VIP gamblers help top up the coffers

JAMES PACKER'S casino operation, Crown Ltd, reported a 53 per cent increase in reported net profit to $513.3 million for the year to June 30, boosted by a winning streak against VIP gamblers.

By InvestSMART · 11 Aug 2012

By InvestSMART ·
11 Aug 2012

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JAMES PACKER'S casino operation, Crown Ltd, reported a 53 per cent increase in reported net profit to $513.3 million for the year to June 30, boosted by a winning streak against VIP gamblers.

But the company tempered the better-then-expected result with warnings of higher costs and subdued consumer spending.

Despite reporting it experienced 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 Crow, delivered a $135.8 million equity accounted profit but its normalised contribution was $92 million.

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

The 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 and a better VIP performance, with normalised earnings at Burswood increasing 16 per cent to $226 million.

Crown recognised $20.1 million gain for the year to June 30 on the stakes it held in Tabcorp and Echo. Crown said it had "substantially reduced" its stake in Tabcorp and expects to completely unwind it "in short order".

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Frequently Asked Questions about this Article…

What net profit did Crown Ltd report for the year to June 30?

Crown Ltd reported a 53% increase in reported net profit to $513.3 million for the year to June 30. On a normalised basis (which strips out some one-off items), net profit rose 22% to $415 million.

How did VIP gamblers affect Crown's earnings?

Crown said an above-theoretical win rate against VIP gamblers boosted results, delivering close to $100 million extra in underlying earnings at its Melbourne and Perth casinos, despite a second-half slowdown in high-roller activity.

What contribution did Crown’s Macau joint venture Melco Crown make to profits?

Crown reported a $135.8 million equity-accounted profit from its Macau joint venture Melco Crown, with a normalised contribution of $92 million.

Why has Crown warned about higher costs and subdued consumer spending?

Management said softer activity on the main gaming floor and in non-gaming areas during the second half was driven by weak consumer sentiment and disruption from its $2 billion refurbishment program, and some revenue gains were offset by higher operating costs.

How did Crown Melbourne and Perth (Burswood) casinos perform over the year?

Results were mixed: Crown Melbourne’s normalised earnings were up about 1% to $510.6 million, while Perth’s Burswood benefited from stronger consumer sentiment and VIP performance, with normalised earnings rising 16% to $226 million.

What did Crown report about its stakes in Tabcorp and Echo?

Crown recognised a $20.1 million gain for the year to June 30 on the stakes it held in Tabcorp and Echo. The company said it has substantially reduced its Tabcorp holding and expects to completely unwind that stake "in short order."

How is Crown’s $2 billion refurbishment program impacting its business?

According to the company, the $2 billion refurbishment program has caused disruption that contributed to weaker activity in non-gaming areas and helped push up operating costs, which tempered some of the revenue growth.

What key risks and signals should everyday investors take from Crown’s results?

The report highlights that strong headline profits were partly driven by favourable VIP outcomes, while underlying performance faces headwinds: higher operating costs, subdued consumer spending, a second-half slowdown in high-roller activity, and operational disruption from the large refurbishment program. Investors should note the difference between reported and normalised results when assessing sustainability.