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31 August 2011

Crown Casino - Crown Limited punts $1.5bn to fend off competition, by Greg Tingle - 26th August 2011


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Crown is counting on on a $1.5 billion capital expenditure program at its Australian land based casinos to help lift earnings in the second half of 2012 and beyond to help offset the impact of increased competition on Australian soil and offshore.

The James Packer-backed company reported a 15 per cent increase in annual net profit to $335.9 million, struck on a 3 per cent increase in revenue to $2.41bn.

It declared a final dividend of 19c a share, 50 per cent franked.

However, the profit increase was largely underpinned by a better-than-expected result from the Macau-based Melco Crown Entertainment (MPEL) joint venture, in which Crown holds a 33.4 per cent stake.

Crown's actual share of MPEL's bumper earnings was $34.9m for 2011, normalised to $19.2m when taking into account the win rate on VIP program play, compared with Crown's $69.5m share of MPEL's loss last year.

Macau's year-on-year gaming revenue growth in the seven months to July was 45.2 per cent.

But results at Crown's Australian casinos - Crown in Melbourne and Burswood in Perth - were largely flat in 2011 as they battled increased competition from new casinos in Singapore, softening consumer sentiment and refurbishment disruptions.

"We expect the impact of Singapore, we will continue to feel that, and obviously it is a question of how we can replace that business with new business out of China and new business out of Singapore," Crown chief executive Rowen Craigie said yesterday.

Earnings before interest, tax, depreciation and amortisation at Burswood was $176.2m in 2011, down from $183.5m a year earlier. Mr Craigie said Burswood's earnings would remain under pressure until the completion of the refurbishment program of the casino's VIP facilities, which is due by Christmas. "Burswood is playing in this game with one hand tied behind its back, given Macau and Singapore have largely completed their cap-ex programs. Burswood is yet to complete theirs," Mr Craigie said.

Analysts yesterday were generally happy with the group's result.

"We view Crown's FY11 slightly ahead of consensus result as sound," Deutsche Bank told clients. However, Crown shares closed 2.7 per cent lower at $7.87.

Mr Craigie said main gaming floor revenue growth for the start of the new financial year to date in the group's Australian casinos was 3.8 per cent, and non-gaming revenue was up 7.4 per cent.

This is in contrast to Echo Entertainment, owner of Sydney's Star City casino and Jupiters casino on the Gold Coast, which last week reported revenue growth of 8 per cent in the year to date. Echo is confident a landmark $1bn facelift for Star City will significantly boost revenues in the second half of next year, but Mr Craigie played down the competitive threat to Crown.

Crown also revealed it would buy back up to 30 million shares or 4 per cent of its issued equity.

The buyback is expected to lift Mr Packer's 43 per cent stake in Crown.

Crown continues to hold a 4.9 per cent stake in both Echo Entertainment and Tabcorp.

The stakes were acquired before the Tabcorp demerger.

Analysts said the announcement of a buyback indicated Crown had no intention to move on either company.

"Crown has stated it has no intention of increasing its holding in either, and the announcement on the buyback would seem to confirm this," Citi analysts said.

Crown says it intends to appoint former Howard government minister Helen Coonan as an additional independent non-executive director.

Crown feels heat from Singapore...

Casinos operator Crown Ltd says it is feeling the effect of competition from new casinos in Singapore.

But the company may be in a better position when extensive refurbishments of its Melbourne and Perth casinos are completed.

"We expect to continue to feel the impact of Singapore, and it's a question as to how we can replace that business with new business out of China and also new business out of Singapore,'' Crown chief executive Rowen Craigie said yesterday.

"We have programs in place to pursue both those objectives."

Crown yesterday reported a 14.9 per cent rise in annual net profit to $335.9 million for the 12 months to June 30, boosted by a $34.9 million gain from its 33 per cent stake in casino operator Melco Crown Entertainment in Macau.

The Crown casino in Melbourne and Burswood casino in Perth had a mixed performance as operations continued to be disrupted by renovations.

Crown has spent about $1.5 billion in capital expenditure from 2007 to 2011 and will spend about $540 million on Crown and Burswood in the 2012 financial year.

Crown also said that in the second half of the 2010-11 financial year, a few areas of its Australian operations had been affected by a softening in consumer sentiment.

Both casinos were affected by competition from two new casino-resorts that opened in Singapore.

Burswood casino experienced a 32.3 per cent fall in revenue from VIP gamblers as Burswood's new VIP facilities were not yet finished, and Asian high-rollers decided to carry out their betting in Singapore.

Mr Craigie said Singaporean gamblers now had options of close-to-home casinos and did not have to travel to Macau or Australia to gamble.

"That needs to be factored into the business, going forward, but the good news is the VIP market continues to grow strongly, courtesy of China," Mr Craigie said.

He said that it had to borne in mind that the refurbishments in Melbourne and Perth were still to be completed.

"So Perth is playing in this game with one hand tied behind its back," Mr Craigie said.

He declined to provide estimates of Burswood's future VIP revenue but said: "I think you could say we're looking forward to the Burswood VIP (refurbishment) program to be completed.

"If the Burswood VIP assets are completed by Christmas, and we think they will be, I probably wouldn't have to be Einstein to suggest that Burswood, going forward, is probably going to do better than Burswood has in the last 12 months."

Mr Craigie said the 2011 results reflected a "reasonable" performance from the Australian casinos in the non-VIP businesses.

Main-floor gaming generated revenue growth of 5.6 per cent.

Non-gaming revenue grew by 10.6 per cent, benefiting from the first full year of operation if the Crown Metropol hotel in Melbourne.

Mr Craigie said the Melco Crown Entertainment joint venture in Macau continued to improve its performance and was the major contributor to the profit growth of the group.

Crown said that in trading across both its casinos from July 1 to August 18, main-floor gaming revenue had grown by 3.8 per cent and non-gaming revenue was up 7.4 per cent.

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