Century Casinos Inc (CNTY) 2007 Q4 法說會逐字稿

Welcome to Century Casinos Q4 2007 earnings conference call. This call will be recorded. At this time all participants are in a listen-only mode. Later we'll conduct a Q&A session.

I'd like to turn the call over to Mr. Paul Hoetzinger. Please go ahead, sir.

Thank you, Operator. Welcome, everyone, to our fourth quarter and year end 2007 earnings conference call. Joining me on the call today are my co-CEO, and Chairman of the Company Erwin Haitzmann; as well sa Larry Hannappel, Senior VP and Chief Operating Officer North America; and Ray Sienko, Chief Accounting Officer.

Before we begin, I need to remind you that in our remarks today we will be discussing forward-looking information which involves a number of risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. The Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events, or otherwise. We provide a detailed discussions of the various risk factors in our SEC filings and encourage you to review these filings. In addition, throughout the call we may refer to certain non-GAAP financial measures, including but not limited to adjusted EBITDA. Reconciliations of non-GAAP performance and liquidity measures to their total GAAP measures can be found in our news release and in our 10-Q and 10-K filings, all of which are available in the investor section of our website at WWW.CNTY.com. Yesterday evening we released our fourth quarter and year end 2007 results. For the full year we increased net operating revenues by 63%, earnings from operations more than tripled compared to 2006. On a consolidated basis we almost beat the analyst consensus revenue estimate and fell short by about 4% from the EBITDA estimate.

On the region by region analysis, the two Colorado properties missed consensus revenue estimates 6% and EBITDA estimates by 12%. (Inaudible - highly accented language) was pretty much in line with consensus estimates and our largest property, the Century Casino and Hotel in Canada beat revenue estimates by 4% and EBITDA estimates by 7%. This is encouraging because our Canadian (inaudible) generate the majority, almost 6% of our total revenues. The decrease of net income from $7.6 million for 2006 to $4.9 million for the year 2007 is primarily the result of the following factors. Increased interest and (inaudible) charges and CapEx associated with our three new properties. $1 million charge related to the purchase of the 35% (inaudible) casino which now brings our ownership to 100% and the 2006 recognition of $5.2 million in other income related to the state of our interest in a development project in South Africa.

Now I would like to discuss the results of the fourth quarter property by property starting with Colorado. On to properties in Cripple Creek and Central City experienced continued pressure from an increasingly competitive market as well as from disruption associated with refurbishment of Womacks Casino in Cripple Creek. (Inaudible) revenue decreased by (inaudible) and the EBITDA margins fell from 31 to 20% in the fourth quarter. For the full year the EBITDA margin was at 33%. The remodeling work disrupted (inaudible) in Q4 substantially but we are pretty much done with it now and the negative impact from that is expected to subside by the beginning of the summer season. The remodeling work also negatively impacted customer loyalty and that's why we plan marketing programs and initiatives to regain that loyalty. We continue to step up our efforts to improve the customer experience and are now 100% ticket-in, ticket-out at this property. Also, don't forget that the (inaudible) for Womacks because extreme weather conditions in winter impact Womacks more than our main competitors because of the (inaudible) at Womacks.

In Central City on the other hand we do have a parking garage so no such issues there. We have improved our product with a better floor layout and an improved slot mix at our Central City property. Revenue increased by 23% and the EBITDA margin increased to 21% in the fourth quarter which as you know is traditionally one of the weakest quarters in Colorado. For the full year, EBITDA margin was 24%. Revenue per slot (inaudible) hit $96 in Q4, outperforming the Central City market by 10%. The Players Club has 75,000 active members. Overall the Colorado casino market currently has to digest the new introduced smoking ban and is also suffering from the decline in the U.S. economy. There is the possibility that race-tracks will push for the (inaudible) in November, but at the same time there is also the possibility that the gaming units will be increased for the casinos. We should know more about the likelihood of any of these initiatives being introduced on the November ballot in about two months from now. Moving to Edmonton. Our Casino opened in Edmonton in November of '06, we are not comparing the results of the fourth quarter to the same quarter of '06, but to the third quarter of '07. Revenues increased by 9%, adjusted EBITDA by 25% and EBITDA margin was 35%. Net earnings increased by 63%.

24-hour poker began at the end of the third quarter '07 as we increased our poker rate by 131% from Q3 to Q4 '07. Improved and more efficient scheduling gave us better control of payroll costs and the transition of the deals we have (inaudible) live entertainment showroom increased traffic to the property. The Casino now has 35 gaming tables and 650 slots and (inaudible) and slot conversion project are being coordinated and executed with the (inaudible) Gaming Commission in this and the next quarter. Management continues to market the Players Club program which had over 18,000 active members at the end of December '07 and to leverage the showroom with live entertainment and gaming factions to drive non-gaming revenue. In summary this property continues to meet and exceed expectations. It is performing very well. But still has the potential to grow revenues and further improve the EBITDA margin.

