Crown Resorts takes hit to earnings

by Mia Chapman Last Updated
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Casino giant Crown Resorts is bracing for a hit to its full-year earnings from coronavirus, as the outbreak compounds a big drop in its VIP business caused in part by the barrage of negative media reports surrounding the group.

The Australian Financial Review reports that turnover from Crown’s VIP program plunged 34.2 per cent in the December half, and almost 40 per cent in Crown’s biggest casino in Melbourne.

New chief executive Ken Barton, who replaced executive chairman John Alexander last month, said a 23 per cent fall in VIP turnover in Macau underscored the struggles casino operators throughout the region were having attracting wealthy punters.

He conceded Crown also had been hurt by a series of media reports alleging links between organised crime and the so-called junket operators that bring VIP punters from Asia to Crown’s properties in Melbourne and Perth.

The coronavirus outbreak has compounded the pain for Crown, particularly given it arrived at the start of the Chinese New Year period.

While declining to provide specific guidance, Mr Barton said Crown’s VIP business had been hit by the suspension of flights from China to Australia.

There had also been a decline in activity among local gamblers concerned about the potential spread of the disease.

Table games and food and drink staff reduced

Crown has reduced the opening hours of its table games in order to trim wage costs, and wound back food and beverage staff.

But Mr Barton said there were limits on how Crown could dull the impact of the coronavirus hit.

“You can’t replace lost revenue,” he said bluntly.

The flow of news around the virus would likely determine when customers returned to Crown’s casinos.

“We will do what we can, but I think the reality is that what people are reading about the risk of contamination, people will be cautious of coming back to crowded places.”

Crown’s normalised net profit fell 11 per cent to $172.7 million in the six months ended December 31, below market consensus of $196 million.

Normalised numbers remove the impact of luck on the results; a particularly lucky streak during the period actually saw statutory profit rise 25.1 per cent to $219.3 million.

While Crown Melbourne’s total earnings before interest, tax, depreciation and amortisation fell 14.7 per cent to $268.7 million on a normalised basis, there was an improved performance from Crown Perth, where a strong performance from gaming machines, and the popularity of stage show The Book of Mormon, helped boost EBITDA by 3.4 per cent to $121.7 million.

Mr Barton said Crown was on track with construction of its new casino at Sydney’s Barangaroo precinct.

A soft opening is likely in December 2020, before a formal launch in early 2021, timed for Chinese New Year.

He said despite the recent weakness in the VIP market, Crown had no concerns about the outlook for the property, which will only cater to VIP punters.

Mr Barton said while the activity of VIP punters from overseas always grabbed the headlines, the margins on this business were much lower than local VIPs.

He added that Crown would be hesitant to dramatically change the SYdney property based on a short, volatile period in the VIP market.

“I don’t think you would make a long-term decision about the configuration of the property based on a six month contraction, particularly when there’s so much noise going on around regulatory reform and obviously the things that are occurring,” Mr Barton said.

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