Building better businesses - Permira

Investment
overview
Galaxy Entertainment Group (‘Galaxy’) is a casino
and hotel operator in Macau SAR, China. It is one of six
gaming concessionaires licensed to operate casinos
in Macau, the world’s largest gaming market by revenue
and the only legal gaming location in China. The
company is listed on the Hong Kong Stock Exchange
and is majority owned by the Lui family and the
Permira funds.
In November 2007, companies backed by
the Permira funds acquired c.20% stake in
Galaxy. Two directors representing the
Permira funds were appointed to the board of
Galaxy. In addition, the Permira funds benefit
from detailed information rights, anti-dilution
rights and a number of veto rights with regard
to the strategy and operation of the business.
The restrictions on Chinese resident visas
to Macau negatively impacted visitation in
2009. This, combined with the weak global
economic conditions, caused a slowdown
in the growth in Macau’s gaming revenue
to about 9% for 2009 from 31% in 2008.
Despite the market slowdown, Galaxy’s
flagship casino and hotel, StarWorld,
reported very strong trading improvement
in 2009. The Q4 2009 revenue at StarWorld
was an all time record and marked the sixth
consecutive quarter of growth. The 2009
earnings have shown a significant
improvement on 2008 due to:
• The revenue growth achieved in the
important VIP market, where the number
of tables and VIP relationships increased
in 2009
• The refurbishment and successful
relaunch of the main mass gaming floor
and reconfiguration of a new mass Poker
King Club
• Cost saving initiatives realised through
an operational efficiency programme
Management are positive about the outlook
for StarWorld in 2010, as the market shows
continued signs of growth.
The four ‘City Club’ casinos operated by
Galaxy also contributed to earnings well in
excess of 2008, due to improved revenue
generation and tight cost control.
Construction continued on Galaxy’s Macau
casino, hotel and leisure resort through 2009.
The exterior was largely complete by the
end of 2009 and internal fit out will continue
in 2010. The resort is currently scheduled
to open in the first half of 2011.
During 2009 Galaxy successfully
implemented a debt buy-back programme.
A refinancing to repay existing debt and
recapitalise the company to complete the
Cotai development is due to be finalised
in the first half of 2010.
Permira Annual Review 2009 Our Portfolio 53