2 0 1 4 A N N U A L R E P O R T For personal use only DONACO INTERNATIONAL LIMITED 2014 Annual Report DONACO INTERNATIONAL LIMITED 2014 Annual Report YUNNAN GUIZHOU ARISTO INTERNATIONAL HOTEL N VIETNAM GUANGXI LAOS Annual Report For the year ended 30 June 2014 THAILAND From the Chairman Contents 2 From the Managing Director Board of Directors Corporate Governance Statement Directors’ Report CAMBODIA Auditor’s Independence Declaration Statement of Profit or Loss and other Comprehensive Income Statement of Changes in Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report to the Members of Donaco International Limited Shareholder Information Corporate Directory ANNUAL GENERAL MEETING The Annual General Meeting of Donaco International Limited will be held at Four Points by Sheraton Hotel, 161 Sussex Street, Sydney NSW 2000 on 25 November 2014 at 2.30pm. 4 6 10 16 27 30 32 33 34 36 79 80 82 85 33 For personal use only DONACO INTERNATIONAL LIMITED 2014 Annual Report From the Chairman This very successful year was capped off in September 2014, when your Company was admitted to the ASX300 index, thus joining the ranks of Australia’s largest listed public companies. Dear Fellow Shareholder I am pleased to report that our Company achieved a series of major milestones during the 2014 financial year. The most important development was the opening of the Aristo International Hotel in May 2014. Through this brand-new resort complex in northern Vietnam, we now have a greatly expanded leisure and entertainment offering. This magnificent new property will underpin our growth in the year ahead. In order to capture more of that growth, we successfully increased our stake from 75% to 95% in our joint venture with the Vietnamese Government. This took effect on 1 January 2014. While the Board and management team focused on our existing flagship business in Vietnam, we also placed a high priority on adding value to shareholders through corporate activity. We announced the spin-off of our mobile technology business, iSentric, into a separate ASX listed company. This transaction was successfully completed in September 2014, with shares in the newly listed entity distributed in specie, as a return to our loyal shareholders. We would like to thank shareholders for their support of the two capital raisings that were successfully completed during the year. The first was completed in November 2013, in the sum of $25 million, to provide operating liquidity for our expanded gaming business in Vietnam. The second raising was completed in May 2014, in the sum of $75 million, giving us considerable firepower to pursue a strong pipeline of acquisition opportunities. This year, we also restructured and strengthened the Board, with Mr Rob Hines joining as a Director on 1 November 2014. Mr Hines has great experience and knowledge of gaming and wagering businesses. He has also taken on the role of independent chair of our audit and remuneration committees. I would like to acknowledge and thank Mr Gerald Tan and Mr Mak Siew Wei for their considerable contributions as Directors of the Company. The growth and success of the Company’s business was reflected by the increase in the Company’s share price and market capitalisation during the year. The Board was pleased, on behalf of all shareholders, to note the 165% increase in the Company’s share price and the 228% increase in market capitalisation during the year. This very successful year was capped off in September 2014, when your Company was admitted to the ASX300 index, thus joining the ranks of Australia’s largest listed public companies. This is an honour that brings a higher level of scrutiny and corporate governance requirements, which your Board has planned for and implemented in advance. While the year can be considered a successful one, we are only just beginning our journey as an ASX listed company. I welcome you joining us on this journey. Stuart McGregor Chairman 228%228% increase in market capitalisation in 2014. 4 5 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportFor personal use only From the Managing Director We now have a strong capability to capture the ongoing demand for gaming and leisure entertainment from our target market in China. Dear Fellow Shareholder The results achieved during the 2014 financial year have begun to demonstrate the potential of the business that my family and I listed on the ASX in February 2013. Our long-established gaming business in Vietnam moved to the next level of success during the year, with the opening of the Aristo International Hotel in May 2014. The opening of this five-star property is the culmination of many years of planning and effort by our management and project teams. We now have a strong capability to capture the ongoing demand for gaming and leisure entertainment from our target market in China, as well as the ability to provide many forms of entertainment and other services to our local population in Vietnam. The soft opening of the Aristo occurred in May 2014, which means that the results for the 2014 financial year almost entirely reflect the old property that it replaces. I am pleased to report that even with the significant capacity restraints at that old property, our Vietnamese gaming operations posted revenue growth of 33%. Across the whole Company, revenue growth reached 80%, while earnings before interest, tax, depreciation and amortisation grew 29%, and net profit after tax (excluding non-recurring items) grew 52%. The new property is a quantum leap ahead of the old. The Aristo has 400 guest rooms, with an additional 28 rooms currently fitted out as recreational facilities, primarily a health spa and a nightclub (operated by a contractor under a long-term lease). The property also has five restaurants, including a fine dining Chinese restaurant; a theatre restaurant and a ballroom that can seat 400 diners; several all-day dining outlets; and a VIP lounge. Other non-gaming amenities include a swimming pool, tennis court and gym, and eight retail shops. The gaming business at the Aristo is much larger than at the old property, and is already showing strong growth in the short period since it has opened. This growth has been achieved despite the fact that we have faced some headwinds in that short period. We are confident that the Aristo’s gaming business will underpin our growth in the year ahead. In addition, we will see strong growth in our non-gaming businesses in Vietnam, including the accommodation, food and beverage, and entertainment revenue lines. The new Aristo International Hotel is already proving popular with the local Vietnamese population for weddings, conventions, and fine dining. All parts of the property are open to the local people, with the exception of the gaming hall. The Vietnamese Government is currently considering proposals to allow local people to enter casinos. While we will continue to monitor developments in this area, our business at the Aristo is not dependent in any way on locals being allowed to gamble. Our marketing strategies continue to develop and evolve to serve the needs of our expanded business. With the imminent opening of a new highway from Lao Cai to Hanoi, we are able to offer accommodation and entertainment packages to expatriates living in Hanoi, and we have recently opened a marketing office there. This will be a new line of business for us. The opening of the Aristo has created new opportunities for our own people. We have essentially doubled the size of our workforce in Vietnam, thus giving our very experienced casino management team an opportunity to display the skills that they have previously learned from operating a much larger gaming business. I would like to thank all of our management and staff for their enthusiastic embrace of this opportunity. 80 % Across the whole Company, revenue growth reached 80%. We have also recently instituted management changes, with Mr Kent Ang promoted to the position of Chief Executive Officer Donaco Singapore and Vietnam Country Head. Mr Ang has lived in Vietnam for decades, and has recently successfully completed the construction project for the Aristo. Mr Kenny Goh, our Deputy Chief Financial Officer, is now focusing on acquisition and investment opportunities, which continue to be a high priority for our senior executive team. Indeed, we have not wavered from our ceaseless pursuit of new growth opportunities, with a strong pipeline of potential deals in place. All of these opportunities play to our strengths in leisure and gaming operations, particularly in boutique properties in Asia. However, we are extremely disciplined in our approach, and will not pursue any deal unless it provides good returns to shareholders. We expect to transform and expand our business in the year ahead. This will be done very carefully and prudently, building on the strong foundations that have been established at our existing business in Vietnam. I look forward to sharing the benefits of our growth with you in the year ahead. Joey Lim Managing Director and Chief Executive Officer 6 7 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportFor personal use only Perseverance is the foundation of all actions. LAO TZU Stuart James McGregor B.Com, LLB, MBA Joey Lim Keong Yew B. Computer Science Benedict Paul Reichel BA, LLB (Hons), LLM (Hons) Benjamin Lim Keong Hoe B. International Business Robert Andrew Hines (appointed on 1 November 2013) Executive Director, Group General Non-executive Director Non-executive Director Non-executive Chairman Over the past 30 years, Mr McGregor has had a wide-ranging business career with active involvement across the Australasian and Asian Region. In business, he has been Company Secretary of Carlton United Breweries, Managing Director of Cascade Brewery Company Ltd in Tasmania and Managing Director of San Miguel Brewery Hong Kong Ltd, a publicly listed Hong Kong-based company with subsidiary businesses in China. In the public sector, he served as Chief of Staff to a Minister for Industry and Commerce in the Federal Government, and as Chief Executive of the Tasmanian Government’s economic development agency. Other current directorships: EBOS Group Limited (ASX: EBO) Former directorships (last 3 years): None Special responsibilities: Member of the Audit & Risk Management Committee and the Nominations, Remuneration & Corporate Governance Committee. Interests in shares: 235,224 ordinary shares Interests in options: None Managing Director and Chief Executive Officer Mr J Lim is the Managing Director and Chief Executive Officer of Donaco International Limited. He is also a director of Malahon Securities Limited, a stock brokerage company founded in 1984, and a member and participant of the Hong Kong Exchange. He is also the principal of the Slingshot Group of Companies, which are investment companies based in Hong Kong. Relevant experience includes executive director to M3 Technologies (Asia) Bhd, where he was responsible for strategic investments and corporate affairs; working at VXL Capital, China, a business focused on investing in and restructuring companies in Malaysia, Beijing, Shanghai and Hong Kong; and Project Manager for Glaxo Wellcome, London, UK. Counsel, Company Secretary Mr Reichel is an executive and company director in the gaming, media and technology sectors, with more than 20 years’ experience in major Australian listed public companies and law firms. Mr Reichel held the position of Chief Executive Officer and Managing Director of the Company (then called Two Way Limited) from July 2007 to January 2012, and has remained on the Board since then. Previously, Mr Reichel was General Counsel of Tab Limited, a $2 billion ASX listed company with operations in wagering, gaming and media. Prior to that, he was General Counsel of racing broadcaster Sky Channel Pty Limited and held a number of executive positions at Publishing and Broadcasting Limited. Mr B Lim is a Director of Donaco Singapore Pte Ltd and a major shareholder of Genting Development Sdn Bhd, a substantial property development business in Malaysia. He has a bachelor’s degree in International Business with Design Management from Regent Business School in the UK. Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Member of the Audit & Risk Management Committee. Interests in shares: 174,291,200 ordinary shares Interests in options: None Other current directorships: None Other current directorships: None Former directorships (last 3 years): None Former directorships (last 3 years): None Special responsibilities: Member of the Nominations, Remuneration & Corporate Governance Committee. Interests in shares: 207,281,355 ordinary shares Interests in options: 407,371 unlisted employee options Special responsibilities: None Interests in shares: 183,306 ordinary shares Interests in options: 203,686 unlisted employee options Mr Hines is one of Australia’s leading gaming and wagering executives. As CEO of Racing Victoria Limited from 2008 to 2012, he led and managed the Victorian racing industry through a period of substantial change. Mr Hines also held CEO roles at Jupiters Limited (2000 to 2004), which was acquired by Tabcorp; and AWA Limited (1997 to 2000), which was acquired by Jupiters. From 2005 to 2008, he was CEO UK and Europe for Vecommerce Limited, a natural language speech recognition company providing services to wagering operators. Mr Hines currently holds the positions of Non-Executive Director with Sportsbet Australia Pty Ltd; Group Chairman CEO Circle; and Advisory Board Member of the Sporting Chance Cancer Foundation. Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Chair of the Audit & Risk Management Committee and the Nominations, Remuneration & Corporate Governance Committee. Interests in shares: 75,000 ordinary shares Interests in options: None 8 9 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportBoard of DirectorsFor personal use only Net revenue growth from slot machines was 94%. 94% Gerald Nicholas Tan Eng Hoe (resigned on 6 September 2013) Mak Siew Wei (resigned on 23 December 2013) B. Bus (Info Sys) B. Econ, MBA Non-executive Director Non-executive Director Mr Tan is a serial entrepreneur who has founded numerous companies in the digital and interactive media space. He is the Managing Partner of Nuetree Capital, with over 19 years’ experience on both the sell and buy side of the venture capital and private equity business. Prior to joining Nuetree, Mr Tan was the Group Managing Director and Co-Founder of Phoenix Investment Global Limited, a leading pan-Asian interactive new media company. Prior to Phoenix, he founded N-Visio Ltd, an interactive television technologies company that developed Asia’s first real-time 3-D interactive TV system. This solution was used extensively in Malaysia, Indonesia and China. Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Member of the Audit & Risk Management Committee and the Nominations, Remuneration & Corporate Governance Committee. Interests in shares: 648,750 (as at 6 September 2013) Interests in options: 1,324,375 (as at 6 September 2013) Mr Mak served as Business Development Manager of Marvic International (NY) Ltd from 1998 to 2000. He has been an independent non-executive director of Jotech Holdings Bhd since August 2006, Nakamichi Corp. Bhd since August 2008, and Av Ventures Corp. Bhd since April 2006. He has been an Executive Director of Advance Information Marketing Berhad since September 2010, and of SCAN Associates Berhad since August 2012. Mr Mak also served as Manager of Low Yat Holdings Sdn Bhd from 2001 to 2002. Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Member of the Audit & Risk Management Committee and the Nominations, Remuneration & Corporate Governance Committee. Interests in shares: None (as at 23 December 2013) Interests in options: None (as at 23 December 2013) 10 11 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportBoard of DirectorsFor personal use only DONACO INTERNATIONAL LIMITED 2014 Annual Report DONACO INTERNATIONAL LIMITED 2014 Annual Report Corporate Governance Statement Donaco International Limited (the Company) is committed to good corporate governance practices through its established corporate governance framework. This framework is reflected in the Company’s policies, and is designed to ensure that there are appropriate levels of disclosure and accountability. Copies of the Company’s policies are available from the ‘Investor Relations’ section of our website, donacointernational.com. The Company has endorsed the 2nd edition of the Corporate Governance Principles and Recommendations released by the ASX Corporate Governance Council, and seeks to follow them to the extent that it is practicable having regard to the size and nature of its operations. business environment. The Board and senior management ensure that employees are aware of the requirements for corporate compliance as it applies to their specific roles within the organisation. Unless otherwise stated, the Board’s corporate governance policies comply with the recommendations of the 2nd edition of the Corporate Governance Principles and Recommendations (including the 2010 amendments). The 3rd edition of the Corporate Governance Principles and Recommendations takes effect for financial years commencing on or after 1 July 2014. During the 2015 financial year, the Board will review and update its corporate governance policies. The Board regularly reviews all corporate governance policies and practices to ensure that they remain current and in accordance with good practice appropriate for the Company’s The table below summarises the 2nd edition of the Corporate Principles and Recommendations, and cross-references these to the Company’s Corporate Governance Policies. ASX Corporate Governance Principles and Recommendations Compliance Donaco International Limited Corporate Governance Policy Principle 1: Lay solid foundations for management and oversight 1.1 Companies should establish the functions reserved to the Board and those delegated to senior executives and disclose those functions. 1.2 Companies should disclose the process for evaluating the performance of senior executives. Complies Complies The Company’s Board Charter sets out the specific responsibilities of the Board and those delegated to senior executives. The Company’s Board Charter is available on the Company’s website. The Company’s Nominations, Remuneration & Corporate Governance Committee Charter sets out the process for evaluating the performance of senior executives. The Company’s Nominations, Remuneration & Corporate Governance Committee Charter is available on the Company’s website. 1.3 Companies should provide the information indicated in the Guide to reporting on Principle 1. Complies The Company will provide an explanation of any departures from Recommendations 1.1 to 1.2 in future annual reports. ASX Corporate Governance Principles and Recommendations Compliance Donaco International Limited Corporate Governance Policy Principle 2: Structure the Board to add value 2.1 A majority of the Board should be independent directors. Does not comply The Company’s Board Charter, specifically clauses 5 and 6, sets out the policy regarding independent directors. The Company’s Board Charter is available on the Company’s website. Since 23 December 2013, the Board has consisted of five members, which is considered the optimum size for the Company’s current ownership and operations. The Board currently has two independent non-executive directors, one non-independent non-executive director and two executive directors. Current Directors are considered to possess skills and experience suitable and appropriate in the context of the stage of development of the Company and the scope and scale of the Company’s operations. The Board will consider its composition if appropriate, depending on changes to the scope and scale of the Company’s operations. 2.2 The chair should be an independent director. 2.3 The roles of the chair and chief executive officer should not be exercised by the same individual. Complies The Chairman is an independent director. Complies The Chairman and CEO are not the same person. 2.4 The Board should establish a Nominations Committee. Complies The Company has established the Nominations, Remuneration & Corporate Governance Committee in accordance with Clause 8 of its Board Charter. 2.5 Companies should disclose the process for evaluating the performance of the Board, its committees and individual directors. 2.6 Companies should provide information indicated in Guide to reporting on Principle 2. Complies The Company’s Board Committee Standing Rules and Nominations, Remuneration & Corporate Governance Committee Charter sets out the process for evaluating the performance of the Board. Complies The Company will provide an explanation of any departures from Recommendations 2.1 to 2.5 in future annual reports. Donaco International Limited (the Company) is committed to good corporate governance practices through its established corporate governance framework. 