Costly legal bills, impairments to casinos push The Star to $2.4b loss

Costly legal bills, impairments to casinos push The Star to $2.4b loss

Writedowns in the value of its three casinos along with a massive bill for legal and regulatory costs have led The Star Entertainment Group (ASX: SGR) to post a bottom-line loss of $2.44 billion in FY23.

And while the full-year loss has masked a promising underlying performance for the casino operator during the year, The Star has revealed that FY24 might not be as rosy for the group.

The massive loss was driven by significant items of $2.48 billion that included a $2.17 billion non-cash impairment for The Star’s casinos in Sydney, Brisbane and Gold Coast following separate inquiries in NSW and Queensland into its suitability to hold a casino licence.

This was compounded by ongoing regulatory and legal costs of $595 million in the wake of the adverse findings against the company.

However, The Star delivered a better-than-expected underlying performance with normalised EBITDA of $317 million, which was above the $310 million at the top end of the group’s guidance, leading to a normalised net profit of $41 million.

Revenue improvements were recorded for each of The Star’s casinos, although Sydney was impacted by tighter controls on punters leading to an increase in guest exclusions, as well as weaker discretionary spending by consumers and increased competition from Crown’s nearby Barangaroo casino and NSW clubs.

Despite the challenges, revenue at The Star Sydney rose 26.5 per cent, and by 20 per cent at the Gold Coast and 15 per cent in Brisbane.

After a strong start to FY23 for The Star Gold Coast due to the strength of domestic tourism, the property experienced a softer performance in the second half as more Aussies chose to holiday overseas.

“To say it has been a challenging year completely understates the lived experience at The Star over the last 12 months,” says The Star’s CEO Robbie Cooke.

“The consequences flowing from the damage to our social licence are felt daily by team members on multiple levels, reinforcing the critical need to understand the privilege and responsibility that comes with holding a casino licence.

“The ancillary challenges that have arisen in the year, and there are many, all follow from the breaches of trust identified in the Bell (NSW) and Gotterson (Queensland) reports.

“As a team we are determined to earn back the trust and confidence of our community including our regulators, governments, shareholders, employees and guests.”

While Cooke notes that remediation is The Star’s ‘number one priority’, the company is battling to make amends in a more challenging economic environment.

Early results for the first half of FY24 show that trading is broadly in line with the softening fourth quarter of FY23.

The Star Sydney’s revenue is down 23 per cent on the previous corresponding period, but up 3 per cent on the fourth quarter.

The Star Gold Coast’s revenue is down 17 per cent on the same time last year, but 5 per cent better than the June quarter, while The Star Brisbane is down 14 per cent and 2 per cent respectively. Overall, group revenue so far this financial year is down 20 per cent compared to the same time last year.

Among the positives for The Star is a resolution reached with the NSW Government on the proposed NSW casino duty which Cooke had previously suggested could cost the company $100 million a year. The new duty is now expected to only cost The Star about $10 million in FY24.

Cooke says the in-principle agreement is ‘designed to protect the jobs of thousands of NSW team members’.

It comes as The Star completed a $100 million cost-out program, which included the culling of 500 jobs, with the benefits of these reflected in lower operating expenses in the fourth quarter of FY23.

The company raised $800 million during the year, with most of that applied to repaying debt.

The company is waiting on the proceeds of the $192 million sale of the Sheraton Grand Mirage Resort Gold Coast, with the deal subject to the purchasers, entities owned by the Karedis and Laundy families, obtaining approval for liquor licence transfer.

The Star is planning to place the Treasury building in Brisbane on the market again after a $248 million deal with Charter Hall (ASX: CHC) fell through this year.

In the interim, Cooke says The Star is heavily focused on its remediation plan to retain its casino licences in NSW and Queensland.

“We fully understand the responsibility involved in holding our licences and are committed to transforming our leadership and culture.” Cooke says.

“This journey has started and we know there is still a lot to be done. We have commenced the uplift in our risk management, safer gambling and AML (anti-money laundering) capability and are starting to embed greater accountability and more robust governance.

“We have invested in enhancing our control environments and are operationalising and embedding these controls. We are improving our financial crime management and our overall approach to harm minimisation. Our remediation program will track and hold us accountable to the multi-year program we are committed to delivering.”

The Star is expecting remediation costs of between $35 million and $45 million in FY24, which is in line with FY23. These costs are not expected to ease until FY26.

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