Melco Crown Entertainment Limited — FY2013 Form 20-F
Period and scope: This is an audited annual report for the fiscal year ended December 31, 2013, filed April 15, 2014—not a standalone Q4 filing. The provided filing text does not give clear standalone fourth-quarter financial results. The registrant named in the filing is Melco Crown Entertainment Limited.
Business context
The group developed, owned and operated casino and entertainment resorts in Macau, with City of Dreams, Altira Macau and Mocha Clubs as its principal operating businesses. City of Dreams generated 75.8% of FY2013 net revenue. Studio City and City of Dreams Manila were under development; the Manila project was the company’s first major expansion outside Macau.
Financial and operating performance
| Metric | FY2013 | FY2012 | Change |
|---|---|---|---|
| Net revenue | US$5,087.2 million | US$4,078.0 million | +24.7% |
| Operating income | US$839.8 million | US$507.1 million | +65.6% |
| Net income | US$578.0 million | US$398.7 million | +45.0% |
| Net income attributable to Melco Crown | US$637.5 million | US$417.2 million | +52.8% |
| Operating cash flow | US$1,151.9 million | US$950.2 million | +21.2% |
| Capital expenditures incurred | US$912.4 million | US$284.0 million | More than tripled |
Approximate margins, calculated from reported figures: operating margin was 16.5% (2012: 12.4%); net income attributable to Melco Crown margin was 12.5% (2012: 10.2%). Adjusted EBITDA, a non-GAAP measure, was US$1,287.8 million versus US$920.2 million. Management attributed improved results mainly to stronger mass-market table-game performance and increased rolling-chip volumes; higher hold and win rates also contributed.
- Casino revenue was US$4,941.5 million, 97.1% of net revenue, up 25.6%. City of Dreams revenue rose to US$3,857.0 million; Altira Macau revenue was US$1,033.8 million.
- Casino expenses increased 21.8% to US$3,452.7 million, reflecting higher gaming taxes, commissions and operating costs. Macau gaming taxes were US$2,480.0 million.
- Net interest expense was US$152.7 million, up from US$109.6 million. FY2013 also included a US$50.9 million debt-extinguishment loss and US$10.5 million of debt-modification costs.
- Cash and cash equivalents were US$1,381.8 million; bank deposits with maturities over three months were US$626.9 million; restricted cash was US$1,143.7 million. Operating cash flow was outweighed by investing and financing outflows, and cash and cash equivalents decreased US$327.5 million during the year.
- Reported debt was US$2,533.5 million at year-end, down from US$3,194.9 million. Gearing, defined by the company as debt divided by total assets, fell to 28.7% from 40.2%. The debt figure excludes separately reported capital lease obligations; their present value was US$280.3 million.
- Current assets were US$3,148.4 million and current liabilities US$1,238.0 million. Liquidity included restricted funds, including project cash and a Taiwan deposit under investigation, so not all reported cash was freely available.
Material changes and financing
- The 2013 revenue increase was driven by the operating properties, particularly City of Dreams; it was not due to revenue from City of Dreams Manila, which had not opened by year-end.
- FY2013 capital expenditure incurred was US$912.4 million, principally for Studio City and City of Dreams Manila. Contracted capital commitments at year-end were US$1,231.7 million.
- The company issued US$1.0 billion of 5.00% senior notes due 2021 and redeemed its 10.25% 2010 Senior Notes, RMB bonds and deposit-linked loan. It repaid the drawn revolving portion of the 2011 Credit Facilities and began scheduled term-loan repayments.
- At year-end, US$401.1 million remained available under the 2011 Credit Facilities, and the US$1.4 billion Studio City Project Facility was undrawn, subject to conditions. Philippine notes with PHP15 billion principal were issued in January 2014; net proceeds were about US$331.6 million.
Outlook, commentary and risks
- Management’s then-current schedules targeted City of Dreams Manila to open later in 2014, Studio City in mid-2015 and City of Dreams’ fifth hotel tower in early 2017. These were plans, not guarantees; further financing, approvals and construction completion were required.
- The company adopted a policy in February 2014 intending to distribute quarterly dividends totaling approximately 30% of annual consolidated net income attributable to Melco Crown, subject to earnings, liquidity, commitments, contractual restrictions and board discretion. A special dividend of US$0.1147 per ordinary share (US$0.3441 per ADS) was approved in March 2014.
- City of Dreams Manila’s license imposed significant investment, escrow, payment, local hiring and other conditions. The group also depended on Philippine partners for parts of the project and license commitments.
- Material risks include concentration in City of Dreams; VIP and gaming-promoter dependence and credit collection; volatility in casino hold rates; intense regional competition; construction delays and cost overruns; and substantial debt, covenants and future funding needs.
- Macau regulatory and concession risks include possible changes in gaming rules and taxes, smoking restrictions, and the subconcession’s 2022 expiry; the Macau government could exercise a redemption right beginning in 2017. The Macau gaming-income tax holiday was scheduled to expire in 2016.
- A Taiwan branch deposit of approximately US$102 million was frozen during an ongoing authorities’ investigation into alleged banking-law violations by employees. Management said it could not determine the outcome or potential loss; it reported no material impact on FY2013 financial position or results.
- The company reported effective disclosure controls and internal control over financial reporting; the auditor gave unqualified opinions on the financial statements and internal controls.
Most important facts for investors to verify
- Confirm the requested period: this filing reports full-year 2013, and provides no clear standalone Q4 results.
- Assess whether Macau operating momentum and mass-market gains can continue, and how much results depend on gaming hold rates and VIP promoters.
- Review the availability and permitted use of cash, facility draw conditions, debt maturities and covenants, and funding needed for the development pipeline.
- Track opening progress, total project costs, required approvals and license compliance for City of Dreams Manila, Studio City and the fifth hotel tower.
- Follow the Taiwan frozen deposit investigation, Macau concession and tax developments, and any changes to dividend capacity or policy.