Thank you for holding and welcome to the Galaxy Entertainment Group's management update for the Q4 and annual results for 2022. Joining us today are Mr. Michael Mecca, GEG Board's Non-executive Director, Mr. Robert Drake, Group CFO, Mr. Roland To, Senior Director of Strategic Planning, and Mr. Peter Caveny, Assistant Senior Vice President of Investor Relations. At this time, all participants' lines are in listen-only mode. The presentation will be followed by the question and answer session. Instructions will be provided at that time. I would now like to pass to Mr. Drake for presentation. Mr. Drake, please go ahead.
Thank you, operator, and greetings, everyone, and thank you for joining us for the update call on GEG's Q4 2022 results. The GEG team joining me here on today's call include Michael Mecca, a member of the GEG Board of Directors, Roland To, Senior Director of Strategic Planning, and Peter Caveny, Assistant Senior Vice President of Investor Relations. Copies of our media release, stock exchange announcement, and PowerPoint presentation are available on our website, which also include our customary disclaimers. What a difference a quarter makes, where sentiment turned immediately positive with a highly publicized relaxation of China's COVID-19 policy, which certainly signaled the beginning of the economic recovery across the region, including Macao. This important development, coupled with the issuing of the new Macao gaming concession effective on January 1, 2023, marks the beginning of a new and exciting chapter in Macao's history.
On behalf of the entire GEG family, we are eternally grateful for the proactive support of the Macao government, the community, our team members, and all stakeholders as we are all navigated through the pandemic for the very challenging past three years. We are confident that the market recovery has begun and are even more confident about the intermediate and long-term prospects for Macao, as evidenced by the MOP 28.4 billion commitment to the Macao government under our new 10-year gaming concession. Let's move on to our Q4 2022 performance, where our effective cost control efforts continue to yield positive results in what is hopefully the last quarter of the COVID-19 pandemic era, where, as we have said before, we continue to basically control what we can control.
GEG reported a Q4 2022 EBITDA loss of HKD 163 million versus Q4 2021's positive HKD 1 billion and improved sequentially relative to Q3 2022's loss of HKD 581 million. Our normalized EBITDA loss in Q4 2022 was HKD 123 million, where we played unlucky, which reduced EBITDA by HKD 40 million. We invite you to refer to the table in our press release at your leisure for additional details. We also continue to work hard at managing our cost structure. To that end, our Macao OPEX burn rate has declined by 32% from approximately $3.4 million per day under normal operating conditions to the $2.3 million range in Q4, which also represents a 10% sequential increase after a dismal Q3 as business somewhat rebounded during Q4.
The real test, as we've said many times before, is converting as much of these temporary savings to permanent ones, where we're confident that we will create sustainable operating leverage as business gradually improves. Now is the time to actually prove that we can deliver sustainable operating leverage, and we look forward to sharing our progress on this important initiative in the future. While we're on the subject of driving efficiency, please allow us to reiterate a very important point on fiscal management that distinguishes Galaxy from the rest of the Macao market and for that matter, the global industry. We certainly acknowledge that OPEX burn rate is an important part of the expense equation, but there is certainly more to the overall cost picture than that. Daily cash burn is more indicative of the cost structure as it includes interest expense.
We are very fortunate that we are the only concessionaire in Macau that generates net interest income, not interest expense. In fact, our net interest income in Q4 2022 was just under $225,000 per day. If you deduct the $225,000 per day of net interest income from the $2.3 million per day in OPEX burn, you get $2.1 million per day in cash burn, excluding CapEx. It's a powerful example of how conservative balance sheet management really pays in challenging periods in general, and in our case, significantly differentiates us from the competition, as well as contributes to making prudent decisions which are in the long-term best interest of the company and its stakeholders.
We would like to thank everyone on the GEG team, as well as our valued suppliers who continue to support the company in these difficult times over the past three years by contributing to our cost management programs. Everyone's support has truly been inspiring. We've also contributed millions of dollars to the COVID-19 relief efforts to support the community as we previously reported. We also invite you to review some of our recent awards, including for our CSR efforts, among others, noted in our press release. Let's move on to our development update beginning in Cotai, where we continue to invest in Macao as well as Galaxy's future. We have some very good news to report. We're scheduled to progressively open Cotai Phase III beginning in April 2023.
