid:30)(cid:30) Limited Synlait Limited Victoria University of Wellington Foundation Westpac Regional Stadium Trust Sir Dryden Spring ANZ National Bank Limited Fletcher Building Limited New Zealand Business and Parliament Trust Northport Limited Port of Tauranga Limited Visy Industries Director Director Chairman* Director Director Director Trustee Trustee* Chairman Director Trustee Alternate Director* ((cid:30)) Director Member of Advisory Board (1) Sir Dryden Spring resigned as a director of Northport Limited on 8 October 2009 but continues to be an alternate director of that company. The following details included in the Interests Register as at 3(cid:31) June 2(cid:31)(cid:31)9, or entered during the year ended 3(cid:31) June 2(cid:31)(cid:30)(cid:31), have been removed during the year ended 3(cid:31) June 2(cid:31)(cid:30)(cid:31): • • • P D Cullinane's interest as a director of each of South Sea Trading Company Limited, Thorpe, Grieve, Cullinane, Hall Limited and Viva Cuba Limited. P B Harman's interest as a director and shareholder of HT Media Holdings Limited and certain of its subsidiaries. P B Harman is no longer a director of Broadcast Production Services Limited and is no longer a director and shareholder of The New Zealand Wine Fund Limited. • C J D Moller is no longer a director of National Foods Pty Limited. DIRECTORS’ AND OFFICERS’ INDEMNITIES Indemnities have been given to directors and senior managers of the company and its subsidiaries to cover acts or omissions of those persons in carrying out their duties and responsibilities as directors and senior managers. 58 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 DIRECTORS’ DISCLOSURES CONTINUED DISCLOSURE OF DIRECTORS’ INTEREST IN SHARE TRANSACTIONS Directors disclosed, pursuant to section (cid:30)48 of the New Zealand Companies Act (cid:30)993, the following acquisitions and disposals of relevant interests in SKYCITY shares during the period to 3(cid:31) June 2(cid:31)(cid:30)(cid:31): P B Harman N B Morrison DATE OF ACQUISITION/DISPOSAL DURING PERIOD 24 August 2(cid:31)(cid:31)9((cid:30)) (cid:30)(cid:31) March 2(cid:31)(cid:30)(cid:31)(2) (cid:30)2 March 2(cid:31)(cid:30)(cid:31)((cid:30)) (cid:30) March 2(cid:31)(cid:30)(cid:31) (cid:30)9 March 2(cid:31)(cid:30)(cid:31)(4) CONSIDERATION $9,9(cid:31)(cid:31) $(cid:30)6,3(cid:31)(cid:31) $6,44(cid:31) SHARES ACQUIRED/ (DISPOSED) 3,(cid:31)(cid:31)(cid:31) 5,(cid:31)(cid:31)(cid:31) 2,(cid:31)(cid:31)(cid:31) Nil(3) $(cid:30),2(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) 366,3(cid:31)(cid:31) (1) Shares held by Investment Custodial Services Limited. (2) Shares held by Forbar Nominees Limited. (4) Shares acquired under the Chief Executive Offi cer Long Term Incentive Plan 2009 and held by Public Trust. (3) Shares acquired pursuant to the conversion of convertible rights under the Chief Executive Offi cer Commencement Grant Convertible Rights Plan. DISCLOSURE OF DIRECTORS’ INTERESTS IN SHARES, OPTIONS AND CAPITAL NOTES Directors disclosed the following relevant interests in SKYCITY shares as at 3(cid:31) June 2(cid:31)(cid:30)(cid:31): R H McGeoch P B Harman C J D Moller N B Morrison Sir Dryden Spring SHARES BENEFICIALLY HELD 48,(cid:31)9(cid:30)((cid:30)) 22,253(2) 5,(cid:31)(cid:31)(cid:31)(3) 26,9(cid:30)5(4) 82,233(5) 2(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) 366,3(cid:31)(cid:31)(6) 49(cid:30),(cid:30)32(7) (cid:30)(cid:30),38(cid:30) (cid:30)5,9(cid:30)9(8) (1) Shares held by McGeoch Holdings Pty Limited. (5) Shares