Moving to South Africa. In local currency our operation (inaudible) are a slight decline in revenue and adjusted EBITDA in the fourth quarter of '07 compared to the fourth quarter of '06. The EBITDA margin was 37% in Q4 and 39% for the full year. The installation of a completely new (inaudible) during the month of November had a negative impact on revenues due to the planned down time of slot machines. This also had an impact on operating expenses during the month. After installation the new system has been very well received by our customers and has been performing according to our expectations. We are currently renovating our main restaurant and provide certain upgrades to the gaming floor. Next up will be a renovation of the conference facilities to take advantage of the opportunities to attract conference business from Cape Town.

Preparations for the development of the (inaudible) and housing project are continuing. We (inaudible) a company Golf Data, as well as PGA Professional (inaudible) and are more than half way through the proof of process. We believe that we can start construction which we will do in cooperation with a local development Company in about a year from now.

Our second property (inaudible) in New Castle reported a 41% increase in revenues and a (inaudible) increase in adjusted EBITDA. Net earnings increased by 46%. (Inaudible)performance driven by a strong increase in (inaudible) as well as effective marketing campaigns. The EBITDA margin was 35% in Q4 and 32% for a full year. Later this year (inaudible) as well as a substantial upgrade of the slot floor. We continue to see great potential for growth in this market and also look forward to the start of the development of shopping mall right adjacent to our Casino (inaudible) for next year which (inaudible) to our property. Operations in (inaudible) Casinos. The (inaudible) increased revenues by 21% in Q4 over Q4 '06, but the situation remains a little tight in this very competitive market. The performance of the ship segment decreased in light of fewer ships in operation compared to the fourth quarter of '06. However, we have secured the rights to operate the casinos on the new ship (inaudible) as well as the two new Oceania cruiser vessels.

Poland, our investment in Poland showed very good improvement and returns. Our people have been (inaudible) as Chairman of both the management as well as the supervisory boards of Casino (inaudible) and we see those results of the new direction of the Company. In the fourth quarter of '07 adjusted EBITDA increased by 34% over Q4 '06. Mainly due to our higher EBITDA margin of 14% of compared to only (inaudible) last year. Net earnings more than tripled driven by higher revenues and (inaudible) successful cost cutting efforts. We are confident that we can further improve on that and that lots of ideas which we will implement throughout this year. We're currently renewing gaming (inaudible) in all eight Casinos in Poland and are refreshing our properties improving the quality of staff as well as providing or guests with high quality (inaudible) is also high on our list of priorities. The extension of the (inaudible) property, the Casino in (inaudible) in Warsaw, is the most important CapEx project in Poland and is planned to be completed this summer. We reported $563,000 in equity earnings from this investment in 2007, most of it, 472,000 in Q4 and expect a substantially higher amount this year. This concludes this conference, the presentation and we can now start the Q&A session. Operator?

Certainly. (OPERATOR INSTRUCTIONS) We'll take our first question from the site of [Paul Rappa] of [Redchip].

Yes, hello, thank you so much for the conference call. I just have a couple of questions. What are your estimates for total 2008 earnings and revenues, earnings per share? And, also, do you have plans on purchasing any shares during 2008? Have you seen any adverse effects from the smoking ban in Colorado? And the last question, with the purchase of the loan for $1 million from Central City, Colorado, did that shave off about $0.04 per share in the last quarter?

In terms of your first question about estimates for '08, we do not give guidance for the full year and therefore I'm afraid I can't comment on that question. We do not plan to purchase any shares. We have quite a number of projects in the pipeline and we believe that the money would be very well spent on investing in the growth of our Company through new projects. The smoking ban in Colorado has been introduced at the beginning of the year, and has a negative impact. It's difficult to judge how much of the negative impact comes from the smoking ban because we are also dealing with a decline in the economy. In Cripple Creek, (inaudible) is going through this refurbishment of remodeling which also has a negative impact , then additionally we have the weather. So all these factors together make for a change in the operating environment but it is difficult to single out the smoking ban, what the smoking ban really creates an impact. And Larry, I would like to turn over to you to able to answer the $1 million loan whether that shaved off $0.04 or not. Can you comment on that?

This is Larry, the $1 million loan write-off was a net after-tax amount of approximately 600,000, so it was more like a 3% hit to the basic earnings.

Okay. Thank you.

