Melco Resorts & Entertainment Ltd (MLCO) 2008 Q2 法說會逐字稿

Good morning and thank you for participating in the second quarter 2008 earnings conference call of Melco Crown Entertainment Limited. At this time all participants are in a listen only mode. After the call we will conduct a question and answer session. Today's conference is being recorded.

I would now like to turn the call over to Simon Dewhurst, Executive Vice President and Chief Financial Officer of Melco Crown Entertainment Limited.

Good morning and thank you for joining us today for our second quarter 2008 earnings call. On the call with me is Lawrence Ho, Garry Saunders, Greg Hawkins, Keith Heise, Constance Hsu and Geoff Davis.

Please note that today's discussion may contain forward looking statements made under the Safe Harbor provision of the US Federal Securities laws. I'd also like to caution you that the Company's actual results could differ materially from the anticipated results in those forward looking statements. For further clarification, please read the full disclosure in our press release.

By now you should have seen our detailed earnings release so I don't intend to repeat the second quarter financial information as set out therein. Instead, and in a slight change of format from how we've conducted our calls in the past, we will divert away from a pure Q2 earnings script and discuss six core topics that we believe are very relevant today for any shareholder seeking to assess the value of our Company.

The six topics are one, rolling chip hold rates. Two, Crown's cost structure. Three commission caps. Four MPEL's recent share price performance. Five, monetizing assets, and six, our balance sheet. This format for the call should allow plenty of time for follow up Q&A.

First up we want to talk about hold rates. Looking forward from the current quarter, we will revise our expectations of target hold in the rolling chip segment from 2.7% to 2.85%. We're making this change to bring MPEL in line with what we believe to be the consensus opinion of expected rolling chip hold rates in Macau. Please note that VIP hold at Crown Macau is 2.94% year to date. We think that this decision brings us in line with the expected hold percentage under the soon to be introduced statutory commission cap environment.

Secondly, I want to remind everyone that we're still only a single property gaming stock. Crown Macau is, more than any other casino property in Macau, heavily skewed towards the VIP, or what we like to call the rolling chip segment. We make no excuses for this. This is Crown Macau's core strength and it will remain the strategic focus.

After deductions from revenue of the two principal variable expenses of gaming tax and junket commissions, Crown Macau operates essentially as a fixed cost business just like any other casino. Now as a consequence of this, the direct impact to EBITDA of changes in hold percentage is significant and this can result in volatile earnings. Crown Macau was the beneficiary of this effect in the first quarter of 2008 with higher than expected holds of over 3.1%. Crown Macau felt the negative impact in the second quarter as a result of a sequential decline in hold rates which fell to 2.7%.

But to speak quite frankly, the level of scrutiny on hold rates from this day to that, or from one week to the next is, in our view, excessive. Step back from this short term analysis of relative performance and Crown Macau has delivered impressive returns across the first half of 2008 for a property that cost approximately $380m to build. $117m in EBITDA during the first half of this year represents an annualized ROI of over 60%.

Next let's talk about commission cap. There is a debate about the ability of Crown to compete for volumes in the rolling chip segment following the expected implementation of the 1.25% commission cap later this year. In a moment Lawrence will provide more color on this. But our strongly held view is that Crown can and will remain competitive in this new environment. We believe that all operators under the new commission cap regime will achieve rolling chip margin performance improvements.

My fourth topic is our recent share price performance. First I want to point out that at $6 and change, MPEL is trading at a very slight premium to its book value. As a management team we do not believe that this fairly values our Company. We think a lot of the negativity that currently drives sentiment towards gaming stocks is overdone, especially for stocks like MPEL which are totally isolated from any downturn in the US economy.

Of course we understand that competitive conditions in the rolling chip market in Macau and softer results by AMA in June resulted in concerns about our ability to retain market share. So far our first quarter hold has been very good at Crown Macau and we're happy with our current market share performance.