held by Perpetual Limited. (2) Shares held by Forbar Nominees Limited. (6) Shares held by Public Trust. (3) Shares held by Investment Custodial Services Limited (4) Shares held by First NZ Capital Limited. (7) Share rights acquired under the Chief Executive Offi cer Long Term Incentive Plan 2008. (8) Shares held by the Spring Family Trust. P D Cullinane did not have any relevant interest in SKYCITY shares as at 3(cid:31) June 2(cid:31)(cid:30)(cid:31). No directors held any interest in the capital notes of the company as at 3(cid:31) June 2(cid:31)(cid:30)(cid:31). 59 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 NOTEHOLDER INFORMATION CAPITAL NOTES In May 2(cid:31)(cid:31)(cid:31), SKYCITY Entertainment Group Limited issued (cid:30)5(cid:31) million unsecured subordinated capital notes for a five year term at an issue price of $(cid:30).(cid:31)(cid:31). In May 2(cid:31)(cid:31)5, the capital notes were reissued for a new term of five years at a fixed interest rate of 8.(cid:31)% per annum. In May 2(cid:31)(cid:30)(cid:31), the capital notes were reissued for a further term of five years at a fixed interest rate of 7.25% per annum. For further information refer note (cid:30)8 of the financial statements. As at (cid:30)9 August 2(cid:31)(cid:30)(cid:31), SKYCITY was the holder of (cid:30)(cid:31)2,957,5(cid:31)(cid:31) capital notes as treasury stock. The capital notes held by SKYCITY are not included in the table below. TWENTY LARGEST CAPITAL NOTEHOLDERS AS AT 19 AUGUST 2010 NUMBER OF CAPITAL NOTES % OF CAPITAL NOTES 2,274,(cid:31)(cid:31)(cid:31) (cid:30),236,(cid:31)(cid:31)(cid:31) 8(cid:30)(cid:30),(cid:31)(cid:31)(cid:31) 5(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) 3(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) 3(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) 2(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) (cid:30)8(cid:31),(cid:31)(cid:31)(cid:31) (cid:30)75,(cid:31)(cid:31)(cid:31) (cid:30)7(cid:30),(cid:31)(cid:31)(cid:31) (cid:30)6(cid:31),(cid:31)(cid:31)(cid:31) 8,(cid:30)(cid:31)7,(cid:31)(cid:31)(cid:31) (cid:30).52% (cid:31).82% (cid:31).54% (cid:31).33% (cid:31).2(cid:31)% (cid:31).2(cid:31)% (cid:31).(cid:30)3% (cid:31).(cid:30)3% (cid:31).(cid:30)3% (cid:31).(cid:30)3% (cid:31).(cid:30)3% (cid:31).(cid:30)3% (cid:31).(cid:30)3% (cid:31).(cid:30)3% (cid:31).(cid:30)3% (cid:31).(cid:30)3% (cid:31).(cid:30)2% (cid:31).(cid:30)2% (cid:31).(cid:30)(cid:30)% (cid:31).(cid:30)(cid:30)% 5.4(cid:31)% NUMBER OF NOTEHOLDERS NUMBER OF CAPITAL NOTES (cid:30) 226 4(cid:31)4 962 25(cid:31) (cid:30),(cid:30)3(cid:31),(cid:31)(cid:31)(cid:31) 3,74(cid:30),5(cid:31)(cid:31) 3(cid:30),5(cid:31)8,75(cid:31) 4(cid:31) (cid:30)(cid:30)3,6(cid:30)9,5(cid:31)(cid:31) (cid:30),633 (cid:30)5(cid:31),(cid:31)(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) John Archer & Pearl Archer Investment Custodial Services Limited (cid:30). FNZ Custodians Limited 2. 3. Custodial Services Limited Invercargill Licensing Trust 4. 5. Frimley Foundation 6. H B Williams Turanga Trust 7. 