Australian casino operator The Star reports $1.16 billion loss; plans to sell assets and cut jobs

September 27, 2024 Australia Casino & Hotel Crime & Legal

Shares of Star Entertainment Group (SGR.AX), Australia’s second-largest casino operator, plummeted over 50% to a record low on September 27, 2024. This drop followed the company’s announcement of a staggering AUD$1.69 billion (US$1.16 billion) net loss for the fiscal year ending June 30, marking its second consecutive multi-billion-dollar annual deficit.

Steve McCann, CEO of Star Entertainment Group, has announced plans for significant job reductions and the potential sale of properties, including hotels in Sydney, Brisbane, and the Gold Coast. According to the Sydney Morning Herald, these measures are part of a complex strategy aimed at cutting costs.

The troubled casino operator revealed its full-year financial results on September 26, having secured a crucial A$200 million loan to help address the severe impact of declining visitor numbers and rising operational expenses. This latest setback marks the fifth consecutive year the company has reported losses.

The financial difficulties stem from a significant write-down of AUD$1.4 billion (US$963.90 million) on the value of Star’s casinos in Sydney, the Gold Coast, and notably the new Queen’s Wharf Brisbane. The company attributed this drastic action to “challenging trading conditions” and new regulatory measures, including a shift to mandatory cashless gambling, which are expected to further strain earnings.

Star Entertainment Group has faced severe financial distress recently after a regulatory investigation deemed it unsuitable for a casino license.

CEO McCann announced plans to eliminate 350 positions, implement a salary freeze, and cut back on consultant expenses in pursuit of A$100 million in cost savings.

The financial report submitted to the ASX revealed a 10% decline in revenue. Meanwhile, earnings before interest, tax, depreciation, and amortization plummeted by 45% to AUD$175 million. Notably, revenue from premium gaming areas dropped nearly 30% as high-rolling patrons continued to steer clear of the casinos.

The firm downgraded its earnings forecast for 2025 by a third and projected a long-term decline in profitability, citing the current stringent regulatory environment as a key factor.

Trading in Star’s shares had been suspended since August 30, 2024, due to the company’s failure to submit its annual report by the deadline. When trading resumed, the stock fell as low as AUD$0.205, reflecting investor sentiment amid escalating concerns about the company’s future.

Despite the enormity of the losses, there is a silver lining. This year’s loss of AUD$1.69 billion is an improvement compared to the AUD$2.44 billion (US$1.68 billion) loss from the previous fiscal year. Revenue also took a hit, falling 10.2% year-on-year to AUD$1.68 billion (US$1.16 billion). Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) also dropped by 45%, indicating severe operational challenges.

The company has acknowledged the need to bolster its liquidity as it navigates ongoing remediation efforts and rising regulatory costs. To address these concerns, Star is considering asset sales, including non-core properties, with a particular focus on its Treasury venue assets, which are valued at over AUD$300 million (US$206.4 million). Recently, Star sold the leasehold interest in the Treasury Casino building for AUD$67.5 million (US$46.3 million). While the Treasury Brisbane hotel remains operational, the casino’s closure shortly before the launch of The Star Brisbane highlights the tumultuous landscape in which the company operates.

As part of its broader strategy to regain financial stability, Star is also implementing cost-saving measures expected to yield approximately AUD$100 million (US$68.8 million) in annual savings by March 2025. Capital expenditures for maintenance will be reduced to AUD$80 million in fiscal 2025, excluding AUD$37 million designated for essential remediation projects.

In addition to operational adjustments, Star has secured a commitment from lenders for a new debt facility of up to AUD$200 million. As of late August, the company held AUD$130 million in cash, providing a critical buffer as it seeks to navigate these turbulent waters.

The Star operates several key venues, including its flagship casino in Sydney and the newly opened Star Brisbane, part of the AUD$3.6 billion (US$2.5 billion) Queen’s Wharf Brisbane development. However, the combination of regulatory hurdles and a tumultuous market environment poses significant risks to the company’s long-term growth prospects.