Thank you for holding, and welcome to the Galaxy Entertainment Group's management update for the first quarter results of 2021. Joining us today are Mr. Mike Mecca, GEG Board 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 a listen-only mode. The presentation will be followed by a question and answer session, and instructions will be provided at the time. I would now like to pass the conference over to Mr. Drake for presentation. Mr. Drake, please go ahead.
Thanks, operator. Greetings everyone. Thank you for joining us for the update on GEG's Q1 2021 results. The GEG team joining me here on today's call include Mike 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. On behalf of our Chairman, Dr. Lui, Francis Lui, and the entire GEG family, we greatly appreciate everyone's contributions across the board during the pandemic, as well as our heartfelt sympathies to everyone globally who have been impacted by this crisis. The sacrifices that everyone has made are paying off as Greater China continues to effectively contain the pandemic and life gradually returns more and more to normal.
We are certainly encouraged by the fact that Macau's little sprouts that we mentioned back in February have grown into healthy green shoots as the market's gradual and managed recovery continues to build positive momentum, including, most recently, the improving performance over the May Golden Week holiday. Here are some of our thoughts on why we continue to be optimistic about the recovery of Macau as well as its longer-term future. First and foremost, the Macau government continues to effectively handle the COVID-19 crisis, where they have simply done an outstanding job over the past 16 months. As we have said many times before, the Macau government has demonstrated proactive and decisive leadership while simultaneously generating critical community support, which is a huge accomplishment.
You may be interested in knowing that Macau has not experienced a new locally transmitted case for over one year since April 9th, 2020, limited imported cases due to effective screening protocols, and zero fatalities. This is simply a remarkable achievement, especially when you consider that they gradually began to reopen the market in Q3 2020, experienced a healthy increase in visitation throughout the fourth quarter, and proactively supported the well-signaled Chinese policy of limiting travel during the critical winter period, including Chinese New Year, where Macau visitation growth abated in January and February of 2021. Although visitation was down 7% sequentially in Q1 2021, as expected, we finished the quarter on a positive note in March with the best monthly visitation and revenue performance since the pandemic began in early 2020.
The positive momentum has definitely carried into the second quarter with a very solid Golden Week holiday in early May. We experienced some of our best visitation and revenue days since the pandemic. We also continue to be very encouraged by the improving Chinese economy and recent consumer trends over the May Golden Week holiday, which certainly indicated strong demand for leisure, retail, tourism, and travel. Having said all of that, we are definitely not taking the recent trends for granted and remain as committed as ever to the health and safety of the community, our team members and guests, as well as the economic and social stability of Macau, where the continued containment of the virus remains the highest priority.
Let's move on to our Q1 2021 performance, where our effective cost control efforts introduced throughout 2020 continued to yield results in a gradually improving revenue environment, while at the same time, we continued to make progress with our enhancement projects at our existing properties, as well as with our game-changing phase III and phase IV development projects in Cotai. GEG's Q1 2021 EBITDA more than tripled year-on-year to HKD 859 million. Declined 15% sequentially. There was a lot happening during the quarter worthy of note that impacted our results. Let's begin with our construction materials business, where EBITDA grew 31% year-on-year to HKD 156 million. Declined 52% quarter-on-quarter or HKD 170 million due primarily to seasonality, which impacted the group's overall results. If you exclude construction materials, EBITDA increased more than 4x year-on-year and grew 3% quarter-on-quarter to HKD 703 million. Let's move on to Macau.
GEG's Q1 EBITDA also benefited by approximately HKD 169 million of good luck. You may also recall that in Q4 2020, the group benefited from a HKD 100 million COVID insurance claim, which was partially offset by playing unlucky, which reduced profitability by approximately HKD 60 million. For good order's sake, we experienced good luck in Q1 2020, which benefited EBITDA by approximately HKD 84 million. If you adjust for the insurance claim, the luck factors, and construction materials, GEG's EBITDA in Macau totaled HKD 534 million, which was up significantly versus HKD 80 million in Q1 2020, but down 17% quarter-on-quarter. Our Q1 2021 results were also impacted by year-on-year and quarter-on-quarter shifts in revenue mix. We also continue to work hard at leveraging our cost structure as business gradually improves.