8. Michael David Domett 9. Hugh McCracken Ensor & Vivienne Margaret Ensor (cid:30)(cid:31). Fraser Smith Holdings Limited (cid:30)(cid:30). Gayworth Properties Limited (cid:30)2. Nigel High & Hsiao Ming High (cid:30)3. JBWere (NZ) Nominees Limited (cid:30)4. John Richard Matthews & Rosemary Jennifer Matthews & Bruce Redvers Perkins (cid:30)5. Penthaven Holdings Limited (cid:30)6. Glennis Olive Pettigrew & Frederick Anthony Girvan (cid:30)7. Custodial Services Limited (cid:30)8. Shangri La Investments Limited (cid:30)9. Ronald Ramsay Trotter & Margaret Patricia Trotter 2(cid:31). Audrey Joan Haughie & John Joseph Haughie Total DISTRIBUTION OF CAPITAL NOTE HOLDINGS AS AT 19 AUGUST 2010 (cid:30) – (cid:30),(cid:31)(cid:31)(cid:31) (cid:30),(cid:31)(cid:31)(cid:30) – 5,(cid:31)(cid:31)(cid:31) 5,(cid:31)(cid:31)(cid:30) – (cid:30)(cid:31),(cid:31)(cid:31)(cid:31) (cid:30)(cid:31),(cid:31)(cid:31)(cid:30) – (cid:30)(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) > (cid:30)(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) Total 60 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 SKYCITY ACES INFORMATION SKYCITY ACES In October 2(cid:31)(cid:31)5, SKYCITY Investments Australia Limited issued in Australia (cid:30).5 million unsecured subordinated perpetual reset exchangeable securities (SKYCITY ACES) at an issue price of A$(cid:30)(cid:31)(cid:31) per note. SKYCITY ACES offer holders a fully franked variable rate coupon until the first reset date on (cid:30)5 December 2(cid:31)(cid:30)(cid:31). For further information refer note (cid:30)9 of the financial statements. TWENTY LARGEST SKYCITY ACES HOLDERS AS AT 19 AUGUST 2010 J P Morgan Nominees Australia Limited (cid:30). 2. UBS Nominees Pty Ltd 3. Citicorp Nominees Pty Limited 4. Cogent Nominees Pty Limited 5. Brispot Nominees Pty Ltd 6. National Nominees Limited 7. ANZ Nominees Limited 8. HSBC Custody Nominees (Australia) Limited – A/C 2 9. Cogent Nominees Pty Limited (cid:30)(cid:31). Avanteos Investments Limited (cid:30)(cid:30). RBC Dexia Investor Services Australia Nominees Pty Limited (cid:30)2. Citicorp Nominees Pty Limited (cid:30)3. Pan Australian Nominees Pty Limited (cid:30)4. Buttonwood Nominees Pty Ltd (cid:30)5. UBS Wealth Management Australia Nominees Pty Ltd (cid:30)6. Roaring Lion Pty Ltd (cid:30)7. M F Custodians Ltd (cid:30)8. RBC Dexia Investor Services Australia Nominees Pty Limited (cid:30)9. Perpetual Trustee Company Ltd 2(cid:31). ANZ Trustees Limited NUMBER OF SKYCITY ACES % OF SKYCITY ACES 28(cid:31),636 279,(cid:31)22 (cid:30)5(cid:31),(cid:31)39 (cid:30)2(cid:30),447 75,(cid:31)52 65,(cid:31)(cid:31)(cid:31) 5(cid:31),375 44,9(cid:31)9 37,369 25,848 22,5(cid:31)(cid:31) 2(cid:30),79(cid:31) 2(cid:30),722 2(cid:31),829 (cid:30)7,834 (cid:30)5,(cid:31)(cid:31)(cid:31) (cid:30)(cid:30),873 (cid:30)(cid:30),55(cid:31) (cid:30)(cid:31),(cid:31)(cid:31)(cid:31) 6,6(cid:30)7 (cid:30)8.7(cid:30)% (cid:30)8.6(cid:31)% (cid:30)(cid:31).(cid:31)(cid:31)% 8.(cid:30)(cid:31)% 5.(cid:31)(cid:31)% 4.33% 3.36% 2.99% 2.49% (cid:30).72% (cid:30).5(cid:31)% (cid:30).45% (cid:30).45% (cid:30).39% (cid:30).(cid:30)9% (cid:30).(cid:31)(cid:31)% (cid:31).79% (cid:31).77% (cid:31).67% (cid:31).44% Total (cid:30),289,4(cid:30)2 85.95% DISTRIBUTION OF SKYCITY ACES HOLDINGS AS AT 19 AUGUST 2010 (cid:30) – (cid:30),(cid:31)(cid:31)(cid:31) (cid:30),(cid:31)(cid:31)(cid:30) – 5,(cid:31)(cid:31)(cid:31) 5,(cid:31)(cid:31)(cid:30) – (cid:30)(cid:31),(cid:31)(cid:31)(cid:31) (cid:30)(cid:31),(cid:31)(cid:31)(cid:30) – (cid:30)(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) > (cid:30)(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) Total NUMBER OF SKYCITY ACES HOLDERS NUMBER OF SKYCITY ACES 498 37 5 (cid:30)4 4 (cid:30)(cid:30)7,6(cid:31)(cid:30) 76,575 33,(cid:31)29 44(cid:30),65(cid:30) 83(cid:30),(cid:30)44 558 (cid:30),5(cid:31)(cid:31),(cid:31)(cid:31)(cid:31) 61 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 COMPANY DISCLOSURES STOCK EXCHANGE