Company Results

Thunderbird Resort 2014 Half-Year Report Revenues Decline 6.5%

Thunderbird Resort Published 2014 Half-Year Report and July 2014 Revenue Report

Thunderbird Resorts

Thunderbird Resorts Inc. (EURONEXT:TBIRD)(FRANKFURT:4TR) announces its interim results for the second quarter and six months ended 30 June 2014.

Below is: 1) Summary half-year 2014 consolidated income statement1; 2) The same statement adjusted for fluctuations in currency values by applying the 2014 year-to-date exchange rate average to the same period in 2013 in order to compare the Group's performance trend net of the impact of forex; 3) 2014 Half-year Financial Highlights; 4) 2014 Half-year Other Highlights; and 5) July 2014 Revenue Report.

We include this currency neutral2 adjusted statement because a material portion of variance through half-year 2014 has been related to exchange rate fluctuations and this adjustment provides the reader with a better apples-to-apples comparison of operating performance trends.

  1. SUMMARY 2014 HALF-YEAR CONSOLIDATED INCOME STATEMENT
(In thousands, proportional consolidation)
Six months ended
June 30 %
2014 2013 Variance change
Net gaming wins $ 22,205 $ 24,095 $ (1,890) -7.8%
Food and beverage sales 2,200 2,202 (2) -0.1%
Hospitality and other sales 2,989 3,106 (27) -0.9%
Total revenues 27,394 29,313 (1,919) -6.5%
Promotional allowances 2,355 2,444 (89) -3.6%
Property, marketing and administration 20,307 21,489 (1,182) -5.5%
Property EBITDA 4,732 5,380 (648) -12.0%
Corporate Expenses 2,191 2,388 (197) -8.2%
Adjusted EBITDA 2,541 2,992 (451) -15.1%
Property EBITDA as a percentage of revenues 9.3% 10.2%
Depreciation and amortization 2,606 3,668 (1,062) -29.0%
Interest and financing costs, net 2,290 3,308 (1,018) -30.8%
Management fee attributable to non-controlling interest (13) 71 (84) -118.3%
Project development 33 61 (28) -45.9%
Shared based compensation - - - 0.0%
Foreign exchange (gain) / loss 521 1,115 (594) -53.3%
Other (gains) / losses (290) (13) (277) 2130.8%
Derivative financial instrument - (18) 18 -100.0%
Income taxes 221 619 (398) -64.3%
Profit / (loss) for the period from continuing operations $ (2,827) $ (5,819) $ 2,992 -51.4%
  1. SUMMARY 2014 HALF-YEAR CONSOLIDATED INCOME STATEMENT ADJUSTED FOR CURRENCY NEUTRAL
(In thousands, proportional consolidation adjusted for currency neutral)
Six months ended
June 30 %
2014 2013 Variance change
Net gaming wins $ 22,205 $ 22,582 $ (377) -1.7%
Food and beverage sales 2,200 2,068 132 6.4%
Hospitality and other sales 2,989 2,827 162 5.7%
Total revenues 27,394 27,477 (83) -0.3%
Promotional allowances 2,355 2,302 53 2.3%
Property, marketing and administration 20,307 20,140 167 0.8%
Property EBITDA 4,732 5,035 (303) -6.0%
Corporate Expenses 2,191 2,388 (197) -8.2%
Adjusted EBITDA 2,541 2,647 (106) -4.0%
Property EBITDA as a percentage of revenues 9.3% 9.6%
Depreciation and amortization 2,606 3,432 (826) -24.1%
Interest and financing costs, net 2,290 3,233 (943) -29.2%
Management fee attributable to non-controlling interest (13) 29 (42) -144.8%
Project development 33 58 (25) -43.1%
Shared based compensation - - - 0.0%
Foreign exchange (gain) / loss 521 1,030 (509) -49.4%
Other (gains) / losses (290) (14) (276) 1971.4%
Derivative financial instrument - (18) 18 -100.0%
Income taxes 221 583 (362) -62.1%
Profit / (loss) for the period from continuing operations $ (2,827) $ (5,686) $ 2,859 -50.3%
  1. 2014 HALF-YEAR FINANCIAL HIGHLIGHTS

Development: We continue to develop our current operating markets where we can leverage existing management teams to more efficiently generate cash flow from new revenues.

  • In Costa Rica, the Fiesta Casino Aurola opened in late June 2014 with 122 slot machines, 27 table positions, 3 poker tables and 36 F&B seats, with an additional 26 slot positions to be added before year end.
  • In Peru, we have opened 24 electronic roulette positions between the months of July and August, and 56 new table positions at our Luxor Lima operation estimated to open during Q4 2014. We are also in the process of reallocating the office space used by our internal administrative staff to increase space for third party rentals in the Fiesta hotel. We continue to seek new locations for slot parlors.
  • In Nicaragua, we are now in the process of arranging a bank loan for the relocation of one of our existing operations to a demographically better location on land that we own with the goal to improve top and bottom line performance.

