Exhibit 99.1
2011 Interim Report
|
5
|
|
Management Discussion
and Analysis
|
30 Directors and Senior
Management
Contents
39 Other Information
49 Report on Review of
Interim Financial
Information
51 Interim Financial
Information
77 Defi nitions
82 Glossary
2 Wynn Macau, Limited
Corporate Information
BOARD OF DIRECTORS NOMINATION AND
CORPORATE
Executive Directors GOVERNANCE
COMMITTEE
Mr. Stephen A. Wynn
(Chairman of the Board) Mr. Jeffrey Kin-fung Lam, SBS, JP
(Chairman)
Ms. Linda Chen
Mr. Nicholas Sallnow-Smith
Mr. Ian Michael Coughlan
Dr. Allan Zeman, GBM, GBS, JP
Non-Executive Directors COMPANY
SECRETARY
Mr. Kazuo Okada Ms. Kwok
Yu Ching, ACIS, ACS
Mr. Marc D.
Schorr
Dr. Allan Zeman, GBM, GBS, JP
AUTHORIZED REPRESENTATIVES
(Vice-Chairman of the Board)
Dr. Allan Zeman, GBM, GBS, JP
Ms. Kwok Yu Ching
Independent Non-Executive Directors
(Mrs. Seng Sze Ka Mee, Natalia as alternate)
Mr. Jeffrey Kin-fung Lam, SBS,
JP
Mr. Bruce Rockowitz
AUDITORS
Mr. Nicholas Sallnow-Smith
Ernst & Young
AUDIT COMMITTEE Certifi ed Public
Accountants
Mr. Nicholas Sallnow-Smith
(Chairman) LEGAL ADVISORS
Mr. Bruce Rockowitz As to Hong
Kong and U.S. laws:
Dr. Allan Zeman, GBM, GBS, JP
Skadden, Arps, Slate, Meagher & Flom
REMUNERATION COMMITTEE As to Macau
law:
Mr. Nicholas Sallnow-Smith
(Chairman) Alexandre Correia da Silva
Mr. Jeffrey Kin-fung Lam, SBS,
JP
Mr. Bruce Rockowitz As to
Cayman Islands law:
Mr. Marc D. Schorr Maples
and Calder
REGISTERED OFFICE
P.O. Box 309
Ugland House
Grand Cayman
KY1-1104
Cayman Islands
HEADQUARTERS IN MACAU
Rua Cidade de Sintra
NAPE, Macau SAR
PRINCIPAL PLACE OF BUSINESS IN HONG
KONG
Level 28, Three Pacifi c
Place
Hong Kong
PRINCIPAL SHARE REGISTRAR
AND
TRANSFER OFFICE
Appleby Trust (Cayman)
Limited
Interim Report 2011 3
Corporate Information
HONG KONG SHARE REGISTRAR
Computershare Hong Kong
Investor
Services Limited
COMPLIANCE ADVISOR
Anglo Chinese Corporate Finance,
Limited
STOCK CODE
1128
COMPANY WEBSITE
www.wynnmacaulimited.com
Highlights
FINANCIAL HIGHLIGHTS
For the Six Months Ended
30 June
2011 2010
HK$ HK$
(in thousands,
except share amounts)
Casino revenues 13,510,030
9,510,861
Other revenues 827,753
629,092
EBITDA 3,909,496
2,618,907
Profi t attributable to owners(1)
2,412,447 1,906,609
Earnings per Share — basic and
diluted 47 cents 37 cents
Net profi t in the six months ended
30 June 2011 included a HK$831.1 million charge representing
the present value of a charitable contribution made by WRM to the
University of Macau Development Foundation. This contribution
consists of a MOP200.0 million (approximately HK$194.2 million)
payment made in May 2011, and a commitment for additional donations
of MOP80.0 million (approximately HK$77.7 million) each year for
the calendar years 2012 through 2022 inclusive, for a total of
MOP1,080.0 million (approximately HK$1,048.5 million). Excluding
this one time charge, net profi t in the six months ended
30 June 2011 would have been HK$3.2 billion, a 70.1% increase
from the HK$1.9 billion in the six months ended 30 June
2010.
