Inside Asian Gaming

March 2010 | INSIDE ASIAN GAMING 33 NagaCorp quarter of this year, said as much at an investors’ conference in Las Vegas recently. Strategic NagaWorld is currently best placed of all the Cambodian casinos to draw in junket players from China. It has a strategic location in the country’s capital, and thus access to the most international flight connections. It also has a monopoly within a 200-kilometer radius of Phnom Penh that runs until 2065. Most of Cambodia’s other casinos are fairly cheap and cheerful operations located on its western and southern borders, aimed at visitors from Thailand and Vietnam respectively though another upmarket resort is planned by South Korean investors outside Siem Reap, the tourist gateway to the AngkorWat UNESCO World Heritage Centre. A potential attraction of Cambodia for the junkets is that Macau is getting more ‘regulated’ and more cutthroat in terms of margins and competition year by year. An example is last September’s decision by the Macau government to impose a 1.25% cap on commissions paid to agents. There is a counter argument that although Macau is getting more regulations down on paper, it is still fairly relaxed in implementing them. Nonetheless some Mainland VIP players and their agents may prefer travelling to a jurisdiction suchas Cambodiawhere a casino operator’s ‘wiggle’ room for paying bigger commissions to agents and by extension bigger discounts to players is much greater. In particular, Cambodian casinos have much smaller government-imposed overheads than their regional rivals. Liberal Since the restoration of civil government in 1993 following the trauma of the Khmer Rouge regime and subsequent internal strife, the Cambodian authorities have taken a comparatively liberal approach to casino regulation, focusing mostly on ensuring it gets a share of the money the industry generates locally. Macau operators pay 39% of the gross in direct taxes on their mass market and VIP gross revenue, plus 12% corporate tax on profits. Singapore’s tax burden is: 15% on the mass market gross; 5% on the VIP/junket gross; 7% GST (Goods and Services Tax) on all sales (regardless of the market segment) and 17% corporate tax on profits. Cambodia has no tax on the gaming gross. It charges operators an annual flat fee (on top of the initial gaming licence fee). In an agreement made between NagaCorp and the government in late 2008 the annual flat fee structure was confirmed until 2018 on the understanding the government would be allowed to increase the fee annually by 12.5% to reflect the growth of NagaCorp’s business. NagaCorp’s revenues dipped in 2009 following the global credit crisis in late 2008, but the advantage of the flat fee structure is that overheads payable to government do not rise when revenue increases. Based on NagaCorp’s interim results for the six months ended 30th June 2009 lodged with the Hong Kong Stock Exchange, the company’s official tax burden from the Cambodian government is currently 7.8% (i.e. US$1.086 million on US$13.887 million cash generated from half year operations). Unlike most of the Macau operators, NagaCorp has virtually no debt. Recent redevelopment of one wing of NagaWorld, including an international standard convention hall, was paid for out of cash generated by the casino operation. Nonetheless its Phnom Penh casino operation has been more vulnerable to external economic shocks than the Macau resorts.InearlyFebruaryNagaCorpreported in its 2009 results a 36.3% fall in net profit year on year to US$25.5 million. Revenue for 2009 fell 39.1% compared to 2008, to US$118 million. The results might have been worse were it not for a comprehensive cost cutting effort that the company said produced 55% savings compared to overhead levels seen in 2008 and boosted gross profit margin and EBITDA margin. Middle ranking Chinese high rollers may prove more resilient customers during any future economic downturn than Malaysians or gamblers from neighbouring Southeast Asian countries. NagaWorld is currently best placed of all the Cambodian casinos to draw in junket players Extract from NagaCorp Interim Report 2009 Six months ended 30 June 2009 2008 US$’000 US$’000 (Unaudited) (Unaudited) Current tax expense – Kingdom of Cambodia 1,086 964 Taxation represents: (1) a fixed fee (of US$180,203 per month in the 2009 period and US$160,180 per month in the 2008 period) payable to The Ministry of Economy and Finance of Cambodia; and (2) minimum profits tax (US$5,223 in the six months ended June 2009, and US$2,762 in the 2008 period). NagaWorld in Phnom Penh