We're excited about opening the Galaxy International Convention Center in April, where we will be hosting our first MICE event, followed by the Galaxy Arena with our first world-class concert in April with the K-pop group TREASURE, followed by the very popular BLACKPINK World Tour in May. We'll also be opening Raffles at Galaxy Macau during early Q2, which is positioned to serve our premium customers. Finally, Andaz Macau, where we will continue to monitor the pace of the recovery before announcing a firm opening date for our eighth world-class hotel in Cotai. We are also proceeding with the construction of Cotai Phase IV, Macau's only next-generation integrated resort, which will complete our ecosystem in Cotai. As you can see, we remain highly confident about the future of Macau as we continue to invest literally billions of dollars into our business.
In fact, we invested approximately $800 million in Cotai Phases III and IV during Q4 and approximately $24 billion to date against our $50 billion project, where we are doubling our footprint in Cotai. Cotai development activities, along with our existing property initiatives, also demonstrated our support of Macao during the pandemic by continuing to invest in the economy, providing jobs, and supporting local SMEs during the pandemic, as well as our long-term commitment to help Macao achieve its vision of becoming a world center of tourism and leisure. Let's move on to our balance sheet, which continues to remain strong, liquid, and virtually unlevered.
Cash and liquid investments increased from HKD 22.5 billion at the end of September 2022 to HKD 26.4 billion at the end of December, due primarily to the funding of our five billion MOP capital requirement associated with the new Macau gaming concession. Our net cash position declined slightly from HKD 19.3 billion to HKD 18.9 billion, as investing in our development projects, including Cotai Phases III and IV, and funding operating losses was partially offset by net interest income and the appreciation of our Wynn Resorts shares. Total debt increased from HKD 3.2 billion to HKD 7.5 billion, which primarily reflects approximately HKD 7.1 billion of borrowings associated with our treasury yield enhancement initiative. Our core debt remained minimal, increased slightly to HKD 350 million, which includes zero debt associated with our Macau operations.
Yes, to be clear, the amount of debt associated with our Macao operation remains zero. Our next topic is our ALBA, where Macao's new chapter is off to a very encouraging beginning in 2023, including a very respectable Chinese New Year holiday. We usually wait to combine the results of January and February to normalize the timing of Chinese New Year, we are very pleased to welcome back visitors to Macao. We have also said that Macao can bounce back quickly, let's put that into perspective. Macao reported monthly GGR of HKD 11.2 billion in January, which was higher than each individual quarter of Q2, Q3, and Q4 2022, and exceeded almost half of the 12 quarters of the pandemic.
We're also encouraged that we continue to see strong signs of healthy demand, which certainly contribute to our decision to begin to progressively open our Cotai Phase III in Q2. Having said all that, and not to get too far ahead of ourselves, we are cautiously optimistic that the recovery will continue, where the only real question is the pace of the recovery. We also remain upbeat and very positive about the intermediate and long-term prospects for Macao, where the underlying fundamentals continue to remain incredibly compelling. In closing, we would like to extend our sincere appreciation to the Macao government for their proactive and decisive performance during the pandemic, as well as the community which has rallied under their leadership.
We'd also like to thank all the GEG team members, again, who have been extraordinarily supportive of the community and the company during these challenging periods and look forward to a very exciting future. We have one final note for you. The company earlier this week announced that I will be stepping down after 15 years as Galaxy's Group CFO. Please note that I'm not stepping out, I'm stepping back, while I will be serving as a senior advisor. I will be succeeded by Ted Chan on March one, who many of you know already. Ted is a 20-year industry veteran who is no stranger to Galaxy, having joined us five years ago to lead the charge in Japan. You should also know that my good friend and colleague, Mike Mecca, will also step back from our investor call. To be clear, Mike will remain on the board.
I'd like to thank Mike for his many and continued contributions over many years, as well as his advice, guidance, and friendship, especially as Ted will take the helm from Mike and I on the call moving forward. As you can see, Mike and I will certainly remain behind the scenes supporting the team. Operator, that's a wrap. Back to you to begin the Q&A session.
Thank you. Ladies and gentlemen, we will now begin our question and answer session. If you have a question for today's speakers, please press star one on your telephone keypad and you will enter the queue. After you are announced, please ask your question. If you find that your question has been answered before it's your turn to speak, please press star two to cancel the question. Once again, please press star one on your telephone keypad to ask question. We will now take our first question from Praveen Choudhary from Morgan Stanley. Please go ahead.