We will keenly monitor what impact the current travel restrictions, together with the distraction of the Olympics, has on growth in the overall gaming market. Again, we stress that this must be considered for what it is, short term variance from what is an intact, long term growth and investment story. We believe that the street has priced in headwinds which we do not see on the ground here in Macau.

Topic five concerns our ability to monetize assets in the future in Macau, specifically at City of Dreams and at our third development site on the peninsula. Though the specific government approved process remains somewhat uncertain for Cotai, we continue to review the option of monetizing assets of City of Dreams and the Macau Peninsula site. The realization of this process at either project would provide meaningful liquidity and enhance net returns. We expect to make a final determination regarding the monetization of assets at City of Dreams in the coming months as our neighbor navigates this process and tests the waters for buyer demand.

Finally, our balance sheet is conservative and well positioned to complete our current development pipeline. Our existing debt to equity ratio is just 25%. Our land grant for City of Dreams was gazetted yesterday by the Macau government, which represents a major milestone in the government approval process and for the financing of the project itself.

Now I'd like to turn the call over to Lawrence.

Thanks Simon. There are a lot of questions about how the Macau gaming market will evolve over the coming months and years. While predicting the future is always tricky, let me share my views on the subject and explain why I'm still confident about the future of Macau and the future of MPEL. Let me first state the obvious, which is that Crown Macau and the Macau gaming market are tied to the booming Chinese economy and not the US economy. This distinction is obvious, but is not currently recognized by the financial markets.

As China continues to grow, it is creating enormous wealth and a growing middle class. I believe that we are in the early stages of witnessing China's transformation from a largely export driven economy to a consumer driven economy, Macau is highly leveraged to these trends and MPEL's development pipeline is designed to tap into the growing affluence of the Chinese consumer.

Let me also take a couple of minutes to discuss a few more issues. First, visa restrictions. Without robust visitation and gaming revenue growth since implementation of visa restrictions in 2008, we continue to believe that the impact on growth in the market will be manageable. The visa restrictions that started on August 1 reduced the length of stay for transit visitors to seven days from 14 days. This should not be meaningful in a market where our average length of stay is still less than two days.

The visa restrictions taking effect on September 1 are somewhat more difficult to predict as they will require visitors to apply for two separate visas in order to visit Hong Kong and Macau. This mainly impacts those coming to Macau under the individual traveler scheme which largely represents a mass market visitor to Macau. While the impact of this change is difficult to predict, the impact on Crown Macau should be manageable given that the Company focuses almost exclusively on VIP guests. We will keep a close watch on this as clearly our prospects for City of Dreams will rest heavily on the premium mass market visitor. Keep in mind that these visa restrictions can just as easily be removed if they interfere with the development of Cotai and the emergence of non-gaming amenities in the environment in Macau.

On commission cap we continue to vigorously support the government's efforts to implement the cap on junket commissions and believe that they will be good for the market and good for MPEL.

In a commission capped operating environment, the focus of competition will be on the provision of working capital, the quality of the player experience, especially on the casino floor, and the ability of the operator to manage a broad spectrum of third party junket relationships.

As Simon mentioned earlier on, we are confident that we will continue to prosper in this environment. We believe the government is serious about these measures and will formulate a law that aggressively enforces these restrictions. and will provide adequate penalties to ensure compliance. I can reassure all our shareholders that we will fully comply with the commission cap in all aspects of our operations.

I will close by reminding everyone that Macau is a small city with about 28 square kilometers of land mass and with very limited opportunities to expand its existing footprint. When considered with the recently announced measures by the Macau government to restrict land for future casino development, and the inevitable slow down that we see in some of our competitor's plans to expand capacity in response to a much tougher environment for accessing capital, new property supply is unlikely to ballon out of control, as some commentators continue to predict. Even if year to date revenue growth trends in the market were cut in half, Macau will expand at a rate of roughly 25% per year. A healthy pace by any estimation. And if the well established experience of Las Vegas provides any insight into how Macau will develop, and I think it does, then the high quality supply coming into Macau in 2009 led by our City of Dreams, will be a major catalyst for visitation, specifically for the emerging multi-night stay customer.

