Operator Star Gets Funds Injection After AU$1.26bn Loss

The Australian operator Star Entertainment Group has announced AU$ 800m (NZ$ 875m) in new equity after negative half year results leading to a total loss of AU$1.26bn (NZ$1.37bn). The significant losses are mostly the result of an AU$988m (NZ$ 107.8m) non-cash impairment of the group’s assets in Sydney, which are due to costs and fines related to the company’s continuous regulatory problems.

In 2022, the Bell review, a New South Wales parliamentary inquiry into anti-money laundering (AML) and safer gambling failings at the company’s properties, declared the Australian operator was “unsuitable” to hold a licence in the Australian state. In order to continue its operations Star Entertainment Group went through a costly transformation as an attempt to change its culture and operations. The operator still sees financial instability.

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Ongoing Legal Issues

On the 13th of September 2022, the NSW Independent Casino Commission (NICC) announced that The Star was “unsuitable” to hold its Sydney casino licence because of its failing conduct related to money laundering risks. At the time it was given a period of 14 days to respond to the matter and was fined A$100m ($62m). As a result, Star’s gambling licence was temporarily suspended and a new manager was appointed to handle the operations. Late 2022, the Queensland Government declared that Star Entertainment Group Ltd was also considered unsuitable to hold its dual state casino licences.

The company was served a statement of claim for a securities class action in the Supreme Court of Victoria. The class action alleged that Star Entertainment Group breached disclosure obligations and acted against the best interests of the shareholders. Star was fined AU $100m (NZ$ 110m) in December 2022. In addition, casino licences for the Treasury Brisbane and the Star Gold Coast were suspended for 90 days. The suspension was seen as an opportunity for Star to remediate its management and operations.

Complicated Regulatory Landscape

Star Entertainment’s CEO and managing director Robbie Cooke agreed with the failures, but also highlighted the complicated regulatory landscape in the country. Cooke said:

“We are very pleased with the continuous strength of trading across our Queensland-based venues, whilst trading at The Star Sydney has been impacted by various operational changes related to the outcome of the Bell Review and increased competition in the industry”.

Robbie Cookie, CEO and Managing Director, The Star Entertainment Group

Cooke also said that it was the group’s top priority to regain the trust that it lost in recent months and prove it is still suitable to hold its casino licences and operate its businesses. Part of that effort, the CEO states that the organisation supported different state-wide initiatives that promote cashless gambling and reduce gambling harms.

He added:

“Our main focus has been and will be on working constructively with local regulators and the NSW Manager and Queensland Special Manager to rehabilitate our casino operations as we expect to return to suitability soon.”

Robbie Cookie, CEO and Managing Director, The Star Entertainment Group

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Troublesome Financial Situation

The business recorded AU $1.01bn (NZ $1.10bn) in revenue for the 6-month period ending 31 December 2022, which was a 75.6% increase year over year. Other income, combined with share of net profit from joint entities, added AU$ 8.7m (NZ $ 9.49m) to the total revenue for the same period. Different costs led to a drop in revenue.

  1. Depreciation, amortisation and impairment made up for a total of AU$ 1.08bn (NZ $ 1.18bn) – AU$ 986.1m (NZ$ 1.075bn) higher than in the first half of 2021.‬
  2. Employment costs stood at AU$376.5m (NZ $ 410.70m) and were the second highest of the period.
  3. This was followed by AU$350.0m (NZ $ 381.80m) in fines and penalties as a consequence of the misconduct.
  4. AU$103.9m (NZ $ 113.34m) in other expenses. These were made up of various expenses such as government taxes and levies, property costs and cost of sales.

Earnings before interest, tax, depreciation or amortisation (EBITDA) stood at AU$199.7m (NZ $ 217.8m) which was a 550.5% increase in comparison to the same period of last year. According to Star, the financial boost by the equity raising is going to be used to repay the business’s outstanding debts, whilst it also serves as a way to increase the company’s overall liquidity. In addition to raising money, the casino business has renegotiated its financial relationship with its most important creditors, securing a covenant relief period from bank lenders. This complete package of debt relief and new funding sources are seen as an attempt to keep creditors at bay after numerous existential risks.

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Impairment Charge

A few weeks ago the business released an earnings update indicating that the business is expecting a non-cash impairment charge somewhere in the range of AU$ 400m — AU $1.6bn (NZ$ 436m – NZ $1.75bn). Other reasons for the charge relate to amendments in the NSW casino control act, as well as a significant increase in NSW casino duty rates in 2024. The business said that the higher estimate of the impairment charge would be in the case of casino duty nearly doubling from 32% to 60.67%, as proposed by the New South Wales government in December 2022. CEO Robbie Cooke said about this:

“Whilst the outcome of recent regulatory and legislative developments remains uncertain, we have made sure to take a judicious approach to assessing the value of our assets. This has resulted in a non-cash impairment charge which will be seen in our results of 1H FY23.”

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About Star Entertainment Group

The Star Entertainment Group Limited is a gambling and entertainment company from Australia that is based in the city of Brisbane. The company was established in 2011 and was formerly known as Echo Entertainment. The Star Entertainment owns and operates different gambling venues in the country including the Treasury Casino & Hotel, The Star Gold Coast and The Star, and Sydney. Star also holds two out of Queensland’s four casino operation licences whilst it manages the Gold Coast Convention & Exhibition Centre  (GCCEC). It does so on behalf of the Queensland Government.