11 November 2011
Listed Company Relations NZX Limited Level 2, NZX Centre 11 Cable Street WELLINGTON
RE: SKYCITY ENTERTAINMENT GROUP LIMITED (SKC) ANNUAL MEETING OF SHAREHOLDERS
Please find attached the following prepared announcements that will be delivered at the company’s annual meeting of shareholders to be held at 9.30am today:
(a) Chairman’s Address; and
(b) Chief Executive Officer’s Presentation.
Also attached is a copy of the company’s media release of today’s date.
Copies of these announcements will be available from SKYCITY’s website later today.
Yours faithfully
Peter Treacy Company Secretary
SKYCITY Entertainment Group Limited Federal House 86 Federal Street PO Box 6443 Wellesley Street Auckland New Zealand Telephone +64 (0)9 363 6141 Facsimile +64 (0)9 363 6140 www.skycitygroup.co.nz Chairman’s Address: Rod McGeoch
This has not been an easy year to be in business. Economic conditions globally remain volatile. Trading conditions can perhaps best be described as skittish. Events in New Zealand have tested the mettle of New Zealanders on a range of fronts. And yet, for all that, there is a very real sense that confidence has stabilised. Wins on the rugby field help of course. But even before that, we saw a definite turn in confidence in the second half, and that shift, coupled with good performance in Adelaide and sustained success with our International Business, has meant the Board can report that SKYCITY was the best performing gaming company in Australasia over the last 12 months as measured by Total Shareholders Returns.
We have achieved another record Net Profit result.
We have also significantly improved our Total Shareholder Returns compared with the other largest companies listed on the NZX. Remembering too, of course, that we have achieved that lift in our Total Shareholder Returns despite changes in our dividend policy to allow for the important reinvestment of capital in our core businesses, which should, in theory, have made it harder for us to outperform other listed companies.
So, while the share price remains lower than the board would like, I am satisfied with the returns achieved.
Credit and thanks to Nigel Morrison and his team. Staff have worked tirelessly at all our properties to give our customers experiences that keep them coming back for more. The management and senior executive have overseen one of our most ambitious, expansive and successful capex programmes ever. It takes cool heads to do that successfully, and I’m sure you’ll join with me and with the other members of the Board in congratulating all involved for a job well done.
From the Board’s perspective, it is pleasing to report that our succession plan means shareholders can expect a smooth and seamless change-over when I retire at next year’s Annual Meeting. The appointment of Bruce Carter as Deputy Chairman earlier this year recognises two key things. The first, of course, is the calibre of Bruce himself and the contributions and insights that he brings to this company’s governance. The second is that our Australian businesses in Adelaide and Darwin are valued assets in our portfolio. Those properties are both in states where Bruce holds distinguished positions. Appointing a senior Australian director as Deputy Chairman is an acknowledgement that SkyCity is indeed a truly trans-Tasman business. It also serves as a reminder that our Board members are highly qualified to oversee the governance of the business.
Chris Moller’s appointment as Chair of this company shows our clear commitment to continuing to strengthen leadership in this country through the appointment of a New Zealander who is quintessentially Kiwi and at the same time a globally recognised and acknowledged leader. I know that preserving that New Zealand spirit in this company and ensuring that there is a distinctly Auckland awareness in our deliberations is something our Chief Executive in particular has been keen to stress.
The appointments of Chris and Bruce are a clear sign to the markets and to you that we are truly prepared, well ahead of time, for changes in our governance. SKYCITY will continue to have people at its helm with a very practical understanding of our markets, landscapes and regulators and who are well placed in every sense to represent SKYCITY on a range of occasions.
As all of you will be aware, we recently said farewell to Sir Dryden Spring, one of our most experienced and valued directors. Throughout the changes that have swept this company, Dryden has been a vital and constant authority; a man whose many years in this business and whose experience, wisdom and knowledge in areas as diverse as audit, remuneration and market sentiment, have always been highly valued. Dryden, our deepest thanks to you for everything that you have done in your time with us and for the immense commitment that you have shown. Our best wishes for your future endeavours. I am pleased to announce today that Richard Didsbury has agreed to join the board, subject to the usual regulatory approvals from our regulators in New Zealand and Australia. Richard is well-known in New Zealand business circles having been a founding director and shareholder of Kiwi Income Property Trust. Richard is also a director of Auckland International Airport.
The Rugby World Cup has been very influential in our strategic settings this year, so it is immensely satisfying to see that not only was our ambitious timetable of developments completed on time and to a budget that many operators would be amazed by, but that we achieved a degree of leverage from our investments that the Board is very pleased with. Across the world, it’s been proven time and time again that marrying an iconic chef to a landmark property is a winning combination. We’ve done that with our food and beverage offerings, and the results have well and truly justified the capex. Hospitality icons like Al Brown, Luke Dallow and Sean Connolly have shown that they are drawcards to their premises and to ours. Other popular names have also indicated they would like to join us at the exciting Federal Street precinct.
The next major investment that we wish to secure is of course the National Convention Centre. Private-public partnerships are emerging as the future of infrastructure. For our part, we see the possibility of partnering with the Government as exciting. For them, this is an opportunity to have a company with a proven record in hospitality, entertainment and conventions involved in the development of a national asset. And of course we have offered to build such an asset on our land. There is hope and commitment on all sides that acceptable terms can be resolved. Whilst it’s too early to be announcing an outcome, I can say that both parties are approaching the project constructively and I believe discussions are heading in the right direction.
