China’s slowdown to hit flow of cashed-up gamblers, says Star as it sinks to $2.4bn loss
Queensland has reopened its borders to direct flights from China, but as the world’s biggest economy slows, so does the flow of wealthy Chinese gamblers.
Star Entertainment chief executive Robbie Cooke is not expecting the number of wealthy Chinese tourists to rebound to pre-pandemic levels as the world’s second-biggest economy slows, and the troubled casino group deals with the fallout of two bombshell inquiries.
Mr Cooke – who joined the company in mid-October – said on Tuesday he was encouraged by the return of international tourists, with several Chinese airlines resuming direct flights to Brisbane after three-pandemic plagued years.
The full reopening of international borders comes as Star is nine months away from opening its $2.9bn Queen’s Wharf development in Brisbane after being hit with construction delays and a lawsuit from its builder Multiplex over cost blowouts.
Mr Cooke said the Queen’s Wharf will become a “tourism magnet”, with a bridge connecting the casino to Brisbane’s popular South Bank precinct and will feature 1000 hotel rooms, 50 restaurants and cafes, and a convention centre set across 7.5 hectares of public space.
It is such a big deal that acting Queensland Premier Steven Miles posed for a selfie with Mr Cooke at the construction site two days ago.
But Mr Cooke is not expecting a sugar hit from the return of cashed-up Chinese tourists, particularly after Star posted a full-year statutory loss of $2.4bn, largely due to writedowns of its existing properties in Sydney and the Gold Coast.
The flow of Chinese tourists is expected to be limited after Chinese exports slumped by 14.5 per cent in the 12 months to July, with the country now falling into deflation and foreign investment slumping to its weakest level since 1998. At the same time, Youth unemployment in China has soared to record levels.
“I don’t think it (Chinese tourism) jumps back to pandemic levels anytime soon,” Mr Cooke said.
“But it’s refreshing to see Queensland is sort of talking about three flights a week coming in from China with one of the Chinese carriers. So it’s coming back, but it's probably going to be more measured than it was pre-Covid.”
Star has also suspended its VIP rebate play – which it is planning on reinstating – and has axed its links with Chinese junkets, or organised gambling tours, entirely following Adam Bell SC’s review into the company last year, which found that the company’s had breached anti-money laundering and misled the Bank of China.
This has left the company fighting to maintain its casino licences in NSW and Queensland after a similar inquiry, bruising inquiry in the Sunshine State.
But Mr Cooke is confident the company – the share price of which rebounded 2.1 per cent to 96.5c on Tuesday after Monday’s record low – has now stabilised its earnings, with trading in the financial year to date “broadly in line” with the three months to June 30.
Its normalised net profit surged 230 per cent to $41.3m, beating consensus estimates for $17.4m.
This excluded the non-cash impairment of The Star Sydney and The Star Gold Coast and Treasury of $2.17bn, and ongoing regulatory and legal costs of $595m, which dragged down statutory profit.
“To say it has been a challenging year completely understates the lived experience at The Star over the last 12 months,” Mr Cooke said.
“The consequences flowing from the damage to our social licence are felt daily by team members on multiple levels, reinforcing the critical need to understand the privilege and responsibility that comes with holding a casino licence.”
Mr Cooke said the company was determined to show that under new management it was transforming its culture and the resumption of its lucrative international business after three pandemic plagued years would support future earnings.
“There is still some upside in the business in the sense that we are currently re-initiating our rebate play piece of the business. That is something that we will look to resume.”
Mr Cooke said the company had also been working with gaming regulators about resuming free drinks in its private gaming rooms after the company voluntarily withdrew the service last September.
“We have been in a dialogue with our regulators on that in NSW, and we’re currently working on resuming the services of complimentary drinks – so that should return very shortly – in a matter of weeks.”
Overall revenue jumped 22.3 per cent to $1.87bn. Underlying earnings before interest, tax, depreciation and amortisation was $317m — slightly above its previous guidance of $280m to $310m.
Crucially, the company was given a lifeline earlier this month when NSW Treasurer Daniel Mookhey opted to defer duty rates for poker machines until 2030, to ensure Star remained financially viable.
The delay of the tax rise – which will have duty rates of up to 51.6 per cent – is conditional on Star maintaining a workforce of more than 3000 at its flagship Sydney casino.
Mr Cooke said the NSW government’s decision would still deliver a financial hit of about $10m this financial year. It must pay a “transitional levy” that will precede the tax rise, involving Star paying more tax on its poker machines as its gaming revenue rises until the changes begin on July 1, 2030.
“The resolution of the NSW casino duty proposed increase has removed significant uncertainty in relation to FY24 and beyond for our Sydney operation and has protected the jobs of thousands of NSW team members,” Mr Cooke said.
Normalised EBITDA at Star’s flagship Pyrmont casino surged 57 per cent to $127m. Revenue advanced 26 per cent to $984m, with poker machine revenue rising 30 per cent and table games up 19 per cent. Non-gaming revenue rose 49 per cent.
Mr Cooke said Star Sydney had been adversely impacted by several factors, included increased regulatory costs and controls, weaker consumer discretionary spending and increased competition from Crown Resorts’s new $2.2bn Barangaroo casino and “less regulated NSW clubs”.
“Remediation is our number one priority. We have commenced the uplift in our risk management, safer gambling and AML (anti-money laundering) capability and are starting to embed greater accountability and more robust governance.
“We have invested in enhancing our control environments and are operationalising and embedding these controls. We are improving our financial crime management and our overall approach to harm minimisation. Our remediation program will track and hold us accountable to the multi-year program we are committed to delivering.”
Star Gold Coast delivered a 20 per cent jump in revenue to $509m, while normalised EBITDA rose 20 per cent to $107m.
“The Star Gold Coast started the year strongly benefiting from a surge in domestic tourism and consumer spending post Covid along with a return in convention business” Mr Cooke said.
“However, this performance softened in the second half of the 2023 financial year, impacted by a rebound in outbound travel competing with domestic tourism; uplifted controls resulting in an increased number of excluded guests; and weaker consumer discretionary spending.”
Mr Cooke said Star Brisbane had a strong start to last financial year, with a “slight slowdown in the second half”. Revenue increased 15 per cent to $375m, while normalised EBITDA firmed 29 per cent to $83m.
He said the company’s overall $100m cost-cutting program was completed and forecast remediation costs to total $35m to $45m in the year ahead. “The foreshadowed 50 per cent reduction in remediation costs is not expected to occur until the 2026 financial year”
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