SkyCity Entertainment Group
Annual Report 2011

Plain-text annual report

SKYCITY ENTERTAINMENT GROUP LIMITED ANNUAL REPORT YEAR ENDED 30 JUNE 2011 ANNUAL REPORT YEAR END SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 contents AnnUAL MeetInG The 2011 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 11 November 2011, commencing at 9.30am. The notice of meeting, including agenda, will be mailed to shareholders on or before 21 October 2011. This report is dated 28 September 2011 and is signed on behalf of the board of directors of SKYCITY Entertainment Group Limited by: Rod McGeoch Chairman Chris Moller Director FInAncIAL stAteMents Independent 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 Company Disclosures Other Information Directory 2 4 5 6 7 8 9 50 58 60 61 64 65 66 68 For further information on the business operations and performance of SKYCITY Entertainment Group during the year ended 30 June 2011, 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. SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 FInAncIAL stAteMents and notes FOR THE YEAR ENDED 30 JUNE 2011 PG 1 InDePenDent AUDItoRs’ report to the shareholders of skycIty entertainment Group Limited Report on the Financial statements We have audited the financial statements of SKYCITY Entertainment Group Limited on pages 4 to 48, which comprise the balance sheets as at 30 June 2011, the income statements, statements of comprehensive income, statements of changes in equity and statements of cash flows for the year then ended, and the notes to the financial statements that include a summary of significant accounting policies and other explanatory information for both the Company and the Group. The Group comprises the Company and the entities it controlled at 30 June 2011 or from time to time during the financial year. directors’ responsibility for the Financial statements The Directors are responsible for the preparation of these financial statements in accordance with generally accepted accounting practice in New Zealand and that give a true and fair view of the matters to which they relate and for such internal controls as the Directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. auditors’ responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (New Zealand) and International Standards on Auditing. These standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider the internal controls relevant to the Company and Group’s preparation of financial statements that give a true and fair view of the matters to which they relate, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company and Group’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. We have no relationship with, or interests in, SKYCITY Entertainment Group Limited or any of its subsidiaries other than in our capacities as auditors and providers of accounting, tax and other assurance services. These services have not impaired our independence as auditors of the Company and Group. PricewaterhouseCoopers, 188 Quay Street, Private Bag 92162, Auckland 1142, New Zealand T: +64 (9) 355 8000, F: +64 (9) 355 8001, www.pwc.com/nz PG 2 InDePenDent AUDItoRs’ report CONTINuED opinion In our opinion, the financial statements on pages 4 to 48: (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 the Group as at 30 June 2011, and their financial performance and cash flows for the year then ended. Report on other Legal and Regulatory Requirements We also report in accordance with Sections 16(1)(d) and 16(1)(e) of the Financial Reporting Act 1993. In relation to our audit of the financial statements for the year ended 30 June 2011: (i) we have obtained all the information and explanations that we have required; and (ii) in our opinion, proper accounting records have been kept by the Company as far as appears from an examination of those records. Restriction on Distribution or Use This report is made solely to the Company’s shareholders, as a body, in accordance with Section 205(1) of the Companies Act 1993. 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. Chartered Accountants 17 August 2011 Auckland PG 3 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 IncoMe statements For the year ended 30 June 2011 Total receipts including GST Less non-gaming GST Gaming win plus non-gaming revenue Less gaming GST Revenue 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 Impairment of Christchurch Casino profit before income tax Tax expense pre Government Budget changes profit before discontinued operations and tax expense relating to Government Budget changes Profit from discontinued operations – Cinemas Consolidated parent notes 2011 $’000 2010 $’000 2011 $’000 2010 $’000 3 3 3 3 3 3 4 5 5 5 6 15 7 24 902,381 (22,562) 879,819 (76,674) 856,909 (19,521) 837,388 (67,451) 803,145 769,937 803,145 1,261 5,976 (260,676) (92,623) (52,607) (61,275) (44,886) (741) (69,710) (3,298) (43,772) (15,000) 165,794 (48,226) 769,937 920 5,868 (251,655) (85,245) (47,451) (59,045) (42,163) (744) (67,507) (2,019) (47,388) - 173,508 (45,431) - - - - - - 100,133 - (18,458) (6,391) - - (1,197) (741) (5,958) - (3,908) - 63,480 - 117,568 - 128,077 13,491 63,480 - - - - - - - 100,224 - (17,414) (6,303) - - (2,055) (744) (5,727) - (9,238) - 58,743 - 58,743 - 58,743 - profit for the year before tax expense relating to Government Budget changes 117,568 141,568 63,480 Tax expense relating to Government Budget changes profit for the year income tax expense Attributable to: profit attributable to shareholders of the company Non-controlling interest 7 7 26 5,435 (39,700) - 123,003 101,868 63,480 58,743 (42,791) (85,131) - - 122,960 43 102,025 (157) 63,480 - 123,003 101,868 63,480 58,743 - 58,743 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 notes Cents Cents 8 8 8 8 8 8 21.4 20.9 21.4 20.9 - - 17.7 16.8 15.4 14.7 2.3 2.1 The above income statements should be read in conjunction with the accompanying notes. PG 4 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 stAteMents oF Comprehensive inCome For the year ended 30 June 2011 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 Consolidated parent notes 2011 $’000 2010 $’000 2011 $’000 2010 $’000 123,003 101,868 63,480 58,743 25 25 25 25 5,397 - (13,733) 4,133 (5,960) (1,221) 8,577 (2,198) (4,203) (802) - - (593) 166 (427) - - - - - total comprehensive income for the year, net of tax 118,800 101,066 63,053 58,743 total comprehensive income for the year is attributable to: Shareholders of the company Non-controlling interest 26 118,757 43 101,223 (157) 118,800 101,066 The above statements of comprehensive income should be read in conjunction with the accompanying notes. PG 5 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 BALAnce sheets Consolidated parent notes 2011 $’000 2010 $’000 2011 $’000 2010 $’000 9 10 11 12 11 13 32 14 15 12 16 17 11 12 20 18 19 21 12 104,577 30,901 6,970 36,637 272 102,506 23,181 7,162 18,255 - 1 87,376 - - - 1 94,997 - - - 179,357 151,104 87,377 94,998 27,789 991,331 - 410,412 73,782 - 25,141 953,179 - 397,226 83,549 26,041 - 7,054 618,775 10,696 - - - 7,262 618,775 13,053 - - 1,503,314 1,485,136 636,525 639,090 1,682,671 1,636,240 723,902 734,088 110,852 247,267 5,349 10,102 - 101,800 - 7,100 523 183,806 250,997 - - 113 - 230,218 - - - - 373,570 293,229 251,110 230,218 350,202 56,400 94,290 33,393 417,126 47,030 95,347 23,991 - 56,400 - - 534,285 583,494 56,400 - 47,030 - - 47,030 907,855 876,723 307,510 277,248 774,816 759,517 416,392 456,840 23 25(a) 25(b) 728,616 3,682 41,150 732,910 7,885 17,397 728,616 (427) (311,797) 732,910 - (276,070) 773,448 758,192 416,392 456,840 26 1,368 1,325 - - 774,816 759,517 416,392 456,840 as at 30 June 2011 ASSETS Current assets Cash and bank balances Receivables and prepayments Inventories Tax prepayment Derivative financial instruments Total current assets non-current assets Tax prepayment 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 Interest bearing liabilities Current tax liabilities Derivative financial instruments Subordinated debt – SKYCITY ACES Total current liabilities non-current liabilities Interest bearing liabilities Subordinated debt – capital notes Deferred tax liabilities Derivative financial instruments Total non-current liabilities total liabilities net assets EQuITY Share capital Reserves Retained profits/(losses) Parent entity interest Non-controlling interest total equity The above balance sheets should be read in conjunction with the accompanying notes. PG 6 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 stAteMents oF changes in equity For the year ended 30 June 2011 notes share Capital $’000 hedGinG reserves $’000 other reserves $’000 retained losses/ proFits $’000 minority interest $’000 total equity $’000 CONSOLIDATED Balance as at 1 July 2009 733,085 (8,753) 17,789 (1,291) 1,482 742,312 total comprehensive income/(expense) - 6,013 (6,815) 102,025 (157) 101,066 Employee share entitlements issued Dividends Share rights issued for employee services Movement in employee share entitlement reserve Net purchase of treasury shares 23 27 23 23 270 - 895 - (1,340) - - - - - - - - (349) - - (83,337) - - - - - - - - 270 (83,337) 895 (349) (1,340) Balance as at 30 June 2010 732,910 (2,740) 10,625 17,397 1,325 759,517 Balance as at 1 July 2010 732,910 (2,740) 10,625 17,397 1,325 759,517 total comprehensive income/(expense) - (9,600) 5,397 122,960 43 118,800 Shares issued under dividend reinvestment plan Dividends Share rights issued for employee services Net purchase of treasury shares 23 27 23 23 6,101 - 1,047 (11,442) - - - - - - - - - (99,207) - - - - - - 6,101 (99,207) 1,047 (11,442) Balance as at 30 June 2011 728,616 (12,340) 16,022 41,150 1,368 774,816 For the year ended 30 June 2011 notes share Capital $’000 hedGinG reserves $’000 employee share entitlement reserve $’000 retained losses $’000 PARENT Balance as at 1 July 2009 total comprehensive income Share rights issued for employee services Employee share entitlements issued Dividends Movement in employee share entitlement reserve Movement in treasury shares Balance as at 30 June 2010 Balance as at 1 July 2010 total comprehensive income/(expense) Shares issued under dividend reinvestment plan Dividends Share rights issued for employee services Movement in treasury shares 733,085 - 895 270 - - (1,340) 732,910 732,910 - - - - - - - - - - (427) 6,101 - 1,047 (11,442) (4,294) - - - - - 23 23 27 23 23 27 23 23 Balance as at 30 June 2011 728,616 (427) 349 (251,476) - 58,743 - - - (349) - - - - - - - - - - - - (83,337) - - (276,070) (276,070) 63,480 - (99,207) - - (99,207) (311,797) The above statements of changes in equity should be read in conjunction with the accompanying notes. PG 7 total equity $’000 481,958 58,743 895 270 (83,337) (349) (1,340) 456,840 456,840 63,053 6,101 (99,207) 1,047 (11,442) (103,501) 416,392 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 stAteMents oF cash flows For the year ended 30 June 2011 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 2011 $’000 2010 $’000 2011 $’000 2010 $’000 795,231 (469,413) 830,821 (494,280) - (26,204) - (26,080) 325,818 336,541 (26,204) (26,080) 747 192 (54,896) (62,496) 3,347 182 (51,828) (60,633) - - - - - - - - net cash inflow/(outflow) from operating activities 35 209,365 227,609 (26,204) (26,080) 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 net cash (outflow)/inflow from investing activities Cash flows from financing activities Cash flows associated with derivatives Repayment of borrowings New borrowings Advances from subsidiaries Net purchase of treasury shares Distributions paid to company shareholders Interest paid (74,822) (1,893) 194 - - (55,074) (1,157) 1,220 66,600 - - - - - 100,133 - - - - 100,224 (76,521) 11,589 100,133 100,224 (20,884) (362,359) 401,799 - (11,442) (93,106) (44,781) (30,926) (254,377) - - (1,340) (83,337) (42,325) - - 9,408 25,547 (11,442) (93,106) (4,336) - (76,817) - 97,397 (1,340) (83,337) (10,048) 24 12 31 23 net cash (outflows) from financing activities (130,773) (412,305) (73,929) (74,145) net increase/(decrease) in cash and bank balances Cash and bank balances at the beginning of the year 2,071 102,506 (173,107) 275,613 Cash and cash equivalents at end of year 9 104,577 102,506 - 1 1 (1) 2 1 The above statements of cash flows should be read in conjunction with the accompanying notes. PG 8 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 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 17 August 2011. 