China headwinds hit Wynn Macau

The disappointing figures continue to roll into the local gaming industry. Yesterday, it was Wynn’s turn, with its Macau operation – Wynn Macau – buffeted by a slew of bad news from a record drop in revenues and profits to construction delays on its US$4.1 billion Wynn Palace project in Cotai. With China’s economic recovery and Beijing’s anti-graft campaign as the two big question marks for the future, and a likely full smoking ban in casinos on the way, investors are getting increasingly nervous about the future of the world’s gaming mecca. Steve Wynn, included.
It was already expected that following an average drop of 25 per cent in gaming revenues in Macau during the fourth quarter of 2014, the financial performance of operators here would follow accordingly. Wynn Macau, owned by casino mogul Steve Wynn, reported an above-market decline in revenues and profits. Net revenues (revenues minus promotional allowances) totalled US$761.2 million, a 32 per cent drop from a year ago, while profits were down by 35.5 per cent to US$242 million, the parent company of Wynn Resorts said.
VIP exile Wynn Macau’s fall in revenues last quarter was driven by the casino and retail segment that plunged by more than 30 per cent. Revenue growth from food and beverages was nearly flat in the period, while hotel rooms almost doubled their income.
The diversion of high rollers (and also big spenders on luxury products) from Macau was evident in Wynn’s financial accounts. Table games turnover in the VIP segment was down 39.9 per cent, while in the mass market the fall was 15 per cent. “I think what we’re seeing across China is a retrenchment of spending instincts”, Steve Wynn told investors in a conference call after the fourth quarter results were published. “How long that will last, I don’t know”, he added.
Downgrade Steve Wynn underlined the “uncertainty” regarding the future of China policy with the corruption campaign, which he described as a “big wake-up call”.
For analysts, this uncertainty means problems. Nomura Securities has downgraded Wynn Macau on the basis that the worst is far from over, while Wells Fargo notes the ‘China remains a big question mark’ sentiment of Steve Wynn with the US bank’s decision to remain neutral on the company stocks “as general uncertainty around the China policy outlook keeps us on the sidelines”.
But the biggest news was the announcement of the delay in the Wynn Palace opening, a US$4.1 billion project in Cotai providing 1,500 rooms and 500 gaming tables. The property was set to open before Chinese New Year 2016; now the management expects the opening to occur in the “first half of 2016”. Wynn Macau said that this was down to a delay in work permits by Macau authorities and the current shortage of workers to build Wynn Palace. “People with money are destabilised at
the moment in China” The impact of the anti-graft campaign on the industry is today the most unknown factor as the reaction from high rollers has still to be properly understood. “It’s confusing. People with money are destabilised at the moment in China. I think that – and you’re seeing that all across mainland China, that people are being cautious”, Wynn assed. “I do believe that for all Chinese businessmen there is at the moment a bit of uncertainty as to what the future will hold because so much of everything in China depends upon the policy of the Central Government”.
The Wynn Macau CEO also admitted that there’s “uncertainty in China these days” and that President Xi Jinping has determined that his leadership should eliminate the perception of corruption.
Current smoking ban to be extended Steve Wynn believes the current smoking ban in Macau will be upgraded to a full ban in casino buildings. “Will the smoking ban be extended to be absolute in the building? The answer is yes. I believe that to be true”, Steve Wynn told investors yesterday. However, Mr. Wynn thinks he could have some advantage vis-à-vis his peers if the full ban gets approved because Wynn Palace will have several terraces next to the gaming facilities that allow gamblers to smoke between gaming. “So, virtually a huge amount of our gaming facilities have terraces so you can get up from a table and walk outside the door and be on a patio outdoors looking at the water. That’s not why we did it, in anticipation of not being able to smoke in the building, but it turns out that we got a windfall and our plan in our facility”, said the CEO of Wynn Macau.
Wynn Palace still 1,500 workers short The delay in work permits issued by authorities here is the main cause of Wynn Palace’s postponed opening, according to the company’s management. The operator is still 1,500 workers short of the total workforce needed to finish the project on time and the last request for permits arrived three months late.
“We had two labour requests to finish. It took 7,000 people to fill the building. We had 4,600, 4,700; we needed 2,300, we got 700. The 700 we got was last week”, Steve Wynn explained to investors.
“And when they – the constructor – says it takes 7,000 people to build six million feet that isn’t a wish list, it’s just a simple practical explanation of the requirements. And we’re 1,600 or 1,700 away from that now”. Wynn says the request for the remaining 1,500 work permits needed is already in, with the company not having any estimation when the permits will be granted.