On a final note, let's look at the return operators in broader Macau. Even with tough competition and a heavy gaming (technical difficulty), the numbers Simon discussed earlier on in the call would be the envy of any operator in virtually any market. I personally, and we as a Company, remain confident in the future of Macau and in our ability to build the right property to develop attractive returns to our investors.

I will now turn the call back over to Simon.

Thanks Lawrence. Before we begin the Q&A session, let me address a few modeling issues. On the face of it, because our actual rolling chip hold percentage for the second quarter was 2.71%, pretty much in line with our previously set target hold of 2.7%, you might conclude that any adjustment to theoretical would be negligible. However, the devil is always in the detail.

By way of background, Crown Macau has always operated both revenue share and commission based rolling chip program. The revenue share program grew to become approximately 25% of total VIP volume in the second quarter and is nearly 50% of business today at Crown Macau. Revenue share based tables pay higher commissions when the hold is high and lower commissions when the hold is low. In other words, the junket operator participates in hold volatility.

Conversely, under the commission based scheme, the junket operator gets paid the commission based on volume of rolled turnover regardless of whether the hold is high or low. Under this scheme the house takes all the post tax risk of low hold. Any calculation of adjustment of theoretical EBITDA must therefore take into account any differential hold between the two types of program. Using a blended hold rate is too simplistic.

During the second quarter of 2008, Crown Macau's revenue share program tables held much better than its commission based tables. This is a normal outcome. There is no reason to assume that the hold will be the same in any period between the two separate programs. This hold rate differential between the two rolling chip programs operated at Crown Macau has had an important, but ultimately neutral impact on Q2 adjusted EBITDA.

The following provides a summary of the theoretical calculation for quarter two. First, the adjustment from 2.71% to 2.7% results in a tax adjusted reduction in adjusted EBITDA of $1m.

Second, the adjustment of the discrepancy of higher than 2.7% hold on the revenue share tables and lower than 2.7% hold on the commission based tables increases property adjusted EBITDA by approximately $13m at theoretical.

Third, our win rate sharing arrangement applies to the commission based tables under the AMA agreement. The win rate share arrangement is calculated on a rolling life to date basis. Since we held low on these tables in the second quarter, approximately $11m of the revenue parked at the end of the first quarter, has been released back into the income statement in the second quarter. This needs to be reversed out under theoretical assumptions as 2.7% is in the zone of neutrality for the hold rate share program.

The sum of these three adjustments gives theoretical performance at Crown Macau at 2.7%. Property adjusted EBITDA would be $1m higher, at $41m. If we were to apply our revised theoretical hold rate of 2.85%, the second quarter theoretical adjusted EBITDA would be approximately $12m higher at $53m. Either number provides a clean quarterly adjusted EBITDA run rate for Crown Macau depending on your hold rate assumption.

This is in line with guidance given for theoretical EBITDA in the first quarter of $41m at 2.7%. The earnings performance at Crown Macau, adjusted for hold, has been absolutely stable between the first and second quarters of 2008.

Now rolling chip volume for the second quarter was down by nearly $1b against the first quarter. Crown Macau has been able to achieve a stable hold rate adjusted EBITDA performance from Q1 to Q2 because adjusted EBITDA margin gains were achieved at the property in the second quarter. This has been done through improvements in contributions from the mass business at Crown Macau, despite the conversion of the second floor to rolling chip during the quarter, and through the effective control of overheads by sharing certain services with City of Dreams pre-opening.

Management will continue to seek to find efficiencies in operating costs as we move to becoming a multiple property operator in the first half of next year.

Now looking ahead, we will give you some color on forward looking non-operating line items expected in our income statement in the third quarter of 2008.

Depreciation and amortization costs of approximately $35m provides a good quarterly run rate for the remainder of the year.

Corporate costs of approximately $10m in the second quarter of 2008 included approximately $4m in non-recurring items, including our donation to the earthquake relief efforts in Sichuan and legal fees associated with our bank facility. Going forward, we expect our quarterly corporate expense to be closer to the $6m we recorded in the first quarter of this year.

