The Star Entertainment Group Ltd (ASX: SGR) share price is on the move this morning, up more than 6% after the casino operator revealed its full year results. Although the company performed strongly between July 2019 and February 2020, the COVID-19 shutdown punched a hole in revenues and profits.
What does Star Entertainment Group do?
Star Entertainment Group is behind The Star casinos in the Gold Coast and Sydney, the Treasury Casino and Hotel in Brisbane, and manages the Gold Coast Convention and Exhibition Centre on behalf of the Queensland Government. The company has also entered a $3 billion joint venture to redevelop Queen's Wharf in Brisbane, which is expected to open in 2022.
How did Star Entertainment Group perform in FY20?
Star Entertainment Group reported a 46% decline in profits as a result of the shutdowns of its properties. Both Sydney and Queensland ventures showed strong earnings growth pre-COVID-19, however venues were shuttered in March in response to the spread of the pandemic. This led Star to defer its first half dividend and implement strategies to conserve liquidity, standing down 90% of its employees.
While properties have largely reopened, they are subject to limits on patron numbers and distancing requirements. The shutdowns resulted in a 23.3% fall in net revenue over the full year and 22.8% decline in earnings before interest, taxes, depreciation and amortisation (EBITDA), which fell to 430 million. Net profit after tax dropped 46% to $176 million and no final dividend was declared.
Chair John O'Neill AO said:
Whilst acknowledging the impacts of COVID-19 have been extraordinarily challenging, the fundamental earnings prospects for The Star remain unchanged, underpinned by valuable long-term licences in sought after destinations. The Star delivered record normalised and domestic earnings for July 2019 to February 2020 on a pcp basis before the full impact of COVID-19. This reflected growth from investments, operational improvements and cost management benefits.
What is the outlook for Star Entertainment Group?
Star Entertainment Group's properties are now operating under capacity restrictions, and travel restrictions mean many VIP gamblers cannot visit. In July, domestic gaming revenues were around 80% of the prior corresponding period, but VIP volumes were only at 5%. Nonetheless, cash flow was materially positive after investments, enabling the company to reduce debt. A debt covenant was waived in June, and no cash dividend can be paid until Star Entertainment Group reduces its gearing ratio below 2.5 times.
At the time of writing, the Star Entertainment share price is up by 6.36% to $3.01 per share.