Revenue Performance: We continue to focus on growth, but have been challenged by forex:

  • Revenues were $29.3 million through June 30, 2013 as compared to $27.4 million through June 2014. On a currency neutral basis, this $1.9 million variance is reduced to just $83 thousand showing that our principal revenue challenge has been forex.
  • Revenues have also been impacted by: a) The reduction of 290 machines in Costa Rica in Q4 2013 for which revenue was less than their proportional operating cost and gaming tax; and b) A decrease in hold percentage in Peru because of large wins by a VIP table player.

Expense Reduction: We continue to control and reduce country-level and corporate expenses:

  • Operating expenses (promotional allowances and property, marketing and administration) were reduced by $1.3 million through June 2014 as compared to through June 2013.
  • Corporate expense was reduced by $197 thousand through June 2014 as compared to through June 2013.

Adjusted EBITDA and Profit / (Loss) for the Period: Our bottom line results are improving in spite of forex-driven reduction in EBITDA:

  • Adjusted EBITDA3 decreased by $451 thousand through June 2014 as compared to through June 2013. On a currency neutral basis, adjusted EBITDA fell by just $106 thousand showing that revenues impacted by a rising US dollar compared to our operating currencies has been the primary driver of decreased US dollar performance.
  • While still operating at a loss, our results improved by $3.0 million through June 2014. The improving bottom line results were driven by reducing depreciation and by declining Financing costs4 as our Group gross debt (see below) continues to be paid down.

Efforts to Reduce Debt and to Refinance Remaining Debt: We continue to reduce debt and refinancing our remaining debt remains a high priority.

  1. Group gross debt5 has been reduced to $47.3 million as of June 30, 2014.
  2. Group net debt6 has been reduced to $42.7 million as of June 30, 2014.

We previously announced efforts to refinance Peru and Peru-related debt principal balances (includes some debt on parent company books), and are specifically attempting to refinance approximately $20.9 million of principal balances with $22 million of bank financing at an 8.5% rate, 10-15-year amortization with a 10-year balloon. Such a transaction would reduce our amortization on and improve our cash flow by approximately $1.5 million to $2.1 million annually.

  1. IFRS 11: Effective January 1, 2013, IFRS 11 changed the way joint ventures are accounted for whereby proportional consolidation is no longer considered an appropriate method to present investments in joint ventures and that equity accounting should be applied. To compare results with previous periods, the Group presents the Costa Rican joint venture proportionally when discussing financial performance in this press release and in the 2014 Half-year Report (except in Chapter 4 - 2014 Half-year Consolidated Financial Statements that are compliant with IFRS 11).
  2. Currency neutral is a calculation that eliminates fluctuations in currency values by applying the 2014 year-to-date exchange rate average to the same period in 2013 in order to compare the Group's performance trend net of the impact of forex.
  3. EBITDA is not an accounting term under IFRS, and refers to earnings before net interest expense, income taxes, depreciation and amortization, equity in earnings of affiliates, minority interests, development costs, other gains and losses, and discontinued operations. "Property EBITDA" is equal to EBITDA at the country level(s). "Adjusted EBITDA" is equal to property EBITDA consolidated from all operations less "corporate expenses", which are the expenses of operating the parent company and its non-operating subsidiaries and affiliates.
  4. Financing costs is the aggregate of loan interest, lease interest and amortization of loan premium, discounts and issuance costs.
  5. Gross debt equals total borrowings and finance lease obligations, inclusive of the Group's proportional share of debt held in its Costa Rican joint venture.
  6. Net debt equals gross debt less cash and cash equivalents (excludes restricted cash).
  1. 2014 HALF-YEAR OTHER HIGHLIGHTS

In Q1 2014, the Group announced material events and entered into material contracts as follows:

  • New Director: On January 19, 2014, Alfred Meili became a Director of the Company until the next Annual General Meeting of Shareholders.
  • Guatemala Sale: As previously reported, the Group sold its interests in its Guatemala gaming facilities as of December 31, 2010. Such sale was in the form of a Promissory Note for approximately $2.1 million plus other consideration, and was secured by a Stock Pledge and Asset Pledge. The Group had written off any value associated with such Promissory Note. On April 22, 2014, the Group took back possession of the shares sold in the subject Guatemalan entities and assigned said shares to the charitable foundation that currently has the gaming license under which the companies operate. The assignment of shares was financed by the Group with a $2 million note at 10%, with the obligation to a pay it back at not less than $30,000 per month with any remaining balance due on the 36th month. Additional monthly payments may be due if certain performance thresholds are met. The note is secured by stock and asset pledges.
  • Pardini Litigation Settlement: On March 31, 2014, Thunderbird entered into a settlement with the various parties to the Pardini litigation described in Note 5 to the 2013 Financials. The litigation had been pending for over 10 years and was likely to last for a significant number of additional years. To avoid the cost of additional litigation amongst multiple parties, Management settled in an efficient way to end the litigation and remove any potential exposure. The cost of the settlement, including legal fees and costs, was $550,519.89.