To that end, our Macau OpEx burn rate has declined by over 30% from approximately $3.4 million per day under normal operating conditions and essentially remained in the HKD 2.3 million range for the third quarter in a row in Q1 2021. Even as business ramps up in Q4 2020 and Q1 of 2021, we were able to virtually maintain the same OpEx burn rate as Q3 and Q4 2020, which indicates that we are well on the road to delivering operating leverage. We'd like to pause here like we have previously and make a very important point on fiscal management, especially during these challenging times. We certainly acknowledge that OpEx burn rate is an important part of the expense equation, 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 also remained unchanged in Q1 2021 at approximately $ 300,000 per day. If you deduct the $300,000 per day of interest income from the HKD 2.3 million per day in OpEx burn, you get approximately HKD 2 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. 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 by contributing to our cost management programs.
We are proud to report that virtually all team members made voluntary contributions during this challenging period, including the Board of Directors, which waived their director's fees, management who participated in our non-paid leave program, and the many team members who joined our Flexi-Family Care program. It 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. Let's move on to our development update, where we continue to make progress with our initiatives, particularly in our home base of Macau. In fact, on March 1st, 2021, we announced that our Cotai phase III tower will be named Raffles at Galaxy Macau. We look forward to welcoming Accor's legendary Raffles brand and an exclusive, state-of-the-art, 450 all-suite tower to Macau in late 2021 or early 2022.
We continue to move forward with GICC, our convention center and arena, as well as our Cotai phase IV, which will be Macau's only next-generation integrated resort. We will continue to provide updates on our target timelines for all of our projects as we move forward. We are also using this period as an opportunity to perform additional maintenance and enhancements to our existing properties. Our Cotai development activities, along with our existing property initiatives, also demonstrate our support of Macau during the pandemic by continuing to invest billions of dollars into the economy, providing jobs, and supporting local SMEs, as well as our long-term commitment to help Macau achieve its vision of becoming a world center of tourism and leisure. In addition, we note that the central government is currently reviewing the strategic master plan of Hengqin, which were revised by the Zhuhai and Macau governments.
We're also expanding our focus to potentially include opportunities within the rapidly expanding Greater Bay Area. Finally, Japan, where we continue to pursue opportunities with our partner, SBM of Monaco. We are also monitoring the impact of the pandemic in Japan, which has also caused highly publicized delays to their IR process, and we'll continue to update you as the situation moves forward. Next up is an update on our balance sheet, which continues to remain strong, liquid, and virtually unlevered. Cash and liquid investments decreased from HKD 46 billion at the end of December 2020 to HKD 42.4 billion at March 31, 2021. Our net cash position declined from HKD 36.8 billion- HKD 33.6 billion as operations contributed to cash flow while we continued to invest in our development project, including Cotai phases III and IV, and experienced some working capital adjustments.
Total debt decreased from HKD 9.2 billion- HKD 8.8 billion, which primarily reflects HKD 8.3 billion of borrowings associated with our treasury yield enhancement initiative. Our core non-treasury yield enhancement borrowings remain virtually unchanged at HKD 500 million, which includes zero debt associated with our Macau operations. Moving on to our outlook, where we continue to remain very optimistic that Macau's gradual, sustainable, and managed recovery will continue. As we noted earlier, Q1 finished with a strong March, which was the best month of the pandemic. This was followed by a solid April, which reported the highest GGR since January 2020, and an encouraging Golden Week holiday in early May. If we continue to remain diligent in effectively containing the COVID-19 outbreaks and execute vaccination programs, we are confident that our green shoots will continue to strengthen as the summer high season approaches and throughout the balance of 2021 and beyond.
We're also encouraged by the rebounding Chinese economy and are quite confident that the leisure and tourism sectors will continue to recover on the back of the overall economy. In the interim, we remain well-capitalized to invest in our development initiatives, including our game-changing Cotai Phases III and IV at the fundamentals of Macau and our operating businesses continue to improve and generate cash. We also remain upbeat and very positive about the long-term prospects for Macau and the Greater Bay Area, where the underlying fundamentals continue to remain incredibly compelling. We would also like to extend our sincere appreciation to the Macau government for their outstanding performance, as well as the community, which has rallied under their leadership during the pandemic. We'd also like to thank all the GEG team members again, who have been extraordinarily supportive of the community and the company during this challenging period.
