Melco Resorts & Entertainment Limited — FY2019 Form 20-F
Reporting period: Fiscal year ended December 31, 2019. This is an annual report, not a standalone Q4 filing; the supplied filing does not provide a clear set of isolated fourth-quarter results. Financial statements are prepared under U.S. GAAP. The 2018 and 2017 comparative results were retrospectively adjusted for the Cyprus common-control acquisition; 2018 also reflects the new revenue standard, while 2019 adopted the new lease standard without material impact on operating results.
Business context and financial performance
Melco develops and operates casino resorts in Macau, the Philippines and Cyprus. Macau remained its largest market. The company acquired a 75% interest in ICR Cyprus in July 2019 and continued development of City of Dreams Mediterranean and the remaining Studio City project.
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Net revenue | US$5.737 billion | US$5.189 billion | +10.6% |
| Operating income | US$747.7 million | US$613.4 million | +21.9% |
| Operating margin | About 13.0% | About 11.8% | Improved |
| Net income attributable to Melco | US$373.2 million | US$340.3 million | +9.7% |
| Adjusted EBITDA | US$1.574 billion | US$1.378 billion | +14.3% |
| Adjusted Property EBITDA | US$1.689 billion | US$1.486 billion | +13.7% |
| Operating cash flow | US$836.2 million | US$1.053 billion | Down US$217.2 million |
Revenue growth and improved operating income chiefly reflected stronger mass-market table-game performance. Net income attributable margin was approximately 6.5%, compared with 6.6% in 2018. Higher depreciation, interest expense and investment fair-value losses partly offset operating gains.
- Revenue mix: Casino revenue was US$4.977 billion, or 86.8% of net revenue. Room revenue was US$349.9 million; food and beverage revenue was US$235.1 million.
- Property trends: City of Dreams revenue rose to US$3.050 billion from US$2.544 billion. Studio City revenue was US$1.355 billion versus US$1.368 billion; Altira Macau was US$465.1 million versus US$471.3 million; City of Dreams Manila was US$602.5 million versus US$612.9 million. Cyprus revenue was US$94.7 million versus US$33.0 million.
- Profitability drivers and costs: Casino expenses increased 8.8% to US$3.267 billion, including higher gaming taxes, doubtful-debt provisions and payroll. Depreciation and amortization rose 17.0% to US$571.7 million, partly due to Morpheus. Pre-opening costs fell to US$4.8 million from US$55.4 million, while development costs rose to US$57.4 million from US$23.0 million.
- Casino indicators: Mass-market table-game drop and hold improved at several Macau properties. City of Dreams Manila rolling-chip volume declined 22.1% amid competition. Company-wide expected rolling-chip win rate was 2.85%–3.15%; actual Cyprus rolling-chip win rate was 6.68%, a potentially volatile result.
Cash, debt and liquidity
- At December 31, 2019, cash and cash equivalents were US$1.395 billion and restricted cash was US$37.5 million. Total assets were US$9.488 billion; current liabilities were US$1.525 billion.
- Gross debt principal was approximately US$4.451 billion; reported debt, net of financing costs, was US$4.394 billion. Debt included notes due 2021–2029. Long-term lease liabilities were also significant; finance and operating lease liabilities together were about US$423 million on the balance sheet.
- Investing cash outflow was US$1.032 billion, including US$617.8 million of investment-security purchases and US$447.4 million of capital expenditure payments. Financing cash flow was positive US$97.1 million, after substantial borrowing, repayments and US$301.0 million of dividends.
- The HK$9.75 billion (about US$1.25 billion) revolving facility was available at year-end, subject to conditions, but was scheduled to mature in June 2020. In March 2020, Melco drew approximately US$250.4 million. The filing warns refinancing could be difficult; verify subsequent refinancing and repayment developments.
- Contracted capital commitments at year-end were US$818.3 million. Management said cash, operating cash flow and available financing were expected to meet current needs, but also identified substantial funding needs for planned projects.
Material changes, outlook, risks and unusual items
- COVID-19 disruption: The filing, signed March 31, 2020, reports material adverse effects on first-quarter 2020 operations and says effects could continue or worsen; management could not reasonably estimate the future financial impact. Macau casinos were closed for 15 days in February and then operated under restrictions. City of Dreams Manila was ordered closed during the Luzon quarantine, and Cyprus casino operations were suspended. Cyprus construction was suspended from March 24 to April 13, 2020, subject to government review.
- Projects and deadlines: Studio City’s remaining development had an estimated budget of US$1.35–US$1.40 billion, excluding pre-opening and financing costs; the land concession required full development by May 31, 2022. City of Dreams Mediterranean had an estimated US$550–US$600 million budget, excluding pre-opening and financing costs, and was required to open by December 31, 2021. Cyprus penalties and possible license termination apply if deadlines are missed without an extension.
- Gaming rights: Melco’s Macau subconcession expires June 26, 2022; renewal, extension or a replacement right was uncertain. The company also faces Macau table-allocation, tax, licensing and regulatory risks.
- Investment and unusual items: Melco acquired a 9.99% Crown Resorts stake for about US$617.8 million. It recorded a US$41.7 million net loss on investment securities and US$23.9 million of other net expenses in 2019. In February 2020, it terminated its obligation to buy the second Crown tranche. The 2019 debt refinancings and repayment of the 2016 Studio City notes due 2019 also affected financing costs.
- Other material risks: Heavy reliance on Macau and China visitation, VIP and gaming-promoter volatility, customer credit collection, competition, foreign-exchange exposure, regulatory changes, construction costs and debt covenants. Casino receivables were subject to a US$233.0 million allowance for doubtful debts; recoverability was identified by the auditor as a critical audit matter.
- Guidance and dividends: The filing provides project budgets and deadlines but no clear numerical earnings or revenue guidance. The quarterly dividend target was US$0.05504 per ordinary share (US$0.16512 per ADS), subject to cash, earnings, commitments and board discretion.
- Audit and controls: Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal controls were effective as of year-end.
Most important facts for investors to verify
- Whether the June 2020 revolving-credit maturity was refinanced or repaid, and the current liquidity and covenant position.
- The actual revenue, cash-flow and operating impact of COVID-19, including reopening conditions and recovery in Macau, Manila and Cyprus.
- Whether City of Dreams Mediterranean and Studio City remain on schedule and within budget, and whether required extensions, permits and financing are secured.
- Progress on Macau gaming subconcession renewal or replacement and any changes to gaming-table allocations or tax rules.
- Casino receivable aging, subsequent collections and adequacy of the US$233.0 million doubtful-debt allowance; also assess the valuation and performance of the Crown investment.