Melco Crown Entertainment Limited — FY2011 Form 20-F
Period and scope: Annual report for the fiscal year ended December 31, 2011, prepared under U.S. GAAP. Although the request identifies 2011 Q4, this filing reports full-year results; it does not provide a clear standalone fourth-quarter income statement or cash-flow figure. The filing’s registrant is Melco Crown Entertainment Limited, not Melco Resorts & Entertainment Limited.
Business context
The company develops, owns and operates Macau casino and hospitality properties. Its principal operations were City of Dreams, Altira Macau and Mocha Clubs. City of Dreams contributed 65.0% of 2011 net revenue. The company acquired a 60% interest in Studio City’s developer in July 2011; Studio City was not yet operating.
Financial performance and position
| Metric | FY2011 | FY2010 |
|---|---|---|
| Net revenue | US$3,830.8 million | US$2,642.0 million |
| Operating income | US$445.1 million | US$92.5 million |
| Operating margin | 11.6% | 3.5% |
| Net income (loss) attributable to company | US$294.7 million | (US$10.5 million) |
| Adjusted EBITDA | US$809.4 million | US$430.4 million |
| Operating cash flow | US$744.7 million | US$402.0 million |
| Capital expenditures | US$785.6 million | US$119.7 million |
| Total debt | US$2,326.0 million | US$1,839.9 million |
Casino revenue was US$3,679.4 million, or 96.0% of net revenue. Net income attributable to the company represented a 7.7% margin. Adjusted EBITDA is a non-GAAP measure and should not be treated as a substitute for operating results or cash flow.
At year-end, cash and cash equivalents were US$1,158.0 million; restricted cash was US$364.8 million, pledged against the deposit-linked loan. Current assets were US$1,505.5 million and current liabilities US$603.1 million. The company reported US$188.6 million available under its revolving credit facility. Total assets were US$6,270.0 million and equity US$3,187.7 million. Operating, investing and financing cash flows were respectively US$744.7 million, (US$585.4 million) and US$557.9 million.
Material changes versus FY2010
- Net revenue rose 45.0%; operating income increased to US$445.1 million from US$92.5 million, and the company moved from a US$10.5 million attributable loss to US$294.7 million attributable income.
- Growth was led by City of Dreams and Altira Macau: their net revenues increased to US$2,491.4 million and US$1,173.9 million, respectively. The company attributed improvement mainly to increased rolling-chip volume and mass-market table-game drop, plus a full year of The House of Dancing Water operations.
- Operating costs and expenses increased 32.8% to US$3,385.7 million, below revenue growth. Casino expenses rose with gaming taxes, levies, commissions and operating volume.
- Operating cash flow increased to US$744.7 million. Investing outflow rose to US$585.4 million, including US$290.1 million paid for the Studio City acquisition, net of acquired cash, and higher restricted cash.
- Debt increased, but the June 2011 refinancing amended the City of Dreams facility, extended maturity to 2016 and removed or relaxed certain restrictions. Shareholder loans of approximately US$115.6 million were converted into 40.2 million ordinary shares.
Outlook, risks and unusual items
- Studio City: Preliminary construction-cost estimate was approximately US$1.9 billion, with a projected 36-month construction period. Management expected construction to start by the end of Q2 2012, subject to government approvals and financing; definitive construction contracts and Studio City land-concession amendments remained unresolved. The estimate was preliminary and could change.
- City of Dreams expansion: A potential next hotel phase remained at a preliminary stage, with no definitive design, budget, capital commitment or construction schedule. Both projects require additional financing.
- Debt and financing: Year-end debt included US$1,014.7 million under the 2011 Credit Facilities, US$593.2 million of 10.25% Senior Notes due 2018, US$364.8 million of RMB Bonds due 2013 and a US$353.3 million deposit-linked loan due 2013. The RMB Bonds proceeds were restricted as loan collateral. Covenants, refinancing access and cash generation remain important risks.
- Gaming and regulatory exposure: Operations are concentrated in Macau and subject to gaming-license and land-concession terms, government policy, table limits, promoter commission caps and changing regulation. The gaming subconcession expires in 2022; Macau may redeem it beginning in 2017 under specified terms. Casino win rates and VIP rolling-chip activity are volatile.
- Customer credit: Casino receivables were US$385.9 million before an US$86.8 million doubtful-debt allowance. Collection depends partly on gaming promoters and customers in jurisdictions where gaming debts may be difficult to enforce.
- Unusual charges and tax: FY2011 included a US$25.2 million loss on extinguishment of debt and US$9.0 million in Hong Kong listing expenses. The Macau gaming-income tax holiday was extended through 2016; management gave no assurance of extension beyond then.
- Legal matters: A former Altira promoter settlement required approximately HK$249.2 million of installment payments; collection remained uncertain. In 2012, K&L Gates also brought claims against subsidiaries relating to alleged misappropriated client funds; the company said it intended to defend the claims. Management did not believe ordinary-course proceedings would have a material effect.
- Other risks and outlook: The filing provides no specific financial guidance. Management said available operating cash flow, cash balances, undrawn facilities and potential financing were expected to cover operating, debt and capital commitments for 12 months after the report date, while cautioning that future borrowing availability was not assured. Risks include Macau/China visitation and economic conditions, competition, construction execution, labor availability, foreign exchange and interest rates.
The independent auditor issued an unqualified opinion on the consolidated financial statements and internal controls; management also concluded disclosure controls and internal control over financial reporting were effective as of year-end. The company did not intend to pay dividends in the near to medium term.
Investor verification priorities
- Confirm the correct registrant and reporting period: this is Melco Crown Entertainment Limited’s FY2011 annual report, not a standalone Q4 filing.
- Review Studio City’s final land-concession amendment, approvals, construction contracts, financing plan and any revisions to the preliminary US$1.9 billion cost estimate.
- Assess the 2013 bond and deposit-linked loan maturities, the restricted-cash collateral, credit-facility covenant headroom and refinancing capacity.
- Monitor casino receivable aging, subsequent collections and changes in the doubtful-debt allowance, along with promoter concentration and commission costs.
- Check developments in the K&L Gates claims and collection progress under the former-promoter settlement.
- Track Macau gaming regulation, table supply, smoking rules, tax-holiday status and subconcession/land-right milestones.