Finally, you may also be interested in knowing that Galaxy Macau will be celebrating its 10th anniversary of its phase I opening on this coming Saturday. Happy birthday, Galaxy Macau. The best is yet to come. Operator, that concludes our opening remarks, and we're happy to field any questions.
Thank you. We will now begin our question and answer session. If you have any questions for today's speakers, please press star one on your telephone keypad and you will enter a 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 your question. Once again, please press star 1 on your telephone keypad to ask a question. We will now take our first question from Billy Ng from Bank of America. Please go ahead.
Hi .
Hey, Billy.
Hi. Hi, Bob, and hi, Peter. Hello, Lynn. Hi, Mike. I guess I have a couple questions. The first question I want to direct to Mike, and just want to get an update about Japan, given that we understand COVID probably has slowed things down there. Can you give us an update, what's the latest timeline and also what's the latest development in Japan right now?
You bet. Thank you for the question, Billy. Japan, like all countries, has experienced an impact on both business and personal life as a result of the pandemic. Japan has accordingly adjusted their programs and timelines. The national government has announced an extension of the submission lodgment dates for the prefectures and their casino consortium partners from October of 2021 to April 2022. Given that submissions to the national government have been extended until 2022, there is still a period of time before any announcement from the national government could be expected. GEG with SBM of Monaco and our local partners remain interested in bringing our brand of IR to Japan, and we continue to explore all options. We will keep you posted as the process progresses. Again, thanks for the question, Billy.
Thank you. Back to Macau. Bob, would you mind to share a bit more color about April and Golden Week? We heard from your peers when they had the conference call, kind of suggesting that some of them are achieving almost 80% recovery in terms of their mass revenue during Golden Week. On the other hand, junket VIP remain quite slow. It's about 20%-30% recovery. Do you see similar trend? I guess more importantly, have you seen a dramatic slowdown after the Golden Week or numbers still kind of better than April run rate at the current level?
Great question, Billy. As I just mentioned, as far as the end of the quarter is concerned, March finished very strongly. It was our best revenue and visitation month since the pandemic. We haven't seen the April visitation yet, but it was also our strongest GGR month. As we transitioned there, we had the Qingming holiday, which is traditionally not a strong holiday for Macau. Certainly rebounded after that, to go into Golden Week, where we had very encouraging results. I think everyone's seen the visitation numbers, but as far as our actual performance is concerned, we did probably about 50% of the GGR that we did in 2019. It was really driven by our premium mass business, and where we did probably 60%- 70% of what we did in 2019. The encouraging thing about our mass business is that our rate of play was very high.
It was upwards of 70% of what we did in 2019. Hotel occupancy was in the mid to high 80s. What was more encouraging about that is the type of occupancy and the type of customers that we're attracting. It was very high casino mix, very high. As far as VIP is concerned, it continues to be challenged. The numbers you quoted are pretty directionally accurate as far as we're concerned. They're doing about 20%-30% of volume to what they used to. We're really not surprised by that. One of the things that I think has been understated is the performance of our retail business. If you look at our tenant sales over Golden Week or even in the first quarter. Well, let's talk about the first quarter.
We did upwards of just a little north of 90% of what we did in Q4 2019 in terms of tenant sales and EBITDA contribution. Fast-forward to Golden Week, we did approximately 80% more than we did in 2019. We did it with 15% less tenants. As we continue to reconfigure our mall, and it's the type of customers. It's all premium retail that is doing extraordinarily well. You may know that we had our AGM this afternoon and in between meetings, and the call, I just walked around the property a little bit, and four or five of our major outlets have lines to get in, and it's a Thursday afternoon. That really bodes well for the recovery and the gradual recoveries we've been seeing. It is definitely managed.
The prognosis moving forward, post Golden Week, we expect a little post-holiday lull, and we've seen that. We expect that the summer should be pretty strong. As you look at the overall economy and China continues to do well, and we're well- positioned for that. I think, and of course, the primary focus is always public health and safety. If we remain vigilant, there's no reason to think that the recovery won't continue. It's just going to be a gradual recovery, and we've been very consistent in our views of the market over the last six to nine months. Overall, I think we had an encouraging Golden Week. It's certainly encouraging going into the high summer season. We look forward to reporting on our progress as we move forward.
