Crown declares COVID-19 a ‘one-off event’

James Packer’s Crown says the impact of the coronavirus should be treated as a one-off event, setting the scene for more companies seeking similar treatment from auditors and regulators.

Crown Casino in Melbourne. Picture: AAP

The James Packer-backed Crown Resorts has gone on the front foot to clarify how its financial accounts will be documented amid the devastating impact of the coronavirus pandemic on its business, setting the scene for other hard-hit companies to follow suit.

Crown declared on Monday that it believed the government-mandated almost total shutdown of its operations since late March should be treated as a one-off event in the company’s accounts for the year to June 30.

“Crown considers that, during the period in which gaming activities and other non-essential services are suspended, costs incurred and any limited revenue received should be treated as significant items, including those associated with Crown Melbourne, Crown Perth, Crown Aspinalls, corporate costs and equity accounted results, as well as any related income tax expenses,’’ it told the ASX.

The move came after the Australian Securities and Investments Commission last week released a detailed set of Frequently Asked Questions about financial reporting and audit matters relating to the impact of the COVID-19 pandemic.

ASIC said that in some cases, “uncertainties may lead to a relatively broad range of reasonable and valid assumptions as to future performance and cash flows for an entity’s businesses or assets.

“Useful and meaningful disclosure on sources of estimation uncertainty and key assumptions will enable users to understand the basis for the estimates and judgments made. Information should be sufficiently specific to the circumstances affecting the entity and the impact on particular assets, liabilities, revenues and expenses,’’ the regulator said.

“Disclosing the impact under different possible scenarios as part of an entity’s sensitivity analysis on assets and liabilities may also be considered. Transparency is important to market and investor confidence in financial reports.”

It noted that companies benefiting from the coronavirus pandemic also needed to provide detail in their financial reports about the unexpected windfall.

“For example, an entity that had increased sales to parties who stockpiled the items sold should disclose the cause of the increased sales, and also disclose the possibility of reduced sales if customer stockpiles are reduced in the future,’’ ASIC said.

Crown will now present investors with a full set of annual statutory accounts for the 12 months to June 30 which will show a dramatic plunge in earnings year on year after its operations were forced to close on March 23 and it was forced to stand down 11,500 staff.

But in the notes accompanying those accounts it will treat the period from March 23 to June 30 as a one-off or a so-called significant item, with the exception of revenues from its wagering and online social gaming operations, which have continued to trade during the crisis period.

It will discuss the treatment with its auditors, Ernst & Young, as it prepares its annual accounts but is yet to engage with ASIC on the issue.

Crown chairman Helen Coonan is the chairman of the company’s audit committee.

Crown said on Monday it made normalised (which removes the volatility of high roller win rates) EBITDA of around $500m, and a normalised net profit of approximately $210m from July 1, 2019 to March 23, 2020.

Going forward it now wants analysts to exclude the impact of the pandemic from its calculations of Crown’s normalised result for fiscal 2020.

“As long as they are transparent about what they have done, most investors can understand what they are being told,’’ one senior accounting industry figure said of Crown’s move.

Evans & Partners gaming analyst Sacha Krein told clients the announcement was “marginally positive”, noting the earnings update from Crown was slightly better than expected.

“There is limited impact from a valuation perspective (slightly better Jan-Mar run-rate), but optically normalised earnings are likely to look better during the period during which casinos are closed (we assume until June 2020 so during 2H20),’’ he said.

Crown shares closed 5c, or 0.85 per cent, lower on Monday at $9.38. They rose over $1 last week after Lawrence Ho’s Melco Resorts group sold its 9.9 per cent stake in the Australian group to private equity giant Blackstone, a move that was welcomed by Crown’s major shareholder James Packer.

The casino giant is set to hold a topping out ceremony later this month for its $2.4bn Crown Sydney project, after declaring last month that the development will still open as planned later this year.