Net interest income in the third quarter of 2008 is expected to be approximately $1m to $2m.

Pre-opening expense for the third quarter is projected to be $8m entirely associated with City of Dreams.

The $3.5m of other finance costs in the second quarter of 2008 were commitment interest expenses associated with the undrawn portion of our bank facility which cannot be capitalized under GAAP. This amount will reduce as the facility is drawn down.

Development in the City of Dreams continues to ramp up. And we're increasingly excited about the product and how it will set new standards for the premium mass market in Macau. In the first quarter we spent about $190m, which increased to over $300m in the second quarter. In the third quarter, capital expenditure is expected to be in the range of $320m to $350m.

Operator we're now ready to open for questions.

Thank you. (OPERATOR INSTRUCTIONS). Your first question comes from the line of Bill Lerner representing Deutsche Bank. Please proceed.

Thanks. Hi guys. I've got a few questions. One to Simon. Your change in theoretical hold to 2.85% going forward, how does that impact the safety zone, or whatever you want to call it, or the band in your volatility or win rate agreement? Then I have a follow up.

We -- there's a band of neutrality, as I refer to it Bill. I think that the easiest way to answer that is that as we move into a commission cap environment, and we can talk more about that if you wish, we actually think that the win rate hold arrangement will fall away. By necessity it would otherwise be incorporated as part of the compensation package under that environment and I don't think that would be available to us. So it is actually a short term issue. The 2.85% is right at the top of the band of neutrality. So we're basically moving up our theoretical to a percentage just slightly above that band.

Okay. That's helpful. And then just a housekeeping, and I apologize if I missed this. The $4m or roughly $4m in non-recurring items in corporate, what generally were those?

Yes. With the -- I think we announced on our last call that we made a donation with regards to the earthquake in China. We also had some very significant costs in Q2 in relation to passing up and through the final steps on putting security packaging together for the next draw down on our debt facility and some legal fees associated with that.

Okay, that's helpful. And the last one I have guys is just, I'd be curious to get your impressions so far of volumes since the Olympics started. I don't know whether it ultimately is a mass market volume story in the short run while the Olympics goes on, or some folks who are VIPs are staying home, or not coming, or however you want to characterize it. But I'd just be curious to get your characterization of it.

Bill, it's Lawrence. I think so far most people expected the Olympics -- for volume to drop. I think we're so far pretty happy about the revenues that we're seeing on those at mass and VIP. But I think it's still early days.

Okay. Alright. Thanks guys.

Thank you Bill.

(OPERATOR INSTRUCTIONS). The next question comes from the line of Larry Klatzkin representing Jefferies. Please proceed.

Hi guys. I do want to commend you for donating money to the earthquake in rough financial times. Some people don't think that way, but it is very good. How much was the exact donation Lawrence?

It was $1m.

Okay. Okay. Well that's very good.

As far as the commission cap, can you give us the status on that? Originally you were saying August 31. And they're hitting everybody up for what kind of penalties. And there are still people out there claiming it's impossible to enforce. I kind of side with your side, but can you give us some more color on that?

Larry it's Lawrence here. I'll let Garry elaborate, but the government is still guiding us through various aspects of implementation. They aim to issue this at the end of August. In terms of -- I'll let Garry talk about the detail.

Larry we've had several meetings with the government on this issue. We believe that they are very serious about the (technical difficulty), and determined to make it work. I think that most of the big concessionaires areas welcome these initiatives. We want it, and believe that it will benefit. We will see benefit and the whole industry.

The key requirement for making this successfully is to enforce very serious penalties for violations. The government does seem to be prepared to do that. As Lawrence said, we would strictly comply with any of these regulations once they're put into place.

Our understanding about the 1.25% cap is that it's going to be inclusive of any types of cost, transportation, commissions. Any competitional reimbursements are always associated with generating gaming clients or wins. That would go against the 1.25% cap. We still await, of course, the actual publishing of the fine details of this because the discussions we've had I guess it's like, what I'm saying in terms of the nature of how this is going to be rolled out. But again, specific details will be published in September and we would expect this will go into effect in October.

