Century Casinos Inc (CNTY) 2009 Q1 法說會逐字稿

Good day and welcome to Century Casino's Q1 2009 earnings conference call. Please note this call will be recorded. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session. I would now like to turn the call over to Mr. Peter Hoetzinger. Please go ahead, sir.

Thank you, everyone. 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 North America, and Ray Sienko, our 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've provided detailed discussion of the various risk factors in our SEC filings and we 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 the non-GAAP performance and liquidity measures to the appropriate GAAP measures can be found in our news release and in the 10-Q filing. All of which are available in the investor section of our website at www.cnty.com.

I will now present the results of the first quarter 2009. As most of you know, because of the pending sale, we have classified the results of our South African casinos as discontinued operations. This is in accordance with US GAAP and means the P&L results of these operations are collapsed into one line at the bottom of the income statement. The 2006 and 2007 results have also been put out of normal operations and are reported in discontinued operations.

Our continued operations include 15 casinos in Canada, Colorado, Poland and on cruise ships with over 2,000 slot machines and about 170 gaming tables. 95% of our revenue comes from the gaming floor. The balance from hotel and food and beverage operations. These continued operations generated net operating revenue of $12 million in Q1 of 2009, down 11% from the same quarter a year ago.

Revenues of Casinos Poland are not included in that number. We own one-third of the Company, hence, we are not consolidating its results. The Colorado operation showed a revenue decrease of 8% year-over-year, thanks to a weak economy. The good news is that the decline was about 30% in the third quarter of last year, a little over 20% in the fourth quarter and has now come down to 8%.

This trend clearly shows that things are getting a bit better in Colorado, not to mention the substantial improvements of the betting rules coming into effect in less than two months from now on July 2.

Our largest casino resort, the Century Casino hotel in Edmonton, Canada, increased revenues by 7%, but due to a weaker Canadian dollar, this resulted in a decline of reported US dollar revenues of 14%.

Adjusted EBITDA for Q1 increased by 8% from $1.9 million last year to $2.1 million this quarter. For comparison, adjusted EBITDA in the last quarter Q4 of 2008 was 28%. Again, the trend goes to the right direction and this quarter's increasing adjusted EBITDA on lower net operating revenues clearly demonstrates our continued commitment to efficiency and cost control.

Please note that we have adjusted EBITDA for gains and losses we realized on our foreign currency transactions in order to provide a better picture about the true operational performance.

The bottom line of the continued operation shows a loss of $1.5 million or $0.07 per share. Realized foreign currency losses impacted that net result by $600,000. And as a result of the allowance on our US taxes, we could not recognize the tax benefit in the amount of $0.5 million. Including these continued operations, we reported net earnings of $345,000 or $0.01 per share.

Now let's discuss the results of our continued operations, property by property, in local currency beginning with Colorado. While revenue at Womacks Casino in Cripple Creek fell 11% in the first quarter, this is actually a substantial improvement from the declines of 25% in Q4 last year and 38% in Q3 last year. EBITDA for the property jumped 77% to $0.5 million this quarter, basically doubling the operational margin.

It is also good to see that after a couple of months of net losses, this quarter will make the casino generate positive net earnings. We further increased our operational efficiencies, decreased the number of participation games and implemented a sharing scheme in Central City to reduce payroll and operational expenses. All of these measures worked well and contributed to higher margins and the return to profitability.

The Central Casino in Central City generated revenues of $4.2 million, down 6% from last year. This after a 22% decline just last quarter Q4 of 2008. EBITDA increased 27% to $1.1 million. Resulting in a solid EBITDA margin of 25%. That's not bad at all, especially for winter quarter in Colorado.

In general, the slow economy continues to negatively impact the number of visits per customer as well as the average spend per customer. The Colorado casino market continues to be very competitive for the players' dollars. Promotions in the market are being geared to weekend play and cash drawings and market points for members of the players clubs.

Both our properties are gearing up for the July 2 new rules that allow higher limits of $100 a game, 24 hours opening and additional games of roulette and craps coming 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 a larger gaming destination such as Vegas. We believe this will increase the Colorado casino market, it will have a positive impact on our two casinos.