Interim Report 2011 5
Management Discussion and
Analysis
OVERVIEW
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 adds a fully integrated resort
hotel, opened on 21 April 2010.
Our Macau resort complex
features:
Approximately 265,000 square feet of
casino space, offering 24-hour gaming and a full range of games,
including private gaming salons, sky casinos and a poker
area;
Two luxury hotel towers with a total
of 1,009 spacious rooms and suites;
Casual and fi ne dining in eight
restaurants;
Approximately 54,200 square feet of
high-end, brand-name retail shopping, including stores and
boutiques by Bvlgari, Cartier, Chanel, Dior, Dunhill, Ermenegildo
Zegna, Ferrari, Giorgio Armani, Gucci, Hermes, Hugo Boss, Louis
Vuitton, Miu Miu, Piaget, Prada, Rolex, Tiffany, Van
Cleef & Arpels, Versace, Vertu, and others;
Recreation and leisure facilities,
including two health clubs and spas, a pool; and
Lounges and meeting
facilities.
The following table presents the
number of casino games available at our Macau
Operations:
As at 30 June
2011 2010
VIP table games 255 234
Mass market table games 225
212
Slot machines 1,053 1,155
Poker tables 11 11
In response to our evaluation of our
operations and the feedback from our guests, we have been, and will
continue to make enhancements and refi nements to our resort
complex.
Management Discussion and
Analysis
Cotai Development
The Group has applied to the
government of Macau for a land concession on approximately 52 acres
of land on Cotai and is awaiting fi nal government approval on the
concession. Subsequent to government approval, we anticipate the
construction of a full scale integrated resort containing a casino,
approximately 1,500 rooms, convention, retail, entertainment and
food and beverage offerings. We continue to fi nalize the project
scope and budget.
Cotai Land Agreement
On 1 August 2008, Palo Real
Estate Company Limited entered into an agreement with a Macau
incorporated company that is not a connected person of the Group to
make a one-time payment in the amount of US$50 million
(approximately HK$389.3 million) in consideration of its
relinquishment of certain rights in and to any future development
on the approximately 52 acres of land on Cotai. The payment will be
made within 15 days after the Macau government publishes the
Group’s rights to the land in the Macau government’s
offi cial gazette. The Group has fi led an application for the land
with the Macau government and is awaiting fi nal
approval.
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
less than 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 gaming
customers. According to Macau Statistical Information, casinos in
Macau generated approximately HK$120.5 billion in gaming revenue
during the six months ended 30 June 2011, an increase of
approximately 44.5% over the approximate HK$83.4 billion generated
in the six months ended 30 June 2010, making Macau the largest
gaming market in the world.
Macau’s gaming market is
primarily dependent on tourists. The Macau market has experienced
tremendous growth in capacity in the last several years. As at
31 May 2011, there were 21,518 hotel rooms and as at
30 June 2011, there were 5,237 table games in Macau, compared
to 12,978 hotel rooms and 2,760 table games as at 31 December
2006.
Interim Report 2011 7
Management Discussion and
Analysis
FACTORS AFFECTING OUR RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Tourism
The levels of tourism and overall
gaming activities in Macau are key drivers of our business. Both
the Macau gaming market and visitation to Macau have grown signifi
cantly in the last few years. We have benefi ted from the rise in
visitation to Macau over the past several years.
Gaming customers traveling to Macau
typically come from nearby destinations in Asia including mainland
China, Hong Kong, Taiwan, South Korea and Singapore. According to
the Macau Statistics and Census Service Monthly Bulletin of
Statistics, approximately 89.1% of visitors to Macau in the six
months ended 30 June 2011 were from mainland China, Hong Kong,
and Taiwan.
Tourism levels in Macau are affected
by a number of factors, all of which are beyond our control. Key
factors affecting tourism levels in Macau may include, among
others:
— Prevailing economic
conditions in mainland China and Asia;
— Various countries’
policies on the issuance of travel visas that may be in place from
time to time and could affect travel to Macau;
— Competition from other
destinations which offer gaming and leisure activities;
— Possible changes to
government restrictions on currency conversion or the ability to
export currency from mainland China or other countries;
— Occurrence of natural
disasters and disruption of travel; and
— Possible outbreaks of
infectious disease.