Okay, good, good. As far as the third quarter is looking how are you guys feeling right now? I know you're almost halfway through the quarter. Can you talk about that at all?

Yes. I think that we've said about as much as we're going to say on the third quarter. We're holding well in the quarter, which is pleasing. And we're happy with the market share that we're seeing in the properties. So I would leave it at that, okay.

That's fair. Interest income seems extraordinarily low for how much cash you have. Any reason behind that?

Yes, most of our cash is wrapped up within the restricted cash balances associated with the debt drawdown and the funding of City of Dreams. And there are restrictions around what you can do on that. You can't put it on 90 day deposit, which is about the only way to earn any interest on cash.

So in reality the interest income number we saw this quarter we probably should continue to use for the next quarter on?

I think that that's probably right, yes.

Alright. The City of Dreams budget is still remaining the same?

Yes, as we've guided before.

And the last question is --

Larry, this is Lawrence. The City of Dreams is still going very well. (Technical difficulty). So we're pretty comfortable with the product that is coming together.

At this point we're at about 93% left of the old contract. And I think the first phase is about 96%, 97%.

Excellent.

Simon Dewhurst There's not a lot of room left to shock.

Now is there any concern? This cap of number of table games, the temporary cap, is there any feeling on that? Any worries about that?

It's Lawrence again. No. The government has publicly said that they want to go through an analysis of what is a fair number of the whole market. And when they said it was about 4,000, 5,000 they were talking about the next few months before the announcement is done. So we have no concern whatsoever. As a concession -- as a concessionaire, we only have 250 tables, far less than most of our competitors. So we have no concerns whatsoever.

Okay.

And then the last question, Macau Studio City, should we continue to make some assumption for management fees from that? Or at this point of time, that's looking very indefinite?

Well, Larry, it's Lawrence again. Macau Studio City, I know the shareholders are still trying very hard to raise the necessary financing on this and we've kept in touch with them. And they are still working on it. So at this point in time our assumptions -- our internal assumptions and planning haven't changed.

Okay, great. Thanks guys.

Thank you.

The next question comes from the line of Carlo Santarelli representing JP Morgan.

Hey guys. I have a multiple part question more or less pertaining to City of Dreams and then a quick follow up.

First off though, how are you guys thinking about your table mix at City of Dreams right now? And more or less what do you think you guys have learned from your opening at Crown and maybe your friends at LVS with respect to opening the property successfully?

Hi, it's Greg Hawkins here. We're still finalizing some of the specific units of the City of Dreams. I guess the key -- our proposition and venue change is addressing more toward mass and premium mass in the City of Dreams. So at this stage our estimated numbers are probably 500 or 600 tables around 1,500 slot units for the property. We think on a steady share basis, or on a relativity mix of VIP and mass, that's reasonably in line with the market.

I think it would be fair to say we're reasonably buoyed by some of the recent visitation numbers to Cotai experienced recently. But I think as we push the strategy forward we will get more information. It's certainly an ongoing process on VIP volume. It's certainly pushing strongly into end which is premium mass (technical difficulty) positive growth through the margins.

Great. I have another follow up to that in terms of -- At the end of the period your Crown property what was the VIP and mass mix there of the 250 or so?

Your question is in terms of tables?

Yes.

About -- roughly 30 mass tables and the balance being VIP, approximately.

Sorry, what was it? Did you say -- how many?

Roughly, at the end of the period, there were 34 mass tables. The balance were VIP.

Alright, great. And could you guys outline maybe your thoughts on share buybacks and maybe why you didn't opt to repurchase during the quarter.

I can address that question from the point of view of MPEL. Obviously MPEL is still very much in the development phase. And the cash that we have on hand today is very clearly being deployed into the City of Dreams project to bring that one through to completion and then of course moving on to our first project on the peninsula.

