Donaco International Limited (DNA) Earnings Call Transcript & Summary

Chair, no questions have been received in regards to this resolution.

Thank you.

Thank you. Shareholders can cast their vote via the Automic online portal. And I remind you not to click on the Next until you have selected your vote for all resolutions. Item 8, reelection of Director, Mr. Leo Chan. This resolution has been withdrawn. And also for Item #9, reelection of Director, Mr. Kurkye Wong, the resolution 8 has also been withdrawn -- sorry, resolution 9 has been withdrawn. Co-voting. I ask that all shareholders voting online, please now ensure that have submitted your votes. If you have not cast your vote, please do so now. [Voting]

I now declare the poll closed. The results of the poll will be announced to the ASX as soon as they are available. I now welcome Mr. Lee Bug Huy and Mr. Gordon Lo, to provide an operational update. Sorry, Mr. Ham, I think you are on mute.

Okay. Sorry. Okay. For the year-in review, so we have the strong for -- first half financial year '20 with AUD 13.8 million EBITDA compared with the first half financial year '19 with AUD 12.9 million. For the overall financial year '20, we have impact by the COVID-19. So the results dropped 40% compared to the financial year '19. Both casinos across from 1st April 2020 Aristo was reopened on 8 May 2020, but operated in the limited basis. Star Vegas also reopened on 25 September 2020 with the same limited basis. Also, tight control strategy by Board and executive team. Now the 2-month positive EBITDA for October 2020. Financial year '20 achievement. First, the cost control strategy is very important for the Aristo and Star Vegas. So we also have early negotiation about the service agreement with some joint venture and some partner. 2, we have successful settlement or the legal with the Thai vendor, so we can move forward. #3, we already successful make a bank lender support received on 11 December. #4, restructure for Board and executive team to make the company suitable for the operation. For the financial year '20 group results, back to Mr. Gordon Lo, our Chief Financial Officer. Thank you.

Thank you, Chairman and CEO. Good afternoon, and thank you all for attending. For fiscal year '20 group result performance, Donaco has generated group revenue of AUD 53.5 million and posted an EBITDA of $10.4 million for fiscal year '20, which is lower than fiscal year '19 group revenue of $86.3 million and EBITDA of $29.6 million. The main reason is still to the COVID-19 impact on second half of the fiscal year '20 and this was mitigated by our strong first half fiscal year '20 performance. Donaco also recorded a statutory loss of AUD 58.9 million during the fiscal year '20, compared to restated loss of AUD 198 million to previous year. After adjusting the nonrecurring items, such as impairment on Star Vegas casino license, our underlying result of fiscal year produced an underlying loss of $6.3 million despite the COVID-19 pandemic, restructuring on casino operation and the border closer in second half of fiscal year '20. For nonrecurring items mainly include an impairment charge of casino license of AUD 50.3 million and AUD 186.6 million for fiscal year '20 and fiscal year '19, respectively. Nevertheless, our financial positions remains solid as we work through this pandemic restrictions with lender support, lower level of debt and solid cost control measures. Now I'm passing back the meeting to Chairman and CEO for strategy and outlook.

Thank you, Mr. Gordon Lo. For the December trading update, we have positive trend in the first half financial year 21st -- '21. The first quarter, financial year '21, revenue is fairly low compared with the same period mid financial year '19 -- '20. But second quarter financial year '21, we have improvement on this. Now Star Vegas is no longer making loss. The casino has made profit on October and November. Aristo also same, it has made the report pulled on November. So now the 2 months of positive EBITDA for the group with October and November is good news for us. But continued focus on balance sheet, we'll pass to our Chairman, Mr. Porntat.

I am on mute. Okay. In terms of the balance sheet, this is relating to the Mega Bank. As the CEO mentioned earlier, we got financial support from Mega Bank by -- on the 11th of December. We have paid down USD 5 million debt of the December payment, which brings our total debt to Mega Bank down to USD 17.8 million. This amount will be due at end of the financial year or by June of 2021 is a great reduction in the debt, which initially started from USD 100 million. We are also talking to Mega Bank in securing a number of waivers with the bank, specifically in relation to the settlement of the -- with the Thai vendor and also with some of other bank covenants. The initial discussion and the initial response with the bank has been very positive. And the Board is confident that we will receive a full wafer and support from Mega Bank in really short period of time coming in the very near future. So that will be the main issue in getting our balance sheet protection. Once we get the approval from the bank, we will try and complete the settlement process with the vendor as soon as possible. We've also taken other cost control measures as well. The cash burn rate of the company is now about USD 700,000 per month compared to a much higher number in the past. So we are working in the right direction. In terms of outlook moving forward, we are very encouraged by the 2-month positive EBITDA since we started the limited opening of Star Vegas in September. October has been good. November has been good, and December is also looking quite positive. We are hoping that the numbers of this quarter will more or less cancel the losses of the first quarter, but that is a few more days to go yet for this financial year. So we have to look at that. COVID-19 has been gradually improving in the region. So we are hoping that we will be able to go back to business sometime soon. The strategy of 2021 is basically to build on our pragmatic initiatives underpinned by strengthening the balance sheet and cost control strategy. And the main objective is to deliver shareholders well in financial year 2021. So these are basically the status of the company at the moment. I -- are there any general questions to the company?

