Galaxy Entertainment Group Reports 2014 Annual Results

Galaxy Entertainment Group Reports 2014 Annual Results

Group Adjusted EBITDA up 5% Year-on-Year to $13.2 Billion

Net Profit Attributable to Shareholders Increased by 3% Year-on-Year to $10.3 Billion

Galaxy Macau™ Phase 2 and Broadway at Galaxy Macau Set to Open on Schedule as The Next Major Projects in Macau on 27 May 2015

FULL YEAR & Q4 2014 HIGHLIGHTS

GEG: Solid Revenue and Earnings Amid Challenging Second Half of 2014

  • Full year Group revenue increased by 9% year-on-year to $71.8 billion
  • Full year Group Adjusted EBITDA of $13.2 billion, an increase of 5% year-on-year
  • Net profit attributable to shareholders grew 3% year-on-year to $10.3 billion
  • Fourth quarter Group Adjusted EBITDA decreased 25% year-on-year to $2.7 billion

Galaxy Macau: Resilient Performance

  • Full year revenue increased by 18% year-on-year to $46.9 billion and Adjusted EBITDA grew by 12% year-on-year to $9.9 billion
  • Fourth quarter Adjusted EBITDA decreased 19% year-on-year to $2.0 billion

StarWorld Macau: Decline in Full Year Revenue and Adjusted EBITDA Due to Worse than Expected Fourth Quarter

  • Full year revenue decreased by 4% year-on-year to $22.6 billion and Adjusted EBITDA of $3.5 billion, a decrease of 6% year-on-year
  • Fourth quarter Adjusted EBITDA of $645 million, a decrease of 38% year-on-year

Development Update: Launch of Galaxy Macau Phase 2 and Broadway at Galaxy Macau

  • Galaxy Macau™ Phase 2 and Broadway at Galaxy Macau — On schedule to open 27 May 2015 as the next major projects in Macau, taking Cotai investment to $43 billion of a total planned $100 billion
  • Cotai Phases 3 & 4 — Site investigation works expected to commence in 2015
  • Hengqin — Plans to develop a world class destination resort on a 2.7 sq.km land parcel moving forward
  • International — Continuously exploring opportunities in overseas markets

Balance Sheet: Remains Well Capitalised and Return of Capital to Shareholders

  • Cash on hand of $9 billion and a net cash position of $8.2 billion, virtually debt free
  • Subsequently announced another special dividend of $0.28 per share payable on or about 22 May 2015

Dr. Lui Che Woo, Chairman of GEG said:

“Marking our ten year anniversary in Macau, GEG achieved solid revenue and EBITDA growth of 9% and 5% respectively, despite facing challenging headwinds in the second half of the year. Our ‘World Class, Asian Heart’ service philosophy is imbedded in all aspects of our business and governs every interaction with the customer, enabling us to deliver spectacular and unique holiday experiences.

“In the ten years since we made our debut in Macau, we have built and established world class, award winning hotels and resorts. Today our commitment to supporting Macau to become a World Centre of Tourism and Leisure is stronger than ever. Two ground breaking projects — Galaxy Macau Phase 2 and the rebranded Broadway at Galaxy Macau — are scheduled to open on 27 May 2015. Doubling our footprint to over one million square metres, they take our investment in Cotai to $43 billion — well on the way to our target of investing $100 billion once Phases 3 & 4 are completed.  Furthermore, as a good corporate citizen, we always believe that ‘what is taken from the community is to be used for the good of the community’. We are confident that the recently announced $1.3 billion GEG Foundation will reinforce GEG’s commitment to promoting a sustainable future for Macau and make a meaningful difference to the lives of young people in Macau and on the Mainland.

“In parallel, reflecting our commitment to returning capital to shareholders, we paid two special dividends totalling $4.9 billion in 2014 and subsequently announced another special dividend of $0.28 per share.