So from a cash point of view, it's just not the right time in the development of MPEL to be considering the application of share buybacks. If the question is more specifically pointed at the SPV, which is managed by our two shareholders, then obviously we're not really in a position to be able to comment on that (technical difficulty).

Understandable. Thanks gentlemen.

The next question comes from the line of Grant Chum representing UBS. Please proceed.

Good evening. I just wanted to get your update on the apartment hotel. I saw in the government gazettes contract that the GFA for the serviced apartment hotel is about 106,000 square meters.

That looks -- can you just update us on what the, if you like, the saleable square footage would be if you build to that GFA? How many suites would that contain? Because it looks at first glance quite a bit smaller than the previous indications.

And also if you could give us an update on what you expect to happen in terms of the rules surrounding selling these co-op structured service apartments.

This Garry Saunders. We are still continuing with the planning, layout configuration of the product. The actual final room count, size of the room is based upon a couple of different scenarios that we're -- that we're contemplating right now which would give us a range about which we're really not finalized on at this point in time. We still believe that there is an opportunity to develop a product that you can monetize in this market. So that's a specific part of our focus as we try to find a suitable product. As we said earlier on in the call we're looking closely at what's happening in the neighborhood with other people that are contemplating the same sort of venture.

And maybe --

It's Simon here. I'll just add to that one other thing. And that's that we're not actually precluded from making an application to the government to increase the amount of developable area in the City of Dreams. So the land grant that we've got at the moment can be reviewed.

Okay, sure.

And Simon or Lawrence, can you just give us a little bit more color on the reference to monetization in the City of Dreams. It presumably encompasses more than just potentially selling these apartment hotel suites. Can you just give us a sense of what your thinking is behind this reference?

Look Grant I think that we're in the same position as other developers in Cotai and that is that the hot topic of discussion with the government. It certainly doesn't have priority over things like commission caps at the current time. So that's where the government focus is right now. But it's certainly isn't the discussion that's off the table.

How we will end up structuring this monetization project is still to be determined and it would be wrong for us to say that it will be anything other than that. We have a couple of schemes that we're looking at it in some detail. And we've been having some extensive discussions both with our Macau Counsel and also with government. And as soon as we've got any concrete information on how that is going to work, then obviously we will report it to the market. But we don't have that today.

Okay, sure. Thanks very much.

The next question comes from the line of Anil Daswani representing Citigroup. Please proceed.

Hi, good evening, guys. I have three questions. Firstly, with regard to the commission caps is there going to be a back door which somehow allows you guys to pay a service fee or something like that to A-Max for them providing working capital to the junket?

Second, could you give us a progress report on what's happening with the Macau Peninsula site or Trinity? Is there any progress towards securing that land and actually taking that project off the road or should we be delaying that out a couple more years at this stage?

Thirdly, somebody already asked the question on share buyback but maybe Lawrence if you could address this. Is there an opportunity here for yourself to be looking at buying back the shares given that it's trading just above book as you guys mentioned at the beginning of the call?

Anil, I'm happy to take the first question that you asked.

Anil, it's Lawrence. The first question in terms of the commission cap, I think the government has -- we've had a number of meetings with the government and they've guided us towards the end of August date. In terms of a more of the graphic detailed view we don't know yet. But as we have said, we will abide by whatever rules and guidelines that the government give us. So at this stage of time, I don't see a back door. But I think we can only tell after the government gives us the details.

With regards to your second question about Trinity, we've recently secured another extension of an option to purchase the land for another year until July 2009. So I think from management's perspective this is the most prudent thing to do given the changes in the Macau market and even government policy. So we are still committed to that project. And we do think that we will deliver a good -- whether it's a heavy on (technical difficulty) project or heavy on real estate project we still think we can deliver a strong bottom line for our shareholders.

But I think given the fact that the option goes out for another year, we're definitely not going to start work within the next few months. And therefore I think it is also conservative and reasonable to say that the opening date will be delayed.

With regards to the last question, given where the share price is, I think it is a very, very compelling story. And Melco and Crown, the two principal shareholders of the SPV will be looking at the market and seeing if there is anything we can do.