I note that there are a number of questions here. I will go through the questions. Can I go -- I will go on to questions one by one. If there are further info about Mega Bank and the debt settlement? Well, as I mentioned earlier, we already answered this. We believe to get a formal response from them really soon. The next one is the above question in relation to, further funding requirements will be needed in the short term for working capital purpose to make repayments? Okay. So basically, I think I answered this before. We do not plan -- we don't have any plan for any capital increase or capital raising at this point in time. We believe that the cash flow and the cash within the company would be enough to cover Mega Bank loan final payment. And if there's anything, we can -- we believe that we can get short-term funding to cover it, we do not want to do any capital raising. Next question, can you please elaborate on the statement, Donaco is also proactive exploring alternative options to access the gaming market? Well, it's the new norm. So we have to look at all and explore all possible options in trying to increase the business of Donaco. So basically, we are looking at various alternatives. But at this point in time, there's no concrete decision yet. It may be new games, new products to come up for Donaco. So that is the way that we're trying to find new business for Donaco. Next question. What should shareholders expect as normal performance from Star Vegas? What is the CEO aiming to achieve with property? And how will we deal with the increased competition in Poipet? Interesting. I will pass that on to, Ham to answer that. But what should shareholders expect as normal performance of Star Vegas? Honestly, we don't know yet because we don't know when normal is going to come back. But we do believe that the strategy in moving forward in targeting clients that are in and around the region of the property is the key. So we will refocus on going back to the key success factor of Star Vegas prior to the change in the strategy a couple of years ago. So basically, once the border open, we will focus on the local and Thai clientele as majority. Now Mr. CEO, what is this -- what do you aim to achieve with property? And how you deal with increased competition in Poipet?

For now the -- I think it's the same -- we can answer the same question with the next question that you give. Given that the local Cambodian are banned from the gaming, can you provide some detail on who is the actual visit on the Star Vegas in this recent time? Now if there were Thai border -- between Thai border -- the border between Thai and Cambodia still close. So our customer is the one that they still stay in Cambodia. So for example, now we have some Chinese, Korean, Indonesian, some Filipino, that they still have some business, some employment around that area. And before you -- I think you get the last news that they have some -- exposure to COVID in Cambodia again. But before that, Cambodia they are still open more than Thai. They still allow foreigner fly in, but they must stay in quarantine first. So there still has many, many people that in the beginning, they go back to their home town. But after few months, they must come back to shape their business, something that, so they will come back. So now our customer is -- the people that still stay in Cambodia. So for the question that how about the aim of this property, we already get the target on this customer. But for the property, we already changed some same line -- okay -- for the slot machine, we already changed some slot machine that's mainly suitable for the customer that we aim for now with the gaming also. So now it's a same night normal operation that we used to do before with a normal period. But now we changed to the new period, new customer, new trend to support our casino. Thank you.

