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Skycity Entertainment Group Announces Profit

22 August 2005


Trans-Tasman gaming and entertainment company SKYCITY Entertainment Group today reported a NZ$104 million profit for the year ended 30 June 2005.

The result is a 4% increase on the FY04 year when SKYCITY returned a net profit of NZ$100.2 million (this compares FY05 NSAT against FY04 NSAT after the Canbet write-off of NZ$20.9 million, the comparison against FY04 NSAT before the write-off is a $17 million decrease).

The result is at the upper end of the reduced earnings expectation of NZ$100-103 million announced in May. The reduced expectation was issued because of the impact of non-smoking legislation being greater than originally anticipated, and delays in the introduction of both ticket technology and the completion of Stage 1 of the Adelaide refurbishment/redevelopment project.

SKYCITY shareholders will again share in the performance of the business. A fully imputed final dividend of 12.0 cents per share has been declared, equalling the 12.0 cents per share interim dividend shareholders received at the half year. While the 24.0 cents per share total dividend for FY05 is 2.5 cents less than FY04, it maintains the 90% benchmark set in previous years. The dividend reinvestment plan reintroduced in April will continue to apply. Of SKYCITY’s 25,000-plus shareholdings, around 60% are held within New Zealand and 25% in Australia.

SKYCITY Managing Director Evan Davies said the period had been challenging for the Group as it dealt with the smoking ban in New Zealand, the ticket technology (Auckland) and Adelaide Stage I delays, various regulatory pressures and the costs associated with completing significant capital projects and new investments.

“The impact of smoking bans will continue to restrain earnings growth for our New Zealand operations during FY06, and regulatory restrictions are likely to continue to confine business development until they settle within satisfactory frameworks where co-ordinated, targeted and effective policy can be initiated.”

“However SKYCITY is very strongly placed heading into its 10th year. Despite the various pressures, FY05 EBITDA (operating profit before interest, tax, depreciation and amortisation) from New Zealand operations and investments was 1% ahead of FY04. FY06 will see a full 12-month contribution from the Grand Hotel, ticket technology – now up and running on 300 gaming machines in Auckland – the now-completed Stage I redevelopment in Adelaide and strong economic growth momentum in Darwin,” Mr Davies said.

“There has been significant expansion activity in FY05, with the completion of the Convention Centre, Grand Hotel and Platinum, Pacific and International Room facilities in Auckland, the redevelopment in well despite the smoking ban, with the attractiveness of the product offering for premium play activity offsetting the smoking ban and lifting revenue from NZ$6.5m to NZ$7.5m and EBITDA from 12% to 17% of revenues at NZ$1.3m.

SKYCITY’s 40.5% interest in Christchurch Casino made its first contribution in FY05. The property is accounted for as an investment (not consolidated), so dividends and interest are reported as revenue: NZ$7m in FY05. Christchurch’s FY05 result was impacted by the smoking ban and note acceptor limitation.

SKYCITY Leisure was impacted by a lack of high-quality movie product during the period but maintained revenues within 5% of FY04. EBITDA at NZ$11.4m was steady on last year. SKYCITY Metro, SKYCITY Leisure’s entertainment centre on Auckland’s Queen Street, maintained good occupancy levels throughout the period and was close to fully leased at year-end.

SKYCITY Adelaide revenues eased 2% from A$110m to $A108m year on year. Combined with a 6% increase in expenses this reduced EBITDA from 23% to 17% of revenues at A$18m. Contributing factors were reduced gross income on Grange Room operations, a Liquor and Gambling Commission levy of A$850k, the delayed completion of the new facilities and smoking restrictions at table games from December 2004.

The first stage of the redevelopment opened in June and, despite having made only a three-week contribution in FY05, is performing in line with pre-opening projections. “Stage I has been well received by new and existing customers and proceeding with Stages II and III of the A$70m development is dependent on the receipt of required approvals for the car parking project,” Mr Davies said.

SKYCITY Darwin made a significant contribution in FY05. With total revenue at A$77m and EBITDA at A$30m for the period, earnings are ahead of pre-acquisition expectations.

“This was a strong first year under SKYCITY management with revenues and EBITDA up 9% and 8% respectively over the comparative period in FY04 when the property was under previous management. Rebranding as SKYCITY Darwin has been completed with little disruption and the company is well received in the local community. Hotel occupancy and average room rate are also up on what was achieved under previous management,” said Mr Davies.

Looking forward, Mr Davies expects that the impact of the smoking bans in New Zealand will abate over approximately an 18-month period and that the new gambling regulations will continue to develop with respect to harm minimisation frameworks and initiatives.

“SKYCITY has always adopted a pro-active approach to host responsibility and is supportive of initiatives which will be effective in the host responsibility arena and which will provide least inconvenience and/or disruption to customers.

We have established effective working relationships with the new regulators in New Zealand (DIA, Gambling Commission) and will continue to build on our already well-established relationships with the problem gambling service sector,” Mr Davies said. “This is reflected in South Australia where there is
an effective working relationship between gaming operators and the problem gambling service providers, with agreement reached on appropriate intervention strategies and Codes of Practice frameworks.”

“SKYCITY’s FY05 financial results were significantly impacted by regulatory issues, including smoking bans in New Zealand. But we have expanded our balance sheet, enhanced shareholder value and are increasingly acknowledged as the leading entertainment brand in New Zealand, South Australia and the Northern Territory,” said Mr Davies.

“We are a strong franchise, well-positioned for the future as we head into our 10th year of operation.”


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