FIRST HALF RESULT
The directors of Sky City Limited are pleased to announce an after tax surplus of $22.4 million for the six months to 31 December 1998.

DIVIDEND
A fully-imputed interim dividend for the 1998/99 financial year of 17 cents (first half 1997/98, 12 cents) per share will be paid to shareholders on 30 April 1999. The dividend entitlement date is anticipated to be 16 April 1999.

KEY FEATURES OF THE HALF YEAR
The half year ended 31 December 1998 represented a period of continued growth in earnings and organisational consolidation following termination of the Harrah's management contract on 30 June 1998.

Some of the highlights of the half-year:

• one hundred new gaming machines were installed during December in response to continued growth in customer demand. Slot win averaged $346 per unit per day during the six month period, up 14% on the same period last year.



• two new restaurants opened during the period. Rebo, our new cafe and bar located in the Atrium, opened in November, whilst Ming Court, a contemporary Asian restaurant, opened on 1 January 1999.



• an extensive programme to enhance the main gaming floor experience (product, service, environment) has commenced. A lighter, brighter, more service-oriented experience for our customers will result.



• gross margin performance of 65.5% increased from 63.3% in the corresponding period last year and EBITDA at 46.6% increased from 42.4%.



• our new gaming management team has delivered the results we were seeking and we have added additional top-level experience to manage our hotel operations. Jan Hunt (previously General Manager Millennium Hotel Queenstown) has joined Sky City as General Manager Hotel.



• a total of 1.8 million shares were purchased during the second phase of the share buyback programme at an average price of $4.81. A total of 3.75 million shares were bought back during the 1998 calendar year at an average price of $5.07.



• we were pleased to secure up to a 55% equity participation (and the operator contract rights) in the proposed Hamilton casino project.



• revenue increased by 5.6% ($6.8 million) over the corresponding period last year, in line with our projection of a 5% increase, as foreshadowed at the release of the 1998 result in August.



• a net tax-paid surplus of $22.4 million is reported for the half year and continuation of our 90% dividend payout policy (40% as the interim dividend) returns a record 17 cents per share interim dividend to shareholders. Previous interim dividends have been 13 cents in 1997 and 12 cents in 1998.



• this strong result, during a generally weak economic period, has reinforced the resilience of Sky City's trading performance.

ELEMENTS OF THE RESULT

Revenues

• gaming revenues increased 7.7% over the corresponding period last year. Although casino patronage numbers remained flat at an average of 12,100 per day, win per customer increased to $53.10.



• table game revenues were flat against first half 1997/98. However slot revenues increased by 15%, resulting in a gaming revenue average (including GST) of $640,000 per day, compared to $595,000 per day achieved during the corresponding period last year.



• Sky City Hotel and Sky Tower both felt the effects of adverse tourism sector impacts. The onset of the millennium year events is expected to improve the prospects for tourism-related activities in Auckland, but in the meantime Sky City Hotel and Sky Tower were down on the revenue levels they achieved in first half 1997/98; Sky City Hotel by 17% (a combination of occupancy and room rate pressures) and Sky Tower by 16%, when calculated on an average revenue per day basis.



• in making the half year comparisons, it is important to recognise especially in respect of Sky City Hotel and the Sky Tower that the Asian economic downturn affected only the month of December of the prior period, whereas the effects of the Asian crisis were still being felt throughout the full six month period to 31 December 1998.
  
  Hotel revenues were impacted by the loss of a major aircrew contract to a competing property, the downturn in tourism numbers and an increase in Auckland hotel room supply as the city readies itself to take advantage of the Year 2000 opportunities, including of course the America's Cup regatta. Sky Tower opened to huge public interest in August 1997. We are pleased with the level of on-going support for the Sky Tower experience.



• carpark revenues continue to increase, up 11% on the previous half year.



• total revenues, driven mainly by gaming revenue growth, increased 5.6% over the corresponding half year, during a period of some international and domestic uncertainty and a generally tight domestic economic environment.

Margin Performance and Cost Management

• ongoing attention to cost management (particularly labour scheduling) saw gaming gross margin break the 70% level, at 70.7% for the half year, up from 67.5% in the previous half year.



• whilst food and beverage revenues (first half 1998/99 cf first half 1997/98) were flat, gross margin performance improved to 21.2%, up from 17.7%.



• as a consequence of the reduction in revenues (both volume and price driven) and the relatively fixed cost nature of Sky City Hotel and the Sky Tower operations, gross margin results eased to 51% (from 59%) and 43% (from 52%) respectively.



• carpark gross margin continues to perform above 90%.



• overhead costs reduced by 4%, due to cessation of the Harrah's management fee, offset by increased marketing and promotions expenditure (to drive revenues) and our share of the Hamilton casino licence application costs incurred to date. We continue to focus on overhead expenditure levels as part of our ongoing cost management philosophy.

CASINO LICENCES
Sky City is currently involved in two casino licence applications. Our joint venture application (with Skyline Enterprises) for a casino licence in Queenstown is currently being considered by the Casino Control Authority (CCA), with a decision expected sometime during February/March. In our 1998 Annual Report, we commented that our proposal for a boutique-sized casino is well-suited to the Queenstown environment and deserves to be favourably regarded by the CCA - we retain this view following completion of the licence hearings last December. The Hamilton casino licence hearings have recently commenced with a decision in Hamilton anticipated sometime mid-year 1999. If these applications are successful, the casino facilities could be expected to open in both Queenstown and Hamilton early in 2001.

SKY CITY AND THE COMMUNITY
Sky City employs over 2,000 people at its Auckland operation. The company is involved in a number of significant community sponsorships such as the Sky City Starlight Symphony, the Starship Children's Hospital, Auckland rugby and netball and the Special Olympics Foundation. In addition to these larger sponsorships, Sky City makes numerous grants and donations of funds and services to a wide range of community groups, schools and sports clubs throughout the Auckland area. Sky City makes a substantial contribution to both central and local government revenues through taxes and levies and the regulatory costs of the Casino Control Authority and the Department of Internal Affairs are met in full through levies charged to the casino companies. The Sky City Community Trust receives 2.5% of the net tax-paid surplus of Sky City's business operations. The Trust has recently invited applications for its fourth grants round. A wide range of community projects have benefited from grants made by the Trust since the commencement of operations in February 1996.

AFTER THREE YEARS
After only three years in operation, we can reflect on some major achievements. Our operational performance places us at the forefront of the listed casino companies in Australasia. We have provided a range of new and exciting entertainment options for Aucklanders and visitors to Auckland alike. And we have made a significant contribution to the Auckland community through grants, sponsorships, donations and other activities.

FY99 PROSPECT
In August last year, we estimated a revenue growth of 5% for the 1999 financial year and a net tax-paid profit result in the order of $40-$41 million. After the first six months of the current financial year, we remain confident of achieving our 5% revenue growth target and, after a strong profit performance in the first half and given a continuation of the first half trading performance, we believe a profit result in the order of $42-$43 million is in prospect for the financial year to 30 June 1999.

E W DAVIES
Managing Director
22 February 1999