“There can be no doubt that the second half of 2014 was one of the most challenging periods in the history of Macau. It is therefore more important than ever that all stakeholders in the industry and Macau pull together in one direction to ensure Macau fulfils its vast economic and social development potential.

“We remain optimistic about the future as the fundamental growth drivers for the market such as increasing domestic consumption in China, a rapidly growing affluent middle class and major planned infrastructure improvements, remain unaltered. Together with our clear roadmap for growth, strong balance sheet and powerful brand, we are confident that we can differentiate ourselves from our peers and attract a greater share of new visitors to Macau.

Market Overview

2014 saw two very contrasting half year performances, with total gaming revenue in H1 increasing 13% year-on-year and registering an all-time monthly high in February of $36.9 billion, up 40% year-on-year.  However, a confluence of factors such as the FIFA World Cup, China’s soft economic landing, rising costs and the Chinese austerity program etc., weighed on the market in the second half resulting in 3% decline in full year total gaming revenue to $341.3 billion. Encouragingly, visitor numbers to the Macau region grew faster than the previous year, increasing by 8% year-on-year to 31.5 million. Visitors from the Mainland increased at an even faster rate of 14% and now represent 67% of total visitors to Macau (2013: 64%).

Underscoring Macau’s continuing appeal as a vibrant and dynamic tourism and leisure hub catering to a broader customer base, mass revenue increased by 16% year-on-year to $120.9 billion, now accounting for approximately 35% of the Macau market.  VIP revenue in the year decreased by 11% year-on-year to $206.3 billion. It remains the largest segment of the market, accounting for approximately 60% of total gaming revenue.

GEG expects the structural shift in the market to mass to continue in the coming years as visitors are drawn to a number of major new projects in Macau that will greatly enhance its MICEE, recreational, dining, retail and entertainment offer, and nearby Hengqin undergoes a transformation into a new regional business and leisure hub. Major planned future infrastructure improvements such as the Taipa Ferry Terminal, the Macau Light Rail Transit and the Hong Kong-Zhuhai-Macau Bridge, are expected to facilitate greater visitor numbers by improving access to Macau and connectivity within the territory. GEG’s complementary properties and Cotai development pipeline leave it well placed to cater for a new type of visitors looking for more holistic holiday and leisure experiences.

Group Financial Results

The Group’s revenue and Adjusted EBITDA for the full year climbed 9% year-on-year to $71.8 billion and by 5% year-on-year to $13.2 billion, respectively, despite a challenging second half of the year. Net profit attributable to shareholders increased 3% year-on-year to $10.3 billion. The results were largely due to Galaxy Macau™ where Adjusted EBITDA grew 12% year-on-year. StarWorld Macau posted a 6% year-on-year decrease in Adjusted EBITDA as challenging market conditions impacted its VIP business in the second half of the year. City Clubs and the Construction Materials Division contributed Adjusted EBITDA of $166 million and $465 million, respectively.

A key contributing factor in the Group’s earnings was the solid performance in the mass segment. Galaxy Macau™’s mass revenue increased from $10.5 billion in 2013 to $12.1 billion in 2014 (up 16%), with StarWorld Macau delivering growth of 12% year-on-year to $4.3 billion. In addition, Galaxy Macau™ also achieved very healthy volume and revenue growth in the VIP segment, with the latter gaining 20% year-on-year to $31.7 billion.

The Group’s total gaming revenue for 2014 on a management basis[1] grew 9% year-on-year to $71.0 billion driven by solid increases in VIP and Mass. Total Mass revenue increased 12% year-on-year to $18.8 billion while VIP revenue climbed 8% year-on-year to $50.4 billion. Electronic gaming revenue also grew 3% year-on-year to $1.8 billion.

