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Annual Report 2018

Plain-text annual report

A N N U A L R E P O R T DONACO INTER NAT IONA L LIMI T ED A NNUAL R EPORT FULL YEAR STATUTORY ACCOUNTS – 30 JUNE 2018 YUNNAN GUIZHOU ARISTO INTERNATIONAL HOTEL GUANGXI VIETNAM LAOS Contents THAILAND DNA STAR VEGAS CAMBODIA From the Chairman From the Managing Director Board of Directors Corporate Social Responsibility Directors’ Report Auditor’s Independence Declaration Statement of Profit or Loss and Other Comprehensive Income Statement of 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 and General Information 2 4 6 10 12 26 30 32 33 34 35 75 76 82 84 NOTICE OF ANNUAL GENERAL MEETING The Annual General Meeting of Donaco International Limited will be held at Boardroom Pty Limited, Level 12, 225 George Street, Sydney NSW 2000 on 29 November 2018 at 2.30pm (Sydney time). 3 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTER NAT IONA L LIMI T ED A NNUAL R EPORT FULL YEAR STATUTORY ACCOUNTS – 30 JUNE 2018 YUNNAN GUIZHOU ARISTO INTERNATIONAL HOTEL GUANGXI VIETNAM LAOS Contents THAILAND DNA STAR VEGAS CAMBODIA From the Chairman From the Managing Director Board of Directors Corporate Social Responsibility Directors’ Report Auditor’s Independence Declaration Statement of Profit or Loss and Other Comprehensive Income Statement of 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 and General Information 2 4 6 10 12 26 30 32 33 34 35 75 76 82 84 NOTICE OF ANNUAL GENERAL MEETING The Annual General Meeting of Donaco International Limited will be held at Boardroom Pty Limited, Level 12, 225 George Street, Sydney NSW 2000 on 29 November 2018 at 2.30pm (Sydney time). 3 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTFROM THE CHAIRMAN Dear fellow shareholders, The 2018 financial year can be described as a year of challenges, changes and progress. The challenges occurred early in the year when it became apparent that the vendor of the Star Vegas casino was operating two casinos in breach of the non-compete provisions in the sale contract. This challenge was compounded by the poaching of our VIP junkets by the vendor, which severely impacted our junket business at Star Vegas. The Board acted swiftly when the issues were identified and we are actively pursuing all legal avenues to stop the illegal operation of the competing casinos, and to receive compensation for the financial impact that we have suffered as a result of the contract breaches. The Company was successful in obtaining an injunction ordering the closure of the competing casinos. After the injunction was obtained, one of the casinos changed its name from ‘Star Paradise’ to ‘Winsor’, and at present continues to operate. The vendor’s initial arguments against the injunction were rejected by the Cambodian court, but a further appeal by the vendor to a higher court is pending. In late March 2018 the Company obtained a freezing order on the vendor’s Donaco shares from the NSW Supreme Court, and this order has now been extended until 2 November 2018. When the breaches became apparent the Board withheld the final management fee payment to the vendor in respect of the 2017 financial year. The vendor then made a claim for security rights over certain assets of Star Vegas, relating to this payment. This claim was rejected by the Cambodian court, but a few days later, a different firm of lawyers acting for the vendor filed an essentially identical claim. We have argued that this is an abuse of process, and should also be rejected. The vendor then threatened to terminate the lease of the Star Vegas property, on what the Board considers to be contrived and spurious grounds. The Company has obtained an injunction to prevent the threatened termination, and the injunction continues in force. The vendor has now commenced arbitration proceedings in Cambodia over this matter. The Board is seeking a positive resolution within the next six months. 4 The vendor has also commenced defamation proceedings in Thailand against Donaco and two of our directors for damages of THB1 million (approximately $41,000). This frivolous claim relates to Donaco’s ASX releases, which Donaco is legally required to issue. We will not be deterred from our obligations to keep our shareholders informed of the important issues and developments in relation to these matters. Most significantly, the Board has commenced arbitration proceedings in Singapore for US$190 million, relating to the vendor’s breaches of the sale agreements for Star Vegas, and the subsequent impairment charge that was incurred to the Star Vegas casino license. The Board would like a rapid resolution to this issue, but unfortunately the hearing date is currently set for 29 July 2019, due to unavailability of lawyers and the arbitrator. The year has also seen a number of significant changes. At the Board level, the directors appointed by the Star Vegas vendor have left, following the breaches by the vendor. We are comfortable with our present Board composition and experience of our Board members. Strong corporate governance remains the Board’s most important area of focus at Donaco, and we retain our recognition in the Asian region as a group that operates with high standards of probity and good governance. A significant change occurred when management of the Star Vegas casino was taken in-house in July 2018, following the expiration of the management contract with the vendor. The new management team have worked actively to address and rebuild the VIP business at Star Vegas, and to undertake a number of improvements at the property during the year. Progress has also occurred during the year, with new junkets introduced at Star Vegas, new facilities being built and introduced at the property to attract new main floor and VIP patrons, the refurbishment of hotel rooms, the introduction of new gaming machines and gaming systems, and the recently announced launch of the online gaming operations. These initiatives will all hold the business in good stead over the next few years. Despite the challenging conditions in our major market, the casinos continued to produce positive cash flows of $34.6 million, and this has been used to further strengthen our financial position through the repayment of debt. The primary focus, given the challenges during the 2018 financial year, has been on further reducing the Mega Bank debt, which has now fallen to US$40 million, following the further repayment of US$8.55 million in August 2018. The $143.9 million impairment charge which the Board deemed as prudent, given the breaches by the vendor, did result in the loss recorded in the statutory results. This has meant that the Board is unable to declare a dividend for the 2018 financial year, and cannot extend the current buy-back. Under the Mega Bank facility, these capital management initiatives are restricted to 100% of statutory net profit after tax (NPAT). The Board recognises that capital allocation is one of the most important areas of value creation for shareholders, and aims to restore a range of capital management initiatives, such as buy backs and dividends, as the financial performance is restored. On a separate note, despite the attention of the Board to the challenges presented to it during the 2018 financial year, we continued to make a positive contribution to the communities in which we operate both in Cambodia and Vietnam. For example, during the year we donated two mobile medical clinics to Samdech Techo Voluntary Youth Doctors Association. This is a not-for-profit organisation which mobilises medical professionals, medical students and volunteers to help provide free healthcare to rural Cambodians throughout the country. The two new mobile clinics will help to address a significant problem faced by poor families in remote areas of Cambodia, who often have difficulty accessing proper medical and dental treatment. At the Aristo in Vietnam, we made significant donations to local orphanages, schools and war veterans, assisting both with cash and with practical gifts. In summary, the 2018 financial year was one of challenges, changes and significant progress. We expect that the encouraging signs that have emerged in the second half of the financial year in terms of restoring the VIP junket business at Star Vegas, the upgrades of facilities and slot machines and systems, together with the launch of the online gaming operations, and a further solid contribution from Aristo in Vietnam, should result in better performance in the next financial year. As a Board we aim to allow the management to focus on the business, as we attend to the issues of progressing and resolving the outstanding litigation against the vendor. I thank our shareholders for their continuing support, and I assure you all that we will continue to pursue our legal rights aggressively, and demands for compensation, and will continue to keep you informed of our progress. I am pleased to say that management have taken up the challenge of restoring the financial performance of the group, and expect to see improved financial results for the 2019 financial year. Stuart McGregor Chairman “Strong corporate governance remains the Board’s most important area of focus at Donaco, and we retain our recognition in the Asian region as a group that operates with high standards of probity and good governance.” 5 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTFROM THE CHAIRMAN Dear fellow shareholders, The 2018 financial year can be described as a year of challenges, changes and progress. The challenges occurred early in the year when it became apparent that the vendor of the Star Vegas casino was operating two casinos in breach of the non-compete provisions in the sale contract. This challenge was compounded by the poaching of our VIP junkets by the vendor, which severely impacted our junket business at Star Vegas. The Board acted swiftly when the issues were identified and we are actively pursuing all legal avenues to stop the illegal operation of the competing casinos, and to receive compensation for the financial impact that we have suffered as a result of the contract breaches. The Company was successful in obtaining an injunction ordering the closure of the competing casinos. After the injunction was obtained, one of the casinos changed its name from ‘Star Paradise’ to ‘Winsor’, and at present continues to operate. The vendor’s initial arguments against the injunction were rejected by the Cambodian court, but a further appeal by the vendor to a higher court is pending. In late March 2018 the Company obtained a freezing order on the vendor’s Donaco shares from the NSW Supreme Court, and this order has now been extended until 2 November 2018. When the breaches became apparent the Board withheld the final management fee payment to the vendor in respect of the 2017 financial year. The vendor then made a claim for security rights over certain assets of Star Vegas, relating to this payment. This claim was rejected by the Cambodian court, but a few days later, a different firm of lawyers acting for the vendor filed an essentially identical claim. We have argued that this is an abuse of process, and should also be rejected. The vendor then threatened to terminate the lease of the Star Vegas property, on what the Board considers to be contrived and spurious grounds. The Company has obtained an injunction to prevent the threatened termination, and the injunction continues in force. The vendor has now commenced arbitration proceedings in Cambodia over this matter. The Board is seeking a positive resolution within the next six months. 4 The vendor has also commenced defamation proceedings in Thailand against Donaco and two of our directors for damages of THB1 million (approximately $41,000). This frivolous claim relates to Donaco’s ASX releases, which Donaco is legally required to issue. We will not be deterred from our obligations to keep our shareholders informed of the important issues and developments in relation to these matters. Most significantly, the Board has commenced arbitration proceedings in Singapore for US$190 million, relating to the vendor’s breaches of the sale agreements for Star Vegas, and the subsequent impairment charge that was incurred to the Star Vegas casino license. The Board would like a rapid resolution to this issue, but unfortunately the hearing date is currently set for 29 July 2019, due to unavailability of lawyers and the arbitrator. The year has also seen a number of significant changes. At the Board level, the directors appointed by the Star Vegas vendor have left, following the breaches by the vendor. We are comfortable with our present Board composition and experience of our Board members. Strong corporate governance remains the Board’s most important area of focus at Donaco, and we retain our recognition in the Asian region as a group that operates with high standards of probity and good governance. A significant change occurred when management of the Star Vegas casino was taken in-house in July 2018, following the expiration of the management contract with the vendor. The new management team have worked actively to address and rebuild the VIP business at Star Vegas, and to undertake a number of improvements at the property during the year. Progress has also occurred during the year, with new junkets introduced at Star Vegas, new facilities being built and introduced at the property to attract new main floor and VIP patrons, the refurbishment of hotel rooms, the introduction of new gaming machines and gaming systems, and the recently announced launch of the online gaming operations. These initiatives will all hold the business in good stead over the next few years. Despite the challenging conditions in our major market, the casinos continued to produce positive cash flows of $34.6 million, and this has been used to further strengthen our financial position through the repayment of debt. The primary focus, given the challenges during the 2018 financial year, has been on further reducing the Mega Bank debt, which has now fallen to US$40 million, following the further repayment of US$8.55 million in August 2018. The $143.9 million impairment charge which the Board deemed as prudent, given the breaches by the vendor, did result in the loss recorded in the statutory results. This has meant that the Board is unable to declare a dividend for the 2018 financial year, and cannot extend the current buy-back. Under the Mega Bank facility, these capital management initiatives are restricted to 100% of statutory net profit after tax (NPAT). The Board recognises that capital allocation is one of the most important areas of value creation for shareholders, and aims to restore a range of capital management initiatives, such as buy backs and dividends, as the financial performance is restored. On a separate note, despite the attention of the Board to the challenges presented to it during the 2018 financial year, we continued to make a positive contribution to the communities in which we operate both in Cambodia and Vietnam. For example, during the year we donated two mobile medical clinics to Samdech Techo Voluntary Youth Doctors Association. This is a not-for-profit organisation which mobilises medical professionals, medical students and volunteers to help provide free healthcare to rural Cambodians throughout the country. The two new mobile clinics will help to address a significant problem faced by poor families in remote areas of Cambodia, who often have difficulty accessing proper medical and dental treatment. At the Aristo in Vietnam, we made significant donations to local orphanages, schools and war veterans, assisting both with cash and with practical gifts. In summary, the 2018 financial year was one of challenges, changes and significant progress. We expect that the encouraging signs that have emerged in the second half of the financial year in terms of restoring the VIP junket business at Star Vegas, the upgrades of facilities and slot machines and systems, together with the launch of the online gaming operations, and a further solid contribution from Aristo in Vietnam, should result in better performance in the next financial year. As a Board we aim to allow the management to focus on the business, as we attend to the issues of progressing and resolving the outstanding litigation against the vendor. I thank our shareholders for their continuing support, and I assure you all that we will continue to pursue our legal rights aggressively, and demands for compensation, and will continue to keep you informed of our progress. I am pleased to say that management have taken up the challenge of restoring the financial performance of the group, and expect to see improved financial results for the 2019 financial year. Stuart McGregor Chairman “Strong corporate governance remains the Board’s most important area of focus at Donaco, and we retain our recognition in the Asian region as a group that operates with high standards of probity and good governance.” 5 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTFROM THE MANAGING DIRECTOR FROM THE MANAGING DIRECTOR In August 2018, we were pleased to announce that we have now launched our long awaited online gaming operations. It has taken us some time to make sure we have the right model and system, and we have now gone live with an advanced software platform that has been optimised for both mobile and desktop devices. The platform has a live dealer and sportsbook, supports multiple languages and currencies, and will be offered to downstream partners, who will market to their own customer bases. We look forward to this becoming a significant revenue driver for us over the medium term. The performance of the Aristo has been pleasing, with the property level NPAT growing by 19% on last year, assisted by lower finance costs and depreciation and amortisation. Property level earnings before interest, tax, depreciation and amortisation (EBITDA) fell 4% to RMB71.8 million due to a lower win rate, but the normalised EBITDA (using the theoretical win rate) improved by 38% to RMB151.3 million. The Aristo VIP turnover improved significantly by 46%, as new VIP junkets were selectively allowed into the property. However total revenues at Aristo slightly reduced, with net gaming revenue 10.8% below last year. This is due to the lower win rate of 1.9%, compared to 2.3% in FY17, which was caused by a single VIP player winning RMB22.6 million during July and August 2017. Since that time the win rate has stabilised. Visitation at the Aristo was down 12% compared to last year, due to the cancellation of a marketing initiative which was not meeting our objectives. Despite this, slot machine revenue was only down slightly. Non-gaming revenue increased by 12.7%, to now make up 46% of total revenue, reflecting initiatives put in place to diversify the business. Looking forward into the new financial year, our management team will continue to focus on rebuilding and improving the Star Vegas business, with multiple initiatives in progress. Over the medium term, we expect to drive growth from the newly launched online gaming platform. At Aristo, we aim to further increase the number of mass market players visiting the property, and will selectively allow junket play when appropriate. And at both properties, we are focused on growing non- gaming revenues to diversify earnings streams. Our Board will continue to pursue the multiple legal actions which are in progress, and we remain confident of our position in these proceedings. Overall, we look forward to restoring and growing the group earnings into the 2019 financial year and beyond. Joey Lim Managing Director and Chief Executive Officer Dear fellow shareholders, Donaco recorded a statutory loss of $124.5 million during the 2018 financial year, compared to a profit of $31 million the previous year. The primary factor was the Board’s decision to incur a non- cash impairment charge of $143.9 million in the value of the Star Vegas casino license, as a result of the breaches of the non-compete provisions by the vendor. Our underlying earnings result, after adjusting for the non- recurring items, produced a net profit of $18.3 million. This was below last year’s levels of $54.6 million, again due to the significant drop in VIP turnover at Star Vegas as a consequence of the breaches by the vendor. Aristo continued to perform solidly during the year, and despite a lower win rate than last year it recorded a higher profit than last year, with strong growth in the VIP turnover at the property. Despite the negative headline result, our group financial position remains strong, retaining positive cash flows of $34.6 million. Our net debt to equity reduced to 6.3% at the end of June, and a further principal repayment of US$8.55 million was made in August. During the year, the new management team efficiently managed the cost base across the group, and despite the challenges, both properties were profitable. Revenue at Star Vegas dropped from $110.2 million to $66.6 million, due to the poaching of our junkets by the Star Vegas vendor. There was also a backdrop of continuing subdued domestic demand in Thailand, which held back growth in the main floor revenues. The Star Vegas VIP win rate of 3% was closer to the theoretical range, but significantly lower than the very high win rate of 3.54% recorded last year. The new management team put in place at Star Vegas following the conclusion of the vendor’s management contract was unexpectedly faced with the challenge of rebuilding the Thai junket business, as the former junkets were poached and went to competing casinos operated by the vendor. It was pleasing to see their response to the challenge. We finished the financial year with five new junket operators at Star Vegas, and that was reflected in the second half VIP turnover, which improved by 54% over the first half. There has been a substantial upgrade to the non-gaming facilities at the Star Vegas, together with refurbished hotel rooms. The slot machine inventory has been refreshed during the year, and we expect this to increase revenue during the 2019 financial year. During the year we also introduced the Bally casino management system at the property, which has allowed us to introduce a new loyalty scheme. Despite all this activity, our operational costs were tightly managed and decreased by 11% compared to the previous financial year. We have also reached agreement in principle for a new tour group operator to bring in Chinese tourists, with the aim of filling our second main hall. I would also like to acknowledge the changing role of Vivo Tower during the year. We originally engaged them to fill unused space at Star Vegas, by marketing it to non- Thai junket operators and players, and to bring in tenants to operate non-gaming facilities. However, following the breaches by the Thai vendor, Vivo was redirected to bring in new Thai junkets, and also assist us in improving the non-gaming amenities. We have now established a new nightclub, karaoke bar, spa and sauna, and a Chinese restaurant. We have also engaged third party online gaming operators to take space under rental deals. As the management transition from the vendor is now complete, we have restructured the arrangements with Vivo. Under a new agreement, Donaco will receive direct rental payments from tenants brought in by Vivo, and Vivo have now been engaged to market and manage the Donaco online gaming platform, in return for a revenue share. “ In August 2018, we were pleased to announce that we have now launched our long awaited on-line gaming operations. It has taken us some time to make sure we have the right model and system, and we have now gone live with an advanced software platform that has been optimized for both mobile and desktop devices.” 6 7 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTFROM THE MANAGING DIRECTOR FROM THE MANAGING DIRECTOR In August 2018, we were pleased to announce that we have now launched our long awaited online gaming operations. It has taken us some time to make sure we have the right model and system, and we have now gone live with an advanced software platform that has been optimised for both mobile and desktop devices. The platform has a live dealer and sportsbook, supports multiple languages and currencies, and will be offered to downstream partners, who will market to their own customer bases. We look forward to this becoming a significant revenue driver for us over the medium term. The performance of the Aristo has been pleasing, with the property level NPAT growing by 19% on last year, assisted by lower finance costs and depreciation and amortisation. Property level earnings before interest, tax, depreciation and amortisation (EBITDA) fell 4% to RMB71.8 million due to a lower win rate, but the normalised EBITDA (using the theoretical win rate) improved by 38% to RMB151.3 million. The Aristo VIP turnover improved significantly by 46%, as new VIP junkets were selectively allowed into the property. However total revenues at Aristo slightly reduced, with net gaming revenue 10.8% below last year. This is due to the lower win rate of 1.9%, compared to 2.3% in FY17, which was caused by a single VIP player winning RMB22.6 million during July and August 2017. Since that time the win rate has stabilised. Visitation at the Aristo was down 12% compared to last year, due to the cancellation of a marketing initiative which was not meeting our objectives. Despite this, slot machine revenue was only down slightly. Non-gaming revenue increased by 12.7%, to now make up 46% of total revenue, reflecting initiatives put in place to diversify the business. Looking forward into the new financial year, our management team will continue to focus on rebuilding and improving the Star Vegas business, with multiple initiatives in progress. Over the medium term, we expect to drive growth from the newly launched online gaming platform. At Aristo, we aim to further increase the number of mass market players visiting the property, and will selectively allow junket play when appropriate. And at both properties, we are focused on growing non- gaming revenues to diversify earnings streams. Our Board will continue to pursue the multiple legal actions which are in progress, and we remain confident of our position in these proceedings. Overall, we look forward to restoring and growing the group earnings into the 2019 financial year and beyond. Joey Lim Managing Director and Chief Executive Officer Dear fellow shareholders, Donaco recorded a statutory loss of $124.5 million during the 2018 financial year, compared to a profit of $31 million the previous year. The primary factor was the Board’s decision to incur a non- cash impairment charge of $143.9 million in the value of the Star Vegas casino license, as a result of the breaches of the non-compete provisions by the vendor. Our underlying earnings result, after adjusting for the non- recurring items, produced a net profit of $18.3 million. This was below last year’s levels of $54.6 million, again due to the significant drop in VIP turnover at Star Vegas as a consequence of the breaches by the vendor. Aristo continued to perform solidly during the year, and despite a lower win rate than last year it recorded a higher profit than last year, with strong growth in the VIP turnover at the property. Despite the negative headline result, our group financial position remains strong, retaining positive cash flows of $34.6 million. Our net debt to equity reduced to 6.3% at the end of June, and a further principal repayment of US$8.55 million was made in August. During the year, the new management team efficiently managed the cost base across the group, and despite the challenges, both properties were profitable. Revenue at Star Vegas dropped from $110.2 million to $66.6 million, due to the poaching of our junkets by the Star Vegas vendor. There was also a backdrop of continuing subdued domestic demand in Thailand, which held back growth in the main floor revenues. The Star Vegas VIP win rate of 3% was closer to the theoretical range, but significantly lower than the very high win rate of 3.54% recorded last year. The new management team put in place at Star Vegas following the conclusion of the vendor’s management contract was unexpectedly faced with the challenge of rebuilding the Thai junket business, as the former junkets were poached and went to competing casinos operated by the vendor. It was pleasing to see their response to the challenge. We finished the financial year with five new junket operators at Star Vegas, and that was reflected in the second half VIP turnover, which improved by 54% over the first half. There has been a substantial upgrade to the non-gaming facilities at the Star Vegas, together with refurbished hotel rooms. The slot machine inventory has been refreshed during the year, and we expect this to increase revenue during the 2019 financial year. During the year we also introduced the Bally casino management system at the property, which has allowed us to introduce a new loyalty scheme. Despite all this activity, our operational costs were tightly managed and decreased by 11% compared to the previous financial year. We have also reached agreement in principle for a new tour group operator to bring in Chinese tourists, with the aim of filling our second main hall. I would also like to acknowledge the changing role of Vivo Tower during the year. We originally engaged them to fill unused space at Star Vegas, by marketing it to non- Thai junket operators and players, and to bring in tenants to operate non-gaming facilities. However, following the breaches by the Thai vendor, Vivo was redirected to bring in new Thai junkets, and also assist us in improving the non-gaming amenities. We have now established a new nightclub, karaoke bar, spa and sauna, and a Chinese restaurant. We have also engaged third party online gaming operators to take space under rental deals. As the management transition from the vendor is now complete, we have restructured the arrangements with Vivo. Under a new agreement, Donaco will receive direct rental payments from tenants brought in by Vivo, and Vivo have now been engaged to market and manage the Donaco online gaming platform, in return for a revenue share. “ In August 2018, we were pleased to announce that we have now launched our long awaited on-line gaming operations. It has taken us some time to make sure we have the right model and system, and we have now gone live with an advanced software platform that has been optimized for both mobile and desktop devices.” 6 7 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTBOAR D OF DIR ECTORS BOARD OF DIRECTO RS STUA RT JAMES M cGRE GOR JOEY LIM KEONG YEW BENEDICT PAUL REICHEL BENJAMIN LIM KEONG H OE Independent Non-Executive Chairman (appointed 19 November 2004) Managing Director and Chief Executive Officer (appointed 1 February 2013) BCom, LLB, MBA BCompSci Executive Director, Group General Counsel, Company Secretary (appointed 20 July 2007) BA, LLB(Hons), LLM(Hons) Non-executive Director (appointed 1 February 2013) BBus (InternatBus) Experience and expertise Over the last 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 Australian Federal Government, and as Chief Executive of the Tasmanian Government’s economic development agency. Other current directorships EBOS Group Limited (ASX:EBO) (appointed in July 2013) Former directorships (last three years) None Special responsibilities Member of the Audit and Risk Management Committee and the Nominations, Remuneration and Corporate Governance Committee Interests in shares 411,735 ordinary shares Interests in options None Experience and expertise 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 is 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: working as an executive director to M3 Technologies (Asia) Bhd where he was responsible for strategic investments and corporate affairs; working at VXL Capital, China, a company whose business was focused on investing in and restructuring companies in Malaysia, Beijing, Shanghai and Hong Kong; and working as project manager for Glaxo Wellcome, London, UK. Other current directorships None Former directorships (last three years) None Special responsibilities None Interests in shares 227,906,797 ordinary shares Interests in options 1,931,757 unlisted employee options Experience and expertise Mr Reichel is an executive and company director in the gaming, media, and technology sectors, with more than twenty years’ experience in major Australian listed public companies and law firms. Mr Reichel held the position of CEO 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. Other current directorships None Former directorships (last three years) None Special responsibilities None Interests in shares 918,245 ordinary shares Interests in options 1,026,593 unlisted employee options Experience and expertise 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 bachelors degree in international business with design management from Regent Business School in the United Kingdom. Other current directorships None Former directorships (last three years) None Special responsibilities Member of the Audit and Risk Management Committee and the Nominations, Remuneration and Corporate Governance Committee. Interests in shares 107,311,200 ordinary shares Interests in options None 8 9 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTBOAR D OF DIR ECTORS BOARD OF DIRECTO RS STUA RT JAMES M cGRE GOR JOEY LIM KEONG YEW BENEDICT PAUL REICHEL BENJAMIN LIM KEONG H OE Independent Non-Executive Chairman (appointed 19 November 2004) Managing Director and Chief Executive Officer (appointed 1 February 2013) BCom, LLB, MBA BCompSci Executive Director, Group General Counsel, Company Secretary (appointed 20 July 2007) BA, LLB(Hons), LLM(Hons) Non-executive Director (appointed 1 February 2013) BBus (InternatBus) Experience and expertise Over the last 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 Australian Federal Government, and as Chief Executive of the Tasmanian Government’s economic development agency. Other current directorships EBOS Group Limited (ASX:EBO) (appointed in July 2013) Former directorships (last three years) None Special responsibilities Member of the Audit and Risk Management Committee and the Nominations, Remuneration and Corporate Governance Committee Interests in shares 411,735 ordinary shares Interests in options None Experience and expertise 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 is 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: working as an executive director to M3 Technologies (Asia) Bhd where he was responsible for strategic investments and corporate affairs; working at VXL Capital, China, a company whose business was focused on investing in and restructuring companies in Malaysia, Beijing, Shanghai and Hong Kong; and working as project manager for Glaxo Wellcome, London, UK. Other current directorships None Former directorships (last three years) None Special responsibilities None Interests in shares 227,906,797 ordinary shares Interests in options 1,931,757 unlisted employee options Experience and expertise Mr Reichel is an executive and company director in the gaming, media, and technology sectors, with more than twenty years’ experience in major Australian listed public companies and law firms. Mr Reichel held the position of CEO 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. Other current directorships None Former directorships (last three years) None Special responsibilities None Interests in shares 918,245 ordinary shares Interests in options 1,026,593 unlisted employee options Experience and expertise 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 bachelors degree in international business with design management from Regent Business School in the United Kingdom. Other current directorships None Former directorships (last three years) None Special responsibilities Member of the Audit and Risk Management Committee and the Nominations, Remuneration and Corporate Governance Committee. Interests in shares 107,311,200 ordinary shares Interests in options None 8 9 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTBOARD OF DIRE CTOR S BOARD OF DIRECTO RS HAM TECHATUT SUKJAROEN KR AISRI Executive Director (retired 23 November, 2017) BSc (ChemEng) Experience and expertise Mr Sukjaroenkraisri is Vice President, Casino at Star Vegas Casino & Resorts Co, Ltd. He has more than nine years’ experience in gaming and casino management. In his role at Star Vegas, one of Cambodia’s largest and most successful casino resorts, Mr Sukjaroenkraisri has been responsible for developing the model for the slot machine business. This has become one of the most successful and profitable businesses for Star Vegas, and has helped to put Star Vegas into its current leadership position in the Cambodian gaming market. Other current directorships None Former directorships (last three years) None Special responsibilities None Interests in shares 74,599,764 ordinary shares Interests in options None PAUL PORN TAT AMATAVIVAD HA NA Non-executive Director (resigned 3 July 2017) MSc (MgtSc), BA (Banking&Finance) Experience and expertise Mr Amatavivadhana is a founding principal and the CEO of Infinite Capital, a successful boutique corporate advisory firm based in Bangkok. He has considerable experience in mergers and acquisitions, corporate restructuring and capital raisings. Mr Amatavivadhana is currently an independent director at Sansiri Plc., one of the largest real estate developers in Thailand, which is listed on the Stock Exchange of Thailand. His previous roles include: senior positions at Ayudhya Securities Plc (Managing Director); Ploenchit Advisory Co Ltd (Assistant Managing Director); UOB KayHian Securities (Thailand) Ltd; BNP Paribas Peregrine Securities (Thailand) Ltd and Securities One Plc. Other current directorships Sansiri Plc (SET: SIRI) (appointed 13 June 2008) Former directorships (last three years) None Special responsibilities None Interests in shares None Interests in options None ‘Other current directorships’ and ‘Former directorships (last three years)’ quoted above are directorships for listed entities only, and exclude directorships of all other types of entities, unless otherwise stated. RO B ERT ANDRE W HIN ES Independent Non-executive Director (appointed 1 November 2013) Experience and expertise 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 at 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 Chairman Sportsbet Australia Pty Ltd advisory group, and Non-executive Director of the Sporting Chance Cancer Foundation. Other current directorships None Former directorships (last three years) None Special responsibilities Chair of the Audit and Risk Management Committee and the Nominations, Remuneration and Corporate Governance Committee Interests in shares 195,321 ordinary shares Interests in options None 10 11 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTBOARD OF DIRE CTOR S BOARD OF DIRECTO RS HAM TECHATUT SUKJAROEN KR AISRI Executive Director (retired 23 November, 2017) BSc (ChemEng) Experience and expertise Mr Sukjaroenkraisri is Vice President, Casino at Star Vegas Casino & Resorts Co, Ltd. He has more than nine years’ experience in gaming and casino management. In his role at Star Vegas, one of Cambodia’s largest and most successful casino resorts, Mr Sukjaroenkraisri has been responsible for developing the model for the slot machine business. This has become one of the most successful and profitable businesses for Star Vegas, and has helped to put Star Vegas into its current leadership position in the Cambodian gaming market. Other current directorships None Former directorships (last three years) None Special responsibilities None Interests in shares 74,599,764 ordinary shares Interests in options None PAUL PORN TAT AMATAVIVAD HA NA Non-executive Director (resigned 3 July 2017) MSc (MgtSc), BA (Banking&Finance) Experience and expertise Mr Amatavivadhana is a founding principal and the CEO of Infinite Capital, a successful boutique corporate advisory firm based in Bangkok. He has considerable experience in mergers and acquisitions, corporate restructuring and capital raisings. Mr Amatavivadhana is currently an independent director at Sansiri Plc., one of the largest real estate developers in Thailand, which is listed on the Stock Exchange of Thailand. His previous roles include: senior positions at Ayudhya Securities Plc (Managing Director); Ploenchit Advisory Co Ltd (Assistant Managing Director); UOB KayHian Securities (Thailand) Ltd; BNP Paribas Peregrine Securities (Thailand) Ltd and Securities One Plc. Other current directorships Sansiri Plc (SET: SIRI) (appointed 13 June 2008) Former directorships (last three years) None Special responsibilities None Interests in shares None Interests in options None ‘Other current directorships’ and ‘Former directorships (last three years)’ quoted above are directorships for listed entities only, and exclude directorships of all other types of entities, unless otherwise stated. RO B ERT ANDRE W HIN ES Independent Non-executive Director (appointed 1 November 2013) Experience and expertise 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 at 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 Chairman Sportsbet Australia Pty Ltd advisory group, and Non-executive Director of the Sporting Chance Cancer Foundation. Other current directorships None Former directorships (last three years) None Special responsibilities Chair of the Audit and Risk Management Committee and the Nominations, Remuneration and Corporate Governance Committee Interests in shares 195,321 ordinary shares Interests in options None 10 11 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTCORPORATE SOCI AL RESPONS IBIL IT Y CORPORATE RESPO NSIBILITY “ We are committed to contributing to our local communities through engagement, purposeful charitable activities and supporting targeted development and wellbeing initiatives to enhance the welfare and quality of life for people in our region. Making a positive contribution helps build resilience and provides our employees with a sense of pride.” In Cambodia, the previous casino management at Star Vegas was not engaged in charitable work. We have changed this and have engaged in a number of charitable activities in the past year. Cambodia. This helps to address a significant problem faced by poor families in remote areas of Cambodia, who often have difficulty accessing proper medical and dental treatment. In December 2017, Donaco gave two mobile medical clinics to Samdech Techo Voluntary Youth Doctors Association. This is a not-for-profit organisation which mobilises medical professionals, medical students and volunteers to help provide free health care to rural Cambodians throughout the country. With the two new mobile clinics, the association will be able to conduct minor surgeries and tests in the villages of rural The mobile clinics were assembled in Thailand from parts sourced from around the world. Donaco is pleased to be able to make this significant contribution to the wellbeing of the Cambodian people. Other charitable activities included donations of cash and materials for flood victims in Banteay Meanchey province, Cambodia. 