Century Casinos Inc (CNTY) 2008 Q4 法說會逐字稿

Welcome to the Century Casinos Q4 year-end 2008 earnings conference call. (Operator Instructions)

I will would like to introduce our host for today's call, Mr. Peter Hoetzinger. Mr. Hoetzinger, you may begin.

Thank you Operator and welcome everyone to our fourth quarter and year-end 2008 earnings conference call. Joining me on the call today are my Co CEO and Chairman of the Company, Erwin Haitzmann, as well as Larry Hannappel, Senior VP and Chief Operating Officer of 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 it is a result of new information, future events or otherwise. We've provided detailed discussion of the various risk factors in our SEC filings and encourage you to review these filings. In addition throughout our call, we may refer to several non-GAAP financial measures, including, but not limited to, adjusted EBITDA. Reconciliations of our non-GAAP performance and liquidity measures to the appropriate GAAP measures can be found in our news release and in the 10Q and 10K filings, all of which are available in the Investor section of our website at www.cnty.com.

Let me now present the results of fourth quarter and year-end 2008. Our results for 2008 were obviously dominated by three major factors. Firstly, by the $9.3 million writedown of the goodwill on the books of the two Colorado properties in the third quarter plus [inaudible] deterioration of the U.S. and Colorado economies. Secondly, by the establishment of the [variation] allowance for our deferred U.S. tax assets in the amount of $6 million also in the third quarter and also caused by the troubled economic environment in the U.S. And, finally, by the classification of the results of South Africa and Prague in discontinued operations. This is in accordance with U.S. GAAP and means that the P&L results of these operations are collected into one line at the bottom of the income statement. The '06 and '07 results have also been put out of normal operations and are reported in discontinued operations.

For continued operations, the net operating revenue for the fourth quarter was $11.7 million, down 19% from the same quarter a year ago. Adjusted EBITDA was $1 million, down 55% from last year. Because losses on the foreign currency transactions reduced this quarter's EBITDA by $470,000, but increased EBITDA of Q4 '07 by $203,000, the actual difference in EBITDA after foreign currency transactions is 27%.

Our 15 casinos in Canada, Colorado, Poland and on cruise ships operate with a total of 2015 slot machines and 166 gaming tables. 94% of our revenue comes from the gaming floor, the balance from hotel and food and beverage operations. Including discontinued operations, the net loss for the quarter was $651,000 or $0.03 per share. Quarter over quarter, the South Africa currency declined by 47%, the Canadian currency by 19% and the Polish currency by 17% versus the U.S. dollar. All of which had a major negative impact on our net results.

For the year ending December 31, '08, net operating revenue from continued operations was $53 million, a 10% decrease over '07. Adjusted EBITDA decreased by 23% from $10.3 million in '07 to $7.9 million in '08, but taking foreign currency transactions into consideration, the decline was actually only 11%.

I will now present the results, property by property in local currency beginning with our Colorado casinos. [inaudible] revenue at Womacks Casino in Cripple Creek fell 38% in the third quarter. The decline in the fourth quarter was reduced to 25% year-over-year. EBITDA was a positive $340,000. The smoking ban and the slow economy continue to negatively impact the number of visits per customer, as well as the average spend per customer. In addition, we lost customers to a new competitor starting in the second quarter of last year, which also hurts the year-over-year comparison for our Cripple Creek property.

The Century Casino in Central City generated revenues of $3.8 million, down 22% from the fourth quarter of last year. EBITDA was $670,000, including a margin of 18%. In addition to the smoking ban and the troubled economy, the slot hold that was 7% lower than in the same quarter a year ago, also contributed to the decline in total revenues. The 6% increase in table revenue could [inaudible] offset that meaningfully.

In general, the Colorado casino market will continue to be very competitive for the player's dollars. Promotions in the market are being geared to weekend play and are driven by cash drawings and multiple points from members of the players clubs. The first couple of months in 2009 showed small signs of improvement, as revenues in January and February were down only 8% year-over-year. Because of the close cutting and streamlining efforts undertaken, EBITDA could actually see real growth in Q1, depending on the performance in March.

Both our properties are gearing up for July 2nd, when the new rules that allow higher limits of $100 per game, 24 hours opening and the additional games of roulette and craps come into effect. The gaming towns of Central City and Cripple Creek are close enough to Denver and Colorado Springs that they should capture an increased market of higher level players that are usually going to larger gaming destinations such as Vegas. We believe this will increase the Colorado casino market and will have a positive impact on our two casinos.

Our property in Canada, the Century Casino & Hotel in Edmonton, was once again the best performer in the quarter. Year-over-year, revenues increased by 7% and [inaudible] earnings by 6%. It generated $2 million in EBITDA, which is a margin of 34%. We are happy with these growth rates especially because there is a massive construction project, the city's $25 million Slot Road redevelopment project, currently underway in front of and in the area around our property. Three additional lanes of the main road in front of our casino are scheduled to open in the fall of this year and new commercial space and more than 1,000 residential units are planned throughout the next year.

Over the next two months, we expect several slot machines conversions and upgrades, as well as the addition of some VLTs onto our gaming floor. Next quarter, we will have the grand opening of a new Yuk Yuk's Comedy Club at our premises. Yuk Yuk's is the most popular comedy club of Canada and it's location right adjacent to our gaming floor should complement the total entertainment experience our guests enjoy at the Century Casino, Edmonton.

More important than the rental income, should be the additional traffic to our casino, expected to result in an increase in gaming as well as nongaming revenues. Also, this property had a good start into 2009 with revenues showing single digit growth.

