Crown Shows Number of Challenges In Half-year Results

Rose Varrelli | February 21, 2020 | Updated on: January 4th, 2024

The most prominent casino operator in Australia released its half-year financials this week. Unsurprisingly, profits were down further than expected due to a variety of factors.

From the 2019 scandal that prompted junkets like SunCity to stop coordinating high-roller travel to Crown casinos to economic troubles as a result of US-China sanctions, it all impacted the bottom line for Crown Resorts. And the coronavirus outbreak is likely to impact further.

Disappointing Big Picture

The financial year for Crown Resorts starts on July 1 and runs through June 30. The latest report, just released this week, summarizes the first half of Crown’s fiscal year that ended on December 31.

Overall, revenue was $1.46 billion, but that number was down 5.2% year-on-year. Normalized net profit, which omits variance in win rates, decreased 34.2% from the same period last year.

The resorts’ VIP program play turnover was $13.1 billion, but that was down 34.2% from the previous year. Even main floor gaming revenue of $872.9 million was only up 0.6%. And EBITDA of $390.4 million was down 9.7%.

Non-gaming revenue showed up at $408.2 million, which was up 1.8%.

Crown CEO Ken Barton noted, “Crown’s 2020 first half result reflected mixed trading conditions across our various businesses.”

Barton singled out Crown Perth’s performance, which showed main floor gaming revenue up 2.2% and non-gaming revenue up 5.7% year-on-year. The numbers for that location, Barton said, “reflect the success of recent marketing initiatives and continued strong visitation to the property.”

Negative Publicity and the Virus

Barton went on to comment on the reasons for some of the downswings for the first half of the 2019-2020 year.

“VIP program play turnover at our Australian resorts was down 34.2% on the prior year, with the business impacted by a continuation of softer market conditions, exacerbated by recent negative publicity. However, during the period, we benefited from an above-theoretical win rate on VIP program play turnover, with actual VIP program play revenue up 9.2% on the prior year.”

Barton said Crown is fully cooperating with the regulatory inquiries initiated last year by the scandal, including the New South Wales Independent Liquor & Gaming Authority inquiry. He attributed the number of investigations to the casino industry being so highly regulated. But he added, “Crown is committed to improving our processes and systems in every respect.”

The coronavirus also made its way into the report. (It is now called Covid-19.)

Since the outbreak only started in China in December 2019, it didn’t have much of an impact on first-half results, but Barton noted that the company is monitoring the situation and following guidelines from health officials. He also added, “Crown has recently experienced softer trading conditions as a result of travel restrictions and general community uncertainty in response to Covid-19, particularly over the Lunar New Year period.”

Memories of Last Year

When Crown reported its full-year financials in mid-2019, then-CFO Barton had reasons for some results that were not what they hoped for.

Net profits for the 2018-2019 fiscal year were down 4.7% and revenues down 5.4%, both below the average forecasts from analysts. VIP program revenues dipped 26.1%.

Barton then blamed a volatile VIP market due to gaming taxes and commissions. He also attributed some of the downswing to user acquisition costs as Crown tried to keep pace with growth.

Then-Chairman John Alexander blamed the overall decreases on subdued market conditions.

Shares on a Roller Coaster

Overall, Crown Resorts shares are only down 3% in 2020, and it did not change the interim dividend of $0.30 per share.

Crown’s shares on the Australian Securities Exchange (ASX) have shown some wild ups and downs in recent days, though. While the price remained in the range of $11.6 and $11.9, the price hit the low end of that range on the day after Crown released its financials.

However, by mid-Friday, February 21, the price was hitting $11.93, the highest point in several weeks.

According to Reuters, credit ratings firm Moody’s noted that the first-half results highlighted a “weak operating performance.” Further, the firm wrote, “We expect the coronavirus will have a moderate impact on full-year 2020 earnings.”

Melbourne versus Perth

As noted, Barton was happy to highlight the Perth increased revenue. What he neglected to mention was the greater revenue swing in the other direction for Crown Melbourne.

Let’s compare some numbers:

Revenue = Melbourne $1,025.6 million (down 8.3%), Perth $431.9 million (up 3.4%)
Main floor gaming revenue = Melbourne $630.8M (flat), Perth $242.1M (up 2.2%)
VIP program revenue = Melbourne $140.9M (down 39.6%), Perth $35.5M (up 1.8%)
Non-gaming revenue = Melbourne $253.9M (down 0.4%), Perth $154.3M (up 5.7%)
Hotel occupancy = Melbourne = 93%, Perth 86%
EBITDA = Melbourne $268.7M (down 14.7%), Perth $121.7M (up 3.4%)
Operating margin = Melbourne 26.2% (down from 28.1%), Perth 28.2% (flat)