24 JULY 2017 Aristo presented gifts for war invalids and martyr’s relatives with total amount of VND10 million (20 persons with VND500,000 each) at Duyen Hai ward, Lao Cai city on the occasion of the 70th anniversary of the martyr’s day of Vietnam. 5 SEPTEMBER 2017 Aristo presented uniforms for 500 pupils of Phin Ngan Primary School and Junior school of Bat Xat district worth a total of VND121 million on the occasion of New School Year 2017–2018. 9 FEBRUARY 2018 Aristo presented 100 blankets, 100kg of rice, 10 piglets, 100 chickens, six chicken houses and VND15 million in cash with total value of over VND120 million to the Orphan Center of Lao Cai province on the occasion of New Year 2018. 12 13 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTCORPORATE SOCI AL RESPONS IBIL IT Y CORPORATE RESPO NSIBILITY “ We are committed to contributing to our local communities through engagement, purposeful charitable activities and supporting targeted development and wellbeing initiatives to enhance the welfare and quality of life for people in our region. Making a positive contribution helps build resilience and provides our employees with a sense of pride.” In Cambodia, the previous casino management at Star Vegas was not engaged in charitable work. We have changed this and have engaged in a number of charitable activities in the past year. Cambodia. This helps to address a significant problem faced by poor families in remote areas of Cambodia, who often have difficulty accessing proper medical and dental treatment. In December 2017, Donaco gave two mobile medical clinics to Samdech Techo Voluntary Youth Doctors Association. This is a not-for-profit organisation which mobilises medical professionals, medical students and volunteers to help provide free health care to rural Cambodians throughout the country. With the two new mobile clinics, the association will be able to conduct minor surgeries and tests in the villages of rural The mobile clinics were assembled in Thailand from parts sourced from around the world. Donaco is pleased to be able to make this significant contribution to the wellbeing of the Cambodian people. Other charitable activities included donations of cash and materials for flood victims in Banteay Meanchey province, Cambodia. 24 JULY 2017 Aristo presented gifts for war invalids and martyr’s relatives with total amount of VND10 million (20 persons with VND500,000 each) at Duyen Hai ward, Lao Cai city on the occasion of the 70th anniversary of the martyr’s day of Vietnam. 5 SEPTEMBER 2017 Aristo presented uniforms for 500 pupils of Phin Ngan Primary School and Junior school of Bat Xat district worth a total of VND121 million on the occasion of New School Year 2017–2018. 9 FEBRUARY 2018 Aristo presented 100 blankets, 100kg of rice, 10 piglets, 100 chickens, six chicken houses and VND15 million in cash with total value of over VND120 million to the Orphan Center of Lao Cai province on the occasion of New Year 2018. 12 13 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDI RECTORS’ REPORT The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the ‘consolidated entity’ or ‘group’) 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 2018. DI RE C TORS 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 – Chairman Joey Lim Keong Yew Benedict Paul Reichel Benjamin Lim Keong Hoe Robert Andrew Hines Ham Techatut Sukjaroenkraisri (retired 23 November 2017) Paul Porntat Amatavivadhana (resigned 3 July 2017) PRI NCI PAL ACTIVITIES During the financial year the principal continuing activities of the consolidated entity consisted of the operation of leisure and hospitality businesses across the Asia-Pacific region. This included: • operation of a hotel and casino in northern Vietnam • operation of a hotel and casino in Cambodia. DIV IDE ND S A dividend of $4,113,618 (AUD 0.5 cent per ordinary share) was paid on 20 October 2017. The dividend was 100% conduit foreign income and was unfranked. REVIEW OF OPERATIONS AND FINANCIAL RESULTS RESU LT HI GHLI GHTS Underlying net profit after tax (NPAT) was $18.3 million, down from $54.6 million in FY17. Revenue at Star Vegas was significantly affected by the breach of contract by the vendor as well as subdued spending due to weak demand in Thailand. Statutory NPAT Contribution of non-recurring items in NPAT result Underlying NPAT Group revenue – Star Vegas revenue – Aristo revenue Group earnings before interest, tax, depreciation, amortisation and impairment (EBITDA) Underlying Group EBITDA Strong balance sheet with – cash – borrowings – net debt – net debt to equity ratio 2018 $ million (124.5) (142.8) 18.3 92.6 66.6 26.0 42.4 42.4 47.1 70.4 23.3 2017 $ million 31.0 (23.6) 54.6 136.4 110.2 26.2 65.3 84.4 66.0 108.4 42.4 Reported loss after tax was $124.5 million, which included non-recurring items totalling negative $142.8 million. In contrast, the reported NPAT in FY17 was $31.0 million which included non-recurring items totalling negative $23.6 million. The non-recurring items in FY18 were largely due to the Star Vegas impairment of $143.9 million. There was no further management fee expense payable to the Star Vegas vendor. In addition, there was positive non-cash warrant revaluation income of $0.7 million (vs. $1.1 million in FY17) and a net foreign exchange gain of $0.3 million (vs. loss of $1.1 in FY17). The working capital facility has now been repaid and fully amortised. Excluding the non-recurring items, underlying NPAT for the group was $18.3 million, down from $54.6 million in FY17. VEN UE PERFORMAN CES Star Vegas vs. FY17 • net gaming revenue down 44.7% to THB1,519.7 million • non-gaming revenue up 2.7% to THB153.3 million • EBITDA down 53.9% to THB971.1 million • property level NPAT down 46.4% to THB785.2 million • VIP gross win rate of 3.0%. Gaming revenue at Star Vegas was affected by the breach of non-compete clauses by the previous Thai vendor, which had a significant adverse impact on business. Spending was also subdued due to weak domestic demand in Thailand. Property level NPAT was down, reflecting lower VIP turnover. However, operating expenses were also down 11% which reflects more efficient management by Donaco compared to the former Thai vendor. The VIP gross win rate of 3.0% is a better reflection of the normal theoretical range of 2.7–3.0%, compared to FY17’s win rate of 3.54%. Overall, for the full 12 month period, the EBITDA at Star Vegas declined by 53.9% in local currency terms to THB971.1 million. Aristo International Hotel vs. FY17 • net gaming revenue down 10.8% to RMB71.4 million • non-gaming revenue up 12.7% to RMB60.4 million • EBITDA down 4.1% to RMB71.8 million • property level NPAT up 19.3% to RMB38.0 million DIRECTORS’ REPORT depreciation and amortisation costs. EBITDA decreased by 4.1% in local currency terms to RMB71.8 million, due to a lower win rate. CAPITAL MANAG EMEN T No FY18 dividend is payable due to the impairment charge, as dividends are restricted to 100% of NPAT under the Mega Bank loan facility. Borrowings under the Mega Bank loan have been reduced to US$40 million, following a repayment in August 2018. Further capital management strategies, including any extension of the current buyback, will require approval from Mega Bank. SIGNIFICANT CHANGES I N T HE S TAT E OF AFFAIRS There were no significant changes in the state of affairs of the consolidated entity during the financial year. MAT TERS SUBSEQUENT TO THE END OF THE FINANCIAL YE AR D IVI DE ND There will be no dividends declared for FY18. SH ARE OPTI ON S On 29 June 2018, the company announced the expiration of 2,930,625 options in accordance with their terms. The options were part of the FY14, FY15 and FY16 option series. Currently, there are 2,514,186 remaining options on issue. TERMI NATI ON O F VIVO A RRANGEMENT On 23 August 2018, the contract between DNA Star Vegas Co., and Ltd and Vivo Tower Holdings Limited (‘Vivo’), announced to the market on 16 June 2017, was terminated. DNA Star Vegas will now receive direct rental payments from the sub-licensees brought into the Star Vegas property by Vivo, which will substantially replace the fixed fee previously paid by Vivo. Under a new agreement, Vivo’s role is to market and manage the online gaming platform owned by DNA Star Vegas, in return for a revenue share. No other matter or circumstance has arisen since 30 June 2018 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. 14 DONAC O INTE RNAT IONAL L IMIT ED 2 01 8 A NNUAL REPORT 15 6.3% 8.7% • VIP gross win rate 1.91% Gaming revenue declined by 10.8% while non-gaming revenue increased by 12.7%, reflecting management initiatives to diversify the business. The increase of 19.3% in property level NPAT was primarily due to lower finance, DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDI RECTORS’ REPORT The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the ‘consolidated entity’ or ‘group’) 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 2018. DI RE C TORS 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 – Chairman Joey Lim Keong Yew Benedict Paul Reichel Benjamin Lim Keong Hoe Robert Andrew Hines Ham Techatut Sukjaroenkraisri (retired 23 November 2017) Paul Porntat Amatavivadhana (resigned 3 July 2017) PRI NCI PAL ACTIVITIES During the financial year the principal continuing activities of the consolidated entity consisted of the operation of leisure and hospitality businesses across the Asia-Pacific region. This included: • operation of a hotel and casino in northern Vietnam • operation of a hotel and casino in Cambodia. DIV IDE ND S A dividend of $4,113,618 (AUD 0.5 cent per ordinary share) was paid on 20 October 2017. The dividend was 100% conduit foreign income and was unfranked. REVIEW OF OPERATIONS AND FINANCIAL RESULTS RESU LT HI GHLI GHTS Underlying net profit after tax (NPAT) was $18.3 million, down from $54.6 million in FY17. Revenue at Star Vegas was significantly affected by the breach of contract by the vendor as well as subdued spending due to weak demand in Thailand. Statutory NPAT Contribution of non-recurring items in NPAT result Underlying NPAT Group revenue – Star Vegas revenue – Aristo revenue Group earnings before interest, tax, depreciation, amortisation and impairment (EBITDA) Underlying Group EBITDA Strong balance sheet with – cash – borrowings – net debt – net debt to equity ratio 2018 $ million (124.5) (142.8) 18.3 92.6 66.6 26.0 42.4 42.4 47.1 70.4 23.3 2017 $ million 31.0 (23.6) 54.6 136.4 110.2 26.2 65.3 84.4 66.0 108.4 42.4 Reported loss after tax was $124.5 million, which included non-recurring items totalling negative $142.8 million. In contrast, the reported NPAT in FY17 was $31.0 million which included non-recurring items totalling negative $23.6 million. The non-recurring items in FY18 were largely due to the Star Vegas impairment of $143.9 million. There was no further management fee expense payable to the Star Vegas vendor. In addition, there was positive non-cash warrant revaluation income of $0.7 million (vs. $1.1 million in FY17) and a net foreign exchange gain of $0.3 million (vs. loss of $1.1 in FY17). The working capital facility has now been repaid and fully amortised. Excluding the non-recurring items, underlying NPAT for the group was $18.3 million, down from $54.6 million in FY17. VEN UE PERFORMAN CES Star Vegas vs. FY17 • net gaming revenue down 44.7% to THB1,519.7 million • non-gaming revenue up 2.7% to THB153.3 million • EBITDA down 53.9% to THB971.1 million • property level NPAT down 46.4% to THB785.2 million • VIP gross win rate of 3.0%. Gaming revenue at Star Vegas was affected by the breach of non-compete clauses by the previous Thai vendor, which had a significant adverse impact on business. Spending was also subdued due to weak domestic demand in Thailand. Property level NPAT was down, reflecting lower VIP turnover. However, operating expenses were also down 11% which reflects more efficient management by Donaco compared to the former Thai vendor. The VIP gross win rate of 3.0% is a better reflection of the normal theoretical range of 2.7–3.0%, compared to FY17’s win rate of 3.54%. Overall, for the full 12 month period, the EBITDA at Star Vegas declined by 53.9% in local currency terms to THB971.1 million. Aristo International Hotel vs. FY17 • net gaming revenue down 10.8% to RMB71.4 million • non-gaming revenue up 12.7% to RMB60.4 million • EBITDA down 4.1% to RMB71.8 million • property level NPAT up 19.3% to RMB38.0 million DIRECTORS’ REPORT depreciation and amortisation costs. EBITDA decreased by 4.1% in local currency terms to RMB71.8 million, due to a lower win rate. CAPITAL MANAG EMEN T No FY18 dividend is payable due to the impairment charge, as dividends are restricted to 100% of NPAT under the Mega Bank loan facility. Borrowings under the Mega Bank loan have been reduced to US$40 million, following a repayment in August 2018. Further capital management strategies, including any extension of the current buyback, will require approval from Mega Bank. SIGNIFICANT CHANGES I N T HE S TAT E OF AFFAIRS There were no significant changes in the state of affairs of the consolidated entity during the financial year. MAT TERS SUBSEQUENT TO THE END OF THE FINANCIAL YE AR D IVI DE ND There will be no dividends declared for FY18. SH ARE OPTI ON S On 29 June 2018, the company announced the expiration of 2,930,625 options in accordance with their terms. The options were part of the FY14, FY15 and FY16 option series. Currently, there are 2,514,186 remaining options on issue. TERMI NATI ON O F VIVO A RRANGEMENT On 23 August 2018, the contract between DNA Star Vegas Co., and Ltd and Vivo Tower Holdings Limited (‘Vivo’), announced to the market on 16 June 2017, was terminated. DNA Star Vegas will now receive direct rental payments from the sub-licensees brought into the Star Vegas property by Vivo, which will substantially replace the fixed fee previously paid by Vivo. Under a new agreement, Vivo’s role is to market and manage the online gaming platform owned by DNA Star Vegas, in return for a revenue share. No other matter or circumstance has arisen since 30 June 2018 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. 14 DONAC O INTE RNAT IONAL L IMIT ED 2 01 8 A NNUAL REPORT 15 6.3% 8.7% • VIP gross win rate 1.91% Gaming revenue declined by 10.8% while non-gaming revenue increased by 12.7%, reflecting management initiatives to diversify the business. The increase of 19.3% in property level NPAT was primarily due to lower finance, DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDIR ECTORS ’ REPORT DIRECTORS’ REPORT LI KELY DEV ELOPMEN TS A ND EX P ECTED R ES ULTS OF OPERATION S The company operates leisure and entertainment businesses across the Asia-Pacific region. Our largest business is the Star Vegas Resort & Club, a successful casino and hotel complex in Poipet, Cambodia, on the border with Thailand. Star Vegas was established in 1999, and is the largest and highest quality of the Poipet casino hotels. The property has more than 100 gaming tables, more than 1,000 slot machines, and 385 hotel rooms. Our flagship business is the Aristo International Hotel, a successful boutique casino in northern Vietnam, located on the border with Yunnan Province, China. Established in 2002, the property has recently been expanded to a brand new five star resort complex with 400 hotel rooms. Donaco is a pioneer casino operator in Vietnam, and owns a 95% interest in the business, in a joint venture with the government of Vietnam. The operation and marketing of both of these properties 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. This will complement the growth at the expanded casinos in both Cambodia and Vietnam, and provide for diversification. The company continues to rebuild and improve the business at Star Vegas, with multiple initiatives in progress. Medium- term growth is expected from the newly launched online gaming platform. Marketing strategies for Aristo continue to be focused on increasing the number of mass market players visiting the property, while selectively allowing junket play where appropriate. The company is also focused on growing non-gaming revenues at both Star Vegas and Aristo to diversify earnings streams. Material risks to the company’s strategy include those affecting listed entities generally, and companies operating in Thailand, Cambodia and Vietnam generally. These risks include the possibility of adverse macroeconomic developments, such as exchange rate declines; cross-border disputes; or terrorist attacks affecting the company’s key target markets. Other material risks include the possibility of adverse regulatory change affecting casino operators, such as changes in tax rates, and the possibility of breach of licence or legislation. These risks are carefully monitored by the Board and management team. Multiple legal actions are in progress involving the Star Vegas vendor. The company is of the opinion that its position is strong, as shown by favourable court decisions issued to date. An injunction continues in force to prevent the vendor’s attempt to terminate the Star Vegas lease. The company also believes that this matter will be resolved in its favour within the next six months. The arbitration in Singapore for the company’s US$190 million damages claim is likely to exceed 12 months, with a hearing due to commence on 29 July 2019. These key risks should not be taken as the only risks that may affect the company’s operations, and many risks are outside the control of the Board and management team. 