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Caesars returns to profit in Q1 despite revenue drop


Caesars Entertainment Corporation (CEC) reported $123m in comprehensive profit for the first quarter of 2020, despite experiencing a year-on-year drop in revenue due to enforced casino closures as a result of the novel coronavirus (Covid-19) outbreak.

Net revenue for the three months through to March 31, 2020, totalled $1.83bn, down 13.6% from $2.12bn in the corresponding period last year.

CEC said the business had performed well over the opening two months of the year, with revenue in January and February rising by 12.0% year-on-year, primarily due to growth in Las Vegas and Indiana.

However, revenue in March was approximately half that of the previous year due to temporary property closures across the US.

Shortly after the end of Q1, Caesars announced that it was to furlough around 90% of its staff to help mitigate the impact of the closures. The operator, which said the furloughs would apply to US-owned properties and corporate staff, also launched a new assistance fund to support employees and local communities hit by the outbreak.

Revenue in Las Vegas, Nevada, fell 13.9% from $955m to $822m, while other US revenue was down 13.5% to $874m. Revenue from outside of the US declined by 12.0% year-on-year to $132m, with Caesar’s UK properties also forced to close due to the coronavirus.

In total, casino revenue fell 12.0% to $958m, food and beverage revenue slipped 17.1% to $330m, rooms revenue 17.9% to $317m and other revenue 9.9% to $163m.

Looking at spending during the quarter, and operating expenses were up 1.0% to $1.89bn. Though total casino costs were down 3.5% to $590m, property, general, administrative and other expenditure climbed 6.1% to $488m.

Food and beverage spend was $11m lower at $258m and hotel expenses stayed level at $115m, but Caesars saw depreciation and amortisation costs rise 3.6% to $256m. There was also an additional $65m spend related to the impairment of tangible and other intangible assets.

Though Caesars posted $66m in losses from operations, other costs were down, which in turn meant it was able to report a comprehensive profit for the period.

Other income amounted to $641m, compared to a loss of $138m last year.

This related to a gain of $636m due to the change in fair value of the derivative liability related to the conversion option of its 5.00% convertible senior notes maturing in 2024. A further gain of $21m was recorded, due to a change in the fair value of a disputed claims liability related to the convertible notes, and CEC common stock estimated to be used to settle those claims. This was offset in part by a $9m valuation allowance recorded against assets held for sale, relating to the operator’s South African property.

These gains led to profit before tax rising to $242m, up from a loss of $247m in 2019. After paying $54m in income tax, net profit stood at $188m, compared to a loss of $218m in Q1 2019.

In terms of comprehensive profit in Q1, after accounting for foreign currency adjustments and change in fair market value of interest rate swaps, net of tax, this totalled $123m, compared to a loss of $230m in 2019.

CEC chief executive Tony Rodio paid tribute to the operator’s performance in Q1, given the fact that it had to contend with what he described as “extraordinary challenges” due to the coronavirus.

“While we posted our best operating performance since 2008 in the first two months of the quarter, circumstances changed dramatically in March as we temporarily shut-down all of our casino properties, consistent with directives from various governmental and tribal bodies,” Rodio said.

“Our first quarter performance reflects the significant revenue declines we experienced as a result of the closures and stable year over year labour costs in March as we continued to provide pay and benefits to our team members for the first two weeks of the closure period.

“We are taking steps to prepare for reopening, when appropriate, with the health and safety of our employees and guests in mind.”

Caesars has set out plans for a phased opening of its locations in Nevada, New Jersey and Iowa, but only when permitted by applicable government or tribal bodies.

To facilitate this, Caesars has developed a health and safety program to bolster its existing standards. This includes enhanced cleaning and sanitisation of public spaces and guest rooms, with all staff to be trained on the new procedures and policies.

Caesars will also facilitate social distancing practices at all of its properties, while non-gaming offerings such as entertainment, restaurants and bars will likely be reopened on a phased basis with limited capacity.

All employees will be provided with a mask that they will be required to wear at work, while some staff will wear additional personal protection equipment, based on their role. Guests will also be encouraged to wear masks, with Caesars to provide these to visitors.

Caesars will also implement a health screening program for all employees as part of the process of reopening properties and bringing team members back to our properties.

In addition, through to the end of 2020, Caesars will provide its employees with a further 10 days of paid Covid-19 sick days if they or someone in their household have been diagnosed with coronavirus.

“We are implementing new protocols focused on the wellbeing of our team members, guests and communities to create environments with high standards of sanitisation and physical distancing practices,” Rodio said.

“We are working closely with public health authorities, gaming regulators and infectious disease specialists to design our plan.”

Other major recent developments at Caesars after the end of the first quarter included Caesars Entertainment UK in April agreeing to pay a record settlement worth £13m. This was agreed after the GB Gambling Commission ruled it had breached a number of social responsibility, money laundering and customer interaction regulations related to VIP customers.

Caesars also agreed to sell its Bally’s Atlantic City in New Jersey to Twin River Worldwide. The deal, struck with Twin River Vici Properties – a real estate investment trust (REIT) spun off from the operator in 2017 – is worth $25m and covers certain assets and the property on which they are operated.

Twin River will also acquire the license to build a sportsbook and launch online betting and gaming from the property. That deal is expected to be finalised late in 2020, or early 2021.