I want to once again assure investors and the markets though that this arrangement has to deliver positives for both sides. In line with the Board’s consistent rigour around capex, we simply won’t spend the capital without terms being agreed with government that will give us a high prospect of appropriate shareholder returns.
One of the key incentives for our involvement in the National Convention Centre is that convention delegates are well recognised as tourists of significant value. People who come to conventions on business for example are worth three to five times some other visitors in terms of their contribution to the national economy. That’s why major convention facilities represent such an exciting opportunity.
One development since the last time we spoke is concerning to me. In Australia, the Government is mulling poker machine reform that would see pre- commitment become mandatory in Australia. Proponents of such a measure want to limit the amount players agree to spend by asking them to pre-commit to a set limit in advance of playing. As you know, SKYCITY is strongly committed to being a responsible corporate citizen and we can see a case for voluntary pre- commitment, but we have deep reservations about the imposition of mandatory measures which would apply to every single gaming machine player. As you can imagine, the suggestion has prompted opposition on a range of fronts: from those who challenge the Government’s right to force such decisions through to machine operators themselves who see the conversion costs running potentially into the billions. Another concern is that if the intention of such a measure is to prevent problem gambling, then there is little evidence to suggest that the measure will bring success. There are simply too many ways for a determined player to defy imposed limits. No-one is more rigorous about problem gambling and anti-social behaviour than SKYCITY. Our view is that a voluntary pre- commitment system, supported by appropriate counselling, will encourage those who recognise they need to stop before they get into trouble.
In both Australia and New Zealand, casinos are a key provider of tourism infrastructure, including hotels, restaurants, iconic buildings such as the Sky Tower, entertainment and conference facilities that help raise Australia’s and New Zealand’s profiles as tourism destinations. In fact we probably have the biggest tourism assets in New Zealand other than those of Air New Zealand and perhaps Auckland Airport, which of course makes us a significant contributor to the economy.
The problem with measures such as the proposed mandatory pre-commitment in Australia is that they don’t just potentially affect us. The ripple effect could be felt across the whole tourism sector.
This time is increasingly being referred to as the Asian century. Last year, 54 million predominately wealthy Chinese travelled as tourists. By 2020, Chinese tourists will number 120 million and for Australia and New Zealand that means that China and India are obvious markets. Only 18% of those travellers leave the city to see the countryside. Most want urban experiences – those include access to their own language, food, signage and of course drawcards like gambling.
We have only to look as far as the considerable growth in our International Business to recognise the payoffs of catering to this premium market. That’s why of course we have invested so strongly in high end entertainment and gambling facilities, why we have worked so hard with Immigration New Zealand on visa rules and why we see International VIP play as both the most exciting and potentially the most competitive of our offerings. Because in that space, we are not just up against our traditional Australian East Coast rivals, we are also pitting ourselves against Singapore’s two new casinos as well as traditional venues such as Macau.
In such a competitive environment, does the Australian Government really expect international VIP visitors to want to submit to mandatory pre- commitment on poker machines when they have so many other options available? My hope is that common-sense will prevail, and we will certainly be making submissions where we can to ensure it does.
This year there are so many things we can look back on and say, with pride, we really got it right. New food and beverage offerings perfectly timed to coincide with the country’s biggest ever rugby event, new International VIP facilities that have our guests raving, and ongoing negotiations around a National Convention Centre based here in Auckland. These are initiatives that stand to benefit Auckland as a destination and SKYCITY as a business.
As I said in my report, we have hit the new year in good shape. As we continue to find efficiencies in our business, invest carefully in the attractions that keep us competitive, and look to negotiate commercial returns for projects such as the National Convention Centre in Auckland and the Riverbank project in Adelaide, things are going to plan. There’s every reason to suggest we will continue to be a top quartile public company for total shareholder returns.
