Crown (ASX:CWN) share price dips despite growing confidence the company has 'turned the corner'

Crown's shares have been dampened by its first half results.

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Key points

  • The Crown share price is sliding lower to trade at $12.55 on the back of the company's half year earnings report
  • Over the 6 months ended 31 December, Crown's revenue grew 34% while its lenders forced it to forego any interim dividend
  • The company's managing director and CEO Steve McCann said that, while Crown still faces "headwinds", there is growing confidence the company has turned a corner

The Crown Resorts Ltd (ASX: CWN) share price is in the red after the release of the company's earnings for the first half of financial year 2021.

At the time of writing, the Crown share price is $12.55, 0.08% lower than its previous close.

Crown share price falls after dividend ditched

  • Statutory revenue of $778.6 million – 34% more than the prior comparable period
  • Net profit after tax (NPAT) came to a loss of $196.3 million – a greater hit than the previous first half's $120.9 million loss
  • Costs from closures came to $79.2 million
  • No dividend declared

The first half of financial year 2022 was a rough 6 months for Crown.

The company's corporate costs increased to $94.7 million – up from $50.5 million – mainly due to higher legal and consulting fees born from various regulatory inquiries.

Its operating cash flow came to an outflow of $203.5 million over the period ­– reflecting COVID-19 impacts.

Crown also made several cash payments during the half related to items including the underpayment of casino tax by Crown Melbourne, a shortfall on a minimum gaming tax obligation in Melbourne, and payment towards the cost of the Bergin Inquiry.

Captial expenditure came to $69 million. Around half was due to Crown Sydney's construction and offset by $252.8 million from the sale of its apartments.

Crown's lack of interim dividend spurs from negotiations with banks regarding its financing arrangements.

Crown's non-gaming revenue grew to $36.1 million, compared to around $900,000 in the prior comparable period.

Its non-gaming earnings before interest, tax, depreciation, and amortisation (EBITDA) came at a $35.7 million loss – compared to a loss of $26 million in the prior first half.

It recognised $14.8 million of closure costs and a profit of $54.8 million on disposing Crown Sydney Apartments.

Crown Aspinalls saw an EBITDA loss of $5.5 million, compared to a loss of $23 million.

Crown's digital operations came to $69.5 million, 12.7% less than during the prior comparable period. Meanwhile, its EBITDA came to $14.3 million – a 38.4% drop.

The company ended the half with around $1.5 billion of debt and $630.7 million of cash.

What else happened during the half?

The first half of financial year 2022 saw the company battling COVID-19 impacts.

Crown Melbourne was closed for 96 days over the half while Crown Sydney was closed for 102 days.

Crown Aspinalls was also forced to close for parts of the half due to operational constraints. When open, it suffered from subdued international travel, staff shortages, and reduced operating hours.

The company's hotels saw 17% occupancy during the period. However, after reopening in October, hotel occupancy averaged nearly 40%.

Now that the Victorian Royal Commission and evidentiary hearings of the Perth Casino Royal Commission have closed, the company expects its corporate costs to be lower in the second half.

Crown also settled a shareholder class action during the half for $125 million. It paid $20 million towards the settlement last half. The settlement is conditional on Federal Court approval.

Crown Melbourne brought in $265 million of revenue over the first half – up from $97.1 million in the prior first half. Its EBITDA came to a loss of $79.6 million – up 3.7% from the prior period's $87.8 million loss.

The company's Perth casino saw $402.9 million of revenue – a 1.5% drop. It reported $105.8 million of EBITDA, down 34.8%.

Finally, Crown Sydney's gaming areas are still in limbo as Crown works through the consultation process with the casino's regulator, the Independent Liquor and Gaming Authority.

What did management say?

Crown managing director and CEO Steve McCann commented on the company's half year results, saying:

Crown's first half performance reflects the continued challenging operating conditions as a result of COVID19 as well as the impact of ongoing regulatory matters.

While we do not underestimate current headwinds facing Crown, there is growing confidence we have turned the corner. All three of our domestic resorts are back open, with a vaccination strategy to combat COVID-19 providing a pathway forward for our staff, the business and the wider community.

Importantly, we continue to build momentum on our company-wide reforms, accelerating work on our remediation plan and making significant advances across multiple regulatory processes. Not only are we building a stronger business, we are working well with the regulators with a priority to deliver a safe and responsible world-class gaming operation.

In Victoria, we are working in a collaborative and constructive manner with the Special Manager and his office, as well as the new regulator, the VGCCC, to ensure that we build a safe and responsible gaming environment at Crown Melbourne as we seek to re-establish our suitability to hold a casino licence in Victoria.

What's next?

Those interested in the Crown share price might be disappointed to learn that the company hasn't provided guidance for the remainder of financial year 2022.

It says the continuing Omicron outbreak and its recent performance means that it's still operating in an uncertain environment.

It also expects that the reopening of Western Australia's border will impact its performance in the second half.

Simultaneously, it's still involved in several regulatory and litigation processes, the outcomes of which are unknown.

Though, it expects Crown Melbourne and Crown Perth will be hit with civil penalty proceedings at the conclusion of AUSTRAC's ongoing investigation.

The company said its reforms, while driving important changes, will bring higher costs in the second half. It will also be hit with costs from regulatory oversight.

Crown expects full year corporate costs to be around $150 million.

Additionally, Crown is hoping to be able to announce the opening of the Sydney casino's gaming floor shortly. From there, opening will occur in a staged process.

It's also progressing sales of the Crown Sydney apartments, with almost $1.2 billion in gross sales and presale commitments to date. Based on current progress, Crown is focused on selling all remaining apartments by 30 June 2022.

The company is awaiting the final report from the Perth Casino Royal Commission. It's due to drop in early March.

Finally, on Monday the company announced that its planning to be acquired by Blackstone for $8.9 billion.

Crown also provided an update on the start of the second half this morning.

For the first 6 weeks of 2022, revenue of Crown Melbourne was down 16% on that of the prior 6-week period.

Meanwhile, that of Crown Perth and Crown Sydney were down 23% and 20% respectively on their average weekly revenues during the first half while the properties were open.

Crown share price snapshot

Today's falls included, the Crown share price is 5% higher than it was at the start of 2022.

It has also gained 30% since this time last year.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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