LISTINGS Subsidiary Company Directorships SKYCITY Entertainment Group Limited is listed on both the New Zealand and Australian stock exchanges. SKYCITY Entertainment Group Limited has been designated as ‘Non-Standard’ by the NZX due to the nature of the company’s constitution. In particular, the constitution places restrictions on the transfer of shares in the company in certain circumstances and provides that votes and other rights attached to shares may be disregarded and shares may be sold if these restrictions are breached, as more particularly described on pages 63 and 64 of this annual report. SKYCITY ENTERTAINMENT GROUP LIMITED E Toime retired as a director of SKYCITY Entertainment Group Limited on 3(cid:31) October 2(cid:31)(cid:31)9. J L Freeman resigned as a director of SKYCITY Entertainment Group Limited on 5 March 2(cid:31)(cid:30)(cid:31). SUBSIDIARY COMPANIES Liquidation of Subsidiary Company SKYCITY International ApS was liquidated and dissolved on 22 June 2(cid:31)(cid:30)(cid:31). Sale of Subsidiary Companies The following subsidiary companies were sold and transferred to a third party in connection with the sale of the company’s cinema business in February 2(cid:31)(cid:30)(cid:31): SKYCITY Cinema Holdings Limited SKYCITY Cinemas Limited SKYCITY Cinemas New Plymouth Limited SKYCITY Cinemas Nominees Limited SKYCITY Cinemas Queen Street Nominees Limited SKYCITY Distribution Limited SKYCITY Cinemas (Fiji) Limited The following persons held office as directors of subsidiaries of SKYCITY Entertainment Group Limited as at the end of the 2(cid:31)(cid:30)(cid:31) financial year, being 3(cid:31) June 2(cid:31)(cid:30)(cid:31): • Directors: N B Morrison and P A Treacy: Planet Hollywood (Civic Centre) Limited SKYCITY Action Management Limited SKYCITY Auckland Holdings Limited SKYCITY Auckland Limited SKYCITY Casino Management Limited SKYCITY Hamilton Limited SKYCITY International Holdings Limited SKYCITY Investments Christchurch Limited SKYCITY Investments Queenstown Limited SKYCITY Management Limited SKYCITY Metro Limited SKYCITY Wellington Limited Sky Tower Limited Toptown Nominees Limited • Directors: D D Christian, N B Morrison, P A Treacy and R H McGeoch: SKYCITY Adelaide Pty Limited SKYCITY Australia Finance Pty Limited SKYCITY Australia Pty Limited SKYCITY Treasury Australia Pty Limited • Directors: N B Morrison, P A Treacy and T A K Wilson: SKYCITY Darwin Pty Limited • Directors: A B Ryan, N B Morrison, P A Treacy (as alternate) (all SKYCITY representatives on the board), P J Hensman and B C Thomas: Queenstown Casinos Limited • Directors: R H McGeoch, P D Cullinane, P B Harman, C J D Moller, N B Morrison and Sir Dryden Spring: Changes to Subsidiary Company Directorships The changes to subsidiary company directorships during the (cid:30)2 month period ended 3(cid:31) June 2(cid:31)(cid:30)(cid:31) are set out below: SKYCITY Investments Australia Limited Non-wholly Owned Company Directorships E Toime retired as a director of SKYCITY Investments Australia Limited on 3(cid:31) October 2(cid:31)(cid:31)9. J L Freeman resigned as a director of SKYCITY Investments Australia Limited on 5 March 2(cid:31)(cid:30)(cid:31). At 3(cid:31) June 2(cid:31)(cid:30)(cid:31), SKYCITY also had an interest in, and was represented by SKYCITY executives on the boards of, the companies listed below: • • SKYCITY representatives on the board – N B Morrison and A B Ryan: Christchurch Hotels Limited Premier Hotels (Christchurch) Limited SKYCITY representatives on the board – N B Morrison, A