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 REGULATIONS The consolidated entity is not subject to any significant environmental regulation under Australian Commonwealth or state law. COMPANY SECRETARY Benedict Paul Reichel is an Executive Director and the Company Secretary. His qualifications and experience are set out above under ‘Board of Directors’. MEETINGS 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 2018, and the number of meetings attended by each director were as follows. Full board Audit & Risk Management Committee Nominations, Remuneration and Corporate Governance Committee Special Committee1 Attended Held Attended Held Attended Held Attended Held Stuart James McGregor Joey Lim Keong Yew Benedict Paul Reichel Benjamin Lim Keong Hoe Robert Andrew Hines Ham Techatut Sukjaroenkraisri Paul Porntat Amatavivadhana 9 6 9 7 9 3 – 9 9 9 9 9 4 – 3 – – 2 3 – – 3 – – 3 3 – – 1 – – 1 1 – – 1 – – 1 1 – – 2 2 2 – 2 – – 2 2 2 – 2 – – Held: represents the number of meetings held during the time the director held office or was a member of the relevant committee. 1During the year, a special committee was established on a temporary basis to deal with the management transition at Star Vegas. REMUNERATION REPORT (AUDIT ED) EXECU TIVE SUM MARY The remuneration report details the key management personnel remuneration arrangements for the consolidated entity, in accordance with the requirements of the Corporations Act 2001and its regulations. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including all directors. The remuneration report is set out under the following main headings: • executive summary Donaco uses a simple framework for executive remuneration, consisting of three elements: 1. Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits (if any). 2. Short-term incentives, which are paid in cash, but only if executives satisfy applicable key performance indicators (‘KPIs’). 3. Long-term incentives, under which executives may receive annual grants of restricted shares purchased on market, but only if applicable KPIs are satisfied. The shares vest over a three-year period. • principles used to determine the nature and amount For short-term incentives in FY18, the following KPIs applied: of remuneration • details of remuneration • • share-based compensation additional disclosures relating to key management personnel. 1. Achievement of the budgeted EBITDA target for the Donaco Group (30%). 2. Achievement of the budgeted revenue target for the Star Vegas property, in Thai baht terms (25%). 3. Achievement of the budgeted revenue target for the Aristo property, in Chinese renminbi terms (25%). 4. Achievement of a personal KPI relating to the executive’s individual areas of responsibility (20%). The first three KPIs were not satisfied. Two executives did satisfy their personal KPI, and thus are entitled to be paid 20% of their potential incentive. Accordingly, two executives forfeited 80%, and the others forfeited 100%, of their potential incentive. 16 17 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDIR ECTORS ’ REPORT DIRECTORS’ REPORT LI KELY DEV ELOPMEN TS A ND EX P ECTED R ES ULTS OF OPERATION S The company operates leisure and entertainment businesses across the Asia-Pacific region. Our largest business is the Star Vegas Resort & Club, a successful casino and hotel complex in Poipet, Cambodia, on the border with Thailand. Star Vegas was established in 1999, and is the largest and highest quality of the Poipet casino hotels. The property has more than 100 gaming tables, more than 1,000 slot machines, and 385 hotel rooms. Our flagship business is the Aristo International Hotel, a successful boutique casino in northern Vietnam, located on the border with Yunnan Province, China. Established in 2002, the property has recently been expanded to a brand new five star resort complex with 400 hotel rooms. Donaco is a pioneer casino operator in Vietnam, and owns a 95% interest in the business, in a joint venture with the government of Vietnam. The operation and marketing of both of these properties 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. This will complement the growth at the expanded casinos in both Cambodia and Vietnam, and provide for diversification. The company continues to rebuild and improve the business at Star Vegas, with multiple initiatives in progress. Medium- term growth is expected from the newly launched online gaming platform. Marketing strategies for Aristo continue to be focused on increasing the number of mass market players visiting the property, while selectively allowing junket play where appropriate. The company is also focused on growing non-gaming revenues at both Star Vegas and Aristo to diversify earnings streams. Material risks to the company’s strategy include those affecting listed entities generally, and companies operating in Thailand, Cambodia and Vietnam generally. These risks include the possibility of adverse macroeconomic developments, such as exchange rate declines; cross-border disputes; or terrorist attacks affecting the company’s key target markets. Other material risks include the possibility of adverse regulatory change affecting casino operators, such as changes in tax rates, and the possibility of breach of licence or legislation. These risks are carefully monitored by the Board and management team. Multiple legal actions are in progress involving the Star Vegas vendor. The company is of the opinion that its position is strong, as shown by favourable court decisions issued to date. An injunction continues in force to prevent the vendor’s attempt to terminate the Star Vegas lease. The company also believes that this matter will be resolved in its favour within the next six months. The arbitration in Singapore for the company’s US$190 million damages claim is likely to exceed 12 months, with a hearing due to commence on 29 July 2019. These key risks should not be taken as the only risks that may affect the company’s operations, and many risks are outside the control of the Board and management team. 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 REGULATIONS The consolidated entity is not subject to any significant environmental regulation under Australian Commonwealth or state law. COMPANY SECRETARY Benedict Paul Reichel is an Executive Director and the Company Secretary. His qualifications and experience are set out above under ‘Board of Directors’. MEETINGS 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 2018, and the number of meetings attended by each director were as follows. Full board Audit & Risk Management Committee Nominations, Remuneration and Corporate Governance Committee Special Committee1 Attended Held Attended Held Attended Held Attended Held Stuart James McGregor Joey Lim Keong Yew Benedict Paul Reichel Benjamin Lim Keong Hoe Robert Andrew Hines Ham Techatut Sukjaroenkraisri Paul Porntat Amatavivadhana 9 6 9 7 9 3 – 9 9 9 9 9 4 – 3 – – 2 3 – – 3 – – 3 3 – – 1 – – 1 1 – – 1 – – 1 1 – – 2 2 2 – 2 – – 2 2 2 – 2 – – Held: represents the number of meetings held during the time the director held office or was a member of the relevant committee. 1During the year, a special committee was established on a temporary basis to deal with the management transition at Star Vegas. REMUNERATION REPORT (AUDIT ED) EXECU TIVE SUM MARY The remuneration report details the key management personnel remuneration arrangements for the consolidated entity, in accordance with the requirements of the Corporations Act 2001and its regulations. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including all directors. The remuneration report is set out under the following main headings: • executive summary Donaco uses a simple framework for executive remuneration, consisting of three elements: 1. Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits (if any). 2. Short-term incentives, which are paid in cash, but only if executives satisfy applicable key performance indicators (‘KPIs’). 3. Long-term incentives, under which executives may receive annual grants of restricted shares purchased on market, but only if applicable KPIs are satisfied. The shares vest over a three-year period. • principles used to determine the nature and amount For short-term incentives in FY18, the following KPIs applied: of remuneration • details of remuneration • • share-based compensation additional disclosures relating to key management personnel. 1. Achievement of the budgeted EBITDA target for the Donaco Group (30%). 2. Achievement of the budgeted revenue target for the Star Vegas property, in Thai baht terms (25%). 3. Achievement of the budgeted revenue target for the Aristo property, in Chinese renminbi terms (25%). 4. Achievement of a personal KPI relating to the executive’s individual areas of responsibility (20%). The first three KPIs were not satisfied. Two executives did satisfy their personal KPI, and thus are entitled to be paid 20% of their potential incentive. Accordingly, two executives forfeited 80%, and the others forfeited 100%, of their potential incentive. 16 17 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDIR ECTORS ’ REPORT DIRECTORS’ REPORT For long-term incentives in FY18, the following KPI was required to be satisfied: Achievement of the budgeted EBITDA target for the Donaco Group. This KPI was not satisfied, and accordingly no long-term incentives were awarded. Shareholders should note that share price movements per se are not an applicable KPI. Share prices are affected by many factors beyond the control of management. However all of the applicable KPIs should, if achieved, have a positive impact on Donaco’s performance, which would normally be reflected in the share price, subject to any external factors. Accordingly, the remuneration framework focuses executives on matters that they can control, which are expected to provide benefits to shareholders through a higher share price. In addition, the award of restricted shares under the long- term incentive plan aligns the interests of executives with shareholders. Executives benefit directly if the share price increases, and also suffer directly if the share prices decreases. PRINCIPLES USED TO DETERMINE T HE NAT UR E AND AMOUNT OF REM UNERAT ION Introduction 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 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 it is considered to conform to the market best practice for the delivery of reward. Board oversight The Board has an established Nominations, Remuneration and Corporate Governance Committee (the ‘Remuneration 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/CEO, and evaluating the performance of the Managing Director/ CEO 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 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. Remuneration framework In consultation with external remuneration consultants when necessary (refer to the section ‘Use of Remuneration Consultants’ below), the Remuneration Committee has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the consolidated entity. The framework is designed to satisfy the following key criteria for good reward governance practices: • • aligned to shareholders’ interests competitiveness and reasonableness • performance linkage/alignment of executive compensation • transparency. The remuneration framework is aligned to shareholders’ interests: The executive remuneration and reward framework has three components: • has economic profit as a core component of plan design • focuses on sustained growth in shareholders wealth, consisting of growth in share price, as well as focusing the executive on key nonfinancial drivers of values • fixed remuneration, consisting of base salary and non- monetary benefits, together with other statutory forms of remuneration such as superannuation and long service leave • attracts and retains high calibre executives. The remuneration framework is also aligned to program participants’ interests: • • short-term incentives, paid in cash long-term incentives, currently consisting of restricted shares purchased on market. • • rewards capability and experience reflects competitive reward for contribution to growth in shareholders’ wealth • provides a clear structure for earning rewards. All remuneration paid to directors and executives is valued at cost to the company and expensed. 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 Remuneration Committee. The Remuneration 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 or shares. 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 a maximum 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/CEO and senior executives include both fixed and performance-based remuneration. The combination of these components comprises the executive’s total remuneration. S ENI OR EXE CUT IV ES ’ REMUNERATION MIX 50% AT RISK 50% FIXED DEFERRED EQUITY 25% 25% LTI CASH 75% 25% STI CASH 50% FIXED FIXED VS. AT RISK CASH VS. DEFERRED EQUITY Fixed remuneration Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits (if any), is determined by considering the scope of the executive’s responsibility, 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. Fixed remuneration is reviewed annually by the Remuneration 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) where it does not create any additional costs to the consolidated entity and provides additional value to the executive. The objective of the fixed remuneration component is to attract and retain high-quality executives, and to recognise market relativities and statutory requirements. 18 19 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDIR ECTORS ’ REPORT DIRECTORS’ REPORT For long-term incentives in FY18, the following KPI was required to be satisfied: Achievement of the budgeted EBITDA target for the Donaco Group. This KPI was not satisfied, and accordingly no long-term incentives were awarded. Shareholders should note that share price movements per se are not an applicable KPI. Share prices are affected by many factors beyond the control of management. However all of the applicable KPIs should, if achieved, have a positive impact on Donaco’s performance, which would normally be reflected in the share price, subject to any external factors. Accordingly, the remuneration framework focuses executives on matters that they can control, which are expected to provide benefits to shareholders through a higher share price. In addition, the award of restricted shares under the long- term incentive plan aligns the interests of executives with shareholders. Executives benefit directly if the share price increases, and also suffer directly if the share prices decreases. PRINCIPLES USED TO DETERMINE T HE NAT UR E AND AMOUNT OF REM UNERAT ION Introduction 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 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 it is considered to conform to the market best practice for the delivery of reward. Board oversight The Board has an established Nominations, Remuneration and Corporate Governance Committee (the ‘Remuneration 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/CEO, and evaluating the performance of the Managing Director/ CEO 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 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. Remuneration framework In consultation with external remuneration consultants when necessary (refer to the section ‘Use of Remuneration Consultants’ below), the Remuneration Committee has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the consolidated entity. The framework is designed to satisfy the following key criteria for good reward governance practices: • • aligned to shareholders’ interests competitiveness and reasonableness • performance linkage/alignment of executive compensation • transparency. The remuneration framework is aligned to shareholders’ interests: The executive remuneration and reward framework has three components: • has economic profit as a core component of plan design • focuses on sustained growth in shareholders wealth, consisting of growth in share price, as well as focusing the executive on key nonfinancial drivers of values • fixed remuneration, consisting of base salary and non- monetary benefits, together with other statutory forms of remuneration such as superannuation and long service leave • attracts and retains high calibre executives. The remuneration framework is also aligned to program participants’ interests: • • short-term incentives, paid in cash long-term incentives, currently consisting of restricted shares purchased on market. • • rewards capability and experience reflects competitive reward for contribution to growth in shareholders’ wealth • provides a clear structure for earning rewards. All remuneration paid to directors and executives is valued at cost to the company and expensed. 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 Remuneration Committee. The Remuneration 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 or shares. 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 a maximum 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/CEO and senior executives include both fixed and performance-based remuneration. The combination of these components comprises the executive’s total remuneration. S ENI OR EXE CUT IV ES ’ REMUNERATION MIX 50% AT RISK 50% FIXED DEFERRED EQUITY 25% 25% LTI CASH 75% 25% STI CASH 50% FIXED FIXED VS. AT RISK CASH VS. DEFERRED EQUITY Fixed remuneration Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits (if any), is determined by considering the scope of the executive’s responsibility, 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. Fixed remuneration is reviewed annually by the Remuneration 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) where it does not create any additional costs to the consolidated entity and provides additional value to the executive. The objective of the fixed remuneration component is to attract and retain high-quality executives, and to recognise market relativities and statutory requirements. 18 19 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDIR ECTORS ’ REPORT DIRECTORS’ REPORT Short-term incentives The short-term incentive STI framework provides senior executives with the opportunity to earn an annual cash bonus, up to a maximum amount of 50% of base salary. Clear KPIs have been established by the Remuneration Committee. Achievement of these KPIs gives the executive an opportunity to earn a fixed percentage of their maximum STI, subject to final review and approval by the Board. For FY18, the KPIs applied and the applicable percentage of STI were: 1. Achievement of the budgeted EBITDA target for the group. The applicable EBITDA target was $65.6 million. (This KPI is worth 30% of the potential incentive.) 2. Achievement of the budgeted revenue target for the Star Vegas property, in Thai baht terms. The applicable revenue target was THB2.52 billion (25%). 3. Achievement of the budgeted revenue target for the Aristo property, in Chinese renminbi terms. The applicable revenue target was RMB141.2 million (25%). 