The next question, what will be the major elements of strategy when borders reopen? Slot high rollers? How does the strategy contract with prior management? Well, I think moving forward, I think I mentioned earlier that the key -- we would -- what we believe is the key success factor of Star Vegas in the past, whatever we did, whatever arrangement we did prior to the -- before prior management, we were going back to that. So basically, we will focus on the slots. We will try and look at getting in steady income, rental income from property, high roller will always be there. But at the moment, there's -- high rollers, when the -- not a lot of people, high rollers, it's more risky to the property than when there's big people. So casino, you need more people to make money. So with a small clientele, high rollers become quite risky for the property because the swing is high. So we are looking at steady income in the short term. In the long term, when everything goes back to normal, yes, high roller will be part of the strategy. And how does it contrast? Well, basically, we will focus on local and people in the region rather than international players from the likes of China. So that would not be our main target. Next question, are there any plans to sell Aristo casino? I think that everything -- whatever -- my answer to that would be whatever makes sense to the shareholders and good return to the shareholders could be considered. But I can assure you that we would not sell anything cheap if we decide to sell. So we have enough fund to keep on the long term. The next question, I may not be able to answer, and I'm not quite sure that Kurkye and Leo will be able to answer, but I will read it out anyway. This question is directed to the ASM representative. Given that both representatives are resigned from the Board, can they provide some assurance whether they will continue to remain at shareholders in the medium term? Or is this an indication that they intend to exit the investment of D&A? My -- from what I understand of our discussion with ASM with Leo and Kurkye, my understanding is they have no intention to exit at this point in time. They are just spending less time on the Board to focus on their other business. They believe that we are on the right track. And from our discussion this morning, they assured us, the Board, that they will continue to provide support to us. So I believe that they have no intention to exit at this point in time. The next question is a million-dollar question. What are the expectations of border openings in Vietnam and Cambodia? Well, we don't know. We were expecting that the earliest time would be sometime in the mid of 2021. However, if you have been following the news of Thailand, there was a spike in Thailand cases over the past weekend in Thailand. So there may be a second wave that may hit Thailand at -- in the next coming weeks. So we don't know how that will affect the future of the border opening. So I'm afraid I'm unable to answer that with concrete certainty. But our expectation at this point in time in terms of management, we are looking at sometime in the mid of 2021. That's the earliest time that the border will open. Next question, further funding requirements in short term, to clarify, do you expect this now to be funded from internal cash flow? Yes. This is an interesting question. And I think I will pass on to Mr. CEO to answer this one. This is something that you can handle. Your question, can shareholders be reward with free hotel accommodation when exiting the casino? I plan to visit Star Vegas and Aristo when border opens again. I think this is something that the management can take into consideration and we can provide a program for the shareholders, for sure. What do you think?

I think this one we will discuss in the Board meeting about this again. So maybe we can make something that we show all the shareholders can make trust our management is good enough for them. Thank you. Mr. Chairman, you're on mute.

Sorry. Yes, I understand. I understood. Sorry, again, I will repeat that question again. What is the outlook and plan for Aristo? For the past 2 months, has Aristo been cash flow positive?

For Aristo, now we also look into the cost control strategy a lot because normally, the main expenses come from the hotel because the Aristo is a quite big amount of the hotel there. So in these few months, we already talked to the GM there to control all the costs and try to visit more customer to come to our property because now -- with the same -- with Star Vegas because the local people they were not allowed to go in casino. So in Aristo, we already have some Chinese that they still hang around there to come in. So now let them try their best to make it -- to call them come more. For the -- first month is October. October is okay with results not quite good. But in November is okay. We have some positive. Now in December, we still positive some, but we will still have another 10 days to see the result again.

Last question. Do you expect Aristo machine numbers to increase? It has been very subject to win historically. And we do increase the slot change in this. I think before I pass on to Ham, the slot machines and the layout of property is something that we want to go and have a look and try to change around. Unfortunately, we -- you cannot travel to Vietnam at the moment. Maybe Ham, you can share little bit about the slots.

About the slot machine in Aristo, now we try to have a new JV, joint venture to come in. And now we try to look into what kind of the machine that's suitable in Aristo because Aristo and Star Vegas is different market. So the machine that are suitable for the players will be different from the Star Vegas, but now we try to get off from our joint venture that -- how many machines we can bring in because I think they have -- they also have some limited number of the machine there also. But now we try list all the game that have good results so we can bring more of that one. We will go their soon.

I believe that's the -- okay, one more. Is there a possibility to refinance Mega Bank restrictive debt and capital from other bank and allow the funding like bond? Is there a possibility? There is a possibility, but whether we will be able to achieve it or not at this point in time with the current environment and the pandemic around, I would say, highly unlikely. So I don't think that we would look into trying to get any refinance. The objective is to try payoff the debt and try to make Donaco a debt-free company within 2021. Are there any other questions? I believe there's no more. So all -- this now concludes the formalities of the meeting. And I declare the meeting closed. I would like to take this chance to thank my fellow directors, Mr. Huy and his management team for their hard work and commitment to this business. I would also like to thank all my fellow Board members for joining us and helping us going through this tough time. Once again, I would like to thank all past directors and leading directors for their support. And I will -- most importantly, I would like to thank the shareholders for your continued support and for your virtual attendance today. Thank you very much.

Thank you, Mr. Chairman.

Thank you.

Thank you.

Thank you, Chairman.

Thank you.

Thank you, Mr. Chairman.

Thank you. Goodbye.

Goodbye.