Economic and Operating
Environment
Our operating environment has
remained stable during the six months ended 30 June 2011.
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.
Management Discussion and
Analysis
Competition
Since the liberalization of
Macau’s gaming industry in 2002, there has been a signifi
cant increase in the number of gaming operators and 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,
on 15 May 2011. The three subconcessionaires are Melco Crown,
MGM Macau, and Venetian Macau. As at 30 June 2011, there were
approximately 34 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 also faces competition
from casinos primarily located in other areas of Asia, such as
Resorts World Sentosa and Marina Bay Sands which opened in February
and April 2010, respectively, in Singapore, Genting Highlands
Resort located outside of Kuala Lumpur, Malaysia and casinos in the
Philippines. Wynn Macau also 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
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 for their compensation.
The total amount of commissions paid to these promoters and netted
against casino revenues were HK$3.8 billion and HK$2.6 billion for
the six months ended 30 June 2011 and 2010, respectively.
Commissions increased 47.4% for the six months ended 30 June
2011 compared to the six months ended 30 June 2010, due to
increased volumes of play generated by gaming promoters and the
addition of two new gaming promoters. Additionally, gaming
promoters each receive a monthly complimentary allowance based on a
percentage of the turnover their clients generate.
Interim Report 2011 9
Management Discussion and
Analysis
The allowance is available for room,
food and beverage and other products and services for discretionary
use with clients. 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$361.4 million and HK$61.2 million as at 30 June 2011 and
2010, respectively. These outstanding commissions were 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.
Premium Credit Play
We selectively extend credit to
players contingent upon our marketing team’s knowledge of the
players, their fi nancial 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 often can 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 profi
tability.
10 Wynn Macau, Limited
Management Discussion and
Analysis
ADJUSTED EBITDA
Adjusted EBITDA is earnings before
fi nance costs, taxes, depreciation, amortization, pre-opening
costs, property charges and other, share-based payments, and other
non-operating income/ (expense). Adjusted EBITDA is presented
exclusively as a supplemental disclosure because our Directors
believe that it is widely used to measure the performance, and as a
basis for valuation, of gaming companies. Our Adjusted EBITDA
presented herein also differs from the Adjusted EBITDA presented by
Wynn Resorts, Limited for its Macau segment in its fi lings with
the SEC, primarily due to the inclusion of royalty fees,
adjustments for IFRS differences with U.S. GAAP, corporate support
services and other support services in arriving at operating profi
t.
The following table sets forth a
quantitative reconciliation of Adjusted EBITDA to its most directly
comparable IFRS measurement, operating profi t, for the six months
ended 30 June 2011 and 2010.
For the Six Months Ended
30 June
2011 2010
HK$ HK$
(in thousands)
Operating profi t 2,483,282
2,059,591
Add
Depreciation and amortization
540,572 445,363
Pre-opening costs(1) —
54,571
Property charges and other 849,311
22,945
Share-based payments 24,957
23,302
Wynn Macau, Limited corporate
expenses 11,374 13,135
Adjusted EBITDA 3,909,496
2,618,907
Note:
Pre-opening costs for the six months
ended 30 June 2010 consisted primarily of payroll attributable
to staff engaged in the start-up operations of Encore which opened
on 21 April 2010.
Interim Report 2011 11
Management Discussion and
Analysis
REVIEW OF HISTORICAL OPERATING
RESULTS
Summary Breakdown Table
The following table presents certain
selected statement of comprehensive income line items and certain
other data.
