SKC - Sky City

[winner69]

Snoops - look at the Cash Flow Statements for the last few years and see how much Income Tax has been paid (v the Taxation Expense)

Imputation credits are calculated from tax actually paid

Might make it a bit clearer

[winner69]

Snoops - ever looked at SKC's Return on Invested Capital (ROIC)

SKC's ROIC over the last 4 years has averaged 10.7% with F15 and F16 being 11.0% and 11.1% respectively

PWC calculate SKC's WACC as at December 2016 at 11.8%

Sort of says all that activity is not covering it's cost of capital - OK, lets be kind and say that iSKC is just covering its cost of capital if we allow for a few 'abnormal' things and for different methods of calculating the returns

Some call this 'value destruction'

But that's all old fashioned thinking so no worries

[Snoopy]

Deferred income tax is around 80-85M every year, would that have anything to do with the credits being retained by SKC?

My understanding is these credits can roll over and be used for future tax liabilities...

Hardt, I may have misinterpreted your point. The 'deferred tax' is money yet to be handed over to IRD. The lack of imputation credits represents tax not paid. So in this sense yes, the two may very well be connected.

SNOOPY

[Snoopy]

Snoops - look at the Cash Flow Statements for the last few years and see how much Income Tax has been paid (v the Taxation Expense)

Imputation credits are calculated from tax actually paid

Might make it a bit clearer

Good suggestion Winner

	Prima Facie Income tax @ 28% {A}	Actual Income Tax Expense {B}	Cashflow Statement Tax paid	Imputation Credits Paid: D1/D2
FY2016	$55.235m	$51.597m	$13.062m	33%/0%
FY2015	$47.840m	$42.114m	$29.059m	100%/0%
FY2014	$35.994m	$30.014m	$40.017m	0%/0%
FY2013	$47.018m	$40.538m	$36.394m	60%/50%
FY2012	$50.073m	$39.962m	$49.325m	60%/60%

I see that SKC had a combined tax bill over the FY2012 to FY2014 three year period of $110.514m and the actual tax paid was $125.733m. This looks like they have paid all their tax due. Yet dividends paid over the FY2014 year carried no imputation credits at all! So maybe as you suggested before Winner, not all of this tax was paid in New Zealand? I guess it is a fair assumption that the SKC imputation credit balance in NZ was zero by the end of FY2014, because shareholders were not given any imputation credits over FY2014.

The amount of tax paid from the cashflow statement during 1HY2015 was $9.757m (tax paid during 2HY2015 was $19.308m). The first half year payment was apparently enough to fully impute the dividend paid on 03-10-2014 which equated to approximately $58.74m (tax paid).

$9.757m /($58.74m + $9.757m) = 14.2%

14.2% tax paid does not equate to enough tax paid to enable a fully imputed dividend at the 28% tax rate to be paid to shareholders. Hmmmm?

SNOOPY

[traineeinvestor]

This may be a silly question coming from someone sitting by the pool in Da Nang with this second post-lunch beer in hand, but according to this MSD paper Casinos in NZ pay a 4% duty duty on gross profit in addition to income tax. Is this duty included in some of the tax numbers you are looking at but not others? If so, would that be enough to account for difference?


https://www.msd.govt.nz/documents/about-msd-and-our.../spj7-gaming-nz.doc

Additional query - does the gaming duty paid generate imputation credits (I don't know but would assume not) and, if so, would that,
together with Australian taxes paid (in all forms) be enough to account for the lack of imputation credits in SKC dividends?

P.S. Thanks for doing the hard work on this - I was having a look at SKC as a beneficiary of the continued growth in tourist arrivals
but was hesitating over the amount of planned capital expenditure + lack of credits on the dividends.

[winner69]

This may be a silly question coming from someone sitting by the pool in Da Nang with this second post-lunch beer in hand, but according to this MSD paper Casinos in NZ pay a 4% duty duty on gross profit in addition to income tax. Is this duty included in some of the tax numbers you are looking at but not others? If so, would that be enough to account for difference?


https://www.msd.govt.nz/documents/about-msd-and-our.../spj7-gaming-nz.doc

Additional query - does the gaming duty paid generate imputation credits (I don't know but would assume not) and, if so, would that,
together with Australian taxes paid (in all forms) be enough to account for the lack of imputation credits in SKC dividends?

P.S. Thanks for doing the hard work on this - I was having a look at SKC as a beneficiary of the continued growth in tourist arrivals
but was hesitating over the amount of planned capital expenditure + lack of credits on the dividends.

Gaming duty etc does not impact imputation credits .... tehy collect it for the government (a bit like GST)

Only income tax (on profits) go towards imputation credits

[traineeinvestor]

Okay - so it was a silly question.

I was curious enough to have a look at the annual report which discloses the gaming duty as a separate tax item from income tax. It also discloses a "weighted average applicable tax rate" for 2016 of 26.2% (2015 24.6%).

Further, the available NZ imputation credits in NZ were $15.5 million and the Australian franking credits $6.1 million which makes it hard to accept that the amount of income tax paid in Australia as a percentage of total income tax paid is enough to explain the low level of imputation credits on dividends.

[winner69]

Not a silly question

Maybe you and snoops should get together and ask the Sky City man what's the story about dividends and imputation credits instead of trying speculate

[traineeinvestor]

Maybe you and snoops should get together and ask the Sky City man what's the story about dividends and imputation credits instead of trying speculate

Where's the fun in that?

I have e-mailed SKC's investor relations contact.

[winner69]

At least its non cash .....yes, we'll forgive for either paying far too much for Darwin in years gone by or failing to make it work

https://nzx.com/files/attachments/262233.pdf






(Snoops ...improves ROE next year for your analysis)