B Ryan and P A Treacy (as alternate): Christchurch Casinos Limited • SKYCITY representative on the board – N B Morrison: Force Location Limited • • 62 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 OTHER INFORMATION WAIVERS FROM THE NEW ZEALAND AND AUSTRALIAN STOCK EXCHANGES The following waivers from the NZX and ASX Listing Rules were either granted and published by NZX Limited (NZX) or ASX Limited (ASX) (as the case may be) within, or relied upon by the company during, the (cid:30)2 month period preceding the date two months before the date of this annual report: • On 8 October 2��9, NZX granted a waiver from LR 6.2.2 (relating to the requirement for a notice of meeting to be accompanied by an appraisal report) in relation to the company’s new Chief Executive Officer Long Term Incentive Plan approved by shareholders at the 2(cid:31)(cid:31)9 annual meeting. All other waivers granted prior to the (cid:30)2 month period preceding the date two months before the date of this annual report had ceased to have effect or were not relied upon during the period. DISCRETIONS EXERCISED BY NZX AND ASX NZX granted a trading halt from the close of business on 24 March 2(cid:31)(cid:30)(cid:31) in relation to the rollover of the capital notes issued by SKYCITY Entertainment Group Limited and quoted on the New Zealand stock exchange. The capital notes recommenced trading on (cid:30)8 May 2(cid:31)(cid:30)(cid:31). SHARE AND SHARE RIGHTS HOLDERS As at 6 September 2(cid:31)(cid:30)(cid:31), shares and share rights on issue were as detailed below: • • • 333,��� share rights issued under the Executive Share Rights Plan 2(cid:31)(cid:31)5 approved by directors of the company in December 2(cid:31)(cid:31)4, held by 5 holders. The share rights have no voting rights but each share right entitles the holder to a number of shares on exercise calculated according to a formula set out in the plan, based on the difference between the market price for the company’s shares on the NZSX and the exercise value for the share right (calculated in accordance with the Plan). As at 6 September 2(cid:31)(cid:30)(cid:31), the exercise value per right (which escalates by the cost of equity less distributions) was $7.(cid:30)2; 49�,�32 share rights issued under the Chief Executive Officer Long Term Incentive Plan approved by shareholders at the 2(cid:31)(cid:31)8 annual meeting, held by the Chief Executive Officer. Share rights are granted under the Chief Executive Officer Long Term Incentive Plan and, if exercisable, may be exercised at no cost. If exercised, each share right corresponds to one SKYCITY share. Share rights only become exercisable when performance hurdles set by the board of directors are met; 6��,��� share rights issued under the Executive Long Term Incentive Plan approved by directors in December 2(cid:31)(cid:31)8, held by (cid:30)(cid:31) holders. Share rights are granted under the Executive Long Term Incentive Plan and, if exercisable, may be exercised at no cost. If exercised, each share right corresponds to one SKYCITY share. Share rights only become exercisable when performance hurdles set by the board of directors are met; • • 782,245 shares issued under the Chief Executive Officer Long Term Incentive Plan approved by shareholders at the 2(cid:31)(cid:31)9 annual meeting, held by Public Trust on behalf of the Chief Executive Officer. The shares have been purchased by Mr Morrison under the Chief Executive Officer Long Term Incentive Plan with the assistance of interest-free