Thanks. That's very clear. I'm sorry, just one quick follow-up. You mentioned about summer, we had a strong Golden Week. I think one of your peers talked about they are also optimistic about May and June. Do you share that optimism, or do you think we will still see the normal seasonality slowdown between, especially in June or in the second half of May?
We're cautiously optimistic. Usually after the holiday, you get the post-holiday lull. The question is the demand during a recovery strong enough to offset the traditional lull? We'll watch that very closely. Hotel occupancy has dropped off as expected. It hasn't dropped off as much as we thought it would, so we're reasonably encouraged by that, but we just need more time. We're not managing this week to week or month to month. We've been very focused on working with the government and really timing the introduction of new products with the recovery of the overall market. As fast as we all want it to happen, we're very disciplined in our approach to running the business in this recovery. Again, we're definitely focused on public health and safety.
Thanks. That's very helpful. Thank you.
As a reminder, to ask a question, please press star one. We will now take our next question from DS Kim from JP Morgan. Please go ahead.
Good afternoon, DS.
Oh, hey, Bob. Hey, everyone. Happy birthday to Galaxy Macau, and good afternoon. Thank you for taking my question. Firstly, can I ask you about a new project? I read from the press release that Raffles is now scheduled to open in late 2021 or early 2022, so it seems like kind of slightly delayed. May I check what's causing this modest delay, and how about Andaz and GICC? Is it going to open before or after Raffles?
Thanks for the question, DS. As you rightly picked up in our press release and in our opening remarks, that we continue to make progress on all our projects, including Cotai phases III and IV. Literally the day after our board meeting in February, we announced the collaboration with Accor, a very exciting project where we're going to introduce the legendary Raffles brand to Macau, and calling it Raffles at Galaxy Macau. The 450-suite exclusive all-suite tower is really going to redefine hospitality here in Macau, we believe, and attract the type of customer that we think will continue to call on Macau for visitation. Now, as far as the opening is concerned, we just wanted to hedge our bets here a little bit, seeing how the market ultimately recovers, and really try to align with the market recovery.
Whether it's the latter part of this year or early part of next year, we just want to align as much as we can with the market recovery. A month or two either way isn't going to make that much difference. As far as the GICC is concerned, we're looking at and studying the recovery of the MICE business, and we expect to open that around the same time as well, if not, maybe a little later than that. Again, we want to see recovery in the MICE business. From a cost structure standpoint, it will have a minimal impact on overhead going forward. Of course, we're very happy about opening the Andaz and welcoming Andaz to Macau as well, and their 700 rooms.
Again, w e want the recovery to ramp up as fast as can, but again, we're focused on public health and safety. This is definitely a marathon, not a sprint, and we have a longer-term view of the world.
Thank you. That's really helpful. May I follow up on that? When you say we want to watch the market recovery, do you have any benchmark in terms of, I don't know, occupancy of the Galaxy Macau existing property? Do you want it to go to 70%, 80%, or is it more about the opening, further reopening of the borders and the visa and whatnot? Or is it just about GGR pace? Any threshold level that you keep in mind? I have one final follow-up. Thank you.
Well, it's been an interesting trend as far as visitation is concerned. In the first quarter, visitation was down, but revenue was up. You can see that with January and February, where growth really abated after a very strong December, only to recover in March. It's really driven by policy. Of course, the policy is designed to protect the public. We are all in this together with the government, and we just want to make sure we're doing things the right way and the sustainable way. We've been consistent all along that we believe it will be a gradual and managed recovery. If we continue on our current trajectory, that the fourth quarter should be pretty solid.
Thank you. This is slightly a related question. We heard that DICJ government has been asking operators to extend the definition of gaming area from previously just the gaming floor to now gaming floor plus support area, plus some common areas and whatnot. Is that true? If so, does it cause any design change or plan for phase III and IV? Yes, please.
Sure. We get lots of requests. We work closely with the regulators. We just want to make sure that we're all cooperating, and we are on these things. There's a whole list of things that we talk to the regulators on virtually on a daily basis. It's all in the spirit o f moving the industry forward. We're certainly very supportive of what they want to do.
Thank you. Final question. We couldn't help but notice that you're mentioning e-renminbi being the earnings release. I'm just wondering, I think it's too early to say anything. If you have any color, could you share your thoughts on potential impact on our business? I guess VIP will be definitely negative. How about premium mass and grand mass and the visitation? Any long-term pictures that you envision with e-renminbi? That's all. Thank you so much again.
