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China- Macau costs drag Sands down

By - 26 July 2012

Higher expenses and lower table hold pulled down Las Vegas Sands’ operating profit in the second quarter by 35 per cent although Chief Executive Sheldon Adelson pointed to sold revenues and impressive cash flows in its Asian markets as being the pluses.

Second-quarter earnings dropped by 35 per cent due to lower casino win and ‘elevated’ legal costs although revenues increased by 10 per cent. However results were dramatically short of analysts’ expectations.

“While our quarterly results did not meet my expectations, our financial results reflected solid revenue growth and significant cash flow in both Macau and Singapore,” Mr. Adelson explained. “One quarter does not a trend make. Anybody who thinks that the cultural habits of the Asian people is changing because of one reduction in the hold, even though it amounted to over $100m at the top line, is just missing the boat.”

The company said its net income fell to $240.6m whilst revenues increased to $2.58bn falling short of analyst expectations of $2.77bn.

In Las Vegas, The Venetian and Palazzo generated $64.4m in adjusted property EBITDA during the quarter. Baccarat play was up, but other table games play was down, reflecting overall market conditions in Las Vegas. Slot handle was up by 8.2 per cent.

Sands Bethlehem meanwhile delivered a strong quarter with $26.9min adjusted property EBITDA, up 28.1per cent from the same quarter last year. Sands said that the property’s events centre, which opened this quarter, is off to a strong start and should benefit the property in the future.

The main concern was with Sands China, which saw second-quarter profit drop by 40 per cent to $160.5m although revenue increased 23 per cent to $1.48bn. The company blamed the lower profit on a $100m noncash impairment loss on two land parcels in Macau and increased pre-opening expenses for Cotai Central. Initial revenues were less than expected due to subdued spend from Chinese gamblers.

Gregg Klein, an analyst with Imperial Capital, said: “Macau growth is slowing down a little bit and there is increased competition. Sands Cotai has taken longer to ramp up than anyone expected, including them.”

In Singapore, Marina Bay Sands produced $330.4m of adjusted property EBITDA during the quarter and an EBITDA margin of 47.6 per cent. Sands said however that strong growth in non-rolling chip drop, up 8.2 per cent, and slot volumes, up 15.1 per cent, coupled with continued growth in visitation and non-gaming revenue streams including hotel revenues, up 30.1 per cent all reflected the broad appeal of the property

The Singapore results were described as a ‘substantial miss’ by Wells Fargo analysts who said there was a clear slowdown in growth. “In Singapore the company has to face the VIP customers directly and use their own reserves to deal with it. With direct VIP customers, of course the risk is larger,” added Victor Yip, an analyst at UOB Kay Hian in Hong Kong.

Sands said it wasn’t concerned about Singapore’s potential to further limit casino access for low-income locals.

“We don’t want to take money from poor people, so we don’t have a problem if they want to put a limitation on either visitation or the exclusion of very poor people,” Mr. Adelson said. “We don’t see the future coming out of poor, unfortunate, very vulnerable people.”

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