Burswood Limited 2000/2001 Financial Results

Burswood Limited Managing Director, Mr John Schaap, announced a net profit after tax of $22.1 million for the year ended 30 June 2001, down from $32.1 million reported in the previous corresponding period. Total revenue of $345.8 million was 6.4% below last year’s $369.7 million.

Mr Schaap said the result reflected:

- challenging business conditions during a period of significant organisational restructuring;

- the effects of disruption caused by major construction work to improve the Resort’s facilities; and

- a very low win percentage on international commission business.

“Whilst the result is 31.0% below last year, it includes a number of positive signs. We achieved further growth in video gaming machine revenue and made significant improvements to the underlying operating efficiency of the business.

“The result also highlights the impact of win percentages on profit results. If expected win percentages for our international commission business had been achieved, net profit after tax would have been around $7.6 million higher in 2001 and around $4.7 million lower in 2000 than the figures reported for those years,” Mr Schaap said.

The result includes an individually significant expense after tax of $2.0 million relating to organisational restructuring costs which will achieve future ongoing annual savings of around $4.0 million (after tax). By comparison, the previous corresponding period included an individually significant gain of $2.5 million (after tax) due to a reduction in municipal rates relating to prior periods.

Gaming Operations

Burswood’s overall gaming revenue decreased by $20.0 million or 6.7% to $277.2 million (1999/2000 - $297.2 million), mainly as a result of a low win percentage on international commission business.

Revenue from international commission business decreased from $79.3 million to $54.5 million, due primarily to the low win percentage (1.08% compared to 1.51% for the previous corresponding period) and, to a lesser extent, a 3.4% decrease in turnover from $5.2 billion to $5.1 billion.

The previously announced restructuring of Burswood’s international operations was successful in boosting overall junket and player numbers as well as the level of turnover from certain countries. However, the decline in total turnover reflects the competitive pressures of this market, intensified by the continuing economic and political instability in some South East Asian countries and the aggressive marketing efforts of other competitive gaming operators.

Main gaming floor revenue increased by 5.2% to $181.9 million, comprising table game revenue of $81.1 million (1999/2000 - $78.6 million); video gaming machine revenue of $96.5 million (1999/2000 - $89.6 million); and keno revenue of $4.3 million (1999/2000 - $4.7 million).

A 3.7% decline in the total number of patrons visiting Burswood Resort was recorded due to a number of factors. Consumer spending was affected by the introduction of the Goods and Services Tax and a downturn in activity occurred during the period surrounding the Sydney 2000 Olympic Games. Disruption caused by extensive capital works on the Resort improvement and redevelopment programme also impacted negatively on visitation levels, particularly in the second half of the year.

Despite the reduced headcount, table game revenue for the main gaming floor and local International Room operations was similar to last year. Expenses associated with table games were lower than last year, both in dollar terms and as a proportion of revenue, reflecting continuing improvements in game supervision and surveillance from the PITCAM digital recording system and other initiatives.

Video gaming machine revenue increased by 7.8% over last year, despite the reduced headcount and with a lower average number of gaming machines due to floor layout changes. This growth was achieved through the use of hyperlinked games and new progressive prizes, together with the installation of new machines and improvements to floor layout, all of which enhanced game popularity.

Consistent with other Resort-wide efficiency initiatives, expenses associated with video gaming also fell as a proportion of revenue compared to last year.

Other Resort Operations

Hotel rooms revenue increased slightly by 1.3% from $15.9 million to $16.1 million. The average room rate decreased from $185 to $178, with occupancy decreasing from around 80% (based on reduced room inventory during the Hotel refurbishment) in 1999/2000 to 68% in 2000/01.

Corporate and convention business was affected by disruption from the significant capital works in progress during the year, coupled with reduced activity in the period surrounding the Sydney 2000 Olympic Games, which also contributed to the lower Hotel occupancy.

Revenue from food and beverage operations decreased by 10.0% from $47.8 million to $43.0 million due to lower Resort visitation, lower Hotel occupancy and a reduced level of convention business caused by the disruption from capital works, as well as the GST and Olympic Games factors previously mentioned.

Despite the reduced revenue, the food and beverage contribution margin increased following a major operational efficiency review during the year and as a result of other cost saving initiatives.

Expenses

Interest expense for the year was $14.3 million compared to $14.7 million last year. Interest expense capitalised to the Swan Site and Resort improvement programme was around $3.5 million compared to $2.3 million last year. Borrowings at year-end totalled $206.7 million, $13.0 million higher than the previous corresponding period, primarily due to capital expenditure on the Resort improvement programme. Depreciation and amortisation expenses increased from $21.7 million to $22.3 million, mainly due to additional depreciation on new gaming machines acquired.

