August 13th, 2015: As anticipated when we changed our recommendation in May to SELL, Crown Resorts published weak FY15 results, which were below analysts estimates. By divisions:

  • Crown Melbourne: reported EBITDA up 8.6% to $644.6m, due to adverse variance from the theoretical VIP program play having a negative EBITDA impact of $17.5m, offsetting the strong revenue growth in VIP program play, helped by the removal of ‘Super Tax’ on VIP program and the high hotel occupancy rates.
  • Crown Perth: EBITDA down 4.3% to $302.1m due to change in business mix as Main floor gaming revenues were up 2.6% but VIP program play revenues were up 44.1%
  • Crown Aspinall’s: EBITDA down 280.5% to a negative $45.3m which includes into account an adverse variance from the theoretical VIP program which had a negative $77m impact.
  • Wagering: negative EBITDA of $16m, meaningless as represents the JV of Betfair/BetEasy sports book business started in December 2014

Crown’s share of Melco Crown Entertainment (MCE) Net profit for the half year was an equity accounted profit of $122m down 57.6% due to weak market conditions in Macau with a Chinese government crackdown on corruption and tighter visa restrictions for mainland chinese visitors plus new smoking restrictions in Casinos. Studio City, MCE’s second large-scale resort in Cotai is on track and on budget to open at the end of October 2015. However, there might be a risk MCE will receive fewer gaming tables than requested. As a result, reported EBITDA was down 11.4% for the half to reach $778.1m and margins down at 22.3% from 28.4%.Thanks to dividends received and lower outflows from working capital, operating cash flow decreased only by 9.6% to $634.6m. Capital expenditures increased to $600m (Crown Melbourne new 5 star hotel JV, Crown Perth) and the company spent $345m on licences (related to the Crown Melbourne Casino and the Restricted Gaming licence for Sydney) . Crown kept dividend payments of $270m, partly compensated by an equity injection of $72.4m,but net debt increased substantially from $1.7bn to $2.5bn during the year, increasing leverage from 2.1x to 3x and gearing from 30% to 35%. Liquidity stood at $1,674.5bn including $197m in available cash (after deducting working capital cash) and $1,478m in committed undrawn facilities, sufficient to cover FY18 debt maturities. Outlook The company did not provide much guidance or future outlook, however it reaffirmed its confidence in the long term prospect of Macau as a gaming market. James Packer, Crown Resorts chairman has announced his intention to resign as Chairman in favor of Robert Rankin, but will remain as a company director to focus on the company’s pipeline of resorts and online strategy. While Crown expects the weak market conditions in Macau to continue, it sees its development pipeline progressing as City of Dreams Manila opened in February 2015 and Studio City is due to open later in 2015. In Australia, its Melbourne Casino Licence was extended to 2050, and it continues expansion in major urban areas (i.e Perth and Sydney). Next Event: Crown Resorts 1H16 results to be published in February 2016