4. Achievement of a personal KPI relating to the executive’s individual areas of responsibility (20%). The objective of these KPIs is clearly designed to focus on financial criteria, including top-line revenue growth, while maintaining a focus on disciplined cost control, as expressed through the EBITDA target for the group. In addition, executives also maintained a focus on key non-financial criteria, relating to the personal KPI applicable to the individual executive’s area of responsibility. During FY18, the first three KPIs were not satisfied. Two executives did satisfy their personal KPI, and thus are entitled to be paid 20% of their potential incentive. Accordingly, two executives forfeited 80%, and the others forfeited 100%, of their potential incentive. Long-term incentives The long-term incentive (‘LTI’) program currently consists of restricted shares purchased on market. This plan was adopted in FY17 to replace the former option plan, which was thought to be excessively complex, and could potentially result in significant dilution of shareholders. The objective of the LTI component is to focus on sustainable shareholder value creation, as expressed through share price growth. Under the LTI plan, the Board has actively sought to align senior executive remuneration with shareholder interests. Shares are purchased on market and held in an employee share trust (‘the Trust’). The shares will vest to the employees over the vesting period of three years. The aim of the scheme is to ensure that executives are motivated to think like shareholders, with a focus on taking actions that will lead to sustainable increases in the share price. The structure of the scheme also ensures that there is no dilution of shareholders. The total annual dollar value of shares to be purchased is a maximum of $1 million. The number of shares to be purchased each year will depend on the share price at the time that purchases take place. The scheme is executed in a similar manner to an on-market buy back, allowing the Trust to stand in the market and purchase shares at appropriate times. However, the shares will not be cancelled, but will be held in the Trust, to be distributed to employees over the vesting period of three years. LTI awards are made on an annual basis, subject to achievement of applicable KPIs. This ensures that at any given time, the executives have at risk a number of LTI awards, with different vesting periods and amounts. This helps to smooth out both the risk and the cash flow for the company and for executives. The LTI scheme allows for an award of a maximum of 50% of base salary in the form of restricted shares, subject to achievement of applicable KPIs which are set annually. For FY18, the applicable KPI related to the achievement of the budgeted EBITDA target for the group. During FY18 the Trust did not purchase any shares on market. The applicable KPI was not satisfied, and accordingly no awards of shares were made. RELATIO NSH IP B ETWEEN REM UN ERATIO N POL ICY AN D COM PAN Y PERFO RMAN CE As detailed above, Donaco’s remuneration policy is directly linked to company performance, particularly in relation to top-line revenue growth and cost control, to ultimately create long-term shareholder value. STI and LTI awards are dependent on defined KPIs being met, which are primarily financial in nature, and are at the discretion of the Remuneration Committee. DO NAC O REV E NUE AN D EB IT DA ) N O I L L I M ( $ A 160 140 120 100 80 60 40 20 0 FY15 FY16 FY17 FY18 Revenue EBITDA Donaco’s share price decrease during FY18, which also dragged down the share price performance over recent years, reflects lower earnings brought on by the Star Vegas vendor’s breaches of the non-compete agreement, and market concerns over the resulting legal disputes. DNA SHA RE PR ICE GROWT H PE R A NNUM The Remuneration Committee considers that the remuneration framework has an appropriate mix of fixed and performance-based remuneration. Since performance during FY18 did not meet expectations, executives forfeited all or the majority of their short term incentive (except where personal KPIs were met), and all of their long term incentive. The Renumeration Committee also considers that the remuneration framework in place will assist to increase shareholder wealth if maintained over the coming years, subject to any adjustments that are necessary or desirable to reflect the company’s circumstances. Use of remuneration consultants There were no remuneration consultants engaged during FY17 and FY18. D ETAI LS OF REMU NER ATION Amounts of remuneration Details of the remuneration of 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 Director and Chairman Joey Lim Keong Yew – Managing Director and Chief Executive Officer • Benedict Paul Reichel – Executive Director, General Counsel and Company Secretary • Benjamin Lim Keong Hoe – Non-executive Director • Robert Andrew Hines – Non-executive Director • Ham Techatut Sukjaroenkraisri – Executive Director (retired 23 November 2017) • Paul Porntat Amatavivadhana – Non-executive Director 0% -10% -20% -30% -40% -50% -60% -70% -80% -90% -37% -42% -41% -75% (resigned 3 July 2017) And the following persons: 4 YEARS 3 YEARS 2 YEARS 1 YEAR • Kenny Goh Kwey Biaw – Deputy Chief Financial Officer and CEO of Donaco Singapore (retired 31 March 2018) • Chong Kwong Yang – Chief Financial Officer • Att Asavanund – Chief Operating Officer and Deputy Chief Executive Officer (resigned 31 August 2017) 20 21 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORT DIR ECTORS ’ REPORT DIRECTORS’ REPORT Short-term incentives The short-term incentive STI framework provides senior executives with the opportunity to earn an annual cash bonus, up to a maximum amount of 50% of base salary. Clear KPIs have been established by the Remuneration Committee. Achievement of these KPIs gives the executive an opportunity to earn a fixed percentage of their maximum STI, subject to final review and approval by the Board. For FY18, the KPIs applied and the applicable percentage of STI were: 1. Achievement of the budgeted EBITDA target for the group. The applicable EBITDA target was $65.6 million. (This KPI is worth 30% of the potential incentive.) 2. Achievement of the budgeted revenue target for the Star Vegas property, in Thai baht terms. The applicable revenue target was THB2.52 billion (25%). 3. Achievement of the budgeted revenue target for the Aristo property, in Chinese renminbi terms. The applicable revenue target was RMB141.2 million (25%). 4. Achievement of a personal KPI relating to the executive’s individual areas of responsibility (20%). The objective of these KPIs is clearly designed to focus on financial criteria, including top-line revenue growth, while maintaining a focus on disciplined cost control, as expressed through the EBITDA target for the group. In addition, executives also maintained a focus on key non-financial criteria, relating to the personal KPI applicable to the individual executive’s area of responsibility. During FY18, the first three KPIs were not satisfied. Two executives did satisfy their personal KPI, and thus are entitled to be paid 20% of their potential incentive. Accordingly, two executives forfeited 80%, and the others forfeited 100%, of their potential incentive. Long-term incentives The long-term incentive (‘LTI’) program currently consists of restricted shares purchased on market. This plan was adopted in FY17 to replace the former option plan, which was thought to be excessively complex, and could potentially result in significant dilution of shareholders. The objective of the LTI component is to focus on sustainable shareholder value creation, as expressed through share price growth. Under the LTI plan, the Board has actively sought to align senior executive remuneration with shareholder interests. Shares are purchased on market and held in an employee share trust (‘the Trust’). The shares will vest to the employees over the vesting period of three years. The aim of the scheme is to ensure that executives are motivated to think like shareholders, with a focus on taking actions that will lead to sustainable increases in the share price. The structure of the scheme also ensures that there is no dilution of shareholders. The total annual dollar value of shares to be purchased is a maximum of $1 million. The number of shares to be purchased each year will depend on the share price at the time that purchases take place. The scheme is executed in a similar manner to an on-market buy back, allowing the Trust to stand in the market and purchase shares at appropriate times. However, the shares will not be cancelled, but will be held in the Trust, to be distributed to employees over the vesting period of three years. LTI awards are made on an annual basis, subject to achievement of applicable KPIs. This ensures that at any given time, the executives have at risk a number of LTI awards, with different vesting periods and amounts. This helps to smooth out both the risk and the cash flow for the company and for executives. The LTI scheme allows for an award of a maximum of 50% of base salary in the form of restricted shares, subject to achievement of applicable KPIs which are set annually. For FY18, the applicable KPI related to the achievement of the budgeted EBITDA target for the group. During FY18 the Trust did not purchase any shares on market. The applicable KPI was not satisfied, and accordingly no awards of shares were made. RELATIO NSH IP B ETWEEN REM UN ERATIO N POL ICY AN D COM PAN Y PERFO RMAN CE As detailed above, Donaco’s remuneration policy is directly linked to company performance, particularly in relation to top-line revenue growth and cost control, to ultimately create long-term shareholder value. STI and LTI awards are dependent on defined KPIs being met, which are primarily financial in nature, and are at the discretion of the Remuneration Committee. DO NAC O REV E NUE AN D EB IT DA ) N O I L L I M ( $ A 160 140 120 100 80 60 40 20 0 FY15 FY16 FY17 FY18 Revenue EBITDA Donaco’s share price decrease during FY18, which also dragged down the share price performance over recent years, reflects lower earnings brought on by the Star Vegas vendor’s breaches of the non-compete agreement, and market concerns over the resulting legal disputes. DNA SHA RE PR ICE GROWT H PE R A NNUM The Remuneration Committee considers that the remuneration framework has an appropriate mix of fixed and performance-based remuneration. Since performance during FY18 did not meet expectations, executives forfeited all or the majority of their short term incentive (except where personal KPIs were met), and all of their long term incentive. The Renumeration Committee also considers that the remuneration framework in place will assist to increase shareholder wealth if maintained over the coming years, subject to any adjustments that are necessary or desirable to reflect the company’s circumstances. Use of remuneration consultants There were no remuneration consultants engaged during FY17 and FY18. D ETAI LS OF REMU NER ATION Amounts of remuneration Details of the remuneration of 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 Director and Chairman Joey Lim Keong Yew – Managing Director and Chief Executive Officer • Benedict Paul Reichel – Executive Director, General Counsel and Company Secretary • Benjamin Lim Keong Hoe – Non-executive Director • Robert Andrew Hines – Non-executive Director • Ham Techatut Sukjaroenkraisri – Executive Director (retired 23 November 2017) • Paul Porntat Amatavivadhana – Non-executive Director 0% -10% -20% -30% -40% -50% -60% -70% -80% -90% -37% -42% -41% -75% (resigned 3 July 2017) And the following persons: 4 YEARS 3 YEARS 2 YEARS 1 YEAR • Kenny Goh Kwey Biaw – Deputy Chief Financial Officer and CEO of Donaco Singapore (retired 31 March 2018) • Chong Kwong Yang – Chief Financial Officer • Att Asavanund – Chief Operating Officer and Deputy Chief Executive Officer (resigned 31 August 2017) 20 21 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORT DIR ECTORS ’ REPORT DIRECTORS’ REPORT POST EMPLOYMENT BENEFITS LONG-TERM BENEFITS SHARE- BASED PAYMENTS Leave Super entitlements Equity-settled Total $ $ $ $ 2017 SHORT-TERM BENEFITS POST EMPLOYMENT BENEFITS Cash salary and fees $ Bonus $ Super $ LONG-TERM BENEFITS Leave entitlements SHARE- BASED PAYMENTS Equity-settled Total $ $ $ SHORT-TERM BENEFITS Cash salary and fees $ Bonus $ 155,606 174,110 137,300 581,211 332,700 32,243 – – – 326,931 166,350 – 2018 Non-executive Directors S J McGregor Lim K H R A Hines Executive Directors Lim K Y B P Reichel H T Sukjaroenkraisri 14,783 – 13,044 – 25,000 – Other key management personnel Goh K B (retired 31 March 2018) Chong K Y A Asavanund 256,917 252,000 56,747 145,945 126,000 – 250,191 23,940 – 1,978,834 765,226 326,958 – – – – – – – – – – – – – 170,389 174,110 150,344 122,072 1,030,214 61,468 – 585,518 32,243 41,207 34,769 – 694,260 436,709 56,747 259,516 3,330,534 The bonuses set out above were paid during FY18, but relate to performance during FY17. The KPIs applicable were set out in the FY17 annual report. For performance during FY18, bonuses are not payable until October 2018. The bonus amounts accrued to directors and key management personnel in FY19 are shown below. Executive Directors B P Reichel Other key management personnel Chong K Y Total $ 33,270 25,200 58,470 Non-executive Directors S J McGregor Lim K H R A Hines P P Amatavivadhana Executive Directors Lim K Y B P Reichel 155,606 178,929 137,300 101,809 – – – – 671,962 288,935 14,783 – 13,044 – – 327,170 125,000 42,406 H T Sukjaroenkraisri 79,524 – Other key management personnel Goh K B Chong K Y A Asavanund 257,117 252,000 310,144 96,920 96,000 69,584 – – 33,060 – 2,471,561 676,439 103,293 – – – – – – – – – – – – – – – 170,389 178,929 150,344 101,809 115,368 1,076,265 57,684 – 23,752 – – 552,260 79,524 377,789 381,060 379,728 196,804 3,448,097 The proportion of remuneration linked to performance and the fixed proportion are shown below. FIXED REMUNERATION AT RISK – STI AT RISK – LTI Name Non-executive Directors S J McGregor Lim K H R A Hines P P Amatavivadhana Executive Directors Lim K Y B P Reichel H T Sukjaroenkraisri Other key management personnel Goh K B Chong K Y A Asavanund 2018 % 100 100 100 – 56 61 100 73 63 100 2017 % 100 100 100 100 62 67 100 68 75 82 2018 % 2017 % 2018 % 2017 % – – – – 32 28 – 21 29 – – – – – 27 23 – 26 25 18 – – – – 12 10 – 6 8 – – – – – 11 10 – 6 – – 22 23 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDIR ECTORS ’ REPORT DIRECTORS’ REPORT POST EMPLOYMENT BENEFITS LONG-TERM BENEFITS SHARE- BASED PAYMENTS Leave Super entitlements Equity-settled Total $ $ $ $ 2017 SHORT-TERM BENEFITS POST EMPLOYMENT BENEFITS Cash salary and fees $ Bonus $ Super $ LONG-TERM BENEFITS Leave entitlements SHARE- BASED PAYMENTS Equity-settled Total $ $ $ SHORT-TERM BENEFITS Cash salary and fees $ Bonus $ 155,606 174,110 137,300 581,211 332,700 32,243 – – – 326,931 166,350 – 2018 Non-executive Directors S J McGregor Lim K H R A Hines Executive Directors Lim K Y B P Reichel H T Sukjaroenkraisri 14,783 – 13,044 – 25,000 – Other key management personnel Goh K B (retired 31 March 2018) Chong K Y A Asavanund 256,917 252,000 56,747 145,945 126,000 – 250,191 23,940 – 1,978,834 765,226 326,958 – – – – – – – – – – – – – 170,389 174,110 150,344 122,072 1,030,214 61,468 – 585,518 32,243 41,207 34,769 – 694,260 436,709 56,747 259,516 3,330,534 The bonuses set out above were paid during FY18, but relate to performance during FY17. The KPIs applicable were set out in the FY17 annual report. For performance during FY18, bonuses are not payable until October 2018. The bonus amounts accrued to directors and key management personnel in FY19 are shown below. Executive Directors B P Reichel Other key management personnel Chong K Y Total $ 33,270 25,200 58,470 Non-executive Directors S J McGregor Lim K H R A Hines P P Amatavivadhana Executive Directors Lim K Y B P Reichel 155,606 178,929 137,300 101,809 – – – – 671,962 288,935 14,783 – 13,044 – – 327,170 125,000 42,406 H T Sukjaroenkraisri 79,524 – Other key management personnel Goh K B Chong K Y A Asavanund 257,117 252,000 310,144 96,920 96,000 69,584 – – 33,060 – 2,471,561 676,439 103,293 – – – – – – – – – – – – – – – 170,389 178,929 150,344 101,809 115,368 1,076,265 57,684 – 23,752 – – 552,260 79,524 377,789 381,060 379,728 196,804 3,448,097 The proportion of remuneration linked to performance and the fixed proportion are shown below. FIXED REMUNERATION AT RISK – STI AT RISK – LTI Name Non-executive Directors S J McGregor Lim K H R A Hines P P Amatavivadhana Executive Directors Lim K Y B P Reichel H T Sukjaroenkraisri Other key management personnel Goh K B Chong K Y A Asavanund 2018 % 100 100 100 – 56 61 100 73 63 100 2017 % 100 100 100 100 62 67 100 68 75 82 2018 % 2017 % 2018 % 2017 % – – – – 32 28 – 21 29 – – – – – 27 23 – 26 25 18 – – – – 12 10 – 6 8 – – – – – 11 10 – 6 – – 22 23 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDIR ECTORS ’ REPORT DIRECTORS’ REPORT The proportion of the cash bonus paid/payable or forfeited is shown below. The proportion of the share options granted or forfeited is shown below. CASH BONUS PAID/PAYABLE CASH BONUS FORFEITED SHARE OPTIONS GRANTED SHARE OPTIONS FORFEITED Name Executive Directors Lim K Y B P Reichel Other key management personnel Goh K B Chong K Y A Asavanund 2018 % 100 100 100 100 – 2017 % 100 100 100 100 – 2018 % – – – – – 2017 % – – – – – In relation to performance during FY18, the proportions of the cash bonus paid/payable or forfeited are shown below. CASH BONUS PAID/PAYABLE CASH BONUS FORFEITED 2019 % 100 80 100 80 Name Executive Directors Lim K Y B P Reichel Other key management personnel Goh K B Chong K Y 2019 % – 20 – 20 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 KPIs being achieved. The Board, advised by the Remuneration Committee, applied these criteria in determining the award of performance-based remuneration during the year. Performance-based bonuses were paid in October 2017. $765,226 cash bonuses were awarded to the executive directors and other key management personnel. A break up of the bonuses paid is in the tables above. For performance during FY18, the relevant criteria for the award of bonuses relate to revenue growth at each operating business, namely the Star Vegas and the Aristo International Hotel, as well as the achievement of budgeted EBITDA targets for the consolidated entity, and a personal KPI for each executive. Name Executive Directors Lim K Y B P Reichel Other key management personnel Goh K B 2018 2017 2018 2017 – – – – – – – – – – – – The proportion of the shares granted or forfeited is shown below. Name Executive Directors Lim K Y B P Reichel Other key management personnel Goh K B Chong K Y SHARES GRANTED SHARES FORFEITED 2018 2017 2018 2017 784,872 396,166 300,320 300,071 – – – – – – – – – – – – Service agreements SH ARE-BASE D COM PENSATION 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, or six months in the case of Mr Reichel. In the case of Mr Lim, termination for any reason other than just cause will result in a termination payment of 24 months’ base salary (subject to shareholder approval). Shares 1,781,429 shares were granted as part of compensation during the year ended 30 June 2018. Options There were no options issued as part of compensation during the year ended 30 June 2018. Options granted carry no dividend or voting rights. The number of options over ordinary shares granted to and vested by directors and other key management personnel as part of compensation during the year ended 30 June 2018 are shown below. NO. OF OPTIONS GRANTED DURING FY18 NO. OF OPTIONS GRANTED DURING FY17 NO. OF OPTIONS VESTED DURING FY18 NO. OF OPTIONS VESTED DURING FY17 Name Lim K Y B P Reichel Goh K B – – – – – – 634,828 317,414 130,700 872,059 496,744 552,020 24 25 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDIR ECTORS ’ REPORT DIRECTORS’ REPORT The proportion of the cash bonus paid/payable or forfeited is shown below. The proportion of the share options granted or forfeited is shown below. CASH BONUS PAID/PAYABLE CASH BONUS FORFEITED SHARE OPTIONS GRANTED SHARE OPTIONS FORFEITED Name Executive Directors Lim K Y B P Reichel Other key management personnel Goh K B Chong K Y A Asavanund 2018 % 100 100 100 100 – 2017 % 100 100 100 100 – 2018 % – – – – – 2017 % – – – – – In relation to performance during FY18, the proportions of the cash bonus paid/payable or forfeited are shown below. CASH BONUS PAID/PAYABLE CASH BONUS FORFEITED 2019 % 100 80 100 80 Name Executive Directors Lim K Y B P Reichel Other key management personnel Goh K B Chong K Y 2019 % – 20 – 20 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 KPIs being achieved. The Board, advised by the Remuneration Committee, applied these criteria in determining the award of performance-based remuneration during the year. Performance-based bonuses were paid in October 2017. $765,226 cash bonuses were awarded to the executive directors and other key management personnel. A break up of the bonuses paid is in the tables above. For performance during FY18, the relevant criteria for the award of bonuses relate to revenue growth at each operating business, namely the Star Vegas and the Aristo International Hotel, as well as the achievement of budgeted EBITDA targets for the consolidated entity, and a personal KPI for each executive. Name Executive Directors Lim K Y B P Reichel Other key management personnel Goh K B 2018 2017 2018 2017 – – – – – – – – – – – – The proportion of the shares granted or forfeited is shown below. Name Executive Directors Lim K Y B P Reichel Other key management personnel Goh K B Chong K Y SHARES GRANTED SHARES FORFEITED 2018 2017 2018 2017 784,872 396,166 300,320 300,071 – – – – – – – – – – – – Service agreements SH ARE-BASE D COM PENSATION 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, or six months in the case of Mr Reichel. In the case of Mr Lim, termination for any reason other than just cause will result in a termination payment of 24 months’ base salary (subject to shareholder approval). Shares 1,781,429 shares were granted as part of compensation during the year ended 30 June 2018. Options There were no options issued as part of compensation during the year ended 30 June 2018. Options granted carry no dividend or voting rights. The number of options over ordinary shares granted to and vested by directors and other key management personnel as part of compensation during the year ended 30 June 2018 are shown below. NO. OF OPTIONS GRANTED DURING FY18 NO. OF OPTIONS GRANTED DURING FY17 NO. OF OPTIONS VESTED DURING FY18 NO. OF OPTIONS VESTED DURING FY17 Name Lim K Y B P Reichel Goh K B – – – – – – 634,828 317,414 130,700 872,059 496,744 552,020 24 25 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDIR ECTORS ’ REPORT DIRECTORS’ REPORT ADDITIONAL DISCLOSURES RE LAT ING TO KE Y MA NAG EM ENT PE RSO NNE L SH ARES U ND ER OPTI ON Shareholding Unissued ordinary shares of Donaco International Limited under option at the date of this report are shown below. 