Sky City Entertainment Group 2002 Annual Meeting Managing Director s Address Thank you Jon and good morning ladies and gentlemen. 2002 has been another busy and successful year for Sky City. Jon has alluded to Sky City s market value of equity now exceeding $1.6 billion. On behalf of the management of the company, let me assure you that we continue to be very focused on growing the business and producing the financial results which are driving these increases in shareholder value. Our task is to deliver the growth in earnings that Sky City shareholders have come to expect from us, and we continue to concentrate our efforts on future performance. As the company s Annual Report shows, we have increased revenues across all sectors of the business, we have generated record earnings for shareholders and we have expanded the business. 1
In August we were pleased to report another record earnings (before non-recurring items) performance, up 21% from $70.1 million in 2001 to $85.1 million in 2002. And as in previous years, 90% of these earnings were returned to shareholders, by way of a 38 cent fully-imputed dividend. Although we have discontinued the dividend reinvestment plan after the October dividend, on the grounds that there is not a requirement for the company to issue new equity in lieu of cash dividend payments, the 48% of shareholders who elected to receive their final 2002 year dividend in shares, rather than in cash, shows a high level of confidence from shareholders that the board and the management have the company headed in the right direction. I would like to comment on some of the highlights of the past year which will give you further insight into the progress we have been making. Highlights of 2002 During 2002, we have continued to position the Sky City Entertainment group as a diverse, multi-faceted entertainment company. 2
We had considerable work to do to secure the necessary capital restructuring of Force Corporation and that was successfully concluded in February of this year. Having secured Force Corporation s financial future, we were then able to direct attention to developing the important customer synergies which we believe are of benefit to both companies. A much improved financial result for the year ended 30 June 2002 and the renaming of the company as Sky City Leisure Limited show that this company has entered a new era. The naming association with Sky City will clearly stand the company in good stead for the future. Our first half result for Sky City Adelaide disappointed a market which was looking for a more rapid turnaround of that property. There was some cost acceleration at the Adelaide property following our acquisition and post the refurbishment phase, as we and our Adelaide staff came to terms with the challenges of growing the business whilst controlling costs. As a consequence, we focused hard on the cost issues and pushed hard at the revenue opportunity. Market reaction to the much improved second half result was significantly more favourable. Going forward, we expect Sky City Adelaide s financial performance to continue to improve year on year as we look to grow revenues and hold costs. 3
The Sky City Auckland complex continues to deliver the entertainment opportunities that Aucklanders and visitors to Auckland are clearly looking for and have come to expect at Sky City. Despite entering our seventh year of operations during the 2002 financial year, the Auckland complex continued to deliver revenue growth across the board. Gaming, food and beverage, Sky Tower and Sky City Hotel were all up by more than 6% in revenues over their prior year performances. Carparking was the only Auckland business unit to grow revenues by less than 5%, but still achieved 3% growth despite a reduction in the number of available carparks following demolition of the Federal Street carpark. As part of our wider entertainment positioning, Sky Jump and Vertigo (the Sky Tower mast climb) both commenced operations during the 2002 year. We opened a new seafood buffet restaurant on Sky Tower, the Observatory, in April and we have recently completed a full refurbishment of our signature Sky Tower restaurant, Orbit. In Auckland, we are now well-advanced with the Convention Centre project on Federal Street, with completion scheduled for December 2003. When completed, this will be an excellent facility which will fill a significant gap in Auckland s infrastructure as a destination for medium to larger sized conferences and banquet events. 4
The increasing popularity of the gaming product at Sky City Auckland will be enhanced further following the expansion of the main gaming floor onto level 3 of the complex. This project is also scheduled for completion in December 2003. The Louis Vuitton challenger series is well underway on the waters of the Hauraki Gulf, and Auckland seems to be adopting the positive mood that was apparent during the last Louis Vuitton and America s Cup regattas. It should be a very busy summer in Auckland and we believe this will have positive spin-off for our Auckland business. Sky Riverside opened to the public in September and has been enthusiastically received in the Waikato region and beyond. We are very pleased with the quality and ambience of the facility and the overall experience we have on offer in Hamilton. At this early stage, we are confident that Sky Riverside has got off to a very good start. However, it is early days yet in Hamilton, and we anticipate it will take some 3-4 months before a more predictable pattern of performance will emerge. The Responsible Gambling Bill is expected to become law within the current parliamentary session. As a responsible gaming provider, Sky City supports the various protection mechanisms incorporated within the Bill. 5