Hey, Drake. Thank you very much. Hi, hi, Rob. Hi, Mike. Hey, Peter. Hi, Roland. Quick question for me. Would you be able to tell us more about I know you don't provide actual data on January, February this year, but some of your peers have provided some numerical data just to understand how strong has it been for you to take the decision, as you mentioned, to open Raffles earlier than expected. The second question was related to in terms of how much of the CapEx for phase IV has been spent versus how much is remaining over the next several years. Thank you.
Thanks for the questions, Praveen. You know, we're all very, you know, pleasantly surprised with the abrupt shift in the COVID policy of China, which certainly signaled the hopefully the beginning of the recovery. January is a prime indication of that. As you saw the results for Chinese New Year, although visitation was down 60% for the market, you know, we posted very strong GGR of HKD 11.2 billion. For Galaxy specifically, that, you know, we had a very strong Chinese New Year on many fronts. It's definitely been premium led. As far as our performance, we actually achieved our 2019 GGR for Chinese New Year in mass.
That was also another positive sign was our retail business, where we posted an all-time record tenant sales performance in the month of January. What does that translate? This actually is carried forward into to February as well, where we've seen that the volume post two weeks of Chinese New Year is actually ahead of the pre-Chinese New Year volume. It's, you know, there was a nice tail, and we have seen it drop off a little bit. What does all that mean in terms of EBITDA? We rarely do this, but I think, you know, it's really good news to report, and hopefully the momentum continues, that we're tracking it for so far in February, not through the close of February.
We are comfortably north of HKD 1 billion in EBITDA. We're really encouraged about this, and there's an opportunity to really take advantage of all the hard work that operations has put in over the last three years in creating some operating leverage. We're still managing our costs very aggressively. You know, it's been highly publicized that we had some labor challenges in Macau during Chinese New Year. I think everywhere in this region has had some labor challenges and, but we're working very closely with the government to resolve those. It really comes down to labor quota. We are less than 60 days out from opening the Galaxy International Convention Center and having our first concert.
We're ramping up, and soon to be going into simulation mode, and we're very excited about that. And, you know, we can only do this with the cooperation of the Macau government. It's all these signals that gave us a lot of confidence, and Francis in particular, to pull the trigger and move forward with booking our first, you know, convention and our first two concerts. We're very excited about the future. As I said, it's just the only question now is the pace of the recovery. We are also encouraged in early February by the resumption of group travel. So it's.
CapEx.
As far as CapEx is concerned, you know, we did, as I said, about HKD 800 million in the month or in the Q4. Our target for this year is a little over HKD 7 billion, and of course, the lion's share of it with that would be dedicated towards phase IV. So we really don't provide a breakdown between phase III and phase IV. Knowing where we are in the development cycle, it's not a huge leap of faith to think that a majority of that spend is allocated for phase IV.
Thank you so much, Rob. Yeah, we'll miss you in these calls, so hopefully we can still catch up in Macau. Just to follow up on the comment that you made, which is very, very helpful. When you said north of HKD 1 billion in EBITDA, was that from February 1st to February 23rd, or was it this quarter to date?
Oh, it's quarter to date, through, like, today.
Okay. Okay. Very helpful. Thank you so much.
Yeah, we have another week to go in the month, so we're off to a good start.
Yeah, absolutely. Congratulations, and well done. Thank you.
We'll now take our next question from George Choi from Citi. Please go ahead.
Thanks. Firstly, Rob, I wanna thank you for everything that you've done for the investment community. Your insights and commentary will be missed. I have a couple of questions, if I may. First of all, would you please give us a sense on how many new staff you need to hire for phase III, both in terms of gaming and non-gaming operations? The second question is more a strategic one. From the past three difficult years, what was the biggest lesson that Galaxy learned? What will the management team do to translate that lesson learned into operational strategy, especially in light of the impending opening of phase III? Thank you.
Sure. We'll handle the staffing question first. We're very consistent that we need approximately 700 plus folks to new additions to the team to open phase III, including the convention center, Raffles, and the arena. Again, it's a new hotel tower at Galaxy. It's not a separate integrated resort. We will be transferring some folks across. With all due respect, it's all pretty much non-gaming labor. We're still far away from, you know, being massively constrained on gaming labor. We're, again, as I was saying earlier, that we're working closely with the Macau government on labor quota. They're also helping SMEs, which is just a signal across the board that Macau is supporting the broader business community in getting back on our feet.