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 shown below. BALANCE AT THE START OF THE YEAR RECEIVED AS PART OF REMUNERATION ADDITIONS DISPOSALS/ OTHER BALANCE AT THE END OF THE YEAR Ordinary shares S J McGregor Lim K Y B P Reichel Lim K H R A Hines 411,735 267,559,325 522,079 144,811,200 145,321 H T Sukjaroenkraisri 148,199,529 – 784,872 396,166 – – – Goh K B 700,000 300,320 Option holding – – 411,735 562,600 (37,500,000) 231,406,797 – – 50,000 – – – 918,245 (37,500,000) 107,311,200 – – 195,321 148,199,529 (200,000) 800,320 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 shown below. BALANCE AT THE START OF THE YEAR GRANTED EXERCISED EXPIRED/ FORFEITED/ OTHER BALANCE AT THE END OF THE YEAR VESTED UNVESTED Options over ordinary shares Lim K Y B P Reichel Goh K B 2,257,873 1,256,389 1,212,292 4,726,554 – – – – – – – – (326,116) 1,931,757 1,506,887 (229,796) 1,026,593 (442,099) 770,193 814,158 682,720 (998,011) 3,728,543 3,003,765 424,870 212,435 87,473 724,778 TRANSACTIONS WITH RELATE D PA RT IES A N D KEY MA NAG EM E NT PERSO NNE L The following transactions occurred with related parties during 2018. Leasing fees paid to Lee Hoe Property Co., Ltd – a director-related entity Rental received from director’s immediate family Technical support fees paid by Lao Cai JVC to iSentric Limited – a director-related entity Management fees received for Star Paradise Casino property from MMD Travel Co Ltd – a director-related entity Disposal of property, plant and equipment to previous owner of DNA Star Vegas Co, Ltd – a director-related entity The above transactions occurred at commercial rates. This concludes the remuneration report, which has been audited. CONSOLIDATED 2018 $ 77,382 58,332 2017 $ 156,012 111,734 139,243 187,214 477,992 2,338,782 141,351 586,237 GRANT DATE 1 July 2015 25 August 2015 25 August 2015 EXPIRY DATE EXERCISE PRICE NUMBER UNDER OPTION 1 July 2019 1 July 2019 1 July 2020 $0.890 $0.770 $0.770 349,377 1,156,784 1,008,025 2,514,186 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. In addition to the above, on 7 July 2015 Donaco International Limited issued 70 warrants to subscribe for its ordinary shares. Each warrant has a notional value of US$100,000. The warrants have a term of 39 months and expire on 6 October 2018. The exercise price is $0.7579 cents and the maximum number of ordinary shares which may be issued is 12,339,408. The company may elect to settle the difference between the share price and exercise price in cash. SH ARES I SSUED ON TH E EX ERCI SE OF OPT IO NS The were no ordinary shares of Donaco International Limited issued, during the year ended 30 June 2018 and up to the date of this report, on the exercise of options granted (2017: nil). I ND EMN I TY AN D IN SU RAN CE O F AU DI TOR 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. PROCEE DI NG S O N BEH ALF OF TH E COMPA NY 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. N ON -AUD I T SERVI CES 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 30 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 • 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. OF FICERS O F TH E COM PANY WHO ARE FO RMER PARTNERS O F CROWE HOR WATH There are no officers of the company who are former partners of Crowe Horwath. AUD I TO R’S IN D EPEN DEN CE 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. AUD I TO R Crowe Horwath Sydney continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(1) of the Corporations Act 2001. 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 30 to the financial statements. On behalf of the directors, Mr Stuart McGregor – Chairman 28 September 2018, Melbourne The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by 26 27 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDIR ECTORS ’ REPORT DIRECTORS’ REPORT ADDITIONAL DISCLOSURES RE LAT ING TO KE Y MA NAG EM ENT PE RSO NNE L SH ARES U ND ER OPTI ON Shareholding Unissued ordinary shares of Donaco International Limited under option at the date of this report are shown below. 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 shown below. BALANCE AT THE START OF THE YEAR RECEIVED AS PART OF REMUNERATION ADDITIONS DISPOSALS/ OTHER BALANCE AT THE END OF THE YEAR Ordinary shares S J McGregor Lim K Y B P Reichel Lim K H R A Hines 411,735 267,559,325 522,079 144,811,200 145,321 H T Sukjaroenkraisri 148,199,529 – 784,872 396,166 – – – Goh K B 700,000 300,320 Option holding – – 411,735 562,600 (37,500,000) 231,406,797 – – 50,000 – – – 918,245 (37,500,000) 107,311,200 – – 195,321 148,199,529 (200,000) 800,320 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 shown below. BALANCE AT THE START OF THE YEAR GRANTED EXERCISED EXPIRED/ FORFEITED/ OTHER BALANCE AT THE END OF THE YEAR VESTED UNVESTED Options over ordinary shares Lim K Y B P Reichel Goh K B 2,257,873 1,256,389 1,212,292 4,726,554 – – – – – – – – (326,116) 1,931,757 1,506,887 (229,796) 1,026,593 (442,099) 770,193 814,158 682,720 (998,011) 3,728,543 3,003,765 424,870 212,435 87,473 724,778 TRANSACTIONS WITH RELATE D PA RT IES A N D KEY MA NAG EM E NT PERSO NNE L The following transactions occurred with related parties during 2018. Leasing fees paid to Lee Hoe Property Co., Ltd – a director-related entity Rental received from director’s immediate family Technical support fees paid by Lao Cai JVC to iSentric Limited – a director-related entity Management fees received for Star Paradise Casino property from MMD Travel Co Ltd – a director-related entity Disposal of property, plant and equipment to previous owner of DNA Star Vegas Co, Ltd – a director-related entity The above transactions occurred at commercial rates. This concludes the remuneration report, which has been audited. CONSOLIDATED 2018 $ 77,382 58,332 2017 $ 156,012 111,734 139,243 187,214 477,992 2,338,782 141,351 586,237 GRANT DATE 1 July 2015 25 August 2015 25 August 2015 EXPIRY DATE EXERCISE PRICE NUMBER UNDER OPTION 1 July 2019 1 July 2019 1 July 2020 $0.890 $0.770 $0.770 349,377 1,156,784 1,008,025 2,514,186 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. In addition to the above, on 7 July 2015 Donaco International Limited issued 70 warrants to subscribe for its ordinary shares. Each warrant has a notional value of US$100,000. The warrants have a term of 39 months and expire on 6 October 2018. The exercise price is $0.7579 cents and the maximum number of ordinary shares which may be issued is 12,339,408. The company may elect to settle the difference between the share price and exercise price in cash. SH ARES I SSUED ON TH E EX ERCI SE OF OPT IO NS The were no ordinary shares of Donaco International Limited issued, during the year ended 30 June 2018 and up to the date of this report, on the exercise of options granted (2017: nil). I ND EMN I TY AN D IN SU RAN CE O F AU DI TOR 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. PROCEE DI NG S O N BEH ALF OF TH E COMPA NY 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. N ON -AUD I T SERVI CES 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 30 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 • 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. OF FICERS O F TH E COM PANY WHO ARE FO RMER PARTNERS O F CROWE HOR WATH There are no officers of the company who are former partners of Crowe Horwath. AUD I TO R’S IN D EPEN DEN CE 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. AUD I TO R Crowe Horwath Sydney continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(1) of the Corporations Act 2001. 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 30 to the financial statements. On behalf of the directors, Mr Stuart McGregor – Chairman 28 September 2018, Melbourne The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by 26 27 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTAUDITOR’S INDEPENDENCE D EC L A RATION HEADING 28 September 2018 The Board of Directors Donaco International Limited Level 18 28 September 2018 420 George Street Sydney NSW 2000 The Board of Directors Donaco International Limited Level 18 420 George Street Sydney NSW 2000 Dear Board Members Crowe Horwath Sydney ABN 97 895 683 573 Member Crowe Horwath International Audit and Assurance Services Level 15 1 O'Connell Street Sydney NSW 2000 Crowe Horwath Sydney Australia ABN 97 895 683 573 Member Crowe Horwath International Tel +61 2 9262 2155 Fax +61 2 9262 2190 Audit and Assurance Services www.crowehorwath.com.au Level 15 1 O'Connell Street Sydney NSW 2000 Australia Tel +61 2 9262 2155 Fax +61 2 9262 2190 www.crowehorwath.com.au Donaco International Limited Dear Board Members In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the Directors of Donaco International Limited. Donaco International Limited As lead audit partner for the audit of the financial report of Donaco International Limited for the financial year ended 30 June 2018, I declare that to the best of my knowledge and belief, that there In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following have been no contraventions of: declaration of independence to the Directors of Donaco International Limited. the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (i) As lead audit partner for the audit of the financial report of Donaco International Limited for the financial year ended 30 June 2018, I declare that to the best of my knowledge and belief, that there (ii) any applicable code of professional conduct in relation to the audit. have been no contraventions of: Yours sincerely (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. CROWE HORWATH SYDNEY Yours sincerely CROWE HORWATH SYDNEY SUWARTI ASMONO Partner SUWARTI ASMONO Partner Crowe Horwath Sydney is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation. Liability limited other than for the acts or omissions of financial services licensees. 28 Crowe Horwath Sydney is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and 22 22 independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation. Liability limited other than for the acts or omissions of financial services licensees. F I N A N C I A L S 29 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORT AUDITOR’S INDEPENDENCE D EC L A RATION HEADING 28 September 2018 The Board of Directors Donaco International Limited Level 18 28 September 2018 420 George Street Sydney NSW 2000 The Board of Directors Donaco International Limited Level 18 420 George Street Sydney NSW 2000 Dear Board Members Crowe Horwath Sydney ABN 97 895 683 573 Member Crowe Horwath International Audit and Assurance Services Level 15 1 O'Connell Street Sydney NSW 2000 Crowe Horwath Sydney Australia ABN 97 895 683 573 Member Crowe Horwath International Tel +61 2 9262 2155 Fax +61 2 9262 2190 Audit and Assurance Services www.crowehorwath.com.au Level 15 1 O'Connell Street Sydney NSW 2000 Australia Tel +61 2 9262 2155 Fax +61 2 9262 2190 www.crowehorwath.com.au Donaco International Limited Dear Board Members In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the Directors of Donaco International Limited. Donaco International Limited As lead audit partner for the audit of the financial report of Donaco International Limited for the financial year ended 30 June 2018, I declare that to the best of my knowledge and belief, that there In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following have been no contraventions of: declaration of independence to the Directors of Donaco International Limited. the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (i) As lead audit partner for the audit of the financial report of Donaco International Limited for the financial year ended 30 June 2018, I declare that to the best of my knowledge and belief, that there (ii) any applicable code of professional conduct in relation to the audit. have been no contraventions of: Yours sincerely (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. CROWE HORWATH SYDNEY Yours sincerely CROWE HORWATH SYDNEY SUWARTI ASMONO Partner SUWARTI ASMONO Partner Crowe Horwath Sydney is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation. Liability limited other than for the acts or omissions of financial services licensees. 28 Crowe Horwath Sydney is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and 22 22 independent legal entity. Liability limited by a scheme approved under Professional Standards Legislation. Liability limited other than for the acts or omissions of financial services licensees. F I N A N C I A L S 29 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORT 2018 FINANCIALS for the year ended 30 June 2018 Statement of Profit or Loss and Other Note 18. Current Liabilities – Borrowings 57 Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes To The Financial Statements Note 1. Significant Accounting Policies Note 2. Critical Accounting Judgements, Estimates and Assumptions Note 3. Operating Segments Note 4. Revenue Note 5. Other Income/(Expense) Note 6. Expenses Note 7. Income Tax Expense Note 8. Current Assets – Cash and Cash Equivalents Note 9. Current Assets – Trade and Other Receivables Note 10. Current Assets – Inventories Note 11. Current Assets – Prepaid Construction Costs Note 12. Current Assets – Other Note 13. Non-current Assets – Property, Plant And Equipment Note 14. Non-current Assets – Intangibles Note 15. Non-current Assets – Construction In Progress Note 16. Non-current Assets – Other Note 17. Current Liabilities – Trade and Other Payables 30 32 33 34 35 35 43 45 48 49 49 50 51 51 51 52 53 53 54 56 57 57 Note 19. Current Liabilities – Financial Liabilities Note 20. Current Liabilities – Income Tax Note 21. Current Liabilities – Employee Benefits Note 22. Non-current Liabilities – Borrowings Note 23. Non-current Liabilities – Employee Benefits Note 24. Equity – Issued Capital Note 25. Equity – Reserves Note 26. Equity – Retained Profits Note 27. Equity – Dividends Note 28. Financial Instruments Note 29. Key Management Personnel Disclosures Note 30. Remuneration of Auditors Note 31. Commitments Note 32. Related Party Transactions Note 33. Parent Entity Information Note 34. Interests in Subsidiaries Note 35. Events after the Reporting Period Note 36. Net Cash Flows from Operating Activities Note 37. Earnings Per Share Note 38. Share-based Payments Note 39. Contingent Liabilities 58 59 59 59 59 60 61 62 62 62 65 66 66 67 68 69 70 71 72 72 74 30 30 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORT 31 31 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 20182018 FINANCIALS for the year ended 30 June 2018 Statement of Profit or Loss and Other Note 18. Current Liabilities – Borrowings 57 Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes To The Financial Statements Note 1. Significant Accounting Policies Note 2. Critical Accounting Judgements, Estimates and Assumptions Note 3. Operating Segments Note 4. Revenue Note 5. Other Income/(Expense) Note 6. Expenses Note 7. Income Tax Expense Note 8. Current Assets – Cash and Cash Equivalents Note 9. Current Assets – Trade and Other Receivables Note 10. Current Assets – Inventories Note 11. Current Assets – Prepaid Construction Costs Note 12. Current Assets – Other Note 13. Non-current Assets – Property, Plant And Equipment Note 14. Non-current Assets – Intangibles Note 15. Non-current Assets – Construction In Progress Note 16. Non-current Assets – Other Note 17. Current Liabilities – Trade and Other Payables 30 32 33 34 35 35 43 45 48 49 49 50 51 51 51 52 53 53 54 56 57 57 Note 19. Current Liabilities – Financial Liabilities Note 20. Current Liabilities – Income Tax Note 21. Current Liabilities – Employee Benefits Note 22. Non-current Liabilities – Borrowings Note 23. Non-current Liabilities – Employee Benefits Note 24. Equity – Issued Capital Note 25. Equity – Reserves Note 26. Equity – Retained Profits Note 27. Equity – Dividends Note 28. Financial Instruments Note 29. Key Management Personnel Disclosures Note 30. Remuneration of Auditors Note 31. Commitments Note 32. Related Party Transactions Note 33. Parent Entity Information Note 34. Interests in Subsidiaries Note 35. Events after the Reporting Period Note 36. Net Cash Flows from Operating Activities Note 37. Earnings Per Share Note 38. Share-based Payments Note 39. Contingent Liabilities 58 59 59 59 59 60 61 62 62 62 65 66 66 67 68 69 70 71 72 72 74 30 30 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORT 31 31 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018STATEMENT OF PROFIT OR LOS S AND OTH ER COMP REHEN SIVE INC OME for the year ended 30 June 2018 Revenue from continuing operations Other income/(expense) Total income Expenses Food and beverages Employee benefits expense DSV management fee Depreciation and amortisation expense Impairment of intangible asset Legal and compliance Marketing and promotions Professional and consultants Property costs Telecommunications and hosting Gaming costs Other expenses Finance costs Total expenses Note 4 5 CONSOLIDATED 2018 $ 2017 $ 92,606,141 136,443,789 1,022,878 (4,867) 93,629,019 136,438,922 (5,112,751) (6,018,409) (22,902,710) (22,891,204) - (19,045,688) 6 14 (9,981,320) (10,129,299) (143,860,973) - (829,360) (6,756,555) (1,924,893) (6,114,966) (497,219) (1,488,052) (4,491,571) (680,734) (4,618,018) (1,338,743) (5,952,199) (382,062) (2,970,244) (7,127,174) (10,255,853) (20,559,623) (214,216,223) (101,713,397) (Loss)/profit before income tax expense from continuing operations (120,587,204) 34,725,525 Income tax expense 7 (3,661,667) (3,536,476) (Loss)/profit after income tax expense for the year (124,248,871) 31,189,049 Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation 13,600,431 (15,422,693) Other comprehensive income/(loss) for the year, net of tax 13,600,431 (15,422,693) Total comprehensive (loss)/income for the year (110,648,440) 15,766,356 (Loss)/profit for the year is attributable to: Non-controlling interest Owners of Donaco International Limited Total comprehensive (loss)/income for the year is attributable to: Non-controlling interest Owners of Donaco International Limited 261,944 (124,510,815) (124,248,871) 198,751 30,990,298 31,189,049 261,944 (110,910,384) (110,648,440) 198,751 15,567,605 15,766,356 The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 32 32 STATEMEN T OF PR OFIT O R LOS S AND OTH ER COMPREHENSIVE INCO ME (Loss)/earnings per share for (loss)/profit attributable to the owners of Donaco International Limited Basic earnings per share Diluted earnings per share for the year ended 30 June 2018 CONSOLIDATED Note 37 37 2018 Cents (15.03) (15.03) 2017 Cents 3.73 3.73 The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 3333 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORT