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Skycity Entertainment Grp Announces Profit Of $55m

27 February 2004
Media Release – For immediate publication

Skycity Entertainment Group Announces
Interim Result Profit Of $55.1m

Trans-Tasman gaming and entertainment company SKYCITY Entertainment Group continues its strong growth record, reporting today an after-tax profit of NZD$55.1 million for the six months ended 31 December 2003.

The result is a 7% increase over the corresponding period last year, when SKYCITY reported an interim profit of NZD$51.7 million (before non-recurring items). As in past years, SKYCITY shareholders will share in this surplus with 90% of the profit to be paid in dividends. Of SKYCITY’s 24,000 shareholders, around 60% are New Zealanders and 25% Australian.

A fully-imputed dividend of 11 cents per share (cps) has been declared for the half year, up from the 10.5cps for the same period last year.

SKYCITY Managing Director Mr Evan Davies said the period had been a solid one for the Group, with strong performances delivered by the Auckland and Hamilton operations.

"We are pleased to consistently deliver strong Group results. Some properties are obviously performing ahead of others, however collectively the Group continues to achieve excellent results,” he said.

Group operating revenues rose 6%, from NZD$280 million to NZD$297 million. SKYCITY Auckland increased revenues by 5% to NZD$199 million, SKYCITY Adelaide was steady at AUD$53 million, with other New Zealand operations (SKYCITY Leisure, SKYCITY Hamilton and SKYCITY Queenstown) up 23% at a total of NZD$38 million.

Group EBITDA (operating profit before interest, tax, depreciation and amortisation) was up 7% on the corresponding period last year, with SKYCITY Auckland lifting 6% and other New Zealand operations up 26%. SKYCITY Adelaide EBITDA was marginally down by 2% compared to the corresponding prior period.

“Once again we are pleased with the performance of our flagship property, SKYCITY Auckland, particularly given the challenges the business faced over the period. This included closure of our original conference facilities to accommodate our new casino and bar development; the subsequent significant disruption caused to our main gaming floor as a result of the development; as well as the residual effects of SARs on inbound hotel visitation. Taking these factors into consideration the Auckland property’s performance was very strong,” said Mr Davies.

Operating revenues were up by 5% overall, with gaming revenues up by 7%, food and beverage revenues up by 1% and Sky Tower revenues up 3%.

“The Sky Tower continues to be Auckland’s most visited tourist attraction and its popularity was further demonstrated by winning the Visitor Attractions category in the prestigious New Zealand Tourism Awards last September,” said Mr Davies.

Other highlights for the period included the introduction of a new gift shop and theatrette at the base of Sky Tower, further enhancing SKYCITY Auckland’s offerings to domestic and international visitors.

“Auckland certainly continues to be a profitable business and is at the core of SKYCITY’s success, however we’re also pleased with the progress we have made throughout our wider operations,” said Mr Davies.

The Group’s newest property, SKYCITY Hamilton, reported a very strong performance for the period. Revenues were up 23% (from the second half of 2003), with EBITDA at 44% of revenues.

“SKYCITY Hamilton has exceeded pre-opening expectations and we are very confident in the future of that property,” said Mr Davies.

SKYCITY Adelaide operating revenues were steady at AUD$53 million, but up 5% on the previous six-month period (2H03).

"We recognise that there is still a lot to achieve at our Adelaide operation. We have had time to assess the challenging and changing South Australian market - both from a regulatory and competition perspective – and are focused on extending the range of entertainment offered at this property. The AUD$70 million redevelopment we have commenced will address the issues the property faces and significantly extend the potential of our Adelaide business,” said Mr Davies.

The AUD$20 million first stage of the project has commenced, with completion scheduled over the December 2004 – February 2005 period. It includes new restaurant and bar facilities, a function room and extended gaming facilities. The proposed AUD$50 million Stages Two and Three of the project include the development of underground carparking, a concert/special events centre and the redevelopment of existing gaming areas and food and beverage offerings.

“Final decisions regarding the extent of investment are conditional on a range of factors, including customer response to Stage One, economic conditions and developments in what remains a relatively uncertain regulatory environment,” said Mr Davies.

The Group’s boutique operation in Queenstown is demonstrating improved performance.

“It’s encouraging to see that we are progressing towards a full-year break-even result for our boutique SKYCITY Queenstown business. The operation’s revenues for the half-year were steady at NZD$3 million, with gaming machines up 22%, and food and beverage up 10%,” said Mr Davies.

The period also saw completion of an on-market share buyback of NZD$40 million of the company’s shares (part of an NZD$82 million capital management programme announced in November 2002) and the maintenance of the company’s 90% dividend payout ratio.

SKYCITY Leisure saw improvement in its cinema exhibition activities.

“Earlier this month SKYCITY Leisure reported a surplus of NZD$0.2 million for the interim period. While we were pleased with SKYCITY Leisure’s New Zealand operations for the first half year, the result was impacted by several unusual items including a tax-related restatement of the prior year Fiji surplus and the timing of cinema fit-out contributions,” said Mr Davies.

On-line bookmaking company Canbet Limited, in which SKYCITY Entertainment Group has a 33% shareholding, had a disappointing first half and in its first period after relocation to the United Kingdom the business incurred a loss of AUD$4.1m. The Canbet board has advised that it is reviewing the company’s performance with a view to initiating remedial actions and revenue initiatives.

The remainder of the year will be an active period for SKYCITY, with the purchase of the MGM Grand Darwin and development work in Auckland and Hamilton extending the Group’s earnings capacity and significant progress being made in relation to the Adelaide redevelopment.

“The second half year should include finalisation of the regulatory approvals process associated with the acquisition of the MGM Grand Darwin. This complex already operates gaming, hotel and food and beverage operations and that mix obviously sits well with the SKYCITY Entertainment Group business model, which encompasses the provision of multi-faceted entertainment experiences,” said Mr Davies.

