Crown Resorts Ltd (ASX: CWN) has announced a 28% decline in net profit for the 2019 financial year after a significant fall in revenue derived from its VIP high-rollers.
Crown Resorts is one of Australia’s largest gaming and entertainment groups. It operates two integrated resorts in Melbourne and Perth. Crown also fully owns and operates Crown Aspinalls in London, one of the high-end licensed casinos in the West End entertainment district. It is currently developing Crown Sydney at Barangaroo.
What Did Crown Report?
Crown have announced a net profit of $401.8 million for the 12 months to 30 June 2019. Earnings before interest, tax, depreciation and amortisation was up 7.2% to $849.7 million.
Normalised revenue from the Australian businesses fell by more than 5%, dragged down by a whopping 26% decline in VIP turnover.
Crown continued to deliver strong cash flow generation of $778 million which facilitates the ongoing large capital expenditure to propel the business into the future. The company had a very manageable net debt position of $86.5 million as of 30 June.
The company said that construction of the Crown Sydney Hotel Resort was progressing to schedule and that sales were well advanced for the residential component of the project with over $450 million in contracted sales to date.
The company has declared a final dividend of $0.30, bringing the full year dividend to $0.60. This places Crown shares on a dividend yield of 5.3%.
Lucky Gamblers
Due to the fluctuating fortunes of gamblers, casinos will typically release ‘normalised’ results alongside their statutory results. The normalised results aim to take out the effect of luck on the financial results. The casino sets a theoretical win rate and uses this rate for the basis of reporting, thus stripping out the effect of a particularly lucky or unlucky run from gamblers. The idea is that this better reflects the underlying performance of the business operations.
On a normalised basis, NPAT was down a more mild 4.7% to $368.6 million. This is the profit figure of most relevance in terms of assessing the underlying performance of the business operations.
Regulatory Issues
Earlier this month, Crown was informed by the New South Wales Independent Liquor and Gaming Authority that it would be conducting an inquiry under s143 of the Casino Control Act 1992 (NSW). The Victorian Commission for Gambling and Liquor Regulation has also announced it will be re-examining issues relating to Crown Melbourne relating to recent media reports.
Due to the ongoing and sensitive nature of these matters, Crown was not able to provide any further information.
Management Comments
Commenting on the pending inquiries, CEO John Alexander said, “During the 2019 financial year, Crown again made a major contribution to the Australian economy through its role in tourism, employment, training and its corporate responsibility programs. Crown’s contributions risk being overshadowed by recent media reporting which has unfairly sought to tarnish Crown’s reputation.
He went on to say, “It comes as no surprise that various regulators and other agencies have launched inquiries given recent media reports and the sensationalist nature of the allegations raised. Crown has zero tolerance for criminal elements and we view these inquiries as an opportunity to continue our cooperation with regulators and other agencies.”
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At the time of publishing, Luke has no financial interest in any companies mentioned.