Apr 19, 2023 Newsdesk Latest News, Top of the deck, World
Australian casino operator The Star Entertainment Group Ltd, which is developing a new Queensland casino with Hong Kong-based partners, announced in a Wednesday filing a new round of group-wide cost cuts that would – with ones already declared – take total operational savings to more than AUD100 million (US$67.2 million) relative to those for financial year 2023, which runs to June 30.
The new cuts included loss of circa 500 full-time posts group wide, “excluding risk management and remediation” work. Other steps were cancellation of the group’s short-term and other incentives for financial year 2023; and a “salary freeze” for employees not subject to collective bargaining agreements.
“These actions, together with the previously announced AUD40-million of operational initiatives, are expected to deliver a combined ongoing reduction in group operating expenditure of more than AUD100 million annualised compared to financial year 2023,” said the firm.
The company also put its flagship The Star Sydney casino resort (pictured), in New South Wales, under “strategic review”. It appointed investment bank Barrenjoey Capital Partners to lead the exercise, with the casino group saying it would “consider any structural alternatives available to maximise value for the group’s shareholders”.
In March, The Star Entertainment had stated its Hong Kong partners in the new Queensland scheme – at Queen’s Wharf, Brisbane – were each contributing to the group’s move that raised AUD800 million in fresh group funds.
The casino firm had said in a filing to the Australian bourse that “Chow Tai Fook Enterprises Ltd and Far East Consortium International Ltd have provided binding pre-commitments for approximately AUD80 million, which equates to their functional pro rata entitlement in the offer”.
The Star Entertainment was recently hit with fines and other regulatory penalties from New South Wales relating to its The Star Sydney operation, and in its existing gaming business in Queensland.
The group said in Wednesday’s filing, that the company’s current earnings performance was at “unprecedented low levels,” excluding the disruption that occurred during the Covid-19 pandemic.
The Star Entertainment noted that the “strong first half” performance conditions at the existing Queensland properties as reported in February – driven by strong domestic revenues – had “deteriorated in recent weeks, particularly at the Gold Coast”.
Were the current trading outlook group-wide to continue “for the balance of the financial year and… not materially change,” underlying financial year 2023 earnings before interest, taxation, depreciation and amortisation (EBITDA) were “expected to be in the order of AUD280 million to AUD310 million,” including the impact of the cost savings.
Financial-year 2023 underlying EBITDA “excludes provisions for fines, costs associated with the ongoing regulatory reviews – legal, consultant and other costs – and any one-off costs associated with the group’s cost initiatives, all of which will be treated as significant items,” said the filing to the Australian bourse.
The Star Entertainment added it was “accelerating” previously-flagged plans to refinance its existing debt funding arrangements, with a “focus on improving the group’s liquidity position and separately increasing covenant headroom in light of the group’s current earnings environment”.
It also said it was still pursuing the sale of its Sheraton Grand Mirage Resort Gold Coast property, with “indicative bids from interested parties” expected soon.
“The language to improve the group’s liquidity position and increase covenant headroom in light of the current environment,” gave “an inkling” of “potentially more capital management” measures, said a Wednesday note from analysts Donald Carducci and Michael James, at JP Morgan Securities Australia Ltd.
They added: “With 500 full-time employee positions being reduced ahead of the New South Wales government’s announcement to review proposed changes to the [state] casino tax regime, today’s announcement is likely well-timed for helping deliver a more favourable outcome for The Star Entertainment.”
Referring to the start of the next financial year, they further noted: “The proposed 1 July implementation has created the impetus for addressing these issues sooner than later.”
In early December it had been announced that The Star Entertainment’s casino licences in Queensland were to be suspended for 90 days, and its properties there placed under state-government supervision. The group was also fined AUD100 million.
The action followed a state regulatory probe that found the firm had concealed from the authorities illegitimate wager payments it obtained from Chinese patrons, and lured problem gamblers from other Australian states.
The Star’s licence for its flagship Sydney casino was also suspended “indefinitely” from October 21 last year, and placed under state-government supervision. The casino operator was also fined AUD100 million by state authorities. The licence suspension was still in place as of the group’s half-year results issued in February.
On April 3, the group said that an executive with a brief to improve the management culture and performance at The Star Sydney, was resigning with effect from April 28, to take an outside job.
The Star Sydney chief executive and group head of transformation, Scott Wharton, had been appointed in July last year.
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