AFA1105 Accounting for Management: Crown Resorts Limited Assessment 3 Answer
|Crown Resorts Limited|
|AFA1105: Accounting for Management (Assessment 3)|
The following report discusses Crown Resorts (ASX: CWN) which is one of the largest players in gaming and entertainment market of Australia. The period of analysis is 2016 till 2019 and various line items will be analysed to determine how the company is performing with respect to the Profitability, Liquidity, Asset Efficiency, Capital Structure and Market Performance over these years.
The analysis will begin by understanding various liens of business that generate revenue for the company and determine the trend of these line items. Then the analysis will be done using vertical analysis technique whereby the profit and loss statement as well as balance sheet items will be studied as percentage of a base, such as, revenue, total assets or total liabilities. The report will also perform a brief ratio analysis to see the company performance during the analysis period.
Crown Resorts (ASX: CWN) was founded in 2007 and is headquartered in Melbourne, Australia. The Company is one of the largest players in gaming and entertainment market of Australia.
For the financial year ending June 2019, the Company reported a normalised net profit after tax of $368.6 million, a decline of 47% from the previous year. The decline is mainly attributed to the subdued market conditions. As of 2019, the Company had more than 18,500 employees.
The Company has two major properties, namely, Crown Melbourne and Crown Perth. Both are Australia’s leading integrated resorts that accounted for 32 million visits during the year. For the year 2019, Crown Melbourne reported normalised revenue of $2,155.4 million, down by 5.4% and normalised EBITDA of $589.5 million, down by 8.6% as compared to the previous year. While Crown Perth reported normalised revenue of $799.4 million, down by 5.3% and normalised EBITDA of $221.8 million, down by 10.8% as compared to the previous year. Apart from this, Crown Aspinalls (gambling club in London) and Crown Digital (online social gaming operations) reported EBITDA of $6.4 million and $26.1 million, respectively. Crown Aspinalls indicated a decline of more than 45% in EBITDA indicating stressed economic environment (Company Annual Report, 2019).
Using a trend analysis and the 2016 year as the base year, calculate the trend for Total revenue and net profit after tax up to including the 2019 financial year.
Graph the trends from your findings from the 2016 year and up to and including the 2019 financial year
Crown Resorts draws its major revenue from following lines of business:
- Crown Melbourne Resort: One of the leading integrated resorts in Australia, Crown Melbourne features luxury accommodation, world-class gaming and other entertainment options, award-winning dining options, conferencing, shopping, etc.
Crown Melbourne reported normalised EBITDA of $589.5 million, a decline of 8.6% from 2018, mainly on account of decline in VIP program play related revenue and increase in costs.
- Crown Perth Resort: One of the most coveted tourist destination in Western Australia, Melbourne, Crown Perth features three hotels, world-class gaming and other entertainment options, 2000 seat plus theatre, restaurants, bars, conferencing, shopping, etc.
Crown Perth reported normalised EBITDA of $221.8 million, a decline of 10.8% from 2018, mainly on account of decline in revenue from major components like VIP program play, main floor gaming and non-gaming and increase in labour and fixed costs.
- Crown Aspinalls: The Company also boasts of a licensed high-end casino in London’s prime West end entertainment district in central Mayfair. It offers VIP gaming options of international level. Crown group also holds 50% stake in Aspers Group that has four regional casinos in the UK.
Crown Aspinalls reported normalised EBITDA of $6.4million, a decline of 46.5% from 2018.
- Crown Digital: The income from wagering and online social gaming operations. The Company fully owns Betfair Australasia which is an online betting exchange. The Company also owns majority stake of 85% in DGN Games which is an online social gaming business. The Company also owns 50% stake in Chill Gaming, accounted as an investment.
Crown Digital reported normalised EBITDA of $26.1million, a decline of 27% from 2018. It must be noted that the Company sold CrownBet in February 2018. BetFair Australasia indicates strong growth despite point of consumption taxes while DGN Games indicates growing revenue but also a challenging environment with intense competition and high acquisition costs.
- Other Investments and Interests: The Company also has 20% interest in Nobu which is one of top recognized lifestyle hotel/restaurant brand with around 50 restaurants and hotels and a strong pipeline.
- Crown Group also owns 50% stake in One Queensbridge site located strategically next to Crown Melbourne’s entertainment complex. The Company is in final stage of negotiation to buy remaining 50% stake from the Schiavello Group which will make it 100% owner. Additionally, Crown Sydney Hotel Resort is progressing well with the construction. It will have 349 rooms and suites as well as luxury residences, apart from integrated facilities such that it will be city’s first six-star hotel on foreshore of Sydney Harbour.