STATEMENT OF PROFIT OR LOS S AND OTH ER COMP REHEN SIVE INC OME for the year ended 30 June 2018 Revenue from continuing operations Other income/(expense) Total income Expenses Food and beverages Employee benefits expense DSV management fee Depreciation and amortisation expense Impairment of intangible asset Legal and compliance Marketing and promotions Professional and consultants Property costs Telecommunications and hosting Gaming costs Other expenses Finance costs Total expenses Note 4 5 CONSOLIDATED 2018 $ 2017 $ 92,606,141 136,443,789 1,022,878 (4,867) 93,629,019 136,438,922 (5,112,751) (6,018,409) (22,902,710) (22,891,204) - (19,045,688) 6 14 (9,981,320) (10,129,299) (143,860,973) - (829,360) (6,756,555) (1,924,893) (6,114,966) (497,219) (1,488,052) (4,491,571) (680,734) (4,618,018) (1,338,743) (5,952,199) (382,062) (2,970,244) (7,127,174) (10,255,853) (20,559,623) (214,216,223) (101,713,397) (Loss)/profit before income tax expense from continuing operations (120,587,204) 34,725,525 Income tax expense 7 (3,661,667) (3,536,476) (Loss)/profit after income tax expense for the year (124,248,871) 31,189,049 Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation 13,600,431 (15,422,693) Other comprehensive income/(loss) for the year, net of tax 13,600,431 (15,422,693) Total comprehensive (loss)/income for the year (110,648,440) 15,766,356 (Loss)/profit for the year is attributable to: Non-controlling interest Owners of Donaco International Limited Total comprehensive (loss)/income for the year is attributable to: Non-controlling interest Owners of Donaco International Limited 261,944 (124,510,815) (124,248,871) 198,751 30,990,298 31,189,049 261,944 (110,910,384) (110,648,440) 198,751 15,567,605 15,766,356 The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 32 32 STATEMEN T OF PR OFIT O R LOS S AND OTH ER COMPREHENSIVE INCO ME (Loss)/earnings per share for (loss)/profit attributable to the owners of Donaco International Limited Basic earnings per share Diluted earnings per share for the year ended 30 June 2018 CONSOLIDATED Note 37 37 2018 Cents (15.03) (15.03) 2017 Cents 3.73 3.73 The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 3333 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORT STATEMENT OF FI NAN CIAL PO SIT ION As at 30 June 2018 STATEMEN T O F CHAN GES IN EQ UITY for the year ended 30 June 2018 ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Prepaid construction costs Other current assets Total current assets Non-current assets Property, plant and equipment Intangibles (including licences) Construction in progress Other non-current assets Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Borrowings Financial liabilities Income tax Employee benefits Non-current liabilities Borrowings – non current Employee benefits – non current Total non-current liabilities Total liabilities Net assets EQUITY Issued capital Reserves Retained profits CONSOLIDATED Note 2018 $ 2017 $ ISSUED CAPITAL RESERVES RETAINED PROFITS NON– CONTROLLING INTEREST CON SOL IDATED $ $ $ $ TOTAL EQUITY $ Balance at 1 July 2016 360,968,368 24,574,755 92,630,958 1,136,345 479,310,426 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 47,075,589 10,545,030 1,397,344 1,811,360 451,329 66,022,749 20,402,807 893,474 341,184 432,851 61,280,652 88,093,065 162,172,238 161,344,373 254,064,321 389,140,234 591,787 4,018 595,885 3,895 416,832,364 551,084,387 478,113,016 639,177,452 34,652,015 24,594,915 - 2,008,402 1,261,325 41,788,107 54,908,598 681,507 1,127,767 981,006 62,516,657 99,486,985 45,806,572 53,553,627 42,408 32,669 45,848,980 53,586,296 108,365,637 153,073,281 369,747,379 486,104,171 358,656,945 359,968,884 22,540,464 9,425,778 (13,250,020) 115,374,413 Profit after income tax expense for the year Other comprehensive loss for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Acquisition of shares – – 30,990,298 198,751 31,189,049 – (15,422,693) – – (15,422,693) – (15,422,693) 30,990,298 198,751 15,766,356 for Employee Share Trust (999,484) Dividends paid Share–based payments – – – – – (8,246,843) 273,716 – – – – (999,484) (8,246,843) 273,716 Balance at 30 June 2017 359,968,884 9,425,778 115,374,413 1,335,096 486,104,171 Balance at 1 July 2017 359,968,884 9,425,778 115,374,413 1,335,096 486,104,171 Loss after income tax expense for the year Other comprehensive income for the year, net of tax – – (124,510,815) 261,944 (124,248,871) – 13,600,431 – – 13,600,431 Total comprehensive loss for the year – 13,600,431 (124,510,815) 261,944 (110,648,440) Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs – – Shares issued to employees 766,014 (766,014) Share buyback Dividend paid Share–based payments (2,077,953) – – – – – (4,113,618) – – 280,269 – 202,950 202,950 – – – – – (2,077,953) (4,113,618) 280,269 Balance at 30 June 2018 358,656,945 22,540,464 (13,250,020) 1,799,990 369,747,379 The above statement of changes in equity should be read in conjunction with the accompanying notes. Equity attributable to the owners of Donaco International Limited 367,947,389 484,769,075 Non-controlling interest Total equity 1,799,990 1,335,096 369,747,379 486,104,171 The above statement of financial position should be read in conjunction with the accompanying notes. 34 34 3535 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORT STATEMENT OF FI NAN CIAL PO SIT ION As at 30 June 2018 STATEMEN T O F CHAN GES IN EQ UITY for the year ended 30 June 2018 ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Prepaid construction costs Other current assets Total current assets Non-current assets Property, plant and equipment Intangibles (including licences) Construction in progress Other non-current assets Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Borrowings Financial liabilities Income tax Employee benefits Non-current liabilities Borrowings – non current Employee benefits – non current Total non-current liabilities Total liabilities Net assets EQUITY Issued capital Reserves Retained profits CONSOLIDATED Note 2018 $ 2017 $ ISSUED CAPITAL RESERVES RETAINED PROFITS NON– CONTROLLING INTEREST CON SOL IDATED $ $ $ $ TOTAL EQUITY $ Balance at 1 July 2016 360,968,368 24,574,755 92,630,958 1,136,345 479,310,426 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 47,075,589 10,545,030 1,397,344 1,811,360 451,329 66,022,749 20,402,807 893,474 341,184 432,851 61,280,652 88,093,065 162,172,238 161,344,373 254,064,321 389,140,234 591,787 4,018 595,885 3,895 416,832,364 551,084,387 478,113,016 639,177,452 34,652,015 24,594,915 - 2,008,402 1,261,325 41,788,107 54,908,598 681,507 1,127,767 981,006 62,516,657 99,486,985 45,806,572 53,553,627 42,408 32,669 45,848,980 53,586,296 108,365,637 153,073,281 369,747,379 486,104,171 358,656,945 359,968,884 22,540,464 9,425,778 (13,250,020) 115,374,413 Profit after income tax expense for the year Other comprehensive loss for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Acquisition of shares – – 30,990,298 198,751 31,189,049 – (15,422,693) – – (15,422,693) – (15,422,693) 30,990,298 198,751 15,766,356 for Employee Share Trust (999,484) Dividends paid Share–based payments – – – – – (8,246,843) 273,716 – – – – (999,484) (8,246,843) 273,716 Balance at 30 June 2017 359,968,884 9,425,778 115,374,413 1,335,096 486,104,171 Balance at 1 July 2017 359,968,884 9,425,778 115,374,413 1,335,096 486,104,171 Loss after income tax expense for the year Other comprehensive income for the year, net of tax – – (124,510,815) 261,944 (124,248,871) – 13,600,431 – – 13,600,431 Total comprehensive loss for the year – 13,600,431 (124,510,815) 261,944 (110,648,440) Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs – – Shares issued to employees 766,014 (766,014) Share buyback Dividend paid Share–based payments (2,077,953) – – – – – (4,113,618) – – 280,269 – 202,950 202,950 – – – – – (2,077,953) (4,113,618) 280,269 Balance at 30 June 2018 358,656,945 22,540,464 (13,250,020) 1,799,990 369,747,379 The above statement of changes in equity should be read in conjunction with the accompanying notes. Equity attributable to the owners of Donaco International Limited 367,947,389 484,769,075 Non-controlling interest Total equity 1,799,990 1,335,096 369,747,379 486,104,171 The above statement of financial position should be read in conjunction with the accompanying notes. 34 34 3535 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORT STATEMENT OF CASH FLOWS for the year ended 30 June 2018 CASH FLOW FROM OPERATING AC TIVIT IE S Receipts from customers Payments to suppliers and employees Interest received Interest and other finance costs paid Government levies, gaming taxes and GST Note CONSOLIDATED 2018 $ 2017 $ 102,284,185 151,208,268 (49,947,841) (78,700,882) 52,336,344 72,507,386 93,786 100,011 (7,829,780) (9,968,146) (11,878,988) (13,373,011) Net cash flows from operating activities 36(a) 34,632,204 47,355,398 CASH FLOW FROM INVESTING AC T IV IT IE S Payments for property, plant and equipment Net cash flows from investing activities CASH FLOW FROM FINA NCING AC TIVIT IE S Repayment of borrowings Drawdown of borrowings Payments of dividends Payments of acquisition of employee shares Payments for share buyback Net cash flows from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents, beginning of the financial year Effects of exchange rate changes on cash and cash equivalents (5,668,289) (5,668,289) (5,727,117) (5,727,117) 36(b) (44,326,139) (69,817,576) – 25,603,177 (4,113,618) (8,246,843) – (999,484) (2,077,954) – (50,517,711) (53,460,726) (21,553,796) (11,832,445) 66,022,749 78,221,019 2,606,636 (365,825) Cash and cash equivalents at the end of the financial year 8 47,075,589 66,022,749 The above statement of cash flows should be read in conjunction with the accompanying notes. 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. N EW, REVI SED O R AMEN DI NG ACCOU N TIN G STAN DARD S AN D I NTE RPRETATIO NS ADO PTE D 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. The adoption of these Accounting Standards and Interpretations did not have any material impact on the financial performance or position of the consolidated entity. Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. BASI S OF PREPARATI ON These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the 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 the revaluation of financial assets and liabilities at fair value through profit or loss 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 where assumptions and estimates are significant to the financial statements, are disclosed in note 2. PAREN T E NTI TY IN FO RMATIO N 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 33. PRI NCI PLES O F CON SOLI DATION The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Donaco International Limited (‘company’ or ‘parent entity’) as at 30 June 2018 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 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. OPE RATIN G SEG MEN TS 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 36 36 3737 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018STATEMENT OF CASH FLOWS for the year ended 30 June 2018 CASH FLOW FROM OPERATING AC TIVIT IE S Receipts from customers Payments to suppliers and employees Interest received Interest and other finance costs paid Government levies, gaming taxes and GST Note CONSOLIDATED 2018 $ 2017 $ 102,284,185 151,208,268 (49,947,841) (78,700,882) 52,336,344 72,507,386 93,786 100,011 (7,829,780) (9,968,146) (11,878,988) (13,373,011) Net cash flows from operating activities 36(a) 34,632,204 47,355,398 CASH FLOW FROM INVESTING AC T IV IT IE S Payments for property, plant and equipment Net cash flows from investing activities CASH FLOW FROM FINA NCING AC TIVIT IE S Repayment of borrowings Drawdown of borrowings Payments of dividends Payments of acquisition of employee shares Payments for share buyback Net cash flows from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents, beginning of the financial year Effects of exchange rate changes on cash and cash equivalents (5,668,289) (5,668,289) (5,727,117) (5,727,117) 36(b) (44,326,139) (69,817,576) – 25,603,177 (4,113,618) (8,246,843) – (999,484) (2,077,954) – (50,517,711) (53,460,726) (21,553,796) (11,832,445) 66,022,749 78,221,019 2,606,636 (365,825) Cash and cash equivalents at the end of the financial year 8 47,075,589 66,022,749 The above statement of cash flows should be read in conjunction with the accompanying notes. 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. N EW, REVI SED O R AMEN DI NG ACCOU N TIN G STAN DARD S AN D I NTE RPRETATIO NS ADO PTE D 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. The adoption of these Accounting Standards and Interpretations did not have any material impact on the financial performance or position of the consolidated entity. Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. BASI S OF PREPARATI ON These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the 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 the revaluation of financial assets and liabilities at fair value through profit or loss 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 where assumptions and estimates are significant to the financial statements, are disclosed in note 2. PAREN T E NTI TY IN FO RMATIO N 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 33. PRI NCI PLES O F CON SOLI DATION The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Donaco International Limited (‘company’ or ‘parent entity’) as at 30 June 2018 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 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. OPE RATIN G SEG MEN TS 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 36 36 3737 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018Foreign currency transactions REVEN UE RECOG N ITI ON NOTE 1 . SIGN IFICA NT ACCOU NTING PO LI CI ES CONT I NU ED Decision Makers (‘CODM’). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. FOREIGN CURRENCY TRANSLAT ION The financial statements are presented in Australian dollars, which is Donaco International Limited’s functional and presentation currency. DNA Star Vegas Co Ltd, a subsidiary within the group, has casino and hotel operations in Cambodia. Its functional currency is Thai baht. Donaco Singapore Pte Ltd has an interest in the Lao Cai International Hotel Joint Venture Company which operates a casino and hotel in Vietnam. The functional currency of the Joint Venture Company is Vietnamese Dong. 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 rates at the dates of the transactions, for the period. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity. The subsidiaries of Donaco that operate in the aforementioned foreign countries are consolidated into the Hong Kong group (Star Vegas Group) and the Singapore Group (Aristo Group). At this level, the presentation currency is US dollar. Goodwill, casino licence and fair value adjustments arising from the acquisition of a foreign operation are treated as assets and liabilities of the foreign operations and translated at the closing rate. Subsequently, these consolidated groups are consolidated with the Australian operations and converted to Australian dollars. The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of. 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 is recognised on a net basis after commission and profit sharing is paid to junket operators. Revenue from slot machines represents the amount received over the exchange counter less the amount returned to customers and profit-sharing paid. Sale of goods The consolidated entity sale of goods consist of food and beverages sales. Revenue from the sale of goods is recognised at the point of sale, when a group entity sells a product to the customer. Rendering of services Revenue from the provision of accommodation and hospitality 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. I NCOME 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 the 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 be applied 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 at 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. 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 classified as current when: it is either expected to be realised or intended to be sold or consumed in the consolidated entity’s 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 classified as current when: it is either expected to be settled in the consolidated entity’s 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. 38 38 3939 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018Foreign currency transactions REVEN UE RECOG N ITI ON NOTE 1 . SIGN IFICA NT ACCOU NTING PO LI CI ES CONT I NU ED Decision Makers (‘CODM’). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. FOREIGN CURRENCY TRANSLAT ION The financial statements are presented in Australian dollars, which is Donaco International Limited’s functional and presentation currency. DNA Star Vegas Co Ltd, a subsidiary within the group, has casino and hotel operations in Cambodia. Its functional currency is Thai baht. Donaco Singapore Pte Ltd has an interest in the Lao Cai International Hotel Joint Venture Company which operates a casino and hotel in Vietnam. The functional currency of the Joint Venture Company is Vietnamese Dong. 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 rates at the dates of the transactions, for the period. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity. The subsidiaries of Donaco that operate in the aforementioned foreign countries are consolidated into the Hong Kong group (Star Vegas Group) and the Singapore Group (Aristo Group). At this level, the presentation currency is US dollar. Goodwill, casino licence and fair value adjustments arising from the acquisition of a foreign operation are treated as assets and liabilities of the foreign operations and translated at the closing rate. Subsequently, these consolidated groups are consolidated with the Australian operations and converted to Australian dollars. The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of. 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 is recognised on a net basis after commission and profit sharing is paid to junket operators. Revenue from slot machines represents the amount received over the exchange counter less the amount returned to customers and profit-sharing paid. Sale of goods The consolidated entity sale of goods consist of food and beverages sales. Revenue from the sale of goods is recognised at the point of sale, when a group entity sells a product to the customer. Rendering of services Revenue from the provision of accommodation and hospitality 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. I NCOME 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 the 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 be applied 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 at 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. 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 classified as current when: it is either expected to be realised or intended to be sold or consumed in the consolidated entity’s 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 classified as current when: it is either expected to be settled in the consolidated entity’s 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. 38 38 3939 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTE 1 . SIGN IFICA NT ACCOU NTING PO LI CI ES CONT I NU ED C ASH AND CASH EQUIVALENT S 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. T RADE AND OT HER R ECEIVABL ES 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 realizable value and all losses of inventories are recognised as an expense in the period of 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. PRO PERTY, PLA NT AN D E QU IP M EN T 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 Leasehold improvements Machinery and equipment Motor vehicles Office equipment and other Furniture and fittings Consumables 25–50 years 2–5 years 5–15 years 5–6 years 3–8 years 3–8 years 1–8 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. LE AS ES 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 profit or loss and other comprehensive income, on a straight-line basis over the term of the lease. INTA NGIBL E A SSE TS Land rights The intangible asset 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 licencing 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 licencing date. At the expiry of the land term it is expected, that the relevant state body will consider an application for extension. Casino license The group consider casino licenses to be intangible assets with indefinite useful lives. Accordingly, they are not amortised and are 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 casino licenses are recognised in the profit or loss. 