And, you know, I think and that really goes into one of the biggest lessons learned is, you know, when you're running all-out operation 24/7 all the time, you really focus more on effectiveness than you are on efficiency. What we did throughout the three-year period is go back and look at productivity targets, really, you know, employ more data analytics to help the operators run their business more efficiently. With HR support and financial support, we really spent the time on how do you really drive operational efficiency. I said in our remarks, you know, it's really time to put up or shut up.
We're quite confident that we'll deliver operating leverage, and we can only prove that through our results as we move forward into 2023 and beyond. We're not relying on the shift in revenue mix from VIP to mass to drive margin. We're quite confident, as we said throughout the pandemic, that we can deliver a point or two in incremental organic margin, just from doing our, you know, more with less and driving efficiency. That's where we spent a lot of the lessons. Of course, we're always trying to apply and learn from a development standpoint, listening to our customers. We continue to see that our consumer preferences continue to evolve. We've seen the demographic profile of Macau change.
It's moving younger, and even more towards females. We're trying to address all that in our projects, and not only exist in our new development projects like phase III, but into our existing facilities, where we're, you know, opening new restaurants, refining our retail mix, refining our room mix, and upgrading our product there. Ultimately, the test that will be in phase IV, which will be Macau's only next generation integrated resort.
That's very insightful. Thank you very much.
Thank you. As a reminder, to ask a question, please signal by pressing star one. Now the next question comes from Ronald Leung from Bank of America Global Research. Please go ahead.
Hey, Ronald.
Hi, Rob. Hi, Rob. Yeah, I have two questions. First of all, the company has been very successful in carrying our property refurbishment program across the properties. Can I ask if the company has any plans for refurbishment program over the next one year or two? That's the first question. The second question is about the labor shortage. As we know that there is some kind of labor shortage across different properties in Macau, can I ask how many labor the company still need to get in order to fully operate? Also, what are the capacities, for example, room or F&B capacities that have not yet been opened now? Thank you very much, Rob.
Thanks for the questions, Ronald. On refurbishment, you know, we spent a lot of time over the last three years, really upgrading our product, refreshing it. We're about finished with the room refurbishment program for the most part. We don't foresee a lot of ongoing projects for maintenance capital type things. At the same time, we're introducing new restaurants. For those of you visiting Macao, you'll see that we'll be opening some new restaurants. We have some additional projects on the in the pipeline to do that, 'cause we're always continuously innovating. If you're differentiating between maintenance capital and growth capital, like new product, we're always going to introduce new product into the mix, because that's the beauty of our business. We generate lots of cash, and things work or don't work.
You know, we just always want to be as responsive to consumer trends as we can and address our customers' needs. On the maintenance side, you know, we'll continue to do that, but we've done a lot of that over the last three years. As far as labor is concerned, yeah, it's basically a shortage of non-gaming labor. You know, it's anywhere from room attendants to public area cleaners to waiters and waitresses, cooks, so on and so forth. We're working actively with the government to, now that the, you know, with the recovery is happening a lot faster and sooner than we expected, that we're being as responsive as we can. It's just not limited to Macao, it's virtually everywhere in this region.
It's again, we're working closely with the Macao government to secure the labor quota, and hopefully we'll have rectified this within the next 60 days or so.
Okay. Got it. Thank you very much, Rob. Thank you very much for your support to me in the past 15 years, and wish you the best of luck.
Fastest 15 years of my life.
Yeah. Yeah.
Now our next question comes from Simon Cheung from Goldman Sachs. Please go ahead.
Welcome back, Simon.
Hi, Rob. Hey. I want to echo what George Choi is saying. You know, really thanks for all the insights that you provide us over the years. I'm sure I would catch you in Macao pretty soon. Anyway, I have three questions. One, I just can't help when you mentioned that $1 billion, which is roughly, call it, one and a half month of run rate. If I remember correctly, back in, I think, before the COVID-19, you were running at perhaps closer to $4 billion. That's, you know, on the back of mass market GGR. Now, you mentioned during the Chinese New Year, hovering at about 100%.
I wanted to get a big sense about, you know, what sort of a GGR run rates would you need in order to achieve, perhaps, come back to the EBITDA run rate of, you know, the pre-COVID level? I'm not sure whether I'm missing anything. It looks like, you know, you're running at perhaps, you know, 50% or so in terms of the EBITDA run rates so far.
Yeah. It's a great question, and, you know, and time will tell because one of our biggest. It's still early days, Simon. We're, you know, really shot out of the gates here in January. Remember, we had Chinese New Year, we had a peak holiday. Like I said on our remarks, you have to look at, you know, really January and February on a combined basis to normalize for the timing of CNY. Having said that, we're pretty encouraged about where we are, you know, so far. As we said, with Chinese New Year, we really did achieve what we in 2019's mass GGR in 2023. That's very encouraging.
