Fitch Ratings: Australia's Crown Resorts Benefits from Good Cost Management Amid Pandemic Shutdowns

(The following statement was released by the rating agency) Fitch Ratings-Sydney-20 August 2020: Crown Resorts Limited's (BBB/Stable) good cost management limited the impact of the mandated shutdowns of its properties since March 2020 on its results for the year ended 30 June 2020 (FYE20), says Fitch Ratings. This also limited the impact on its financial position, although we expect the gaming operator's leverage, defined by total adjusted net debt/operating EBITDAR, to further weaken in FY21 amid the ongoing closures and restricted operations at its properties and significant capex as it completes the Crown Sydney casino. Crown reported EBITDA after closure costs and significant items fell around 40% to AUD505 million in FYE20 from a year earlier. The majority of the decline reflected the loss of revenue at its Australian properties in Melbourne and Perth in the final quarter of FYE20, with EBITDA before closure costs at these properties - which contribute the majority of the gaming operator's earnings - declining by 27% and 29%, respectively, compared with the previous year. Crown's digital business offset some of the lower EBITDA from its properties with a 33% rise from a year earlier to AUD35 million, as more Australians turned to online gaming as they complied with the social-distancing measures. Crown was able to stem overall cash outflows with the actions it took following the mandated closures. These included standing down around 95% of its employees and salary reductions of 20% for senior executives. It also announced on 19 August 2020 it will not pay a final dividend due to the ongoing uncertainty and future dividends will be subject to the board's assessment of the company's financial position. It ended the year with reported net debt of AUD892 million, compared with AUD87 million at FYE19 (excluding 50% equity credit given to Crown's subordinated debt). The fall in earnings and rise in debt due to the ongoing construction of its Crown Sydney property led to a weakening of the company's leverage to 1.1x at FYE20, from a net cash position at FYE19. However, this was better than Fitch's expectations due to the better-than-expected reduction in costs and below the 2.5x ratio at which we would consider taking negative rating action. Fitch expects Crown's leverage to remain elevated and exceed its negative rating sensitivity in FYE21 due to the continuing uncertainty over the ongoing closure of its Melbourne property, while it continues to incur significant capex as it completes the construction of Crown Sydney in the second half of 2020. However, we expect Crown to be able to commence deleveraging to well within the current guidelines for its rating from FYE22, when we assume that operations will have normalised and revenue will have recovered to FY19 levels. Our recovery expectations once properties have reopened are supported by Crown reporting an 18% increase in its main floor gaming revenue (excluding VIP), compared with the same six-week period a year earlier, since the reopening of its Perth property at end-June 2020. We also understand that the mass-market segment's performance was stronger than the premium-market segment, which underscores the strength of Crown's domestic mass-market operations, a key driver of its rating. However, we believe that part of the significant rebound was due to pent-up demand, which is likely to subside over time, and that the recovery will be more gradual in light of a weakening in household finances amid the ongoing economic strain in Australia, which we have included in our expectations. Contact: Kelly Amato, CFA Director +61 2 8256 0348 Fitch Australia Pty Ltd Suite 15.01, Level 15, 135 King Street, Sydney 2000 Australia Media Relations: Peter Hoflich, Singapore, Tel: +65 6796 7229, Email: peter.hoflich@thefitchgroup.com Leslie Tan, Singapore, Tel: +65 6796 7234, Email: leslie.tan@thefitchgroup.com Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. 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