In light of China’s economic slowdown, which was further undermined by the unexpected depreciation of Renminbi in the past few months, the gaming industry in Macau was clouded by continuous challenges arising from the decrease in revenue of casino services. Besides, the anti-corruption campaign initiated by the Central Government of China also dragged down the number of tourists visiting Macau. As a result, revenue of the Group for the year ended 31 December 2015 decreased from HK$1,192,288,000 to HK$1,092,078,000, representing a decrease of 8.4% as compared to the year ended 31 December 2014.
Given the decrease in gross gaming revenue of the Group’s casino management business, the surge in overall operating expenses, particularly the ever increasing labour costs, and the impairment loss on intangible assets in respect of patents and patent applications in the United States of America (the “U.S.”) (because of sales of Live Multi Game (“LMG”) terminals in Nevada were postponed due to delay in obtaining approvals from the Nevada Gaming Board, which was only obtained in late 2015), the Group turned to a loss of HK$148,913,000 for the year ended 31 December 2015 from a profit of HK$66,541,000 for the year ended 31 December 2014. Accordingly, the adjusted EBITDA* of the Group for the year ended 31 December 2015 dropped to HK$48,177,000 as compared to HK$203,051,000 for the year ended 31 December 2014, representing a decrease of 76.3%.
For the year ended 31 December 2015, the revenue generated by the provision of casino services contributed 81.6% of the total revenue, as compared with 86.6% recorded in the year ended 31 December 2014.
In June 2015, the Group installed 139 slot machines at Waldo Casino, making a deployment of 172 units in total, thereby broadening the offering of the casino by providing a variety of choices to players, which was expected to bring about more revenue for the Group. Nevertheless, the increase in revenue in this respect was more or less offset by the tough market condition confronted by Macau’s gaming industry.
For the year ended 31 December 2015, the revenue generated by the sales and revenue sharing of LMG terminals contributed 18.4% of the total revenue, as compared with 13.4% for the year ended 31 December 2014.
The Group deployed 80 LMG terminals at the Grand Lisboa in Macau, bringing the LMG deployment at Grand Lisboa to a total of 120 units. These moves generated an attractive return on investment and further enhanced player’s experience. Our patent-protected LMG terminals served to improve the efficiency and productivity of casino operations by lowering the average cost per player and broadening the customer reach of casino operators.
In May 2015, the Group deployed 42 LMG terminals at Galaxy Macau Phase 2 and 50 LMG terminals installed at Galaxy Macau Phase 1, bringing new deployment at both casinos to a total of 92 terminals. The new deployment added on to the existing 150 terminals currently installed at Galaxy Macau Phase 1, not only helping to serve a broader mass market audience, but also delivering a higher return on investment to casino operators on the back of lower cost but higher productivity.
In October 2015, the Group launched 63 LMG terminals at the new electronic gaming zone at Casino Lan Kwai Fong in Macau. The Group took the opportunity to work together with Casino Lan Kwai Fong to provide electronic gaming solution applicable to the prevailing casino landscape. With our solutions, a broader mass market audience would be attracted by a variety of games that could enhance players’ experience and in turn facilitate incremental growth to the casino floor yield, which would certainly increase our revenue sharing in this segment. In addition, it is expected our success at Casino Lan Kwai Fong will open up more deployment opportunities in the satellite casino market.
On 9 March 2015, the Company was admitted as a constituent stock of Hang Seng Broad Consumption Index, Hang Seng Global Composite Index and Hang Seng Composite Index, representing an important recognition from the investment community in Hong Kong. This could also be interpreted as an acknowledgement of the Company’s success in the industry, and a highlight of our expanding presence in the Asia-Pacific gaming market, which would in turn heighten the awareness of the Group and facilitate the liquidity of shares in the Company.
In June 2015, Macau government announced a reversal of its transit visa policy that was tightened in 2014 after it was abused by high rollers and junket agents. Starting from 1 July 2015, mainland China passport holders transiting through Macau are allowed to stay in the city for a longer period up to seven days and gain second entry within 30 days, thereby increasing the number of well-heeled mainland customers visiting Macau. Notwithstanding this revision in policy, the number of tourists to Macau continued to decrease and according to the data from relevant Macau government authority, the downward trend in the gross revenue of casinos in Macau persisted in the first two months of 2016.
In addition, Macau is going to implement a full smoking ban on casino floors and smoking is no longer allowed in designated VIP rooms. Industry players have expressed concern that a full smoking ban might deter certain gamers and affect casino revenues, which is being challenged by China’s anti-graft and austerity campaign. Against the backdrop of a sluggish market, the Group is awaiting the Macau government to promulgate more effective supportive policies in order to revitalise the economy of Macau.
Due to the need to fulfill certain complicated regulatory requirements, there was a delay in obtaining the necessary approvals from the Nevada Gaming Board for the Group’s gaming terminals. This in turn resulted in further delay in the marketing and sales of the Group’s products. Being a new-comer to the U.S. gaming market and in view of the fierce competition from the well-established gaming machines manufacturers in the U.S., it is a challenging task for the Group to open up this market in view of the substantial resources and effort required. To smooth out the challenges faced by the Group, the Group is actively seeking strategic partner, which has strong stand in the U.S. as well as worldwide gaming market, so that the Group can leverage on the strategic partner’s existing resources, expertise and well-established market stand for the opening of the U.S. as well as the global market in an efficient and effective manner.
* Adjusted EBITDA is profit attributable to owners of the Company before taxation, finance cost, impairment loss on intangible assets, loss on early redemption of promissory note, depreciation and amortisation and interest income.