Well, it's been highly publicized, that Mainland China, that they've been trialing the e-RMB, and the Macau government has come out and said that they're very supportive of that. Of course, we are too. We're very encouraged to learn more as the Macau government learns more and supportive of all these initiatives. We're all about the long-term sustainability in Macau. Whatever it takes to do that, we're going to be very supportive of.
Thank you, sir. Have a great day. Thank you.
We'll now take our next question from Angus Chan from UBS. Please go ahead.
Angus.
Oh, hi. Sorry, I was on mute. Hi, everyone. Can I ask a question about OpEx? You managed to keep OpEx-
Yes, no worries.
flat-ish for the quarter. I'm wondering at what level do you need to start increasing OpEx? Obviously Q2 is tracking better than Q1 in terms of visitors or GGR. What kind of OpEx increase should we be expecting? Secondly, on Raffles, how should we think about the incremental OpEx you need? Lastly, we read that there's a voluntary exit program that you're implementing. I guess what kind of permanent cost savings do you envisage, let's say versus 2019, as a result of the program? Thanks.
As far as OpEx is concerned, as you know, with our supportive of the Macau government and supporting locals, that we have a ways to go until we hit the constraint where we have to add a lot more incremental labor. I would expect that our OpEx rates for the next quarter or so remain pretty stable. Of course, our big challenge is converting temporary savings to permanent. Then at some point, once the GGR hits a certain point, then you'll see a tremendous amount of flow-through, just because we won't be adding a lot of labor and the flow-through will be very strong. Said another way, we have a kind of a high fixed cost base. Having said that, one of the areas that we've been pretty successful in our cost containment programs is reducing our labor costs.
It's upwards of 15%-20% year-on-year. The challenge there is really using this as an opportunity to improve your productivity, do more with less. I think Francis, our Vice Chairman, has been championing that along with our operations team to really try and increase productivity. I think we're being able to see that and by maintaining a very stable OpEx on a growth basis. What you don't see underneath there is certainly a change in the mix. Even on the controllable expenses like utilities, that we expect that to increase as it's seasonality and as business increase. With our OpEx, at some point it will increase, but hopefully it'll be very, again, maybe you're focusing on the cost, but we're return- driven, that the flow-t hrough that we get on that will be incrementally higher.
We're quite confident that we are currently generating a lot of operating leverage through our cost structure. Because you can see that with our revenue mix shifting, and bringing up some of our personnel costs to market. The real challenge there is to really try to convert as much temporary savings to permanent. As far as Raffles is concerned, and again, we're very excited about that. It is a new tower to Galaxy Macau. It's not a separate integrated resort. We won't be adding a lot more folks to the team to support that. Given that we have an existing labor pool that will transfer some of our existing labor to support that, if you will. The incremental OpEx on that isn't going to be as much as people think. What we think that'll do is generate very profitable incremental revenue to the bottom line.
On the back of that, as far as our lifestyle change programs, as you mentioned there, that again, these programs are 100% voluntary. Remember, our primary stakeholders in the Macau government, again, is promote economic development and in general, and including for the locals, what we're trying to do is provide not only these quote-unquote, "new lifestyle packages," but opportunities to shift into different career opportunities in non-gaming or wherever they want to do. That's really what we're here to do, is really to promote economic development across the board, including locals, and providing new career development opportunities. As the business changes, we're trying to, again, optimize our labor and cost structure to the trend in the business such that we're all delivering shareholder value here.
Some of that's permanent, but at the end of the day, we're more focused on really satisfying what we're really here for, is to help Macau achieve its objective of being a world center of tourism and leisure and to promote local economic development, including true locals.
Great. Thanks, Bob. Hopefully, the Hong Kong border will open up in time for us to see the Raffles.
I would welcome the opportunity to show you around.
As there are no further questions at this time, I would like to turn the call back to your speakers for any additional or closing remarks.
Thank you everyone for joining us for our Q1 results update call. We look forward to updating on our Q2 results sometime in the month of August. Until then, stay safe and healthy, and we'll talk to yo u then. Thank you very much.
Thank you. This is the end of the GEG's conference call. Thank you for joining us today. You may now disconnect.