Crown Resorts (ASX:CWN)

John Alexander
Exec Chairman
Market Cap (AUD): 8.63B
Sector: Consumer Discretionary
Last Trade (AUD): 12.67 -0.08 (-0.63%)
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1. About

Crown Resorts is one of Australia’s largest entertainment groups. The group’s core businesses and investments are in the integrated resorts sector.

In Australia, Crown Resorts wholly owns and operates two of Australia’s leading integrated resorts, Crown Melbourne Entertainment Complex and Crown Perth Entertainment Complex. Overseas, Crown Resorts also fully owns and operates Crown Aspinalls in London, one of the high-end licensed casinos in the West End entertainment district.

Crown Resorts also has a strong portfolio of future projects and complementary investments, anchored by Crown Sydney, and including its digital businesses.

Crown’s Australian resorts remain the largest single-site private sector employers in their states, with more than 15,600 people working at Crown Melbourne and Crown Perth in over 700 different roles.

2. Business model

 

The Group operates in following divisions:[1]

 

Divisions

Revenue ($’000)

% of Revenue

% of Profit (before Int, Tax, Depn & Amort)

Profit drivers[2]

Crown Melbourne

$ 2,279.0

65.7%

81.4%

  • Normalised EBITDA from Crown Melbourne was $645.0 M, up 9.5%. Reported EBITDA was $586.0 M, up 2.7%, which takes into account an unfavourable variance from the theoretical VIP program play result
  • Normalised revenue at Crown Melbourne was $2,279.0 M, up 14.2%, with VIP program play up 73.9%, main floor gaming up 2.9%, driven by solid growth in table games, and non-gaming slightly down

Crown Perth

$844.5

24.4%

31.4%

  • Normalised EBITDA from Crown Perth was $248.8 M, up 1.6%. Reported EBITDA for the period was $221.5 M, down 13.9%. The reported EBITDA result takes into account an unfavourable variance from the theoretical VIP program play result
  • Normalised revenue at Crown Perth was $844.5 M, up 1.7%, with main floor gaming down 2.1%, VIP program play down 5.8% and non-gaming up 12.5%, primarily due to the full year impact of Crown Towers Perth, which opened in December 2016

Crown Aspinalls

$64.4

1.9%

1.5%

  • Normalised EBITDA from Crown Aspinalls was $12.0 M, down 54.8% on the previous period. This reflects a softening in volumes across the London high-end casino market and disruption from refurbishment. Reported EBITDA for the period was $12.4 M, an increase of $17.9 M on the previous period
  • The reported EBITDA result takes into account a favourable variance from the theoretical VIP program play result, which had a positive EBITDA impact of $0.4 M. This compares to a negative EBITDA impact of $32.1 M in the previous period

Wagering & Online

$293.0

8.5%

3.4%

  • EBITDA from Crown’s wagering and online social gaming operations was $26.9 M, up 81.8% on the pcp. This includes CrownBet’s consolidated result from 1 July 2017 to 28 February 2018
  • During the year, Crown completed the sale of its 62% interest in CrownBet, together with loans advanced by it to CrownBet, for $150 M and no longer holds any interest in CrownBet

Unallocated

$4.5

0.1%

(6.9%)

N/A

Adjustment

($18.3)

(0.5%)

(10.0%)

N/A

Significant Items

N/A

0.0%

N/A

N/A

3. Strategy

 

Key strategies include:[3]

 

  • Improve the underlying performance of Crown Melbourne and Crown Perth
  • Deliver the Crown Sydney project on time and on budget
  • Develop a financing solution for the proposed One Queensbridge project
  • Continue growing Crown Digital, including wagering and online social gaming

4. Markets

 

The Group operates in the following industries:[4]

 

Industry (Australia)

Industry Revenue (2018)

Growth Rate

Hotels and Resorts

$8 billion

2.4% (annual 14-19)

Casinos

$6 billion

2.4% (annual 13-18)

Pubs, Bars and Nightclubs

$17 billion

1.3% (annual 13-18)

Restaurants

$20 billion

3.5% (annual 13-18)

5. Competition

 

Major competitors Include:[5]

 

  • Caesars Entertainment Corporation
  • Tatts Group Limited (ASX:TTS)
  • Tabcorp Holdings Limited (ASX:TAH)

6. History

 

1985[6]

Crown Perth opened

 

2007  

Crown Agrees to Acquire Cannery Casino Resorts

 

2009  

Crown Participates in Successful MPEL Capital Raising

 

2011  

Acquired 60% equity interest and shareholder loan in the developer of Macau Studio City

 

2012  

Crown Limited announced that it welcomed the decision of the NSW Government to proceed to Stage 2 of the Unsolicited Proposal process for the Crown Sydney Hotel Resort

 

2013  

Crown’s bid to open a casino in Sri Lanka received approval from the government

 

2014  

Crown Resort Limited reached an agreement with the Victorian Government on a number of reforms to the Melbourne Casino Licence which will improve the competitiveness of the Crown Melbourne integrated resort as a tourist destination compared to the other integrated resorts in Australia and Asia

 