2 sUMMARy oF sIGnIFIcAnt AccoUntInG PoLIcIes These general purpose Financial Statements for the year ended 30 June 2011 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 30 June 2011 and the results of all subsidiaries 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. statutory Base SKYCITY is a company registered under the New Zealand Companies Act 1993 and is an issuer in terms of the Securities Act 1978 (New Zealand). These Financial Statements have been prepared in accordance with the requirements of the Financial Reporting Act 1993 (New Zealand) and the Companies Act 1993 (New Zealand). measurement Basis These Financial Statements have been prepared under the historical cost convention, as modified by the revaluation 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. Estimates are used in the following areas: impairment testing of goodwill, indefinite life casino licences and assessing the 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 14). The Group has negative net working capital, as a $247m tranche of the uSPP debt is due within the next 12 months. The Group has a $400m committed 3 year and 5 year bank facility which can be utilised to repay the uSPP – refer notes 18(b) and 28(c). Accordingly, the Group has the ability to fully pay all debts as they fall due through cash generated from operating activities and/or financing activities as necessary. The Parent company has a negative net working capital balance. The Parent’s subsidiaries will continue to support it as required. 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. Following the Canterbury earthquakes the Group has tested its equity investment in Christchurch Casinos Limited. As a result an impairment has been recognised in the Income Statement. The impairment test was completed based on value in use calculations. This calculation required the use of estimates (refer note 15). PG 9 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 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 (refer note 21). Certain judgements are made in calculating these temporary differences. (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. 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. Non‑controlling 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 less any impairment 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 20% and 50% 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. (c) segment Reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating 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. PG 10 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED (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. 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. PG 11 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED (h) Leases (l) Inventories (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. (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. 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 and loans and receivables. 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 transaction 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 profit 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 12 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 12 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 PG 12 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 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). 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 10 years 2–75 years 3 years 3–20 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. PG 13 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED (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 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. (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 Payables are stated at fair value or estimated liability where accrued. (r) Borrowings Borrowings, including capital notes and the Group’s Adjustable Coupon Exchangeable Securities (SKYCITY ACES – now redeemed), 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 12 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. (t) employee Benefits (i) Wages, salaries and annual leave Liabilities for wages and salaries, including non‑monetary benefits and annual leave expected to be settled within 12 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. (u) share capital Ordinary shares are classified as equity. 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. (v) Dividends 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 are 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 adjust 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. (x) statement of cash Flows Cash flows associated with derivatives that are part of a hedging relationship are off‑set against cash flows associated with the hedged item. PG 14 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED (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 1 July 2011 or later periods, but which the Group has not early adopted. The significant items are: • nZ iFrs 9, Financial instruments (effective from annual periods beginning on or after 1 January 2013). 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. 3 ReVenUe Total receipts including GST Less non-gaming GST Gaming win plus non-gaming revenue Less gaming GST Total revenue Gaming Non-gaming total revenue nZ iFrs 13, Fair value measurement (effective from annual periods beginning on or after 1 January 2013). NZ IFRS 13 replaces the fair value measurement guidance contained in individual NZ IFRSs with a single source of fair value measurement guidance. It defines fair value, establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements. It explains how to measure fair value when it is required or permitted by other NZ IFRSs. It does not introduce new requirements to measure assets or liabilities at fair value, nor does it eliminate the practicability exceptions to fair value measurements that currently exist in certain standards. This standard is not expected to significantly impact the Group. (z) new Accounting standards Adopted in the year There have been no significant changes in accounting policies during the current year. Accounting policies have been applied on a basis consistent with prior year. Consolidated parent 2011 $’000 2010 $’000 2011 $’000 2010 $’000 902,381 (22,562) 879,819 (76,674) 856,909 (19,521) 837,388 (67,451) 803,145 769,937 628,051 175,094 603,262 166,675 803,145 769,937 - - - - - - - - - - - - - - - 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 $10,486,000 (30 June 2010: $9,561,000). Included within consolidated non‑gaming revenue is revenue relating to loyalty action points of $306,000 (30 June 2010: $286,000). Gaming win represents the gross cash inflows associated with gaming activities. “Total receipts including GST” and “Gaming win plus non‑gaming revenue” do not represent revenue as defined by NZ IAS 18 “Revenue”. The Group has decided to disclose these amounts as they give shareholders and interested parties a better appreciation for the scope of the Group’s gaming activities and is consistent with industry practice adopted by casino operations in Australia. PG 15 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 4 otHeR IncoMe Net gain on disposal of property, plant and equipment Interest income – Christchurch Hotels Limited Dividend income Dividends from wholly-owned entities 5 eXPenses profit before income tax includes the following specific expenses: depreciation Buildings Plant and equipment Fixtures and fittings Motor vehicles Total depreciation amortisation Casino licences (Adelaide) Computer 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 (including International commissions) Provision for bad and doubtful debts restructuring costs Redundancy and other staff payments Other restructuring costs PG 16 Consolidated parent 2011 $’000 1,065 192 4 - 1,261 2010 $’000 733 182 5 - 920 2011 $’000 2010 $’000 - - - 100,133 - - - 100,224 100,133 100,224 Consolidated parent 2011 $’000 2010 $’000 2011 $’000 2010 $’000 24,198 31,402 6,834 404 22,932 31,284 6,277 461 62,838 60,954 2,736 4,136 6,872 2,621 3,932 6,553 69,710 67,507 19,616 3,185 4,408 15,302 50,031 81 19,212 2,839 4,269 14,445 44,107 373 92,623 85,245 2,471 827 3,298 2,019 - 2,019 - 2,125 - - 2,125 - 3,833 3,833 5,958 106 - - - 6,285 - 6,391 - - - - 1,977 - - 1,977 - 3,750 3,750 5,727 93 - - - 6,210 - 6,303 - - - SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 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 auditors 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 and other advisory services Total remuneration for taxation services Total fees paid or payable to auditors Consolidated parent 2011 $’000 2010 $’000 2011 $’000 2010 $’000 400 94 80 574 75 - 73 148 722 318 318 400 111 80 591 64 25 93 182 773 411 411 1,040 1,184 400 - 80 480 75 - 45 120 600 168 168 768 400 - 80 480 64 - 40 104 584 195 195 779 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 Exchange gains Interest income Gain on funding reorganisation (note 18) Total net finance costs Consolidated parent 2011 $’000 2010 $’000 2011 $’000 2010 $’000 50,280 (2,105) (2,783) (1,620) 56,455 (2,653) (4,495) (1,919) 43,772 47,388 3,908 - - - 3,908 9,238 - - - 9,238 PG 17 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 7 IncoMe tAX eXPense (a) Income tax expense Current tax Deferred tax Deferred tax (note 21) 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 2011 $’000 2010 $’000 2011 $’000 2010 $’000 39,570 3,221 39,236 45,895 42,791 85,131 8,656 (5,435) 6,195 39,700 3,221 45,895 - - - - - - Profit from continuing operations before income tax expense 165,794 173,508 63,480 Tax at the New Zealand tax rate of 30% (2010: 30%) Tax effect of amounts which are not deductible/(taxable) in calculating taxable income: 49,738 52,052 19,044 Inter-company eliminations Items not subject to tax Australian investment allowance Share of net profit of associates Impairment of Christchurch Casino Foreign exchange rate differences Exempt dividends received Share of partnership expenditure Write off tax losses under provision in prior years 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 Income tax expense - 1,427 - (1,793) 4,500 1,591 - (7,180) (27) (30) 48,226 (5,522) 87 - 525 (337) (1,760) - (109) - (5,175) 105 130 45,431 42,886 (3,186) (5,435) 39,700 42,791 85,131 10,909 87 - - - - (30,040) - - - - - - - - The weighted average applicable tax rate was 25.8% (2010: 49.1%) (26.7% (2010: 26.2%) excluding the impact of future change in corporate tax rate, building tax depreciation changes and Christchurch Casinos impairment). The New Zealand corporate tax rate will be reduced from 30% to 28% and tax depreciation for buildings with an estimated life of 50 or more years will be disallowed. Both of these changes are effective for the Group from 1 July 2011. The initial impact of these changes ($39,700,000) was included within the 2010 results. The $5,435,000 partial reversal in 2011 relates to adjustments to the prior year estimated impact. PG 18 - - - - - - 58,743 19,385 10,368 314 - - - - (30,067) - - - - - - - - SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 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 and Christchurch Casinos impairment 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)/loss 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 from discontinued operations Consolidated 2011 Cents 2010 Cents 23.0 21.4 - 21.4 20.9 - 20.9 24.6 15.4 2.3 17.7 14.7 2.1 16.8 123,003 (43) 88,377 157 122,960 - 88,534 13,491 Profit attributable to the ordinary equity holders of the company used in calculating basic earnings per share 122,960 102,025 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 Tax on the above Profit from continuing operations attributable to the ordinary equity holders of the company used in calculating diluted earnings per share 122,960 3,837 4,476 (2,494) 102,025 - 8,033 (2,410) 128,779 107,648 (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: 575,574,000 575,114,687 SKYCITY ACES Capital notes 25,622,391 14,501,611 65,648,028 - Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share 615,698,002 640,762,715 PG 19 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 8 eARnInGs PeR sHARe (continued) (c) information concerning the classification of securities (i) sKyCity aCes Notwithstanding the fact the SKYCITY ACES were redeemed in the current year, they 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 2011 and 2010 and are therefore included in the determination of diluted earnings per share. Details relating to the SKYCITY ACES are set out in note 20. (ii) 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 capital notes have not been included in the determination of basic earnings per share. In 2010 the capital notes were not dilutive and were therefore excluded from the diluted earnings per share calculation. Details relating to the capital notes are set out in note 19. 