12 13 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportFor personal use only ASX Corporate Governance Principles and Recommendations Compliance Donaco International Limited Corporate Governance Policy ASX Corporate Governance Principles and Recommendations Compliance Donaco International Limited Corporate Governance Policy Principle 3: Promote ethical and responsible decision-making Principle 4: Safeguard integrity in financial reporting Complies Does not comply 3.1 Companies should establish a code of conduct and disclose the code or a summary as to: • the practices necessary to maintain confidence in the company’s integrity; • the practices necessary to take into account the company’s legal obligations and the reasonable expectations of its stakeholders; and • the responsibility and accountability of individuals for reporting and investigating reports of unethical practices. 3.2 Companies should establish a policy concerning diversity and disclose the policy or a summary of that policy. The policy should include requirements for the Board to establish measurable objectives for achieving gender diversity and for the Board to assess annually both the objectives and progress in achieving them. The Company has implemented a number of policies and procedures including the Company’s Board Charter, Directors’ Code of Conduct and Audit & Risk Management Committee Charter that maintain confidence in the Company’s integrity, take into account the Company’s legal obligations and govern the responsibility and accountability of individuals for reporting and investigating reports of unethical practices. These policies are available on the Company’s website, donacointernational.com. The Company’s primary business in Vietnam, consisting of the vast majority of its employees, is governed by the Labor Code (Law No. 10/2012/QH13) and the Company’s own Labor Regulation, which set out appropriate treatment of different genders. However, these requirements do not extend to the small minority of employees based outside Vietnam. The Board is considering the appropriate policy concerning diversity for operations outside Vietnam, including whether it is appropriate for the Board to establish measurable objectives for achieving gender diversity for the Board to assess annually. 3.3 Companies should disclose in each annual report the measurable objectives for achieving gender diversity set by the Board in accordance with the diversity policy and progress towards achieving them. 3.4 Companies should disclose in each annual report the proportion of women employees in the whole organisation, women in senior executive positions and women on the Board. 3.5 Companies should provide the information indicated in Guide to reporting on Principle 3. Does not comply See 3.2 above. Complies The proportion of women employees is as follows: Board, nil; senior executive positions, 17%; and in the whole organisation, 54%. Complies The Company will provide an explanation of any departures from Recommendations 3.1 to 3.4 in future annual reports. 4.1 The Board should establish an audit committee. 4.2 The audit committee should be structured so that it: • consists only of non-executive directors; • consists of a majority of independent directors; • is chaired by an independent chair, who is not the chair of the Board; and • has at least three members. Complies Complies The Company has established the Audit & Risk Management Committee. The Company has implemented an Audit & Risk Management Committee Charter which governs the operation of the Audit & Risk Management Committee. This Charter is available on the Company’s website. The Audit & Risk Management Committee has three members, who are all non-executive directors; has a majority of independent directors; and has an independent chair, who is not the Chairman of the Board. 4.3 The audit committee should have a formal Charter. Complies See 4.2 above. 4.4 Companies should provide the information indicated in Guide to reporting on Principle 4. Complies The Company will provide an explanation of any departures from Recommendations 4.1 to 4.3 in future annual reports. Principle 5: Make timely and balanced disclosure 5.1 Companies should establish written policies and procedures designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at senior executive level for that compliance and disclose those policies or a summary of those policies. 5.2 Companies should provide the information indicated in Guide to reporting on Principle 5. Complies The Company has implemented a Directors’ Code of Conduct, Market Disclosure Policy, Directors’ Disclosure Policy and Policy for Handling Conflicts of Interest, which are designed to ensure compliance with the ASX Listing Rule disclosure requirements and to ensure accountability at senior executive level for compliance and disclosure. These policies are available on the Company’s website. Complies The Company will provide an explanation of any departures from Recommendation 5.1 in future annual reports. 14 15 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportFor personal use only ASX Corporate Governance Principles and Recommendations Compliance Donaco International Limited Corporate Governance Policy ASX Corporate Governance Principles and Recommendations Compliance Donaco International Limited Corporate Governance Policy Principle 8: Remunerate fairly and responsibly 8.1 The Board should establish a remuneration committee. 8.2 The remuneration committee should be structured so that it: • consists of a majority of independent directors; • is chaired by an independent chair; and • has at least three members. 8.3 Companies should clearly distinguish the structure of non- executive directors’ remuneration from that of executive directors and senior executives. Complies Complies Complies The Company has established the Nominations, Remuneration & Corporate Governance Committee. The Nominations, Remuneration & Corporate Governance Committee has three members, is comprised of a majority of independent directors and is chaired by an independent chair. Pursuant to clause 4.1(k) of the Company’s Nominations, Remuneration & Corporate Governance Committee Charter, the Company’s Nominations, Remuneration & Corporate Governance Committee must review the remuneration of non-executive directors annually and ensure that the structure of non-executive directors’ remuneration is clearly distinguished from that of executives by ensuring that non-executive directors are remunerated by way of fees, do not participate in schemes designed for the remuneration of executives, do not receive options or bonus payments and are not provided with retirement benefits other than statutory superannuation. 8.4 Companies should provide the information indicated in Guide to reporting on Principle 8. Complies The Company will provide an explanation of any departures from Recommendations 8.1 to 8.3 in future annual reports. Principle 6: Respect the rights of shareholders 6.1 Companies should design a communications policy for promoting effective communication with shareholders and encourage their participation at general meetings and disclose the policy or a summary of the policy. 6.2 Companies should provide the information indicated in Guide to reporting on Principle 6. Principle 7: Recognise and manage risk 7.1 Companies should establish policies for oversight and management of material business risks and disclose a summary of those policies. 7.2 The Board should require management to design and implement the risk management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively. The Board should disclose that management has reported to it as to the effectiveness of the company’s management of its material business risks. 7.3 The Board should disclose whether it has received assurance from the chief executive officer (or equivalent) and the chief financial officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. Complies The Company has implemented a Market Disclosure Policy which ensures that there is full and timely disclosure of the Company’s activities to shareholders. The Company’s Market Disclosure Policy is available on the Company’s website. The Company also conducts regular investor briefings outside scheduled results announcement. These briefings are released in advance to the ASX Market Announcements Platform if they contain any price-sensitive information. Complies The Company will provide an explanation of any departures from Recommendation 6.1 in future annual reports. Complies Complies Complies The Company has implemented an Audit & Risk Management Committee Charter. The Audit & Risk Management Committee Charter outlines the powers and duties of the Audit & Risk Management Committee. The Audit & Risk Management Committee Charter is available on the Company’s website. The Audit & Risk Management Committee has been established and reports to the Board in respect of material business risks and their management. The Company has also implemented the Audit & Risk Management Committee Charter which governs the operation of the Audit & Risk Committee. Pursuant to clause 4 of the Company’s Board Charter, the Board must ensure that it is provided with an additional written statement from the Chief Executive Officer and Chief Financial Officer in relation to the Company’s risk management systems and controls, stating that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. 7.4 Companies should provide the information indicated in Guide to reporting on Principle 7. Complies The Company will provide an explanation of any departures from Recommendations 7.1 to 7.3 in future annual reports. 16 17 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportFor personal use only DONACO INTERNATIONAL LIMITED 2014 Annual Report Directors’ Report The Directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the ‘consolidated entity’) consisting of Donaco International Limited (referred to hereafter as the ‘Company’ or ‘parent entity’) and the entities it controlled at the end of, or during, the year ended 30 June 2014. Directors approximately six weeks only. During this time, the Aristo operated in soft opening mode, with not all facilities available. During the year, total revenue from the Vietnamese hotel and gaming operations reached record levels, up 33% on the previous year (or 18% in US dollar constant currency terms). This result was underpinned by strong increases in turnover from VIP table games (up 67%, or 49% in US dollars) and in slot machines (up 144%, or 117% in US dollars). The following persons were directors of Donaco International Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: Stuart James McGregor – Non-executive Chairman The increase in turnover from VIP gaming did not directly translate into revenue, due to a slight decline in the gross win rate from 2.98% in FY13, to 2.78% in FY14. While this change is within the range of normal fluctuations, it had the effect of restricting VIP gaming net revenue growth to 41% (or 25% in US dollars). Joey Lim Keong Yew Benedict Paul Reichel Benjamin Lim Keong Hoe Robert Andrew Hines (appointed on 1 November 2013) Gerald Nicholas Tan Eng Hoe (resigned on 6 September 2013) Mak Siew Wei (resigned on 23 December 2013) Principal activities During the financial year, the principal continuing activities of the consolidated entity consisted of: • operation of a hotel and casino in northern Vietnam; and • operation and development of gaming technology, including mobile payment gateways. Dividends There were no dividends paid, recommended or declared during the current or previous financial year. Review of operations The profit for the consolidated entity after providing for income tax and non-controlling interest amounted to $6,793,403 (30 June 2013: $7,026,199). Vietnamese Gaming Operations The results reflect the final year of operation of the old Lao Cai International Hotel, the Company’s boutique 34-room hotel with eight gaming tables, located in the north of Vietnam. The old hotel was replaced by the soft opening of the Aristo International Hotel, an expanded five-star property with 428 rooms and 40 gaming tables, on 18 May 2014. Therefore the FY14 results include the Aristo in place of the old hotel for a period of 18 The increase in slot machine turnover was primarily due to the expanded machine base in the Aristo, which has 34 linked jackpot slot machines, and three electronic roulette tables with eight seats each, for a total of 58 electronic gaming machine positions. Net revenue growth from slot machines was 94% (or 73% in US dollars), which again was below the rate of turnover increase, due to a decline in the slots win rate from 31.21% in FY13 to 24.84% in FY14 (based on cash paid in by slots players). The Company does not currently report normalised results from its gaming operations, based on a theoretical win rate. The reasons for this are the small size of the old property, with only eight licensed tables; the rapid growth it has been experiencing in recent years; and the fact that the old property was replaced by the expanded gaming business of the Aristo towards the end of the financial year. Now that the Aristo has opened, the Board is considering the best approach for reporting normalised results for future periods. Non-gaming hotel revenue also showed very strong growth of 96% (or 82% in US dollars), with most of the increase coming after the Aristo opened in May. This reflects the quality of the guest rooms, restaurants and other non-gaming amenities at the new property. The soft opening of the Aristo on 18 May 2014 was a milestone in the Company’s development. When fully operational, the Aristo will have 400 guest rooms available, with an additional 28 rooms currently fitted out as recreational facilities, primarily a health spa and a nightclub (operated by a contractor under a long-term lease). The property also has five restaurants, including a fine dining Chinese restaurant; a theatre restaurant and a ballroom that can seat 400 diners; several all-day dining outlets; and a VIP lounge. Other non-gaming amenities include a swimming pool, tennis court and gym, and eight retail shops, with a ticketing agency and convenience store already trading. Gaming Technology Operations Employee Option Allocation The Gaming Technology businesses consist primarily of iSentric Sdn Bhd, a successful mobile commerce business based in Kuala Lumpur. iSentric has significant interests and expertise in almost every segment of the mobile services sector, including mobile content distribution, mobile payment aggregation, mobile banking and bespoke corporate mobility solutions. iSentric’s revenue for the year was $8,074,671, with net profit after tax of $1,570,130. iSentric currently provides technology services under arm’s length arrangements to the Company’s core hotel and casino business in Vietnam. This includes advising on the property management system, loyalty program, third-party system integration and network design. In addition, iSentric provides technical support to the Way2Bet wagering marketing portal and games businesses in Australia, which posted total revenue of $694,206 during FY14. Significant changes in the state of affairs On 24 July 2013, the company announced that it had signed a non-binding Memorandum of Understanding with its joint venture partner to increase its stake in the Lao Cai International Hotel joint venture by 20%, for a total cost of US$4 million. The transfer of the stake was completed with effect from 1 January 2014. There were no other significant changes in the state of affairs of the consolidated entity during the financial year. Matters subsequent to the end of the financial year Spin-off of iSentric Sdn Bhd On 26 February 2014, the company announced that it planned to spin off its mobile technology business, which trades under the name iSentric, into a new company separately listed on the ASX. A binding Share Sale and Purchase Agreement to implement the transaction was signed with OMI Holdings Limited (ASX: OMI) on 9 May 2014. The transaction was completed on 23 September 2014, when iSentric Limited listed on the ASX. Donaco distributed its shares in the newly listed entity to Donaco shareholders in specie on 16 September 2014. Donaco shareholders with a minimum of 19,206 shares on the record date of 12 September 2014 received approximately 0.13 iSentric shares for each Donaco share. Holders of fewer Donaco shares will have their entitlements sold, and will receive the proceeds of sale (less costs) in cash. At the Annual General Meeting on 21 November 2013, shareholders approved the establishment of a long-term incentive (LTI) plan for executives, consisting of the grant of units under an option share trust (OST). On 23 December 2013, the Company announced that it had issued options amounting to 1% of its then issued capital (a total of 4,010,511 options) under the LTI plan. Approval for the issue of these options under an employee incentive scheme was obtained pursuant to ASX Listing Rule 10.14. These options were not contributed to the OST until 1 July 2014. Accordingly employees were not allocated units in the OST until 1 July 2014. No other matter or circumstance has arisen since 30 June 2014 that has significantly affected, or may significantly affect the consolidated entity’s operations, the results of those operations, or the consolidated entity’s state of affairs in future financial years. Likely developments and expected results of operations The company operates leisure and entertainment businesses across the Asia-Pacific region. Our flagship business is the Aristo International Hotel, a successful boutique casino in northern Vietnam. The company operates the business and owns a 95% interest in a joint venture with the Government of Vietnam. The company is a pioneer casino operator in Vietnam. The business was established in 2002, and is located on the border with Yunnan Province, China. The property has recently been expanded to a brand-new five-star resort complex with 428 hotel rooms. The operation and marketing of the Aristo International Hotel will underpin our growth during the next 12 months. Our strategy is to take advantage of the demand for leisure and entertainment in the Asia-Pacific region, and to leverage the experience of the Board and management in the gaming sector, by seeking opportunities to invest in or acquire other similar businesses. This will complement the growth at the expanded casino in Vietnam, and provide for diversification. Except as noted above, information on likely developments in the operations of the consolidated entity and the expected results of operations have not been included in this report because the directors believe it would be likely to result in unreasonable prejudice to the consolidated entity. Environmental regulation The consolidated entity is not subject to any significant environmental regulation under Australian Commonwealth or State law. 19 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportFor personal use only Company secretary Meetings of directors Benedict Paul Reichel is an Executive Director and the Company Secretary. His qualifications and experience are set out above under ‘Board of Directors’. The number of meetings of the Company’s Board of Directors (‘the Board’) and of each Board committee held during the year ended 30 June 2014, and the number of meetings attended by each director were: Full Board Audit & Risk Management Committee Nominations, Remuneration & Corporate Governance Committee Attended Held Attended Held Attended Held Stuart James McGregor Joey Lim Keong Yew Benedict Paul Reichel Benjamin Lim Keong Hoe Robert Andrew Hines Mak Siew Wei Gerald Nicholas Tan Eng Hoe 13 12 13 12 10 5 2 13 13 13 13 10 6 2 2 – – – 1 1 – 2 – – – 1 1 – 5 2 – – 3 2 1 5 5 – – 3 2 1 Held: represents the number of meetings held during the time the director held office or was a member of the relevant committee. Remuneration report (audited) The remuneration report, which has been audited, outlines the key management personnel remuneration arrangements for the consolidated entity, in accordance with the requirements of the Corporations Act 2001 and its Regulations. The remuneration report is set out under the following main headings: • Principles used to determine the nature and amount of remuneration • Details of remuneration • Service agreements • Share-based compensation • Additional information • Additional disclosures relating to key management personnel Principles used to determine the nature and amount of remuneration The objective of the consolidated entity’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders, and conforms to the 20 market best practice for delivery of reward. The Board ensures that executive reward satisfies the following