The Star Entertainment Group reports a 1% drop in overall revenue; Shares down over 19.7%

Key Highlights:

• The Star Entertainment Group shares dropped over 20% following the release of its Earnings report for 1H FY2023 and outlook. The Group’s overall revenue declined by 1% on pre-COVID levels.
• SGR is expecting a non-cash impairment charge concerning its NSW business in between AU$400 million to AU$1.6 billion in its 1H FY2023 results.

The Star Entertainment Group Limited (ASX: SGR) shares dropped over 19.7% on 13 February 2023 following the release of its Earnings report for 1H FY2023 and outlook. At AEDT 1:53 PM, SGR shares are trading at AU$1.505 per share.

The Star Entertainment Group owns and operates The Star Sydney, The Star Gold Coast, and Treasury Brisbane. It has also acquired the Sheraton Grand Mirage on the Gold Coast in a joint venture as well as manages the Gold Coast Convention and Exhibition Centre on behalf of the Queensland Government.

The Company highlighted that in 1H FY2023, its earnings were impacted by operational changes from the Bell and Gotterson Reviews, a rise in remediation cost, and increased competition in Sydney. During the period, The Star Gold Coast’s domestic revenue increased by 30% and Treasury Brisbane’s domestic revenue by 9% on pre-COVID levels. On the other hand, the Company witnessed a drop of 13.5% in The Star Sydney’s domestic revenue. Overall, the Group’s revenue declined by 1% on pre-COVID levels.

What impacted The Star Entertainment Group’s performance in 1H FY2023?

Several factors influenced the Company’s performance in 1H FY2023. One of the critical factors was the Bell Review, as pointed out above, plus the amendments to the NSW Casino Control Act. This saw a surge in several excluded patrons, a reduced level of complimentary services, and the benefits in private gaming areas. Besides this, the Company has also been impacted by increased competition since the opening of Crown Sydney in August 2022.

In line with the Group’s ongoing remediation actions, SGR has continued to invest in improved compliance capabilities and incurred remediation costs of ~AU$20 million during the period.

At present, the auditor review is in progress. On completion of the review process, the Company expects its underlying EBITDA to be in the range of AU$195 million to AU$205 million in 1H FY2023. It will exclude provisions for fines and one-off legal costs, which will be treated as significant items.

FY2023 Outlook:

Based on the existing trading performance and the outlook for 2H FY2023, the Group expects underlying EBITDA to range from AU$330 million to AU$360 million in FY2023.

The Company highlighted that FY2023 performance would depend on several factors. It includes regulatory settings relating to complementary services in The Star Sydney’s private gaming areas, the level of inbound international tourism, plus general consumer discretionary spending behavior.

The remediation cost is expected to range from AU$35 million to AU$45 million in FY2023, of which ~50% is likely to be recurring from FY2024.

SGR also intends to implement various focused operational initiatives designed to improve its trading performance. On an annualised basis, these initiatives are expected to contribute in the order of AU$40 million to the Group’s operating performance.

Some of the initiatives expected to include are:

• Replacement of contractor ‘surge’ resourcing with full-time resources.
• Uplifting The Star Sydney’s performance.
• Implementing measures to improve The Star Sydney’s operating efficiency and cost control.
• Improving customer experience at the Star Sydney.

The Company highlighted that due to the impact of operational changes implemented following the Bell Review, revisions to the NSW Casino Control Act, along with the possible increase in NSW casino duty rates starting in FY2024, it is expecting a non-cash impairment charge concerning its NSW business in between AU$400 million to AU$1.6 billion in its 1H FY2023 results.

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