9 cAsH AnD cAsH eQUIVALents Cash at bank Cash in house 10 ReceIVABLes AnD PRePAyMents Trade receivables Advance to Christchurch Hotels Limited (note 31) Sundry receivables Prepayments Amounts due from subsidiaries (note 31) There are no significant receivables past due date or impaired. Consolidated parent 2011 $’000 2010 $’000 2011 $’000 2010 $’000 55,690 48,887 64,314 38,192 104,577 102,506 1 - 1 1 - 1 Consolidated parent 2011 $’000 2010 $’000 2011 $’000 2010 $’000 9,286 6,235 11,244 4,136 - 10,434 6,429 3,152 3,166 - - - 112 2,041 85,223 30,901 23,181 87,376 - - 39 1,621 93,337 94,997 PG 20 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 11 net tAX BALAnce Tax prepayment – current Tax prepayment – non-current Current tax liabilities Consolidated parent 2011 $’000 2010 $’000 2011 $’000 2010 $’000 36,637 27,789 (5,349) 18,255 25,141 (7,100) 59,077 36,296 - - - - - - - - Tax is typically paid in advance to ensure the Group has positive imputation credits as at 31 March of each year. 12 DeRIVAtIVe FInAncIAL InstRUMents CONSOLIDATED Current assets Forward foreign currency contracts Total current derivative financial instrument assets Non-current assets Cross-currency interest rate swaps – cash flow hedges Cross-currency interest rate swaps – fair value hedges Total non-current derivative financial instrument assets Current liabilities Cross-currency interest rate swap – cash flow hedges* Forward foreign currency contracts Cross-currency interest rate swaps – fair value hedges* 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 – cash flow hedges* Cross-currency interest rate swaps – fair value hedges Fair value notional prinCipal 2011 $’000 2010 $’000 2011 $’000 2010 $’000 272 272 - - - 4,981 113 1,998 3,010 - 10,102 14,514 18,879 - - - 6,911 6,911 - - 18,651 7,390 26,041 - 226 - 70 227 523 - - - 135,028 64,348 199,376 83,227 5,785 19,492 97,000 - - 10,316 - 92,103 - 205,504 102,419 23,744 - 247 399,184 300,906 - 412,155 - 24,003 Total non-current derivative financial instrument liabilities 33,393 23,991 700,090 436,158 * These fair value amounts are net of collateral payments made of $11,283,153 (2010: nil). 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. During the year, $3,545,228 of gains (2010: $1,981,796 gains) on hedged items were offset in the Income Statement by $3,739,485 of losses (2010: $2,050,615 losses) on derivatives in fair value hedging relationships. There is no cash flow hedge ineffectiveness in either the current or prior year. The parent has one forward exchange contract with a fair value of $113,000 (current liability) (2010: none). PG 21 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 13 PRoPeRty, PLAnt AnD eQUIPMent CONSOLIDATED at 30 June 2009 Cost Accumulated depreciation Net book value movements in the year ended 30 June 2010 Opening net book value Exchange differences Net additions Discontinued operations Depreciation charge Closing net book value at 30 June 2010 Cost Accumulated depreciation Net book value movements in the year ended 30 June 2011 Opening net book value Exchange differences Net additions Depreciation charge Closing net book value at 30 June 2011 Cost Accumulated depreciation Net book value land $’000 BuildinGs and Fit-out $’000 plant and equipment $’000 Fixtures and FittinGs $’000 motor vehiCles $’000 Capital WorK in proGress $’000 total $’000 175,703 - 816,606 (158,701) 409,964 (275,022) 98,788 (63,791) 1,618 (1,260) 24,860 1,527,539 (498,774) - 175,703 657,905 134,942 34,997 358 24,860 1,028,765 175,703 (158) 4,441 - - 657,905 (1,680) 13,000 (13,305) (22,932) 134,942 (330) 41,909 (56,110) (31,284) 34,997 (64) 4,683 - (6,277) 358 (3) 1,090 - (461) 24,860 1,028,765 (2,358) 57,141 (69,415) (60,954) (123) (7,982) - - 179,986 632,988 89,127 33,339 984 16,755 953,179 179,986 - 809,872 (176,884) 361,350 (272,223) 103,794 (70,455) 2,243 (1,259) 16,755 1,474,000 (520,821) - 179,986 632,988 89,127 33,339 984 16,755 953,179 179,986 959 (992) - 632,988 8,185 9,418 (24,198) 89,127 1,893 28,395 (31,402) 33,339 317 1,389 (6,834) 984 28 217 (404) 16,755 652 50,529 - 953,179 12,034 88,956 (62,838) 179,953 626,393 88,013 28,211 825 67,936 991,331 179,953 - 826,639 (200,246) 390,080 (302,067) 102,810 (74,599) 2,520 (1,695) 67,936 1,569,938 (578,607) - 179,953 626,393 88,013 28,211 825 67,936 991,331 PG 22 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 13 PRoPeRty, PLAnt AnD eQUIPMent (continued) PARENT COMPANY at 30 June 2009 Cost Accumulated depreciation Net book value movements in the year ended 30 June 2010 Opening net book value Net additions/transfers Depreciation charge Closing net book value at 30 June 2010 Cost Accumulated depreciation Net book value movements in the year ended 30 June 2011 Opening net book value Net additions/transfers Depreciation charge Closing net book value at 30 June 2011 Cost Accumulated depreciation Net book value plant and equipment $’000 Capital WorK in proGress $’000 total $’000 21,061 (20,491) 570 570 6,014 (1,977) 4,404 - 4,404 4,404 (1,749) - 4,607 2,655 28,171 (23,564) 4,607 4,607 3,839 (2,125) 6,321 32,011 (25,690) 6,321 2,655 - 2,655 2,655 (1,922) - 733 733 - 733 25,465 (20,491) 4,974 4,974 4,265 (1,977) 7,262 30,826 (23,564) 7,262 7,262 1,917 (2,125) 7,054 32,744 (25,690) 7,054 Borrowing costs of $346,722 have been capitalised in the current year relating to the Auckland capital projects and Darwin resort (2010: nil) 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 1986 which does not provide for the owner of the land to be heard in relation to any recommendations of the Waitangi Tribunal for the resumption of the land. At balance date the company was not aware of any matters pertaining to the land under the State Owned Enterprises Act 1986. Drainage rights have been granted over parts of the land appurtenant to Lot 2 Plan 5.23789 (CT22C/1428). There is also a right of way granted over part of Lot 1 and part of Lot 2 DP580554. PG 23 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 14 IntAnGIBLe Assets CONSOLIDATED at 30 June 2009 Cost Accumulated amortisation Net book amount movements in the year ended 30 June 2010 Opening net book amount Exchange differences Additions Discontinued operations Amortisation charge Closing net book amount at 30 June 2010 Cost Accumulated amortisation Net book amount movements in the year ended 30 June 2011 Opening net book amount Exchange differences Additions Amortisation charge Closing net book amount at 30 June 2011 Cost Accumulated amortisation Net book amount casino Licence contract term GoodWill $’000 Casino liCenCes $’000 Computer soFtWare $’000 total $’000 153,174 - 264,075 (27,180) 57,008 (40,803) 474,257 (67,983) 153,174 236,895 16,205 406,274 153,174 (1,225) - - - 236,895 (2,424) - - (2,621) 16,205 (3) 1,441 (284) (3,932) 406,274 (3,652) 1,441 (284) (6,553) 151,949 231,850 13,427 397,226 151,949 - 261,318 (29,468) 58,153 (44,726) 471,420 (74,194) 151,949 231,850 13,427 397,226 151,949 6,048 - - 231,850 12,101 - (2,736) 13,427 16 1,893 (4,136) 397,226 18,165 1,893 (6,872) 157,997 241,215 11,200 410,412 157,997 - 274,924 (33,709) 60,234 (49,034) 493,155 (82,743) 157,997 241,215 11,200 410,412 Darwin Adelaide Auckland Hamilton The casino and associated operations are carried out by SKYCITY Darwin under a casino licence/operator agreement (the Casino Operator’s Agreement) with the Northern Territory Government. The current licence term was set in 2006 for a 20 year period until 2026. The COA is subject to extension for a further 5 years once its period to maturity reaches 15 years. 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 15 years. The casino and associated operations are carried out by SKYCITY Adelaide under a casino licence (the Approved Licensing Agreement) dated October 1999 (as amended). unless terminated earlier, the expiry date of the ALA is June 2085. The term of the ALA can be renewed for a further fixed term pursuant to section 9 of the Casino Act 1997 (SA). The carrying value of the Adelaide licence is amortised over the life of the agreement. SKYCITY Auckland Limited holds a Casino Premises Licence for the Auckland premises. The Casino Premises Licence is for an initial 25 year term from 2 February 1996. The licence can be renewed for further periods of 15 years pursuant to s138 of the Gaming Act 2003 (NZ). As the licence was initially granted to the company for nil consideration there is no associated carrying value. SKYCITY Hamilton Limited holds a Casino Premises Licence for the Hamilton premises. The Casino Premises Licence is for an initial 25 year term from 19 September 2002. The licence can be renewed for further periods of 15 years pursuant to s138 of the Gaming Act 2003 (NZ). As the licence was initially granted to the company for nil consideration there is no associated carrying value. PG 24 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 14 IntAnGIBLe Assets (continued) PARENT COMPANY at 30 June 2009 Cost Accumulated amortisation Net book amount movements in the year ended 30 June 2010 Opening net book amount Additions Amortisation charge Closing net book amount at 30 June 2010 Cost Accumulated amortisation Net book amount movements in the year ended 30 June 2011 Opening net book amount Additions Amortisation charge Closing net book amount at 30 June 2011 Cost Accumulated amortisation Net book amount Computer soFtWare $’000 total $’000 49,620 (34,010) 49,620 (34,010) 15,610 15,610 15,610 1,193 (3,750) 15,610 1,193 (3,750) 13,053 13,053 50,813 (37,760) 50,813 (37,760) 13,053 13,053 13,053 1,476 (3,833) 13,053 1,476 (3,833) 10,696 10,696 52,289 (41,593) 52,289 (41,593) 10,696 10,696 (a) Impairment tests for Intangibles with Indefinite Lives Goodwill and licences with indefinite lives are allocated to the Group’s cash‑generating units (CGus) identified below. 2011 Goodwill Casino Licence 2010 Goodwill Casino Licence sKyCity hamilton* $’000 sKyCity darWin $’000 total $’000 35,786 - 122,211 40,997 157,997 40,997 35,786 163,208 198,994 35,786 - 116,163 38,968 151,949 38,968 35,786 155,131 190,917 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 29. PG 25 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 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 2011 % 42.6 30.5 2010 % 43.1 31.5 2011 % 2.0 3.0 2010 % 2.0 2.0 2011 % 10.0 10.0 2010 % 10.0 10.0 These assumptions are consistent with past experience adjusted for economic indicators. The discount rates are post‑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. prinCipal aCtivities 2011 % 2010 % 2011 % 2010 % 2011 % oWnership interest Consolidated parent Christchurch Casinos Limited Group Casino operator 50.0 45.7 73,782 83,549 - 2010 % - Christchurch Casinos Limited Group (CCL) is incorporated in New Zealand and has a 31 March balance date. Included within CCL’s carrying value is goodwill of approximately $38 million (2010: $53 million). Following the Canterbury earthquakes a value in use impairment test has been completed on the Group’s investment in Christchurch Casinos resulting in a $15 million impairment. The underlying assumptions used included an initial drop in earnings, returning to 2010 levels by 2014, a discount rate of 10% (post tax) and a terminal growth rate of 2.5%. Increasing or decreasing the underlying assumed growth rate by 5% would result in $4.7 million reduction or increase in the impairment charge. (b) Movements in carrying amounts Balance at the beginning of the year Share of profits after income tax Dividends received/receivable Impairment Disposal (note 24) Balance at 30 June Consolidated 2011 $’000 2010 $’000 83,549 5,976 (743) (15,000) - 84,637 5,868 (3,342) - (3,614) 73,782 83,549 PG 26 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 15 InVestMents In AssocIAtes (continued) (c) Impairment losses recognised in profit or loss Impairment losses in associates accounted for using the equity method in the income statement (d) summarised financial information of associates Consolidated 2011 $’000 15,000 2010 $’000 - 2011 Christchurch Casinos Limited Group 2010 Christchurch Casinos Limited Group Group’s share oF: assets $’000 liaBilities $’000 revenues $’000 proFit $’000 14,852 14,852 18,277 18,277 1,691 1,691 2,071 2,071 14,867 14,867 19,066 19,066 3,269 3,269 3,969 3,969 The above are based on SKYCITY’s direct equity interest in Christchurch Casinos Limited of 33.3% (2010: 30.7%). 16 PAyABLes Trade payables Deferred income Accrued expenses Employee benefits Amounts due to subsidiaries (note 32) Consolidated parent 2011 $’000 2010 $’000 2011 $’000 2010 $’000 31,044 3,097 42,625 34,086 - 13,901 2,757 52,579 32,563 - - - 5,480 - 245,517 - - 5,361 - 224,857 110,852 101,800 250,997 230,218 PG 27 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 17 cURRent LIABILItIes – InteRest BeARInG LIABILItIes unsecured united States Private Placement (uSPP) Total unsecured current interest bearing borrowings Consolidated parent 2011 $’000 2010 $’000 2011 $’000 2010 $’000 247,267 247,267 - - - - - - (a) Fair value disclosures Details of the fair value of interest bearing liabilities for the Group are set out in note 18. 