It is premium led, which is actually one of the reasons why gave us confidence in moving forward with opening up Raffles, which is a premium-centered product, as well as, you know, some of the non-gaming which will drive incremental visitation in Macau with the MICE and the arena event starting with the two concerts. Again, one of the beauties of this business is that for us, you know, the break-even point, and we've obviously surpassed that, was basically doing in mid-20s as a % of 2019 revenue. Hopefully we'll generate some of the sustainable operating levers that we talked about. It's again, early days.
I don't wanna go too far out on a limb to say that we just want to give you an indication that we're off to a very solid start, you know, to be north of $1 billion, comfortably north of $1 billion, not even two months into the year. We're sort of led by GM, which we believe is the market leader still in GGR. It's, you know, at the same time, we do acknowledge it's a competitive world out there. You know, hopefully all the time and energy that we've invested in over the past few years will position us for success operationally. Couple that with new product in the market, we'll differentiate ourselves from the competition.
Okay. Understood. Great. Great. Thanks for that. And then, the second question, I wanted to get a sense about your table and the hotel room, and allocation historically, you know, for VIP and mass markets. You know, the reason for that is obviously VIP warning was quite mute. Wanted to get a sense how much, you know, resources you can shift to mass markets.
Well, we've shifted the majority. You know, our VIP business now consists solely of our premium direct business. Of course, we're reallocating a lot of our capacity to obviously to the mass business. A, on the labor side, you know, we're comfortably staffed with local gaming labor. You know, with the positioning of Raffles particularly as a premium product, you know, we're allocating our tables in that direction. It's what the market yields. You know, back in the days when we had the VIP and mass business, you know, we are demand takers, and it's our challenge to address what the market is providing us and yield against that.
We continue to, you know, the government wants to move towards the mass business as well signaled during the concession process. That, you know, we did ask for a table allocation of 1,000, and that's what we got. Some, you know, we're very happy with that. We've reallocated our resources as best we can to service the mass market.
Okay, great. My last question is, you know, just you shared that you need about 700 staff for the Raffles towers and also the convention centers. You know, can you give us a sense, you know, what sort of OpEx per day are we talking about? That, you know, you obviously have Andaz Macau or maybe, you know, some other non-gaming facility for phase III. You know, up on the opening of the entire phase III, how much additional OpEx are we talking about?
Well, it's not as if. You know, we'll have some increase in variable expense. You saw that. That's one of the reasons our daily nut increased in Q4. It's a good thing that you're adding incremental variable expense. It means that business is coming back. We're gonna do our best to control our costs as diligently as we can without ever compromising on our customer service standards, which we expect to elevate, especially in Raffles and in new businesses of the convention center and the arena. It's all about driving efficiency across, and hopefully, we can prove rather than, you know, talk about it for the last three years. You'll see it in our margins, hopefully improving, not because of the revenue mix, because we're doing more with less and driving efficiency across the organization.
That's not in operations, in support areas like HR and finance as well. It's been a comprehensive review of the business over the last three years, and hopefully, really elevating our performance and getting, again, driving returns and doing more with less.
Okay, thanks a lot. We will miss you then. Thank you. Bye.
Not disappearing.
Thank you.
Some people think those are tears of joy, not tears of sorrow.
Thank you. As there are no further questions in the queue, I'd like to hand the call back over to Mr. Drake for any additional or closing remarks. Over to you, sir.
Thank you very much, operator, and your continued and the broader financial community, all the investors listening on the call for the last 15 years and 20 years of the concession. We really believe that, you know, we've entered a very new and exciting chapter in Macau's history. I think Galaxy is uniquely positioned to carry on what we've been doing historically and hopefully exceed everybody's expectations as we move forward into this new era. I personally thank everyone for supporting the company and getting to know everyone on the call over the last 15 years. It's truly been an honor and look forward to, well, continue our relationship. I know I can speak on behalf of Mr. Mecca as well, that, you know, it's time to turn the ball over to Mr. Chen.
We look forward to supporting Ted in the next era. Roland and Peter will be here as well, and, you know, Mike and I will always be behind the scenes supporting the team. We wish the best of luck to our colleagues and everyone on the call. Thank you very much. I'm just really touched by everybody's kind words. Thank you.
Thank you. This concludes today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.