Star Entertainment Posts Full-year Loss And Sues Insurer
A number of corporations in the gambling world closed their years at the end of June 2020. And when they did so, they had to report disappointing and sometimes devastating fourth-quarter numbers that reflected the coronavirus pandemic-related shutdowns. SkyCity Entertainment did it. Crown Resorts did it.
The Star Entertainment Group also reported its year-end numbers, which reflected a very harsh fourth quarter that resulted in an overall full-year loss of more than $85 million.
This news came as a turbulent few-months period shows a 2020 full of good and bad news thus far. The Queens Wharf Brisbane project secured funding to move forward, while The Star and the Queensland government finally nixed a second casino.
On top of it all, The Star Entertainment Group recently filed a lawsuit against Chubb Insurance for coronavirus-related losses.
Covid-19 Ruins the Financials
Several weeks ago, The Star Entertainment Group reported its financials for the full year ending June 30, 2020. And considering the shutdowns of land-based operations due to Covid-19 from mid-March through June – in most cases – the numbers reflected the disappointing results.
Some of the starkest numbers were:
- Comprehensive income loss of $85.4 million
- Net loss after tax of $94.6 million
- Statutory net revenue down 31.1% to $1.49 billion
- Earnings per share of negative 10.3 cents
- Current assets down 17.5% to $352.4 million
- Total equity down 7.4% to $3.465 billion
- End-of-year cash and equivalents down 42.2% to $66.1 million
Normalised numbers from July 2019 through February 2020 were much more positive, obviously. Domestic EBITDA was up 8.3% with margin expansion, and regular EBITDA was up 12.1%. Normalized group revenue was up 7.5%. Operating costs were flat.
Company Coronavirus Responses
As it was for so many, the Covid-19 responses for The Star Entertainment Group were onerous.
The first two weeks of pandemic leave cost the company $18 million, and further financial hardship payments to more than 600 staff members cost $3 million as a part of the “Star Offers Support” program. The company also offered mental and physical well-being programs.
To handle the needs, The Star Entertainment secured $200 million in additional liquidity and obtained June covenant waivers. In addition, the company reduced operating expenses to less than $10 million per month during the closures, not to mention standing down 8,500 of its 9,000 employees.
This did allow some serious reductions during that time:
- Employment costs down 24.9%
- Property costs down 20.4%
- Cost of sales down 21.4%
- Advertising and promotion costs down 22.8%
According to CEO Matt Bekier, “Comprehensive actions to mitigate the impact of Covid-19 were implemented, safeguarding staff and customers, securing additional funding, and preserving cash. Important milestones were achieved, with a long-term agreement on NSW gaming tax and casino EGM exclusivity to FY2041, and reaching a favourable conclusion on the Gold Coast second casino license process.”
He added that The Stars’s business is “fundamentally strong, evidenced by the step up in earnings growth from 1H FY2020 into early 2H FY2020. The long-term value uplift from investments in our network of integrated resorts and continuing operational improvements to drive visitation and earnings remain substantial.”
Emerging from Covid-19 Shutdowns
The financials reported that all Star properties closed on March 23 and began reopening on June 1 for Sydney and July 3 for Queensland.
The Sydney reopening started with 500 patrons at a maximum but eventually increased to 900 patrons. However, restrictions tightened again on July 24 to 300 patrons per area. Queensland’s reopening will reflect in the first quarter of the 2020-2021 year.
Early FY2021 trading showed that loyalty gaming revenue was comparable to pcp, as is domestic EBITDA. Cash flow in July was positive after investments, enabling some debt reduction.
Filing Lawsuit Against Insurance Firm
Just last week, The Star Entertainment filed an application in the Federal Court in Sydney to challenge Chubb Insurance and its denial of indemnity for losses as a result of the pandemic.
Per the Associated Press report, The Star filed a claim on May 5 due to its insurance policy that guards against “risks of business interruption.” The company said it lost its ability to conduct normal business at its properties due to Covid-19-related conditions mandated by the government.
Chubb Insurance, however, denied the claim on May 27, stating that it was “untenable” and “not covered under the policy.”
The Star told the court that it wants a Chubb to appoint a loss assessor and truly consider the claim.
Chief Justice James Allsop did order that Chubb present a “clear and complete” statement with regard to the denial to provide more detail. That information is due to the court on September 22.
To that point, The Stars has yet to provide any figures regarding loss amounts, only noting that the ongoing losses include a “reduction in turnover and gross revenue and an increased cost of working.”
Many in the corporate world – and insurance business – will be watching the court’s handling of the case as so many of them struggle with massive losses due to the coronavirus pandemic.