18 non‑cURRent LIABILItIes – InteRest BeARInG LIABILItIes Refer to (note 17) for details of current portions of these liabilities. unsecured united States Private Placement (uSPP) Syndicated bank facility Deferred funding expenses Total unsecured non-current interest bearing borrowings Consolidated parent 2011 $’000 2010 $’000 2011 $’000 2010 $’000 350,202 - - 418,313 - (1,187) 350,202 417,126 - - - - - - - - In 2011 a gain of $1,620,000 resulted from a reorganisation of funding structures and refinancing of SKYCITY ACES with uSPP. In 2010, the Group repurchased uSD115,500,000 of uSPP debt resulting in a gain of $1,919,000 (note 6). (a) United states Private Placement (UsPP) On 15 March 2005 SKYCITY borrowed NZ$96,571,000, A$74,900,000 and uS$274,500,000 with maturities between 2012 and 2020 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 30 June 2011 is included within derivative financial instruments in note 12. In March 2011, additional uS$175,000,000 of uSPP debt was raised, uS$100,000,000 with 10 year maturity and uS$75,000,000 with 7 years. March 2012 maturities of uSPP (uS$85,000,000, A$74,900,000, NZ$47,275,000) have been recognised as current liabilities. Other movements in the uSPP from 30 June 2010 relate to foreign exchange and interest rate movements. (b) committed syndicated Bank Facility At 30 June 2011, SKYCITY had in place a committed $400,000,000 (2010: $500,000,000) facility on an unsecured, negative pledge basis in two tranches of $200,000,000 each maturing April 2014 and June 2016. The funding syndicate is comprised of ANZ National Bank Limited, Bank of New Zealand Limited, Commonwealth Bank of Australia, New Zealand Branch and Westpac Banking Corporation. As at 30 June 2011, the amount drawn on this facility was $nil (2010: nil). (c) Fair values The fair value of the uSPP is approximately $63 million (2010: $31 million) more than the carrying value. Fair value has been determined on a discounted cash flow basis using current market interest rates. PG 28 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 19 sUBoRDInAteD DeBt – cAPItAL notes Balance at the beginning of the year Issued/(matured) during the year Partial revaluation Balance at the end of the year Deferred expense Consolidated parent 2011 $’000 2010 $’000 2011 $’000 2010 $’000 47,043 9,408 - 125,263 (76,817) (1,403) 47,043 9,408 - 123,860 (76,817) - 56,451 47,043 56,451 47,043 (51) (13) (51) (13) Net capital notes at the end of the year 56,400 47,030 56,400 47,030 In May 2010, the capital notes were renewed for a new term of five years to 15 May 2015. The notes were reissued on the same terms and conditions except at a lower interest rate of 7.25% (previously 8.0%). In October 2010, 9,408,000 of capital notes were sold from treasury stock. Prior to the next election date (15 May 2015), 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 15 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 30 June 2011, there were 150,000,000 (2010: 150,000,000) capital notes on issue, of which 93,549,500 (2010: 102,957,000) are held as treasury stock by the company. The capital notes are listed on the NZX. As at 30 June 2011 the closing price was $1.0182 per $1 note (2010: $1.0078). The capital notes are carried at amortised cost. 20 sUBoRDInAteD DeBt – skycIty Aces SKYCITY ACES Deferred expenses Effective 15 December 2010 the SKYCITY ACES were fully redeemed. PG 29 Consolidated parent 2011 $’000 2010 $’000 2011 $’000 2010 $’000 - - - 184,207 (401) 183,806 - - - - - - SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 21 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 reserves Change in New Zealand corporate tax rate and building depreciation (note 7) Foreign exchange differences Closing balance at 30 June Within 12 months In excess of 12 months Consolidated parent 2011 $’000 2010 $’000 2011 $’000 2010 $’000 47 (9,799) 96,231 14,378 (2,263) 613 (4,917) 364 (11,970) 100,000 9,406 (2,299) 76 (230) 94,290 95,347 95,347 8,656 - (4,185) (5,435) (93) 48,360 6,195 679 438 39,700 (25) 94,290 95,347 (8,979) 103,269 3,313 92,034 94,290 95,347 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - The Group has not recognised deferred tax assets of $1.6 million (2010: $1.7 million) in respect of losses that can be carried forward against future taxable income. PG 30 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 22 IMPUtAtIon cReDIts (new Zealand) Balance at the beginning of the year Tax payments, net of refunds Credits attached to dividends 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 Consolidated 2011 $’000 2010 $’000 (6,260) 32,327 (33,797) 22 (12,131) 32,907 (27,686) 650 (7,708) (6,260) (7,708) - (7,708) (7,183) 923 (6,260) As required by relevant tax legislation, the imputation credit account had a credit balance as at 31 March 2011. 23 sHARe cAPItAL Opening balance of ordinary shares issued Share rights issued for employee services CEO commencement Convertible Rights Employee share entitlements issued Treasury shares issued Net purchase of treasury shares Shares issued under dividend reinvestment plan 2011 shares 2010 shares 2011 $’000 2010 $’000 575,114,687 575,114,687 - - 200,000 - 68,502 275,034 (268,502) (275,034) - - - 1,843,653 732,910 1,047 - - - (11,442) 6,101 733,085 895 - 270 - (1,340) - 576,958,340 575,114,687 728,616 732,910 All ordinary shares rank equally with one vote attached to each fully‑paid ordinary share. Included within the number of shares is treasury shares 4,351,766 (2010: 1,046,800) 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 30). Treasury shares may be used to issue shares under the company’s employee incentive plans or upon the exercise of share rights/options. PG 31 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 24 DIscontInUeD oPeRAtIons (a) Description During December 2009 the Group announced the sale of the Cinemas business effective 18 February 2010. Accordingly, the Cinemas business is reported as a discontinued operation within the previous Financial Statements. Financial information relating to the discontinued operation for the prior period is set out below. (b) Financial performance and cash flow information Revenue Expenses Profit before income tax Income tax expense Profit after income tax of discontinued operations Gain on sale of the division before income tax Income tax expense Gain on sale of the division after income tax profit from discontinued operations Cash flow: Net cash inflow from operating activities Net cash (outflow) from investing activities Net cash (outflow) from financing activities net increase in cash generated by discontinued operations Consolidated 2011 $’000 2010 $’000 - - - - - - - - - - - - - 61,130 (56,352) 4,778 (1,632) 3,146 7,184 3,161 10,345 13,491 12,073 (2,417) - 9,656 PG 32 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 25 ReseRVes AnD RetAIneD PRoFIts/(Losses) (a) Reserves Hedging reserve – cash flow hedges Foreign currency translation reserve Hedging reserve – cash flow hedges Balance at the beginning of the year Revaluation Transfer to net profit Deferred tax Balance 30 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 30 June Consolidated parent 2011 $’000 2010 $’000 2011 $’000 2010 $’000 (12,340) 16,022 (2,740) 10,625 3,682 7,885 (2,740) (77,025) 63,292 4,133 (8,753) (26,707) 35,283 (2,563) (12,340) (2,740) 10,625 5,397 - 17,440 (5,960) (855) 16,022 10,625 (427) - (427) - (593) - 166 (427) - - - - - - - - - - - - - - - - (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. (b) Retained Profit/(Losses) Movements in retained profits were as follows: Balance at the beginning of the year Profit attributable to shareholders of the company Dividends Balance at the end of the year Consolidated parent 2011 $’000 2010 $’000 2011 $’000 2010 $’000 17,397 122,960 (99,207) (1,291) 102,025 (83,337) (276,070) 63,480 (99,207) (251,476) 58,743 (83,337) 41,150 17,397 (311,797) (276,070) PG 33 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 26 non‑contRoLLInG InteRest Balance at the beginning of the year Share of surpluses/(deficit) of subsidiaries Balance at the end of the year Consolidated 2011 $’000 1,325 43 1,368 2010 $’000 1,482 (157) 1,325 The non‑controlling interest relates to the 40% of Queenstown Casinos Limited which is not owned by SKYCITY. 27 DIVIDenDs Prior year final dividend Current year interim dividend Total dividends provided for or paid Prior year final dividend (per share) Current year interim dividend (per share) Consolidated parent 2011 $’000 2010 $’000 2011 $’000 2010 $’000 53,198 46,009 37,328 46,009 53,198 46,009 99,207 83,337 99,207 9.25¢ 8.00¢ 6.50¢ 8.00¢ 9.25¢ 8.00¢ 37,328 46,009 83,337 6.50¢ 8.00¢ On 16 August 2011, the directors resolved to declare a final dividend of 8.0 cents per share in respect of the year ended 30 June 2011 (refer to note 36 for further details). PG 34 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 28 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 notes 17 and 18) 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 very limited impact on the parent accounts as there are minimal 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. PG 35 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 28 FInAncIAL RIsk MAnAGeMent (continued) prinCipal – interest rate repriCinG 1-2 years $’000 2-3 years $’000 3-4 years $’000 4-5 years $’000 over 5 years $’000 total $’000 2011 Cash and deposits Advance to Christchurch Hotels uS Private Placement Capital notes (NZ) IRS/CCIRS* % 2.50 2.68 4.82 7.25 Weighted average debt interest rate 7.36% 1 year or less $’000 55,690 6,235 (296,563) - 98,278 - - (32,300) (136,360) (32,300) - - - - 2010 Cash and deposits Advance to Christchurch Hotels uS Private Placement Capital notes (NZ) SKYCITY ACES (Aust) IRS/CCIRS * 2.70 2.93 5.18 7.25 5.01 64,314 6,429 (188,843) - (184,207) 157,335 (144,972) Weighted average debt interest rate 7.28% (122,673) - - 122,673 - - - (115,421) - (115,421) - - - - - - - - - - - - - - 55,690 6,235 (56,798) (56,451) (7,552) - - (35,840) (244,108) - (22,586) (597,469) (56,451) - (120,801) (35,840) (266,694) (591,995) - - - - - - - - - - - 64,314 6,429 (67,831) (47,043) - (88,561) (38,966) - - (76,026) (418,313) (47,043) (184,207) - (203,435) (114,992) (578,820) * Interest rate swaps and cross‑currency interest rate swaps, notional principal amounts. For both 2011 and 2010 capital notes are the only interest‑bearing debt within the parent entity. The only derivative that the parent entity is party to is a forward rate transaction hedging capital expenditure. (iii) electricity price risk Maturing in December 2010 SKYCITY had one electricity derivative (Contract For Differences) for approximately 80% of SKYCITY Auckland’s electricity consumption (2010: one contract) hedging an electricity supply contract at spot (floating) price. The CFD was a designated cash flow hedge with 100% effectiveness. The CFD is no longer required as replacement electricity supply contract is fixed rate. 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. PG 36 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 28 FInAncIAL RIsk MAnAGeMent (continued) (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 -100Bps +100Bps -5% +5% proFit $’000 equity $’000 proFit $’000 equity $’000 proFit $’000 equity $’000 proFit $’000 equity $’000 - 645 80 725 - (10,207) (7,086) - (645) (80) - 9,685 6,586 (17,293) (725) 16,271 558 - - 558 10,030 - - 10,030 (505) - - (9,075) - - (505) (9,075) CONSOLIDATED 30 June 2011 NZD/AuD movements NZ interest rate movement Australian interest rate movement total increase/(decrease) 30 June 2010 NZD/AuD movements NZ interest rate movement Australian interest rate movement total increase/(decrease) 626 (13,768) (626) 12,875 (650) 15,590 - (100) 726 - (9,489) (4,279) - 100 (726) - 8,813 4,062 (650) - - 15,590 - - 588 - - 588 (14,105) - - (14,105) (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 A1 (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. PG 37 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 28 FInAncIAL RIsk MAnAGeMent (continued) (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 $400 million (2010: $500 million) is not drawn down as at 30 June 2011 (2010: nil drawn down). less than 6 months $’000 6 - 12 months $’000 BetWeen 1 and 2 years $’000 BetWeen 2 and 3 years $’000 BetWeen 3 and 5 years $’000 over 5 years $’000 total $’000 CONSOLIDATED at 30 June 2011 Bank facility Capital notes uS Private Placement total debt facilities Payables Total drawn debt Future contracted interest on drawn debt Future contracted interest on CCIRS/IRS at 30 June 2010 Bank facility Capital notes SKYCITY ACES uS Private Placement total debt facilities - - - - 73,669 - 17,775 8,063 - - 247,267 247,267 - 247,267 13,951 6,952 - - - - 200,000 - - 200,000 56,451 84,967 - - 265,235 400,000 56,451 597,469 200,000 341,418 265,235 1,053,920 - - 22,567 12,340 - - 22,567 12,232 - 141,418 35,032 20,686 - 265,235 44,901 28,146 73,669 653,920 156,793 88,419 - - 184,207 - 500,000 - - - - - - 262,219 184,207 500,000 262,219 - - - - - - 47,043 - 96,000 - - - 60,094 500,000 47,043 184,207 418,313 143,043 60,094 1,149,563 Paybles Total drawn debt Future contracted interest on drawn debt Future contracted interest on CCIRS/IRS 66,480 184,207 15,872 4,408 - - 12,679 4,183 - 262,219 21,347 7,427 - - 11,548 5,131 - 143,043 21,204 9,578 - 60,094 8,148 4,576 66,480 649,563 90,798 35,303 PG 38 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 28 FInAncIAL RIsk MAnAGeMent (continued) (d) Fair value estimation The table below analyses for financial instruments that are measured in the balance sheet at fair value by level of the fair value measurement hierarchy: – Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). – Inputs other than quoted prices included within level 1 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 1 $’000 level 2 $’000 level 3 $’000 total BalanCe $’000 CONSOLIDATED at 30 June 2011 assets Financial assets at fair value through profit or loss – Forward foreign currency contracts