Shares in casino operator Star Entertainment Group
(ASX:SGR) slid nearly 12% at one stage yesterday after the company revealed a sharp worsening in its business, a review of the Sydney casino and 500 full time positions being cut.
As well, Star said salaries are being frozen (except for staff on Enterprise Bargaining Agreements) and bonuses cancelled.
The job cuts from its 8,000 strong staff will be the central part of an attempt by the company to cut $100 million in costs from the businesses in Sydney, the Gold Coast and central Brisbane.
The Barrenjoey group will conduct a strategic review of its Sydney casino and “any structural alternatives” to unlock value for shareholders – that could indicate a sale, part sale or spin-off.
To improve the company’s liquidity position and prospects of a successful refinancing, “The Star intends to engage with the NSW Government, the Queensland Government and AUSTRAC in respect of casino duty rates and flexibility on payment terms in relation to any current and future penalties,” it said in a statement to the ASX.
The shares ended the day at $1.26, down just over 7%.
It’s the second market downgrade from Star in just two months. The group’s share price plunged to that record low after warned of a $1.6 billion blow to its business in February if a planned tax on NSW poker-machine profits is enacted from July.
Star said yesterday the latest EBITDA estimate excludes provisions for looming fines and the costs associated with regulatory reviews as well as one-off remediation costs.
“The Group is experiencing a significant and rapid deterioration in operating conditions, particularly at The Star Sydney and The Star Gold Coast,” Star said in its statement to the ASX.
“This has largely been driven by the compounding impact of regulatory operating restrictions and exclusions, and by an emerging weakness in consumer discretionary spending behaviour.
“The Star Sydney continues to operate in an uneven competitive environment as it relates to the regulatory settings for complimentary services in its private gaming areas.
“The strong 1H FY23 performance at the Group’s Queensland properties as reported in February, which was driven by strong domestic revenues in that period (relative to pre-COVID levels), has deteriorated in recent weeks, particularly at the Gold Coast.
“To put the operating environment into perspective, the Group’s current earnings performance is at unprecedented low levels (excluding the COVID-19 period).
“If these current conditions continue for the balance of the financial year and do not materially change, underlying FY23 EBITDA is expected to be in the order of $280 million to $310 million, including the FY23 impact of the cost initiatives described below.
“The FY23 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.”
Star confirmed that it is continuing to progress the proposed sale of the Sheraton Grand Mirage Resort Gold Coast, with indicative bids from interested parties expected to be received shortly.
“The Group is accelerating its previously foreshadowed 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.
“To help improve the Group’s liquidity position and maximise the prospects of a successful refinancing given the challenging operating environment, The Star intends to engage with the NSW Government, the Queensland Government and AUSTRAC in respect of casino duty rates and flexibility on payment terms in relation to any current and future penalties.
“In addition, the Group continues to work with regulators and the NSW Manager and Queensland Special Manager to remediate its businesses, to support a return to suitability over time.”
This latest statement and the one in February should be seen as having a threefold effect – a trading update; an outline of what might happen if the NSW tax is introduced and if AUSTRAC imposes a huge fine, as it is rumoured to be looking at and finally setting the scene so investors know what the company is telling its banks in the refinancing talks.
Since the pandemic started in 2020, Star has in effect been in the hands of its banks, led by the ANZ who have eased covenants and repayment terms to help the company survive the lockdowns and emerge, only to be blindsided by the allegations involving money laundering and other criminal activity at the casinos, as well as managerial and broad room incompetence in dealing with these events.
In the end it will be the banks that decide Star’s future and that raises the question, what will AUSTRAC do if it becomes clear that a massive fine would trigger a collapse?
