Friday, March 29, 2024
 
Columnist
Martin Hennecke
 
WYNN MACAU
HKEx Stock Code : 01128 
 
Corporate Profile
The Group is a leading developer, owner and operator of destination casino gaming and entertainment resort facilities in Macau. The Group owns and operates the destination casino resort ˇ§Wynn Macauˇ¨ in Macau.

Business Review - For the year ended December 31, 2012

Wynn Macau opened to the public on 6 September 2006 at the center of casino activities on the urban Macau peninsula. In December 2007 and November 2009, Wynn Macau completed expansions, adding more gaming space and additional food and beverage and retail amenities. Encore at Wynn Macau, a further expansion of Wynn Macau that added a fully integrated resort hotel, opened in April 2010.

Our Macau resort complex features:

ˇE Approximately 275,000 square feet of casino space, offering 24-hour gaming and a full range of games, including private gaming salons, sky casinos and a poker pit;

ˇE Two luxury hotel towers with a total of 1,008 spacious rooms and suites;

ˇE Casual and fine dining in eight restaurants;

ˇE Approximately 55,000 square feet of high-end, brand-name retail shopping, including stores and boutiques such as Bvlgari, Cartier, Chanel, Dior, Dunhill, Ermenegildo Zegna, Ferrari, Giorgio Armani, Graff, Gucci, Hermes, Hugo Boss, Jaeger LeCoultre, Louis Vuitton, Miu Miu, Piaget, Prada, Roger Dubuis, Rolex, Tiffany, Tudor, Vacheron Constantin, Van Cleef & Arpels, Versace, Vertu, and others;

ˇE Recreation and leisure facilities, including two health clubs and spas, a salon, a pool; and ˇE Lounges and meeting facilities.

Cotai Development

In September 2011, the Group formally accepted the terms and conditions of a draft land concession contract from the Macau Government for approximately 51 acres of land in the Cotai area of Macau (the ˇ§Cotai Landˇ¨). On 2 May 2012, the land concession contract was gazetted by the government of Macau evidencing the final step in the granting of the land concession for the Cotai Land. The Group is constructing a full scale integrated resort containing a casino, luxury hotel, convention, retail, entertainment and food and beverage offerings on the Cotai Land. The Group estimates the project budget to be in the range of approximately HK$27.2 billion to HK$31.0 billion. The Group expects to set a guaranteed maximum price for the project construction costs in the first half of 2013. The Group expects to open the resort in Cotai during the first half of 2016.

The initial term of the land concession contract is 25 years from 2 May 2012, and it may be renewed with government approval for successive periods. The total land premium payable, including interest as required by the land concession contract, is MOP1,547.4 million (approximately HK$1,502.4 million). An initial payment of MOP500 million (approximately HK$485.4 million) was paid in December 2011. The Group will make eight additional semi-annual payments of approximately MOP130.9 million (approximately HK$127.1 million) each (including required interest at 5%). The first payment was made in November 2012. The land concession contract also requires that WRM, as a gaming concessionaire operate and manage gaming operations on the Cotai Land.

As of 31 December 2012, with respect to the Cotai Land, the Group has recorded an obligation and related asset with HK$216.5 million included as a current liability and HK$590.6 million included as a long-term liability. The Group will also be required to make annual lease payments of MOP6.2 million (approximately HK$6.0 million) during the development period and annual payments of approximately MOP8.6 million (approximately HK$8.4 million) once development is completed.

Cotai Land Contract

On 10 May 2012, the Group made a US$50 million (approximately HK$389 million) payment to an unrelated third party in consideration of that party's relinquishment of certain rights in and to any future development on the Cotai Land. The Group had previously disclosed the requirement to make this payment. The Group accrued this US$50 million (approximately HK$389 million) obligation as a current liability included in other accrued liabilities as of 31 December 2011, when the Group accepted the draft land concession from the Macau Government.

Macau

Macau, which was a territory under Portuguese administration for approximately 450 years, was transferred from Portuguese to Chinese political control in December 1999. Macau is governed as a special administrative region of China and is located approximately 37 miles southwest of, and approximately one hour away via ferry from, Hong Kong. Macau, which has been a casino destination for more than 40 years, consists principally of a peninsula on mainland China, and two neighboring islands, Taipa and Coloane. We believe that Macau is located in one of the world's largest concentrations of potential customers. According to Macau Statistical Information, casinos in Macau generated approximately HK$295.3 billion in gaming revenue during the year ended 31 December 2012, an increase of approximately 13.5% over the approximate HK$260.1 billion generated in the year ended 31 December 2011, making Macau the largest gaming market in the world.