total assets liabilities Financial liabilities at fair value through profit or loss – Forward foreign currency contracts Derivatives used for hedging total liabilities at 30 June 2010 assets Derivatives used for hedging total assets liabilities Financial liabilities at fair value through profit or loss – Forward foreign currency contracts Derivatives used for hedging total liabilities Further details on derivatives are provided in note 12. - - - - - - - - - - 272 272 113 43,382 43,495 26,041 26,041 226 24,288 24,514 - - - - - - - - - - 272 272 113 43,382 43,495 26,041 26,041 226 24,288 24,514 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. In 2011, the parent company has one forward exchange contract recognised in the balance sheet at fair value liability of $113,000 (2010: nil). PG 39 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 28 FInAncIAL RIsk MAnAGeMent (continued) (e) Financial instruments by category CONSOLIDATED at 30 June 2011 Cash and bank balances Trade receivables Advance to Christchurch Hotels Limited Sundry receivables Derivative financial instruments Interest-bearing liabilities Capital notes Payables at 30 June 2010 Cash and bank balances Trade receivables Advance to Christchurch Hotels Limited Sundry receivables Derivative financial instruments Interest-bearing liabilities Capital notes SKYCITY ACES Payables (f) capital Risk Management assets/ (liaBilities) at Fair value throuGh the inCome statement $’000 loans and reCeivaBles $’000 derivatives used For hedGinG $’000 liaBilities at amortised Cost $’000 104,577 9,286 6,235 11,244 - - - - 131,342 102,706 10,434 6,429 3,152 - - - - - 122,721 - - - - 159 - - - 159 - - - - (226) - - - - (226) - - - - (43,382) - - - - - - - - (597,469) (56,400) (73,669) (43,382) (727,538) - - - - 1,753 - - - - - - - - - (417,126) (47,030) (183,880) (66,486) 1,753 (714,522) 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). The primary ratios were as follows at 30 June: Net debt to EBITDA Interest coverage 2011 2010 2.0 x 6.2 x 2.0 x 5.7 x These types of ratios are consistent with the financial covenants in the Group’s various funding facilities. Actual gearing as at 30 June 2011 was within covenant limits on funding facilities. Although the New Zealand capital notes include the right for SKYCITY to convert them to equity they are treated as debt for capital management and financial reporting purposes. The Group does not have any externally‑imposed capital requirements. PG 40 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 29 seGMent InFoRMAtIon Management has determined the operating segments based on the reports reviewed by the Chief Executive Officer/Managing Director that are used to assess performance and allocate resources. 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. sKyCity auCKland $’000 rest oF neW Zealand $’000 sKyCity adelaide $’000 sKyCity darWin $’000 inter - national Business $’000 Corporate/ Group $’000 total $’000 2011 Revenue from external customers and other income 396,208 Share of net profits of associate - Less: Expenses Impairment of Christchurch Casino Depreciation and amortisation (205,522) - (35,089) 49,652 5,976 180,436 - 136,539 - 41,571 - - - 804,406 5,976 (28,343) (15,000) (5,619) (135,629) - (10,976) (91,840) - (12,030) (25,356) - - (29,416) - (5,996) (516,106) (15,000) (69,710) 155,597 6,666 33,831 32,669 16,215 (35,412) 209,566 Segment profit/EBIT Finance costs Profit before income tax Segment assets Investment in associates 676,827 134,885 290,570 373,840 - 73,782 - - Net additions to non-current assets (other than financial assets and deferred tax) 62,036 3,456 7,464 17,552 PG 41 (43,772) 165,794 - - - 206,549 1,682,671 - 73,782 4,140 94,648 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 29 seGMent InFoRMAtIon (continued) sKyCity auCKland $’000 rest oF neW Zealand $’000 sKyCity adelaide $’000 sKyCity darWin $’000 inter - national Business $’000 Corporate/ Group $’000 total $’000 2010 Revenue from external customers and other income 393,326 Shares of net profits of associates - Less: Expenses Depreciation and amortisation (199,528) (35,106) 47,261 5,868 169,263 - 134,522 - 26,485 - - - 770,857 5,868 (27,072) (5,212) (129,862) (9,883) (86,698) (11,542) (17,572) - (27,590) (5,764) (488,322) (67,507) 158,692 20,845 29,518 36,282 8,913 (33,354) 220,896 Segment profit/EBIT Finance costs Profit before income tax Segment assets Investment in associates 649,281 146,607 268,424 344,520 - 83,549 - - Net additions to non-current assets (other than financial assets and deferred tax) 21,737 2,699 13,428 16,170 Breakdown of the revenue from all services is as follows: (47,388) 173,508 - - - 227,408 1,636,240 - 83,549 4,548 58,582 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 Consolidated parent 2011 $’000 2010 $’000 2011 $’000 2010 $’000 586,480 41,571 175,094 575,802 26,485 167,650 803,145 769,937 479,958 323,187 452,717 317,220 803,145 769,937 69,632 25,016 28,984 29,598 94,648 58,582 910,978 611,927 879,473 579,622 1,522,905 1,459,095 - - - - - - - - - - - - - - - - - - - - - - - - - - PG 42 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 30 sHARe‑BAseD PAyMents executive share Rights Plan 2005 The Executive Share Rights Plan (Rights Plan) was approved by directors in December 2004 and commenced on 1 July 2005. 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 200,000 convertible share rights was made to the CEO with effect from 1 March 2008. Each right converted into one SKYCITY share on 1 March 2010. chief executive officer Long term Incentive Plan 2008 The Chief Executive Officer Long Term Incentive Plan (CEO LTI) was approved by shareholders at the 31 October 2008 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 the company. Share rights only become exercisable when performance hurdles set by the board of directors are met. 491,132 rights were issued in the year ended 30 June 2009 of which 275,034 have converted to shares in the current year. executive Long term Incentive Plan 2008 The Executive Long Term Incentive Plan (Executive LTI) was approved by directors in December 2008. 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. 875,000 rights were issued in the year ended 30 June 2009. chief executive officer and executive Long term Incentive Plan 2009 During the prior 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 2008 and the Executive Long Term Incentive Plan 2008. 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 (3 to 4 years), 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 30 June 2011 the interest free loan on the CEO Long Term Incentive Plan is $5,846,428 (2010: $1,173,039) and on the Executive Long Term Incentive Plan totals $5,300,645 (2010: $1,904,372). PG 43 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 30 sHARe‑BAseD PAyMents (continued) Movements in the number of share rights outstanding are as follows: Grant date expiry date exerCise priCe CONSOLIDATED AND PARENT – 2011 BalanCe at start oF the year numBer Granted durinG the year numBer exerCised/ Converted durinG the year numBer expired durinG the year numBer BalanCe at end oF the year numBer exerCisaBle at end oF the year numBer 05/09/05 04/09/06 01/03/08 01/07/08 02/09/09 31/08/10 02/03/11 total 05/09/10 04/09/11 01/03/12 01/07/12 02/09/13 31/08/14 02/03/15 $4.81 $5.15 231,000 333,000 491,132 600,000 960,175 - - - - - - 1,266,445 - 1,544,291 - - (275,034) - - - - - (231,000) 333,000 - 216,098 - 600,000 - (57,750) 902,425 (50,250) 1,216,195 - 1,544,291 - 333,000 216,098 - - - - 2,615,307 2,810,736 (275,034) (339,000) 4,812,009 549,098 CONSOLIDATED AND PARENT – 2010 08/09/04 05/09/05 04/09/06 01/03/08 01/03/08 01/07/08 02/09/09 total 08/09/09 05/09/10 04/09/11 01/03/10 01/03/12 01/07/12 01/09/13 $4.44 $4.81 $5.15 150,000 231,000 384,000 200,000 491,132 850,000 - - - - - - - 1,046,800 - - - (200,000) - - - (150,000) - (51,000) - - (250,000) (86,625) - 231,000 333,000 - 491,132 600,000 960,175 - 231,000 333,000 - - - - 2,306,132 1,046,800 (200,000) (537,625) 2,615,307 564,000 exercise price The rights granted from 2008 onwards do not have an exercise price. The weighted average remaining contractual life of options and rights outstanding at the end of the period was 2.55 years (2010: 2.10 years). Fair value of share rights granted The assessed fair value at grant date of the rights granted 31 August 2010 is 96.0 cents (2 September 2009: 98.3 cents). The valuation inputs for the rights granted 31 August 2010 included: (a) rights are granted for no consideration (b) exercise price: nil (2010: nil) (c) grant date: 31 August 2010 (2010: 2 September 2009) (d) expiry date: 30 August 2014 (2010: 1 September 2013) (e) share price at valuation date $2.87 (2010: $3.28) The expected price volatility is derived by analysing the historic volatility over a recent historical period similar to the term of the right. The assessed fair value at grant date of the rights granted 2 March 2011 is $1.11. PG 44 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 30 sHARe‑BAseD PAyMents (continued) The valuation inputs for the rights granted 2 March 2011 included: (a) rights are granted for no consideration (b) exercise price: nil (c) grant date: 2 March 2011 (d) expiry date: 2 March 2015 (e) share price at valuation date: $3.34 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 31 ReLAteD PARty tRAnsActIons Consolidated parent 2011 $’000 1,047 1,047 2010 $’000 895 895 2011 $’000 1,047 1,047 2010 $’000 895 895 There are no bad or doubtful debts associated with any related party of the Group or parent entity (2010: nil). (a) key Management and Personnel compensation Key management compensation for the years ended 30 June 2011 and 2010 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. 2011 2010 short-term BeneFits $’000 termination payments $’000 share-Based payments $’000 7,753 7,016 - 375 835 653 total $’000 8,588 8,044 (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. Certain directors and key management have relevant interests in a number of companies with which SKYCITY has transactions in the normal course of business. A number of SKYCITY directors and key management are also non‑executive directors of other companies. Any transactions undertaken with these entities have been entered into on an arms‑length commercial basis. PG 45 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 31 ReLAteD PARty tRAnsActIons (continued) (c) subsidiaries Interests in subsidiaries are set out in note 32. (d) Parent The majority of the parent entity’s transactions are with its subsidiaries including the payment of dividends of $100.1 million (2010: $100.2 million) and provision of employee services of $18.5 million (2010: $17.4 million) on normal commercial terms. Advances to and from subsidiaries are repayable on demand and are on normal commercial terms within a group and are disclosed in the relevant asset or liability note. (e) Associates The Group has loaned Christchurch Hotels Limited $6,235,251 (2010: $6,429,000) as set out in note 10 on normal commercial terms. 32 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 30 June. equity holdinG name oF entity Queenstown Casinos 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 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 Australia Treasury Pty Limited SKYCITY Darwin Pty Limited 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 Australia Australia Australia Australia Australia Australia Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 2011 % 60 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 2010 % 60 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 PG 46 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 33 contInGencIes There are no significant contingencies at year end (2010: nil). 