During the course of the 2002 year, we have continued our commitment to host responsibility and problem gambling programmes. We continue to operate our training programmes on the responsible service of alcohol and on problem gambling identification and mitigation across the company s workforce. In addition, we have appointed Lindsay Todd, previously General Manager Security and Surveillance at Sky City Auckland, to the newly created position of General Manager Host Responsibility for the Sky City group. This senior level appointment shows the commitment we, as a company, are making in this important area of our business. I have outlined the key features of the financial performance of the group during the 2002 year. I will not detail the financial performance any further as it is set out in the Annual Report and I can respond to any matter, Mr Chairman, at question time. However, as a brief reiteration, let me say that: we were very pleased, again in 2002, by the strength of earnings generated by the Auckland operations we were pleased with the second half performance in Adelaide and we are confident that this upward trend in performance will continue 6
we were pleased with the trading performance achieved by Sky City Leisure and anticipate that the company will benefit from being unencumbered by its previous financial difficulties Canbet continued its strong growth pattern and returned a small profit for the year, but representing a substantial turnaround from previous year losses Sky Alpine s financial results have proved disappointing, but our Queenstown operation reported a significant improvement in its second half compared with its first half. A move towards breakeven at the EBIT line for the 2003 financial year is anticipated. Actual Performance v Planned At our 2002 result briefing to the financial sector in August, we reviewed our actual performance for the year against what we said we would be looking to achieve when the year began. This review, and accountability for actual results, is a fundamental concept of good corporate governance. So let me share that review with you now. At our 2001 result briefing, we said we would grow revenues and operating profits at Sky City Auckland, and we achieved that. Auckland revenues were up 9% to just under $350 million and 7
operating profits, as measured by earnings before interest, tax and depreciation, were up 6% to more than $180 million. We said we would look to grow visitation and spend per customer at Sky City Adelaide and we achieved that. In Adelaide revenues for the 2002 year were up 15% on the prior year. At Sky Alpine we said we would reduce the cost base of the business to better align with lower revenues. We did manage down the cost base but we have more work to do before we can be satisfied that our Queenstown operation is at its optimum operational specification. We were targeting the opening of the Sky Riverside complex on time and to budget, and as has become our track record with capital projects, we achieved that with a very successful opening on the 19 th of September. For Canbet, we were looking to grow revenues but to increase the hold percentage and to reduce that company s overall risk exposure. The achievement of a profit for the Canbet year shows we made the progress we were looking for. 8
At Sky City Leisure we needed to achieve a particularly difficult capital restructuring and then move to develop the potential customer synergies for both operations. The capital restructuring proved more difficult than anticipated and our move into securing the customer synergy benefits was delayed somewhat. However, we are now well-advanced in our progress towards realising these synergies. We were looking to achieve growth in value for shareholders and as Jon pointed out earlier, that was achieved, with the company s capitalisation increasing by 50% between last year s meeting and now. Key Success Factors Each year at this meeting, we review the strategic success factors for Sky City. These key criteria do not change substantially from year to year but a constant review against these performance principles is an important focus to ensure we remain on track with our strategic plan. Firstly, we see our core business as providing a range of quality gaming and entertainment experiences which appeal to New Zealanders, Australians and international visitors to our properties. 9
Secondly, we are extremely well-positioned to benefit from growth in gaming and entertainment spending in our markets. Thirdly, our business has shown resilience through the various economic cycles - in New Zealand, Australia and internationally. Fourthly, we are accepted by regulatory authorities and the public at large as a highly responsible casino operator. We take our regulatory and community responsibilities seriously and our regulators know this. The fifth component of our strategic framework is that our results should be at the forefront of performance in this part of the world. We have consistently achieved results which make us the leading gaming operator in Australasia and we have no intention of relinquishing this position. And finally, we have built a track record of superior returns to shareholders. We have consistently grown the Sky City dividend, from 14.5 cents in 1997 to 38 cents this last year, and Sky City shareholders who have held their shares during the last 12 months have done very well as a consequence of the continued re-rating of the Sky City stock on the NZSE and the ASX. 10
Conclusion I am confident that at next year s meeting we will again be talking about increased financial performance, continuing the pattern we have become familiar with, of consistently higher revenues and earnings. It is my pleasure as Managing Director of this company to be able to report such results to shareholders and I look forward to continuing to do just that. Thank you for your attention today. Jon Hartley will now move to the formal part of the meeting, being the resolutions as outlined in the notice of meeting. Jon 11