I had wondered when the Reef Casino (RCT) AGM was called for a Friday afternoon. Wonder no more:

*RCT preliminary forecast based on initial 4 months trading

What was effectively a profit warning was delivered to ASX an hour or so before the meeting:

Our current estimate of the distributable profit* for the first half year from 1 January 2017 to 30 June 2017 is approximately $3.5 million.
The Trust’s main revenue is rent from the Reef Hotel Casino.  The first half year is the low season for Cairns. For the first 4 months, rentals paid to the Trust was 17% below last year.
A complete absence of charter and direct flights from China and other parts of Asia into Cairns resulted in an ordinary Chinese New Year trading season in January and February 2017 for Cairns as a whole.  So far this year, Cairns’ economy has been quiet and softer than the previous year. Local slots competition from clubs and hotels/pubs remain strong. The major clubs had renovated their premises some 2 years before us as our own renovation plans were delayed by the takeover bid in 2013/14.
Trust depreciation is higher than the previous year following the refurbishment of level 1 of the complex.
Our new facilities on level 1 of the Reef Hotel Casino complex have been well received by our patrons and our ongoing challenge will be to leverage complex patronage into casino slots patronage.  Already we are seeing increased patronage and revenues from our new BAR36 and expanded Tamarind Restaurant.
We will further update unitholders about the Trust’s likely first half year results and any use of the undistributed income account which has a balance of 12.11 cents per unit or $6.03 million as at 31 December 2016 in late June, about 4 weeks from now, when we release our unit distribution announcement.

In the broader economic context the two key points from this emphasised at the meeting were tourism issues in the initial months of the year, mostly but not solely the charter flights from China, and a generally softer local economy. Whether that is correct or the profit warning is related to business or sector issues will only be clear in hindsight. However the key casino business sector under pressure has been pokies which could be interesting.

In the narrow business context the commentary around depreciation and competition from clubs on pokies is noted. Who would have thought these facilities required continual capex to maintain their position? The alternative way to look at this is that the delayed capex inflated prior year reported profits.

The announcement was a revenue fall of 17% for the first 4 months. This translates into a distributable profit decline of 38% on my numbers and the RCT profit guidance provided for 1H. Will have to await further detail and breakdown analysis relevant to the RCT trust structure.

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