Crown and Echo claw for an edge in tough markets
Crown Limited and Echo Entertainment reported annual increases in profits as the Australian rivals continue to battle weakness in domestic spending, an unpredictable VIP sector, and each other. Buoyed by its 33% stake in Macau casino giant Melco Crown Entertainment, Crown beat consensus estimates by posting A$473.2 million in adjusted net income for the 12 months ended 30th June, a 14% increase over the same period last year. Analysts polled by Thomson Reuters had forecast $452.3 million.
The market value of its Macau investment more than doubled over the period as gaming revenue in the city rose 16% in the first half, while Crown continues to expand in its home markets, completing an expansion of its casino in Perth in Western Australia and winning tentative approval to construct a $1.3 billion resort on Darling Harbour to go head to head with Echo for Sydney’s high-roller market. Crown also has been approved for a foreigners-only casino with a hotel in the Sri Lankan capital of Colombo, and the Melco Crown investment is opening a large-scale resort in Manila next year.
ASX-listed Crown (CWN), controlled by billionaire James Packer, also is looking to plant its flag in the Queensland capital of Brisbane, where Echo holds a monopoly, arguing Australia needs to increase its gaming options to compete against growing markets such as Macau and the Philippines and to reverse what it sees as “evidence of weak consumer sentiment” in Australia.
Echo (ASX: EGP) is wrestling with the same problem—“headwinds in domestic gaming,” as Merrill Lynch analyst Mark Bryan terms it in a recent note to investors—and is seeking approval to relocate and expand in Brisbane as the Australian market continues to be challenged by subdued economic conditions and volatility in the VIP sector.
Echo reported a net profit of A$83.5 million for the 12 months through June,almost double last year’s results but missing the $123 million forecast by a Bloomberg poll of analysts. The company warned against year-on-year comparisons, however, noting that underlying profit of $126.9 million was down 15.5% and the period was impacted by costs associated with restructuring at its flagship Star casino in Sydney together with some $40 million in operating cuts and additional termination payments and legal and consulting fees.
On the plus side, VIP volume at Star rose 29% to $22 billion.
“The focus for 2014 is to drive improved top-line momentum across all of Echo’s properties,” said Chief Executive John Redmond.
The Brisbane relocation is key to that plan because the company’s Queensland properties, which include casinos in Gold Coast and Townsville, are too small to attract overseas tourists, says Mr Redmond.
“We don’t have a compelling enough offering to attract people,” he said. “You need to build or develop something at a scale that allows you to compete with the rest of the world.”
Crown, meanwhile, is lobbying hard for government approval to break Echo’s exclusive license in Brisbane, and Hong Kong businessman Tony Fung is proposing a $4.2 billion complex of resort hotels and leisure attractions, including casinos, along the Great Barrier Reef in Cairns. The state also has OK’d a short list of bidders for a combined resort and cruise ship terminal, which might include a casino, in Wavebreak.
Echo’s revenues in Queensland fell 3.3% during the year, driven down by a 19% drop in VIP volume, and Mr Redmond says the market isn’t big enough to support more gaming.
