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New Zealand operations have demonstrated good recovery from the smoking bans imposed in New Zealand
in December 2004 and customer response to new facilities at both our Auckland and Hamilton properties has been
very encouraging.
Australian operations moved forward strongly in both Adelaide and Darwin. The new Southside facilities at
SKYCITY Adelaide have proved popular with existing and new customers and SKYCITY Darwin has performed
well ahead of expectations in its second year under SKYCITY management.
In July 2006, SKYCITY acquired 100% ownership of the New Zealand cinema chain previously owned in a 50:50
joint venture with Village Roadshow. This increased shareholding extends SKYCITYs entertainment offering
in New Zealand. It is our intention to rebrand the New Zealand venues as SKYCITY Cinemas during the
next 12 months.
Capital investment in our properties continues to be a key focus. This enhancement and expansion of our core
business assets will ensure SKYCITY appeals to a wide range of customers, and that the facilities and services
they experience at SKYCITY will continue to meet and exceed their expectations.
Host Responsibility
At SKYCITY we are firmly committed to host responsibility and fully recognise our harm minimisation responsibilities.
We believe this focus is in the best interests of both our customers and our shareholders.
Our objectives are fully compatible with the intentions of the gaming legislation, which requires harm minimisation
programmes and outcomes that minimise the risk to those who may encounter difficulties with their gaming activities.
SKYCITYs programmes have been developed over an extended period of time and we are confident we remain
significantly ahead of the legislative requirements.
The increased regulatory focus on the potential risks for some members of the community is welcome and
we anticipate working closely with regulators at all operating sites to optimise programmes and outcomes.
During the course of the 2005/06 year, we have further enhanced the companys effectiveness through the
recruitment of specialist host responsibility and problem gambling personnel.
2005/06 and Beyond
SKYCITY delivered a strong result for the 2005/06 year in terms of both revenue and earnings performance, with
net profit after tax at $120.1 million representing a 13% increase over the prior year.
We have maintained and enhanced our important relationships with gaming regulators in each of our
jurisdictions. And we have a confident view of the future based on our existing position and on our plans for taking
the business forward.
Our assessment is that we are essentially through the adverse impact effect from the imposition of smoking bans
in New Zealand. We are also confident that our renovation plans for the Auckland main gaming floor will help to drive
revenues at our flagship Auckland property into the future.
Additional facilities and enhancement of the overall entertainment experience at SKYCITY Hamilton means
the strong financial performance achieved to date can be expected to continue. New cinema projects scheduled
for the next 18 months, with 26 new screens in Auckland, Hamilton and Wellington, augurs well for revenue
performance in our cinema operations.
At SKYCITY Adelaide, we look forward to the next stage of redevelopment, following the success of the Stage I
expansion that included a new bar, restaurant and gaming space. At SKYCITY Darwin, we are planning additional
investment to capitalise on the growth momentum in this business.
The 2005/06 Result: Key Elements
When we released our 2005/06 result in August, there was some disappointment from the investment community
that our second-half results had not matched the very strong first-half performance at SKYCITY Auckland.
However, if the 2005/06 year is taken as a whole, the effective recovery in the Auckland business from
smoking bans and the $20 note restriction on gaming machines is clearly evident when compared to 2004/05.
Within the 2005/06 year, the first-half performance at Auckland was particularly strong and raised second-half
expectations. However, a number of internal and external factors, including higher petrol prices and interest
costs, contributed to the second half being below this heightened expectation. Nevertheless, we are satisfied
with the underlying performance of SKYCITY Auckland and are confident of continued growth in the Auckland
business as we move into the 2006/07 year.
A review of the results achieved by our properties during 2005/06 reflects well on the efforts and initiatives of
management and staff throughout the Group.
- SKYCITY Auckland revenues for 2005/06 were 8% ahead of the previous year. Revenue increases were
reported across all sectors with the Convention Centre, SKYCITY Grand Hotel, and gaming operations the
major contributors to the revenue growth.