As a follow up to that Lawrence, what about you personally, would you be looking at upping your interest in the Group either at the Melco level or at the MPEL level?

Well Anil, we have an overarching shareholders' agreement between Melco and Crown for how we buy and sell shares. So ultimately, whatever -- even if we want to do certain things, we need to be aligned on that front.

Thank you guys.

The next question comes from the line of Larry Gandler representing Credit Suisse. Please proceed.

Hi guys. Most of my questions are answered but one last one. With regards to the commission cap, somewhere along the value chain there'll be a loser. It might be A-Max. It might be its junketeers. But as you negotiate for junket operators or aggregators for City of Dreams, how does the commission cap cloud your discussions with A-Max there.

Larry, this is Simon. First of all I just want to make clear one point. And that is by far and away the largest proportion of any commissions that get paid away on the rolling chip business go back to players in the form of rebates. So as the compression sits in on the cost of commission rates and pushes it back from a 1.3% or 1.35% level down to an absolute cap of 1.25%, you can rest assured that the compression will end up on the shoulders of the players in the form of a reduced rebate. But it's not going to squeeze out the margin that the junket operators are able to earn.

So I would just stress the point which is that we feel very strongly that right across the board, the application of this commission cap simply takes some of the player rebates away and puts it back into the hands of the casino operator.

Greg, do you want to talk to AMA?

Yes, I think it's early days in terms of looking at the mix of the junket operators and City of Dreams. So I think the model we're playing (technical difficulty) and we recognize the fact that AMA has been a very important partner for us (technical difficulty) including all (technical difficulty). Obviously the underlying approach would be to ensure incremental business by nature of volumes and revenues we generate from AMA across multiple [pockets]. But at the same time we would look at broadening our reputation portfolio (technical difficulty) as possible.

This is Garry Saunders. One of the things that we should add though about AMA is the working capital that they've raised is a very strong competitive asset. And considering that they have that particular work shed, (technical difficulty) even under a more restricted commission environment, one would think that they will be able to adapt to that.

Can I follow on that comment of working capital? It may be difficult for A-Max to raise the working capital required for perhaps a future agreement with Crown -- with MPEL and City of Dreams. Would MPEL be prepared to come up with an arrangement to supply A-Max with the working capital?

No. I don't think that that would be something that we would consider. If we were to further extend the working capital that we make available to junket operators in any of our properties, we will do it direct to junket operators. And we'll do that on a case by case basis.

Okay, great. Thanks.

The next question comes from the line of Gary Pinge representing Macquarie Securities. Please proceed.

Hi, guys. I just had two very quick questions. The first one was in this argument around commission caps, is there -- you've said that player rebates and things like that are included. Is extension of credit or perhaps daily settlement of commissions included in some sort of a cost or charge back mechanism back to the concessionaire or the junket operators? That's the first question.

The second question is in all the discussion around the commission caps the early indications of some table game caps have sort of seemed to have diminished away. Is that still being spoken about by the government, or has that pretty much gone out of the market now?

Hi, Gary, it's Simon. To the first question, I think that as Lawrence alluded to earlier on, the absolute specifics as to how the commission cap will be calculated and what is incorporated into it is not yet decided by the government. So I can sit here and speculate with you what the situation will be, but we can't say for certain that this is how it will work.

It is our view however that there will not be any back doors to this, which means that when the government determines what level of compensation a third party junket operator is earning from a casino operator, they will take into account any and every aspect of what has traditionally happened. So that includes F&B rebates. It includes provision of credit. However that's formulated, it gets valued. It includes the commissions that are being paid. So that is our view at the moment. And certainly that is the construct that we are supporting in our conversations directly with the government.

Garry Saunders. One additional thing that the government has talked about is the credit. And they would not like (technical difficulty) credit and then writing off credit as a bad debt as a way to (technical difficulty) discount. That is something that's closely looked at (technical difficulty). The room operators, junket operators will not be able to do that. Although if you do it would count against you at one point (technical difficulty).