34 coMMItMents capital commitments Capital expenditure contracted for at the reporting date but not recognised as liabilities is as set out below. Consolidated parent 2011 $’000 2010 $’000 2011 $’000 Property, plant and equipment 59,695 12,940 - 2010 $’000 - 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 5,482 13,419 318,673 6,776 13,921 319,443 337,574 340,140 - - - - - - - - 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 31 January 1996 with rent reviews every five years. SKYCITY Adelaide – Casino building lease. The initial lease term is until 3 March 2025 with 3 further rights of renewal for 20 years each and annual rent reviews. PG 47 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 notes to the FinanCial statements CONTINuED 35 ReconcILIAtIon oF PRoFIt AFteR IncoMe tAX to net cAsH InFLoW FRoM oPeRAtInG ActIVItIes Profit for the year, including discontinued operations Non-controlling interest Depreciation and amortisation Finance costs net Current period employee share entitlement Current period share options expense Gain on sale of fixed assets Gain on disposal of Cinemas Dividend from subsidiary Impairment of Christchurch Casinos Share of profits of associates not received as dividends Change in operating assets and liabilities: (Increase)/decrease in receivables and prepayments Decrease/(increase) in inventories Increase/(decrease) in payables and accruals (Decrease)/increase in deferred tax liability (Increase) in tax receivable (Decrease) in other non-current liabilities Capital items included in working capital movements Subsidiary funding transactions Consolidated parent 2011 $’000 2010 $’000 2011 $’000 2010 $’000 122,960 43 69,710 43,772 - 1,047 (1,065) - - 15,000 (5,233) (7,720) 192 9,052 (1,057) (22,781) - (14,555) - 102,025 (157) 67,507 47,388 (79) 895 (733) (13,491) - - (2,526) 974 (545) (8,543) 46,987 (21,821) (2,547) 12,275 - 63,480 - 5,958 3,908 - 1,047 - - (100,133) - - 7,621 - 20,779 - - - - (28,864) 58,743 - 5,727 10,068 (79) 895 - - (100,224) - - (68,079) - 119,450 - - - - (52,581) Net cash inflow from operating activities 209,365 227,609 (26,204) (26,080) 36 eVents occURRInG AFteR tHe BALAnce sHeet DAte Dividend On 16 August 2011, the directors resolved to provide for a final dividend to be paid in respect of the year ended 30 June 2011. The partially (60%) imputed, partially franked (60%) dividend of 8.0 cents per share will be paid on 7 October 2011 to all shareholders on the company’s register at the close of business on 30 September 2011. PG 48 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 coRPoRAte GoVeRnAnce and other disClosures FOR THE YEAR ENDED 30 JUNE 2011 PG 49 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 coRPoRAte GovernanCe FOR THE YEAR ENDED 30 JuNE 2011 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 30 June 2011, the board comprised seven non‑executive directors and a managing director. Biographical details of individual directors are set out in the company’s 2011 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. 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. PG 50 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 coRPoRAte GovernanCe CONTINuED 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 23 June 2011 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 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. 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 2011 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 30 June 2011. Nine board meetings were scheduled during the year. appointment to oFFiCe Board sCheduled Board unsCheduled Board total audit and risK remuneration GovernanCe and nominations NuMBER OF MEETINGS HELD R H McGeoch P D Cullinane P B Harman(1) C J D Moller N B Morrison Sir Dryden Spring B J Carter(2) S H Suckling(3) 20 September 2002 26 March 2008 18 December 2008 18 December 2008 18 December 2008 31 October 2003 12 October 2010 9 May 2011 9 9 9 9 9 9 9 7 2 - - - - - - - - - 9 9 9 9 9 9 9 7 2 3 3 - 1 3 - 3 2 - 4 4 4 4 - - 4 - - 1 1 1 1 1 1 1 1 - (1) P B Harman retired as a member of the Audit and Risk Committee on 11 October 2010. (2) B J Carter was appointed a director of the company on 12 October 2010. (3) S H Suckling was appointed a director of the company on 9 May 2011. PG 51 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 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. 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 non‑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 2010/11 year are set out in note 5 to the financial statements. Fees for audit and tax compliance work in the 2010/11 year represent 62% of total PricewaterhouseCoopers fees. PG 52 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 coRPoRAte GovernanCe CONTINuED 5. tIMeLy AnD BALAnceD DIscLosURe 7. RecoGnIse AnD MAnAGe RIsk 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. 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. 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. 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. The most recent confirmations were provided by the Chief Executive Officer and the Chief Financial Officer in August 2011. 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. 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 2010 was conducted by the chairman of the board (Rod McGeoch) and completed in April 2011. 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 August 2011. PG 53 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 coRPoRAte GovernanCe CONTINuED 9. ReMUneRAte FAIRLy AnD ResPonsIBLy The board‑approved Remuneration Policy (which is available in the Investor Centre section of the company’s website at www.skycityentertainmentgroup.com) recognises that to achieve business objectives SKYCITY needs high quality, committed people and the aim of the Policy is, therefore, to attract, retain and motivate high‑calibre executives capable of achieving the objectives of the company and encourage superior performance and creation of shareholder value. The guiding principles that underpin SKYCITY’s remuneration policies are: To continue to attract and retain qualified, highly capable directors from a pan‑Australasian talent pool for the purpose of driving value and maintaining the highest standards of corporate governance on behalf of shareholders, it is proposed to seek approval from shareholders to increase the maximum total remuneration amount for the non‑executive directors to $1,300,000 (plus GST, if any) at the company’s annual meeting in November 2011. In seeking such approval, the board has considered a paper prepared by Ernst & Young for the Remuneration Committee – the purpose of which was to benchmark fees paid by SKYCITY to non‑executive directors with a relevant comparator group of Australian/New Zealand large listed companies. If approved, it is proposed that: • • • • • 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. A range of benchmark reports and other market data is used to ensure market relativity, including a report commissioned by the Remuneration Committee and produced by PricewaterhouseCoopers regarding the relativity of SKYCITY’s key executive remuneration, by role, in respect to a key comparator group. non‑executive Director Remuneration Shareholders at the annual meeting determine the total remuneration available to non‑executive directors. At the 2008 annual meeting, shareholders approved, effective from 1 July 2008, a total remuneration amount for non‑executive directors of $950,000 per annum (plus GST, if any). Current annual fees are $200,000 for the chairperson of the board and $90,000 each for other non‑executive directors. In addition, each ordinary member of the Audit and Risk and Remuneration Committees receives $10,000 per annum. The chairperson of the Audit and Risk Committee receives $35,000 per annum and the chairperson of the Remuneration Committee receives $25,000 per annum. the annual fees be $250,000 for the chairperson of the board, $150,000 for the deputy chairperson of the board (a role established in August 2011) and $120,000 each for other non‑executive directors; and the fee for each ordinary member of the Audit and Risk and Remuneration Committees be increased from $10,000 to $15,000 per annum with no increase to the fees for chairing either committee. For those directors who were in office on or before 1 May 2004, 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 30 June 2004 with retirement allowances accrued to that date frozen as to amount. Rod McGeoch and Sir Dryden Spring are the only directors eligible for the retirement allowance – currently $22,913.24 and $3,350.93 respectively. Retirement allowances accrued as at 30 June 2004 do not carry any interest entitlement between 1 July 2004 and the date of payment. SKYCITY’s policy on non‑executive director remuneration was developed in 2011 by the Remuneration Committee and subsequently approved by the board. It is available in the Investor Centre section of the company’s website at www.skycityentertainmentgroup.com. chief executive officer Remuneration employment agreement Nigel Morrison has an employment agreement (which is available in the Investor Centre section of the company’s website at www.skycityentertainmentgroup.com) as Chief Executive Officer that commenced on 1 March 2008. 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. PG 54 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 coRPoRAte GovernanCe CONTINuED Mr Morrison’s remuneration package is a combination of fixed salary plus incentive payments for short and long term performance. The short term incentive (STI) payments are determined by the company’s financial performance against budget as well as a number of specific strategic, non‑financial performance targets. An outline of the STI is included in the company’s Remuneration Policy and Mr Morrison’s employment agreement, both of which are available in the Investor Centre section on the company’s website. 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) Plan 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 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. long term incentive plan The company operates a Long Term Incentive (LTI) Plan in favour of Mr Morrison. under the Chief Executive Officer Long Term Incentive Plan approved by shareholders at the company’s 2009 annual meeting, Mr Morrison is provided with financial assistance by way of an interest‑free loan by a subsidiary of the company to acquire shares in the company. A trustee holds legal title to the relevant shares 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 NZSX50 index (index group). For the shares to vest in Mr Morrison, the company must achieve a TSR equal to or greater than the average of the comparator and index groups’ TSRs. The number of shares that will vest depend on where the SKYCITY TSR is relative to the Average Medium TSR (at which point 50% of the shares vest) and the average of the TSRs representing the 75th percentiles of the TSRs achieved by the comparator group and the index group (at which point 100% of the shares vest). In addition, the board has discretion to determine that up to 25% of the shares will vest 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 50th 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 shares, and (provided the shares 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. Shares which have not previously vested 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. remuneration Mr Morrison’s base salary and STI in respect of the year ended 30 June 2011 was $2,644,376.94 comprising base salary of $1,535,576.94 plus a performance‑related STI payment of $1,108,800 relating to the 2010/11 financial year which was paid in August 2011. During the year, Mr Morrison was also paid a performance‑related STI of $1,435,000 relating to the prior 2009/10 financial year. under the terms of the Chief Executive Officer Long Term Incentive Plan approved by shareholders at the company’s 2009 annual meeting, Mr Morrison was provided with an interest‑free loan of $1,200,000 to purchase 415,945 (effective 31 August 2010) shares in the company during the year ended 30 June 2011. In April 2011, in order to significantly improve the prospects and certainty of retaining Mr Morrison, the board decided to accelerate the allocation of Mr Morrison’s future entitlements. It did this by modifying the Chief Executive Officer Long Term Incentive Plan to allow the accelerated allocation of shares. Subsequently, Mr Morrison was provided with an interest‑free loan of $3,600,000 to purchase 1,094,291 (effective 2 March 2011) shares in the company. Mr Morrison was previously issued 491,132 share rights under the Chief Executive Officer Long Term Incentive Plan 2008 approved by shareholders at the company’s 2008 annual meeting. Share rights become exercisable when performance hurdles set by the board are met and, if exercised, each share right corresponds to one SKYCITY share. On 16 March 2011, 275,034 share rights converted to 275,034 SKYCITY shares. On 23 September 2011, a further 88,404 share rights converted to 88,404 SKYCITY shares. Mr Morrison’s shareholding in the company and LTI entitlements are detailed on pages 63 and 66 of this annual report. PG 55 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 coRPoRAte GovernanCe CONTINuED 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. The Remuneration Committee approves remuneration increases for the senior executive group. short term Incentive Arrangements salaried incentive plans senior executive sti To drive outstanding company and individual performance, SKYCITY operates a Short Term Incentive (STI) Plan for the senior executive group. For each individual, 80% of their STI target is linked to the achievement of company financial targets with the remaining component dependent on the achievement of individual, largely non‑financial strategic objectives. For the year ended 30 June 2011, a total of $1,005,415 was paid under the Senior Executive STI Plan to ten executives – an amount equivalent to 23% of combined base salary for this group. salaried employee sti and individual Bonus plan To drive outstanding company and individual performance, SKYCITY operates a Short Term Incentive (STI) Plan for selected senior salaried employees and those with operational accountability for a department or business unit. For each individual, a minimum of 60% 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 