James Packer's Crown profit falls 47% on Macau woes, shares up on revenue reboud

James Packer's Crown profit falls 47 per cent on Macau woes, shares up on revenue rebound -
19th February 2015


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James Packer at the opening of Melco-Crown's new mega-casino in Manila this month. "I like playing blackjack, but building casinos is a gamble as well." he told a TV reporter.

Crown Resorts chief executive Rowen Craigie says a deal with the Victorian government that slashed tax rates on VIP gambling will allow the company to be more aggressive in its pursuit of high rollers, as the casino company looks to offset falling earnings in Macau.

A resurgence in VIP revenue at Crown Melbourne, the James Packer-controlled casino operator's flagship property, was the main driver in its half year result that beat expectations and sent shares up to close 9.1 per cent higher at $15.79 The stock has gained 36 per cent from a 12-month low of $11.74 hit in January.

Mr Craigie said the deal that came into effect in November 2014 and reduced Crown's tax rate on VIP revenue to 10 per cent, was not the driver behind a 61.4 per cent rise in bets placed by VIP gamblers to $37.1 billion for the half. However he said it would allow Crown to spend more on sales and marketing efforts like VIP tournaments and better incentives in future.

"That removal of VIP super tax is going to be a critical factor in growing that business over time," he told an analyst briefing.

he deal with the former Napthine government came after eight months of fierce lobbying and followed the surprise introduction of a levy on poker machines in December 2013 that the billionaire Mr Packer was said to be furious about. In the end Crown avoided paying the levy, got an extension on its licence expiry from 2033 to 2050 and received more than 200 new pokies and table allotments. In return it committed to making at least $1 billion of payments over the period and had its progressive VIP tax scrapped.

Statutory net profit slumped 47.2 per cent to $201.8 million on the back of one of the worst-ever periods for the gambling hub of Macau where its subsidiary Melco Crown operates two casinos. A one-off $61.3 million write-down,which primarily dealt with US assets, but also included $5.5 million spent on the failed Sri Lanka venture, also hampered the result.

However Crown's normalised net profit, which smooths out volatility associated with high rollers, rose 2.3 per cent to $322 million for the six months ended December 31. Normalised revenue rose 17.2 per cent to $1.7 billion, which was well ahead of the average analyst estimates of $1.49 billion, according to Bloomberg.

Crown's equity-accounted share of net profit in the half from Melco Crown, the Macau casino operator it operates in a joint venture with Lawrence Ho, fell 42.2 per cent to $85.3 million on a statutory basis as a sweeping corruption crackdown continues to cripple the world's largest gambling hub.

Mr Craigie, whose contract was extended on Thursday for a further three years, said it was "reasonable" to assume that Australia, New Zealand and the Philippines – Melco's newest market – were benefiting from the crackdown in Macau.

However in a nod to strong VIP activity at the Sydney and Auckland casinos controlled by rivals Echo Entertainment Group and Sky City Entertainment respectively, Mr Craigie said the local market had also benefited from investments in high roller facilities. "It's a reward for effort as well as the diversion from Macau," he said.

Investor Theo Maas, who is a partner at Arnhem Investment Management, said the strong VIP results at Crown and Echo gave him confidence about the prospects for the $2 billion luxury hotel and casino that Crown plans to open in Sydney in 2019.

"The VIP market, which is what [Crown] Sydney is going to be all about, is going to be big enough to support a new casino in Sydney," he said. "I'm a bit more relaxed about the returns that Crown will be able to make at that property."

Mr Craigie said the rebound in performance at Echo's The Star in Sydney proved Crown's original pitch that the city's casino market had been underperforming. "What Echo is starting to demonstrate is that the strength of the Sydney market is now revealing itself," he said. "We'll be sharing that market with Echo when we open."

Citi analyst Michael Goltsman said the turnaround in VIP turnover at Melbourne was "exceptional" given Crown's guidance to the market at its shareholder meeting in mid-October was that for the first few months of the half turnover had been flat. "The sharp VIP turnaround mirrors similar performance by other casino operators," he said.

Mr Goltsman said the 3.5 per cent rise in revenue from Perth and Melbourne's main gaming floor tables and pokies to $784.2 million was positive. Non-gaming revenue from food and beverage, retail and entertainment rose 2.4 per cent to $341.9 million.

The board confirmed it would appoint Robert Rankin as a director. He is the new boss of Mr Packer's investment vehicle Consolidated Press Holdings. Mr Craigie said Mr Rankin would not be involved in the day to day running of Crown "but his strategic involvement ... is going to be invaluable."

The board declared an interim dividend of 18c per share, to be paid on April 10. For Mr Packer, who owns 50.01 per cent of the company, the distribution amounts to $65.6 million.

(The Sydney Morning Herald)