loans and are held on behalf of Mr Morrison by Public Trust for a restrictive period. The shares vest in Mr Morrison only when performance hurdles set by the board of directors are met; and 593, 875 shares issued under the Executive Long Term Incentive Plan approved by directors in September 2(cid:31)(cid:31)9, held by Public Trust on behalf of (cid:30)4 participants. The shares have been purchased by the participants under the Executive Long Term Incentive Plan with the assistance of interest-free loans and are held on behalf of the participants by Public Trust for a restrictive period. The relevant shares vest in a participant only when performance hurdles set by the board of directors are met. LIMITATIONS ON ACQUISITION OF ORDINARY SHARES The company’s constitution contains various provisions which are included to take into account the application of: • • • • the Gambling Act 2��3 (New Zealand); the Casino Act �997 (South Australia); the Gaming Control Act (Northern Territory); 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. 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 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 Clause (cid:30)2.(cid:30)(cid:30) 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: 63 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 OTHER INFORMATION CONTINUED – 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 that transferee are suspended unless and until either: • • • • each regulatory authority advises that approval is not needed; or any regulatory authority which determines that its approval is required approves the transferee, together with the persons associated with that transferee, as an associated casino person of any applicable casino licence holder; or 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 that transferee dispose of such number of SKYCITY 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 that transferee 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 that transferee, as may be necessary to reduce their combined shareholding to a level that will not result in the transferee and the persons associated with that transferee being an associated 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, during that one month period, transferred the requisite number of shares in SKYCITY to a person who is not associated with the transferees. DONATIONS Donations of $(cid:30)(cid:31)4,7(cid:31)(cid:31) were made by the company during the (cid:30)2 month period ended 3(cid:31) June 2(cid:31)(cid:30)(cid:31) ($(cid:30)74,(cid:31)9(cid:30) during the (cid:30)2 months ended 3(cid:31) June 2(cid:31)(cid:31)9). 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 outlined in the following paragraphs. Other than the provisions noted on pages 63 and 64, the only significant restrictions or limitations in relation to the acquisition of securities are those imposed by New Zealand laws relating to takeover, overseas investment and competition. The New Zealand Takeovers Code creates a general rule under which the acquisition of more than 2(cid:31)% of the voting rights in SKYCITY, or the increase of an existing holding of 2(cid:31)% 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 9(cid:31)% or more of the shares in the company. The New Zealand Overseas Investment Act 2(cid:31)(cid:31)5 and the Overseas Investment Regulations 2(cid:31)(cid:31)5 regulate certain investments in New Zealand by overseas persons. In general terms, the consent of the New Zealand Overseas Investment Office is likely to be