James Packer gives Crown’s John Alexander free rein

James Packer says Crown’s new executive chairman, John Alexander, will have a free hand to make deep cost cuts.

James Packer: ‘Crown has had to make some tough decisions’

James Packer has vehemently defended his decision to abandon Crown Resorts’ international ambitions and revealed that new executive chairman John Alexander would be given the licence to make deep cost cuts across the casino group’s Australian ­operations.

In his first interview since his decision to return to the Crown board this week, Mr Packer responded directly to criticism that Crown had made too many strategy U-turns over the past two years. After planning to build the Crown brand globally with casino resorts in the US, Japan and Sri Lanka, the company is now solely focused on its Australian properties and building new casinos in Sydney, Melbourne and on the Gold Coast.

It is also working on plans to spin off a local hotel real estate ­investment trust.

After proposing a demerger of its local and international operations last year, Crown then abandoned that plan and instead sold down its stake in the Macau-­focused Melco Crown Entertainment to just over 11 per cent, after previously having more than a third of the company, generating almost $3 billion in cash.

Angus Gluskie, a fund manager at White Funds Management, which has a small stake in Crown, said this week: “We all want to get a handle on what the real agenda is.”

Mr Packer told The Weekend Australian: “'Crown started 2016 with over $3bn of debt.

“Crown has secured its balance sheet with the selldown in Macau. With trading softening, especially in the VIP business, Crown has had to make some tough ­decisions.”

In June, Crown was placed on a negative ratings watch by Standard & Poor’s after announcing the demerger plan. S&P was worried the deal would reduce Crown’s diversification and scale.

Figures released by Crown last month showed its Australian high-roller program turnover plunged about 45 per cent and gambling revenues at its local cas­inos had fallen by 12 per cent in the current financial year following the arrests of 18 of its staff in China in October. Only one has been ­released.

This week, CLSA analyst Sacha Krien forecast a 6.7 per cent fall in Australian gross gaming revenue in 2017 because of a big drop in VIP traffic and slowing mass market revenue growth.

“Crown is now focused on its business in Australia,” Mr Packer said. “We need to be competing for global tourists the same way as any other inbound operators. Our online platforms are also focused on expansion and growth at home and internationally.

“Needless to say, at the heart of the company are our resorts in Melbourne, Perth and soon in Sydney. The main focus of the company will remain on driving efficiencies and innovations at these resorts to improve profit­ability and get the best result for shareholders.”

There are also concerns Crown has sold out of Macau just as the city’s gaming market is turning after being hit hard by the Chinese government’s crackdown against corruption. Casino revenue in Macau increased 8 per cent last month, extending the industry’s recovery to a fifth month.

Crown’s move to give Lawrence Ho’s Melco International majority control of Melco Crown through the sale could help Mr Ho ahead of negotiations for the renewal of the Hong Kong company’s Macau gaming licence.

Mr Packer did not comment on the suggestion Crown had sold out of Melco Crown too early, but said: “Crown has made over five times its money in Macau. My hope is that Lawrence Ho does very well with his purchase of Crown’s stake in MPEL. I believe it was a win-win deal.”

Theo Maas, a partner at Arnhem Investment Management, which holds Crown shares, said Crown management had been “a bit shell-shocked” by the volatility in the Macau gaming market over the past two years. After falling on Tuesday in response to the latest management changes, Crown shares rebounded over the rest of the week.

The move by Mr Packer to return to the Crown board, install Mr Alexander as executive chairman and Guy Jalland as the boss of his private company Consolidated Press Holdings and as a future Crown director, answered some critics, who questioned the management of the company since Mr Packer stepped down as a director in late 2015.

There were questions about former chairman Robert Rankin’s focus on the operational side of Crown’s ­business, given he decided to ­remain based in Hong Kong when he took on the Crown chairmanship, despite being ­advised to move to Australia.

Critics claimed it was one of the explanations for the company failing to heed the repeated warnings by Chinese authorities before its staff were arrested for so-called “gambling crimes”.

Mr Packer said Mr Rankin had done a good job at Crown and CPH and he trusted and respected him “as much today as ever and we remain the closest of friends”.

Asked whether Mr Alexander would be given a licence to make tough cost cuts across Crown’s Australian businesses, Mr Packer replied: “Absolutely. I certainly will be urging him to make the hard calls required.”

Three years ago, Mr Alexander led an assault on costs at Australian casino properties that saw the abolition of about 100 positions, including the role of Crown Melbourne chief executive.

The next cost-cut drive is expected to be greater, which could put Mr Alexander on a collision course with Crown chief executive Rowen Craigie. Former Crown Perth boss Barry Felstead, Crown’s chief executive of Australian resorts, is said to be closer to Mr Alexander than Mr Craigie.

Mr Packer has owed a major debt to Mr Alexander for cleaning up his father’s magazine business Australian Consolidated Press and helping the billionaire get a massive $5.6bn price tag for ACP and the Nine television network from private equity buyers in 2006. It set up his expansion into the gaming sector.

In addition to his work with Crown’s Australian restaurant portfolio, Mr Alexander is believed to have been doing extensive behind-the-scenes work on Crown’s digital business opportunities over the past 18 months.

“Online is an important area of opportunity and growth for Crown,” Mr Packer said. “(At CPH) Guy (Jalland) understands that and will support John Alexander in that regard who has a deep interest on the Crown side.”

In July 2015, Crown paid $US27.5 million for a 60 per cent interest in online social gaming operation DGN Games, and has contributed $US5m to DGN to fund growth.

There has also been speculation Crown may become the digital partner for ClubsNSW, which has 1200 member clubs.

Known as one of the smartest people in Australian business, Mr Jal­land takes the title of chief executive of CPH after being a long-time executive of the company under Mr Packer and before that under his late father Kerry.