For the Six Months Ended
30 June
2011 2010
HK$ HK$
(in thousands, except for
averages, daily win fi
gures
and number of tables and
slot
machines)
Total casino revenues(1) 13,510,030
9,510,861
Rooms(2) 65,865 57,022
Food and beverage(2) 94,198
76,033
Retail and other(2) 667,690
496,037
Total operating revenues 14,337,783
10,139,953
VIP table games turnover 482,143,692
325,643,185
VIP gross table games win(1)
13,482,862 9,671,634
Mass market table games drop
10,684,063 8,362,061
Mass market gross table games win(1)
2,973,669 1,883,437
Slot machine handle 23,096,469
15,450,526
Slot machine win(1) 1,151,661
753,167
Average number of gaming tables(3)
475 417
Daily gross win per gaming table(4)
191,411 152,976
Average number of slots(3) 1,026
1,180
Average daily win per slot(4) 6,202
3,526
12 Wynn Macau, Limited
Management Discussion and
Analysis
Notes:
Total casino revenues do not equal
the sum of “VIP gross table games win,” “mass
market gross table games win” and “slot machine
win” because gross table games win is calculated before
commissions and discounts, and only recorded as revenues after the
relevant commissions and discounts have been deducted. The
following table presents a reconciliation of the sum of “VIP
gross table games win,” “mass market gross table games
win” and “slot machine win” to total casino
revenues.
For the Six Months Ended
30 June
2011 2010
HK$ HK$
(in thousands)
VIP gross table games win 13,482,862
9,671,634
Mass market gross table games win
2,973,669 1,883,437
Slot machine win 1,151,661
753,167
Poker revenues 62,118
48,093
Commissions and discounts
(4,160,280) (2,845,470)
Total casino revenues 13,510,030
9,510,861
Promotional allowances are excluded
from revenues in the accompanying condensed consolidated statement
of comprehensive income prepared in accordance with IFRS.
Management also evaluates non-casino revenues on an adjusted
basis.
The following table presents a
reconciliation of net non-casino revenues as reported in our
condensed consolidated statement of comprehensive income to gross
non-casino revenues calculated on the adjusted basis. The adjusted
non-casino revenues as presented below are used for management
reporting purposes and are not representative of revenues as
determined under IAS 18.
Interim Report 2011 13
Management Discussion and
Analysis
For the Six Months Ended
30 June
2011 2010
HK$ HK$
(in thousands)
Room revenues 65,865
57,022
Promotional allowances 372,842
230,489
Adjusted room revenues 438,707
287,511
Food and beverage revenues 94,198
76,033
Promotional allowances 252,289
170,595
Adjusted food and beverage revenues
346,487 246,628
Retail and other revenues 667,690
496,037
Promotional allowances 16,404
7,130
Adjusted retail and other revenues
684,094 503,167
For purposes of this table, we
calculate average number of gaming tables and average number of
slots as the average numbers of gaming tables and slot machines in
service on each day in the period.
Daily gross win per gaming table and
daily win per slot are presented in this table on the basis of the
average number of gaming tables and average number of slots,
respectively, over the number of days Wynn Macau and Encore were
open in the applicable period. In addition, the total table games
win fi gures used herein do not correspond to casino revenues fi
gures in our fi nancial information, because fi gures in our fi
nancial information are calculated net of commissions and discounts
and the total table games win herein is calculated before
commissions and discounts.
Discussion of Results of
Operations
Financial results for the six months
ended 30 June 2011 compared to fi nancial results for the six
months ended 30 June 2010
Our results of operations for the
periods presented are not comparable as the six months ended
30 June 2011 include the operations of Encore for the full
period whereas the six months ended 30 June 2010 only included
the operations of Encore from its opening on 21 April 2010
through 30 June 2010.
14 Wynn Macau, Limited
Management Discussion and
Analysis
Operating Revenues
Total operating revenues increased
by 41.4% from HK$10.1 billion in the six months ended 30 June
2010 to HK$14.3 billion in the six months ended 30 June 2011.