Let's not forget that most -- pretty much everybody in the market has now realized just how important the provision of credit is in terms of driving volume. It's substantially more important than absolute commission level. So to reach a conclusion that it won't in some way be managed and capped in the same way direct commission payments are managed and capped, would in our view would be incorrect. The government is well aware of the role of credit.

Your other question Gary was I think just on the re-emergence of table number limits in the marketplace. And I think that at the moment our view is that the government is concentrated on quickly introducing legislation which will be effected and which all of the operators can agree upon on. And that very clearly is commission caps rather than table numbers.

Okay. And sorry, just as a follow up question, just a more curious point. If you're moving towards 50% of your VIP roll being on the revenue share scheme, how do you managed to do daily settlement of commissions on a revenue share scheme given some days you can be positive and negative? How does that work? Because as I understand it that was one of A-Max's competitive advantages -- was that not only was it extending ad hoc credit but it was also doing daily settlements. So how does that work under a revenue share scheme?

This is Keith Heise. On a revenue share program we do not do daily settlements.

Right okay. So it just basically comes down to the ad hoc extension of credit as the competitive advantage.

And the relationships that they have, yes.

Okay, sure. Thanks guys.

The next question comes from the line of George Choi representing Citigroup. Please proceed.

Hi Simon and Lawrence. I have a couple of questions. First of all in terms of your financing, when you try to roll over renewing your loans, do you find it -- how do you find it? Are you going to bear a higher interest rate now?

And my second question is we wonder your split between AMA and non-AMA in terms of VIP revenue. Thank you.

George, this is Simon Dewhurst. To your first question, we are just coming up to our first year anniversary on a seven year term loan facility which is a project loan for the construction of City of Dreams. So at the moment we've drawn $500m on a $1.75b facility. It is a little premature at this stage to be talking about refinancing of that. Obviously, once the property is complete we will look at the conditions that exist in the market place and try to reach a consensus view as to whether it makes sense for us to refinance what is a project loan. Inevitably, you'd look for cheaper pricing of your debt once the property has actually opened. But that's probably not before the end of next year.

And sorry, just in terms of the split, AMA, non-AMA on turnover in the property, it's about an 80/20 split.

Thank you.

Your next question comes from the line of Larry Klatzkin representing Jeffries. Please proceed.

Hi guys, just a follow up. There's thing's been out there for you guys and some other people that you may be looking at other jurisdictions to diversify the Company. Is anything going on with that?

Larry, it's Lawrence. We're always on the look out. Between Melco and Crown the two shareholders, we have an overarching shareholders' agreement for Asia and in some of the initiatives that we'll also be keeping a look out. It is our belief at MPEL we do have an existing infrastructure in place and we do know the market quite well. But having said that, with all of the stuff going on in Asia right now, at least the meaningful stuff are still a couple of years or three, four years away. So we will keep a close eye on what's happening on those fronts.

Alright. That's it. Thanks guys.

Your next question comes from the line of Gary Yung representing UBS. Please proceed.

Hi. I just have a quick question on the fixed cost of Crown Macau. Could you please give us a sense of how much fixed cost is that? And what's approximately the split between for example labor cost and marketing?

This is Keith Heise. I'm sorry I don't have those numbers in front of me. I can't respond directly with what.

Okay, thank you.

Please stand by. The final question comes as a follow up from the line of Gary Pinge representing Macquarie Securities.

Hi. Sorry just one final question. In terms of the commission rate in the second quarter, is there any way you can give us an indication as to what the blended commission rate across AMA and non-AMA revenue share and commission based -- turnover based commission?

Yes, the commission cost across the second quarter was just shy of 1.3%.

Great, thank you.

It's in line with what you saw in the first quarter.

Okay, thanks.

Ladies and gentlemen, this will conclude the question and answer session. I would now like to turn the call back to Simon Dewhurst for closing remarks.

Well, thank you very much for listening in on our conference call today. We look forward to reporting back to you in another three months' time. Thanks again for your questions. Have a good day.

Ladies and gentlemen thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day.