Thu, Sep 28, 8:43am by Head Editor
In less than three weeks, exactly one year will have passed since Crown Resorts’ disastrous criminal entanglement in Macau, but financial fallout from the high-profile arrests and incarcerations continues.
On September 21, with the release of Crown Resorts’ 2017 Annual Report, the company confirmed that five high-level executives will see their pay slashed in the wake of Macau-related underperformance.
Executive chairman John Alexander, chief executive officer Ken Barton, Australian division chief executive officer Barry Felstead, and executive vice-president Todd Nisbet collectively forfeited $5.96 million in long-term incentive (LTI) bonuses.
Felstead and Nisbet each lost out on $1,575,000, while Alexander and Barton had their pay reduced by $1,125,000 and $1,012,500, respectively.
Rowan Craigie, who stepped down as chief executive officer and managing director in February, missed his LTI bonus of $2,250,000.
Beginning in July of 2014, Crown Resorts implemented a Long Term Incentive Plan which offered key executives bonus payments when annual earnings per share (EPS) benchmarks were met.
And while the company’s leadership core was able to satisfy those EPS “hurdles”– as they are referred to within the Annual Report – between 2014 and 2016, lingering consequences from the company’s Macau fiasco halted that productivity over the 2016-17 financial year.
In October of last year, Chinese authorities arrested 19 employees of Crown Resorts – including three Australian citizens – on charges of promoting illegal gambling. Those employees eventually pled guilty to various gambling crimes, based on their involvement in Crown Resorts’ efforts to attract well-heeled Chinese gamblers to its Australian casinos.
As a result, Crown Resorts was forced to curtail its ambitious expansion plans in Macau, while Chinese high-rollers took their business elsewhere rather than risk encroachment on the Chinese government’s aggressive actions.
The company apprised shareholders of the EPS shortfall in an extensive section of its Annual Report detailing the 2014 Long Term Incentive Plan:
“… in financial year 2017, Crown did not meet the relevant EPS Hurdle and accordingly, no entitlement to the EPS Bonus for financial year 2017 has vested.”
In the 2014-15 fiscal year, Crown Resorts set an EPS hurdle of 50.5 cents per share, before recording a 53.0 cents per share mark to trigger that period’s LTI bonuses.
By 2015-16, the EPS hurdle had risen to 56.4 cents per share, which was narrowly satisfied with a 57.1 cents per share performance.
In 2016-17, however, the EPS hurdle of 59.7 cents per share was missed badly, as Crown Resorts posted an actual EPS of just 42.5 cents per share.
In terms of exact figures for the company’s future EPS objectives, Crown Resorts elected to keep those cards close to the vest, rather than revealing potentially sensitive information to competitors:
“The disclosure of prospective EPS Targets would have the consequence of providing the market and Crown’s competitors with Crown’s financial forecasts.
It has been Crown’s longstanding practice not to disclose prospective financial information and financial forecasts.
Accordingly, Crown will not publicly disclose prospective EPS Targets.”
Due largely to a drastic reduction in VIP revenue from Chinese-based gamblers, who avoided Crown Resorts properties en masse after the Macau arrests, Crown Resorts posted a normalised net profit after tax (NPAT) of $343 million on $3.24 billion in revenue for the 2016-17 fiscal year – representing reductions of 15.7 percent and 10 percent, respectively.
Alexander addressed the arrests’ impact on overall performance within his personal message to shareholders:
“It has been a challenging period given the detention of a number of current and former Crown employees in China last October.
This result reflects difficult trading conditions at Crown’s Australian resorts, due primarily to the reduction in VIP program play revenue.”
Revenue generated by VIP players fell 48.9 percent across Crown Resorts’ collection of casinos following the Macau arrests.
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