The ship casino segment had 4% lower revenues, flat EBITDA and a small profit in the fourth quarter, compared to a small loss in the same quarter a year ago. We discontinued the operation of both World of ResidenSea and entered into an exclusive agreement with three cruises, a joint venture between Royal Caribbean Cruise and [Turizon], one of Germany's largest two operators. They plan to put three vessels into service, with the first starting on May 15th from Hamburg, Germany. In addition, our partner Oceania Cruises, will add two large ships over the next two years. [inaudible] our total passenger capacity increasing almost five-fold from currently 2300 to almost 11,000 over the next two years. With that, our ship casinos segment is expected to have a more meaningful and positive impact on our income statement than before.

I am now moving to Europe for an update on Casinos Poland. Revenues at Casinos Poland Limited, of which we own one-third, increased by 6% year-over-year. During the quarter, the Company's flagship operation at the Marriott Hotel in Warsaw, opened an extension of the the gaming floor and started to roll out the ticket in ticket out slot machine system. The Company also introduced the first nationwide mega-checkbook which proves very popular with players from around the country. The Company now operates 100 gaming tables and 255 slot machines at its eight locations throughout Poland.

Equity earnings we booked from our investment in Casinos Poland were down year-over-year for reasons, including a one-time writeoff and a decline in the Polish currency by 17%. Our goal there is to strengthen our ownership and our management position in the Company. The discussions are continuing with our partners, but an outcome if and when is still difficult to predict.

Before starting the Q&A session. I would like to take a quick look at the corporate side the results. Corporate G&A consists primarily of legal and accounting fees from being a public company. Corporate [inaudible] expenses, corporate payroll, the amortization of stock compensation expense and other expenses not directly related to any of our individual properties.

In the fourth quarter, corporate payroll expense declined by over $0.5 a million dollars. Mainly because of substantial reductions of bonus accruals. For example, my Co CEO and I did not even ask for any bonus for the year 2008. Corporate [inaudible] expenses were also [inaudible] to over $100,000 in the quarter. On the other hand, our tax expense increased by almost $0.5 million because in connection with the establishment of a tax affiliation allowance, we did not record a tax benefit on U.S. losses during the quarter. There in, Ray can explain more on the recommendation that is required.

Looking at our third party debt, our continued operations carry the following amounts, that's as of December 31, '08. Womacks Casino in Colorado has debt of $4.3 million, which matures in July 2012. Century Casino in Colorado has $17.6 million in debt, maturing in November 2011 and the Century Casino in Edmonton, Canada carries $15.5 million, which is due in December 2012.

Our CAPEX rate was about $3 million. And we do not foresee any significant change of this amount for '09. Finally, the sale of our South African assets is proceeding as planned. All necessary applications have been lodged and the regulatory approval processes are running their required formal course. We anticipate the closing of the transaction toward the end of the second quarter. At the current exchange rate, we should net approximately $37 million, which would equal $1.55 in cash per share. This concludes my presentation and we can now start the Q&A session.

(Operator Instructions) We have our first question from Andrew [Wynkee] from the Gazelle Newspaper. Your line is open, please go ahead.

Do you think the Colorado casino market is now stabilized and we're going to continue to see these kind of numbers until the Amendment 50 changes take place in July?

Yes. We see some signs of improvement and on the revenue side we are coming close to a stabilization, that's a good way to put it. July 2nd should give the market a boost. The start is out there. We believe that the revenues and EBITDA numbers for the industry should go up some where between 20% and 35%. We will see, but until that, we don't see any catalyst for growth until July 2nd.

(Operator Instructions) We have another question from Justin Boris from Lazarus Investment. Your line is open, please go ahead.

Hi, Peter, I was just curious if you could elaborate a little bit on what you intend to do with the proceeds from the sale of the South African assets?

Justin, thanks for being on the call. We will use some of it to repay some of the debt. In all likelihood, we will repay the debt that sits on the Cripple Creek property and maybe also some of the debt on the Central City property. We will be very careful with investing into new projects, but we're currently analyzing one or the other projects in North America and Europe and maybe a small part of the proceeds will go toward say one, maximum two. We may use some of it for a stock repurchase program depending on where the stock price is once we get the cash in and keep a substantial portion as firing power for the short and midterm future.

Okay. Thanks a lot. And it sounds like you are still pretty confident that sale is going to move forward?

Yes, we are, Justin.

All right. Thanks again.

Our next question will come from the line of Paul Hoffman from Sal Oppenheim. Your line is open. Please go ahead.

Good afternoon. I have a question concerning Edmonton. Could you give us a time schedule when the construction project in Edmonton will be finished?

Larry, can I refer that to you?

The construction that you are referring to, I am assuming is the road construction out front which is a major widening of the road from a -- I believe it is from a two to six lane highway. The plans are to have it completed by the end of this year, in the October, November time period.

Okay. Thank you very much.

Our next question comes from the line of Greg Weaver from Invicta Capital. Your line is open.

Hi Peter. Is there any key items or changes that you want to make at the properties in terms of efforts to improve the profitability or are you waiting for the economy to get better?

Erwin, may I refer that to you?

Yes, hi this is Erwin. For the immediate future, we have not planned any major CAPEX. It really depends on the economy improving until we -- with respect to that, but for the moment, we think all the properties are in proper shape and able to take advantage of any economic any upward movement.

Okay and the thought of doing the hotel in Edmonton, that is still on hold for awhile?

At the moment, that is on hold. Yes. We don't think that it would be prudent to allocate the money necessary to this project at this point in time.

Understood. Thank you.

Sure. Thank you.

We have no further questions. I would like to turn the conference back over to Mr. Hoetzinger. Please go ahead, Sir.

Thank you for your interest in Century Casinos and your participation in the call. For a recording of the call please visit the Financial Results section of our website at www.cnty.com. Thanks again.

This concludes today's conference call. Thank you for attending.