36120 Skycity Report Cover 24/9/03 9:40 AM Page 1 SKYCITY EntertainmentGroupLimitedAnnualReport2003 SKYCITY Entertainment Group Limited Annual Report 2003 Current and historical financial information, including financial statements, news releases and presentations, is available online at www.skycitygroup.co.nz Financial Summary PLAY: Amuse, entertain, enjoy, have fun! A vision to 'create fun and entertainment' for customers is $107.2 million net surplus after tax up 26% at the heart of every experience SKYCITY offers 2003 2002 Change(%) Sales Revenues $556m $510m +9% EBITDA* $252m $221m +14% * EBITDA: Earnings before interest, tax, † depreciation and Net Surplus after tax $107.2m $85.1m +26% amortisation † † before non-recurring item Earnings per Share 51cps 41.5cps +23% ‡ ‡ including special dividend of Dividends per Share 67cps 38cps +76% 20cps paid November 2002 • Superior pre-tax returns to SKYCITY • New product innovations and a continuously Highlights shareholders of 72.2% for the 2002/03 refreshed entertainment experience for financial year compared with the NZX50 customers at all SKYCITY properties continues average of 10.5% for the corresponding period to be the primary focus, leading to continuing • A record interim plus final dividend of 47 cents increases in revenues across the Group per share (cps) – up from 38cps in 2001/02 – Other highlights of the 2002/03 year included: increased to 67cps for the year, as a result • Cost management across the Group’s of the special dividend of 20cps paid in properties, resulting in improved margin November 2002 performance, with SKYCITY Adelaide • $100 million capital management programme increasing its EBITDA ratio (to revenues) announced in November 2002, comprising a from 21% to 25% 20cps special dividend ($42 million) paid in • SKYCITY Adelaide increased its entertainment November 2002 and a $40–$60 million on- profile in South Australia, with a number of market share buyback programme being popular entertainers performing on property undertaken during the 2003 calendar year • New Village SKYCITY Cinemas eight-screen • SKYCITY Hamilton opened on time and to multiplex opened at Westfield St Lukes budget in September 2002 and has performed (Auckland) in May 2003, with a new eight- to expectations for its initial trading period to screen complex scheduled to open in 30 June 2003 Tauranga in April/May 2004 • Record revenues and earnings were recorded The Board of Directors is pleased to present the Annual Report of across the Group. Group revenues were up 9% to $556 million and Group EBITDA increased by SKYCITY Entertainment Group Limited for the year ended 30 June 2003. 14% to $252 million Contents For, and on behalf of, the Board. • Auckland revenues were up 8% to $374 million 2003 Highlights 1 and EBITDA was up 9% to $199 million Chairman’s Report 2 – 5 • Adelaide revenues were up 9% to A$103 million Managing Director’s Review 6 – 9 Experiences 10 – 13 and EBITDA was up 31% to A$26 million Involvement 14 – 17 • SKYCITY Hamilton added a new revenue Evolution 18 – 21 stream of $20 million and EBITDA of $7 million Financial and Operating Review 22 – 28 Jon Hartley Evan Davies (for its first trading period of 9.3 months) Corporate Goverance 29 – 39 Financial Statements and Notes 41 – 76 Chairman Managing Director Additional Statutory Information 77 – 87 Directory 88 26 September 2003 SKYCITY Entertainment Group Limited Annual Report 2003 3 Shareholders and the investment community have come to expect outstanding results from SKYCITY and this year the company extended its record of growth and success Chairman’s Report This year’s strong financial result has • Six consecutive In last year’s Annual Report I commented that Capital Management demonstrated the company’s resilience in years of profit and SKYCITY has delivered a combination of both SKYCITY maintained its 90% dividend payout the face of a range of external influences dividend growth yield and growth to its shareholders and that it policy during the 2002/03 year and also paid and is confirmation of the value that can remained our intention to continue with this dual • Return to out a special fully-imputed dividend of 20 cents be delivered through providing relevant and focus into the future. We are pleased to reflect shareholders of per share in November 2002. Dividends for the integrated entertainment experiences. This on a significant increase in the market price of 455% in the 71/2 year, including the special dividend, totalled result is a credit to all of our people and we SKYCITY shares during the 12 months since years since listing 67 cents per share. thank them for a great year. the 2002 Annual Report was circulated to • Share price has shareholders. At the same time 67 cents per The first period of SKYCITY’s share buyback Strategic Development appreciated by more share has been paid to shareholders as fully- programme was undertaken during March/April than 250% since 2003. The second period of the buyback SKYCITY has continued its strategic imputed dividends and the number of shares listing in 1996 programme is being undertaken between objective to extend, broaden and diversify its on issue has been reduced via the company’s August and November 2003. entertainment profile and to further capitalise • Earnings per on-market share buyback programme. on its transformation from a single property share up from At an operational level, SKYCITY’s broad range In the long term, the company remains undertaking (SKYCITY Auckland) to a diverse 18cps in FY97 to of customer service and marketing initiatives committed to delivering value to shareholders entertainment and gaming business. 