Finally, an observation. Your board is eminently well qualified to oversee this business. They work hard. They engage with management on a regular basis. And they have been sensitive and patient when it comes to seeking an increase in their own remuneration given the recent financial climate. In fact, there has been no increase in base directors’ fees for the Chair and members of the Board since 2006. At this meeting, there will be a motion to make more money available for the fees pool. Such an increase will go a long way towards remunerating the Board for their hard and diligent work. Chief Executive Officer’s Address 2011 Nigel Morrison
Today’s Address
Highlights of the year ending 30 June 2011
Our Core Objective: maximising TSR
Strategies for Growth Update Auckland, Adelaide, Darwin, Hamilton
Trading Update –First Four months FY12 including Rugby World Cup 2011
Objectives and Outlook for FY12
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1 Highlights of the year ending 30 June 2011
FY11 Result Highlights
A total shareholder return of 31% for the year, placing SKYCITY in the top quartile of NZX listed companies A record FY11 Normalised NPAT of $130.9m, up 4.0% on FY10 of $125.9m – Normalised NPAT would have increased by 8.3% to $136.4m excluding the impact of the GST rate increase (October 2010) FY11 Reported NPAT of $123.0m, was up 20.5% on FY10 of $102m, includes: – $15.0m impairment charge for Christchurch casino – +$5.4m Deferred Tax Adjustment (DTA) reversal relating to prior year adjustments to tax depreciation on buildings – +$5.4m International Business (IB) at actual win rate of 1.72%, above theoretical of 1.35% Final dividend of 8.0 cents per share (70% of NPAT, excluding DTA and Chri st ch urch iiimpairment) , ffllull year divid en d to 16.0cps $877.0m $290.9m $130.9m 22.7cents Up 5.0% Up 1.3% Up 4.0% Up 3.7% Normalised Normalised Normalised Normalised Net Profit Earnings Revenues EBITDA after Tax per Share
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2 Second Half of FY11 showing Strong Momentum
Significant operating momentum developing from 1 January 2011
Auckland returned to revenue growth of 3.8% in 2H11, primarily driven by improvement in gaming machine revenues, up 10.5% full year Auckland gaming machine revenues returned to pre GFC levels last seen in FY08
Adelaide returned to revenue growth after a softer first half and finished with its third consecutive year of EBITDA growth
Darwin while flat and proving slower to return to growth, performed better in the second half
Hamilton and Queenstown also showed positive momentum in 2H11
International Business continued to perform well –up 20%
So Overall Second Half Normalised Revenue of $ 429.9m up 5.7% on 2H10
And Normalised NPAT of $63.5m, was up 6.0% on 2H10
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2H11 Revenue Summary by Business Unit (incl Gaming GST)
2H11 2H10 Movement $m $m $m % Australian Casinos . Adelaide (A$) 75.6 73.4 2.2 3.0% . Darwin (A$) 50.0 50.2 (0.2) (0.4%) Total Australia (A$) 125.6 123.6 2.0 1.6% (NZ$) 166.8 156.7 10.1 6.4%
New Zealand Casinos . Auckland 214.9 207.0 7.9 3.8% . Hamilton 23.8 21.7 2.1 9.7% . Christchurch 2.8 2.6 0.2 7.7% . Queenstown, Other 4.3 4.2 0.1 2.4% Total New Zealand 245.8 235.5 10.3 4.4%
Casino Revenues before International (incl Gaming GST) 412.6 392.2 20.4 5.2% International Business at theoretical win rate 17.3 14.4 2.9 20.1%
Normalised Revenue (incl Gaming GST) 429.9 406.6 23.3 5.7%
Adjust International Business to actual win rate 9.5 1.0 8.5 Reported Revenue (incl Gaming GST) 439.4 407.6 31.8 7.8%
. Revenue (including Gaming GST) is shown above to facilitate Australasian comparisons. It also facilitates period on period comparisons given the GST rate change in New Zealand on 1 October 2010 .Normalised Revenue is adjusted for IB at theoretical win rate .Average NZD/AUD cross‐rate during 2H11 0.7541 and 2H10 0.7881 6
3 Very Strong and Flexible Financial Position
Strong balance sheet with conservative gearing levels – Net Debt to EBITDA of 2.0 times – lengthened maturity of debt to 4.2 years, new USPP (7 year $75m, 10 year $100m) – reduced average debt balance during FY11 $664m (FY10 $743m) Significant funding capacity and flexibility for potential major projects. Can undertake proposed major projects from cash flows and debt facilities NCC project in Auckland ($350m); and Adelaide redevelopment (A$250m) Committed bank facility of $400m undrawn as at 30 June 2011 (and as of today) Considerable flexibility around refinancing options for $247m March 2012 USPP maturity including –utilising undrawn bank facilities, additional 7 year facility, USPP roll over, etc Debt Profile as at 30 June 2011
$247 $200 $57 $200 $120 $85 $91 $33 $21
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
USPP (2005) Bank ‐ Drawn Bank ‐ Undrawn USPP (2011) C/Notes
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Senior Executive Appointments in 2011
James Burrell, Chief Financial Officer Joined May 2011 Responsible for all financial matters including financial reporting, group treasury and internal audit. Previously based in Hong Kong with international private equity firm Permira, where he focussed on creating shareholder value through identifying, evaluating and financing a range of businesses including an US$840m investment in Galaxy Entertainment Group in 2007.
Trained and qualified in the UK as a Chartered Accountant with Arthur Andersen.
Stuart Wing, Chief Operating Officer ‐ Auckland Joined March 2011 Res ponsible for all operations of the AAcklanduckland property including gaming, restaurants and bars, hotels and conventions.
Stuart has over 15 years experience as a senior executive in the casino and hotel industry in Australia and an extensive background in marketing. He was previously the Managing Director of Tabcorp’s Jupiters Hotel and Casino on Australia’s Gold Coast.