Our property in Canada, the Century Casino and Hotel in Edmonton, was once again best performer in the quarter. Year-over-year revenues increased by 7%. It was a very good performance with growth rates in all departments of operation from slots and tables to hotel as well as food and beverage. With payroll and other operating expenses pretty much in line with last year, Edmonton generated $2.2 million in EBITDA, up 15% from last year. EBITDA margin increased to 37%. Net earnings jumped 33% to $1.1 million for the quarter.

We are happy with this progress especially because there is a massive construction project, the City's $25 million Fort Road redevelopment project currently on the way from the area around our property. Three additional lanes for the main road in front of our casino are being constructed and that is scheduled to open in the fall of this year. Over the next few months, we expect several slot machine conversions and upgrades as well as the addition of some VLPs onto our gaming floor.

At the end of May, we will have the grand opening of the new Yuk Yuk's Comedy Club at our premises. Yuk Yuk's is the most popular comedy club of Canada and its location is right adjacent to our gaming floor should complement the total entertainment experience our guests enjoy at the Century Casino Edmonton. More important than the (inaudible), should be additional traffic to our casino, expected to result in an increase in gaming as well as non-gaming revenues.

The ship casino segment saw a decline in revenues and EBITDA compared to the same quarter a year ago, maybe because we had less opening days due to some ships having been in port, more days or in waters, for example, around Chile where shipboard gaming is not permitted. Occupancy levels on the ships were also lower, triggered by the general downturn in the global economy.

As reported, we entered into an exclusive agreement TUI Cruises, a joint venture between Royal Caribbean Cruises TUI Reisen, one of Germany's largest tour operators. We plan to put three vessels into service with the first having its official christening this Friday, May 15, in Hamburg, Germany.

In addition, our partner Oceania Cruises will two larger ships over the next two years. All of this will result in our total passenger capacity increasing almost five-fold from 2,300 currently to approximately 11,000 over the next few years. With that, our ship casino segment is expected to have a more meaningful and positive impact on our income statement than before.

(Inaudible) on Casinos Poland Ltd. of which we own one-third. The Company operates 100 gaming table and 255 slot machines at its eight locations throughout Poland. Revenues decreased by 20% year over year and EBITDA declined 42%. These declines together with the 45% decline of the Polish currency, resulted in the equity earnings we booked from our investment in Casinos Poland being down $370,000 this quarter compared to Q1 of 2008.

The reason for the decline in revenues was a very poor month of February and then 8% decline in the whole percentage on the tables. The positive news is that the table drop was actually up 9% quarter over quarter and the results have improved since the end of February.

The recently introduced ticket-in, ticket-out slot machine system in Warsaw is performing well and we will proceed with upgrading slot machines to this system at the other properties as well. With regard to the ownership and organizational structure, it's still our goal to strengthen our ownership and our management position in the Company. Discussions are continuing taking way too long and an outcome if and when is very difficult to predict.

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

After corporate payroll expense already declined over $0.5 million in the fourth quarter of 2008, mainly because of substantial reductions of bonus accruals, it declined by a further $84,000 this quarter. Professional services as well as other corporate expenses have also been lowered. Resulting in total savings of $309,000 compared to the same quarter a year ago.

EBITDA net earnings of the corporate segment declined because these substantial savings were offset by a reduction in the equity earnings from Poland, a decrease in foreign currency gains of $644,000, and an increase in tax expense of $685,000 compared to Q1 of 2008.

The part of (inaudible) debt of our continued operations as of March 31, 2009 was as follows. Womacks Casino in Colorado has debt of $3 million, down from $4.3 million at the end of December. This debt matures in July 2012. Century Casino in Central City Colorado has $16 million in debt, down from $17.6 million three months ago. This is maturing November 2011. Edmonton carries $14.7 million in debt, down from [$16.5] million. And this is due in December 2012.

With regard to CapEx, our CapEx in the first quarter was $237,000. We don't foresee any significant changes in CapEx in our continuing operations compared to last year.

We would also like to let you know that we are in full compliance with all of our loan agreements.

And finally, the sale of our South African asset is proceeding as planned. All necessary applications have been lodged and the regulatory approval processes are running their required formal course. On April 24, the Competition Tribunal of South Africa already approved the transaction.

