Saturday, August 1, 2009

Sky City debts levels now more manageable

Sky City Entertainment Group [SKC.NZ] has been named by Bruce Sheppard as one of his list of NZX companies with debt worries.

Now that time has passed since Bruce debt analysis, on June 30 2008 figures, lets take a look and see whether his criticism about high debt levels is now warranted.

Lets look at company debt levels from the last 5 years:


Consolidated Balance Sheets

As at 30 June

2008 2007 2006 2005 2004

$000 $000 $000 $000 $000


Current liabilities


121,668 119,501 100,776 97,005 93,619
Interest-bearing liabilities
- - - 100,758 101,000
Derivative financial instruments
- - 25 - -

Total current liabilities
121,668 119,501 100,801 197,763 194,619

Non-current liabilities

Interest-bearing liabilities
677,884 753,002 950,904 956,795 579,967
Subordinated debt - capital notes 123,772 123,756 123,720 121,510 149,644
Subordinated debt - SKYCITY ACES 186,538 161,410 177,956 - -
Deferred tax liabilities
77,891 52,992 60,596 45,438 -
Derivative financial instruments
23,561 50,774 3,072 - -
Convertible notes

- - - - 8,910
Other term liabilities

- - - - 27,216

Total Non-current liabilities
1,089,646 1,141,934 1,316,248 1,123,743 765,737

Total liabilities

1,211,314 1,261,435 1,417,049 1,321,506

Interest cover (EBITDA/Net Interest) 3.8x 3.3x 3.3x 3.4x 5.1x

Full 5 Year Financial Summary

We can see then that debt incurring interest or charges (of all different types) nearly doubled from 2004-2006 to over NZ $1.3 billion at its highest (due mainly to buying and financing Adelaide and Darwin casinos and cinema assets.) but since then, at balance date 30 June 2008, (Bruce's debt level comparison date) debt had been paid down to just under $1.1 billion.

In addition to that, the company has paid back $84 million with the proceeds of a capital raising and other debt reductions to take total debt to below $ 800 million, still high but more manageable and it leaves net debt to ebitda ratios that Bruce worried about down from 3.8x in June 2008 to below 2.5x as at 9 July 2009, the lowest ratio in 5 years.

This has further been alleviated by a large increase in profit and revenue for the 2009 Full Year result to be announced 26 August.

As I said above, debt levels are still very high but steps have been taken to change that and with good management the company has put itself in a position so that the business is functioning well and is an even better position now to consolidate this debt.

As interesting as Bruce Sheppard's company debt analysis has been it would be even more interesting to see how June 2008 stacks up with June 2009.

In Sky City's case I think he might assess that they have addressed his worries.

They have mine.

Disclosure: I own SKC shares in the Share Investor Portfolio

Sky City Entertainment Group @ Share Investor

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Related links

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Full 5 Year Financial Summary - Where the table above comes from
Correspondence between Bruce Sheppard & Sky City over debt levels
Sky City July Debt payback

Related Amazon Reading

Casino Industry in Asia Pacific: Development, Operation, And Impact
Casino Industry in Asia Pacific: Development, Operation, And Impact by Cathy Hsu
Buy new: $155.00 / Used from: $157.53
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