We believe this increase was due to a combination of factors,
including increased visitation and overall gaming volumes in Macau
during the fi rst half of 2011, as well as the opening of Encore on
21 April 2010.
Casino Revenues
Casino revenues increased by 42.0%,
from HK$9.5 billion (93.8% of total operating revenues) in the six
months ended 30 June 2010 to HK$13.5 billion (94.2% of total
operating revenues) in the six months ended 30 June 2011. The
components and reasons are as follows:
VIP casino gaming operations. VIP
gross table games win increased by 39.4%, from HK$9.7 billion in
the six months ended 30 June 2010 to HK$13.5 billion in the
six months ended 30 June 2011. VIP table games turnover
increased by 48.1%, from HK$325.6 billion in the six months ended
30 June 2010 to HK$482.1 billion in the six months ended
30 June 2011. VIP gross table games win as a percentage of
turnover (calculated before discounts and commissions) was 2.97% in
the six months ended 30 June 2010 compared to 2.80% in the six
months ended 30 June 2011 (win percentages are within the
expected range of 2.7% to 3.0%). On 21 April 2010, we added 37
VIP tables with the opening of Encore which helped drive some of
the growth in our VIP segment during the six months ended
30 June 2011 compared to the prior year.
Mass market casino gaming
operations. Mass market gross table games win increased by 57.9%,
from HK$1.9 billion in the six months ended 30 June 2010 to
HK$3.0 billion in the six months ended 30 June 2011. Mass
market table games drop increased by 27.8%, from HK$8.4 billion in
the six months ended 30 June 2010 to HK$10.7 billion in the
six months ended 30 June 2011. The mass market gross table
games win percentage (calculated before discounts) was 22.5% in the
six months ended 30 June 2010 compared to 27.8% in the six
months ended 30 June 2011, which was within the expected win
percentage range of 26% to 28%. We have increased our expected mass
market range to 26%-28% based on our experience since the opening
of Encore.
Slot machine gaming operations. Slot
machine win increased by 52.9% from HK$753.2 million in the six
months ended 30 June 2010 to HK$1.2 billion in the six months
ended 30 June 2011. Slot machine handle increased by 49.5%,
from HK$15.5 billion in the six months ended 30 June 2010 to
HK$23.1 billion in the six months ended 30 June 2011. The
increases resulted primarily from increased visitation to our
resort and the opening of Encore in April 2010. Consequently, total
gross slot win increased and slot machine win per unit per day
increased by 75.9% from HK$3,526 in the six months ended
30 June 2010 to HK$6,202 in the six months ended 30 June
2011.
Interim Report 2011 15
Management Discussion and
Analysis
Non-casino Revenues
Net non-casino revenues, which
include rooms, food and beverage and retail and other revenues,
increased by 31.6%, from HK$629.1 million (6.2% of total operating
revenues) in the six months ended 30 June 2010 to HK$827.8
million (5.8% of total operating revenues) in the six months ended
30 June 2011. The increase in revenues was largely due to
stronger retail sales in the six months ended 30 June 2011 and
the opening of Encore in April 2010.
Room. Our room revenues, which
exclude promotional allowances in our condensed consolidated
statement of comprehensive income, increased by 15.5% from HK$57.0
million in the six months ended 30 June 2010 to HK$65.9
million in the six months ended 30 June 2011. The increase is
due to the 414 additional suites added with the addition of Encore
in April 2010 and the increase in average daily room rate and
occupancy rate compared to the prior year.
Management also evaluates room
revenues on an adjusted basis which include promotional allowances.
Adjusted room revenues including promotional allowances increased
by 52.6% from HK$287.5 million in the six months ended 30 June
2010 to HK$438.7 million in the six months ended 30 June
2011.
The following table presents
additional information about our adjusted room revenues (which
include promotional allowances):
Adjusted room revenues
information
For the Six Months Ended
30 June
2011 2010
Adjusted Average Daily Rate
(includes promotional allowances
of HK$2,063 in the six months ended
30 June 2011 and
HK$1,782 in the six months ended
30 June 2010) HK$2,418 HK$2,216
Occupancy 89.6% 85.0%
Adjusted REVPAR (includes
promotional allowances
of HK$1,848 in the six months ended
30 June 2011 and
HK$1,514 in the six months ended
30 June 2010) HK$2,166 HK$1,884
16 Wynn Macau, Limited
Management Discussion and
Analysis
Food and beverage. Food and beverage
revenues, which exclude promotional allowances in our condensed
consolidated statement of comprehensive income, totaled HK$94.2
million in the six months ended 30 June 2011, a 23.9% increase
from the six months ended 30 June 2010 revenues of HK$76.0
million. The increase refl ects higher business volumes and the
opening of Encore in April 2010.