Resort Improvement Programme

In July 2000, work on the major components of the Resort improvement and redevelopment programme commenced to address fundamental operational problems and business growth opportunities identified in recent years. The new and improved facilities are designed to cater to changing customer expectations and high demand levels existing during peak periods.

Development work is progressing on schedule and on budget, and will be completed in stages late this calendar year. The improvements are expected to increase visitation to the Resort by at least 10% in the first year, progressively, as each facility becomes operational.

An extension to the eastern end of the Casino building will overcome disruption to gaming activities resulting from the location and size of the existing Cabaret Lounge entertainment area. Highly visible from the main gaming floor, the extension will feature a modern 800-capacity nightclub, 280-capacity sports bar with TAB facilities and a new Casino café to replace the existing Spinners Café. New indoor/outdoor balconies will also be constructed to support the introduction of a 100% smoke-free main gaming floor.

As part of the expansion and relocation of facilities on the main gaming floor, the WA Gaming Commission granted approval for Burswood to install 16 additional gaming tables and 123 video gaming machines, subject to the usual regulatory approvals. Some of the additional tables and machines will be accommodated in a new higher limit gaming lounge to be constructed in the area vacated by the Cabaret Lounge.

An extension to the popular Paddy Hannan’s Irish Pub is scheduled to open in mid-September, followed by the opening of a new 450-seat international food emporium in late October.

The existing Convention Centre is being extended to include a new 1,800-capacity multi-purpose grand ballroom, a glassed pre-function area with river and city views, and a dedicated registration area for conference groups. The new facility will be operational from January next year.

Refurbishment of 374 standard deluxe rooms in the Burswood Hotel was completed in December 1999, providing the rooms with function and design features of an international standard. In December 2000, an exclusive Executive Club Lounge opened on the Hotel’s ninth floor, catering specifically to the needs of the corporate market. Also completed in December 2000, was an upgrade of the Hotel’s recreation facility, featuring the new ‘Escape at Burswood’ day spa.

Refurbishment of the Hotel’s 19 premier accommodation suites, including the Presidential Suite, is due for completion by this September. A major refurbishment of the Hotel Lobby, which will be completed in late September, includes a modern new water feature, new concierge desk, decorative overhead sails, new restaurant furnishings and fittings, relocation of retail outlets and the creation of seven new meeting rooms in the Hotel Galleria.

An upgrade of the Hotel’s indoor and outdoor pools and landscaping includes new paving and exterior features, a new pool bar and café, and a garden pavilion for functions. These improvements are also due for completion in late September.

Swan Development Site

Burswood announced its intention in March this year to enter into a joint venture with Mirvac Fini to develop the 19.1-hectare Swan Site adjacent to the Resort. Development of the prime, high-value land site will be undertaken over the next seven to ten years, constituting the largest residential development ever undertaken by a single developer in Western Australia, with a completed project value of over $700 million. Contract negotiations for the venture are currently being finalised.

A $10 million remediation process of the site was completed in June and the link road connection from the Graham Farmer Freeway will be open for public use by November.

The Future

Mr Schaap, whilst disappointed with the low win percentage on international commission business, said he was extremely pleased with the progress being made on a number of key strategic issues to provide for future growth.

“To date, cost reduction measures will result in annual savings in excess of $6.0 million before tax, the benefits of which will be ongoing. Identifying further cost savings and productivity improvements will continue into 2001/2002.”

Mr Schaap said the physical and operational improvements to the Resort were the most significant the Company had seen since opening in December 1985.

“Our investment in new facilities and improvements will resolve fundamental operational problems and enable the Company to capitalise on opportunities to grow the profitability of several key segments of our business.”

“The value to be added progressively in the coming year, as each new facility becomes operational, is significant,” Mr Schaap said.

Another important strategic move was the announcement earlier this week of a heads of agreement with leading international hotel chain, Six Continents Hotels and Resorts, to develop a new 300-room, 3½-star hotel. Planned to be operational in late 2002, the new hotel will be located on vacant land adjacent to the Burswood Convention Centre and will cater to the high demand for additional and alternative accommodation at the Resort. Under the agreement, Six Continents Hotels will also assume management responsibility for the existing five-star hotel, with Burswood continuing to manage the food, beverage and meeting room facilities.

Discussions are continuing with the Western Australian Government with a view to amending the Agreement scheduled to the Casino (Burswood Island) Agreement Act 1985, to better meet the objectives of Burswood and the State.

The recent WA Government announcement ruling out the introduction of poker machines in pubs, clubs and the Casino, and the issuing of additional casino licences, reinforces Burswood’s exclusive position as the State’s only casino gaming operator.

“We are looking forward to continuing working with Government towards a competitive operating arrangement and commercial certainty for the Company,” Mr Schaap said.

“Our vision for the future of Burswood and the entire Burswood peninsula is exciting and unique for Perth, and will deliver significant benefits for the State’s economy and importantly, for our shareholders.”