2016  

Crown reduced shareholding in Melco Crown Entertainment

 

2017  

Queensbridge Hotel Tower Received Planning Approval

Crown’s sale of Melco Crown Entertainment shares completes

 

2018  

Trading in the securities of the entity will be temporarily paused pending a further announcement

Review of Crown Melbourne casino license in Victoria

Sale of las vegas land completes

7. Team

 

Board of Directors[7]

 

John H Alexander – Executive Chairman

The Honourable Helen A Coonan – Non-Executive Director

Andrew Demetriou – Non-Executive Director

Geoffrey J Dixon – Non-Executive Director

Jane Halton – Non-Executive Director

Professor John S Horvath – Non-Executive Director

Guy Jalland – Non-Executive Director

Michael R Johnston – Non-Executive Director

Antonia Korsanos – Non-Executive Director

Harold C Mitchell – Non-Executive Director

John Poynton AO – Non-Executive Director

 

Management Team

 

John H Alexander – Executive Chairman

Kenneth M Barton – Chief Financial Officer, CEO Crown Digital

Barry J Felstead – Chief Executive Officer, Australian Resorts

W Todd Nisbet – Executive Vice President, Strategy and Development

Mary Manos – General Counsel and Company Secretary


read more

8. Financials

 

2018 Full Year Results Presentation

 

Financial Year 2017/18 (ended 30 June):[8]

 

Divisions

Revenue ($’000)

% Change

Profit (before Int, Tax, Depn & Amort) ($’000)

% Change

Crown Melbourne

$ 2,279.0

14.2%

$645.0

9.5%

Crown Perth

$844.5

1.7%

$248.8

1.6%

Crown Aspinalls

$64.4

(35.5%)

$12.0

(54.9%)

Wagering & Online

$293.0

(3.4%)

$26.9

81.8%

Unallocated

$4.5

36.4%

($54.4)

15.7%

Adjustment

($18.3)

(132.2%)

($85.9)

(127.9%)

Significant Items

N/A

(100.0%)

N/A

N/A

Total                 

$3,467.10

(3.9%)

$792.4

0.3%

9. Risk

 

Major risks include:[9]

 

Business Risks

Crown has established a framework for the oversight and management of material business risks and has adopted a formal Risk Management Policy. Risk management is an integral part of the industry in which Crown operates. Management is charged with monitoring the effectiveness of Crown’s risk management systems and is required to report to the Board through the Crown Risk Management Committee which administers Crown’s Risk Management Policy. Crown’s Risk Profile identifies specific head office risks in light of major risks identified at an operational level and provides the framework for the reporting and monitoring of material risks across the Crown group on an ongoing basis. Crown is committed to operating in a manner that is sustainable in the future. Crown is working towards aligning its strategies and activities in line with this commitment

 

Market Risk

Interest Rate Risk

The Group’s exposure to market interest rates relates primarily to the Group’s cash and cash equivalents and long term debt obligations.

As at balance date, the Group maintained floating rate liabilities of $858.0 million (2017: $1,011.3 million) that were not hedged by interest rate swaps. The associated interest rate risk is mitigated by total financial assets of $1,713.7 million (2017: $1,636.5 million). Under the financial liabilities outstanding, for AUD facilities, the Group pays the Bank Bill Swap rate (BBSW) plus a margin of between 140 and 500 basis points, for GBP facilities the Group pays GBP LIBOR plus a margin of 70 basis points, and for HKD facilities, the Group pays HIBOR plus a margin of 55 basis points. Of the AUD cash on hand and at bank $128.6 million is interest bearing and is invested at approximately BBSW. Deposits at call of $1,487.1 million are invested at approximately BBSW. The Group maintains cash and cash equivalents on hand of $130.9 million for operational purposes and is non interest bearing (2017: $134.7 million). As at balance date, the Group maintained floating rate borrowings in GBP of $8.9 million (2017: $nil) and had cash and cash equivalents of $8.8 million (2017: $20.7 million) which is interest bearing and accrues at the UK daily cash rate. As at balance date, the Group maintained floating rate borrowings in HKD of $25.7 million (2017: $38.4 million) and had minimal interest earning cash and cash equivalents (2017: minimal). As at balance date, the Group had USD cash on hand and at the bank of $87.5 million which is interest bearing and is invested at approximately US LIBOR (2017: $53.0 million). In addition, the Group had USD deposits at call of $1.7 million, which is invested at approximately US LIBOR (2017: $4.7 million). The Group maintained no floating rate borrowings in USD (2017: $nil)

 

Foreign Exchange Risk

The Group has currency exposure as a result of capital expenditure and investments/sales in currencies other than the functional currency of the relevant entity. The Group uses forward exchange contracts and cash flow hedges to minimise the currency exposure on any significant receivables or payables as is deemed appropriate. All forward exchange contracts must be in the same currency as the firm commitment and the Group negotiates the terms of the hedges to exactly match the underlying commitment to maximise hedge effectiveness. As at balance date, the Group had hedged the majority of its foreign currency receivables and payables that are firm commitments.

 

Price Risk

Equity Securities Price Risk

  • Neither the Group nor the parent entity is exposed to equity securities risk.