Management also evaluates food and
beverage revenues on an adjusted basis including promotional
allowances. Food and beverage revenues in the six months ended
30 June 2011, adjusted to include these promotional allowances
were HK$346.5 million, a 40.5% increase from the six months ended
30 June 2010 adjusted revenues of HK$246.6 million refl ecting
the increase in business volumes and the opening of Encore in April
2010.
Retail and other. Our retail and
other revenues, which exclude promotional allowances in our
condensed consolidated statement of comprehensive income, increased
by 34.6%, from HK$496.0 million in the six months ended
30 June 2010 to HK$667.7 million in the six months ended
30 June 2011. The increase was due primarily to increased
same-store sales and new outlets at Encore including Chanel, Piaget
and Cartier.
Management also evaluates retail and
other revenues on an adjusted basis which includes promotional
allowances. Adjusted retail and other revenues including
promotional allowances increased by 36.0% from HK$503.2 million in
the six months ended 30 June 2010 to HK$684.1 million in the
six months ended 30 June 2011, refl ecting the increased
same-store sales and the new outlets at Encore.
Operating Costs and
Expenses
Gaming taxes and premiums. Gaming
taxes and premiums increased by 42.5%, from HK$4.9 billion in the
six months ended 30 June 2010 to HK$7.0 billion in the six
months ended 30 June 2011. This increase was due to increased
gross gaming win from the six months ended 30 June 2011
compared to the six months ended 30 June 2010. Wynn Macau is
subject to a 35% gaming tax on gross gaming win. In addition, Wynn
Macau is also required to pay 4% of its gross gaming win as
contributions for public development and social
facilities.
Staff costs. Staff costs increased
by 16.7%, from HK$879.2 million in the six months ended
30 June 2010 to HK$1,026.1 million in the six months ended
30 June 2011. The increase was primarily due to the hiring of
additional staff for Encore.
Interim Report 2011 17
Management Discussion and
Analysis
Other operating expenses. Other
operating expenses increased by 34.0%, from HK$1.8 billion in the
six months ended 30 June 2010 to HK$2.5 billion in the six
months ended 30 June 2011. The increase in other operating
costs was primarily due to the opening of Encore.
Depreciation and amortization.
Depreciation and amortization increased by 21.4% from HK$445.4
million in the six months ended 30 June 2010 to HK$540.6
million in the six months ended 30 June 2011. This increase
was primarily due to the impact of assets placed in service with
the opening of Encore in April 2010.
Property charges and other. Property
charges and other increased from HK$22.9 million in the six months
ended 30 June 2010 to HK$849.3 million in the six months ended
30 June 2011. Included in property charges and other for the
six months ended 30 June 2011 is a charge of HK$831.1 million
refl ecting the present value of a charitable contribution made by
WRM to the University of Macau Development Foundation. This
contribution consists of a MOP200.0 million (approximately HK$194.2
million) payment made in May 2011, and a commitment for additional
donations of MOP80.0 million (approximately HK$77.7 million) each
year for the calendar years 2012 through 2022 inclusive, for a
total of MOP1,080.0 million (approximately HK$1,048.5 million). The
amount refl ected in our accompanying condensed consolidated
statement of comprehensive income has been discounted using our
current estimated borrowing rate over the time period of the
remaining committed payments. Other charges in each period
represent gain/loss on the sale of equipment as well as costs
related to assets retired or abandoned as a result of renovating
certain assets of Wynn Macau in response to customer preferences
and changes in market demand.
As a result of the foregoing, total
operating costs and expenses increased by 46.7%, from HK$8.1
billion in the six months ended 30 June 2010 to HK$11.9
billion in the six months ended 30 June 2011.
Finance Revenues
Finance revenues increased from
HK$0.3 million in the six months ended 30 June 2010 to HK$9.9
million in the six months ended 30 June 2011. During 2011 and
2010, our short-term investment strategy has been to preserve
capital while retaining suffi cient liquidity. While we have
recently invested in certain corporate debt securities which
contributed to the increase in interest income, the majority of our
short-term investments are primarily in time deposits with a
maturity of three months or less.