Salaried STI Plan 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 30 June 2011, 247 salaried staff participated in the Salaried STI Plan. Based on achievement of individual and financial targets, 216 staff received an average STI payment of 12% of their fixed salaries. All other permanent salaried employees who were not eligible to participate in the Salaried STI Plan participated in a discretionary bonus plan known as the Individual Bonus (IB) Plan. under this plan, bonuses were awarded to those outstanding staff that consistently exceeded the key performance indicators that were set for them at the commencement of the financial year. In total, 320 SKYCITY salaried personnel were paid incentives totalling $2,245,650 under the Salaried STI and IB Plans. The board has approved the continuation of the Senior Executive and Salaried STI Plans and the IB Plan for 2011/12 with minimal changes. Long term Incentive Arrangements executive share plan 2009 A new Long Term Incentive Plan (LTI Plan 2009) for senior executives was introduced in 2009, which is similar to the Long Term Incentive Plan approved for the Chief Executive Officer at the annual meeting in 2009. The LTI Plan 2009 replaced the Rights Plan 2008 referred to below with effect from 1 July 2009 for the 2009/10 financial year and subsequent years. The LTI Plan 2009 differs from the Rights Plan 2008 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 2009 is unchanged from the Rights Plan 2008. Details of the shares issued under the LTI Plan 2009 and outstanding as at 26 September 2011 are set out on page 66 of this annual report. executive share rights plan 2008 The Long Term Incentive Plan (Rights Plan 2008) for senior executives was introduced in respect of the 2008/09 financial year, which was similar to the Long Term Incentive Plan approved for the Chief Executive Officer at the annual meeting in 2008. under the Rights Plan 2008, 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 NZSX50 index (index group). PG 56 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 coRPoRAte GovernanCe CONTINuED For share rights to become exercisable, the company must achieve a TSR greater than or equal to the average of the TSRs representing the 50th 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 50% 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 100% 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 50th 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 2008 and outstanding as at 26 September 2011 are set out on page 66 of this annual report. 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 2010/11 year: • • • The company has not included the biographical details of its current directors, or details of current members and chairpersons of its board committees, in this annual report. Their details are contained in the company’s 2011 Shareholder Review and are available at all times on the company’s website. 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 1999 annual meeting of the company and was subsequently extended by the board in August 2002. The Executive Share Rights Plan 2005 (which replaced the Executive Share Option Plan 2002) was approved by the board in December 2004. The Executive Share Rights Plan 2008 (which replaced the Executive Share Rights Plan 2005) was approved by the board in December 2008 and is similar to the Long Term Incentive Plan approved for the Chief Executive Officer at the annual meeting in 2008. The Executive Share Rights Plan 2008 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 NZSX50 index. As with the Executive Share Rights Plan 2005, the Executive Share Rights Plan 2008 imposes a three year restriction before benefits can be realised by participants. The Executive Share Plan 2009 (which replaced the Executive Share Rights Plan 2008) was approved by the board in September 2009 in respect of the 2009/10 financial year and subsequent years and, other than the two key differences detailed above, the terms remain unchanged from the Executive Share Rights Plan 2008. PG 57 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 sHAReHoLDeR inFormation tWenty LARGest sHAReHoLDeRs As At 15 AUGUst 2011 Investors Mutual Limited 1. Accident Compensation Corporation 2. 3. BlackRock, Inc. 4. AMP Group Holdings Limited 5. State Street Corporation 6. Ellerston Capital Limited 7. Paradice Investment Management Pty Limited 8. Mondrian Investment Partners Limited 9. OnePath (NZ) Limited 10. Lazard Asset Management Pacific Company 11. Harbour Asset Management Limited 12. Westpac Banking Corp 13. Integrity Investment Management Limited 14. Craigs Investment Partners Investment Management Limited 15. Milford Asset Management Limited 16. Perpetual Investments Limited 17. First NZ Capital Securities 18. Private Nominees Limited 19. PM CAPITAL Limited 20. Legal & General Investment Management Limited (uK) numBer oF shares % oF shares 26,842,052 25,220,666 23,647,937 22,011,560 19,730,654 19,255,438 18,824,572 17,100,159 16,223,494 15,882,188 15,421,913 12,478,561 11,650,919 9,367,476 7,379,041 7,050,950 7,029,239 6,202,824 6,032,708 5,622,528 4.65% 4.37% 4.10% 3.82% 3.42% 3.34% 3.26% 2.96% 2.81% 2.75% 2.67% 2.16% 2.02% 1.62% 1.28% 1.22% 1.22% 1.08% 1.05% 0.97% total 292,974,879 50.78% 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 15 August 2011 were 576,958,340 of which 4,351,766 were held by Public Trust on behalf of eligible and future participants pursuant to the Chief Executive Officer Long Term Incentive Plan 2009 and the Executive Long Term Incentive Plan 2009. No shares were held by the company directly as treasury stock. PG 58 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 sHAReHoLDeR inFormation CONTINuED DIstRIBUtIon oF oRDInARy sHARes AnD ReGIsteReD sHAReHoLDInGs As At 15 AUGUst 2011 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 > 100,000 total numBer oF shareholders numBer oF shares 3,614 9,843 3,688 3,324 1,424,445 27,362,110 26,276,046 75,212,899 195 446,682,840 20,664 576,958,340 As at 15 August 2011, there were 1,260 shareholders (with a total of 88,443 shares) holding less than a marketable parcel of shares under the ASX Listing Rules, based on the closing share price of A$2.77. The ASX Listing Rules define a marketable parcel of shares as a parcel of shares of not less than A$500. sUBstAntIAL secURIty HoLDeRs In accordance with section 26(1) of the Securities Markets Act 1988, the following persons had given notice as at 15 August 2011 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 AMP Capital Investors (New Zealand) Limited 1 April 2011 32,104,033 5.58% No further substantial security holder notices had been received as at 26 September 2011. PG 59 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 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 30 June 2011 is as listed below: R H McGeoch (Chairman) P D Cullinane P B Harman C J D Moller Sir Dryden Spring B J Carter(1) S H Suckling(2) $200,000 $100,000 $117,796 $125,000 $110,000 $72,043 $15,968 (1) (2) B J Carter received total remuneration of $100,000 during the 2010/11 year. B J Carter was appointed a director of the company on 12 October 2010. Accordingly, from 12 October 2010 until the end of the 2010/11 year, remuneration paid was in respect of services provided in his capacity as a director. Prior to his appointment as a director, B J Carter provided consultancy services to the Group and remuneration paid was in respect of consultancy services. S H Suckling received total remuneration of $84,651 during the 2010/11 year. S H Suckling was appointed a director of the company on 9 May 2011. Accordingly, from 9 May 2011 until the end of the 2010/11 year, remuneration paid was in respect of services provided in her capacity as a director. Prior to her appointment as a director, S H Suckling provided consultancy services to the Group and remuneration paid was in respect of consultancy services. 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 2010/2011 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 50% interest, paid director’s fees of $40,000 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 60% interest, paid director’s fees of $7,500 each for A B Ryan and P A Treacy. These fees were paid to SKYCITY and were not received personally by either Messrs Ryan or Treacy. The numbers of employees or former employees of the company and its subsidiaries, not being directors of the company, who received remuneration and other benefits in their capacity as employees, the value of which was in excess of $100,000 and was paid to those employees during the financial year ended 30 June 2011, 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 30 June 2011. 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 $100,000–$109,999 $110,000–$119,999 $120,000–$129,999 $130,000–$139,999 $140,000–$149,999 $150,000–$159,999 $160,000–$169,999 $170,000–$179,999 $180,000–$189,999 $190,000–$199,999 $200,000–$209,999 $220,000–$229,999 $230,000–$239,999 $240,000–$249,999 $250,000–$259,999 $260,000–$269,999 $270,000–$279,999 $290,000–$299,999 $300,000–$309,999 $310,000–$319,999 $320,000–$329,999 $330,000–$339,999 $340,000–$349,999 $350,000–$359,999 $400,000–$409,999 $420,000–$429,999 $450,000–$459,999 $480,000–$489,999 $530,000–$539,999 $620,000–$629,999 $630,000–$639,999 $660,000–$669,999 $670,000–$679,999 total 38 27 21 21 11 6 9 7 6 2 2 2 1 1 4 1 3 1 1 1 1 1 1 1 1 1 1 1 2 1 3 1 1 181 PG 60 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 DIRectoRs’ disClosures InteRests ReGIsteR Disclosure of Directors’ Interests Section 140 (1) of the New Zealand Companies Act 1993 requires a director of a company to disclose certain interests. under subsection (2) a director can make disclosure by giving a general notice in writing to the company of a position held by a director in another named company or entity. The following are particulars included in the company’s Interests Register as at 30 June 2011 (notices given by directors during the year ended 30 June 2011 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) Events New South Wales Pty Limited McGeoch Holdings Pty Limited Ramsay Health Care Limited Sydney Cricket and Sports Ground Trust Vantage Private Equity Growth Limited Member NSW Board of Advice Director Director Director* Director Director Trustee Chair p B harman G R Media Holdings Limited and certain subsidiaries Harman Consulting Limited Harman Investments Limited Metlifecare Limited C J d moller ICC Development (International) Limited International Cricket Council Meridian Energy Limited New Zealand Cricket (Inc.) New Zealand Transport Agency NZX Limited Rugby New Zealand 2011 Limited Victoria University of Wellington Foundation Westpac New Zealand Limited Westpac Regional Stadium Trust B J Carter Director* ASC Pty Limited Director* Badge Management Pty Limited Director* Cobbadah Pty Limited Director* Eudunda Farmers Limited Ferrier Hodgson Partner* Genesee & Wyoming Australia Pty Limited Director* Director* RSC Nominees Pty Limited Chair*(1) Territory Insurance Office p d Cullinane Assignment Group New Zealand Limited Low Flying Kiwis Limited STW Communications Group Limited The Antipodes Water Company Limited Director Director and Shareholder Director and Shareholder Director and Shareholder sir dryden spring ANZ National Bank Limited New Zealand Business and Parliament Trust Northport Limited Port of Tauranga Limited Visy Industries s h suckling Barker Fruit Processors Limited and certain subsidiaries Carter Price Rennie Limited ECL Group Limited New Zealand Qualifications Authority Oxford Clinic Hospital Limited Oxford Health Group Limited Restaurant Brands New Zealand Limited Stretton Clothing Company Limited Stretton Publishing Company Limited Takeovers Panel Basketball New Zealand Chair* Chair* Chair* Chair* Director* Director* Director* Director* Chair* Member* Acting Chair* Director Director and Shareholder Director and Shareholder Director Director* Director* Chair(2) Chair(3) Chair Director Director Trustee Director* Trustee Chair Trustee Alternate Director Director Member of Advisory Board (1) B J Carter was appointed chair of Territory Insurance Office on 1 April 2011. (2) C J D Moller was appointed chair of New Zealand Cricket Inc on 29 August 2010. (3) C J D Moller was appointed chair of Meridian Energy Limited on 1 January 2011. PG 61 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 DIRectoRs’ disClosures CONTINuED The following details included in the Interests Register as at 30 June 2010, or entered during the year ended 30 June 2011, have been removed during the year ended 30 June 2011: • • R H McGeoch is no longer a director of Telecom Corporation of New Zealand Limited. B J Carter is no longer a director of EPAC Salary Solutions Pty Limited and the South Australia Economic Development Board, an executive committee member of the Executive Committee of South Australian Cabinet and the National President of the National Heart Foundation of Australia. • P D Cullinane is no longer a director of Talk Me Into It Limited. • C J D Moller is no longer a director of Synlait Limited. • Sir