Australia’s largest gaming and casino company, Star Entertainment Group, revealed weak full-year earnings this week, with high-roller spending down more than 30% and profits forecast to be down as much as 18%. The company also cut 400 jobs as a result of the negative news.
With that, stock prices on the Australian Securities Exchange dropped significantly on Tuesday, June 11. It subsequently hit its lowest level in four and a half years.
Trading and Earnings Update
The update pertained to trading from January 1 to June 8 2019 and earnings expected for full-year 2019. Its release on June 11 contained some rather interesting information.
As for domestic revenue growth trends for The Star properties, they had “softened” since the last update. Domestic revenue through June 8 was up 0.3% versus pcp. Total domestic revenue for year-to-date was up 3.1% on the pcp.
International VIP trends from the first half to the second half of 2019 continue downward, with turnover down 31.1% through June 8. Unique patrons were up 7.6%. However, front money was down 16.5%, and turns were 9.5 times with an actual win rate below the 1.35% theoretical win rate.
The Star expects the full year to see normalised EBITDA between $550 million and $560 million.
Slowing domestic growth was blamed on more challenging macroeconomic conditions in the markets, lower hold rates on table games, and disruption from capital works on The Star Sydney.
The various types of revenue reported were as follows:
- Slots revenue up 1.6% versus pcp
- Table games revenue down 0.8% versus pcp
- Private gaming room revenue growing faster than main gaming floor
- Non-gaming revenue up 1.2%.
Star Entertainment Group Stocks Sink
At the close of business on Friday, June 7, The Star Entertainment Group (SGR) was at $4.49 per share on the Australian Securities Exchange (ASX). It opened on June 11 at $3.90 and proceeded to sink further to $3.705 within just a few hours of trading.
The highest point since that dip was $3.94 on June 12, but it closed that day at $3.84.
Star Entertainment Group CEO Matt Bekier told Reuters that trade tensions between the United States and China have been affecting gamblers from Asia. This subsequently affects the high-roller gamblers who comprise VIP revenue at Star casinos. The tariff battles have been heating up in the past few months. Meanwhile, the most recent move by the US was to impose 25% tariffs on approximately $250 billion of goods. With no sign of a deal to quell fears, Bekier indicated that gamblers may be saving their VIP dollars for another day…or another year.
Bekier said: “The very large VIPs continue to travel, but they don’t take as many risks as they have in the past. The potential trade wars have just created a level of uncertainty, and they’re not as aggressive in their outlook as they might have been in the past.”
As a part of the Star Entertainment update, the company noted that major capital projects are “progressing to plan.”
The project most in need of stability in order to move forward is Queen’s Wharf Brisbane. This integrated resort development will include 2,000 residential apartments, more than 1,000 premium hotel rooms, and a thousand-seat ballroom. The $3.6 billion development should open in 2022.
Per the latest update, the site’s excavation should be completed in July 2019. That date is in accordance with the previous timetable. And costs for the project thus far are below budget.
As for the Star Gold Coast project, the first joint tower is underway and scheduled for completion in 2022. The second joint venture – five-star hotel and residences – was recently announced, though construction has yet to be scheduled.
The Star Gold Coast work will not conflict, however, with the recent announcement of the World Poker Tour’s maiden voyage to Queensland. That series of live poker tournaments will run from September into October later in 2019.
Jobs Given and Jobs Taken Away
The above-mentioned projects will certainly offer jobs in the tourism and resort markets. However, that doesn’t lessen the hurt of the jobs lost.
No jobs have been cut yet, but Bekier anticipates that as much as 20% of his backroom staff would be laid off before the end of June. The move is supposed to “stem the bleeding” and save up to $50 million per year, according to the Sydney Morning Herald.
The staff under consideration for the cuts includes workers in IT, hospitality, human resources, and finance departments. Bekier noted they will “take out duplication” and hit nearly every aspect of the business. He also said: “We are days, not weeks or months, away from implementing those.”