Crown Resorts auditors warn of ‘material uncertainty’
What are newly-named Crown Resorts chair (probity pending) Ziggy Switkowski and boss (probity pending) Steve McCann really getting themselves into?
As if things couldn’t get any worse for billionaire James Packer’s casino empire, its brand new auditor, Rachel Milum and her team from top-tier accounting firm KPMG, have issued a formal warning that there is a “material uncertainty” and “significant doubt” that Crown will be able to continue as a “going concern”.
In its Crown audit report dated September 9, Milum said “a material uncertainty exists that may cast significant doubt on the group’s ability to continue as a going concern and, therefore, whether it will realise its assets and discharge its liabilities in the normal course of business”.
Last time Margin Call got hot and bothered over language like that in financial accounts was when the then David Gordon-chaired, ASX-listed Network Ten released its 2017 interim numbers.
“A material uncertainty exists that may cast significant doubt on the consolidated entity’s ability to continue as a going concern,” PwC partner Scott Walsh warned in Ten’s April 2017 financial report.
Sound familiar?
Six weeks later amid the withdrawal of financial support by shareholder guarantors, KordaMentha was appointed as the broadcaster’s administrator and a few weeks later as its receiver, with the free-to-air broadcaster ultimately reincarnated as an outpost of US media giant CBS, now CBSViacom.
But back to Crown.
The dire warning from KPMG, which was appointed as Crown’s auditor in August last year, was based on several factors, including the likely continued impact of Covid-19 on Crown’s operations and the “ongoing legal and regulatory matters” unfolding at the group.
The vast majority of Packer’s wealth is tied up in his 37 per cent stake in the $6.6bn casino company.
It’s failure would wipe out a massive share of what The Australian’s The List estimates to be his $4bn personal worth.
Last we heard, Packer, who turned 54 on Wednesday, was floating about the Aegean Sea off the coast of Turkey aboard his $290m luxury gigayacht IJE.
KPMG has also identified several “key audit matters” in the Crown accounts for the 2021 financial year, including “estimate uncertainty” associated with “provisions and contingent liabilities” and Crown’s “valuation of goodwill and intangible assets”.
Margin Call understands this relates to the unfolding Austrac enforcement investigation around potential breaches of money laundering and counter-terrorism financing laws at Crown Melbourne and Crown Perth (Austrac’s action at Westpac on this front cost the bank $1.3bn), and the $1bn valuation that Crown has maintained in its books on its various casino licences.
KPMG said the grave “going concern” warning was made after its auditors took into consideration the special arrangements that casino management had made with its external financiers on restructuring Crown’s financing arrangements.
The measures included a waiver of the December 31, 2021, covenants and an additional $250m debt facility commitment, as well as a commitment not to pay out dividends for at least the next 12 months.
It was revealed to the Finkelstein royal commission into its Melbourne casino that Crown at the start of July warned the Victorian government that it could default on its debts if its Melbourne licence was not renewed.
Seems the threat to its future is much broader than that.
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Boardroom tremors
The level of crisis confronting the movable feast that was the Helen Coonan-chaired Crown Resorts board of directors in the 2021 financial year was laid bare in the gambling den’s 165-page annual report.
The workload and pressure associated with navigating the Covid-19 pandemic, no less than three royal commissions into Crown’s affairs, an unfolding Austrac enforcement investigation and a Maurice Blackburn class action all in a single financial year saw Coonan chair a total of 46 meetings of the company’s board in the 12 months to
June 30.
That’s just a few short of one board meeting a week (more accurately 3.8 meetings a month) for what must be close to an Australian listed corporate record.
Crown non-executive director (and now interim chair) Jane Halton and her fellow independent director Antonia Korsanos made it to 45 of those gatherings, not to mention the myriad marathon royal commission appearances that the boardroom trio made as the year unfolded.
For their tireless services, the ladies got nothing like the megabucks paid out to the likes of “good leaver” execs Ken Barton, Barry Felstead and Todd Nisbet (plenty’s been written elsewhere on that), with Coonan paid $1.35m in the year, Halton almost $340,000 and Korsanos about $319,000.
In a break with the norm, Crown’s annual report was opened with a “letter from the board”, signed by each of the current directors, along with Halton and Korsanos also including newer appointees Nigel Morrison and Bruce Carter.
Perhaps appropriately given the lengthy closures of Crown properties in the year thanks to the pandemic, not a single pic in the report featured patrons, with gaming tables, dining facilities and bars all empty, not even a model to dress things up.
There were even a few images recycled from previous Crown reports, perhaps reflecting the frugality of the times.
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Laundy at large
As New South Welshmen rejoiced at the prospect of beers at the pub from mid-October, political publican Craig Laundy wasn’t as nearly as upbeat as you’d expect of an heir to a pub empire.
The former pollie was again in front of the cameras Thursday, making a cameo on morning TV outside his Woolwich Pier Hotel, before an afternoon spot on Sky News, raising concerns of the logistics behind Premier Gladys Berejiklian’s“freedom day” plans.
Pub owners, he said, feared a critical shortage of staff under the as-yet fully fleshed out plans, particularly if workers needed to isolate for 14 days every time there was a positive case.
That was all after a spot of drivetime radio on 2GB the day before, where he gave a special shout out to “data boffin” state customer service minister Victor Dominello, and former colleague and now federal Small Business Minister Stuart Robert.
There’s more than just the family’s pub business riding on the path out of lockdown – their luxury yacht Infinity Pacific is moored in Sydney Harbour just a stone’s throw from Crown’s Barangaroo site, though without any of the usual champagne-toting guests.
The 40 metre superyacht is yours for around $22,000 a day and if the monochromatic interiors look familiar it might be that it’s the very same vessel, under a different name, bought by James Packer to entertain his high rolling guests back in 2014.
Known as simply Infinity under Crown’s ownership, the vessel was relegated to the casino group’s offload list in 2017 after a run of poor results and the now infamous arrest of several staff in China, after which it was never mentioned in the group’s reporting again.
So much for the billionaire’s pledge to NSW’s Barry O’Farrell government at its initial Barangaroo application to use the asset as a means to enhance the state’s brand and tourism messages.
Aqua Pacific Marine, a joint venture of Arthur Laundy and fellow millionaire Theo Karedis, took ownership of the vessel in 2017, rebranding it as the Infinity Pacific and calling upon their bevy of high profile clients to come on board.
Now, they tout the yacht as the only one owned by a hotel group in Sydney Harbour.
Way to rub it in.
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