Galaxy suffers HK$1.5b loss after charges
Macau casino operator Galaxy Entertainment Group said it sank into the red with a net loss of HK$1.53 billion, largely due to the depreciation of its gaming licence, pre-opening costs of four casinos and higher interest expenses.
In 2005, the company made a profit of HK$2.39 billion, aided by a HK$3.03 billion revaluation gain in net assets acquired.
Earnings before interest, tax, depreciation and amortisation for last year was HK$437 million on turnover that rose 261.24 per cent to HK$4.66 billion.
Galaxy attributed the loss to HK$1.19 billion in depreciation and amortisation charges, including the HK$998 million depreciation of its gaming licence, which will expire in June 2022. The firm acquired the licence in July 2005, along with a 97.9 per cent interest in the gaming business, from the family of chairman Lui Che-woo for HK$18.4 billion.
During the year to December, pre-opening cost of four casinos was HK$268 million and interest expenses rose 341.99 per cent to HK$522.22 million. The company issued US$600 million worth of high-yield bonds in December 2005 to fund the development.
Galaxy booked HK$1.18 billion operating loss from the gaming and entertainment division as a result of HK$268 million in pre-opening expenses incurred for the City Club Casinos and the StarWorld Hotel and Casino, even as turnover in the segment rose to HK$3.38 billion, up from HK$66.21 million previously.
Galaxy said it paid HK$1.1 billion gaming tax and funds to the Macau government and HK$1.04 billion commission and allowances to promoters to lure VIP gamblers.
The HK$3 billion hotel-casino StarWorld only operated for one full month with just half of the 500 rooms opened for business.
'As StarWorld's earnings potential is realised during 2007, the hotel-casino's existing value will be significantly greater than its development cost,' Mr Lui said. 'We are confident that our return on investment for StarWorld will exceed expectations.'
Nigel Morrison, the chief financial officer, expects return on investment would achieve double digit for StarWorld this year. He said the firm had HK$6 billion in reserve and that along with cash flow from the full operation of StarWorld this year, the company should have sufficient funds to finance the first phase of its Cotai mega-resort by the end of next year.
Mr Lui said Galaxy's market share in Macau's gaming industry had increased to 22 per cent by the first quarter, making it the second largest in the enclave after SJM's 45 per cent.
'Our target is to maintain our market share above 22 per cent despite the increasingly fierce competition,' he said.
Shares of Galaxy rose 0.51 per cent to close at HK$7.90 yesterday.