AUSTRALIA

Properties across Australia were forced to close their doors from mid-March as the government ramped up efforts to combat the pandemic. Domestic consumer spending was already weakening and now the country’s properties are likely to receive zero support from VIP at least until the end of the year, according to J.P. Morgan research.

The firm says it’s unlikely that earnings will return to 2019 levels until at least 2023. In the second half of the fiscal year to June, Crown is likely to see a 54.7 percent drop in revenue, while Star will fall 58.1 percent.

Australia’s casinos derive the majority of their revenue from the domestic market, where unemployment is likely to rise to 5.7 percent at least as a result of the virus. The borders are closed to international travel, possibly until next year and the reopening of the economy is likely to be phased, with small pubs and clubs first and casinos potentially the last to resume operations.

For the first half, Crown saw an 11 percent decline in normalised NPAT, mainly due to a 39 percent decline in VIP program play. Its main floor gaming revenue was flat, reflecting softening consumer confidence amongst Australian players.

Star reported a strong performance on a normalised level, with NPAT up 2.1 percent. However, on a reported basis, profit fell 48 percent due to an exceptionally low win rate of just 0.73 percent, the weakest since 2008. That compares with 1.62 percent the previous calendar year.

Star, which has operations in Sydney, the Gold Coast and Brisbane, had already been restructuring to trim costs, seeing $20 million in benefits in the first half.

It has now announced it is standing down 90 percent of its workforce in an effort to preserve cash flow during the crisis.

A company statement explained, “The Star has taken a very difficult, but necessary, decision in relation to its workforce. We are in the process of temporarily standing down over 90 percent of our approximately 9,000 employees. These stand downs include senior management. To assist our employees at this time, The Star has provided two weeks of paid pandemic leave. In addition, employees will be able to access any accrued annual and long service leave entitlements.”

Star estimates that a three-month shutdown until June 30 would carry a cash requirement of A$220 million (US$140 million), and that a six-month shutdown until September 30 would cost the firm A$320 million.

In response, Star has executed additional debt funding from its existing relationship banks for A$200 million.

Crown Resorts is standing down 95 percent of its staff, which it says will cut its underlying operating cash costs to between A$20-30 million per month. It said construction on the Crown Sydney resort would continue during the crisis.

Fitch Ratings has said it believes the company is in a good position to weather the storm due to its low debt and variable cost structure.

These factors give the operator the “headroom to absorb the effect of the government shutdown of casinos,” the agency said.

The company has closed its entertainment venues, although some restaurants are providing takeaway meals. It has also retained some hotel capacity, including rooms provided to the government to isolate arrivals to the country.

“Importantly, Crown has no significant bond maturities before the financial year ending June 2025 (FYE25) – although around AUD230 million in committed credit facilities mature within the next six months, which Fitch expects Crown to be able to renew – and manageable covenant risk, and available liquidity to meet operating expenses over the duration of the shutdowns,” the note said.

Fitch says it expects Crown’s key leverage metrics to remain well below the level at which it would take negative ratings action.

“We then expect Crown to deleverage quickly from FYE22 as normal operations resume for the full-year and Crown Sydney commences operations in early 2021.”

Elsewhere in Australia, Aquis Entertainment also said it was standing down 90 percent of its staff and executives are taking a pay cut after the closure of its Casino Canberra property.

The company laid off 190 of its 235 personnel.

A public hearing into probity and licensing issues related to Crown Resorts and Melco Resorts & Entertainment has been postponed due to the Covid-19 outbreak, local media reports.

“As a result of the recent reports and impacts of COVID-19 and in alignment with the changes that have been advised by the Commonwealth and state governments … it is with regret that the public hearings of the inquiry will be deferred to a date to be fixed,” the NSW Independent Liquor and Gaming Authority was cited as saying.

The hearing is looking into the acquisition of a stake in Crown by Melco.

Aristocrat Entertainment is likely to emerge from the current crisis with a larger land-based footprint in the medium-term and may be well placed to expand through acquisitions of weaker rivals, JP Morgan said in a note.

The company is likely to weather the current Covid-19 storm relatively well, given the strong performance it is seeing in online operations in both Australia and Italy, the firm said.

Aristocrat is likely to see a decline of 24.8 percent in 2020 earnings due to lower sales and fees from gaming operations, but is likely to snap back to see an increase of 38.5 percent in EBITA in 2021, the note said.

The firm is being helped by an increase in average digital play time of about 134 percent in Italy as workers are forced to stay at home under the lockdown imposed by the government.

In Australia, that figure is up by 74 percent. “More active players are more likely to invest in ALL’s (Aristocrat’s) titles, supporting bookings (we expect digital EBITA growth of +15.4 percent in FY20).”