The Star to sack 500 staff amidst ‘rapid deterioration in operating conditions’

The Star to sack 500 staff amidst ‘rapid deterioration in operating conditions’

The Star Gold Coast.

A ‘significant and rapid deterioration in operating conditions’ at The Star Entertainment Group's (ASX: SGR) Sydney and Gold Coast properties has led the gambling and resorts company to fire 500 full-time staff.

Announced two months after posting a $1.3 billion loss for the first half of FY23, The Star says the group’s current earnings performance is at ‘unprecedented low levels’, excluding the COVID-19 period.

As such, the company has ordered a strategic review into The Star Sydney, cancelled the short-term and other incentives for FY23 and frozen salaries for non-EBA (enterprise bargaining agreement) employees in an attempt to reduce group operating expenditure by more than $100 million.

Without these big moves and sackings, The Star says underlying FY23 earnings are expected to be in the order of $280 million to $310 million. These estimates are before taking into account provisions for fines, costs associated with ongoing regulatory reviews, and other one-off costs.

This compares to statutory earnings of $239 million in FY22 - though that year was significantly impacted by the closure of its properties due to COVID-19 operating restrictions. In the group’s last financial year unimpacted by COVID-19 - FY19 - earnings were $556.5 million.

Shares in SGR fell by as much as 11 per cent in early trading, representing a loss of $250 million in value for the company. This was alleviated somewhat to a dip of 8 per cent within the first hour of trading.

“The Group is experiencing a significant and rapid deterioration in operating conditions, particularly at The Star Sydney and The Star Gold Coast,” The Star said.

“This has largely been driven by the compounding impact of regulatory operating restrictions and exclusions, and by an emerging weakness in consumer discretionary spending behaviour.

“The Star Sydney continues to operate in an uneven competitive environment as it relates to the regulatory settings for complimentary services in its private gaming areas.”

According to The Star, the performance of its Gold Coast site 'has deteriorated in recent weeks' - a stark contrast to the group’s statements about its Queensland business in February when the company was highlighting record domestic revenues for its two sites in the state.

“The above steps are being undertaken independent of any potential impact from the proposed casino duty rate increases in NSW,” The Star said.

“Barrenjoey Capital Partners are also working with The Star to assist with a strategic review of The Star Sydney and consider any structural alternatives available to maximise value for the Group’s shareholders.”

In other updates, the company says it is continuing to progress the proposed $200 million-plus sale of the Sheraton Grand Mirage Resort Gold Coast.

Further, The Star is accelerating ‘previously foreshadowed plans to refinance its existing debt funding arrangements’, with a focus on improving its liquidity position.

“To help improve the Group’s liquidity position and maximise the prospects of a successful refinancing given the challenging operating environment, The Star intends to engage with the NSW Government, the Queensland Government and AUSTRAC in respect of casino duty rates and flexibility on payment terms in relation to any current and future penalties,” The Star says.

“In addition, the Group continues to work with regulators and the NSW Manager and Queensland Special Manager to remediate its businesses, to support a return to suitability over time.”

The latest update comes after the last of its old guard, interim chairman Ben Heap, retired at the end of March.

Heap, one of 11 directors and senior executives named in a civil action brought by the Australian Securities and Investments Commission (ASIC) in December last year, was replaced by former Suncorp Bank (ASX: SUN) CEO and current G8 Education (ASX: GEM) chairman David Foster.

The appointment by the casino group completes the board cleanout which began in March last year with the resignation of former CEO Matt Bekier.

As interim chairman, Heap was the last board member left to issue an ‘unreserved apology’ to the people of NSW after the release of a blistering NSW Independent Casino Commission (NICC) report following the Bell inquiry that found the casino giant was enabling suspected money laundering and organised crime activities through its VIP operations.

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