Weaker VIP win rate, online gaming business start up costs, and a Chinese crime syndicate have been blamed for Donaco’s “soft start” to the 2019 financial year, according to a trading update from the operator on Thursday.
Revenues totaled $23.7 million from July to October, down 20 percent year-on-year from the prior year period.
“At DNA Star Vegas, there was a significant increase of 113 percent in VIP gaming turnover… this was offset by a weaker VIP gross win rate of 2.5 percent for the period,” said Donaco in its filing to the ASX.
The company also noted a 34 percent increase in operating costs for the period, primarily due to the start-up costs for its online gaming operations, which launched in August.
Operational costs included the hiring of some 120 staff, as well as the purchase of equipment and resources to run live dealer on a 24/7 basis, according to Donaco.
“The online business has begun producing small amounts of revenue, in line with expectations, but this is outweighed by the costs in the early start-up phase,” said the company in a statement.
“As the business grows, it is expected that revenues will significantly exceed the operating costs,” it added.
Donaco also said that its Aristo property was seriously impacted in July and August 2018, due to a Chinese crime syndicate threatening VIP junkets and customers on the Chinese side of the border, “essentially demanding protection money”.
However, following management and law enforcement intervention, the results improved in September and October.
“These factors are expected to substantially reduce in impact over the course of the whole financial year. Accordingly, investors should not extrapolate the four month performance as an indication of the likely full year result.”
On the positive side, Donaco said it was able to achieve a significant overall reduction of $1.3 million in corporate costs, particularly in board and senior management expenses and marketing costs.
Donaco said its Star Vegas VIP gaming business is continuing to rebuild following breaches of contract from its former Thai vendor which had poached VIP junkets last year.
Its Aristo business has also continued to improve after heightened efforts from Vietnamese and Chinese police in cracking down on the activities of the Chinese crime syndicate, said the company.
Court overturns injunction order
In related news, the Cambodian Court of Appeal has reportedly overturned a decision of the Banteay Meanchey Court of First Instance granting Donaco an injunction against three former owners of the Star Vegas, which had been running a competing VIP operation in Poipet.
According to The Phnom Penh Post, the court of appeal in early October dismissed the allegations made by Donaco against its former Thai junket vendor, Somboon Sukcharoenkraisri, overturning the temporary closure of Star Paradise and Star Paramax casino.
The Court of Appeal ruled that Donaco’s injunction had not been based on any reliable evidence which indicated or proved any such alleged involvement of Sukcharoenkraisri.
It was ruled that Donaco’s injunction against its former Thai partner was made in violation of various provisions of the Code of Civil Procedure of Cambodia, meaning that the injunction is now no longer in effect.
It is understood that Sukcharoenkraisri and other parties alleged to have suffered loss from the injunction intend to file proceedings for defamation against Donaco.