 

Commodity Price Risk

  • Neither the Group nor the parent entity is exposed to commodity price risk

 

Credit Risk

Credit risk arises from the financial assets of the Group, which comprise cash and cash equivalents, trade and other receivables and derivative instruments. The Group’s exposure to credit risk arises from the potential default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. Exposure at balance date is outlined under each applicable note. The Group does not hold any credit derivatives or collateral to offset its credit exposure. All investment and financial instruments activity is with approved counterparties with investment grade ratings and are in accordance with approved policies. There are no significant concentrations of credit risk within the Group and the aggregate value of transactions is spread amongst a number of financial institutions to minimise the risk of default of counterparties.

Credit risk in trade receivables is managed in the following ways:

  • The provision of credit is covered by a risk assessment process for all customers.
  • Concentrations of credit risk are minimised by undertaking transactions with a large number of customers.
  • The provision of cheque-cashing facilities for gaming patrons is subject to detailed policies and procedures designed to minimise any potential loss, including the taking up of bank opinions and the use of a central credit agency which collates information from major casinos around the world

In assessing the doubtful debts provisioning for trade receivables, the Group has measured credit risk using the ‘Simplified Approach’. The simplified approach requires the recognition of lifetime expected credit losses at all times. The Group has elected to use a provision matrix utilising historical default rates, as well as taking into account current conditions and forecasts of future economic conditions. If the Group becomes aware of circumstances relevant to an individual or group of debtors that results in the matrix not being an appropriate basis for provisioning, then management discretion will be applied.

 

Liquidity Risk

The Group’s objective to maintain a balance between continuity of funding and flexibility through the use of cash reserves, committed bank lines and capital markets debt in order to meet its financial commitments in a timely manner. At balance date, 1.7% or $25.7 million of the Group’s interest bearing liabilities will mature in less than 12 months (2017: 18.0% or $350.1 million). As at balance date, the Group had $176.1 million in undrawn committed bank lines and $1,844.6 million in cash and cash equivalents to mitigate the maturing liabilities (2017: $414.8 million and $1,771.2 million respectively).

References

  1. ^ Annual Report 2018,P. 95-96
    https://www.listcorp.com/asx/cwn/crown-resorts/news/2018-annual-report-1978386.html
  2. ^ Annual Report 2018,P. 02-03, 17-18
    https://www.listcorp.com/asx/cwn/crown-resorts/news/2018-annual-report-1978386.html
  3. ^ Annual Report 2018,P. 05
    https://www.listcorp.com/asx/cwn/crown-resorts/news/2018-annual-report-1978386.html
  4. ^ http://www.ibisworld.com.au/industry/default.aspx?indid=1811
    http://www.ibisworld.com.au/industry/default.aspx?indid=662
    http://www.ibisworld.com.au/industry/default.aspx?indid=2010
    http://www.ibisworld.com.au/industry/default.aspx?indid=448
  5. ^ http://www.hoovers.com/company-information/cs/competition.Crown_Limited.9d2a3717d13cff28.html
  6. ^ https://www.crownperth.com.au/general/about-crown
    http://www.asx.com.au/asxpdf/20071212/pdf/316fssq4d8hp19.pdf
    http://www.asx.com.au/asxpdf/20090429/pdf/31h92804l2d49c.pdf http://www.nbcnews.com/id/43417763/ns/business-press_releases/t/melco-crown-entertainment-limited-announced-acquisition-interest-developer-macau-studio-city-project/#.W6i96WgzbIU
    http://www.crownresorts.com.au/CrownResorts/files/18/18eb796b-7c24-4c2e-bf91-9ea91ed0ec45.pdf
    http://www.abc.net.au/news/2013-09-13/an-packer-gains-casino-foothold-in-sri-lanka/4955070
    http://www.asx.com.au/asxpdf/20140822/pdf/42rnm05pyjh9nm.pdf
    http://www.crownresorts.com.au/CrownResorts/files/33/33f46bec-5e95-48a0-8a75-f7e64d22bc1a.pdf
    http://www.asx.com.au/asxpdf/20170209/pdf/43fwdwqld98lgh.pdf https://www.listcorp.com/asx/cwn/crown-resorts/news/crowns-sale-of-melco-crown-entertainment-shares-completes-1529259.html
    https://www.listcorp.com/asx/cwn/crown-resorts/news/pause-in-trading-1967356.html
    https://www.listcorp.com/asx/cwn/crown-resorts/news/review-of-crown-melbourne-casino-licence-in-victoria-1942793.html
    https://www.listcorp.com/asx/cwn/crown-resorts/news/sale-of-las-vegas-land-completes-1788431.html
  7. ^ http://www.crownresorts.com.au/about-us/board-of-directors
    http://www.crownresorts.com.au/about-us/senior-management
  8. ^ Annual Report 2018,P. 95-96
    https://www.listcorp.com/asx/cwn/crown-resorts/news/2018-annual-report-1978386.html
  9. ^ Annual Report 2018, P. 124 - 129
    https://www.listcorp.com/asx/cwn/crown-resorts/news/2018-annual-report-1978386.html