Sydney and Brisbane casino operator Echo Entertainment Group Ltd (ASX: EGP) has released its results for the half year. Reported statutory numbers were particularly uninspiring with reported net profit after tax affected to the tune of $15.5 million by one-off costs related to financing arrangements, a lower win rate in the VIP Rebate business and the effect of new levies and charges imposed by government regulatory bodies.
The Results
As is generally the case when analysing casinos, the more relevant figures are those which have been normalised for average win rates – on this measure Echo's results were reasonable. Gross normalised revenue declined 4.8% to $929.6 million while like-for-like normalised earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 11.1% to $221.7 million.
In conjunction with the results release, Echo also announced that highly regarded and credentialed chief executive officer (CEO) John Redmond would be retiring and replaced by the current chief financial officer Matt Bekier.
Dividend
The board has declared a fully franked interim dividend of 4 cents per share (cps) which is in line with last year's interim dividend.
Outlook
The outlook for Echo going forward is mixed. Investors are still coming to terms with the award of a restricted gaming licence to James Packer's Crown Resorts Ltd (ASX: CWN) in Sydney.
The recently announced sale of its Queensland casino Jupiters Townsville for $70 million will free up capital and management's time to focus on its core properties. Shareholders will be looking for signs of a return on the near $1 billion renovation of the flagship casino The Star in Sydney.
Expense control has been very good with costs down 4.5% over the half, reflecting the recently completed cost optimisation program. This program is forecast to generate in excess of $60 million of cost savings across the group annually. In the near term these savings will be overshadowed by the plans for a $345 million expansion and refresh of its Gold Coast casino Jupiters.
Pleasingly, Echo's trading update was upbeat. January recorded domestic revenue growth across all Echo properties with the VIP Rebate business also solid. Management singled out the continuing Queensland properties as facing a period of exciting growth opportunities and an improved regulatory environment for the electronic-gaming machines.
Foolish takeaway
With fellow gaming peers including Crown, SkyCity Entertainment Group Ltd (ASX: SKC) and Aristocrat Leisure Limited (ASX: ALL) all due to report in the coming weeks, investors will soon have comparative data to analyse.
SkyCity will report on Wednesday 12 February and has already provided investors with guidance that normalised profit will be around 8% lower for the half year, with the company citing adverse exchange rate moves between the Australian and New Zealand dollar as a significant contributor to the decline.
Crown meanwhile stated at its AGM in October 2013 that for the first 17 weeks of the first half there was a general softness in consumer sentiment amongst its Australian resorts.