Thank you. We'll take our next question from the site of Ryan Worst of Brean Murray.

Yes, hi, good morning, guys. Just a couple questions. As far as the construction disruption in Cripple Creek, you said that would continue into the first quarter? How long will it go? And what do you think the impact of that was in the fourth quarter?

Erwin, can you answer, please.

This is Erwin Haitzmann, we think -- first of all, we don't think that going forward there will be any significant disruption on the floor with regard to the fine-tuning. It is more (inaudible) rather than any kind of construction. With regard to the (inaudible) our customers due to the interruptions that we had on the floor we lost some players to other Casinos and they did not come back as regularly as we wanted them to, or as we had expected them to, (inaudible) marketing programs. Overall, the final product we believe is superior to others in many respects but get the customers back so that they can also enjoy that.

Okay. Do you guys have guidance for CapEx in '08? And then, Peter, could you just go over your plans for Caledon and the construction there? Are you guys joint-venturing that, or are you going to be responsible for the construction?

Yes, (inaudible) we have a couple of things and offers on the table that we are reviewing right now with plans that we will not be taking the lead on the actual construction and development. We will bring the project to a fully-approved stage and then we will bring in the partner.

Okay.

We continue to consummate on our non-core business and not do the construction.

And CapEx for '08?

(Inaudible) CapEx with the only exception of Casinos in Poland where, as Peter mentioned earlier we are in the works. We're working on doubling the size of the Casino in Warsaw which is by far the largest (inaudible) Casinos Poland. (Inaudible) significantly to EBITDA and bottom line. And we had the opportunity to double the size and (inaudible) construction of the interior design is about to start in a month from now and we should be done by hopefully June or July.

And will there be -- would there be a capital contribution from you guys, equity?

In Casinos Poland Limited (inaudible) and at this point in time rather no than yes. Should they need the money then we're thinking of (inaudible) but we would only contribute a third and it is not a lot. The total estimated cost of that -- of that project is about, shall I say, around $1 million U.S. 700,000 euros.

Okay. Okay. Thank you.

Thank you. We'll take our next question from the site of Todd Eilers of Roth Capital.

Hi, guys, how are you.

Fine, how about you?

All right. Just a couple questions. Number one in Cripple Creek is there still a competitor project still under development in that market? And, if so, can you kind of update us on what the timing is on that?

Yes, there is a project from a Company called ATG and the latest we hear is that any time around May or June possibly, they intend to open. It is hard to estimate whether they would be able to do that.

Do you guys, by any chance know how many slots they're looking to open with? Just trying to get a feel for how many--?

Around 600 is what we heard.

I'm sorry, what was that?

Around 600 slots.

Okay. My next question, I've -- I saw in a few articles, Century Casino's reference is applying for a new license opportunity in a Canadian province, I believe it was New Brunswick. Can you guys comment at all on that opportunity? Are you bidding for a license there and just maybe can you talk at all about that opportunity?

Yes, we can confirm that we are part of a group that has applied for the license there to develop a Casino resort in New Brunswick. But we are all under a confidentiality with the authorities there and, therefore, we are not allowed to provide any more details, unfortunately.

Okay. Can you maybe give us an indication of just timing of when that award -- when do you think that award might be issued?

That award might be issued, in all likelihood in August for the third quarter.

In the third quarter or before?

Or even before the third quarter.

Okay. And then last question, with regards to Casinos Poland your equity, the equity contribution there, looked like you had a nice contribution there in the fourth quarter. I think you guys said $470,000 and made some comments that you expect that to be a lot higher, I guess in '08. Can you kind of give us maybe a range of expectations for what you expect Casinos Poland to contribute in '08 for you guys?

In '07 we had $563,000 and I said that for '08 we expect a substantially higher amount. Without giving like absolute dollar estimates, we estimate to increase the EBITDA margin by about 30% from 11 to 14 (inaudible) but 14% is of course satisfying so this year it is substantially room to grow and to possibly, we have to come into the very high teens or low 20's.

Okay. And then just to follow-up on that, just anymore efforts made to take a controlling interest and consolidate the results?

Yes, efforts are being made. Things have been slowed down by the recent elections in Poland which triggered a lot of new appointments in Ministries and (inaudible) companies, and therefore the progress has slowed. But it is continuing (inaudible) and we are interested to buy it, so things are going the right direction but just slower than what we would like it to be.

Okay. That does it for me. Thanks, guys.

Thanks, Todd.

Thank you. There are currently no other questions in the queue. .

Okay. If there are no other questions, then let me please thank you for your interest in Century Casinos and your participation in the call. For a recording of the call, please see the financial results section of our website at CNTY.com. Thank you.

Thank you.