A detailed break-up of 2019 revenue is presented below:
|Operating Revenue ($m)||Crown Melbourne||Crown Perth||Crown Aspinalls||Wagering & Online||Unallocated||Crown Group|
|Main Floor Tables||772.4||186.8||-||-||-||959.2|
|Main Floor Machines||462.7||267.4||-||-||-||730.1|
|VIP Program play||441.4||72.0||54.9||-||-||568.3|
|Wagering and non gaming||478.9||273.2||1.1||130.1||1.5||884.8|
The following table presents total actual revenue from various lines of business for the period of 2016 to 2019:
|Wagering & Online||229.9||303.3||293.0||130.1|
For convenience of analysis, the data above is presented graphically:
The first graph presents absolute numbers from each category while the second graph presents share of each category in total revenue for the year.
From the first graph, it can be seen that while 2018 was the peak year during the four year period, 2019 has registered a decline for all categories.
From the second graph, it can be seen that the major revenue is drawn from Crown Melbourne, followed by Crown Perth. Together, they form major chunk of the revenues with remaining coming from Crown Aspinalls, and Crown Digital.
Crown Digital’s share has registered a continuous decline from 2017 that needs to be analysed as it can be a major source of revenue. The decline in 2019 was steep with revenue declining from $293.0million to $130.1million, a decline of 55.60%.
Crown Aspinalls forms a very small portion of revenue but has registered decline as well.
The decline in revenue from Crown Melbourne is of concern as it is the top revenue grosser for the Company and 2019 has indicated a steep decline of 5.73%. Crown Perth has also indicated similar pattern.
Net Profit After Tax (NPAT)
The following table and graph indicates NPAT and revenue for the analysis period of 2016 till 2019:
|Crown Group Revenue||3,617.8||3,345.3||3,085.3||2,929.4|
The above graph clearly shows the continuous declining trend in group revenue which is mainly due to subdued market sentiment that people are spending less on entertainment and luxury. However, a comparison must be made to peers to see if the trend is similar.
With respect to NPAT, 2017 was the peak year where despite the declined revenue, the NPAT increased almost two-folds. However, the same declined steeply in 2018 and then again in 2019 showing dismal performance. NPAT as percentage of revenue has alos been declining indicating increasing costs or other obligations.
2019 Profit & Loss Statement
The below table presents all the figures in profit and loss statement of 2019 as percentage of revenue for the year:
|2019 ($mn)||as %of Revenue|
|Share of profits of associates and joint venture entities||13.3||0.45%|
|Profit before income tax and finance costs||615.9||21.03%|
|Profit before income tax||579.3||19.78%|
|Income tax expense||-176.4||-6.02%|
|Net Profit after tax||402.9||13.75%|
|Equity holders of the Parent||401.8||13.72%|
The net profit margin is 13.75% while the expenses form a huge 79.43% of revenues.
2019 Balance Sheet
|2019 ($mn)||as %of Asset/Liabilities|
|Cash & Cash Equivalents||1,126.0||14.75%|
|Trade & Other Receivables||98.7||1.29%|
|Other financial assets||5.5||0.07%|
|Other financial assets||37.5||0.49%|
|Investments in associates||206.9||2.71%|
|Intangible assets - licenses||1,064.0||13.94%|
|Other intangible assets||415.3||5.44%|
|Deferred tax assets||159.5||2.09%|
|Total Non Current Assets||6,348.8||83.17%|
|Trade & Other payables||433.1||17.07%|
|Interest-bearing loans and borrowings||287.6||11.34%|
|Income tax payable||153.9||6.07%|
|Total Current Liabilities||1,060.6||41.81%|
|Interest-bearing loans and borrowings||791.0||31.18%|
|Deferred tax liabilities||401.5||15.83%|
|Other financial Liabilities||4.5||0.18%|
|Total Non-Current Liabilities||1,476.3||58.19%|
|Return on Equity (ROE)|
|Net Profit After Tax / Average Equity (%)||11.09%||7.86%|
|Return on Assets (ROA)|
|Net Profit After Tax / Average Assets (%)||6.85%||5.10%|
|Net Profit Margin|
|Net Profit After Tax / Total Revenue (%)||18.59%||13.75%|
The utilised formulae as well as figures have been presented in table above. It can be seen that all the three ratios have registered a decline from 2018 to 2019.
The above report presented a detailed analysis of Crown Resort company in Australia. The main focus points were revenue and profit. It was seen that there are multiple revenue categories and same were discussed in detail, including various revenue streams under each line of business. Further, the trend in revenue was also studied where the top revenue grosser Crown Melbourne showed a concerning decline in revenue as well as EBITDA. It was also seen that Crown Digital is also contracting although Betfair Australasia is doing well. The company is focussing on increasing the revenue from this segment as it seems promising.
The analysis then moved to vertical analysis which indicated that costs and expenses are very high proportion of revenue indicating lower net profit margins. Hence, costs need to be controlled.
It also indicated that non-current borrowings are more than 30% of the total liabilities and along with current borrowings; this comes to 42.52% which is very high ratio of loans. This can be particularly concerning given the revenue and profit situation of the company.