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4 Our Core Objective:
Maximising Total Shareholder Return (TSR)
Our Core Objective – Maximise TSR
SKYCITY’s core objective is to maximise Total Shareholder Return (TSR)
Our Objective is to be in the top quartile (top 25%) of NZX public companies for Total Shareholder Return
TSR includes both growth in the SKYCITY share price (capital growth); and dividends paid to shareholders (yield)
Over the FY11 financial year SKYCITY’s TSR was 31% 3rd out of the Top 10 NZX Public Companies lying at the 81st percentile; and 3rd out of the Top 20 NZX Public Companies lying at the 90th percentile the 31% TSR was made up of a 24. 2% increase in share price from $2.89 to $3.59 and cash dividends paid of 9.25 cents in September 2010 and 8.0 cents in March 2011 (assuming reinvestment of dividends) the TSR of the NZX50 was 17.5%
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5 SKYCITY TSR Performance since last Annual Meeting – vs. AUS Gaming Peers
1.40
1.30 SKYCITY 25.4%
1.20
Tabcorp 2.6%
1.10 Tatts Group 1.9%
NZ50G 1.3%
1.00 Crown (0.6)%
ASX200 AI (5.0)%
0.90 ECHO (11.2)%
0.80
0.70 Aristocrat (31.3)%
0.60
0.50 25-Oct-10 25-Dec-10 25-Feb-11 25-Apr-11 25-Jun-11 25-Aug-11 25-Oct-11 Assumes dividends are reinvested in equivalent amount of shares as at the ex-dividend date Rebased to SKC at the beginning of the period (Echo rebased to SKC at date of listing) Source: IRESS and Goldman Sachs
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SKYCITY TSR Performance since last Annual Meeting – vs. NZX Peers
1.40
1.30 SKYCITY 25.4%
Auckland Airport 16.1% 1201.20 SKY TV 13.4%
1.10
NZ50G 1.3%
1.00
Warehouse (10.1)% 0.90 Air New Zealand (17.9)%
Fletcher Building (18.1)% 0.80
F&P Healthcare (24.8)%
0.70 F&P Appliances (31.7)%
0.60
0.50 25-Oct-10 25-Dec-10 25-Feb-11 25-Apr-11 25-Jun-11 25-Aug-11 25-Oct-11
Assumes dividends are reinvested in equivalent amount of shares as at the ex-dividend date Rebased to SKC at the beginning of the period Source: IRESS and Goldman Sachs
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6 Strategies for Growth Update
SKYCITY Auckland:
Our Flagship Property
7 Auckland ‐ $50 million investment
Between January and September 2011 we completed a $50m investment in our Auckland flagship property
Significantly improving the standard and quality of our VIP facilities delivering a better ctomercustomer eeperiencexperience Horizon Suites and Salons ‐ International VIPs Eight ‐ New Zealand and Australia VIPs Platinum and Diamond Gaming lounges
Enhanced our brand and appeal to a wider audience Federal Street restaurants and bars The Grill by Sean Connelly Al Brown’s Depot Luke Dallow’s Red Hummingbird Nation’s Clubrooms ‐ Sports bar Fortuna Buffet ‐ new seafood buffet
Now driving strong returns on invested capital
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Horizon Suites and Salons
The new Horizon Suites and Salons have been very well received by both existing and new international VIP players
We now have a quality product to market internationally and can accommodate 4 times as many VIP groups as we could 12 months ago
Auckland International Business turnover exceeded $1.0bn to 31 October 2011 up nearly 30% on last year FY11; and up by more than 200% against same period in FY10
While some players came for the RWC and enjoyed the Horizon and New Zealand experience less than 10% of turnover related to RWC
Underlying core growth was attributable to the growth in the international player base now coming to Auckland from new players (up 30%) and an increase in repeat visitation
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8 Horizon
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Horizon Suites
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9 Horizon Suites
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Horizon Salons
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10 ‘Eight’ –our new VIP Table Gaming Facilities
‘Eight’, our new two storey facility, on top of the SKYCITY Hotel, primarily for New Zealand and Australian VIP table games players, opened on 31 August 2011
Our VIP customers have embraced the new facilities (which include a buffet and dining area and an extensive outdoor entertaining deck all overlooking the Auckland Harbor) and which are a quantum leap in quality, space and ambience from our previous VIP offering (the Pacific Room)
From 31st August to 31st October (63 days), ‘Eight’ has significantly outperformed against the old ‘Pacific Room’: average number of patrons per day has increased by over 40%; total Drop is up nearly 75% vs pcp
As a ‘members only’ precinct our view is that very little of this increase was attributable to the RWC. In fact volumes have continued to improve after the RWC
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‘Eight’ Lift Lobby
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11 ‘Eight’ VIP Gaming Lounge
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‘Eight’ VIP Entertaining Deck
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12 New ‘Diamond’ Gaming Lounge
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…and Federal Street ‐ 3 new Restaurants and Bars…
Since opening in August / September.....
has served over 5,000 premium steaks... and …“Under The Grill”… TV3 Tuesdays 8‐8.30pm 6 episodes
is serving over 3,000 covers a week, and has served almost 20,000 beers...
has averaged over 2,400 covers per week... has served over 15,000 coffees, 33,000 oysters and 5,000 snapper tortillas...
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13 Depot –by Al Brown
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The Grill –by Sean Connolly
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14 Red Hummingbird –by Luke Dallow
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Federal Street
Re‐affirmed SKYCITY’s positioning as Auckland’s leading entertainment destination
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15 Our new ‘Fortuna’ Seafood Buffet on Level 3
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and ‘Nation’s Clubrooms’ Sports Bar…. …home to the Vodafone Warriors and the SKYCITY Breakers….
