Crown issues profit warning despite lucky streak

JAMES Packer's casino operation, Crown Ltd, reported a 53 per cent increase in net profit to $513.3 million for the year to June 30, largely thanks to a winning streak against its VIP gamblers. But the company tempered the better than expected result with warnings of higher costs and subdued consumer spending.

By InvestSMART · 11 Aug 2012

By InvestSMART ·
11 Aug 2012

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Despite experiencing the same second-half slowdown in high-roller activity recorded in Singapore and Macau, Crown said an above-theoretical-win rate against the VIPs delivered close to $100 million extra in underlying earnings at its Melbourne and Perth casinos.

On a normalised basis, the company said net profit increased 22 per cent to $415 million.

Crown's Macau joint venture, Melco Crown, also continued to be a strong contributor to earnings delivering a $135.8 million equity-accounted profit but its normalised contribution was $92 million.

In Australia, Crown said it felt the impact of softening activity in the second half on the main gaming floor and in non-gaming areas, which it blamed on a mix of weak consumer sentiment and the disruption from its $2 billion refurbishment program.

Chief executive Rowen Craigie described the results for Crown in Melbourne and Perth's Burswood casino as mixed.

"During the year, we saw reasonable revenue growth at both properties, although in some areas this was offset by higher operating costs," he said.

Crown Melbourne was the main culprit with normalised earnings up 1 per cent for the year to $510.6 million, while its Perth casino reflected the stronger consumer sentiment out West and a better VIP performance with normalised earnings at Burswood up 16 per cent to $226 million.

Crown also recognised the $20.1 million gain for the year ending June 30 on the stakes it held in Tabcorp and Echo.

It said it had "substantially reduced" its economic interest in Tabcorp and expected to completely unwind the stake "in short order". It acquired a 4.9 per cent economic interest before Tabcorp demerged its own casino operations, Echo Entertainment.

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Frequently Asked Questions about this Article…

What did Crown Ltd report for net profit in the year to June 30 and why did it issue a profit warning?

Crown Ltd reported a 53% increase in statutory net profit to $513.3 million for the year to June 30, largely helped by an above‑theoretical win against VIP gamblers. However, the company tempered the result with a warning about higher operating costs and subdued consumer spending, which could weigh on future performance.

How does Crown explain the big boost from VIP gamblers and what does 'above‑theoretical‑win' mean for investors?

Crown said an above‑theoretical‑win rate against VIPs — essentially winning more from high‑rollers than statistical models expected — delivered close to $100 million of extra underlying earnings at its Melbourne and Perth casinos. For investors that means some of the uplift was driven by volatile VIP outcomes rather than steady operating improvements.

What is Crown’s normalised profit and how did it differ from the headline figure?

On a normalised basis (which adjusts for volatile or one‑off items), Crown’s net profit increased 22% to $415 million. The normalised figure is intended to show underlying earnings excluding swings such as unusually high VIP wins or accounting quirks from equity‑accounted investments.

How did Crown’s Australian casinos perform — Melbourne versus Perth (Burswood)?

Crown described results as mixed: Crown Melbourne’s normalised earnings rose about 1% to $510.6 million, while Perth’s Burswood benefited from stronger local consumer sentiment and better VIP performance, with normalised earnings up 16% to $226 million. Across Australia the company did note softer activity on main gaming floors and in non‑gaming areas.

What operational headwinds did Crown highlight that everyday investors should watch?

Crown warned of higher operating costs, subdued consumer spending, and disruption from its $2 billion refurbishment program. It also noted a second‑half slowdown in high‑roller activity in markets such as Singapore and Macau, all of which could limit earnings growth going forward.

How did the Melco Crown Macau joint venture contribute to Crown’s earnings?

Crown said its Macau joint venture, Melco Crown, delivered a $135.8 million equity‑accounted profit for the year, but its normalised contribution to Crown’s results was $92 million — reflecting differences between statutory equity accounting and a normalised view of ongoing earnings.

What did Crown do with its stakes in Tabcorp and Echo and why does that matter?

Crown recognised a $20.1 million gain for the year on stakes it held in Tabcorp and Echo. The company said it has 'substantially reduced' its economic interest in Tabcorp and expects to unwind the remaining stake 'in short order' — a move that reduces Crown’s exposure to Tabcorp/Echo equity swings.

As an everyday investor, what should I focus on after Crown’s mixed results and profit warning?

Focus on the drivers behind the headline numbers: the volatility from VIP wins, the distinction between statutory and normalised earnings, ongoing refurbishment costs and operational disruption, local consumer sentiment, and exposure to joint ventures and equity stakes (like Melco Crown and Tabcorp). These factors will help you assess how sustainable Crown’s earnings are and the risks that could affect future performance.