Increased resource in key areas, including regulatory
and host responsibility, resulted in indirect costs being higher than the previous year and this reduced
operating earnings. A significant component of the increase in indirect costs represents a re-basing of cost
structure and we anticipate a more historical trend pattern from now on.
- SKYCITY Adelaide delivered a strong revenue performance, with gaming up 18% and food and
beverage up 50%. The overall revenue increase of 21% flowed through to a 53% increase in operating
earnings before depreciation. Earnings after depreciation and amortisation of casino licence (EBIT)
almost doubled the level achieved in the prior year. This strong turnaround in the Adelaide performance is
a consequence of SKYCITYs strategy of adding to and enhancing the presentation of our properties and the
on-site experience for our customers.
- SKYCITY Darwin continued to exceed expectations in its second year under SKYCITY management, with
revenues up 10%. This revenue growth was achieved despite removal of the community slots rebate from
1 July 2005. Gaming revenues rose 8% and food and beverage and hotel and convention revenues
were up 18% over 2004/05. Underlying earnings at Darwin, adjusting for removal of the community slots
rebate, delivered an impressive 26% increase over the prior period.
- SKYCITY Hamilton produced an excellent performance, significantly ahead of expectations,
with revenues up 14% and operating earnings after depreciation up 20%.
- SKYCITY Leisure maintained revenues in line with the prior year, despite a mixed run of film titles. However,
increased premises rentals and wages costs meant operating earnings were down on the prior period. We
anticipate that the 26 new cinema screens coming onstream during the next 18 months will add significantly
to the revenue potential of our cinema operations.
- SKYCITYs 41% shareholding in Christchurch Casino returned $5.3 million in 2005/06, in line with the
previous year. However, our Queenstown operation was below expectations due to a reduced level of
international commission play.
- In addition to our focus on operational performance, we achieved some significant foreign exchange gains
in conjunction with our 2005/06 debt restructuring programme which, together with a reduced 2005/06
tax charge also arising from debt restructuring, enhanced the Groups net profit result up 13% over
the prior year.
People
Our people continue to work very hard to provide the best experience possible for our customers and the best
returns possible for our shareholders.
Whilst our performance-oriented culture and incentive remuneration programmes assist in achieving the high
standards of service delivery that we expect from our staff, it is the underlying commitment of our people to do the
best job possible on a 24/7 basis that helps to ensure regular customers enjoy their SKYCITY experience on each
visit and new customers are impressed and want to return.
I wish to acknowledge the efforts and commitment of SKYCITYs employees during 2005/06 and it will be a
continuation of this dedication to excellent service that will drive our performance in the coming year.
Continuing the Momentum
The 2005/06 year was relatively quiet for major capital expenditure, with the SKYCITY Grand Hotel and
Convention Centre completed during 2004/05 and Stage I of the Adelaide redevelopment project opening to
customers in June 2005.
As referred to earlier, SKYCITY has acquired full ownershipof the New Zealand cinema operations previously owned
in a 50:50 joint venture with Village Roadshow, and welook forward to revenue growth from our expanded
cinema interests.
At the 2005/06 result announcement in August we advised a $40 million renovation of the main gaming floor at
SKYCITY Auckland and also outlined our extension plans for SKYCITY Darwin. We are optimistic that we will be
able to recommence the redevelopment programme at SKYCITY Adelaide this financial year, continuing
to increase the revenue potential of that property. In addition, our cinema expansion programme will
consolidate SKYCITYs lead position in the New Zealand cinema sector.
These planned capital programmes are not insignificant in scale but are all closely aligned to SKYCITYs core business
operations. The renewal, enhancement and expansion of existing facilities and the creation of new experiences for
our customers will continue to grow the potential of the SKYCITY business over the next three years.
We are confident in the future of this business and in the continuation of high quality returns for shareholders.
Evan Davies
Managing Director
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