18 Wynn Macau, Limited
Management Discussion and
Analysis
Finance Costs
Finance costs increased by 26.9%,
from HK$107.1 million in the six months ended 30 June 2010 to
HK$135.9 million in the six months ended 30 June 2011. Finance
costs increased in the six months ended 30 June 2011 primarily
due to the reduction in capitalized interest for Encore which
opened in April 2010, offset in part by the reduction in amounts
outstanding under the revolver component of the Wynn Macau Credit
Facility and lower interest rates in 2011 compared to
2010.
Interest Rate Swaps
As required under the terms of our
various credit facilities, we have entered into agreements which
swap a portion of the interest on our loans from fl oating to fi
xed rates. These transactions do not qualify for hedge
accounting.
Changes in the fair value of our
interest rate swaps are recorded as an increase or decrease in swap
fair value during each period. We recorded a gain of HK$46.7
million for the six months ended 30 June 2011 resulting from
the increase in the fair value of our interest rate swaps in the
six months ended 30 June 2011. We recorded an expense of
HK$5.6 million in the six months ended 30 June 2010 resulting
from the decrease in the fair value of our interest rate swaps in
the six months ended 30 June 2010.
Income Tax Expense
For the six months ended
30 June 2011, our income tax expense was HK$3.5 million
compared to an income tax expense of HK$36.1 million in the six
months ended 30 June 2010. Our current tax expense for the six
months ended 30 June 2011 primarily relates to the current tax
expense of our subsidiaries owning WRM’s shares under the WRM
Shareholder Dividend Tax Agreement. In the six months ended
30 June 2010, our income tax expense mainly related to the
amount accrued for the WRM Shareholder Dividend Tax Agreement and a
deferred tax expense recorded by WRM resulting from derecognizing
certain deferred tax assets.
Net Profi t Attributable to Owners
of the Company
As a result of the foregoing, net
profi t attributable to owners of the Company increased by 26.5%,
from HK$1.9 billion in the six months ended 30 June 2010 to
HK$2.4 billion in the six months ended 30 June
2011.
Interim Report 2011 19
Management Discussion and
Analysis
LIQUIDITY AND CAPITAL
RESOURCES
Capital Resources
Since Wynn Macau opened in 2006, we
have generally funded our working capital and recurring expenses as
well as capital expenditures from cash fl ow from operations and
cash on hand.
Our cash balances as at 30 June
2011 were HK$7.5 billion. Such cash is available for operations,
new development activities, enhancements to Wynn Macau and Encore
and general corporate purposes.
In addition, as at 30 June
2011, we had HK$7.7 billion available to draw under the Wynn Macau
Credit Facilities.
Investments
As at 30 June 2011, the Group
had net investments in Offshore RMB denominated debt securities
with maturities of up to three years that amounted to Offshore
RMB214.3 million (approximately HK$257.8 million) compared to nil
as at 31 December 2010.
20 Wynn Macau, Limited
Management Discussion and
Analysis
Gearing Ratio
The gearing ratio is a key indicator
of our Group’s capital structure. The gearing ratio is net
debt divided by total capital plus net debt. The table below
presents the calculation of our gearing ratio as at 30 June
2011 and 31 December 2010.
As at
30 June
31 December
2011 2010
HK$ HK$
(in thousands)
Interest bearing loans and
borrowings, net 4,191,496 4,949,703
Accounts payable 1,104,258
1,018,016
Other payables and accruals
5,118,307 3,665,441
Amounts due to related companies
206,839 235,922
Other liabilities, net of uncertain
tax position 146,556 23,794
Less: cash and cash equivalents
(7,483,917) (3,819,163)