key criteria for good reward governance practices: • competitiveness and reasonableness • acceptability to shareholders • performance linkage/alignment of executive compensation • transparency The performance of the consolidated entity depends on the quality of its directors and executives. The remuneration philosophy is to attract and retain high quality personnel, and motivate them to achieve high performance. The Board has an established Nominations, Remuneration & Corporate Governance Committee, consisting only of non- executive directors, with a majority of independent directors. It is primarily responsible for setting the overall remuneration policy and guidelines for the Company, and its functions include: • reviewing and recommending to the Board for approval, the Company’s general approach towards remuneration, and to oversee the development and implementation of remuneration programs; • reviewing and recommending to the Board for approval, corporate goals and objectives relevant to the remuneration of the Managing Director/Chief Executive Officer, and evaluating the performance of the Managing Director/Chief Executive Officer in light of those goals and objectives; • reviewing and recommending to the Board for approval, remuneration programs applicable to the Company executives, and ensuring that these programs differ from the structure of remuneration for non-executive directors; and • reviewing the remuneration of non-executive directors, and ensuring that the structure of non-executive directors’ remuneration is clearly distinguished from that of executives by ensuring that non-executive directors are remunerated by way of fees, do not participate in schemes designed for the remuneration of executives, do not receive options or bonus payments, and are not provided with retirement benefits other than statutory superannuation. In consultation with external remuneration consultants (refer to the section ‘Use of remuneration consultants’ below), the Nominations, Remuneration & Corporate Governance Committee has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the consolidated entity. The remuneration framework is aligned to shareholders’ interests: • it has economic profit as a core component of plan design; • it focuses on sustained growth in shareholder wealth, consisting of growth in share price, and delivering constant or increasing return on assets as well as focusing the executive on key non-financial drivers of value; and • it attracts and retains high calibre executives. The remuneration framework is also aligned to program participants’ interests: • it rewards capability and experience; • it reflects competitive reward for contribution to growth in shareholder wealth; and & Corporate Governance Committee. The Nominations, Remuneration & Corporate Governance Committee may, from time to time, receive advice from independent remuneration consultants to ensure non-executive directors’ fees and payments are appropriate and in line with the market. There are no bonuses payable to non-executive directors, and there are no termination payments for non-executive directors on retirement from office, other than statutory superannuation entitlements. Non-executive directors are not granted options. ASX Listing Rules require that the aggregate of non-executive directors’ remuneration be determined periodically by a general meeting. The most recent determination was at the 2013 Annual General Meeting, where the shareholders approved an aggregate remuneration of $750,000, including statutory superannuation contributions. Executive remuneration The consolidated entity’s remuneration policy is to ensure that executive remuneration packages properly reflect a person’s duties and responsibilities, and that remuneration is competitive in attracting, retaining and motivating executives of the highest calibre. As a result, remuneration packages for the Managing Director/Chief Executive Officer and senior executives include both fixed and performance-based remuneration. Base salary is determined by considering the scope of the executive’s responsibilities, importance to the business, competitiveness in the market, and assessed potential. The total remuneration package for executives includes superannuation and other non-cash benefits to reflect the total employment cost to the Company, inclusive of any fringe benefits tax. The executive remuneration and reward framework has four components: • base pay and non-monetary benefits • short-term performance incentives • long-term incentives, consisting primarily of the grant of options • it provides a clear structure for earning rewards. • other remuneration such as superannuation and long service leave All remuneration paid to directors and executives is valued at cost to the Company and expensed. The combination of these components comprises the executive’s total remuneration. In accordance with best practice corporate governance, the structures of remuneration for non-executive directors and for executives are separate. Non-executive Directors’ remuneration Fees and payments to non-executive directors reflect the demands which are made on, and the responsibilities of, the directors. Non-executive directors’ fees and payments are reviewed annually by the Nominations, Remuneration Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits (if any), is reviewed annually by the Nominations, Remuneration & Corporate Governance Committee, based on individual and business unit performance, the overall performance of the consolidated entity and comparable market remuneration. Executives may receive their fixed remuneration in the form of cash or other fringe benefits (for example motor vehicle benefits) 21 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportFor personal use only where it does not create any additional costs to the consolidated entity and provides additional value to the executive. The short-term incentive (‘STI’) program is designed to align the targets of executives with the targets of the consolidated entity. STI payments are granted to executives based on specific annual targets and key performance indicators (‘KPIs’) being achieved. During FY14, applicable KPIs included profit contribution, improvement in shareholder value, and achievement of corporate objectives. The long-term incentive (‘LTI’) program consists primarily of participation in the Company’s option plan. Options are awarded on an annual basis, ensuring that at any given time, the executives have at risk a number of plans, with different vesting periods and amounts. This also helps to smooth both the risk and the cash flow for the Company and for executives. The option plan was established with shareholder approval during the 2014 financial year, but no options were allocated to individual executives until after the end of the year. Consolidated entity performance and link to remuneration Remuneration for certain executives is directly linked to performance of the consolidated entity. Bonus and incentive payments are dependent on defined KPIs being met, and are at the discretion of the Nominations, Remuneration & Corporate Governance Committee. The section headed ‘Additional Information’ below provides information on the improvement in revenue, earnings, share price and market capitalisation for the consolidated entity over the last three years. The Nominations, Remuneration & Corporate Governance Committee is of the opinion that the continued improved results can be attributed in part to the adoption of performance- based compensation, and is satisfied with the upwards trend in shareholder wealth. The Committee also considers that the remuneration framework in place will continue to increase shareholder wealth if maintained over the coming years. Use of remuneration consultants During the financial year ended 30 June 2014, the consolidated entity received a remuneration recommendation (as defined in the Corporations Act) from Egan Associates Pty Limited, to review its existing remuneration policies and provide market benchmarking. Egan Associates was paid $6,000 plus GST for these services. An agreed set of protocols were put in place to ensure that the remuneration recommendations would be free from undue influence from key management personnel. The Board is satisfied that these protocols were followed and as such there was no undue influence. Voting and comments made at the company’s 2013 Annual General Meeting (‘AGM’) At the 21 November 2013 AGM, 99.98% of the votes received supported the adoption of the remuneration report for the year ended 30 June 2013. The company did not receive any specific feedback at the AGM regarding its remuneration practices. Details of remuneration Amounts of remuneration Details of the remuneration of the key management personnel of the consolidated entity are set out in the following tables. The key management personnel of the consolidated entity consisted of the following directors of Donaco International Limited: • Stuart James McGregor Non-executive Chairman • Joey Lim Keong Yew Managing Director and Chief Executive Officer • Benedict Paul Reichel Executive Director, Group General Counsel and Company Secretary • Benjamin Lim Keong Hoe Non-Executive Director • Mak Siew Wei (resigned on 23 December 2013) Non-executive Director And the following persons: • Richard Na Chun Wee Chief Financial Officer and Deputy Group CEO • Kenny Goh Kwey Biaw Deputy Chief Financial Officer and CEO of Donaco Singapore 22 Short-term benefits Post- employment benefits Long-term benefits Share-based payments Cash salary and fees Bonus Non- monetary Super- annuation Leave entitlements Equity- settled 2014 $ Non-executive Directors S J McGregor Lim K H R A Hines G N Tan Mak S W 139,737 131,172 91,533 13,500 61,636 $ – – – – – Executive Directors Lim K Y B P Reichel Other Key Management Personnel Na C W Goh K B 2013 Non-executive Directors S J McGregor B P Reichel * Lim K H G N Tan Mak S W 432,868 190,000 72,145 33,334 288,578 48,096 118,055 19,676 1,467,079 173,251 $ 99,000 66,000 48,680 54,000 48,375 $ – – – – – Na C W Goh K B F R Magrini ** 46,733 34,952 153,831 23,366 13,981 5,640 648,931 81,931 $ – – – – – – – – – – $ – – – – – – – – – – $ 12,926 8,467 – – – – 21,014 – – $ – – – – – – – – 3,846 42,407 3,846 8,910 5,940 $ – – – – – – $ – – – – – – – – 14,932 10,795 29,782 10,795 $ – – – – – – – – – – $ – – – – – – – – – – * B P Reichel was appointed as an Executive Director on 1 July 2013 after previously being a Non-executive Director. ** F R Magrini was not a member of the key management personnel during FY14. He resigned on 23 January 2014. Total $ 152,663 131,172 100,000 13,500 61,636 505,013 248,194 336,674 137,731 1,686,583 $ 107,910 71,940 48,680 54,000 48,375 136,304 70,099 48,933 185,198 771,439 23 • Robert Andrew Hines (appointed on 1 November 2013) Non-executive Director Executive Directors Lim K Y 97,360 38,944 • Gerald Nicholas Tan Eng Hoe (resigned on 6 September 2013) Non-executive Director Other Key Management Personnel DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportFor personal use only The proportion of remuneration linked to performance and the fixed proportion are as follows: Service agreements Share-based compensation Name 2014 2013 2014 2013 2014 2013 Fixed remuneration At risk – STI At risk – LTI Non-Executive Directors S J McGregor Lim K H R A Hines G N Tan Mak S W Executive Directors Lim K Y B P Reichel Other Key Management Personnel Na C W Goh K B F R Magrini 100% 100% 100% 100% 100% 86% 87% 86% 86% -% 100% 100% 100% 100% 100% 76% 100% 67% 71% 97% -% -% -% -% -% 14% 13% 14% 14% -% -% -% -% -% -% 24% -% 33% 29% 3% -% -% -% -% -% -% -% -% -% -% -% -% -% -% -% -% -% -% -% -% The proportion of the cash bonus paid/payable or forfeited is as follows: Cash bonus paid/payable Cash bonus forfeited Name Executive Directors Lim K Y B P Reichel Other Key Management Personnel Na C W Goh K B F R Magrini 2014 100% 100% 100% 100% -% 2013 100% 100% 100% 100% 100% 2014 2013 -% -% -% -% -% -% -% -% -% -% Criteria for performance-based remuneration The STI program is designed to align the targets of executives with the targets of the consolidated entity. STI payments are granted to executives based on specific annual targets and key performance indicators (KPIs) all being achieved. During FY14, applicable KPIs included profit contribution, improvement in shareholder value and achievement of corporate objectives. in determining the award of performance-based remuneration during the year. In particular, the relevant criteria included the fact that during the year, the Company’s share price increased by a multiple of 2.65 times (an increase of 165%), and the Company’s market capitalisation increased by a multiple of 3.28 times (an increase of 228%), as well as the successful raising of $100 million to enable the Company to pursue its objectives. The Board, advised by the Nominations, Remuneration & Corporate Governance Committee, applied these criteria Performance-based bonuses were paid on 29 January 2014 and 4 June 2014, with the total amounts set out in the tables above. Remuneration and other terms of employment for the Managing Director, Chief Financial Officer and the other key management personnel are formalised in contracts of employment. The service agreements specify the components of remuneration, benefits and notice periods. The specified executives are employed under contracts with no fixed term. The company may terminate the contracts immediately if the executive is guilty of serious misconduct or wilful neglect of duties. Otherwise, the company may terminate the contracts by giving three months’ notice or paying three months’ salary (in the case of Mr J Lim, Mr Na and Mr Goh), or six months (in the case of Mr Reichel). In the case of Mr J Lim and Mr Na, termination for any reason other than just cause will result in a termination payment of 24 months’ base salary. Issue of shares There were no shares issued to directors or other key management personnel as part of compensation during the year ended 30 June 2014. Options There were no options over ordinary shares issued to directors or other key management personnel as part of compensation that were outstanding as at 30 June 2014. There were no options over ordinary shares granted to directors or other key management personnel as part of compensation during the year ended 30 June 2014. Additional information The earnings of the consolidated entity for the three years to 30 June 2014 are summarised below: Sales revenue EBITDA Profit after income tax 2014 $ 28,240,282 8,861,216 6,793,403 2013 $ 15,671,759 6,888,780 7,026,196 2012 $ 11,121,438 6,489,683 5,000,327 Note that the FY12 comparative is to Donaco Singapore Pte Ltd, which listed on the ASX part way through FY13. Information relating to previous financial years has not been included as it is not directly comparable. The factors that are considered to affect total shareholder return are summarised below: Share price at financial year end ($) 2014 0.90 2013 0.34 Market capitalisation at year end ($) 414,254,367.00 126,372,057.00 Basic earnings per share* (cents per share) 2.22 2.53 2012 – – – * Basic earnings per share is not directly comparable due to the increase in the number of shares for the consolidated entity from 3,000 in 2012 to 277,827,871 (weighted average number of shares on issue) in 2013. In 2014, there was a further increase in the weighted average number of shares on issue to 306,593,004. 24 25 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportFor personal use only Additional disclosures relating to key management personnel Shares under option Shareholding Unissued ordinary shares of Donaco International Limited under option at the date of this report are as follows: The number of shares in the company held during the financial year by each director and other members of key management personnel of the consolidated entity, including their personally related parties, is set out below: Grant date Expiry date Exercise price Number under option 108,408 – 235,224 29 January 2013 29 January 2015 Balance at the start of the year Received as part of remuneration Additions Disposals/other Balance at the end of the year Ordinary shares Stuart James McGregor 126,816 Joey Lim Keong Yew 244,366,355 Benedict Paul Reichel 122,204 Benjamin Lim Keong Hoe 202,826,200 Robert Andrew Hines – Gerald Nicholas Tan Eng Hoe* 1,367,500 Mak Siew Wei** Richard Na Chun Wee Kenny Goh Kwey Biaw – 1,600,000 1,000,000 – – – – – – – – – 1,450,000 (38,535,000) 207,281,355 61,102 – 75,000 (718,750) – – 183,306 (28,535,000) 174,291,200 – – – 75,000 648,750 – 10,000,000 (6,145,000) 5,455,000 – (300,000) 700,000 * Resigned 6 September 2013. Closing balance relates to date of resignation. ** Resigned 23 December 2013. Closing balance relates to date of resignation. Option holding The number of options over ordinary shares in the company held during the financial year by each director and other members of key management personnel of the consolidated entity, including their personally related parties, is set out below: Balance at the start of the year Granted Exercised Expired/ forfeited/other Balance at the end of the year Options over ordinary shares Stuart James McGregor Benedict Paul Reichel 63,408 61,102 Gerald Nicholas Tan Eng Hoe 1,496,250 – – – (63,408) (61,102) – – – – – (171,875) 1,324,375 Vested and exercisable Vested and unexercisable Balance at the end of the year Options over ordinary shares Gerald Nicholas Tan Eng Hoe* 1,324,375 – 1,324,375 * Resigned 6 September 2013. Closing balance relates to date of resignation. This concludes the remuneration report, which has been audited. 17 January 2012 17 January 2015 1 March 2012 17 May 2012 1 March 2015 17 May 2015 1 July 2014 1 July 2014 1 July 2014 1 July 2016 1 July 2017 1 July 2018 $0.540 $0.540 $0.540 $0.280 $0.590 $0.590 $0.590 562,500 125,000 125,000 3,306,396 1,323,059 1,261,431 1,222,335 8,652,444 No person entitled to exercise the options had or has any right by virtue of the option to participate in any share issue of the Company or of any other body corporate. Shares issued on the exercise of options The following ordinary shares of Donaco International Limited were issued during the year ended 30 June 2014 and up to the date of this report on the exercise of options granted: Date options granted Exercise price Number of shares issued $0.300 3,750,686 29 January 2013 96%Non-gaming hotel revenue also showed very strong growth of 96%. 26 27 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportFor personal use only • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards. Officers of the Company who are former audit partners of William Buck There are no officers of the company who are former audit partners of William Buck. Auditor’s Independence Declaration A copy of the Auditor’s Independence Declaration as required under section 307C of the Corporations Act 2001 is set out on the following page. Auditor On 28 May 2013, the Board resolved to extend the lead auditor’s appointment for a further 12 months beyond the initial five successive years, in accordance with section 324DAA of the Corporations Act 2001 (Cth). The initial five-year period was due to elapse on 30 June 2013. A copy of the resolution and the required Form 397 were lodged with the Australian Securities and Investments Commission on 5 June 2013. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the Directors Mr Stuart McGregor Chairman 29 September 2014 Sydney Indemnity and insurance of officers The Company has indemnified the directors and executives of the Company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the Company paid a premium in respect of a contract to insure the directors and executives of the Company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of liability and the amount of the premium. Indemnity and insurance of auditor The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor. During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity. Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. Non-audit services Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in Note 35 to the financial statements. The Directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor’s behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are of the opinion that the services as disclosed in Note 35 to the financial statements do not compromise the external auditor’s independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and 28 DONACO INTERNATIONAL LIMITED 2014 Annual Report Auditors Independence Declaration for the year ended 30 June 2014 AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 TO THE DIRECTORS OF DONACO INTERNATIONAL LIMITED I declare that, to the best of my knowledge and belief during the year ended 30 June 2014 there have been: — no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and — no contraventions of any applicable code of professional conduct in relation to the audit. William Buck Chartered Accountants ABN 16 021 300 521 L.E. Tutt Partner Sydney, 29 September 2014 : 29 DONACO INTERNATIONAL LIMITED2014 Annual ReportBoard of DirectorsFor personal use only 2 0 1 4 F I N A N C I A L S Contents Statement of Profit or Loss and other Comprehensive Income 30 Statement of Changes in Financial Position 32 Note 24. Current liabilities – liabilities directly associated with assets classified as held for sale Statement of Changes in Equity Statement of Cash Flows Note 1. Significant accounting policies Note 2. Critical accounting judgements, estimates and assumptions Note 3. Operating segments Note 4. Revenue Note 5. Other income Note 6. Expenses Note 7. Income tax expense Note 8. Discontinued operations Note 9. Current assets – cash and cash equivalents Note 10. Current assets – trade and other receivables Note 11. Current assets – inventories Note 12. Current assets – prepaid construction costs Note 13. Current assets – other 33 34 36 45 45 48 49 49 50 51 52 52 53 53 53 Note 25. Non-current liabilities – borrowings Note 26. Non-current liabilities – employee benefits Note 27. Equity – issued capital Note 28. Equity – reserves Note 29. Equity – retained profits Note 31. Equity – dividends Note 32. Financial instruments Note 33. Fair value measurement Note 34. Key management personnel disclosures Note 35. Remuneration of auditors Note 36. Contingent assets Note 37. Contingent liabilities Note 38. Commitments Note 39. Related party transactions Note 40. Parent entity information Note 14. Current assets – assets of disposal Note 41. Business combinations groups classified as held for sale 53 Note 42. Interests in subsidiaries 59 60 61 61 62 63 63 63 67 67 68 68 68 69 70 71 72 74 Note 30. Equity – non-controlling interest 63 30 Note 15. Non-current assets – property, plant and equipment 54 Note 16. Non-current assets – intangibles 55 Note 17. Non-current assets – construction in progress Note 18. Non-current assets – other Note 19. Current liabilities – trade and other payables Note 20. Current liabilities – borrowings Note 21. Current liabilities – income tax Note 22. Current liabilities – employee benefits Note 23. Current liabilities – other 57 57 58 58 59 59 59 Note 43. Events after the reporting period 76 Note 44. Reconciliation of profit after income tax to net cash from operating activities Note 45. Earnings per share Note 46. Share-based payments Directors’ Declaration 76 77 78 79 Independent Auditor’s Report to the Members of Donaco International Limited 80 Shareholder Information Corporate Directory 82 85 31 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportBoard of DirectorsBoard of DirectorsFor personal use only Statement of Profit or Loss and other Comprehensive Income for the year ended 30 June 2014 Statement of Profit or Loss and other Comprehensive Income for the year ended 30 June 2014 Consolidated Note 2014 Cents 2013 Cents Earnings per share for profit from continuing operations attributable to the owners of Donaco International Limited Basic earnings per share Diluted earnings per share Earnings per share for profit from discontinued operations attributable to the owners of Donaco International Limited Basic earnings per share Diluted earnings per share Earnings per share for profit attributable to the owners of Donaco International Limited Basic earnings per share Diluted earnings per share 45 45 45 45 45 45 1.70 1.66 0.51 0.50 2.22 2.16 2.51 2.44 0.02 0.02 2.53 2.46 The above Statement of Profit or Loss and other Comprehensive Income should be read in conjunction with the accompanying notes. Note 4 5 6 6 Revenue from continuing operations Other income Expenses Cost of sales Employee benefits expense Depreciation and amortisation expense Legal and compliance Marketing and promotions Professional and consulting fees Property costs Telecommunications and hosting Other expenses Finance costs Profit before income tax expense from continuing operations Income tax expense Profit after income tax expense from continuing operations Profit after income tax expense from discontinued operations 8 Profit after income tax expense for the year Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation Other comprehensive income for the year, net of tax Total comprehensive income for the year Profit for the year is attributable to: Non-controlling interest Owners of Donaco International Limited 29 Total comprehensive income for the year is attributable to: Continuing operations Discontinuing operations Non-controlling interest Continuing operations Discontinuing operations Owners of Donaco International Limited Consolidated 2014 $ 21,111,819 121,674 (1,270,995) (5,882,036) (270,153) (452,412) (510,722) (300,346) (545,837) (176,299) (2,231,618) (920) 9,592,155 (2,892,203) 6,699,952 1,570,130 8,270,082 (1,316,108) (1,316,108) 6,953,974 1,476,679 6,793,403 8,270,082 2013 $ 16,076,337 2,121,772 (679,319) (3,329,484) (189,837) (237,667) (238,434) (311,695) (438,548) (215,148) (913,011) – 11,644,966 (2,663,247) 8,981,719 61,517 9,043,236 1,574,774 1,574,774 10,618,010 2,017,037 7,026,199 9,043,236 1,603,297 2,350,634 – – 1,603,297 2,350,634 3,780,547 1,570,130 5,350,677 6,953,974 8,205,859 61,517 8,267,376 10,618,010 The above Statement of Profit or Loss and other Comprehensive Income should be read in conjunction with the accompanying notes. 32 33 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportFor personal use only Statement of Changes in Financial Position for the year ended 30 June 2014 Statement of Changes in Equity for the year ended 30 June 2014 Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Prepaid construction costs Other Assets of disposal groups classified as held for sale Total current assets Non-current assets Property, plant and equipment Intangibles Construction in progress Other Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Borrowings Income tax Employee benefits Other Liabilities directly associated with assets classified as held for sale Total current liabilities Non-current liabilities Borrowings Employee benefits Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained profits Equity attributable to the owners of Donaco International Limited Non-controlling interest Total equity Note Consolidated 2014 $ 2013 $ Issued capital Reserves Retained profits Non-controlling interest Total equity Consolidated Balance at 1 July 2012 $ $ $ $ $ 1,619 (276,544) 5,707,548 1,983,157 7,415,780 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 98,034,937 29,404,205 771,310 1,405,726 18,815,625 2,238,260 121,265,858 5,706,816 3,179,668 225,210 12,317,843 145,461 45,272,387 – 126,972,674 45,272,387 4,885,952 9,796,836 39,151,630 1,061,041 54,895,459 181,868,133 1,552,965 9,796,836 12,336,321 215,455 23,901,577 69,173,964 12,635,132 11,447,235 1,446,596 4,851,700 70,490 – 19,003,918 2,998,897 22,002,815 10,608,370 20,485 10,628,855 32,631,670 149,236,463 129,964,909 (478,093) 18,690,859 148,177,675 1,058,788 149,236,463 – 5,171,114 457,146 63,043 17,138,538 – 17,138,538 – 32,969 32,969 17,171,507 52,002,457 34,692,937 964,633 12,745,584 48,403,154 3,599,303 52,002,457 Profit after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: – – – – 7,026,199 2,017,037 9,043,236 1,241,177 – 333,597 1,574,774 1,241,177 7,026,199 2,350,634 10,618,010 Contributions of equity, net of transaction costs (Note 27) 34,680,692 Employee share options issued Employee share options lapsed 22,463 (11,837) Dividends paid to non-controlling interest – – – – – – – 11,837 – – – – 34,680,692 22,463 – (734,488) (734,488) Balance at 30 June 2013 34,692,937 964,633 12,745,584 3,599,303 52,002,457 Issued capital Reserves Retained profits Non-controlling interest Total equity Consolidated $ $ $ $ $ Balance at 1 July 2013 34,692,937 964,633 12,745,584 3,599,303 52,002,457 Profit after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: – – – Contributions of equity, net of transaction costs (Note 27) 101,073,907 Unissued shares Share issue expense Additional holding in Lao Cai JV Dividends paid to non-controlling interest (300,000) (5,501,935) – – – 6,793,403 1,476,679 8,270,082 (1,442,726) – 126,618 (1,316,108) (1,442,726) 6,793,403 1,603,297 6,953,974 – – – – – – 300,000 – – – – 101,073,907 – (5,501,935) (1,148,128) (3,322,272) (4,470,400) – (821,540) (821,540) Balance at 30 June 2014 129,964,909 (478,093) 18,690,859 1,058,788 149,236,463 The above statement of Changes in Equity should be read in conjunction with the accompanying notes. The above Statement of Changes in Financial Position should be read in conjunction with the accompanying notes. 34 35 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportFor personal use only Statement of Cash Flows for the year ended 30 June 2014 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Government levies, gaming taxes and GST Net cash from operating activities Cash flows from investing activities Payments for property, plant and equipment Cash and cash equivalents on acquisition of subsidiaries Proceeds from sale of investments Proceeds from sale of property, plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Proceeds from borrowings Payment of equity raising expenses Note Consolidated 2014 $ 2013 $ 44 41 34,465,583 28,432,419 (16,517,800) (16,689,439) 17,947,783 11,742,980 566,303 56,044 (8,825,898) (7,697,580) 9,688,188 4,101,444 (41,262,043) (9,626,742) – 103,865 (186,673) 1,188,298 118,615 45,682 (41,344,851) (8,274,147) 101,073,907 25,078,425 12,054,966 – (5,501,935) (1,865,770) Dividends paid by controlled entities to non-controlling interests (821,540) (1,017,586) Purchase of additional 20% non controlling interest in Lao Cai JV (4,470,400) – Net cash from financing activities Net increase in cash and cash equivalents 102,334,998 22,195,069 70,678,335 18,022,366 Cash and cash equivalents at the beginning of the financial year 29,404,205 10,356,152 Effects of exchange rate changes on cash and cash equivalents (586,375) 1,025,687 Cash and cash equivalents at the end of the financial year 9 99,496,165 29,404,205 The above Statement of Cash Flows should be read in conjunction with the accompanying notes. 36 37 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportNotes to the Consolidated Financial Statements as at 30 June 2014For personal use only Note 1. Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. New, revised or amending Accounting Standards and Interpretations adopted The consolidated entity has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period. Any significant impact on the accounting policies of the consolidated entity from the adoption of these Accounting Standards and Interpretations are disclosed below. The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the consolidated entity. The following Accounting Standards and Interpretations are most relevant to the consolidated entity: AASB 10 Consolidated Financial Statements The consolidated entity has applied AASB 10 from 1 July 2013, which has a new definition of ‘control’. Control exists when the reporting entity is exposed, or has the rights, to variable returns from its involvement with another entity and has the ability to affect those returns through its ‘power’ over that other entity. A reporting entity has power when it has rights that give it the current ability to direct the activities that significantly affect the investee’s returns. The consolidated entity not only has to consider its holdings and rights but also the holdings and rights of other shareholders in order to determine whether it has the necessary power for consolidation purposes. AASB 11 Joint Arrangements The consolidated entity has applied AASB 11 from 1 July 2013. The standard defines which entities qualify as joint arrangements and removes the option to account for joint ventures using proportional consolidation. Joint ventures, where the parties to the agreement have the rights to the net assets are accounted for using the equity method. Joint operations, where the parties to the agreements have the rights to the assets and obligations for the liabilities, will account for its share of the assets, liabilities, revenues and expenses separately under the appropriate classifications. AASB 12 Disclosure of Interests in Other Entities The consolidated entity has applied AASB 12 from 1 July 2013. The standard contains the entire disclosure requirement associated with other entities, being subsidiaries, associates and joint arrangements (joint operations and joint ventures). The disclosure requirements have been significantly enhanced when compared to the disclosures previously located in AASB 127 ‘Consolidated and Separate Financial Statements’, AASB 128 ‘Investments in Associates’, AASB 131 ‘Interests in Joint Ventures’ and Interpretation 112 ‘Consolidation – Special Purpose Entities’. AASB 13 Fair Value Measurement and AASB 2011-8 Amendments to Australian Accounting Standards Arising from AASB 13 The consolidated entity has applied AASB 13 and its consequential amendments from 1 July 2013. The standard provides a single robust measurement framework, with clear measurement objectives, for measuring fair value using the ‘exit price’ and provides guidance on measuring fair value when a market becomes less active. The ‘highest and best use’ approach is used to measure non-financial assets, whereas liabilities are based on transfer value. The standard requires increased disclosures where fair value is used. AASB 119 Employee Benefits (September 2011) and AASB 2011-10 Amendments to Australian Accounting Standards Arising from AASB 119 (September 2011) The consolidated entity has applied AASB 119 and its consequential amendments from 1 July 2013. The standard eliminates the corridor approach for the deferral of gains and losses; streamlines the presentation of changes in assets and liabilities arising from defined benefit plans, including requiring remeasurements to be presented in other comprehensive income; and enhances the disclosure requirements for defined benefit plans. The standard also changed the definition of short- term employee benefits, from ‘due to’ to ‘expected to’ be settled within 12 months. Annual leave that is not expected to be wholly settled within 12 months is now discounted allowing for expected salary levels in the future period when the leave is expected to be taken. AASB 2012-2 Amendments to Australian Accounting Standards – Disclosures – Offsetting Financial Assets and Financial Liabilities The consolidated entity has applied AASB 2012-2 from 1 July 2013. The amendments enhance AASB 7 ‘Financial Instruments: Disclosures’ and requires disclosure of information about rights of set-off and related arrangements, such as collateral agreements. The amendments apply to recognised financial instruments that are subject to an enforceable master netting arrangement or similar agreement. AASB 2012-5 Amendments to Australian Accounting Standards Arising from Annual Improvements 2009–2011 Cycle where assumptions and estimates are significant to the financial statements, are disclosed in Note 2. The consolidated entity has applied AASB 2012-5 from 1 July 2013. The amendments affect five Australian Accounting Standards as follows: Confirmation that repeat application of AASB 1 First-time Adoption of Australian Accounting Standards is permitted; clarification of borrowing cost exemption in AASB 1; clarification of the comparative information requirements when an entity provides an optional third column or is required to present a third statement of financial position in accordance with AASB 101 Presentation of Financial Statements; clarification that servicing of equipment is covered by AASB 116 Property, Plant and Equipment, if such equipment is used for more than one period; clarification that the tax effect of distributions to holders of equity instruments and equity transaction costs in AASB 132 Financial Instruments: Presentation should be accounted for in accordance with AASB 112 Income Taxes; and clarification of the financial reporting requirements in AASB 134 Interim Financial Reporting and the disclosure requirements of segment assets and liabilities. AASB 2012-9 Amendment to AASB 1048 Arising from the Withdrawal of Australian Interpretation 1039 The consolidated entity has applied AASB 2011-9 amendments from 1 July 2013. The amendments remove reference to AASB 1048 following the withdrawal of Interpretation 1039 Substantive Enactment of Major Tax Bills in Australia. Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board (‘IASB’). Historical cost convention The financial statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of available-for-sale financial assets, financial assets and liabilities at fair value through profit or loss, investment properties, certain classes of property, plant and equipment and derivative financial instruments. Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the consolidated entity’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated entity only. Supplementary information about the parent entity is disclosed in Note 40. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Donaco International Limited (‘company’ or ‘parent entity’) as at 30 June 2014 and the results of all subsidiaries for the year then ended. Donaco International Limited and its subsidiaries together are referred to in these financial statements as the ‘consolidated entity’. Subsidiaries are all those entities over which the consolidated entity has control. The consolidated entity controls an entity when the consolidated entity is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the consolidated entity. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated entity are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the consolidated entity. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of profit or loss and other comprehensive income, statement of financial position and statement of changes in equity of the consolidated entity. Losses incurred by the consolidated entity are attributed to the non- controlling interest in full, even if that results in a deficit balance. Where the consolidated entity loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non- controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The consolidated 38 39 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportNotes to the Consolidated Financial Statements as at 30 June 2014Notes to the Consolidated Financial Statements as at 30 June 2014For personal use only entity recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. Operating segments Operating segments are presented using the ‘management approach’, where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers (‘CODM’). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. Foreign currency translation The financial statements are presented in Australian dollars, which is Donaco International Limited’s functional and presentation currency. Foreign currency transactions Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Foreign operations The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars using the average exchange rates, which approximate the rate at the date of the transaction, for the period. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity. The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of. Revenue recognition Revenue is recognised when it is probable that the economic benefit will flow to the consolidated entity and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable. Casino revenue Revenue at the playing tables is recognised upon the differences between chips at the closing and chips at the opening of each table plus chips transferred from the playing table to the cage, less chips transferred from the cage to the playing table. Revenue from slot machines represents the amount received over the exchange counter less the amount returned to customers. 40 Sale of goods Sale of goods revenue is recognised at the point of sale, which is where the customer has taken delivery of the goods, the risks and rewards are transferred to the customer and there is a valid sales contract. Rendering of services Revenue from the provision of services is recognised in the accounting period in which the services are rendered. Interest Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Other revenue Other revenue is recognised when it is received or when the right to receive payment is established. Dividend income Dividends are recognised as revenue when the right to receive payment is established. This applies even if they are paid out of pre-acquisition profits. However, the investment may need to be tested for impairment as a consequence. Income tax The income tax expense or benefit for the period is the tax payable on that period’s taxable income based on the applicable income tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: • When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or • When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. Discontinued operations A discontinued operation is a component of the consolidated entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately on the face of the statement of profit or loss and other comprehensive income. Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is current when it is expected to be realised or intended to be sold or consumed in normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is current when it is expected to be settled in normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Trade and other receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. Trade receivables are generally due for settlement within 30 days. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by reducing the carrying amount directly. A provision for impairment of trade receivables is raised when there is objective evidence that the consolidated entity will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency in payments (more than 60 days overdue) are considered indicators that the trade receivable may be impaired. The amount of the impairment allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short- term receivables are not discounted if the effect of discounting is immaterial. Other receivables are recognised at amortised cost, less any provision for impairment. Inventories Inventories include consumable stores, food and beverages and are carried at the lower of cost and net realisable value. Cost is determined on a first-in-first-out basis and comprises all costs of purchases, conversion and other costs incurred in bringing the inventories to their present location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, is recognised in the statement of profit or loss and other comprehensive income, in the period in which the reversal occurs. 41 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportNotes to the Consolidated Financial Statements as at 30 June 2014Notes to the Consolidated Financial Statements as at 30 June 2014For personal use only Non-current assets or disposal groups classified as held for sale Non-current assets and assets of disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. They are measured at the lower of their carrying amount and fair value less costs of disposal. For non-current assets or assets of disposal groups to be classified as held for sale, they must be available for immediate sale in their present condition and their sale must be highly probable. An impairment loss is recognised for any initial or subsequent write-down of the non-current assets and assets of disposal groups to fair value less costs of disposal. A gain is recognised for any subsequent increases in fair value less costs of disposal of non-current assets and assets of disposal groups, but not in excess of any cumulative impairment loss previously recognised. Non-current assets are not depreciated or amortised while they are classified as held for sale. Interest and other expenses attributable to the liabilities of assets held for sale continue to be recognised. Non-current assets classified as held for sale and the assets of disposal groups classified as held for sale are presented separately on the face of the statement of financial position, in current assets. The liabilities of disposal groups classified as held for sale are presented separately on the face of the statement of financial position, in current liabilities. Property, plant and equipment Property, plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant and equipment (excluding land) over their expected useful lives as follows: Buildings and structures 25 years Machinery and equipment 3–10 years Motor vehicles 6 years Office equipment and other 3–10 years The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the consolidated entity. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. Leases The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to ownership of leased assets, and operating leases, under which the lessor effectively retains substantially all such risks and benefits. Operating lease payments, net of any incentives received from the lessor, are charged to the statement of profit or loss and other comprehensive income on a straight-line basis over the term of the lease. Intangible assets Intangible assets includes costs incurred to acquire interests in the usage of land in the Socialist Republic of Vietnam for the original hotel, located in Lao Cai. The term of the agreement is 30 years from the initial licensing date of 19 July 2002. These land use rights are stated at cost less accumulated amortisation. Amortisation is calculated on a straight-line basis over a period of 30 years, from the licensing date. At the expiry of the land term, it is expected that the relevant State body will consider an application for extension. Goodwill Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed. Prepaid construction costs Amounts recognised as prepaid construction costs relate to tranche payments made to third-party developers in connection with the construction of the new Lao Cai Casino. Tranche payments are made in advance of construction work being performed in accordance with the terms of the contractor agreements, however once associated works have been completed an amount equal to the tranche payment is transferred from prepaid construction costs to construction in progress. Once recognised as part of construction in progress the amounts are then carried on the Statement of Financial Position at cost, until such time as the asset is completed and ready for its intended use. Work in progress is not depreciated, but tested for impairment annually. Once ready for its intended use an amount equal to the cost of the completed asset will be transferred to property, plant and equipment and accounted for in accordance with the consolidated entity’s accounting policy for property, plant and equipment. Impairment of non-financial assets Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash- generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. Trade and other payables These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. Borrowings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. Where there is an unconditional right to defer settlement of the liability for at least 12 months after the reporting date, the loans or borrowings are classified as non-current. Finance costs Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in the period in which they are incurred, including: • interest on short-term and long-term borrowings Employee benefits Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave, long service leave and accumulating sick leave expected to be wholly settled within 12 months of the reporting date are recognised in current liabilities in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Non-accumulating sick leave is expensed to profit or loss when incurred. Other long-term employee benefits The liability for annual leave and long service leave not expected to be wholly settled within 12 months of the reporting date is recognised in non-current liabilities, provided there is an unconditional right to defer settlement of the liability. The liability is measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. Share-based payments Share-based compensation benefits are provided to employees via Donaco International Limited’s option plan. The fair value of options granted under Donaco International Limited’s option plan is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options. When the options are exercised, Donaco International Limited transfers the appropriate amount of shares to the employee. The proceeds received net of any directly attributable transaction costs are credited directly to equity. Fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either in the principal market, or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interest. 42 43 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportNotes to the Consolidated Financial Statements as at 30 June 2014Notes to the Consolidated Financial Statements as at 30 June 2014For personal use only For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed each reporting date and transfers between levels are determined based on a reassessment of the lowest level input that is significant to the fair value measurement. Issued capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Business combinations The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree’s identifiable net assets. All acquisition costs are expensed as incurred to profit or loss. On the acquisition of a business, the consolidated entity assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the consolidated entity’s operating or accounting policies and other pertinent conditions in existence at the acquisition date. Where the business combination is achieved in stages, the consolidated entity remeasures its previously held equity interest in the acquiree at the acquisition-date fair value and the difference between the fair value and the previous carrying amount is recognised in profit or loss. Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent changes in the fair value of contingent consideration classified as an asset or liability is recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. 44 The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer’s previously held equity interest in the acquirer. Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value. Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of Donaco International Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. Goods and Services Tax (‘GST’) and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. net settlement. The adoption of the amendments from 1 July 2014 will not have a material impact on the consolidated entity. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the consolidated entity for the annual reporting period ended 30 June 2014. The consolidated entity’s assessment of the impact of these new or amended Accounting Standards and Interpretations most relevant to the consolidated entity are set out below. AASB 9 Financial Instruments and its consequential amendments This standard and its consequential amendments are applicable to annual reporting periods beginning on or after 1 January 2018 and completes phases I and III of the IASB’s project to replace IAS 39 (AASB 139) Financial Instruments: Recognition and Measurement. This standard introduces new classification and measurement models for financial assets, using a single approach to determine whether a financial asset is measured at amortised cost or fair value. The accounting for financial liabilities continues to be classified and measured in accordance with AASB 139, with one exception, being that the portion of a change of fair value relating to the entity’s own credit risk is to be presented in other comprehensive income unless it would create an accounting mismatch. Chapter 6 ‘Hedge Accounting’ supersedes the general hedge accounting requirements in AASB 139 and provides a new simpler approach to hedge accounting that is intended to more closely align with risk management activities undertaken by entities when hedging financial and non-financial risks. The consolidated entity will adopt this standard and the amendments from 1 July 2017 but the impact of its adoption is yet to be assessed by the consolidated entity. AASB 2012-3 Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities The amendments are applicable to annual reporting periods beginning on or after 1 January 2014. The amendments add application guidance to address inconsistencies in the application of the offsetting criteria in AASB 132 Financial Instruments: Presentation, by clarifying the meaning of ‘currently has a legally enforceable right of set-off’, and clarifies that some gross settlement systems may be considered to be equivalent to AASB 2013-3 Amendments to AASB 136 – Recoverable Amount Disclosures for Non-Financial Assets These amendments are applicable to annual reporting periods beginning on or after 1 January 2014. The disclosure requirements of AASB 136 Impairment of Assets have been enhanced to require additional information about the fair value measurement when the recoverable amount of impaired assets is based on fair value less costs of disposals. Additionally, if measured using a present value technique, the discount rate is required to be disclosed. The adoption of these amendments from 1 January 2014 may increase the disclosures by the consolidated entity. AASB 2013-4 Amendments to Australian Accounting Standards – Novation of Derivatives and Continuation of Hedge Accounting These amendments are applicable to annual reporting periods beginning on or after 1 January 2014 and amend AASB 139 Financial Instruments: Recognition and Measurement to permit continuation of hedge accounting in circumstances where a derivative (designated as hedging instrument) is novated from one counter party to a central counterparty as a consequence of laws or regulations. The adoption of these amendments from 1 January 2014 will not have a material impact on the consolidated entity. AASB 2013-5 Amendments to Australian Accounting Standards – Investment Entities These amendments are applicable to annual reporting periods beginning on or after 1 January 2014 and allow entities that meet the definition of an ‘investment entity’ to account for their investments at fair value through profit or loss. An investment entity is not required to consolidate investments in entities it controls, or apply AASB 3 Business Combinations when it obtains control of another entity, nor is it required to equity account or proportionately consolidate associates and joint ventures if it meets the criteria for exemption in the standard. The adoption of these amendments from 1 January 2014 will have no impact on the consolidated entity. Annual Improvements to IFRSs 2010–2012 cycle These amendments are applicable to annual reporting periods beginning on or after 1 July 2014 and affect several Accounting Standards as follows: amends the definition of ‘vesting conditions’ and ‘market condition’ and adds definitions for ‘performance condition’ and ‘service condition’ in AASB 2 Share-based Payment; Amends AASB 3 Business Combinations to clarify that contingent consideration that is classified as an asset or liability 45 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportNotes to the Consolidated Financial Statements as at 30 June 2014Notes to the Consolidated Financial Statements as at 30 June 2014For personal use only shall be measured at fair value at each reporting date; amends AASB 8 Operating Segments to require entities to disclose the judgements made by management in applying the aggregation criteria; clarifies that AASB 8 only requires a reconciliation of the total reportable segments, assets to the entity’s assets, if the segment, assets are reported regularly; clarifies that the issuance of AASB 13 Fair Value Measurement and the amending of AASB 139 Financial Instruments: Recognition and Measurement and AASB 9 Financial Instruments did not remove the ability to measure short-term receivables and payables with no stated interest rate at their invoice amount, if the effect of discounting is immaterial; clarifies that in AASB 116 Property, Plant and Equipment and AASB 138 Intangible Assets, when an asset is revalued the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount (i.e. proportional restatement of accumulated amortisation); and Amends AASB 124 Related Party Disclosures to clarify that an entity providing key management personnel services to the reporting entity or to the parent of the reporting entity is a ‘related party’ of the reporting entity. The adoption of these amendments from 1 January 2015 will not have a material impact on the consolidated entity. Annual Improvements to IFRSs 2011–2013 cycle These amendments are applicable to annual reporting periods beginning on or after 1 July 2014 and affect four Accounting Standards as follows: clarifies the ‘meaning of effective IFRSs’ in AASB 1 First-time Adoption of Australian Accounting Standards; clarifies that AASB 3 Business Combination excludes from its scope the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself; clarifies that the scope of the portfolio exemption in AASB 13 Fair Value Measurement includes all contracts accounted for within the scope of AASB 139 Financial Instruments: Recognition and Measurement or AASB 9 Financial Instruments, regardless of whether they meet the definitions of financial assets or financial liabilities as defined in AASB 132 Financial Instruments: Presentation; and clarifies that determining whether a specific transaction meets the definition of both a business combination as defined in AASB 3 Business Combinations and investment property as defined in AASB 140 Investment Property requires the separate application of both standards independently of each other. The adoption of these amendments from 1 January 2015 will not have a material impact on the consolidated entity. AASB 2013-9 Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments makes amendments to AASB 9 to: (i) replace the general hedge accounting requirements to more closely align hedge accounting with risk management activities undertaken when hedging financial and non-financial risks; (ii) permit fair value changes due to changes in ‘own credit risk’ of financial liabilities measured at fair value to be recognised through other comprehensive income, without applying all other requirements of AASB 9 at the same time; and (iii) defer the mandatory application date of AASB 9 to annual reporting periods beginning on or after 1 January 2017. This application date is subject to review and is expected to be revised by the IASB. AASB 2014-4 Amendments to Australian Accounting Standards – Clarification of Acceptable Methods of Depreciation and Amortisation. This standard makes amendments to AASB 116 Property, Plant and Equipment and AASB 138 Intangible Assets. The main principle is to establish the basis of depreciation and amortisation as being the expected pattern of consumption of the future economic benefits of an asset rather than associated to revenue streams. This standard applies to annual reporting periods beginning on or after 1 January 2016.The Company has not elected early adoption. IFRS 15 Revenue from Contracts with Customers contains new requirements for the recognition of revenue. The standard will also include additional disclosures about revenue. Adoption of IFRS 15 is not mandatory until annual periods beginning on or after 1 January 2017 and 1 January 2018 respectively. Early adoption is permitted. The potential financial impact to the Group is not yet possible to determine. The new property is a quantum leap ahead of the old. The Aristo has 400 guest rooms, with an additional 28 rooms currently fitted out as recreational facilities, primarily a health spa and a nightclub. Note 2. Critical accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. Goodwill The consolidated entity tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill and other indefinite life intangible assets have suffered any impairment in accordance with the accounting policy stated in Note 1. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows. Income tax The consolidated entity is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The consolidated entity recognises liabilities for anticipated tax audit issues based on the consolidated entity’s current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made. Business combinations As discussed in Note 1, business combinations are initially accounted for on a provisional basis. The fair value of assets acquired, liabilities and contingent liabilities assumed are initially estimated by the consolidated entity taking into consideration all available information at the reporting date. Fair value adjustments on the finalisation of the business combination accounting is retrospective, where applicable, to the period the combination occurred and may have an impact on the assets and liabilities, depreciation and amortisation reported. Note 3. Operating segments Identification of reportable operating segments The consolidated entity is organised into two operating segments: Casino Operations and Gaming Technology Operations. These operating segments are based on the internal reports that are reviewed and used by the Board of Directors (who are identified as the Chief Operating Decision Makers (‘CODM’)) in assessing performance and in determining the allocation of resources. There is no aggregation of operating segments. The CODM reviews EBITDA (earnings before interest, tax, depreciation and amortisation). The accounting policies adopted for internal reporting to the CODM are consistent with those adopted in the financial statements. The information reported to the CODM is on at least a monthly basis. Types of products and services The principal products and services of each of these operating segments are as follows: Casino Operations Gaming Technology Operations Comprises the Lao Cai International Hotel operations, including hotel accommodation, gaming and leisure facilities, in Vietnam. Comprises the operation and development of gaming technology, including mobile payment gateways and interactive media and gambling applications for deployment on television, mobile and internet. The consolidated entity is domiciled in Australia and operates predominantly in four countries: Australia, Vietnam, Singapore and Malaysia. Intersegment transactions Intersegment transactions were made at market rates. Intersegment transactions are eliminated on consolidation. 