Forum Archive Index - February 2004

["Cristine Kerr" <criskerr@optusnet.com.au>]

Thanks Snoopy.

----- Original Message -----

From: tennyson@caverock.net.nz

To: sharechat@sharechat.co.nz

Sent: Saturday, February 14, 2004 3:05 PM

Subject: Re: [sharechat] skc a buy?. by macdunk

Hi Cris,

>
>Snoopy wrote:
>
>>EBITDA for Darwin is reported as A$27m per year.   This is not a
>> very useful figure as both depreciation and amortisation have to be
>> taken into account.    The Casino licence in Darwin runs until 2015,
>>which is near enough to ten years once SKC.NZ  gets the Darwin
>>Casino on board.  Interior fittings are depreciated over ten years.
>>SKC.NZ has a policy of long depreciation times for the building
>>shells, so I will pick a figure of 40 years for that.  The total
>>purchase price was $A195m, which includes the casino licence and
>>buildings  (the lot).  I'm going to make a few assumptions here:
>
>>Total purchase price ($A195m) is made up of:
>
>>Casino Licence $A130m
>>Building Shell $A50m
>>Internal Fittings $A15m
>
>>These are to be depreciated/amortized over 10 years, 40 years and
10
>>years respectively.    Those will lead to an annual charge against
>>profits of $A13m, $A1.25m and $A1.5m respectively, a grand total of
>>$A15.75m.
>
>>If we put this charge against the EDITDA figure of $A27m we get a
>>net contribution after amortisation and depreciation of :
>>
>>$A27m-$A15.75m= $A11.25m
>>
>
>Had a quick read of your analysis and loved the detail you provided
>which was presented clearly and concisely.
>
>Quick question: Darwin Casino Depreciation: The impact you've
>mentioned appears to be heavily weighted on year 1. This should
>dramatically decrease years 2, 3 and onwards?
>

I am writing off the depreciation over the expected life of the assets,
and the amortisation over the known life of the Casino licence.    I am
using straight line depreciation, and that means the same amount in
dollars is depreciated every year.   I use straight line depreciation
because it is the easiest to work out, for me :-).   

Often tax depreciation schedules allow an accelerated write off of
value in the early years, with less being written off in latter years.    If
Sky City are using some kind of accelerated depreciation then, yes the
amount written off in depreciation may be less in years 2 and 3.     I
don't know enough about Australian company income tax to know what
kind of depreciation schedules SKC.NZ would use over there, or
perhaps more to the point what they would *choose to use* (as it is
likely there is more than one option).

Having said all that, depreciation of assets and amortization of the
Casino licence is based on historic cost.   Future gaming and hotel
revenues however are likely to grow: both through inflation and
through improved promotion of the facility.    So even using straight
line depreciation *net* revenues should grow.   That means that
gradually over time the money coming in will rise and the fixed write off
costs due to depreciation and amortisation will fall as a proportion of
net revenues.     That means that over time the accounting profit
should improve for SKC Australia, even if they do use straight line
depreciation as I have assumed..

SNOOPY

discl: hold SKC







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