51cps in FY03 is a key strategic driver for providing our through its capital management programmes and the judicious pursuit of investment In my 2002 report to shareholders, I referred to customers with a range of exciting and memorable entertainment experiences. We opportunities. A number of new investments the focus for 2002/03 being on the realisation of are very aware that our customers enjoy their are being made at existing properties, including value and on continuing to build on the growth entertainment experience with us more if the major expansion and refurbishment and consolidation opportunities that had been we meet or exceed their expectations. The projects currently underway at our flagship established by the business. company’s strategic objectives remain focused SKYCITY Auckland property. We will also During the 2002/03 year, the Group on ensuring that the best possible entertainment look to invest in new opportunities that fit expanded its activities through the opening experience is provided for all customers appropriately within the scope of our gaming of the SKYCITY Hamilton property in September at all times. and entertainment framework. 2002 and through the commencement of Governance three major development projects at SKYCITY Sustainability and Responsibility Auckland. The $25 million gaming expansion Central to SKYCITY’s ongoing success has SKYCITY Entertainment Group has been project is scheduled for completion in December been a proactive industry-leading approach to committed to international best practice in In 2002/03, in conditions that challenged many 2003, the $65 million convention and exhibition community participation and host responsibility. corporate governance since commencement. businesses, SKYCITY delivered a superior centre for April 2004, and the $75 million In March 2003 the Australian Stock Exchange financial result: a record $107.2 million net We have in place effective corporate citizenship five-star SKYCITY Grand Hotel for April 2005. Corporate Governance Council released its surplus – up 26% on the previous year’s net and host responsibility programmes at all Completion of the SKYCITY Grand will increase Principles of Good Corporate Governance and surplus of $85.1 million (before non-recurring properties. We are proud to report that SKYCITY the number of hotel rooms at SKYCITY Auckland Best Practice Recommendations and in August item). This excellent result is consistent continues to go much further than simply to 660 rooms. meeting legal obligations in this regard and 2003 the New Zealand Exchange released its with our record of growth and success, and Corporate Governance Best Practice Code. Such These major projects will enable the company that we consistently seek to enhance this area recognises our strong and responsible strategic regulatory responses are to restore overall to capitalise on growth opportunities in of our business. and operational focus on our customers, our confidence, not to give rise to a ‘governance Auckland, and the new Hamilton business will The board believes that showing leadership and people, and our business processes. industry’. Of itself, governance is not black and make an important contribution to SKYCITY’s best practice in these areas is central to the In a wider market context, SKYCITY again white, nor is it satisfied by relentless box-ticking. revenue streams. long-term sustainability and viability of not only outperformed: pre-tax annual return to SKYCITY’s business but also the wider gaming The SKYCITY board has reviewed the ASX shareholders for the year ended 30 June 2003 During the 2003/04 financial year, the company and hospitality sector. and NZX pronouncements on corporate was 72.2%, compared to 10.5% for the NZX50. will consider the opportunities that may be able governance best practice and we are pleased Proactive and innovative initiatives to minimise to be created at SKYCITY Adelaide through an to report a high level of compliance with the SKYCITY is one of New Zealand’s top companies harm relating to the service of gaming and increase in the range of services and facilities requirements and recommendations as set out by market capitalisation, with each separate alcohol are critical business strategies, as are our offered at that property. in those documents. business a significant regional economic community sponsorship and support activities. contributor and employer in its own right.