Net debt 3,283,539
6,073,713
Equity 6,735,039
4,297,089
Total capital 6,735,039
4,297,089
Capital and net debt 10,018,578
10,370,802
Gearing ratio 32.8% 58.6%
Interim Report 2011 21
Management Discussion and
Analysis
Cash Flows
The following table presents a
summary of the Group’s cash fl ows for the six months ended
30 June 2011 and 2010.
For the Six Months Ended
30 June
2011 2010
HK$ HK$
(in millions)
Net cash generated from operating
activities 4,948.1 2,789.1
Net cash used in investing
activities (393.0) (818.4)
Net cash used in fi nancing
activities (890.4) (2,968.8)
Net increase/(decrease) in cash and
cash equivalents 3,664.7 (998.1)
Cash and cash equivalents at
beginning of period 3,819.2 5,229.0
Cash and cash equivalents at end of
period 7,483.9 4,230.9
Net cash generated from operating
activities
Our net cash generated from
operating activities is primarily affected by operating profi t
generated by our Macau Operations as a result of increased casino
revenues, continued costs control, and benefi ts from changes in
working capital. Net cash from operating activities was HK$4.9
billion in the six months ended 30 June 2011 compared to
HK$2.8 billion in the six months ended 30 June
2010.
Operating profi t was HK$2.5 billion
for the six months ended 30 June 2011 compared to HK$2.1
billion for the six months ended 30 June 2010.
22 Wynn Macau, Limited
Management Discussion and
Analysis
Net cash used in investing
activities
Net cash used in investing
activities was HK$393.0 million in the six months ended
30 June 2011, compared to net cash used in investing
activities of HK$818.4 million in the six months ended 30 June
2010.
Capital expenditures were HK$141.0
million for the six months ended 30 June 2011, and related
primarily to renovation projects to enhance and refi ne the Macau
Operations. Capital expenditures for the six months ended
30 June 2010 were HK$771.9 million and related primarily to
the construction of Encore.
Net cash used in fi nancing
activities
Net cash used in fi nancing
activities was HK$890.4 million during the six months ended
30 June 2011 compared to HK$3.0 billion during the six months
ended 30 June 2010.
The difference between net cash fl
ow used in 2011 compared to 2010 is primarily due to a HK$2.9
billion repayment of the senior revolving credit facility under
Wynn Macau Credit Facilities made in 2010 compared to a HK$779.5
million repayment of the facilities made in 2011.
Indebtedness
The following table presents a
summary of our indebtedness as at 30 June 2011 and
31 December 2010.
Indebtedness information
As at
30 June
31 December
2011 2010
HK$ HK$
(in thousands)
Senior revolving credit facility
— 779,521
Senior term loan facility 4,287,223
4,287,283
Total 4,287,223 5,066,804
The Group had approximately HK$7.7
billion available to draw under the Wynn Macau Credit Facilities as
at 30 June 2011.
Interim Report 2011 23
Management Discussion and
Analysis
Wynn Macau Credit
Facilities
Overview
As at 30 June 2011, WRM’s
credit facilities consisted of HK$12.0 billion in a combination of
Hong Kong dollar and U.S. dollar facilities, including a HK$4.3
billion fully funded senior term loan facility and a HK$7.7 billion
senior revolving credit facility. The facilities may be used for a
variety of purposes, including further enhancements at our resort,
investments in other projects in Macau and general corporate
purposes.
We have the ability to increase
secured debt under the Wynn Macau Credit Facilities by up to an
additional US$50 million (approximately HK$389.3
million).
As at 30 June 2011, we had
total bank and other borrowings under the Wynn Macau Credit
Facilities of HK$4.3 billion, of which HK$1.2 billion was
denominated in U.S. dollars and HK$3.1 billion was denominated in
Hong Kong dollars.
In July 2009, as part of the Group
Reorganization, WRM requested and obtained from its syndicate
lenders under the Wynn Macau Credit Facilities certain consents
necessary to permit the Group Reorganization. As a result, WM
Cayman Holdings Limited II became the highest level obligor,
guarantor and chargor under the Wynn Macau Credit Facilities and
Wynn Group Asia, Inc. ceased to be an obligor, guarantor or chargor
under the Wynn Macau Credit Facilities.
The Company is not a party to the
Wynn Macau Credit Facilities and has no rights or obligations
thereunder.
Principal and Interest
The term loans under the Wynn Macau
Credit Facilities mature in June 2014, and the revolving loans
under the Wynn Macau Credit Facilities mature in June 2012. The
principal amount of the term loans is r