46 47 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportNotes to the Consolidated Financial Statements as at 30 June 2014Notes to the Consolidated Financial Statements as at 30 June 2014For personal use only Operating segment information for continuing and discontinuing operations Consolidated – 2014 Revenue Sales revenue Interest Total revenue EBITDA Depreciation and amortisation Interest revenue Other income – discontinuing entity Net exchange gains NCI Profit before income tax expense Income tax expense Profit after income tax expense Assets Segment assets Total assets Total assets includes: Casino Operations Gaming Technology Operations $ $ Total $ 19,471,405 8,821,721 28,293,126 101,529 851,093 952,622 19,572,934 9,672,814 29,245,748 8,943,888 (270,153) 101,529 – 126,732 1,476,679 (82,672) (21,937) 851,093 52,844 (5,059) – 8,861,216 (292,090) 952,622 52,844 121,673 1,476,679 10,378,675 794,269 11,172,944 – – – – (2,902,862) 8,270,082 84,807,927 97,060,206 181,868,133 – 181,868,133 – – Consolidated – 2013 Revenue Sales revenue Other revenue Total revenue EBITDA Depreciation and amortisation Interest revenue Creditor written back Exchange gain on investing activities NCI Sale of TAB Active business Profit before income tax expense Income tax expense Profit after income tax expense Assets Segment assets Total assets Total assets includes: Acquisition of non-current assets 39,151,630 39,151,630 Acquisition of non-current assets Liabilities Segment liabilities Unallocated liabilities: Provision for income tax Total liabilities 24,463,950 3,316,020 27,779,970 – – 4,851,700 32,631,670 Liabilities Segment liabilities Unallocated liabilities: Provision for income tax Total liabilities * The above operating segment information includes iSentric Sdn Bhd, the discontinuing operation as at 30 June 2014, which is reported under the category Gaming Technology Operations. * The above operating segment information includes iSentric Sdn Bhd, the discontinuing operation as at 30 June 2014, which is reported under the category Gaming Technology Operations. 48 49 Casino Operations Gaming Technology Operations $ $ Total $ 14,664,539 1,007,219 15,671,758 804,356 70,758 875,114 15,468,895 1,077,977 16,546,872 7,231,627 (342,847) 6,888,780 – – – – – – – – – – – – – – – – – – (191,877) 250,200 624,904 1,258,818 2,017,037 862,964 11,710,826 (2,667,590) 9,043,236 52,571,602 16,602,362 69,173,964 – 12,336,321 – – 69,173,964 12,336,321 10,330,708 1,669,685 12,000,393 – – 5,171,114 17,171,507 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportNotes to the Consolidated Financial Statements as at 30 June 2014Notes to the Consolidated Financial Statements as at 30 June 2014For personal use only Geographical information Note 5. Other income Australia Vietnam Sales to external customers Geographical non-current assets 2014 $ 2013 $ 2014 $ 2013 $ 747,050 537,358 9,805,003 9,796,836 19,471,405 14,664,539 45,121,068 13,975,505 Other countries (discontinuing operation) 8,074,671 469,862 227,452 129,236 28,293,126 15,671,759 55,153,523 23,901,577 Segment revenues are allocated based on the country in which the customer is located. Revenue by geographical area Net foreign exchange gain Sale of TAB Active Other income Note 6. Expenses Revenue and other income: Australia Vietnam Other countries (discontinuing operation) Total revenue and other income Note 4. Revenue From continuing operations Sales revenue Casino operations Gaming technology operations Other revenue Interest Revenue from continuing operations Consolidated 2014 $ 2013 $ 1,533,830 1,471,071 19,699,663 16,727,702 8,133,929 469,871 29,367,422 18,668,644 Consolidated 2014 $ 2013 $ 19,471,405 14,664,539 694,206 536,694 20,165,611 15,201,233 946,208 21,111,819 875,104 16,076,33 Consolidated 2014 $ 121,674 – 121,674 2013 $ 1,258,808 862,964 2,121,772 Consolidated 2014 $ 2013 $ 1,270,995 679,319 58,758 108,821 45,081 57,493 270,153 51,733 55,669 51,859 30,576 189,837 Profit before income tax from continuing operations includes the following specific expenses: Cost of sales Cost of sales Depreciation Buildings and structures Machinery and equipment Office equipment Motor vehicles Total depreciation Superannuation expense Defined contribution superannuation expense 63,296 28,490 In the year ended 30 June 2013, the interest comparative included a non-recurring item of $624,904, representing a creditor write-back by Donaco Singapore Pte Ltd prior to listing on the ASX. 50 51 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportNotes to the Consolidated Financial Statements as at 30 June 2014Notes to the Consolidated Financial Statements as at 30 June 2014For personal use only Note 7. Income tax expense Income tax expense Current tax Adjustment recognised for prior periods Aggregate income tax expense Income tax expense is attributable to: Profit from continuing operations Profit from discontinued operations Aggregate income tax expense Numerical reconciliation of income tax expense and tax at the statutory rate Profit before income tax expense from continuing operations Profit before income tax expense from discontinued operations Tax at the statutory tax rate of 30% Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Non-assessable or deductible items Adjustment recognised for prior periods Difference in overseas tax rates Income tax expense Consolidated 2014 $ 2,883,202 19,660 2,902,862 2,892,203 10,659 2,902,862 9,592,155 1,580,789 2013 $ 2,667,798 (208) 2,667,590 2,663,247 4,343 2,667,590 11,644,966 65,860 284,972 3,636,855 19,660 (753,653) 2,902,862 (259,909) 3,253,339 (208) (585,541) 2,667,590 The property also has five restaurants, a theatre restaurant and ballroom, several all day dining outlets and a VIP lounge. Other non-gaming amenities include a swimming pool, tennis court and gym, and eight retail shops, with a ticketing agency and convenience store. Note 8. Discontinued operations Description On 26 February 2014, the company announced that it planned to spin off its mobile technology business, which trades under the name iSentric, into a new company separately listed on the ASX. A binding Share Sale Agreement to implement the transaction was signed with OMI Holdings Limited on 9 May 2014. in the newly listed entity to Donaco shareholders in specie on 16 September 2014. Donaco shareholders with a minimum of 19,206 shares on the record date of 12 September 2014 received approximately 0.13 iSentric shares for each Donaco share. Holders of fewer Donaco shares will have their entitlements sold and will receive the proceeds of sale (less costs) in cash. No impairment loss was recognised on the reclassification of iSentric to a discontinued operation. The transaction was completed on 23 September 2014, when iSentric Limited listed on the ASX. Donaco distributed its shares Information on the financial performance of the discontinued operation during the year ended 30 June 2014 is set out below. Financial performance information Consolidated Gaming Technology Operations Interest Total revenue Cost of sales 11,172,944 11,710,826 3,351,883 3,513,248 Employee benefits expense Depreciation and amortisation expense Legal and compliance Marketing and promotions Professional and consulting fees Property costs Telecommunications and hosting Other expenses Total expenses Profit before income tax expense Income tax expense Profit after income tax expense from discontinued operations 2014 $ 8,127,515 6,414 8,133,929 (4,971,121) (715,749) (21,937) (20,606) (254,304) (134,945) (34,870) (14,618) (384,990) 2013 $ 470,525 10 470,535 (341,058) (26,000) (2,040) (6,971) (13,721) (7,300) (2,779) (1,479) (3,327) (6,553,140) (404,675) 1,580,789 (10,659) 1,570,130 65,860 (4,343) 61,517 52 53 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportNotes to the Consolidated Financial Statements as at 30 June 2014Notes to the Consolidated Financial Statements as at 30 June 2014For personal use only Financial performance information Note 11. Current assets – inventories Net cash from operating activities Net cash used in investing activities Net cash used in financing activities Net increase/(decrease) in cash and cash equivalents from discontinued operations Note 9. Current assets – cash and cash equivalents Cash on hand Cash at bank Bank deposits with original maturities of less than 3 months Consolidated 2014 $ 1,477,253 (209,172) – 1,268,081 2013 $ 91,406 (2,338) (204,200) (115,132) Consolidated 2014 $ 5,514,580 6,160,255 86,360,102 98,034,937 2013 $ 9,951,954 12,050,857 7,401,394 29,404,205 Food and beverage – at cost Note 12. Current assets – prepaid construction costs Prepaid construction costs Prepaid construction costs Consolidated 2014 $ 1,405,726 2013 $ 225,210 Consolidated 2014 $ 2013 $ 18,815,625 12,317,843 This refers to prepaid costs incurred in the construction of the new five-star Aristo International Hotel and Casino in Lao Cai, Northern Vietnam. Note 13. Current assets – other Reconciliation to cash and cash equivalents at the end of the financial year The above figures are reconciled to cash and cash equivalents at the end of the financial year as shown in the statement of cash flows as follows: Balances as above 98,034,937 29,404,205 Cash and cash equivalents – classified as held for sale (note 14) 1,461,228 – Balance as per statement of cash flows 99,496,165 29,404,205 Bonds and security deposits Tax receivable Other debtors Consolidated 2014 $ 8,167 1,238,204 991,889 2,238,260 2013 $ 18,012 28,371 99,078 145,461 Note 10. Current assets – trade and other receivables Note 14. Current assets – assets of disposal groups classified as held for sale Trade receivables Receivable from related parties Interest receivable on bank deposits Impairment of receivables Consolidated 2014 $ 449,720 27,039 294,551 771,310 2013 $ 3,138,711 25,838 15,119 3,179,668 Cash and cash equivalents Trade and other receivables Other current assets Property, plant and equipment Other non-current assets The consolidated entity has recognised a loss of $0 (2013: $0) in profit or loss in respect of impairment of receivables for the year ended 30 June 2014. 54 Consolidated 2014 $ 1,461,228 4,003,057 21,693 25,045 195,793 5,706,816 2013 $ – – – – – – 55 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportNotes to the Consolidated Financial Statements as at 30 June 2014Notes to the Consolidated Financial Statements as at 30 June 2014For personal use only Note 15. Non-current assets – property, plant and equipment Reconciliations Consolidated Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Land right Less: Accumulated depreciation Leasehold buildings and structures – at cost Less: Accumulated depreciation Machinery and equipment – at cost Less: Accumulated depreciation Motor vehicles – at cost Less: Accumulated depreciation Office equipment and other – at cost Less: Accumulated depreciation 2014 $ 56,642 (22,863) 33,779 1,170,778 (488,769) 682,009 3,699,023 2013 $ 52,357 – 52,357 1,131,881 (392,042) 739,839 1,741,034 (1,366,871) (1,258,050) 2,332,152 512,538 (143,948) 368,590 1,671,963 (202,541) 1,469,422 4,885,952 482,984 262,984 (79,253) 183,731 214,613 (120,559) 94,054 1,552,965 Land right Leasehold buildings and structures Machinery and equipment Motor vehicles Office equipment and other Consolidated $ $ Balance at 1 July 2012 52,357 714,278 Additions Additions through business combinations (Note 41) Disposals Exchange differences Transfers in/(out) Depreciation expense – – – – – – Balance at 30 June 2013 52,357 Additions Disposals Exchange differences Transfers in/(out) – – – – 14,937 – – (13,904) 76,261 (51,733) 739,839 – – (17,650) – $ 91,100 18,022 438,146 (83,525) (11,270) 86,180 (55,669) 482,984 $ 119,070 88,327 – – (4,449) 11,652 (30,869) 183,731 Total $ 1,073,600 145,272 $ 96,795 23,986 – 438,146 (10,021) (93,546) 39,030 (2,130) 9,407 171,963 (53,606) (191,877) 94,054 1,552,965 1,766,859 270,120 1,230,192 3,267,171 (12,950) 191,130 12,950 (50,415) – (5,691) 28,338 190,257 – (63,365) 358,046 41,288 Depreciation expense (18,578) (40,180) (108,821) (57,493) (45,081) (270,153) Balance at 30 June 2014 33,779 682,009 2,332,152 368,590 1,469,422 4,885,952 Land right Intangible asset of US$53,355 which relates to a 30-year land use right in the Socialist Republic of Vietnam. The amortisation period is 30 years with a remaining amortisation period of 20 years. Note 16. Non-current assets – intangibles Goodwill – at cost Consolidated 2014 $ 2013 $ 9,796,836 9,796,836 56 57 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportNotes to the Consolidated Financial Statements as at 30 June 2014Notes to the Consolidated Financial Statements as at 30 June 2014For personal use only Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Note 17. Non-current assets – construction in progress Consolidated Balance at 1 July 2012 Additions through business combinations (Note 41) Balance at 30 June 2013 Balance at 30 June 2014 Impairment testing of goodwill Goodwill Total $ – 9,796,836 9,796,836 9,796,836 $ – 9,796,836 9,796,836 9,796,836 Goodwill is monitored by the Chief Operating Decision Maker (‘CODM’) at the cash generating level. CODM reviews the business performance based on geography and type of business. It has identified two reportable cash generating segments. A business-level summary of the goodwill allocation is presented below: Consolidated 2014 $ 2,426,187 7,370,649 9,796,836 2013 $ 2,426,187 7,370,649 9,796,836 growth in revenue from Aristo’s main gaming floor, VIP gaming, and the increase in the number of slot machines. The new hotel room, entertainment, restaurant and bar revenue lines, with associated marketing programs, will increase visitation to the new hotel, which will also contribute to overall revenue growth. Gross margin projections for future years are based on past performance and management’s expectations for future performance in each segment. Management determined budgeted gross margin based on past performance and its expectations for the future and are considered to be reasonably achievable. The weighted average growth rates used are consistent with forecasts included in industry reports. The discount rates used reflect specific risks relating to the relevant segments and the countries in which they operate. The recoverable amount calculation for goodwill is most sensitive to changes in growth rate and EBIT margin on sales. Based on sensitivity analysis performed, no reasonable change in these assumptions would give rise to an impairment. Donaco Singapore iSentric Total goodwill The recoverable amount of the iSentric cash generating unit was determined using the fair value less costs of disposal approach based on the binding Share Sale and Purchase Agreement executed on 9 May 2014. Accordingly, the recoverable amount of the iSentric cash generating unit is $11,400,000, based on the contract price of $12 million, less expected costs of disposal of $600,000. The Directors have determined this is a level 1 valuation. In the prior reporting period the recoverable amount of the iSentric cash generating unit was determined using a value in-use approach, however as the iSentric business is to be sold the fair value less costs of disposal approach was deemed to be more appropriate in the current year. The recoverable amount of the cash generating unit of Donaco Singapore has been determined based on the value-in-use calculation. To calculate this, cash flow projections are based on financial budgets approved by senior management covering a five-year period. The Group determines whether goodwill and casino licences with indefinite useful lives are impaired at least on an annual basis. To do so, the Group employs a value-in-use calculation using cash flow projections from financial budgets approved by senior management. Management has forecast a strong growth rate in budgeted gross margin for FY15 based on the 58 Consolidated 2014 $ 2013 $ 39,151,630 12,336,321 Property construction works in progress – at cost Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 July 2012 Additions Exchange differences Balance at 30 June 2013 Additions Exchange differences Balance at 30 June 2014 Property construction works in progress $ 3,038,891 9,030,366 267,064 12,336,321 27,005,239 (189,930) Total $ 3,038,891 9,030,366 267,064 12,336,321 27,005,239 (189,930) 39,151,630 39,151,630 All borrowing costs incurred in connection with the borrowing of funds that are directly attributable to the acquisition, construction or production of the qualifying asset, that necessarily take a substantial period of time to get ready for their intended use, are capitalised as part of the cost of the asset, until substantially all those activities necessary to prepare the qualifying asset for its intended use, or sale, are complete. Total capitalised as at 30 June 2014 is $1,232,870. Note 18. Non-current assets – other Other debtors Product development Consolidated 2014 $ 1,061,041 – 1,061,041 2013 $ 122,007 93,448 215,455 59 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportNotes to the Consolidated Financial Statements as at 30 June 2014Notes to the Consolidated Financial Statements as at 30 June 2014For personal use only Note 19. Current liabilities – trade and other payables Note 21. Current liabilities – income tax Trade payables Deposits received Floating chips Other payables and accrued expenses Consolidated 2014 $ 1,909,478 85,989 9,282,203 1,357,462 2013 $ 1,534,988 22,118 9,626,898 263,231 12,635,132 11,447,235 Provision for i1 Note 22. Current liabilities – employee benefits Consolidated 2014 $ 2013 $ 4,851,700 5,171,114 Consolidated Refer to Note 32 for further information on financial instruments. Floating chips The number of floating chips is determined as the difference between the number of chips in use and the actual chips counted by the casino as at reporting date. Annual leave Unpaid wages Other Note 20. Current liabilities – borrowings Consolidated Note 23. Current liabilities – other Bank loans 2014 $ 1,446,596 Refer to Note 25 for further information on assets pledged as security and financing arrangements. Refer to Note 32 for further information on financial instruments. Total secured liabilities The total secured current liabilities are as follows: VND 26,028,269,490 – 7 years at 12.5% pa VND 2,922,727,024 – 7 years at 6% pa Consolidated 2014 $ 1,298,841 147,755 1,446,596 Assets pledged as security The bank overdraft and loans are secured by first mortgages over the consolidated entity’s land and buildings. 