The Star Entertainment Group half-year results for FY21 reveal depth of reliance on foreign VIPs

Billions of dollars in high-roller turnover to The Star Gold Coast dried up virtually overnight in 2020. Here’s an inside look at how it plans to make up the lucrative lost ground.

• STAR LEAVES DOOR OPEN TO HIGH ROLLERS
• WORK BEGINS ON $400M SUPERTOWER

THE Star Entertainment Group has shifted its focus from uber-wealthy whales to a slightly smaller species of high roller as it reconciles a major hit to its VIP business.

Billions of dollars in international high-roller turnover to The Star dried up virtually overnight, at a time when it was pouring billions of dollars into new hotels and residential towers.

The sector, already threatened by tightening Chinese restrictions on its wealthy residents, was walloped by pandemic-prompted border closures.

Looming regulatory changes also look likely to change the way VIPs are brought to The Star’s properties at the Gold Coast, Brisbane and Sydney, in the wake of a damning report into money laundering at Crown Resorts.

The report recommended an end to third party VIP junket operations, which have left Crown unable to get a licence for its new Sydney casino until significant changes are made.

In its half-yearly financial report, Star reported statutory net profit after tax of $51 million, down from $77 million last year and two thirds lower than the $149 million reported for the same period in 2018.

The results lay bare the company’s reliance on international VIPs, with turnover in that sector down 97 per cent, to $654 million in the last six months of calendar 2020, compared to $21.2 billion the previous year.

The situation has left The Star, which had also used the services of junket operators, looking to what it calls International Premium Mass customers to help plug the gap.

While they don’t spend long days and nights at the betting tables, splashing up to $200,000 a hand like the Chinese whales, these new big spenders still have deep pockets.

CEO and managing director Matt Bekier said IPMs would be a key focus for the group once international borders open.

“They are a super high-end international tourist,” he said.

“They come to Australia, they like to gamble, but it’s not the primary reason for their visit.

“While the traditional `whale’ might bet $100-200,000 per hand, these people don’t play at such a high level.

“(But) we don’t have to fly them out in the jet, they fly commercial, first class, and we curate a tourism experience for them.”

Mr Bekier said the IPM customers were based mostly in Asia, and used the traditional banking system to transact with the casino, so were not considered a money laundering risk.

In the meantime, with international borders unlikely to open in the short-term, domestic high rollers have stepped into the void.

The Gold Coast had the biggest January domestic revenue result since the casino came under The Star banner.

“We were using the jet to fly these people to the Gold Coast from Sydney and Melbourne,” Mr Bekier said.

“It’s not a high number, but they are high value – there were about 200 high-end customers in one month.

“And when they come, they like to play golf, go out to the clubs around the Gold Coast, go deep sea fishing – they have a nice multiplying effect for the economy.”

Shares in Star closed 1c higher at $3.69 on Thursday.

EARLIER FEBRUARY 18:

PANDEMIC-induced border closures have delivered a 20 per cent hit to earnings at The Star Gold Coast – but the results have been propped up by locals feeding eight per cent more dollars into the pokies.

The Sydney-based casino group reported gross revenue of $750 million nationally for the six months to December 31, 36 per cent lower than the same period last year, and will not pay a half-year dividend to shareholders.

An interim dividend of 10.5c per share was paid for the same period last year.

Its statutory net profit after tax was $51 million, down from $77 million last year and two thirds lower than the $149 million reported for the same period in 2018.

The results lay bare the company’s reliance on international VIPs, with turnover in that sector down 97 per cent, to $654 million in the last six months of calendar 2020, compared to $21.2 billion the previous year.

The company said it was “reviewing the business model” around international VIPs, which were the centre of a NSW commission into corruption and money laundering at Crown Resorts in Melbourne.

The report made a series of recommendations, including one to remove oversight of casinos from states and territories and create a national watchdog.

“It is currently unknown when and to what extent (the recommendations) will be implemented,” The Star’s statement said.

“In relation to the International VIP Rebate business, the Group will continue to reduce junket related fixed costs to reflect the near and medium term outlook and further increase the focus on the International Premium Mass customers when the borders re-open.”

The Star Entertainment Group sod turning ceremony at their new development site at Broadbeach. Gaven MP Meghan Scanlon, Star Chairman John O'Neill, Premier Annastacia Palaszczuk, and Star CEO Matt Bekier. Picture: Glenn Hampson

In a statement to the ASX, chairman John O’Neill AO said COVID-19 had presented “extraordinary challenges and significant impacts” to the company – but remained positive about its growth.

“The fundamental earnings prospects for The Star’s domestic business remain unchanged,” he said.

“They are underpinned by valuable long-term licences in compelling locations and the continued transformation of our properties into globally competitive entertainment destinations. “Major projects at Queen’s Wharf Brisbane and The Star Gold Coast are proceeding to plan, with the upgraded and expanded Sovereign at The Star Sydney delivered on time and budget.”

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Managing director and chief executive officer Matt Bekier said high value domestic customers had patronised the Sovereign high rollers room at The Star in Sydney.

“The initial response by our highest value domestic customers to the new Sovereign in Sydney since its July 2020 opening has been pleasing,” he said.

“Queen’s Wharf Brisbane was further de-risked with circa 88 per cent of total project costs now under lump sum terms.

“Comprehensive actions to mitigate the impact of COVID-19 were implemented, safeguarding staff and customers, securing debt covenant waivers and amendments, and preserving cash.

“The properties reacted expediently to the many changes to operating conditions throughout the period.

“The Star’s business is fundamentally strong. The long-term value uplift from investments in our network of integrated resorts and continuing operational improvements to drive visitation and earnings remains significant.”

Mr O’Neill said there would be no dividend to shareholders this half.

“The Star remains committed to maintaining a balance sheet that positions the group for the post COVID-19 recovery,” his statement said.

“The board has not declared an interim dividend … as a cash dividend cannot be paid until gearing (net debt/trailing 12-month statutory EBITDA) is below 2.5 times, which was a condition for the June 2020 covenant waiver.”

Shares in Star rose 1.09 per cent to $3.72 by 10am Thursday, after closing Wednesday at $3.68.

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