In Q2 2014, the Group announced material events and entered into material contracts as follows:

  • Opening of Fiesta Casino Aurola in Costa Rica: In the last week of June, the 570 square meter venue opened for business with 122 slot machines (expanding to 148 slot machines before year end), 27 gaming table positions (non-poker), 3 poker tables, and 36 F&B seats. This property is located in a 5 star, 196-room hotel in the heart of downtown San Jose, which is a high-density commercial and tourism district.
  • Sale of Plaza Globus office: In May 2014, the Group sold an investment property in Panama City, Panama for $1,800,000.00 in gross proceeds and $440,857.30 in net proceeds after debt paydown, brokerage commissions and taxes.

As subsequent events to half-year 2014, the Group announced material events and entered into material contracts as follows:

  • Peru Country Manager: On July 8, 2014, Gustavo Barclay officially took over as Country Manager of our Peru operations replacing Tom Mraz who has resigned to pursue other endeavors.
  • Resignation: On July 25, 2014, Alfred Meili resigned as a Director of the Company.
  • Sale of Philippine Operations: On August 6, 2013, the Group entered into a series of transactions that resulted in the sale of its entire economic interests and management rights in its Philippine and related British Virgin Islands ("BVI") operations "Philippine operations" to Magnum Leisure Holdings Inc. and its related entities, affiliates of Solar Entertainment Corporation (collectively "Magnum"), for post-tax consideration of approximately $28.3 million. Of the net price: a) $21.1 million was settled in cash; b) $5 million was paid via a promissory note that amortizes over approximately 18 months at a 7% interest rate and is backed by a Letter of Credit issued by a major banking institution ("Note receivable") (face value is estimated to be equal to fair value); and b) $5 million is subject to hold backs by Magnum for up to 30 months ("Hold back") to cover potential contingent liabilities. The fair value recognized for the Hold back was $2.2 million, which represented the present value of the Group's estimate of the cash inflow. On August 20, 2014, the Group received notice that Magnum is making a claim for the full $5,000,000 Hold back and asserting a right to more than the Hold back despite clear contract language limiting the Group's liability to the Holdback. The Group is reviewing the matter and will respond within the 30 days permitted and intends to vigorously defend its position as to the Hold back, the Note Receivable and Letter of Credit mentioned above.
  1. JULY 2014 REVENUE REPORT
Thunderbird Resorts Inc. - Group-wide sales results by country (unaudited, in millions)(1) July

2014

July

2013

Year-over-year

increase/(decrease)

Peru(2) $2.73 $2.57 6.23%
Costa Rica(3)(4) 1.04 1.27 -18.11%
Nicaragua 1.20 1.12 7.14%
Total Consolidated Operating Revenues $4.97 $4.96 0.20%
1 Revenues reported are based on monthly average exchange rates, report same store revenues and are in USD millions. From month to month, exchange rate fluctuations could cause an impact on revenues as compared to the previous year.
2 2014 and 2013 revenues consist of all gaming revenue in the country plus revenue from our fully-owned Fiesta Hotel and management fees for the Thunderbird Hotel - Pardo, Thunderbird Hotel - Carrera and Thunderbird Hotel - El Pueblo, which are owned by third parties.
3 Effective January 1, 2013, IFRS 11 changed the way that joint ventures are accounted for whereby proportional consolidation is no longer allowed and equity accounting should be applied to joint ventures. Until further notice and for the convenience of the reader and for the illustrative purposes of this monthly revenue report, the Group has elected to continue to show the Costa Rican joint venture proportional revenues, which vary from the way that the Group accounts for these revenues in our Interim and Annual Financial Statements.
4 In October 2013, we reduced 290 gaming positions in Costa Rica that cost more to maintain on the floor (because of per position gaming taxes) than their respective revenue. As a result, period revenue has dropped, but should be reflected in enhanced EBITDA from the related properties. In late June, the Group soft opened the Casino Fiesta Aurola in downtown San Jose with 122 slot machines (expanding to 148 slot machines), 27 gaming table positions (non-poker), 3 poker tables, and 36 F&B seats. Our formal inauguration is scheduled for late August 2014.

Document Availability: This announcement is a summary of, and should be read in conjunction with the interim results for the second quarter and six months ended 30 June 2014, which can be found on the Group's website at www.thunderbirdresorts.com. Copies of the 2014 Half-year Report in the English language are available at no cost at the Group's operational office in Panama and at the offices of our local paying agent ING Commercial Banking, Paying Agency Services, Location Code TRC 01.013, Foppingadreef 7, 1102 BD Amsterdam, the Netherlands (tel: +31 20 563 6619, fax: +31 20 563 6959, email: iss.pas@ing.nl). Copies are also available on SEDAR at www.SEDAR.com.



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