2013 $ – 2013 $ – – – Foreign government charges or levies Other Note 24. Current liabilities – liabilities directly associated with assets classified as held for sale Trade payables Other payables Provision for income tax Consolidated 2014 $ 2,688,331 302,432 8,134 2,998,897 2014 $ 32,928 – 37,562 70,490 2014 $ – – – Consolidated 2013 $ 56,425 337,607 63,114 457,146 2013 $ 57,401 5,642 63,043 2013 $ – – – – 60 61 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportNotes to the Consolidated Financial Statements as at 30 June 2014Notes to the Consolidated Financial Statements as at 30 June 2014For personal use only Note 25. Non-current liabilities – borrowings Note 26. Non-current liabilities – employee benefits Bank loans Refer to Note 32 for further information on financial instruments. Consolidated 2014 $ 10,608,370 2013 $ – The above represents a non-current loan with Ocean Bank for US$9,992,813 (VND 212,307,309,036) as at 30 June 2014 (2013: 0) for the capital works on the new Lao Cai Hotel and Casino. Total secured liabilities The total secured liabilities (current and non-current) are as follows: Long service leave Note 27. Equity – issued capital Consolidated 2014 $ 2013 $ 20,485 32,969 Consolidated 2014 Shares 2013 Shares 2014 $ 2013 $ Consolidated Ordinary shares – fully paid 460,282,631 371,719,896 129,964,909 34,692,937 Bank loans 2014 $ 12,054,966 2013 $ – Movements in ordinary share capital Details Date Shares Issue price On 11 July 2011, the Lao Cai International Hotel Joint Venture (the Borrower) entered into a loan agreement with Joint Stock Commercial Ocean Bank (the Lender) for a lending facility of VND 180 billion for use towards construction of the new Lao Cai International Hotel. A second agreement was signed on 25 December 2013 for a lending facility for an additional VND 180 billion. The total facility at 30 June 2014 is VND 360 billion (2014: AU$17,988,139, 2013: AU$9,225,899). Total borrowings at 30 June 2014 are $12,054,966 (2013: 0). Available unused facility as at 30 June is 2014 $5,933,173 (2013: $9,225,899). The term of the loan is seven years payable by 2 October 2020. Assets pledged as security The bank overdraft and loans are secured by first mortgages over the consolidated entity’s land and buildings. Financing arrangements Unrestricted access was available at the reporting date to the following lines of credit: Total facilities Bank loans Used at the reporting date Bank loans Unused at the reporting date Bank loans Consolidated 2014 $ 2013 $ 17,988,139 9,225,899 12,054,966 – 5,933,173 9,225,899 Balance Issued shares Issued shares 1 July 2012 268,530,760 17 September 2012 6,666,667 18 September 2012 10,000,000 Adjustment for 20:1 consolidation 31 January 2013 (270,937,647) Shares issued under Donaco Singapore Pty Ltd merger 1 February 2013 261,724,250 Shares issued under iSentric Sdn Bhd acquisition Capital raising Shares issued under options Employee share options lapsed 1 June 2013 22,368,420 multiple multiple multiple 73,292,571 74,875 – – – Unissued shares written off 30 June 2013 Less: transaction costs arising on share issue – Balance Issued shares Issued shares Issued shares Issued shares 30 June 2013 371,719,896 26 November 2013 29,300,000 16 December 2013 20,000 1 April 2014 26,748,344 12 May 2014 29,642,635 DNAO option conversion multiple 2,851,756 Unissued shares 31 December 2013 Less: transaction costs arising on share issue multiple – – Balance 30 June 2014 460,282,631 1,619 $0.000 $0.000 $0.000 $0.130 $0.380 $0.340 $0.300 $0.000 $0.000 $0.000 $0.860 $0.860 $1.330 $1.330 $0.300 $0.000 $0.000 $ – – (1,619) 3,374,826 8,500,000 25,000,000 22,463 (11,837) (401,184) (1,791,331) 34,692,937 25,198,000 17,200 35,575,297 39,424,705 858,705 (300,000) (5,501,935) 129,964,909 62 63 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportNotes to the Consolidated Financial Statements as at 30 June 2014Notes to the Consolidated Financial Statements as at 30 June 2014For personal use only Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the company does not have a limited amount of authorised capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Share buy-back There is a current on-market share buy-back, which was announced to the ASX on 22 July 2014. Capital risk management The consolidated entity’s objectives when managing capital are to safeguard its ability to continue as a going concern so that it can provide returns for shareholders and benefits for other stakeholders and maintain an optimum capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the consolidated entity may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The consolidated entity would look to raise capital when an opportunity to invest in a business or company was seen as value adding relative to the current parent entity’s share price at the time of the investment. The consolidated entity is subject to certain financing arrangements and meeting these is given priority in all capital risk management decisions. There have been no events of default on the financing arrangements during the financial year. The capital risk management policy remains unchanged from the 2013 Annual Report. Note 28. Equity – reserves Foreign currency reserve Foreign currency reserve Consolidated 2014 $ 2013 $ (478,093) 964,633 The reserve is used to recognise exchange differences arising from translation of the financial statements of foreign operations to Australian dollars. The cumulative amount is reclassified to profit or loss when the net investment is disposed of. Movements in reserves Movements in each class of reserve during the current and previous financial year are set out below: Consolidated Balance at 1 July 2012 Foreign currency translation Balance at 30 June 2013 Foreign currency translation Balance at 30 June 2014 Foreign currency $ (276,544) 1,241,177 964,633 Total $ (276,544) 1,241,177 964,633 (1,442,726) (1,442,726) (478,093) (478,093) Note 29. Equity – retained profits Retained profits at the beginning of the financial year Profit after income tax expense for the year Transfer from contributed equity Adjustment on the acquisition of non-controlling interest Retained profits at the end of the financial year Note 30. Equity – non-controlling interest Retained profits Consolidated 2014 $ 12,745,584 6,793,403 300,000 (1,148,128) 18,690,859 2013 $ 5,707,548 7,026,199 11,837 – 12,745,584 Consolidated 2014 $ 2013 $ 1,058,788 3,599,303 Note 31. Equity – dividends Market risk There were no dividends paid, recommended or declared during the current or previous financial year. Market risk is the risk that changes in market prices, such as interest rates and foreign exchange rates will affect the consolidated entity’s income. Note 32. Financial instruments Foreign currency risk Financial risk management objectives The consolidated entity’s activities expose it to a variety of financial risks: market risk (including foreign currency risk and interest rate risk), credit risk and liquidity risk. The consolidated entity’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the consolidated entity. The consolidated entity uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks and ageing analysis for credit risk. Risk management is carried out by senior finance executives (‘finance’) under policies approved by the Board of Directors (‘the Board’). These policies include identification and analysis of the risk exposure of the consolidated entity and appropriate procedures, controls and risk limits. Finance identifies, evaluates and hedges financial risks within the consolidated entity’s operating units. Finance reports to the Board on a monthly basis. The consolidated entity is exposed to foreign exchange fluctuations in relation to cash generated for working capital purposes, denominated in foreign currencies and net investments in foreign operations, namely Vietnam and Malaysia. Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial liabilities denominated in a currency that is not the entity’s functional currency. The risk is measured using sensitivity analysis and cash flow forecasting. An assessment of the sensitivity of the consolidated entity’s exposure to interest rate movements was performed, and was found to be immaterial for the purposes of this disclosure. Exchange rate exposures are managed within approved policy parameters and material movements are not expected. The consolidated entity does not enter into any forward exchange contracts to buy or sell specified foreign currencies. 64 65 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportNotes to the Consolidated Financial Statements as at 30 June 2014Notes to the Consolidated Financial Statements as at 30 June 2014For personal use only The average exchange rates and reporting date exchange rates applied were as follows: AUD strengthened Average exchange rates Reporting date exchange rates Consolidated – 2013 % change Effect on profit after tax Australian Dollars US Dollar (USD) Vietnamese Dong (VND) Malaysia Ringgit (MYR) Singapore Dollar (SGD) 2014 2013 2014 2013 1.0931 0.0001 0.3359 0.9070 0.9736 0.0001 0.3366 0.8409 1.0616 0.0001 0.3307 0.8501 1.0782 0.0001 0.3403 0.8529 US Dollar Vietnamese Dong Chinese RenMinBi Malaysia Ringgit Singapore Dollar 5 5 5 5 5 (542,689) (1,010,965) 154,365 (1,129) (918) (1,401,336) The carrying amount of the consolidated entity’s foreign currency denominated financial assets and financial liabilities at the reporting date was as follows: A 5% weakening of the Australian dollar against the various currencies would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant. Assets Liabilities Interest rate risk Consolidated US Dollar Vietnamese Dong Chinese RenMinBi Malaysia Ringgit Singapore Dollar 2014 $ 2013 $ 2014 $ 8,325,884 11,026,604 (2,265,498) 24,407,168 20,684,785 (11,939,946) 2013 $ (172,826) (465,487) 5,234,206 6,595,276 (10,076,241) (9,682,576) 29,269 46,987 27,228 34,981 (1,058) (7,644) (4,651) (16,619) 38,043,514 38,368,874 (24,290,387) (10,342,159) A 5% strengthening of the Australian dollar against the various foreign currencies at the balance date would increase/(decrease) the Company’s profit/(loss) after tax by the amounts shown below. The analysis assumes that all other variables remain constant. The consolidated entity’s main interest rate risk arises from cash and cash equivalents. As at the reporting date, the consolidated entity had the following cash and cash equivalents: 2014 2013 Weighted average interest rate Balance Weighted average interest rate Balance Consolidated Bank loans Cash on hand and short-term deposits Cash at bank and long-term deposits Net exposure to cash flow interest rate risk % (9.00) – 3.35 $ (12,054,966) 17,015,447 % – – $ – 9,951,954 81,019,491 5.60 19,452,251 85,979,972 29,404,205 Consolidated – 2014 US Dollar Vietnamese Dong Chinese RenMinBi Malaysia Ringgit Singapore Dollar AUD strengthened % change Effect on profit after tax An assessment of the sensitivity of the consolidated entity’s exposure to interest rate movements was performed, and was found to be immaterial for the purposes of this disclosure. 5 5 5 5 5 (303,019) (623,361) 242,101 (1,410) (1,967) (687,656) Credit risk Liquidity risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the consolidated entity. The consolidated entity has a strict code of credit, including obtaining agency credit information, confirming references and setting appropriate credit limits. The consolidated entity obtains guarantees where appropriate to mitigate credit risk. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. The consolidated entity does not hold any collateral. Vigilant liquidity risk management requires the consolidated entity to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable. The consolidated entity maintains cash to meet all its liquidity requirements and manages its liquidity by carefully monitoring cash outflows due in a day-to-day and week-to-week basis. Furthermore, the consolidated entity’s long-term liquidity needs are identified in its annual Board-approved budget and updated on a quarterly basis through revised forecasts. 66 67 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportNotes to the Consolidated Financial Statements as at 30 June 2014Notes to the Consolidated Financial Statements as at 30 June 2014For personal use only Financing arrangements Unused borrowing facilities at the reporting date: Bank loans Subject to the continuance of satisfactory credit ratings, the bank loan facilities may be drawn at any time and have an average maturity of six years (2013: seven years). On 11 July 2011, the Lao Cai International Hotel Joint Venture (the Borrower) entered into a loan agreement with Joint Stock Commercial Ocean Bank (the Lender) for a lending facility of VND 180 billion, for use towards construction of the new Lao Cai International Hotel. A second agreement was signed on 25 December 2013 for a lending facility for an additional VND 180 billion. Total facility at 30 June 2014 is VND 360 billion (2014: AU$17,988,139, 2013: AU$9,225,899). Total borrowings at 30 June 2014 are $12,054,966 (2013: 0). Available unused facility Consolidated 2014 $ 2013 $ 5,933,173 9,225,899 Note 33. Fair value measurement The carrying amounts of trade and other receivables and trade and other payables are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities is estimated by discounting the remaining contractual maturities at the current market interest rate that is available for similar financial liabilities. Note 34. Key management personnel disclosures as at 30 June 2014 $5,933,173 (2013: $9,225,899). The term of the loan is seven years payable by 2 October 2020. Directors The following persons were Directors of Donaco International Limited during the financial year: Remaining contractual maturities Stuart James McGregor Non-executive Chairman The following tables detail the consolidated entity’s remaining contractual maturity for its financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position. Joey Lim Keong Yew Benedict Paul Reichel Managing Director and Chief Executive Officer Executive Director, Group General Counsel and Company Secretary Benjamin Lim Keong Hoe Non-executive Director Robert Andrew Hines Non-executive Director (appointed on 1 November 2013) Gerald Nicholas Tan Eng Hoe Non-executive Director (resigned on 6 September 2013) Mak Siew Wei Non-executive Director (resigned on 23 December 2013) Weighted average interest rate 1 year or less Between 1 and 2 years Between 2 and 5 years Over 5 years % – – $ 1,909,478 9,282,203 $ – – $ – – $ – – Remaining contractual maturities $ 1,909,478 9,282,203 Other key management personnel The following persons also had the authority and responsibility for planning, directing and controlling the major activities of the consolidated entity, directly or indirectly, during the financial year: Richard Na Chun Wee Kenny Goh Kwey Biaw Compensation Chief Financial Officer and Deputy Group Chief Executive Officer Deputy Chief Financial Officer and CEO of Donaco Singapore The aggregate compensation made to directors and other members of key management personnel of the consolidated entity is set out below: Consolidated – 2014 Non-interest bearing Trade payables Floating chips Interest-bearing – fixed rate Borrowings 12.50 1,446,596 1,768,062 5,304,186 3,536,122 12,054,966 Total 12,638,277 1,768,062 5,304,186 3,536,122 23,246,647 Weighted average interest rate 1 year or less Between 1 and 2 years Between 2 and 5 years Over 5 years Consolidated – 2013 Non-interest bearing Trade payables Floating chips Total % – – $ 1,534,988 9,912,247 11,447,235 $ – – – $ – – – $ – – – Remaining contractual maturities $ 1,534,988 9,912,247 11,447,235 The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. Short-term employee benefits Post-employment benefits Long-term benefits Consolidated 2014 $ 1,644,176 42,407 – 1,686,583 2013 $ 738,958 29,782 2,699 771,439 68 69 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportNotes to the Consolidated Financial Statements as at 30 June 2014Notes to the Consolidated Financial Statements as at 30 June 2014For personal use only Note 35. Remuneration of auditors Note 38. Commitments During the financial year the following fees were paid or payable for services provided by William Buck, the auditor of the company, and unrelated firms: Audit services – William Buck Audit or review of the financial statements 80,000 61,539 Consolidated 2014 $ 2013 $ Capital commitments Committed at the reporting date but not recognised as liabilities, payable: Property construction works Lease commitments – operating Committed at the reporting date but not recognised as liabilities, payable: Other services – William Buck Preparation of the tax return Due diligence Audit services – unrelated firms 5,000 – 5,000 85,000 18,167 18,500 36,667 98,206 Within one year One to five years Consolidated 2014 $ 2013 $ 7,012,564 32,527,314 55,200 182,719 237,919 153,482 96,000 249,482 Operating lease commitments includes contracted amounts for various offices and sites within Australia and South-East Asia under non-cancellable operating leases. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated. Mortgage to Ocean Bank of Vietnam A mortgage was registered by the Ocean Bank of Vietnam over the assets of the Lao Cai International Hotel on 11 July 2011. Total borrowings as per the statement of financial position as at 30 June 2014 under this arrangement were $12,054,966. (2013: 0). Audit or review of the financial statements 33,564 75,292 Other services – unrelated firms Preparation of the tax return Due diligence 6,667 220 6,887 40,451 – 58,875 58,875 134,167 Note 36. Contingent assets The consolidated entity has no contingent assets as at 30 June 2014 and 30 June 2013. Note 37. Contingent liabilities The consolidated entity has no contingent liabilities as at 30 June 2014 and 30 June 2013. 70 71 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportNotes to the Consolidated Financial Statements as at 30 June 2014Notes to the Consolidated Financial Statements as at 30 June 2014For personal use only Note 39. Related party transactions Parent entity Donaco International Limited is the legal parent entity. Donaco International Limited is listed on the Australian Securities Exchange (ASX: DNA). Note 40. Parent entity information Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Subsidiaries Interests in subsidiaries are set out in Note 42. Key management personnel Disclosures relating to key management personnel are set out in Note 34 and the remuneration report in the Directors’ Report. Transactions with related parties The following transactions occurred with related parties: Consolidated 2014 $ 2013 $ Other transactions: Dividends paid by controlling entities to non-controlling interest (821,540) (734,488) Legal consultancy – B P Reichel Management fee – associated entities – 47,394 61,530 9,382 Receivable from and payable to related parties The following balances are outstanding at the reporting date in relation to transactions with related parties: Loss after income tax Total comprehensive income Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Issued capital Accumulated losses Total equity 2014 $ (813,264) (813,264) 2014 $ 81,494,286 130,996,072 287,577 308,065 181,302,812 (50,614,805) 130,688,007 Parent Parent 2013 $ (491,198) (491,198) 2013 $ 4,369,342 32,059,157 560,320 712,160 86,030,839 (50,298,741) 35,732,098 Current receivables: Amount owing to Donaco Singapore Pte Ltd by associated entity Amount owing to iSentric Sdn Bhd by associated entity Loans to/from related parties There were no loans to or from related parties at the current and previous reporting date. Terms and conditions All transactions were made on normal commercial terms and conditions and at market rates. Consolidated Guarantees entered into by the parent entity in relation to the debts of its subsidiaries. 2014 $ 27,039 – 2013 $ 25,838 13,306 The parent entity had no guarantees in relation to the debts of its subsidiaries as at 30 June 2014 and 30 June 2013. Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2014 and 30 June 2013. Capital commitments – Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment at as 30 June 2014 and 30 June 2013. Significant accounting policies The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in Note 1, except for the following: • Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. • Dividends received from subsidiaries are recognised as other income by the parent entity. 