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16 National Convention Centre (NCC)
In June 2011, SKYCITY was announced as the Government’s preferred developer to build the National Convention Centre in Auckland
We remain focussed upon successfully negotiating an outcome which would see SKYCITY investing $350m to deliver an iconic National Convention Centre, in return for: an extension of its Auckland casino licence beyond 2021; an increase in the number of gaming tables, multi terminal gaming machines and electronic gaming machines to meet demand and future growth; and other changes to increase efficiency and attractiveness of our product offering
We are negggotiating in good faith with Government to deliver a ‘Win/Win/Win’ a Win for New Zealand, a Win for Auckland and a Win for SKYCITY
We anticipate concluding these negotiations in the New Year
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National Convention Centre (NCC)
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17 Adelaide:
An Outstanding opportunity…
Adelaide and the Riverbank Precinct Development
Adelaide continues to trade well with revenues up over 6% for the 4 months
On Friday 4 November, was awarded South Australia's ‘Major Tourist Attraction’ at the SA Tourism Awards
On 6 October 2011 the State Government released its Draft Master Plan for the redevelopment of Adelaide’s Riverbank Precinct
This included a significant expansion and redevelopment of our Adelaide facilities providing the opportunity to create a truly integrated entertainment facility with a boutique 5 star hotel, international VIP gaming facilities, a more functional gaming floor, signature restaurants, bars and nightclub
The Draft Master Plan also provided for: a large volume pedestrian footbridge connecting the redeveloped Adelaide Oval directly to our entertainment precinct; and the adjacent development of a new ‘Festival Square’ events plaza
The SA Government has committed A$1 Billion to the Riverbank Precinct with the expanded Convention Centre, Adelaide Oval and pedestrian footbridge
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18 The South Australian Governments’ Adelaide Riverbank Precinct Master plan
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Adelaide Oval Redevelopment
On 28 July 2011 The Adelaide Oval Redevelopment Bill was passed approving the 50,000 seat stadium with a total budget of A$535m
On 27 October 2011, the State Government announced the awarding of the construction contract with a completion date of February 2014
Primarily for AFL and other major sporting events, AFL matches will be played for a minimum of 26 weeks per annum
The South Australian Centre for Economic Studies forecast: annual attendance will increase from ~400,000 currently to ~ 1.4 million p.a. direct expenditure of A$72m p.a. will be generated within the City of Adelaide
Our Adelaide facility is uniquely placed to be a major beneficiary of these significant developments with: significant increase in foot traffic / visitation positioned in the heart of ‘New Adelaide’
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19 Adelaide Oval Redevelopment
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Adelaide ‐ an integrated entertainment facility
We are excited by the prospect of the potential redevelopment and expansion of our Adelaide facilities, as presented in the Governments’ Draft Master Plan, transforming them into an Integrated Entertainment facility of world standing
But prior to investing we need certainty regarding future regulation
After making submissions to the Casino Task Force, seeking a ‘level playing field’ with other Australian casinos, we are awaiting the Governments’ advice as to its proposed future regulatory framework
Once we understand what the future regulatory framework looks like, we will be in a position to finalise our investment in Adelaide ensuring that we continue to dlideliver returns for shhhldareholders
There is no doubt we could justify an investment of up to (and potentially even over) A$250m under a ‘level playing field’ of regulation, allowing us to compete with our peers in Melbourne and Sydney
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20 Darwin:
Lagoon Resort Development
Darwin and the Lagoon Resort Development
Darwin’s local economy continues to experience challenges, with a soft tourism market over the recent dry season, contributed to by the high Australian dollar
After a challenging period following the introduction of smoking bans, our gaming revenues are now returning to growth
The Lagoon Resort development is progressing well and remains on time and budget
Subsequent to the awarding of the main contract and receipt of the necessary Government approvals relating to the Resort development, the SKYCITY Darwin casino licence has been successfully extended for a further 5 years to 30 June 2031
We remain confident in the future of our Darwin facilities and in their further growth as the major infrastructure projects planned for the Northern Territory and Darwin region take off
Additionally Darwin Evoo Restaurant was successful in winning Best Restaurant and Best Function and Event Centre at the NT AHA Gold Plate Awards
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21 Darwin Lagoon Resort Development Update
The Lagoon Resort, with its massive heated lagoon pool with sandy beaches and spa and restaurant facilities, is on track to open in mid July 2012 for the Northern Territory dry season and major events
A guaranteed fixed lump sum contract is in place wihith a major AliAustralian development contractor
Following on from our success in Auckland, the Lagoon Resort will now feature two dedicated private VIP gaming pavilions and adjacent VIP Villas for the exclusive use of international VIP clientele
Together with the NT Government and other industry participants we are working hard to secure international direct business class flights from Asia to DiDarwin. CtlCurrently there are none. We are optimi sti c this will chghange over the next 12 months and excited about the potential this will provide for Darwin
The Lagoon Resort will significantly enhance SKYCITY Darwin’s property position as the premier resort and entertainment destination in the Northern Territory
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Lagoon Resort Progress
Lagoon Resort Concept
Lagoon Pool and Villa – October 2011
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22 Lagoon Resort Progress
Beach ‐ Concept
Beach –October 2011
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Hamilton
23 Hamilton
Our Hamilton property continues to perform well. In the 4 months to 31 October 2011, revenues are up 12.7% to $17.2m
Of this, we estimate circa $0.8m is due to RWC visitors during the early stages of the tournament
We recently completed a renovation of our ‘Silk’ and ‘Rebo’ restaurants, which has had a positive impact upon visitation and guest experience
We are progressing our plans for the development of a $35m, 135 room, 4+ star hotel, above our existing gaming and entertainment facilities in Hamilton
