The Star Entertainment Group Ltd (ASX: SGR) share price is down around 50% after returning to trading.
Star shares had been in a trading halt for around a month as the casino business acted to deal with a number of matters including producing its FY24 result, sorting out its liquidity position and the implications of the Adam Bell SC report.
FY24 result and business update
The company has released unaudited financials for FY24. It expects to release audited financials by 30 September 2024 which is “likely to include a material uncertainty in relation to going concern and an emphasis of matter in relation to regulatory and legal provisions and contingent liabilities from its external auditor, EY.”
I’d suggest shareholders and interested investors read note F in its preliminary financial result that talks about various risks and problems relating to its ability to keep operating as a business.
Let’s look at the financials the company reported for FY24:
- Revenue declined 10% to $1.68 billion
- EBITDA fell 45% to $175 million
- EBIT dropped 56% to $54 million
- ‘Normalised’ net profit after tax (NPAT) sank 71% to $12 million
- Statutory net loss improved by 31% to a loss of $1.7 billion
Star said its revenue declined because of challenging trading conditions due to cost-of-living pressures as well as casino operating reforms and loss of market share.
Operating expenses were “elevated” at $1.1 billion, reflecting “increased spending on transformation and remediation-related activities, with additional resourcing for risk and controls”.
The casino operator’s result included $1.7 billion of significant items, net of tax. This was largely an impairment charge of $1.44 billion due to challenging trading conditions, and various recent and upcoming regulatory changes which are expected to negatively impact the business.
Trading conditions have continued to deteriorate, with an EBITDA loss of $6.6 million in July 2024 and an EBITDA loss of $1.1 million in August 2024, compared to EBITDA generated of $20.3 million in July 2023 and $21.6 million in August 2023. This is not a good sign for the Star share price.
Star made comments about a number of other matters.
Bell Two
Star said the Bell Two Report was issued to the NICC, and that the NICC is “considering next steps” regarding its recommendations and findings.
On 13 September 2024, the NICC served The Star with a ‘show cause notice’ about matters raised in the Bell Two Report. Star has been asked to make a number of submissions, which it expects to do today, 27 September 2024.
The Star Brisbane and Treasury Brisbane
The Treasury Brisbane casino was closed on 25 August 2024 and The Star Brisbane started its phased opening on 29 August 2024.
Further areas are expected to open progressively over the course of FY25, “and thereafter”. Additional equity contributions are required from The Star over this period as the project is completed and operations ramp-up.
Sale of the leasehold interest in the Treasury Brisbane Casino building to Griffith University was signed on 6 September 2024 for $67.5 million, with net proceeds of $60.7 million after settlement adjustments. Settlement is expected to occur on 27 September 2024, today.
Funding
The Star said it had available cash of $130 million at 31 August 2024, but it faces “significant near-term liquidity requirements including the funding of the group’s operations at current trading levels, ongoing remediation and transformation activities, further equity contributions to the Destination Brisbane Consortium Joint Venture (DBC) in relation to Queens Wharf Brisbane (QWB) and anticipated outflows related to ongoing regulatory matters.
The company’s corporate lenders have executed a commitment letter for a new debt facility of up to $200 million in two tranches) which will become effective after completing long-form documentation and satisfaction of various conditions.
Funding could be a key factor for the Star share price for the foreseeable future.
The Star continues to “assess additional avenues” to further support its liquidity position, including other potential capital sources such as subordinated debt.
It said a range of other measures have been identified and are being implemented to improve business performance, drive revenue and enhance The Star’s liquidity position.
Management commentary
The Star Group CEO Steve McCann said:
There are a number of significant challenges currently facing the business from an earnings, liquidity and balance sheet perspective. We recognise and appreciate the support provided to date by our stakeholders as The Star
puts in place a new management team and strategy to implement a remediation and transformation program,
and return the company to a more sustainable footing.We have identified a range of initiatives to improve business performance and cashflow, as well as providing the organisation with additional liquidity. However, time and flexibility is required to implement these initiatives.
As we work through these initiatives, the Board and management team remain focused on demonstrating suitability to hold our casino licenses and regaining the trust and support of our regulators and the broader community while seeking to enhance shareholder value.