Balance Sheet and Special Dividends

The Group’s balance sheet remains well capitalised and liquid, with cash on hand of $9 billion and a net cash position of $8.2 billion as of 31 December 2014. The Group had debt of $790 million. In the year, GEG returned capital to shareholders by paying two special dividends of $0.70 per share and $0.45 per share on 31 July 2014 and 31 October 2014, respectively. Subsequently, the Group has announced another special dividend of $0.28 per share payable on or about 22 May 2015. These dividends reflect management’s confidence in continuing to build out the Group’s development pipeline while generating significant cash flow from operations.

Galaxy Macau™

Galaxy Macau™ celebrated its third year anniversary in May 2014 and continues to be the growth engine of the Group. The property posted revenue of $46.9 billion, up 18% on the prior year, which translated to a 12% increase in Adjusted EBITDA to $9.9 billion. ROI[2] was 58% for 2014.

Adjusted EBITDA margin under HKFRS and under US GAAP fell by one percentage point year-on-year to 21% and 30%, respectively.

Fourth quarter Adjusted EBITDA was $2.0 billion, a year-on-year reduction of 19%, as market conditions were worse than expected in the second half of the year.

Non-gaming revenue increased by 3% year-on-year to $373 million. Hotel occupancy remained at near capacity throughout the year at 98%.

Developing Macau’s Largest Development Pipeline

Launch of Galaxy MacauPhase 2 and Broadway at Galaxy Macau

Ten years after opening its first property in Macau, GEG’s next chapter of growth is scheduled to begin with the official opening of Galaxy Macau™ Phase 2 and the rebranded Broadway at Galaxy Macau on 27 May 2015. They will take GEG’s investment in Cotai to $43 billion and double the existing footprint of the resort to 1.1 million square meters. They will offer an unprecedented selection of amenities and attractions that will deliver a more diverse set of experiences for visitors.

Major highlights include:

  • Six hotels providing approximately 4,000 rooms, suites and villas plus two spas, including The Ritz Carlton’s first All-Suite hotel, The Ritz-Carlton, Macau with over 250 suites; Asia’s largest JW Marriott, JW Marriott Hotel Macau with over 1,000 rooms and Broadway Hotel offering 320 well-appointed rooms, complemented by three existing world class hotels: Banyan Tree Macau, Hotel Okura Macau and Galaxy Hotel
  • The Broadway Theater, comprising 3,000 seats and offering guests a unique up-close-and-personal family-friendly entertainment experience featuring the best of traditional and contemporary Asia culture as well as international shows and performances
  • An expanded Grand Resort Deck complete with Skytop Adventure Rapids, featuring the world’s longest skytop aquatic adventure ride at 575 meters long and the world’s largest skytop wave pool
  • The Broadway — a vibrant street and entertainment district showcasing Macanese culture through hawker-style vendors, live entertainers and world class performers, a first in the territory
  • The Promenade, featuring over 200 luxury and lifestyle retail brands
  • Over 120 food & beverage outlets, offering everything from authentic pan-Asian cuisine to world class dining experiences from Michelin starred chefs
  • Portfolio of unique venues and experiences for meetings, incentives and banquets, catering for up to 3,000 guests

Cotai Phases 3 & 4

Final plans for Phases 3 and 4 of GEG on Cotai are almost complete and site investigation works are expected to begin in 2015. Once these phases are operational, GEG will have realised its overall target of investing $100 billion in Cotai and will have doubled its footprint in Cotai to 2 million square metres, adding thousands of new hotel rooms to the Group’s portfolio.

Hengqin

In early 2014 GEG entered into a framework agreement for a 2.7 square kilometer land parcel to move forward with the proposed development of a world class, low density leisure and entertainment destination resort on Hengqin. Plans are moving apace and GEG expects the development to be highly complementary to its existing and planned portfolio.

International

GEG continues to actively explore development opportunities in overseas markets.

City Clubs and Construction Materials Division

City Clubs delivered Adjusted EBITDA of $166 million in 2014, a decrease of 8% year-on-year.

Construction Materials Division posted an Adjusted EBITDA of $465 million, down 5% year-on-year.

 

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