This will bgbring much needed quality hotel accommodat io n to cent ra l Hatoamilton and significantly improve the facilities we are able to offer to our customers in a market which has continued to demonstrate growth
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Hamilton
Rebo
Silk
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24 Trading and Operations Update First Four MMthonths FY12
Rugby World Cup Impact
Over the first 4 months Auckland Revenues, including International Business, were up $23.6m (15.2%)
We estimate that Hamilton, which did well in the earlier stages, earned additional revenues of around $0.8m
The balance of the revenue uplift across Auckland and Hamilton we attribute to the property enhancements and other domestic growth factors
Data from NZIER suggests that the RWC displaced spending in some industries and we believe we experienced this particularly in September Gaming and F&B contributions were below expectations StSeptem ber was not a good month bbtut OOtbctober ffdared much bbttetter
Overall we estimate that $12m of revenue growth was attributable to the RWC, primarily earned during the finals period in Auckland from our hotels and our new outlets in Federal Street
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25 First Four Months Highlights ‐ Auckland (incl Gaming GST)
FY12 FY11 Movement (Jul‐Oct) (Jul‐Oct) $m $m $m % Gaming Machines 77.7 65.8 11.9 18.1% Table Games 39.1 41.8 ‐2.7 ‐6.5% Hospitality 48.5 37.3 11.2 30.0% Auckland Revenue Excluding IB 165.3 144.8 20.4 14.1% Auckland IB at Theoretical 14.0 10.8 3.2 29.5% Total SKYCITY Auckland 179.3 155.7 23.6 15.2%
FY12 FY11 Movement Table Games (Jul‐Oct) (Jul‐Oct) $m $m $m % Drop 208.2 189.2 19.0 10.0% Hold % * 19.1% 22.1% ‐3.3 PTS ‐15.1% Revenue (Win) 39.1 41.8 ‐2.7 ‐6.5%
* Hold % for Total FY11 was 20.6% (1H11 21.9%, 2H11 19.4%)
. Revenue (including Gaming GST) is shown above to facilitate Australasian comparisons. It also facilitates period on period comparisons given the GST rate change in New Zealand on 1 October 2010 . Normalised Revenues adjusts for International Business (IB) at theoretical win rate 51
First Four Months Highlights ‐ Group Revenue (incl Gaming GST)
FY12 FY11 Movement (Jul‐Oct) (Jul‐Oct) $m $m $m % Australian Casinos . Adelaide (A$) 53.4 50.2 3.2 6.4% . Darwin (($)A$) 43.5 43.7 (()0.2) ((7)0.7%) Total Australia (A$) 96.9 93.9 3.0 3.1% (NZ$) 122.1 120.2 1.9 1.6%
New Zealand Casinos . Auckland 165.3 144.8 20.5 14.1% . Hamilton 17.2 15.3 1.9 12.7% . Christchurch 1.4 2.2 (0.8) (37.4%) . Queenstown, Other 2.8 3.0 (0.2) (3.7%) Total New Zealand 186.7 165.3 21.4 13.0%
Casino Revenues before International (incl Gaming GST) 308.8 285.5 23.3 8.2% International Business at theoretical win rate 17.0 13.8 3.2 23.0%
Normalised Revenue (incl Gaming GST) 325.8 299.3 26.5 8.8%
Adjust International Business to actual win rate 3.5 3.0 0.5 Reported Revenue (incl Gaming GST) 329.3 302.3 27.0 8.9%
. Revenue (including Gaming GST) is shown above to facilitate Australasian comparisons. It also facilitates period on period comparisons given the GST rate change in New Zealand on 1 October 2010 .Normalised Revenue is adjusted for IB at theoretical win rate 52
26 Christchurch Update
Christchurch casino is fully operational, although not yet back to full trading (ie. 24 hrs / 7 days)
The physical environment around the casino is significantly impacting upon trading; the nearby Crowne Plaza and Copthorne Hotels with 500+ rooms are closed and awaiting demolition, as are other buildings such as the Convention Centre and Hotel Grand Chancellor
The casino building held up very well during the various quakes and there are no issues with insurance claims relating to physical damage. Business interruption / loss of profits claims are being prepared
We have recently renewed our insurance cover in Christchurch to maintain insurance continuity, albeit at a higher premium for FY12 (in the region of c.$0.5m) SKYCITY Group’s material damage and business interruption insurance is under a 3 year fixed rate policy, expiring FY13
SKYCITY continues to be supportive of the efforts in Christchurch, but suffice to say the outlook remains challenging
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Objectives and Outlook for FY12
27 Objectives for 2012
To again rank as a top performing TSR company on the NZX –being in the Top Quartile of public companies
To maximise and optimise the returns from the $50m capital expenditure in Auckland in FY11
To continue to grow our International Business primarily in Auckland, but also in Adelaide and Darwin
To successfully implement our new Bally Gaming system in Auckland
To open our new Darwin Lagoon Resort in July 2012
To successfully conclude our negotiations with the NZ Government and commence detailed ppglanning for the National Convention Centre
To successfully conclude our negotiations with the SA Government and commit to repositioning our Adelaide property to an Integrated Entertainment facility
To finalise our vision and approvals for Federal Street and commence capital works
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Outlook for FY12
Whilst the impact of RWC was less significant than expected, our underlying business performance has been very pleasing, with the momentum seen in 2H11, continuing into 1H12 and further buoyed by the facility improvements
We expect that AAklduckland will continue to bbfitenefit from the capital improvements and that they continue to underwrite sustained growth
Whilst we expect that the RWC provides some boost to consumer confidence, given the uncertain state of global markets, the timing of a sustained economic recovery in New Zealand remains somewhat uncertain
In Australia, the consumer discretionary environment appears to have softened, with the RBA recently lowering interest rates, albeit that we are pleased with the current trends of our Adelaide and Darwin operations
Based upon our current market conditions and trading patterns, we expect our full year normalised Group NPAT for the year ended 30 June 2012 to be in the $140 millions, up from $130.9m last year
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MEDIA RELEASE 11 November 2011
Strong First Four Months for SKYCITY $50m Capital Investments Providing Momentum
Highlights of the first four months of FY12 ended 31 October 2011 Total Shareholder Returns of 31% for the year ended 30 June 2011 Strong momentum from the second half of FY11 has continued into FY12 Flagship Auckland property Revenue of $179m, up $24m (+15.2%) Group Normalised Revenue of $326m, up 8.8% Recent $50m capital investments in Auckland showing strong returns on invested capital New Federal Street bars and restaurants reinforce SKYCITY as the premier entertainment destination in Auckland
SKYCITY Entertainment Group today announced at its Annual Meeting a positive result for the first four months of FY12, with strong operating momentum following on from the record Normalised Net Profit after Tax of $130.9 million for the year ended 30 June 2011.