Dryden Spring is no longer a director of Fletcher Building 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. DIscLosURe oF DIRectoRs’ InteRests In sHARe tRAnsActIons Directors disclosed, pursuant to section 148 of the New Zealand Companies Act 1993, the following acquisitions and disposals of relevant interests in SKYCITY shares during the period to 30 June 2011: R H McGeoch B J Carter P D Cullinane P B Harman N B Morrison Sir Dryden Spring date oF aCquisition/ disposal durinG period 23 August 2010(1) 1 April 2011(2) 31 August 2010 25 August 2010(3) 31 August 2010(4) (6) 16 March 2011 16 March 2011 18 May 2011(4) (6) 24 August 2010(7) Consideration A$48,913.20 NZ$2,399.21 NZ$49,680.00 NZ$14,455.00 NZ$1,200,000.00 Nil(5) Nil(5) NZ$3,600,000.00 NZ$29,200.00 shares aCquired/ (disposed) 21,000 726 17,250 5,000 415,945 (275,034) 275,034 1,094,291 10,000 (1) Shares held by McGeoch Holdings Pty Limited. (2) Shares held by Tarquay Pty Limited on trust for Tarquay Superannuation Fund. (3) Shares held by Investment Custodial Services Limited. (4) Shares held by Public Trust. (5) Share rights converted to shares under the Chief Executive Officer Long Term Incentive Plan 2008. (6) Shares allocated under the Chief Executive Officer Long Term Incentive Plan 2009. (7) Shares held by Sir Dryden & Lady Margaret Annette Spring. PG 62 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 DIRectoRs’ disClosures CONTINuED DIscLosURe oF DIRectoRs’ InteRests In sHARes, oPtIons AnD cAPItAL notes Directors disclosed the following relevant interests in SKYCITY shares as at 30 June 2011: R H McGeoch B J Carter P D Cullinane P B Harman C J D Moller N B Morrison Sir Dryden Spring (1) Shares held by McGeoch Holdings Pty Limited. (2) Shares held by Tarquay Pty Limited on trust for Tarquay Superannuation Fund. (3) Shares held by Forbar Nominees Limited. (4) Shares held by Investment Custodial Services Limited. (5) Shares held by First NZ Capital Limited. (6) Shares held by Perpetual Limited. (7) Share rights acquired under the Chief Executive Officer Long Term Incentive Plan 2008. (8) Shares acquired under the Chief Executive Officer Long Term Incentive Plan 2009 and held by Public Trust. (9) Shares held by Sir Dryden & Lady Margaret Annette Spring. (10) Shares held by the Spring Family Trust. S H Suckling did not have any relevant interest in SKYCITY shares as at 30 June 2011. shares BeneFiCially held 69,091(1) 30,726(2) 17,250 22,273(3) 10,000(4) 26,915(5) 82,233(6) 475,034 216,098(7) 1,876,536(8) 21,381(9) 15,919(10) PG 63 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 noteHoLDeR inFormation cAPItAL notes In May 2000, SKYCITY Entertainment Group Limited issued 150 million unsecured subordinated capital notes for a five year term at an issue price of $1.00. In May 2005, the capital notes were reissued for a new term of five years at a fixed interest rate of 8.0% per annum. In May 2010, 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 19 of the financial statements. As at 15 August 2011, SKYCITY was the holder of 93,549,500 capital notes as treasury stock. The capital notes held by SKYCITY are not included in the table below. tWenty LARGest cAPItAL noteHoLDeRs As At 15 AUGUst 2011 Investment Custodial Services Limited – A/C C 1. FNZ Custodians Limited 2. 3. FNZ Custodians Limited – DRP NZ A/C 4. Custodial Services Limited – A/C 3 5. Invercargill Licensing Trust 6. Forsyth Barr Custodians Limited 7. Hugh McCracken Ensor & Vivienne Margaret Ensor – HMVE Family A/C 8. Frimley Foundation 9. H B Williams Turanga Trust – H B Williams Turanga A/C 10. Resolution Investments Limited 11. Custodial Services Limited – A/C 4 12. Custodial Services Limited – A/C 6 13. Custodial Services Limited – A/C 2 14. John Archer & Pearl Archer 15. Michael David Domett 16. Fraser Smith Holdings Limited 17. Gayworth Properties Limited 18. JBWere (NZ) Nominees Limited – A/C 31873 19. Kings College Foundation 20. John Richard Matthews & Rosemary Jennifer Matthews & Bruce Redvers Perkins – Matthews A/C total DIstRIBUtIon oF cAPItAL note HoLDInGs As At 15 AUGUst 2011 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 > 100,000 total numBer oF Capital notes % oF Capital notes 3,836,000 1,611,000 912,000 895,000 500,000 335,000 300,000 300,000 300,000 300,000 234,000 225,000 210,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 11,358,000 2.56% 1.07% 0.61% 0.60% 0.33% 0.22% 0.20% 0.20% 0.20% 0.20% 0.16% 0.15% 0.14% 0.13% 0.13% 0.13% 0.13% 0.13% 0.13% 0.13% 7.57% numBer oF Capital notes numBer oF Capital notes 1 233 444 1,106 250 1,165,000 4,150,500 36,305,750 44 108,378,500 1,828 150,000,000 PG 64 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 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 66 and 67 of this annual report. skycIty enteRtAInMent GRoUP LIMIteD B J Carter was appointed as a director of SKYCITY Entertainment Group Limited on 12 October 2010. S H Suckling was appointed as a director of SKYCITY Entertainment Group Limited on 9 May 2011. sUBsIDIARy coMPAnIes changes to subsidiary company Directorships The changes to subsidiary company directorships during the 12 month period ended 30 June 2011 are set out below: T A K Wilson resigned as a director of SKYCITY Darwin Pty Limited on 30 September 2010 and B K Morgan was appointed as a director of SKYCITY Darwin Pty Limited on 1 October 2010. P A Treacy was appointed as a director of Queenstown Casinos Limited on 22 October 2010. The following persons held office as directors of subsidiaries of SKYCITY Entertainment Group Limited as at the end of the 2011 financial year, being 30 June 2011: • 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 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 • 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 • Directors: N B Morrison, P A Treacy and R H McGeoch: SKYCITY Treasury Australia Pty Limited • Directors: N B Morrison, P A Treacy and B K Morgan: SKYCITY Darwin Pty Limited N B Morrison resigned as a director of Queenstown Casinos Limited on 22 October 2010 and was appointed an alternate director for each of P A Treacy and A B Ryan on the same date. • Directors: A B Ryan, P A Treacy, N B Morrison (as alternate) (all SKYCITY representatives on the board), P J Hensman and B C Thomas: R H McGeoch, B J Carter, P D Cullinane, P B Harman, C J D Moller and Sir Dryden Spring resigned as directors of SKYCITY Investments Australia Limited on 24 May 2011. P A Treacy was appointed as a director of SKYCITY Investments Australia Limited on 24 May 2011. Queenstown Casinos Limited non‑wholly owned company Directorships At 30 June 2011, 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 PG 65 • • • • • SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 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 12 month period preceding the date two months before the date of this annual report: • • on 9 February 2011, NZX granted a waiver from LR 7.11.1 (relating to the requirement for allotment to occur within five business days following the latest date on which applications for securities close) in relation to the allotment of shares pursuant to the company’s dividend reinvestment plan; and on 19 April 2011, NZX granted a waiver from LR 7.3.1 (relating to the requirement for shareholder approval) in relation to an amendment to the Chief Executive Long Term Incentive Plan to enable the company to make allocations twice annually, rather than annually. All other waivers granted prior to the 12 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. sHARe AnD sHARe RIGHts HoLDeRs As at 26 September 2011, shares and share rights on issue were as detailed below: • • • 127,694 share rights issued under the Chief Executive Officer Long Term Incentive Plan approved by shareholders at the 2008 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; 78,000 share rights issued under the Executive Long Term Incentive Plan approved by directors in December 2008, held by 10 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; 1,876,536 shares issued under the Chief Executive Officer Long Term Incentive Plan approved by shareholders at the 2009 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 1,786,375 shares issued under the Executive Long Term Incentive Plan approved by directors in September 2009, held by Public Trust on behalf of 20 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 2003 (New Zealand); the Casino Act 1997 (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 12.11 of the constitution provides that if a transfer of shares results in the transferee, and the persons associated with that transferee: • • holding more than 5% of the shares in SKYCITY; or increasing their combined holding further beyond 5% if: – – they already hold more than 5% of the shares in SKYCITY; and the transferee has not been approved by the relevant regulatory authority as an associated casino person of any casino licence holder, PG 66 SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 otHeR inFormation CONTINuED 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 $1,035,664 were made by the company during the 12 month period ended 30 June 2011 ($104,700 during the 12 months ended 30 June 2010), $997,337 of which was provided in connection with the Christchurch earthquake appeals. 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 66 and 67, 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 20% of the voting rights in SKYCITY, or the increase of an existing holding of 20% or more of the voting rights in SKYCITY, can only occur in certain permitted ways. These include a full takeover offer in accordance with the Takeovers Code, a partial takeover offer in accordance with the Takeovers Code, an acquisition approved by an ordinary resolution, an allotment approved by an ordinary resolution, a creeping acquisition (in certain circumstances), or compulsory acquisition if a shareholder holds 90% or more of the shares in the company. The New Zealand Overseas Investment Act 2005 and the Overseas Investment Regulations 2005 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 1986 is likely to prevent a person from acquiring shares in SKYCITY if the acquisition would have, or would be likely to have, the effect of substantially lessening competition in a market. otHeR DIscLosURes SKYCITY Entertainment Group Limited has no securities subject to an escrow arrangement. 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 2009 and Executive Long Term Incentive Plan 2009 as referred to above. In addition, SKYCITY (or a nominee or agent of SKYCITY) may, from time to time, acquire existing shares in the company to satisfy its obligations to participating shareholders under the company’s Dividend Reinvestment Plan established in February 2011. As at 26 September 2011, the company has in place an on‑market share buy‑back programme to acquire up to 3,000,000 existing shares in the company to meet its obligations to participating shareholders in respect of the company’s full year dividend payable on 7 October 2011 with any remaining shares acquired to be held as treasury stock. 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 1 and ASX Appendix 4E issued by SKYCITY Entertainment Group Limited on 17 August 2011 in respect of the year ended 30 June 2011 and this annual report. As at the date of this annual report, SKYCITY Entertainment Group Limited has a Standard & Poor’s BBB– rating with a stable outlook. PG 67 ReGIsteReD oFFIce sKyCity entertainment Group limited Level 6 Federal House 86 Federal Street PO Box 6443 Wellesley Street Auckland New Zealand Telephone: +64 9 363 6000 Facsimile: +64 9 363 6140 Email: sceginfo@skycity.co.nz www.skycityentertainmentgroup.com registered office in australia c/o Finlaysons 81 Flinders Street GPO Box 1244 Adelaide South Australia Telephone: +61 8 8235 7400 Facsimile: +61 8 8232 2944 soLIcItoRs russell mcveagh Vero Centre 48 Shortland Street PO Box 8 Auckland australia Computershare investor services pty limited Level 3 60 Carrington Street Sydney NSW 2000 GPO Box 7045 Sydney NSW 2000 Telephone: +61 2 8234 5000 Facsimile: +61 2 8235 8150 BAnkeRs anZ national Bank Commonwealth Bank of australia Bank of new Zealand Westpac Banking Corporation cAPItAL notes tRUstee the new Zealand Guardian trust Company limited Vero Centre 48 Shortland Street PO Box 1934 Auckland Telephone: +64 9 377 7300 Facsimile: +64 9 377 7470 SKYCITY ENTERTAINMENT GROUP LIMITED SKYCITY ENTERTAINMENT GROUP LIMITED annual report 2011 annual report 2011 DIRectoRy minter ellison rudd Watts Lumley Centre 88 Shortland Street PO Box 3798 Auckland Bell Gully Vero Centre 48 Shortland Street PO Box 4199 Auckland Finlaysons 81 Flinders Street GPO Box 1244 Adelaide South Australia AUDItoR pricewaterhouseCoopers 188 Quay Street Auckland Private Bag 92162 Auckland ReGIstRARs neW Zealand Computershare investor services limited Level 2 159 Hurstmere Road Takapuna Private Bag 92119 Auckland Telephone: +64 9 488 8700 Facsimile: +64 9 488 8787 PG 68 1 1 / 9 0 0 0 2 C Y K S m o c . t h g i s n i y b d e n g i s e d www.skycity.co.nz 

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