Business Outlook - For the year ended December 31, 2012

Our operating environment remained stable in 2012. However, economic conditions can have a signifi cant impact on our business. A number of factors, including a slowdown in the global economy, contracting credit markets, reduced consumer spending, various countries' policies that affect travel to Macau and any outbreak of infectious diseases can negatively impact the gaming industry in Macau and our business.

Competition

Since the liberalization of Macau's gaming industry in 2002, there has been a signifi cant increase in the number of casino properties in Macau. Currently, there are six gaming operators in Macau, including WRM. The three concessionaires are WRM, SJM, and Galaxy which opened Galaxy Macau, a major resort in the Cotai area, in 2011. The three subconcessionaires are Melco Crown, MGM Macau, and Venetian Macau which opened Sands Cotai Central in 2012 in the Cotai area. As at 31 December 2012, there were approximately 35 casinos in Macau, including 20 operated by SJM. Each of the current six operators has operating casinos and expansion plans announced or underway.

Wynn Macau faces competition from casinos located in other areas of Asia, such as Resorts World Sentosa and Marina Bay Sands, respectively, in Singapore and Genting Highlands Resort located outside of Kuala Lumpur, Malaysia. Wynn Macau also faces competition from casinos in the Philippines where several major casino resorts are scheduled to open over the next few years. Wynn Macau encounters competition from other major gaming centers located around the world, including Australia and Las Vegas, cruise ships in Asia that offer gaming, and other casinos throughout Asia.
Further, if current efforts to legalize gaming in other Asian countries are successful, Wynn Macau will face additional regional competition.

Gaming Promoters

A signifi cant amount of our casino play is brought to us by gaming promoters. Gaming promoters have historically played a critical role in the Macau gaming market and are important to our casino business.

Gaming promoters introduce premium VIP players to Wynn Macau and often assist those clients with their travel and entertainment arrangements. In addition, gaming promoters often grant credit to their players. In exchange for their services, Wynn Macau generally pays the gaming promoters a commission which is a percentage of the gross gaming win generated by each gaming promoter. Approximately 80% of these commissions are netted against casino revenues, because such commissions approximate the amount of the commission returned to the VIP players by the gaming promoters, and approximately 20% of these commissions are included in other operating expenses, which approximate the amount of the commission ultimately retained by the gaming promoters as compensation. The total amount of commissions paid to promoters and netted against casino revenues was HK$7.5 billion and HK$8.1 billion for the years ended 31 December 2012 and 2011, respectively. Commissions decreased 6.5% for the year ended 31 December 2012 compared to the year ended 31 December 2011, due to decreased volumes of play generated by gaming promoters and a lower win percentage.

We typically advance commissions to gaming promoters at the beginning of each month to facilitate their working capital requirements. These advances are provided to a gaming promoter and are offset by the commissions earned by such gaming promoter during the applicable month. The aggregate amounts of exposure to our gaming promoters, which is the difference between commissions advanced to each individual gaming promoter, and the commissions payable to each such gaming promoter, were HK$646.5 million and HK$367.1 million as at 31 December 2012 and 2011, respectively. At the end of each month, any commissions outstanding are cleared no later than the fi fth day of the succeeding month and prior to the advancement of any further funds to a gaming promoter. We believe we have developed strong relationships with our gaming promoters. Our commission percentages have remained stable throughout our operating history.

In addition to commissions, gaming promoters each receive a monthly complimentary allowance based on a percentage of the turnover their clients generate. The allowance is available for room, food and beverage and other products and services for discretionary use with the gaming promoter's clients.

Premium Credit Play

We selectively extend credit to our VIP players contingent upon our marketing team's knowledge of the players, their financial background and payment history. We follow a series of credit procedures and require from each credit recipient various signed documents that are intended to ensure among other things that, if permitted by applicable law, the debt can be legally enforced in the jurisdiction where the player resides. In the event the player does not reside in a jurisdiction where gaming debts are legally enforceable, we can attempt to assert jurisdiction over assets the player maintains in jurisdictions where gaming debts are recognized. In addition, we typically require a check in the amount of the applicable credit line from credit players, collateralizing the credit we grant to a player.

Number and Mix of Table Games and Slot Machines

The mix of VIP table games, mass table games and slot machines in operation at our resort changes from time to time as a result of marketing and operating strategies in response to changing market demand and industry competition. The shift in the mix of our games will affect casino profitability.

Source: Wynn Macau (01128) Annual Results Announcement
Chairman Stephen A. Wynn Issued Capital (shares) 5,188M
Par Value HKD 0.001 Market Capitalisation (HKD) 108,939M
 
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