FY12 has started well for the Group with the first four months normalised revenues up $26.5 million (+8.8%) over the PCP. The positive result has been partly driven by the Rugby World Cup finals in New Zealand in October, but is mainly due to the recent $50 million revitalisation of the Auckland property and the ongoing strategy to grow International Business.
For the Financial Year ended 30 June 2011, SKYCITY delivered Total Shareholder Returns (TSR) of 31%. This was made up of a 24.2% increase in the SKYCITY share price from NZ$2.89 to $3.59, and cash dividends paid of 9.25 cents in September 2010 and 8.0 cents in March 2011. This ranks SKYCITY as the 3rd best performing NZX listed public company out of the Top 20 NZX public companies, placing us at the 90th percentile delivering upon our objective of being a top quartile TSR performer.
Auckland Revenues at our flagship Auckland property, including Auckland’s share of International Business revenue, were up $23.6 million (+15.2%) from $155.7 million to $179.3 million.
Strong momentum was seen in Auckland’s gaming machine revenues, which were up $12 million (+18.1%), primarily due to the refurbished VIP Platinum Room and the successful opening of the new ’Diamond’ private gaming room. Pleasingly we saw a return to growth in table games drop (volume), which increased by 10% to $208 million due largely to the new domestic tables VIP facility, ’EIGHT’. Revenues from the SKYCITY Grand and SKYCITY Hotel, along with our bars and restaurants were up $11 million (+30%), with this mainly due to the RWC finals period in October.
SKYCITY Chief Executive Officer, Nigel Morrison says he is pleased to see that the momentum of the second half of 2011 has carried over into the 2012 financial year to date.
“Between January and September 2011 we completed a transformational $50 million revitalisation of the Auckland property. This included a $30 million investment to significantly enhance the standard and quality of our domestic and international VIP facilities and to deliver a better customer experience for these important guests. This has proven successful and is now driving solid returns on the invested capital.
“In August this year we opened ’EIGHT’, our new VIP two storey facility on top of the SKYCITY Hotel. This is primarily for the use of New Zealand and Australian VIP table games players and includes bars, a buffet and dining area and an extensive outdoor entertaining deck all overlooking the Auckland Harbour. This is a quantum leap from the old Pacific Room previously offered to VIPs and our customers have embraced these new facilities. Since opening, the average number of patrons visiting per day has increased by over 40% and the total drop from these players is up nearly 75%. As a ‘members only’ area, we believe that very little of this increase was attributable to the Rugby World Cup. In fact, volumes have continued to improve following the tournament’s end.
“The new Horizon Suites and Salons have been very well received by both existing and new international VIP players. We now have a quality product to market internationally and can accommodate four times as many VIP groups as we could 12 months ago.”
Auckland International Business turnover was up nearly 30% on PCP and up by more than 200% against the same period in FY10, with turnover exceeding $1 billion to 31 October 2011.
“While the impact of the Rugby World Cup was less significant than expected, our underlying business performance has been very pleasing and has been buoyed by the revitalisation of our Auckland property, which we believe will have long term benefits.
“Our three new signature restaurants and bars, Depot by Al Brown, The Grill by Sean Connolly and Red Hummingbird by Luke Dallow have all proven extremely successful with Aucklanders and visitors alike. They have introduced new customers to the SKYCITY precinct and reaffirmed SKYCITY’s positioning as Auckland’s leading entertainment destination.
“We are delighted with the initial success of our three new signature outlets and are keen to do more in Federal Street. We will continue to work closely with the Auckland Council to
2 transform Federal Street from an unattractive traffic thoroughfare to a destinational pedestrian-friendly restaurant, bar and entertainment precinct. This is a priority for us and we see this as an exciting opportunity to develop something great for Auckland.
“As part of the overhaul of our facilities in Auckland, we have also opened a new Fortuna seafood buffet on Level 3 as well as a new sports bar, The Nation’s Clubrooms, which is now home to the Vodafone Warriors and the SKYCITY Breakers, with whom we have recently signed a three year naming rights sponsorship deal. Congratulations to both the Warriors and the Breakers on their great seasons – let’s do it again next year!
“In June 2011, SKYCITY was announced as the Government’s preferred developer to build the National Convention Centre in Auckland. We remain focused upon successfully negotiating an outcome which would see SKYCITY investing $350 million to deliver an iconic National Convention Centre. In return, we are seeking to extend our Auckland casino licence, an increase in gaming product to meet demand and provide for future growth and changes to gaming regulations which would increase the efficiency and attractiveness of the product we are able to offer our customers. We are negotiating in good faith with the Government to deliver a ‘Win-Win-Win’; being a win for New Zealand; a win for Auckland and a win for SKYCITY. We anticipate concluding these negotiations in the New Year.”