The closing is still subject to approval by the Western Cape Gambling and Racing Board and the KwaZulu-Natal Gambling Board. We anticipate this approval towards the end of the second quarter.

At the current exchange rate, we should net approximately $42 million which would equal $1.75 in cash per share.

This concludes my presentation and we can now start the Q&A session.

(Operator Instructions). We are now ready to begin and we will take our first question from the site of Todd Eilers from Roth Capital Partners. Your line is open.

Hi, Todd.

First question related to the South African casino sale. I guess two questions on that. First, it looks like the sale price or the net proceeds have increased. That looks like it's related to the foreign currency movement.

I guess my question there is can that continue to increase for you guys if the South African rand continues to increase, or is there some sort of maximum amount that you guys can get? And then the second question is what do you plan at this point in time? What do you plan to use the proceeds for?

Todd, we gave the price in rand, and there's no cap with regard to the exchange rate. So, yes, it can increase if the rand depreciates further.

With regard to the use of the proceeds, what we have in mind is to reduce some of our debt. We need to pay off the $3 million that sits on the Womacks property, and perhaps we use some of the proceeds also to lower the debt on one of the other debt piece that we have in place.

Depending on where the share price would be at that time, we might also look at the share buy back program. We are looking at a very selective few, 1 or 2 acquisition projects that if the price is right, we might want to proceed with. And then we will in any case keep quite a sizeable portion of the proceeds in the Company to just have a very strong balance sheet going forward.

Okay. And then just a follow-up on if you do decide to use a portion of the proceeds to repay US debt. At this point in time, what do you anticipate the tax hit to be on that sort of transaction?

Larry, can you jump in on that?

Yes. This is Larry. The pay down, the small amount on the Womack debt and maybe a little bit more on any of the debt in the US, right now would not be taxable to us because of intercompany notes we have in place between the international operations and us in the US.

Okay. And then, Peter, the M&A opportunities, obviously you're not going to give us the specific properties. But can you maybe give us a sense of what markets or geographic areas that you're focused on.

There's some interesting projects in Canada and in Europe that we looked at the moment.

And just one last question. I believe I heard you say at the Edmonton property you guys were looking to add some additional slots. Can you maybe tell us how many you're going to add?

No. We at the moment are in discussion with the regulators, the Alberta gaming and legal commission. It won't be a substantial amount this quarter, but some.

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

Thanks, Todd.

(Operator Instructions). And our next question will come from the line of Paul Hoffman from Sal Oppenheim. Your line is open.

Good afternoon, gentleman. You have already mentioned that the corporate expenses declined significantly. Do you expect corporate expense to remain lower in Q2?

Larry, can you comment on that?

What we would expect is for our corporate expense to run, I would say, at the level that our costs are at for Q2 with the exception of the foreign exchange gains or losses. That's a little bit harder to predict going forward.

Okay. Thanks. And my second question is about your EBIT margin improvements in both casinos in Colorado. Could you explain the main reasons? Although if you expect EBIT margins to improve further?

We have started to put some efficiencies in place between those two operations, like a staff sharing scheme, concentration of marketing cost using some of the proposed properties and things like that that are helping a lot.

Erwin, would you like to add to that, please.

Yes. It would be tough to say how much further we can save. Probably on the top side we reached a level which we think should not -- it should not go into -- we should not go lower to lose the quality of service. Quite on the opposite, we -- our hopes are that the revenue downturn will be reversed and revenues should go up in the year-over-year comparison. But that doesn't necessarily mean that we have to add staff

On the other hand, we will also be looking at that on July 2, the new Colorado gaming laws will come into effect and that means that we can open both our Colorado casinos for 24 hours each day. For that, we will have to add a little bit of staff. And then there are also new games permitted, namely craps and roulette. And that also adds a few staff members. But we would certainly hope that those games will earn more than the additional costs that we have.

Okay. Thank you very much.

(Operator Instructions). We'll pause momentarily to see if there are any further questions to queue. And it appears that we have no further questions at this time. I would like the turn the call back over to Mr. Hoetzinger for any closing remarks.

Thank you, operator. Thanks everyone for your interest in Century Casinos and your participation in the call. For a recording of the call, please visit the financial records section of our web site at www.cnty.com. Thank you all.

This does conclude today's teleconference. Thank you for attending and have a great day.