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:
| FIVE YEAR SUMMARY | ||||||||
| Consolidated Balance Sheets | ||||||||
| As at 30 June | 2008 | 2007 | 2006 | 2005 | 2004 | |||
| $000 | $000 | $000 | $000 | $000 | ||||
| LIABILITIES | ||||||||
| Current liabilities | ||||||||
| Payables | 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 | 960,356 | |||
| Interest cover (EBITDA/Net Interest) | 3.8x | 3.3x | 3.3x | 3.4x | 5.1x | ||||
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
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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
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