72 73 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportNotes to the Consolidated Financial Statements as at 30 June 2014Notes to the Consolidated Financial Statements as at 30 June 2014For personal use only Note 41. Business combinations The following refers to business combinations that occurred in the 2013 financial year. No business combinations occurred in the 2014 financial year. Donaco Singapore Pte Ltd On 1 February 2013, the company acquired 100% of the issued share capital of Donaco Singapore Pte Ltd, a Singapore registered company, whose principal asset at the time was a 75% ownership of the Lao Cai International Hotel Joint Venture Company (‘JV Company’). JV Company is the entity that owns the Lao Cai International Hotel in Lao Cai, Vietnam, a 34-room hotel with a restaurant and a fully operational casino. The other 25% of the JV Company was owned by Petro Vietnam Sapa Tourism Joint Stock Company, an entity associated with the Government of Vietnam. The acquired business contributed revenues of $1,471,071 and net profit before tax of $333,792 to the consolidated entity for the period from 1 February 2013 to 30 June 2013. Pursuant to Australian Accounting Standard AASB 3: Business Combinations, this merger represents a reverse acquisition with the result that Donaco Singapore Pte Ltd was identified as the acquirer, for accounting purposes, of Donaco International Limited (the (acquiree) and (legal parent)). The consolidated financial statements and share capital represents the continuation of Donaco Singapore Pte Ltd. The number of shares on issue reflect those of Donaco International Limited. Details of the acquisition are as follows: Cash and cash equivalents Trade receivables Prepayments Other current assets Plant and equipment Trade payables Employee benefits Other liabilities Net assets acquired Goodwill Acquisition-date fair value of the total consideration transferred Representing: Donaco International Limited shares issued to vendor Cash used to acquire business, net of cash acquired: Acquisition-date fair value of the total consideration transferred Less: cash and cash equivalents acquired Less: shares issued by company as part of consideration Net cash received 74 Fair value $ 890,763 110,678 3,457 419,196 3,424 (190,058) (241,654) (47,167) 948,639 2,426,187 3,374,826 3,374,826 Consolidated 2014 $ – – – – 2013 $ 3,374,826 (890,763) (3,374,826) (890,763) iSentric Sdn Bhd On 1 June 2013, the company acquired 100% of the issued share capital of iSentric Sdn Bhd, a mobile services business in South-East Asia for $8.5 million. To effect the completion of the acquisition, the Company issued 22,368,420 fully paid ordinary shares to the vendors at an agreed price of $0.38 per share (totalling $8,500,000).The acquired business contributed revenues of $469,871 and net profit before tax of $65,195 to the consolidated entity for the period from 1 June 2013 to 30 June 2013. Details of the acquisition are as follows: Cash and cash equivalents Trade receivables Prepayments Other current assets Plant and equipment Other non-current assets Trade payables Employee benefits Net assets acquired Goodwill Acquisition-date fair value of the total consideration transferred Representing: Donaco International Limited shares issued to vendor Cash used to acquire business, net of cash acquired: Acquisition-date fair value of the total consideration transferred Less: cash and cash equivalents acquired Less: shares issued by company as part of consideration Net cash received Fair value $ 297,534 2,139,616 33,615 18,950 31,700 60,600 (1,190,781) (261,883) 1,129,351 7,370,649 8,500,000 8,500,000 Consolidated 2014 $ – – – – 2013 $ 8,500,000 (297,534) (8,500,000) (297,534) Had both these business combinations been effected at 1 July 2012, the revenue of the consolidated entity for 2013 would have been $26,502,746 and net profit $12,913,805. 75 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportNotes to the Consolidated Financial Statements as at 30 June 2014Notes to the Consolidated Financial Statements as at 30 June 2014For personal use only Note 42. Interests in subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in Note 1: Summarised financial information Summarised financial information of the subsidiary with non-controlling interests that are material to the consolidated entity are set out below: Name Principal place of business/country of incorporation Ownership interest Donaco Australia Pty Ltd Way2Bet Pty Ltd Australia Australia Donaco Singapore Pte Ltd (acquired on 1 February 2013) Singapore 2014 % 100.00 90.00 100.00 Donaco Holdings Ltd* British Virgin Islands 100.00 Donaco Holdings Sdn Bhd* Lao Cai International Hotel Joint Venture Company* iSentric Sdn Bhd (acquired on 1 June 2013) * Subsidiary of Donaco Singapore Pte Ltd Malaysia Vietnam Malaysia 100.00 95.00 100.00 2013 % 100.00 90.00 100.00 100.00 100.00 75.00 100.00 Lao Cai International Hotel Joint Venture Company Summarised statement of financial position Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Summarised statement of profit or loss and other comprehensive income Revenue Expenses Profit before income tax expense Income tax expense Profit after income tax expense Other comprehensive income Total comprehensive income Statement of cash flows Net cash from operating activities Net cash used in investing activities Net cash from financing activities Net increase/(decrease) in cash and cash equivalents Other financial information Profit attributable to non-controlling interests Accumulated non-controlling interests at the end of reporting period 2014 $ 32,597,267 45,564,285 78,161,552 29,002,058 29,594,711 58,596,769 19,564,783 19,381,119 (7,311,782) 12,069,337 (2,847,373) 9,221,964 – 2013 $ 27,570,887 13,779,028 41,349,915 16,455,853 10,753,508 27,209,361 14,140,554 15,810,415 (4,240,257) 11,570,158 (2,871,576) 8,698,582 – 9,221,964 8,698,582 10,144,827 15,076,734 (40,573,413) (17,373,579) 25,962,545 (4,466,041) 1,476,679 1,058,788 8,764,872 6,468,027 2,017,037 3,599,303 On 24 July 2013, the Company announced that it had signed a non-binding Memorandum of Understanding (MOU) with its joint venture partner, PetroVietnam Sapa Tourism Joint Stock Company (PVST), to increase the Company’s stake in the Lao Cai International Hotel Joint Venture Company (JVC). Previously the Company owned 75% of the JVC, with the remaining 25% held by PVST, which is an entity owned by the Government of Vietnam. Under the MOU, the Company was to increase its stake in the JVC to 95%, with the remaining 5% continuing to be held by the Government of Vietnam. On 30 December 2013, the Company announced that it had signed a binding Capital Transfer Agreement to implement the transfer of the 20% stake, in accordance with the MOU at a cost of $4,470,400 (US$4 million). At the date immediately prior to the transaction, the carrying amount of the NCI was $4,152,840 (US$3,715,855). The impact of the transaction on equity was a reduction to retained profits of $1,148,128 and $3,322,272 to NCI. On 4 February 2014, the Company announced that the formal requirements for the transfer had been completed, and that Donaco Singapore Pte Ltd now owns 95% of the JVC, with effect from 1 January 2014. The remaining 5% stake was transferred from PVST to Lao Cai Tourism Co Ltd, an entity also owned by the Government of Vietnam. 76 77 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportNotes to the Consolidated Financial Statements as at 30 June 2014Notes to the Consolidated Financial Statements as at 30 June 2014For personal use only Note 43. Events after the reporting period Employee Option Allocation Note 45. Earnings per share Spin-off of iSentric Sdn Bhd On 26 February 2014, the Company announced that it planned to spin off its mobile technology business, which trades under the name iSentric, into a new company separately listed on the ASX. A binding Share Sale and Purchase Agreement to implement the transaction was signed with OMI Holdings Limited (ASX: OMI) on 9 May 2014. The transaction was completed on 23 September 2014, when iSentric Limited listed on the ASX. Donaco distributed its shares in the newly listed entity to Donaco shareholders in specie on 16 September 2014. Donaco shareholders with a minimum of 19,206 shares on the record date of 12 September 2014 received approximately 0.13 iSentric shares for each Donaco share. Holders of fewer Donaco shares will have their entitlements sold, and will receive the proceeds of sale (less costs) in cash. At the Annual General Meeting on 21 November 2013, shareholders approved the establishment of a long-term incentive (LTI) plan for executives, consisting of the grant of units under an option share trust (OST). On 23 December 2013, the Company announced that it had issued options amounting to 1% of its then issued capital (a total of 4,010,511 options) under the LTI plan. Approval for the issue of these options under an employee incentive scheme was obtained pursuant to ASX Listing Rule 10.14. These options were not contributed to the OST until 1 July 2014. Accordingly, employees were not allocated units in the OST until 1 July 2014. No other matter or circumstance has arisen since 30 June 2014 that has significantly affected, or may significantly affect the consolidated entity’s operations, the results of those operations, or the consolidated entity’s state of affairs in future financial years. Earnings per share for profit from continuing operations Profit after income tax Non-controlling interest Consolidated 2014 $ 2013 $ 6,699,952 8,981,719 (1,476,679) (2,017,037) Profit after income tax attributable to the owners of Donaco International Limited 5,223,273 6,964,682 Weighted average number of ordinary shares used in calculating basic earnings per share 306,593,004 277,827,871 Adjustments for calculation of diluted earnings per share: Options over ordinary shares 7,869,582 7,388,761 Number Number Note 44. Reconciliation of profit after income tax to net cash from operating activities Weighted average number of ordinary shares used in calculating diluted earnings per share 314,462,586 285,216,632 Profit after income tax expense for the year 8,270,082 9,043,236 Consolidated 2014 $ 2013 $ Basic earnings per share Diluted earnings per share Adjustments for: Depreciation and amortisation Foreign exchange relating to capital raising Interest on investing activities Net gain on sale of assets Equity and investing costs in trade creditors Change in operating assets and liabilities: 292,090 1,545,565 (77,117) (9,861) – 191,877 945,158 (118,614) (23,670) 28,450 Earnings per share for profit from discontinued operations Profit after income tax attributable to the owners of Donaco International Limited 1,570,130 61,517 Weighted average number of ordinary shares used in calculating basic earnings per share 306,593,004 277,827,871 Number Number Cents 1.70 1.66 2014 $ Consolidated Cents 2.51 2.44 2013 $ Decrease/(increase) in trade and other receivables 2,408,358 (2,508,984) Adjustments for calculation of diluted earnings per share: Increase in inventories Increase in other operating assets Increase in trade and other payables Increase/(decrease) in provision for income tax Increase/(decrease) in employee benefits Increase in other provisions Net cash from operating activities (1,180,516) (2,092,799) 1,187,897 (319,414) (399,140) 63,043 (115,270) (7,998,850) 2,629,065 1,596,585 432,461 – 9,688,188 4,101,444 Options over ordinary shares 7,869,582 7,388,761 Weighted average number of ordinary shares used in calculating diluted earnings per share 314,462,586 285,216,632 Basic earnings per share Diluted earnings per share Cents 0.51 0.50 Cents 0.02 0.02 78 79 DONACO INTERNATIONAL LIMITED2014 Annual ReportDONACO INTERNATIONAL LIMITED2014 Annual ReportNotes to the Consolidated Financial Statements as at 30 June 2014Notes to the Consolidated Financial Statements as at 30 June 2014For personal use only Earnings per share for profit Profit after income tax Non-controlling interest Consolidated 2014 $ 2013 $ 8,270,082 9,043,236 (1,476,679) (2,017,037) Profit after income tax attributable to the owners of Donaco International Limited 6,793,403 7,026,199 Weighted average number of ordinary shares used in calculating basic earnings per share 306,593,004 277,827,871 Adjustments for calculation of diluted earnings per share: Options over ordinary shares 7,869,582 7,388,761 Weighted average number of ordinary shares used in calculating diluted earnings per share 314,462,586 285,216,632 Number Number Basic earnings per share Diluted earnings per share Cents 2.22 2.16 Cents 2.53 2.46 Note 46. Share-based payments Employee option allocation At the Annual General Meeting on 21 November 2013, shareholders approved the establishment of a long-term incentive (LTI) plan for executives, consisting of the grant of units under an option share trust (OST). On 23 December 2013, the Company announced that it had issued options amounting to 1% of its then issued capital (a total of 4,010,511 options) under the LTI plan. Approval for the issue of these options under an employee incentive scheme was obtained pursuant to ASX Listing Rule 10.14. These options were not contributed to the OST until 1 July 2014. Accordingly, employees were not allocated units in the OST until 1 July 2014. Expired employee options The 2008 Series B options granted as remuneration to the key management personnel of the consolidated entity were granted progressively over the 2009 financial year, commencing from 1 July 2008. The options vested two years after each grant date and expired progressively throughout the 2013 financial year, commencing 1 July 2012 with the last expiry date being 1 June 2013. DONACO INTERNATIONAL LIMITED 2014 Annual Report Directors’ Declaration 30 June 2014 In the Directors’ opinion: • the attached financial statements and notes thereto comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; • the attached financial statements and notes thereto comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in Note 1 to the financial statements; • the attached financial statements and notes thereto give a true and fair view of the consolidated entity’s financial position as at 30 June 2014 and of its performance for the financial year ended on that date; and • there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. The Directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of Directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the Directors Mr Stuart McGregor Chairman 29 September 2014 Sydney 80 81 DONACO INTERNATIONAL LIMITED2014 Annual ReportNotes to the Consolidated Financial Statements as at 30 June 2014For personal use only DONACO INTERNATIONAL LIMITED 2014 Annual Report DONACO INTERNATIONAL LIMITED 2014 Annual Report Independent Auditor’s Report to the Members of Donaco International Limited Independent Auditor’s Report to the Members of Donaco International Limited INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DONACO INTERNATIONAL LIMITED AND CONTROLLED ENTITIES Report on the Financial Report We have audited the accompanying consolidated financial report comprising of Donaco International Limited (the Company) and the entities it controlled at the year’s end or from time to time during the financial year (the consolidated entity). The consolidated financial report comprises the consolidated statement of financial position as at 30 June 2014, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. : INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DONACO INTERNATIONAL LIMITED AND CONTROLLED ENTITIES (CONT) Auditor’s Opinion In our opinion: a) the financial report of the consolidated entity is in accordance with the Corporations Act 2001, including: i. giving a true and fair view of the consolidated entity’s financial position as at 30 June 2014 and of its performance for the year ended on that date; and ii. complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the Remuneration Report included in pages 16 to 22 of the directors’ report for the year ended 30 June 2014. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s Opinion In our opinion, the Remuneration Report of Donaco International Limited for the year ended 30 June 2014, complies with section 300A of the Corporations Act 2001. Matters Relating to the Electronic Presentation of the Audited Financial Report This auditor’s report relates to the financial report of Donaco International Limited for the year ended 30 June 2014 included on Donaco International Limited’s web site. The company’s directors are responsible for the integrity of the Donaco International Limited web site. We have not been engaged to report on the integrity of the Donaco International Limited web site. The auditor’s report refers only to the financial report. It does not provide an opinion on any other information which may have been hyperlinked to/from these statements. If users of this report are concerned with the inherent risks arising from electronic data communications they are advised to refer to the hard copy of the audited financial report to confirm the information included in the audited financial report presented on this web site. William Buck Chartered Accountants ABN 16 021 300 521 L.E. Tutt Partner Sydney, 29 September 2014 82 83 For personal use only DONACO INTERNATIONAL LIMITED 2014 Annual Report Shareholder Information The shareholder information set out below was applicable as at 31 August 2014. Distribution of equitable securities Analysis of the number of equitable security holders by size of holding: 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Holding less than a marketable parcel Equity security holders Twenty largest quoted equity security holders The names of the 20 largest security holders of quoted equity securities are listed below: Number of holders of ordinary shares Number of holders of options over ordinary shares 501 886 493 930 155 2,965 219 238 98 29 58 8 431 215 UBS Nominees Pty Ltd Citicorp Nominees Pty Limited HSBC Custody Nominees (Australia) Limited DMG & Partners Securities Pte Ltd Samuel Hewlings Chisholm Tamily Pty Ltd Screecree Pty Ltd Mr Gerald Nicholas Eng Hoe Tan Mrs Kerry Ann Ratsamee Nutt Mr Michael Lynch Dugdale Family Super Pty Ltd Ordinary shares Chee Chiang Tee Mr Stephen Henry Bell & Mrs Jane Kathleen Berveling Convent Fine Limited HSBC Custody Nominees (Australia) Limited Slim Twinkle Limited Keong Yew Lim Citicorp Nominees Pty Limited J.P. Morgan Nominees Australia Limited National Nominees Limited RBC Investor Services Australia Nominees Pty Limited Convent Fine Limited BNP Paribas Noms Pty Ltd Slim Twinkle Limited Warbont Nominees Pty Ltd National Nominees Limited Mr Gerald Nicholas Eng Hoe Tan HSBC Custody Nominees (Australia) Limited – A/C 2 UOB Kay Hian Private Limited Chun Wee Na HSBC Custody Nominees (Australia) Limited-Gsco Eca Holdex Nominees Pty Ltd N2 Partners Sdn Bhd Number held 77,583,818 71,836,167 37,702,227 31,540,155 27,235,182 23,074,498 21,215,169 19,900,267 12,269,500 11,869,086 5,195,500 5,120,146 5,109,079 3,691,250 3,508,479 3,508,068 3,155,000 2,967,616 2,500,000 2,300,000 % of total shares issued 16.86 15.61 8.19 6.85 5.92 5.01 4.61 4.32 2.67 2.58 1.13 1.11 1.11 0.80 0.76 0.76 0.69 0.64 0.54 0.50 371,281,207 80.66 ABN AMRO Clearing Sydney Nominees Pty Ltd Mr Gerard Francis McMahon & Mrs Leslie Elizabeth McMahon Topvale Investments Pty Ltd Mr Clarke Dudley Mr Michael Skitt & Mrs Robyn Kay Skitt Bearfix Pty Ltd Mr David Lipari & Mrs Paula Lipari & Mrs Janice Lipari Unquoted equity securities Employee options Main Ace Investments Limited – 56 cent options expiring 17 January 2015 Main Ace Investments Limited – 56 cent options expiring 1 March 2015 Main Ace Investments Limited – 56 cent options expiring 17 May 2015 2,591,708 64.25 Number on issue Number of holders 4,010,511 562,500 125,000 125,000 7 1 1 1 84 85 Shareholder Information Options over ordinary shares Number held % of total options issued 472,125 407,489 370,684 240,000 166,864 152,500 116,508 109,375 75,000 55,000 51,750 50,000 47,500 42,388 42,000 40,025 40,000 40,000 37,500 35,000 11.71 10.10 9.19 5.95 4.14 3.78 2.89 2.71 1.86 1.36 1.28 1.24 1.18 1.05 1.04 0.99 0.99 0.99 0.93 0.87 DONACO INTERNATIONAL LIMITED2014 Annual ReportFor personal use only Shareholder Information Substantial holders Substantial holders in the company are set out below: Lim Keong Yew Lim Keong Hoe Perpetual Limited and subsidiaries Voting rights Ordinary shares Number held % of total shares issued 207,281,355 174,291,200 23,203,453 45.03 37.87 5.04 The voting rights attached to ordinary shares and options are set out below: Ordinary shares On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Options There are no voting rights attached to options. Upon exercise of the option, the issued shares will confer full voting rights. There are no other classes of equity securities. 86 Directors DONACO INTERNATIONAL LIMITED 2014 Annual Report Corporate Directory for the year ended 30 June 2014 Stuart James McGregor – Chairman Joey Lim Keong Yew Benedict Paul Reichel Benjamin Lim Keong Hoe Robert Andrew Hines (appointed on 1 November 2013) Gerald Nicholas Tan Eng Hoe (resigned on 6 September 2013) Mak Siew Wei (resigned on 23 December 2013) Company Secretary Benedict Paul Reichel Registered Office Principal Place of Business Share Register Auditor Suite 2.02, 55 Miller Street Pyrmont NSW 2009 Telephone: +61 2 9017 7000 Facsimile: +61 2 9017 7001 Suite 2.02, 55 Miller Street Pyrmont NSW 2009 Boardroom Pty Limited Level 7, 207 Kent Street Sydney NSW 2000 Telephone: +61 2 9290 9600 William Buck Level 29, 66 Goulburn Street Sydney NSW 2000 Stock Exchange Listing Donaco International Limited shares are listed on the Australian Securities Exchange (ASX code: DNA) Website www.donacointernational.com General Information The financial statements cover Donaco International Limited as a consolidated entity consisting of Donaco International Limited and its subsidiaries. The financial statements are presented in Australian dollars, which is Donaco International Limited’s functional and presentation currency. Donaco International Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Suite 2.02 55 Miller Street Pyrmont NSW 2009 A description of the nature of the consolidated entity’s operations and its principal activities are included in the directors’ report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of directors, on 29 September 2014. The directors have the power to amend and reissue the financial statements. DONACO INTERNATIONAL LIMITED2014 Annual ReportFor personal use only Donaco International Limited ABN: 28 007 424 777 Suite 2.02, 55 Miller Street, Pyrmont NSW 2009 Australia Phone: +61 (02) 9017 7000 Fax: +61 (02) 9017 7001 Email: enquiries@donacointernational.com www.donacointernational.com For personal use only