Star Entertainment fights for financial future after dire outlook
By Amelia McGuire
Sydney’s Star casino is in a fight for its financial future after flagging a hit of up to $1.6 billion if the NSW government goes through with tax increases and the organisation grapples with the fallout from two devastating inquiries into its operations.
The price of Star Entertainment Group’s shares dropped to their lowest level in history on Monday, shedding 20 per cent after it released a dire market outlook in which it warned the NSW government’s proposed tax changes would force it to “undertake an urgent review” of the Sydney operations and assets.
The share price plunge coincided with the group fronting the federal court for its first case management hearing after the corporate regulator alleged systemic non-compliance with anti-money laundering and counter-terrorism financing laws.
The embattled group moved on Monday to appoint a chief risk officer to help regain lost casino licences and manage relationships with regulators, and chief executive Robbie Cooke said in an update to the stock exchange the group was treading cautiously in the political environment.
“Whilst the outcome of recent regulatory and legislative developments remains uncertain, we have taken a prudent approach to assessing the carrying value of our assets, which has resulted in a non-cash impairment charge which will be recognised in our [first-half] results,” Cooke said.
“Our key priority is to regain the trust of our community and demonstrate to our regulators that we are suitable to hold our casino licences.”
Star flagged that the proposed NSW tax hikes would provide a non-cash impairment charge of between $400 million and $1.6 billion in the half-year results, due to be released on February 23. The final figure will depend on whether the NSW government implements the tax hike on table games and poker machine earnings in the state’s two casinos.
The Star has exclusive rights to operate poker machines in casinos in NSW, but has just 1.8 per cent of the state’s machines – with the rest in the state’s pubs and clubs. Poker machines in casinos would attract a top tax rate of 60.67 per cent under the proposed increase, which is expected to take effect from July next year and would override existing tax arrangements between the state government and casino groups Star Entertainment and Crown Resorts.
The hike would require legislation to be passed through NSW parliament unless the Star reaches an agreement with the government. It has been the subject of controversy among industry leaders, shareholders and analysts, who fear the proposal raises sovereign risk issues and an uneven tax environment.
Since NSW Treasurer Matt Kean unveiled the policy in December shares in The Star have fallen by more than 40 per cent, wiping off more than $1 billion in value. The company said it would undertake an urgent review of the Sydney operations and assets if the tax is implemented in its proposed form.
“If implemented in their current form, the proposed duty rate increases would have a significant adverse impact on the profitability of The Star Sydney, further compounded by the changing operating and competitive environment,” Star’s update said.
Two independent inquiries in Queensland and NSW recommended The Star be stripped of its casino licences, following a 2021 investigation by The Sydney Morning Herald, The Age and 60 Minutes. The investigation alleged the company enabled suspected money laundering, large-scale fraud and foreign interference in its Australian casinos, even though its board was warned its anti-money-laundering controls were failing.
As the group released the dire outlook, The Star fronted the federal court for its first case management hearing against The Australian Transaction Reports and Analysis Centre over alleged systemic non-compliance with anti-money laundering and counter-terrorism financing laws that may result in the casino group paying fines totalling hundreds of millions of dollars. Coincidentally, legal action against former Star chief executive Matt Bekier and other board members brought by the Australian Securities and Investments Commission also started on Monday.
The Star estimates its remediation costs to total between $35 million to $45 million this year. Half of this is expected to be recurring from next financial year.
The embattled casino group will pay its $100 million penalty to the NSW Independent Casino Commission after the findings of the state’s independent Bell inquiry in three instalments: $30 million by March 31; $30 million by June 30; and the final $40 million by December 29. The Star has also paid the costs incurred by former state regulator the Independent Liquor and Gaming Authority (ILGA) in connection with the review – totalling $7 million last month.
The Star was slapped with two additional shareholder class actions by Phi Finney McDonald and Shine Lawyers in Victoria over allegedly misleading conduct last week, meaning the organisation is now preparing to defend itself against four “substantially similar” suits in the Supreme Court of Victoria.
Slumping Sydney revenue
The group’s overall revenue slipped by 1 per cent on pre-pandemic levels in the December half due to strong performance in its two Queensland casinos but its flagship Sydney casino fell by 13.5 per cent.
The Gold Coast casino’s revenue increased by 30 per cent on 2019, its highest level on record, and Treasury Brisbane’s revenue increased by 9 per cent. The group is due to report is audited half-year results on February 23.
The Star now expects underlying earnings before interest, tax, depreciation and amortisation – the metric most heavily watched by investors – of between $330 million to $360 million for the financial year. That compares to $237 million in 2022, which was heavily affected by pandemic lockdowns.
The Star also announced initiatives expected to generate $40 million annually from 2024, including replacing its contractor “surge” with full-time resources, improving cost control and implementing new loyalty benefits and pricing measures to address competition with rival Crown Resorts in Sydney.
The company on Monday appointed former Westpac executive Scott Saunders as chief risk officer, pending regulatory approvals. Saunders will be tasked with helping the group regain its casino licences as well as improving the relationship between the group and the state regulators.
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Source: Thanks smh.com