The SKYCITY Auckland Convention Centre and SKYCITY Grand Hotel developments are progressing on time and to budget. Situated opposite SKYCITY Auckland, on Federal Street, the NZD$140 million development represents the largest commercial project currently underway in the city and comprises five floors for the new convention centre (opening in April) with another 15 levels under development, to become the new 316-room SKYCITY Grand Hotel (scheduled to open in April 2005).

“We are very pleased with the market response to the convention centre to date. It has been extremely well received by the industry, with forward bookings already in place through to 2006,” said Mr Davies.

SKYCITY Hamilton’s new full service function centre will open at Easter. The conference and function facilities are being developed utilising space at ground level, at the existing SKYCITY Hamilton complex, with rooms overlooking a paved promenade along the riverbank.

Today’s announcement also marks the fourth year of SKYCITY’s remuneration incentive programme for waged staff. The company employs more than 3,700 staff across New Zealand and Australia, and all full time and permanent part time staff at SKYCITY properties are eligible to participate in bonus schemes linked to financial results, customer service targets and individual performance.

“Our incentive programmes ensure staff have the opportunity to share in the company’s success and are rewarded for the role they play in delivering a compelling customer experience. With today’s payments of over $780,000 we will have paid over NZD$4.5m in bonuses to waged staff since commencing this initiative,” said Mr Davies.

SKYCITY Entertainment Group Interim Result 2004

Fact Sheets

Group Financial Summary 1H04 v 1H03
- Profit up 7% NZD$55.1m (+ NZD$3.4m before non-recurring items 1H03)
- Revenues up 6% (+ NZD$17m)
- Earnings before interest, tax, depreciation and amortisation (EBITDA) up 7% (+ NZD$8.6m)
- Earning before interest and tax (EBIT) up 8% (+ NZD$7.8m)
- Earnings per share (EPS) up 6% from 12.6 cps to 13.3 cps
- Wealth created $866m in year ended 30 June 2003 per Stern Stewart report

Key Features of the Group Financial Result
- 7% increase in Group NSAT
- Revenue and margin growth at Auckland despite main gaming floor construction disruption, SARs residual affecting hotel revenues, and no conference facilities available during the period
- Auckland EBIT up 7% from NZD$86.5m to NZD$92.2m
- Strong start continued at SKYCITY Hamilton with 1H04 revenues up 23% on 2H03 and EBITDA at 44% of revenues
- Adelaide revenues flat 1H04 over 1H03 but up 5% over 2H03
- Queenstown trends are encouraging, especially following the major gaming machine upgrade (October 2003 – February 2004)
- New Zealand cinema revenues up 14% at SKYCITY Leisure


First Half Result 1H04: SKYCITY Auckland
- Strong result in Auckland
- Revenue and earnings growth despite main gaming floor disruption, SARS residual effect(re hotel revenues) and non-availability of conference facilities
- “PLAY” casino and Bar 3 opened 2 December 2003 - 15% gaming expansion plus new bar experience
- EBITDA up NZD$5.9m, EBIT up NZD$5.7m over 1H03
- EBITDA margin up 0.2% points to 53.2%, EBIT margin up 0.5% points to 46.3%
- SKYCITY Auckland Convention Centre on time and to budget for scheduled opening in April. Forward bookings for convention centre ahead of expectations
- SKYCITY Grand Hotel (5 star, 316 rooms) on schedule for April 2005 opening
- Revenues up 5% (+ NZD$10.1m)
o Gaming up 7% (+ NZD10.6m)
o F&B up 1% (+ NZD$0.1m)
o Hotel, conference down 8% ( - NZD$0.8m)
o Sky Tower up 3% (+ NZD$0.1m)
o Parking up 7% (+ NZD$0.3m)
o Complimentaries steady at 2.4% of revenue

First Half Result 1H04: SKYCITY Hamilton
- Strong initial performance continued
- Hours extended in response to customer demand
- Additional 3 tables and 39 gaming machines in June 2003
- VIP gaming room added (June 2003)
- Function Centre scheduled to open Easter 2004
- Revenues up 23% on 2H03 at $15.5m
- EBITDA margin at 44% (v 32% in 2H03)
- EBIT margin at 27% (v 14% in 2H03)

First Half Result 1H04: SKYCITY Queenstown
- Revenues steady at NZD$3.0m
- Gaming machines up 22%
- Table Games down 24% (limited premium play in 1H04)
- Food and Beverage up 10%

First Half Result 1H04: SKYCITY Adelaide
- Revenue flat on 1H03 at AUD$53m, but up 5% over 2H03
- EBITDA steady on 1H03 at AUD$12.5m
- Expanded / enhanced facilities required to attract new customers. Existing gaming and entertainment offerings not sufficiently attractive to existing or potential customers
- SKYCITY Adelaide major redevelopment project (AUD$70m) announced in December 2003

Adelaide Facility Expansion and Upgrade
- Stage 1 commenced with completion scheduled for December 2004 - January/February 2005
- Stages 2 and 3 are subject to customer response to Stage 1 and to the regulatory environment
- Stage 1: AUD$20m
–development of the North Terrace-fronting section of the building
–new bistro-style restaurant (300 seats) with indoor and outdoor seating
–new bar featuring live entertainment
–new North Terrace street level pub / bar
-new gaming area incorporating 20 tables and 120 gaming machines
–private function room
- Stages 2 and 3: AUD$50m
–underground carparking (450 spaces)
–dedicated entertainment facility for concerts and special events
–redevelopment / refurbishment of the existing gaming areas
–renovation of existing food and beverage offerings
–redevelopment and landscaping of Station Road
–progressive implementation over three years FY05/06/07

ENDS

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