Melco Resorts & Entertainment Limited — Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2017. Although the request identifies 2017 Q4, this is an annual filing; the supplied filing text does not provide standalone fourth-quarter financial results. Financial statements are audited and prepared under U.S. GAAP.
Business context
Melco develops and operates casino resorts in Macau and the Philippines. Its principal properties include City of Dreams, Altira Macau, Studio City, Mocha Clubs and City of Dreams Manila. Macau generated about 87% of 2017 net revenue; casino revenue represented 93.4% of consolidated net revenue.
Key financial metrics
| Metric (US$ millions, except per-share data) | 2017 | 2016 | Change / context |
|---|---|---|---|
| Net revenue | 5,284.8 | 4,519.4 | +16.9% |
| Operating income | 607.6 | 363.1 | Operating margin 11.5%, versus 8.0% |
| Net income attributable to Melco | 347.0 | 175.9 | Basic EPS $0.236, versus $0.116 |
| Adjusted EBITDA | 1,285.3 | 972.7 | Non-GAAP measure; up about 32% |
| Adjusted property EBITDA | 1,422.8 | 1,087.5 | Non-GAAP measure; up about 31% |
| Cash from operating activities | 1,162.5 | 1,158.1 | Broadly stable |
| Capital expenditures incurred | 559.0 | 437.9 | Primarily development and property enhancements |
| Cash and cash equivalents at year-end | 1,408.2 | 1,702.3 | Down $294.1 million |
| Gross debt at year-end | 3,619.1 | Not stated here on the same gross basis | Balance-sheet debt is reported net of financing costs |
Net income attributable margin was approximately 6.6%, versus 3.9% in 2016. Current assets were $1,844.8 million and current liabilities $1,684.0 million, a current ratio of approximately 1.10. Including investment securities, longer-maturity bank deposits and restricted cash, the filing reports approximately $1.55 billion of these liquidity balances at year-end. The $1.25 billion revolving facility under the 2015 Credit Facilities remained available, subject to conditions.
Material changes versus 2016
- Revenue growth and improved operating income reflected stronger gaming performance across properties, notably Studio City and City of Dreams Manila. Studio City revenue rose to $1,363.4 million from $838.2 million; City of Dreams Manila revenue increased to $649.3 million from $491.2 million.
- Macau’s gross gaming revenue increased 19.1% in 2017, following declines in 2014–2016. Company casino revenue rose 18.2% to $4,937.6 million. Casino expenses also increased, principally with higher gaming volumes, taxes, levies and commissions.
- Operating costs and expenses increased 12.5% to $4,677.2 million, slower than revenue growth. Reported operating income improved to $607.6 million.
- Cash from operations remained near $1.16 billion, but investing activities used $410.2 million and financing activities used $1,046.0 million. Financing outflows included $821.3 million of dividends and partial redemption of Philippine Notes.
- The company issued $1.0 billion of 4.875% senior notes due 2025, used proceeds and other funding to redeem its $1.0 billion 2013 notes, and partially redeemed PHP7.5 billion of Philippine Notes. Gross debt was $3,619.1 million at year-end.
Outlook, commentary, risks and unusual items
- Development: Morpheus, the third phase of City of Dreams, was targeted to open in the first half of 2018, with approximately 770 rooms. The remaining Studio City development plan and schedule were under review and could require substantial additional funding. SCI had submitted a confidential draft registration statement for a possible IPO.
- Market outlook: Management cited improving Macau conditions; Macau gaming revenue grew 20.5% year over year in Q1 2018, according to the filing’s cited industry data. The filing does not provide company earnings guidance.
- Dividends: The company paid $821.3 million in dividends in 2017, including a special dividend. In February 2018 it announced a target quarterly dividend of $0.045 per ordinary share, subject to earnings, cash availability, future commitments and board discretion.
- Unusual costs: 2017 included a $49.3 million loss on extinguishment of debt, mainly related to refinancing and Philippine Notes redemption; $31.6 million of property charges and other items, including $30.9 million of asset write-offs and impairments; and a $3.8 million Typhoon Hato donation. Property charges included a $10.3 million insurance recovery related to typhoon damage and costs.
- Key risks: Earnings and cash generation are concentrated in Macau and exposed to Chinese travel, currency-transfer and gaming policies, competition, regulatory and tax changes, and VIP/junket volatility and credit collection. Macau gaming table limits and smoking rules may constrain operations. The Macau subconcession expires in 2022; City of Dreams and Studio City land development deadlines were extended to June 2018 and July 2021, respectively. Philippine license, taxation, partner and lease arrangements also carry material uncertainty. High leverage, debt covenants, refinancing needs and substantial development spending add financial risk.
- Interest and currency exposure: About 88% of debt carried fixed rates. A 100-basis-point move in HIBOR and LIBOR was estimated to change annual interest cost by approximately $4.4 million. The company reported no hedging of routine operating foreign-exchange exposure in 2017.
- Controls and audit: Management and Ernst & Young concluded internal control over financial reporting was effective as of year-end; the auditor issued unqualified opinions. Ernst & Young became auditor in 2017 after a tender process; the filing states the change was not due to disagreements with Deloitte.
Most important facts for investors to verify
- Confirm the requested period: this filing reports full-year 2017, not standalone Q4 results.
- Reconcile gross debt of $3.62 billion to balance-sheet debt reported net of financing costs, and review maturities, security, covenants and available-facility conditions.
- Assess whether Macau recovery and 2017 property-level gaming improvements persisted, including the effect of win-rate volatility versus underlying customer volumes.
- Track Morpheus opening, remaining Studio City development plans, funding requirements and relevant land-concession deadlines.
- Review the sustainability and restrictions on dividends given 2017 distributions, development commitments, and debt agreements.
- Monitor Macau subconcession renewal/extension and gaming regulation, plus Philippine gaming-license and gaming-tax developments.
- Evaluate casino receivables and junket exposure: 31.4% of 2017 casino revenue came from customers sourced through rolling-chip promoters; net accounts receivable was $176.5 million after a $211.0 million doubtful-debt allowance.