The Star Entertainment Group is experiencing a significant and rapid deterioration in operating conditions, particularly at The Star Sydney and The Star Gold Coast.
This has largely been driven by the compounding impact of regulatory operating restrictions and exclusion, and by an emerging weakness in consumer discretionary spending behaviour.
The Star Sydney continues to operate in an uneven competitive environment as it relates to the regulatory settings for complimentary services in its private gaming areas.
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.
To put the operating environment into perspective, the group’s current earnings performance is at unprecedented low levels (excluding the Covid-19 period).
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, including the FY23 impact of the cost initiatives described below.
The FY23 underlying EBITDA excludes provisions for fines, costs associated with the ongoing regulatory reviews (legal, consultant and other costs) and any one-off costs associated with the group’s cost initiatives, all of which will be treated as significant items.
In response to this new operating environment, the board and management have announced the implementation of a range of initiatives to further reduce the operating cost base of the group, including a reduction of approximately 500 FTE positions across the group (excluding risk management and remediation resources); a cancellation of the group’s short-term and other incentives for FY23; and a salary freeze for non-EBA employees.
These actions, together with the previously announced $40m of operational initiatives, are expected to deliver a combined ongoing reduction in group operating expenditure of more than $100m annualised compared to FY23.
The above steps are being undertaken independent of any potential impact from the proposed casino duty rate increases in NSW. Barrenjoey Capital Partners are also working with The Star 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 group is continuing to progress the proposed sale of the Sheraton Grand Mirage Resort Gold Coast, with indicative bids from interested parties expected to be received shortly.
The group is 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.