Hamilton “Our Hamilton property continues to perform well with revenues of $17.2 million up $1.9 million (+12.7%) on PCP. Of this, we estimate circa $0.8 million is due to Rugby World Cup visitors who were present during the early stages of the tournament.
“In Hamilton, we are working through plans for the development of a $35 million, 4+ star hotel that will feature 135 rooms, built above our existing gaming and entertainment facilities. This development would bring much needed quality hotel accommodation to central Hamilton and significantly improve the facilities that we are able to offer to our customers in a market which continues to demonstrate growth.”
Rugby World Cup 2011 “Rugby World Cup 2011 was anticipated to drive a significant but temporary uplift throughout the hospitality industry; however actual results have been below expectations.
“Overall we estimate that approximately $12 million of revenue growth was attributable to the Rugby World Cup, primarily earned during the finals period in Auckland from our hotels (the SKYCITY Grand, which was the official hotel of the IRB and the SKYCITY Hotel), our new outlets in Federal Street and our other bars and restaurants. Our view is that there was only modest net gaming uplift over the tournament.
3 “During the finals period in October the atmosphere at the SKYCITY Grand and in Federal
Street was electric. The accolades we have received from rugby officials and international fans have been fantastic. Our staff and management did an outstanding job over this very demanding period and we thank them all for their amazing efforts.”
Adelaide “Adelaide has performed well over the first four months with revenues up over 6%. We are very proud that earlier this month, the Adelaide Casino was awarded the honour of ‘South Australia’s Major Tourist Attraction’ at the South Australian Tourism Awards. This reinforces our standing as a major player in the Adelaide community – and we can do so much more!
“In October, the State Government released its Draft Master Plan for the redevelopment of the Adelaide Riverbank Precinct. The Master Plan includes a significant expansion and redevelopment of the Adelaide Casino facilities which would provide the opportunity for SKYCITY to create a truly integrated entertainment facility, featuring a boutique 5 star hotel, signature restaurants and bars and expanded gaming facilities.
“The South Australian Government has committed A$1 billion to the Riverbank Precinct with an expanded Convention Centre, the redevelopment of the Adelaide Oval and a large pedestrian footbridge which will connect the Adelaide Oval directly with the Adelaide Casino. Adelaide Casino will be positioned in the heart of the ‘New Adelaide’.
“We look forward to working with the Government regarding its proposed future regulatory and operating framework for the casino. Once we understand what this looks like, we will be in a position to finalise our investment plans for Adelaide, ensuring that we continue to deliver good returns for shareholders. There is little doubt we could justify an investment of up to and potentially more than A$250 million under a scenario where we have a level playing field in terms of casino regulation, which would give us the ability to compete with our peers in Melbourne and Sydney and deliver Adelaide a world-class tourism and entertainment facility.”
Darwin “After a challenging period following the introduction of smoking bans, our gaming revenues are now returning to growth and we continue to believe that our Darwin property has significant potential. Darwin’s local economy continues to experience challenges with a soft tourism market over the recent dry season and the high Australian dollar encouraging locals to travel abroad. The recent ban on live cattle exports did not help the local Darwin economy either.
“We remain confident in the future of our Darwin facilities and their further growth as major infrastructure projects that are planned for the Northern Territory take off.
4 “Our Lagoon Resort development, with its massive heated lagoon and sandy beaches, spa and restaurant facilities, is progressing well and remains on time and budget. We plan to be open in mid July 2012 in time for the Northern Territory dry season and major events. Following on from our success in Auckland, the Lagoon Resort will now feature two dedicated private VIP gaming pavilions and adjacent VIP Villas for the exclusive use of international VIP clientele. We are working together with the Northern Territory Government and other industry partners to secure direct international business class flights from Asia to Darwin. Currently there are none but we are optimistic this will change in the next 12 months.
“Furthermore, we are pleased to advise that the SKYCITY Darwin casino licence has been successfully extended for a further five years to 30 June 2031.”
Outlook for 2012 “We are very pleased with the trends and momentum evident across our businesses for the first four months of this financial year. Whilst the impact of Rugby World Cup was less than expected, we believe the continued momentum in our core businesses across the group will deliver more value to shareholders over the longer term. We expect that our Auckland property will continue to benefit from the capital improvements and continue to deliver growth.
“While the Rugby World Cup may provide some boost to consumer confidence, given the uncertain state of global markets, the timing of a sustained economic recovery in New Zealand still remains somewhat uncertain.
“In Australia, the consumer discretionary environment appears to have softened with the RBA recently lowering interest rates. However, we are pleased with the current trends of our Adelaide and Darwin properties.
“Based upon our current market conditions and trading patterns, we expect our full year normalised Group NPAT for the year ended 30 June 2012 to be in the $140 millions, up from $130.9 million last year.” ENDS
The SKYCITY Annual Meeting will be webcast from 9.30am (NZT) and available on the link below. http://www.media-server.com/m/p/xw6zp888
For more information please contact: Scott Campbell General Manager Corporate Communications +64 21 426 342 +64 9 363 6025 [email protected]
5 Analysts and Investors please contact:
Aaron Morrison GM Business Development and Investor Relations +64 9 363 6205 [email protected]
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