Echo loses on slots, posts a dip in profit
The earnings downturn was driven by higher depreciation and amortisation costs flowing from investment in The Star, and a lower effective tax rate the previous year.
Echo said overall revenue at The Star was up 15 per cent for the first half, as more patrons visited the refurbished centre, punted and dined, but the improved sales result was not broad-based with tables, VIP and non-gaming performing well but slots disappointingly soft.
"The focus for the second half is to drive consistent and continued improvement in the operational performance of the assets, and a stronger return on investment in The Star," said chief executive John Redmond, who started in January.
The slots games business, which is high margin, did not undertake a new marketing program as the refurbishment of The Star was rolled out, with management distracted by the threat from Mr Packer. "What you will typically find is that the [slots] marketing programs that were developed some time ago . . . have not been adjusted or changed to react to the completion of the project itself, so we are starting to evolve those marketing plans and will hope to roll out a new program before the end of the financial year."
He said the casino also lost slots patrons to RSLs, and Echo hoped to win back those customers with new rewards programs.
Echo reported a 5.3 per cent fall in first half net profit to $66.5 million, as revenue rose 4.2 per cent to $912.6 million - with its Queensland casinos suffering from soft consumer sentiment. Earnings per share were 17.3 per cent weaker at 8.1¢.
The company declared a fully franked interim dividend of 4¢ per share, to be paid on March 27.
It comes as Echo mulls a big capital spend in Queensland to create a new integrated casino resort in Brisbane and shift its existing Treasury casino, which could cost a combined $1 billion. Capacity constraints at its Brisbane centre were also blamed for the poor trading during the half.
Mr Redmond said he would only recommend a big redevelopment of its Brisbane sites if it would hit returns of at least 15 per cent.
Meanwhile, Echo is fending off efforts by Mr Packer's Crown Casino to build a rival $1 billion hotel and VIP casino at Barangaroo. Complicating matters, Crown is sitting on a 10 per cent stake in Echo. Shares in Echo ended down 1¢ at $3.47.
Frequently Asked Questions about this Article…
Echo's half-year net profit fell mainly because the company invested heavily in refurbishing The Star, pumping $870 million into the Sydney casino. That spending increased depreciation and amortisation costs, and the previous year benefited from a lower effective tax rate, which made current earnings look weaker by comparison.
For the half-year Echo reported revenue up 4.2% to $912.6 million, a 5.3% fall in net profit to $66.5 million, and earnings per share of 8.1 cents (which was 17.3% weaker than the prior period).
Slots were disappointingly soft despite an overall 15% rise in revenue at The Star. Echo says its high‑margin slots business did not run a new marketing program while the refurbishment rolled out, lost some patrons to RSLs, and plans to evolve its marketing and introduce new rewards programs and a refreshed slots marketing campaign before the end of the financial year.
Yes. Echo declared a fully franked interim dividend of 4 cents per share, scheduled to be paid on March 27.
Echo is locked in a turf war with James Packer's Crown over the construction of a second casino in Sydney. Crown is pursuing a rival $1 billion hotel and VIP casino at Barangaroo, and the situation is complicated by Crown holding a 10% stake in Echo.
Yes. Echo is weighing a big capital spend to create a new integrated casino resort in Brisbane and shift its existing Treasury casino, which could cost a combined $1 billion. Management said redevelopment would only be recommended if it could deliver returns of at least 15%.
New chief executive John Redmond, who started in January, said the focus for the second half is to drive consistent operational improvement across Echo's assets and to get a stronger return on the investment made in The Star.
Echo shares finished down 1 cent at $3.47 following the half-year results.
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