CROWN RESORTS HIT BY THE CHINA SYNDROME
Written on the 13 August 2015 by Nick Nichols
IF THERE was any doubt that China has been feeling some economic pain this past year, the latest profit results from Crown Resorts (ASX: CWN) have put that to rest.
Tough market conditions in Macau have filtered through to Crown's bottom line with the diversified gaming and leisure group posting a 36.5 per cent slump in annual profit to $446.3 million.
Crown's key offshore investment in Melco Crown Entertainment has dragged down an otherwise healthy result in Australia which saw revenue in the company's Melbourne and Perth casinos surge 14 per cent to $3.2 billion.
Robust conditions in the VIP gaming sector, reflected in Echo Entertainment's (ASX: EGP) results released yesterday, helped Crown report a 41.8 per cent lift in high-roller revenue to $955.9 million at its Australian properties.
"We have put additional resources into VIP international marketing over the last year and that has helped deliver strong growth in VIP program play turnover," says Crown CEO Rowen Craigie.
"The removal of super tax on VIP program play at Crown Melbourne and the reduction in the tax rate applicable to VIP program play from 12 per cent to 9 per cent at Crown Perth have also allowed Crown's Australian resorts to be more competitive against other international destinations which target international VIP gaming players."
Crown Melbourne saw normalised EBITDA rise 17.8 per cent, while Crown Perth managed a 5.3 per cent rise, aided by cost reductions. But in a sign of underlying weakness in the west's economy, main-floor gaming revenue rose 6.9 per cent in Melbourne and just 2.6 per cent in Perth.
Meanwhile, Crown's London operation, Crown Aspinall's, also weighed on the group result after posting an 82 per cent slump in revenue to $20.1 million. Taking into account theoretical win rates, the normalised London figure was down just 12.5 per cent to $105.6 million, indicating high rollers had a field day over the past year.
Crown Aspinall's slumped to a $46.5 million loss before interest and tax for FY15, down from a $23.9 million profit a year earlier. On a normalised basis, the figure was down 10.1 per cent to $30.6 million.
But it was Melco Crown Entertainment that delivered the biggest hit to the Melbourne-based casino group, shaving more than $165 million off Crown's bottom line. Melco recorded EBIT of $122 million, down 57.6 per cent from $287.6 million a year earlier.
"Macau is currently experiencing a difficult period which has adversely affected all casino operators," says the company in the notes accompanying today's earnings result.
It says overall gross gaming revenue in Macau fell 26.8 per cent in the year to June 30. The rate of decline gathered pace towards the end of the year, falling 37 per cents in the last six months of the financial year.
The news doesn't bode well for Crown's latest Macau venture, Studio City (pictured right), which cost $US2.3 billion and is poised to open in October. Crown warns that the resort's performance is dependent on the number of gaming tables allocated by the Macau Government.
However, Crown believes significant capital expenditure in the regions by both the Macau and Chinese governments will support the gaming industry, as will the expanding middle and upper class in China.
"Macau remains the world's most important and exciting gaming market over the long term," it says.
In other developments, the fledgling Betfair business recorded a pre-tax loss of $3.4 million.
Crown also has spent $291 million out of a total budget of $645 million at its new hotel development in Perth. The 500-room luxury resort adjacent to the main casino property is expected to be completed at the end of next year.
Crown has declared a final dividend of 19c a share, to be paid on October 9.
Author: Nick Nichols