required when an ‘overseas person’ acquires shares or an interest in shares in SKYCITY Entertainment Group Limited that amount to 25% or more 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 (cid:30)986 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 DISCLOSURES SKYCITY Entertainment Group Limited has no securities subject to an escrow arrangement. There is not a current on-market share buy back programme for the company. From time to time, the Public Trust acquires shares in the company on-market for the purposes of the Chief Executive Officer Long Term Incentive Plan 2(cid:31)(cid:31)9 and Executive Long Term Incentive Plan 2(cid:31)(cid:31)9 as referred to above. 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). There are no material differences between NZX Appendix (cid:30) and ASX Appendix 4E issued by SKYCITY Entertainment Group Limited on (cid:30)7 August 2(cid:31)(cid:30)(cid:31) in respect of the year ended 3(cid:31) June 2(cid:31)(cid:30)(cid:31) and this annual report. SKYCITY Entertainment Group Limited has a Standard & Poor’s BBB– rating with Positive Outlook. 64 SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT 2010 DIRECTORY REGISTERED OFFICE SOLICITORS SKYCITY Entertainment Group Limited Level 6 Federal House 86 Federal Street PO Box 6443 Wellesley Street Auckland New Zealand Telephone: +64 9 363 6(cid:31)(cid:31)(cid:31) Facsimile: +64 9 363 6(cid:30)4(cid:31) Email: sceginfo@skycity.co.nz www.skycityentertainmentgroup.com Registered Office in Australia c/o Finlaysons 8(cid:30) Flinders Street GPO Box (cid:30)244 Adelaide South Australia Telephone: +6(cid:30) 8 8235 74(cid:31)(cid:31) Facsimile: +6(cid:30) 8 8232 2944 Russell McVeagh Vero Centre 48 Shortland Street PO Box 8 Auckland Minter Ellison Rudd Watts Lumley Centre 88 Shortland Street PO Box 3798 Auckland Bell Gully Vero Centre 48 Shortland Street PO Box 4(cid:30)99 Auckland Finlaysons 8(cid:30) Flinders Street GPO Box (cid:30)244 Adelaide South Australia AUDITOR PricewaterhouseCoopers (cid:30)88 Quay Street Auckland City Private Bag 92(cid:30)62 Auckland REGISTRARS NEW ZEALAND Computershare Investor Services Limited Level 2 (cid:30)59 Hurstmere Road Takapuna Private Bag 92(cid:30)(cid:30)9 Auckland Telephone: +64 9 488 87(cid:31)(cid:31) Facsimile: +64 9 488 8787 AUSTRALIA Computershare Investor Services Pty Limited Level 3 6(cid:31) Carrington Street Sydney NSW 2(cid:31)(cid:31)(cid:31) GPO Box 7(cid:31)45 Sydney NSW 2(cid:31)(cid:31)(cid:30) Telephone: +6(cid:30) 2 8234 5(cid:31)(cid:31)(cid:31) Facsimile: +6(cid:30) 2 8235 8(cid:30)5(cid:31) BANKERS ANZ National Bank Commonwealth Bank of Australia Bank of New Zealand CAPITAL NOTES TRUSTEE The New Zealand Guardian Trust Company Limited Vero Centre 48 Shortland Street PO Box (cid:30)934 Auckland Telephone: +64 9 377 73(cid:31)(cid:31) Facsimile: +64 9 377 747(cid:31) SKYCITY ACES TRUSTEE Trust Company Fiduciary Services Limited Level 4 35 Clarence Street Sydney NSW 2(cid:31)(cid:31)(cid:31) Australia Telephone: +6(cid:30) 2 8295 8(cid:30)(cid:31)(cid:31) Facsimile: +6(cid:30) 2 8295 8659 1 0 0 2 / 9 0 . 3 9 1 C Y K S . y e n d y S . n o t g n i l l . e W d n a k c u A l . d e t i i m L e v i t a e r C t h g i s n I (cid:31) (cid:30) (cid:31) 2 / 9 (cid:31) . 3 9 (cid:30) C Y K S . y e n d y S . n o t g n i l l . e W d n a k c u A l . d e t i i m L e v i t a e r C t h g i s n I The materials used in the making of this document comply with environmentally sustainable practices and principles. www.skycityentertainmentgroup.com