Business Context and Reporting Period
Company: Melco Crown Entertainment Limited (formerly Melco PBL Entertainment (Macau) Limited)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2008
Business Overview: The Company is a developer, owner, and operator of casino gaming and entertainment resort facilities focused exclusively on the Macau market. Key operating assets include Crown Macau (opened May 2007), Mocha Clubs (electronic gaming machines), and Taipa Square Casino. The Company is in the final stages of constructing its flagship integrated resort, City of Dreams, with an expected opening in June 2009.
Key Financial Metrics
| Metric (in thousands USD) | 2008 | 2007 |
|---|---|---|
| Net Revenues | $1,416,134 | $358,496 |
| Operating Income (Loss) | $1,174 | $(195,817) |
| Net Loss | $(2,463) | $(178,151) |
| Loss Per Share (Basic & Diluted) | $(0.002) | $(0.145) |
| Cash and Cash Equivalents | $815,144 | $835,419 |
| Restricted Cash | $67,977 | $298,983 |
| Total Assets | $4,498,289 | $3,620,268 |
| Total Debt (Long-term + Current) | $1,529,195 | $616,376 |
| Shareholders' Equity | $2,408,604 | $2,428,541 |
Cash Flow Summary (2008):
- Net cash used in operating activities: $(11,158) thousand
- Net cash used in investing activities: $(913,602) thousand
- Net cash provided by financing activities: $904,485 thousand
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 295% to $1.42 billion, driven by a full year of operations at Crown Macau and improved performance in the VIP rolling chip segment.
- Profitability Improvement: The Company narrowed its net loss significantly from $178.2 million in 2007 to $2.5 million in 2008, achieving a near break-even operating income of $1.2 million.
- Debt Expansion: Total debt increased by approximately $913 million to $1.53 billion, primarily due to drawdowns under the $1.75 billion City of Dreams Project Facility to fund construction.
- Operating Cash Flow: Despite improved operating income, operating cash flow turned negative ($11.2 million used) compared to $147.4 million provided in 2007. This was attributed to a decline in outstanding gaming chips, customer deposits, and commission payables at year-end 2008.
Guidance, Outlook, and Risks
Outlook and Projects:
- City of Dreams: Expected to open in June 2009. As of December 31, 2008, approximately $1.42 billion had been spent on the project. Management anticipates an adverse variance to the budget of approximately 10% at final cost turnout, though recent market trends suggest a marginally deflationary cost environment.
- Macau Peninsula Site: Acquisition remains subject to conditions outside the Company's control and Macau government approval. Completion deadline extended to July 2009.
- Dividends: The Company does not intend to pay cash dividends in the near to medium term, as earnings will be retained to finance development and service debt.
Key Risks and Contingencies:
- Regulatory Risk: Operations are subject to the Macau gaming subconcession, which expires in 2022. The government may terminate the subconcession without compensation for non-compliance. A minimum investment of MOP 4.0 billion is required by December 2010.
- Construction and Financing: Significant risks exist regarding construction delays, cost overruns, and the ability to secure additional financing or refinance existing debt, particularly given the global credit market turmoil.
- Competition: Intense competition in Macau from established operators (SJM, Wynn, Galaxy, Venetian) and new entrants.
- Market Concentration: The Company relies heavily on the Macau market and the VIP rolling chip segment, which is subject to high volatility.
Investor Verification Checklist
- City of Dreams Opening Date: Verify the actual opening date and initial performance metrics against the projected June 2009 timeline.
- Debt Covenants: Confirm compliance with financial covenants (Leverage Ratio, Interest Cover Ratio) under the City of Dreams Project Facility, especially as the project transitions from construction to operations.
- Land Concession Status: Monitor the status of the Macau Peninsula site acquisition and the approval for increased gross floor area for City of Dreams.
- Operating Cash Flow: Assess the sustainability of operating cash flows post-opening of City of Dreams, given the negative operating cash flow in 2008 despite revenue growth.
- Regulatory Compliance: Review any updates regarding the Macau government's minimum investment requirements and subconcession renewal terms.