Bruce Mathieson says NSW tax rise would ‘nearly ruin’ Star Entertainment, as it sacks 500

Troubled Star Entertainment will make sweeping changes to shore up its balance sheet, including a mass cull of its workforce as trouble spreads from Sydney to its Queensland casinos.

NSW’s proposed casino tax hike would “nearly ruin” Star Entertainment, one of its biggest shareholders and pokies industry veteran Bruce Mathieson warns, as the troubled company sacks 500 workers as part of a $100m cost cutting program.

Mr Mathieson – who has acquired an almost 10 per cent stake in Star during the past month – is confident the group can turn around its flagging fortunes.

But he says a tax hike would paralyse the Pyrmont-headquartered company.

“Really, to be honest, it stops capex, it stops employment – all the things that you need to do. I mean, you can’t have a company just run stagnant and virtually going backwards because of tax. It’s just impossible,” he said.

Star – which owns casinos in Sydney, Brisbane and the Gold Coast – said on Wednesday it expected its earnings before interest, tax, depreciation and amortisation (EBITDA) to plummet to $280m, a fall of up to $80m on previous estimates.

It comes amid a “rapid deterioration” in its earnings, including on its previously solidly performing Gold Coast casino, as regulatory screws tighten after a spate of money laundering breaches and discretionary spending is crunched.

The loss of 500 full-time equivalent roles is expected to be across the group, but it is understood the cuts will be more heavily skewed towards its Sydney operations. Star Entertainment currently employs 8000 people.

The company said it would cancel executive bonuses and launch a salary freeze on employees not covered by enterprise bargaining agreements as it seeks to dramatically rein in costs to keep the lights on across its casino empire.

It will also pursue a sale of the Sheraton Grand Mirage Resort Gold Coast, with indicative bids from interested parties expected to be received shortly.

Star’s shares dived 7.4 per cent to a fresh all time low of $1.26 on Wednesday against a flat broader share market.

Bruce Mathieson has acquired a near 10 per cent stake in Star Entertainment.

Mr Mathieson believed Star’s management, led by chief executive Robbie Cooke, was well placed to restore earnings. But he said the NSW’s proposed tax hike – a hangover from former treasurer Matt Kean – would “belt” shareholders.

Already, NSW and Queensland casino regulators have each fined Star $100m over the money laundering breaches and other wrongdoing. Meanwhile, about 20 senior executives, including most of former chief executive Matt Bekier’s leadership team, have left the company.

“I keep referring it to a car. There’s nothing wrong with the car, it just depends on who steers it and who puts their foot on the accelerator,” Mr Mathieson said.

“What they are doing now is they are running the company as it should be ran, driven as it should be driven. The big point is that shareholders have been belted and they’ve had nothing to do with that (the company’s wrongdoing).

“I don’t know why they (the NSW government) would want to belt the shareholders any more. I think everybody is awake to what’s got to be done and what’s got to be done and will be done – the company is not that silly.”

The financial carnage comes two months after Star announced a writedown of $988m on its Sydney gaming complex as a direct result of former NSW treasurer Matt Kean’s proposal to lift the state’s casino tax rate.

But Star Entertainment said the job and costs cuts announced on Wednesday were independent of any potential impact from the proposed casino duty rate increases in NSW” and related solely to its earnings for this financial year.

Nevertheless, it underlines the dire state of the group’s finances.

It has engaged Barrenjoey Capital Partners to assist with a strategic review of The Star Sydney and “consider any structural alternatives available to maximise value for the group’s shareholders”.

The company had previously warned of a dire outlook for its flagship Pyrmont resort where its casino licence has been suspended and hit with a $100m fine over money laundering breaches.

But on Wednesday it said its Gold Coast casino was also suffering financially, following a short-lived rebound from Covid-19.

“The strong 1H FY23 performance at the Group’s Queensland properties as reported in February, which was driven by strong domestic revenues in that period – relative to pre-Covid levels – has deteriorated in recent weeks, particularly at the Gold Coast,” the company said.

“To put the operating environment into perspective, the group’s current earnings performance is at unprecedented low levels – excluding the Covid-19 period. This has largely been driven by the compounding impact of regulatory operating restrictions and exclusions, and by an emerging weakness in consumer discretionary spending behaviour.

“If these current conditions continue for the balance of the financial year and do not materially change, underlying FY23 EBITDA is expected to be in the order of $280m to $310m.”

The company has previously announced $40m worth of cost savings and said the job cuts, salary freeze and suspension of executive bonuses will deliver an annual ongoing reduction in group operating expenditure of more than $100m.

Star chief executive Robbie Cooke with Queensland deputy premier Steven Miles at its Brisbane development in February. Picture: Steve Pohlner

It comes as the boss of Star’s Sydney operations and executive in charge of its transformation, Scott Wharton, resigned from the company earlier this month. Mr Wharton replaced Star’s former NSW boss Greg Hawkins who left the group amid a disastrous appearance at a royal commission-style inquiry last year.

Mr Hawkins was accused of misleading the NSW Bergin Inquiry into Crown Resorts about illegal Chinese cash transactions at an exclusive gaming salon used by Chinese junket operator, SunCity, at Star’s Pyrmont casino.

On Wednesday the company said it was “accelerating its previously foreshadowed plans to refinance its existing debt funding arrangements, with a focus on improving the group’s liquidity position and separately increasing covenant headroom in light of the group’s current earnings environment”.

“To help improve the group’s liquidity position and maximise the prospects of a successful refinancing given the challenging operating environment, The Star intends to engage with the NSW government, the Queensland government and Austrac in respect of casino duty rates and flexibility on payment terms in relation to any current and future penalties.

“In addition, the group continues to work with regulators and the NSW Manager and Queensland Special Manager to remediate its businesses, to support a return to suitability over time.”

The company had previously warned of a dire outlook for its flagship The Star Casino in Pyrmont. Picture: Damian Shaw

Last month, Star raised $800m from investors, including from Mr Mathieson who has amassed a near 10 per cent stake after tipping in about $80m into the company.

It also secured another $80m from its joint venture partners, Chow Tai Fook and Far East Consortium, despite their links to convicted junket boss Alvin Chau.

A Macau court sentenced Mr Chau – whose SunCity junket ran a “casino within a casino” at Star Sydney, flouting money laundering laws – to 18 years’ jail last month after he was found guilty of being the kingpin of a criminal syndicate and illegal gaming empire.

Star has partnered with Chow Tai Fook and Far East Consortium on more than $5bn worth of developments, including Brisbane’s Queen’s Wharf.

But Star chief executive Robbie Cooke said earlier this year: “I haven’t heard anything that suggests that they’re not appropriate partners for us.”

It followed Queensland’s casino regulator also fining Star $100m and the financial crimes regulator announcing it would seek potentially hundreds of millions of dollars in extra penalties from the company over “innumerable” and systemic breaches of anti-money laundering and counter-terrorism financing laws.

Star said it would ask Austrac for flexible payment terms on current and future fines.

In September, Star’s auditor, Megan Wilson of Ernst & Young, wrote in her report that Star faced “material uncertainties”, from the $100m fines as well as yet to be quantified penalties from Austrac.

“Significant adverse outcomes in relation to these matters may result in the group not being able to continue as a going concern unless the group continues to have the support of its lenders,” Ms Wilson wrote.

Originally published as Bruce Mathieson says NSW tax rise would ‘nearly ruin’ Star Entertainment, as it sacks 500