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Australia – VIPs are back to hurt Star Entertainment

By - 20 February 2018

Australian casino giant Star Entertainment Group’s profits have fallen due to ‘abnormally low’ house win rate against foreign high-roller gamblers.

The company said it had record half-year revenues with strong, broad-based underlying growth across Sydney, Queensland and international businesses. However Star’s profits fell by 76 per cent in the six months through December, due to lower win rates in its international VIP division.

Normalised gross revenue increased 15.9 per cent in the first half with growth in domestic revenues up 5.7 per cent and International VIP Rebate business revenues up 47.7 per cent. An abnormally low actual win rate of 1.06 per cent (1.62 per cent in pcp) impacted statutory financial results – statutory gross revenue increased 3.3 per cent, with EBITDA down 33.6 per cent to $200m before significant items and gain on associates.

Star Chief Executive Matt Bekier said international VIPs had returned to its casinos following the dramatic decline in the wake of the Chinese government’s gambling crackdown and high-profile arrests of Crown Resorts staff in 2016.

But Star’s VIP business’s half-year results results had ‘disappointed a bit,’ according to Mr Bekier ‘and that’s why our share price is under the pump.’

“In the traditional VIP business it was all high-rollers now it is more of a high-end tourism business – people fly in, spend a few days, they gamble, but that’s only part of the experience,” Mr Bekier said. “The International VIP Rebate business has returned to previous levels of activity, enhanced by the diversification strategy we devised and started executing against well before the North Asian market disruption 16 months ago. We continue to moderate the reliance on North Asian visitation, and our expansion into other international markets has been supported by the bolstering of sales teams to cover a larger and more balanced footprint.

Normalised gross revenue was up 19.3 per cent to $959m in Sydney. Mr. Bekier said: “Sydney continued to grow as the property prepares for its next round of expansion. Guests responded to the upgrades and improvements completed to date, with strong visitation over the Christmas-New Year period underscoring the importance of the investments we’ve made. There were almost 250,000 visitors to The Star Sydney over 26-31 December, up 12.8 per cent on the previous year. This included record visitation for New Year’s Eve of more than 62,000 guests, up 16.7 per cent. The investment in gaming and non-gaming offerings will continue during CY2018 and align with our long-term strategy to deliver a unique customer value proposition.”
The company said that Gold Coast momentum was continuing with further new facilities opening by the end March 2018. Statutory and normalised gross revenue increased both surpassing $400m for the first time, as all business segments contributed to growth. Gold Coast grew domestic revenues by 20.8 per cent year-on-year.

“The Gold Coast results validate the investment strategy we are pursuing in SouthEast Queensland,” Mr. Bekier continued. “The assets commissioned last year continue to gain traction and there are more development projects either set for completion or in the pipeline for The Star Gold Coast. The Darling Hotel, a sister to our Forbes five-star rated hotel in Sydney, is largely open, with the remainder opening ahead of the Gold Coast 2018 Commonwealth Games. The Darling delivers to the region a new standard in accommodation, with unparalleled luxury, amenity and service. Construction of the first hotel and apartment tower in conjunction with our partners, Chow Tai Fook and Far East Consortium, is planned for CY2018, as apartment presales are on track to achieve targets for external funding. In Brisbane, we remain focused on executing the remediation program to stabilise earnings while delivering the QWB development.”

The start to the second half of FY2018 has been mixed. “Direct comparisons with the prior corresponding period are difficult given the different timings of Lunar New Year and the relatively short period of trading,” Mr Bekier said. “We are seeing pleasing performances in the Queensland properties and continued strength in the international business. Trading in Sydney has been softer than expected in the early parts of this year.”

Chairman John O’Neill AO added: “1H FY2018 has seen further progress by the Group in executing our investment strategy. We have witnessed the beneficial impact of major capital works already completed at the Gold Coast and Sydney. Also, our international business has returned to activity levels comparable to those before disruption of the North Asian market in October 2016, and been further enhanced by the steps we have taken over the last few years to diversify growth in that line of business.”

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