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. PREPAI D CON STRU CTI ON COS TS 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. I MPAI RMEN T OF NO N- FI NANC IAL ASSET S 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 OTH ER 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. BORROWI N GS 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. WARRANTS Warrants issued as part of financing arrangements, which may be net settled in cash or through the issue of shares of the parent entity are recognised as derivative financial liabilities measured at fair value through profit or loss. The fair value of the warrants is determined using the Black-Scholes model. At each reporting date the warrants are revalued to fair value with any difference recognised in the profit or loss. As the warrants were issued in connection with a loan facility, on initial recognition the fair value of the related loan facility is calculated as the difference between the proceeds and the fair value of the warrants. The difference between the fair value of the loan facility and the proceeds is then amortised over the term of the loan using the effective interest rate method. FI NAN CE 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. 40 40 4141 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTE 1 . SIGN IFICA NT ACCOU NTING PO LI CI ES CONT I NU ED C ASH AND CASH EQUIVALENT S 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. T RADE AND OT HER R ECEIVABL ES 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 realizable value and all losses of inventories are recognised as an expense in the period of 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. PRO PERTY, PLA NT AN D E QU IP M EN T 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 Leasehold improvements Machinery and equipment Motor vehicles Office equipment and other Furniture and fittings Consumables 25–50 years 2–5 years 5–15 years 5–6 years 3–8 years 3–8 years 1–8 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. LE AS ES 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 profit or loss and other comprehensive income, on a straight-line basis over the term of the lease. INTA NGIBL E A SSE TS Land rights The intangible asset 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 licencing 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 licencing date. At the expiry of the land term it is expected, that the relevant state body will consider an application for extension. Casino license The group consider casino licenses to be intangible assets with indefinite useful lives. Accordingly, they are not amortised and are 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 casino licenses are recognised in the profit or loss. 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. PREPAI D CON STRU CTI ON COS TS 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. I MPAI RMEN T OF NO N- FI NANC IAL ASSET S 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 OTH ER 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. BORROWI N GS 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. WARRANTS Warrants issued as part of financing arrangements, which may be net settled in cash or through the issue of shares of the parent entity are recognised as derivative financial liabilities measured at fair value through profit or loss. The fair value of the warrants is determined using the Black-Scholes model. At each reporting date the warrants are revalued to fair value with any difference recognised in the profit or loss. As the warrants were issued in connection with a loan facility, on initial recognition the fair value of the related loan facility is calculated as the difference between the proceeds and the fair value of the warrants. The difference between the fair value of the loan facility and the proceeds is then amortised over the term of the loan using the effective interest rate method. FI NAN CE 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. 40 40 4141 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTE 1 . SIGN IFICA NT ACCOU NTING PO LI CI ES CONT I NU ED EMPLOYEE BENEFITS Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be wholly settled within 12 months of the reporting date 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 are 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 corporate 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 Equity-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services. The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using an amended Black-Scholes Merton model that takes into account the exercise price, the term of the option, an exercise price multiple, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the consolidated entity receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied. If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification. If the non-vesting condition is within the control of the consolidated entity or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the consolidated entity or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification. FA IR VALUE M EA SUREM E NT 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. 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. The financial instruments recognised at fair value in the consolidated statement of financial position have been analysed and classified using a fair value hierarchy reflecting the significance of the inputs used in making the measurements. The fair value hierarchy consist of the following levels: a. quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) b. inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (level 2) c. inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3). During the FY16 reporting period, the group issued warrants which are classified as derivative financial liabilities and which are measured at fair value through profit or loss. The warrants (as detailed in note 19) are classified as level 2 in the fair value hierarchy, as the value is based on an adjustment to quoted market prices. The warrants are measured using a Black-Scholes model. There were no transfers between the levels of the fair value hierarchy during either the current or previous reporting period. The directors consider that the carrying amount of all other financial assets and liabilities recorded in the financial statements approximate their fair value. I SSUE D 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. Where the consolidated entity purchases the company’s equity instruments, for example as the result of a share buy back or a share-based payment plan, the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the owners of Donaco International Limited as treasury shares until the shares are cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the owners of Donaco International Limited. D IVI DE ND S Provision is made for the amount of any dividend declared, determined or announced by the directors on or before the end of the financial year but not distributed at balance date. BUSI N ESS COM BI NATIO NS 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 the 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. 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 42 42 4343 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTE 1 . SIGN IFICA NT ACCOU NTING PO LI CI ES CONT I NU ED EMPLOYEE BENEFITS Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be wholly settled within 12 months of the reporting date 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 are 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 corporate 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 Equity-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services. The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using an amended Black-Scholes Merton model that takes into account the exercise price, the term of the option, an exercise price multiple, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the consolidated entity receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied. If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification. If the non-vesting condition is within the control of the consolidated entity or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the consolidated entity or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification. FA IR VALUE M EA SUREM E NT 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. 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. The financial instruments recognised at fair value in the consolidated statement of financial position have been analysed and classified using a fair value hierarchy reflecting the significance of the inputs used in making the measurements. The fair value hierarchy consist of the following levels: a. quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) b. inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (level 2) c. inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3). During the FY16 reporting period, the group issued warrants which are classified as derivative financial liabilities and which are measured at fair value through profit or loss. The warrants (as detailed in note 19) are classified as level 2 in the fair value hierarchy, as the value is based on an adjustment to quoted market prices. The warrants are measured using a Black-Scholes model. There were no transfers between the levels of the fair value hierarchy during either the current or previous reporting period. The directors consider that the carrying amount of all other financial assets and liabilities recorded in the financial statements approximate their fair value. I SSUE D 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. Where the consolidated entity purchases the company’s equity instruments, for example as the result of a share buy back or a share-based payment plan, the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the owners of Donaco International Limited as treasury shares until the shares are cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the owners of Donaco International Limited. D IVI DE ND S Provision is made for the amount of any dividend declared, determined or announced by the directors on or before the end of the financial year but not distributed at balance date. BUSI N ESS COM BI NATIO NS 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 the 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. 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 42 42 4343 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTE 1 . SIGN IFICA NT ACCOU NTING PO LI CI ES CONT I NU ED 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 (‘GS T ’ ) 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. Cash flows are presented gross of GST and similar taxes. 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 S TANDARDS AND INTERPRETATIONS NOT YET M A NDATORY OR EARLY ADOPTE D 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 2018. 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 AASB 9 Financial Instruments and applicable amendments, effective from 1 January 2018, address the classification, measurement and derecognition of financial assets and financial liabilities. 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. It has now also introduced revised rules around hedge accounting and impairment. The impairment model under the new standard requires the recognition of impairment provisions based on expected credit losses rather than only incurred credit losses. It applies to financial assets classified at amortised cost, debt instruments measured at fair value through other comprehensive income, contract assets under AASB 15 Revenue from Contracts with Customers, lease receivables, loan commitments and certain financial guarantee contracts. The consolidated entity is currently assessing the impact of the adoption of this standard and will adopt it from 1 July 2018. The standard will primarily result in the recognition of loss allowance for trade debtors; however the consolidated entity does not expect there to be a significant impact. AASB 15 Revenue from Contracts with Customers This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard provides a single standard for revenue recognition. The core principle of the standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard will require: contracts (either written, verbal or implied) to be identified, together with the separate performance obligations within the contract; determine the transaction price, adjusted for the time value of money excluding credit risk; allocation of the transaction price to the separate performance obligations on a basis of relative stand-alone selling price of each distinct good or service, or estimation approach if no distinct observable prices exist; and recognition of revenue when each performance obligation is satisfied. Credit risk will be presented separately as an expense rather than adjusted to revenue. For goods, the performance obligation would be satisfied when the customer obtains control of the goods. For services, the performance obligation is satisfied when the service has been provided, typically for promises to transfer services to customers. For performance obligations satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognised as the performance obligation is satisfied. Contracts with customers will be presented in an entity’s statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship between the entity’s performance and the customer’s payment. Sufficient quantitative and qualitative disclosure is required to enable users to understand the contracts with customers; the significant judgements made in applying the guidance to those contracts; and any assets recognised from the costs to obtain or fulfil a contract with a customer. The consolidated entity has assessed the impact of the adoption of this standard and will adopt it from 1 July 2018. Recognition of both gaming and non-gaming revenue under the previous requirements already reflects the concept of transfer of control of goods or services to customers (that is, revenue is recognised at the time that the performance obligation has been satisfied). The consolidated entity therefore does not expect any impact to the financial statements on adoption of this standard. AASB 16 Leases The new standard will be effective for annual periods beginning on or after 1 January 2019. Early application is permitted, provided the new revenue standard, AASB 15 Revenue from Contracts with Customers, has been applied, or is applied at the same date as AASB 16. AASB 16 will primarily affect the accounting by lessees and will result in the recognition of almost all leases on the balance sheet. The standard removes the current distinction between operating and financing leases and requires recognition of an asset (the right to use the leased item) and a financial liability to pay rentals for almost all lease contracts. The accounting by lessors, however, will not significantly change. The consolidated entity is currently assessing the impact of the adoption of this standard and will adopt it from 1 July 2019. The standard will primarily affect the accounting for the consolidated entity’s operating leases. As at the reporting date, the consolidated entity has non-cancellable operating lease commitments of $8,550,607, as disclosed in note 31. This relates entirely to the lease for the casino premises for a 50-year term. Based on preliminary assessment, the current arrangement will meet the definition of lease under AASB 16. The consolidated entity will recognise a right-of-use asset and a corresponding liability in respect of the property lease, and intends to apply the simplified transition approach and will not restate the comparative amounts for the year prior to adoption. IFRS 2 – Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2) This standard amends IFRS 2 Share-based Payment, clarifying how to account for certain types of share-based payment transactions. The amendments provide requirements on the accounting for the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments and a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. Adoption of IFRS 2 is not mandatory until the annual period beginning on or after 1 January 2018 and the consolidated entity is assessing the impact of its adoption, however it does not expect there to be a material impact. N EW AN D AM END ED STANDARDS ADOPTED BY TH E G ROU P AASB 2016-2 Amendments to Australian Accounting Standards – Disclosure Initiative Amendments to AASB 107 This standard requires entities to explain changes in their liabilities from financing activities. This includes changes arising from cash flows (for example, drawdowns and repayments of borrowings) and non-cash changes such as acquisitions, disposals, accretion of interest and unrealised exchange differences. The adoption of this amendment has no significant impact on the consolidated entity’s financial statements. NOTE 2. CRITICAL ACCOU NT IN G JUDGEMENTS, ESTIMATE S AN D 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. SH ARE-BASE D PAYM ENT TRANSACTIONS The consolidated entity measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. 44 44 4545 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTE 1 . SIGN IFICA NT ACCOU NTING PO LI CI ES CONT I NU ED 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 (‘GS T ’ ) 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. Cash flows are presented gross of GST and similar taxes. 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 S TANDARDS AND INTERPRETATIONS NOT YET M A NDATORY OR EARLY ADOPTE D 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 2018. 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 AASB 9 Financial Instruments and applicable amendments, effective from 1 January 2018, address the classification, measurement and derecognition of financial assets and financial liabilities. 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. It has now also introduced revised rules around hedge accounting and impairment. The impairment model under the new standard requires the recognition of impairment provisions based on expected credit losses rather than only incurred credit losses. It applies to financial assets classified at amortised cost, debt instruments measured at fair value through other comprehensive income, contract assets under AASB 15 Revenue from Contracts with Customers, lease receivables, loan commitments and certain financial guarantee contracts. The consolidated entity is currently assessing the impact of the adoption of this standard and will adopt it from 1 July 2018. The standard will primarily result in the recognition of loss allowance for trade debtors; however the consolidated entity does not expect there to be a significant impact. AASB 15 Revenue from Contracts with Customers This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard provides a single standard for revenue recognition. The core principle of the standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard will require: contracts (either written, verbal or implied) to be identified, together with the separate performance obligations within the contract; determine the transaction price, adjusted for the time value of money excluding credit risk; allocation of the transaction price to the separate performance obligations on a basis of relative stand-alone selling price of each distinct good or service, or estimation approach if no distinct observable prices exist; and recognition of revenue when each performance obligation is satisfied. Credit risk will be presented separately as an expense rather than adjusted to revenue. For goods, the performance obligation would be satisfied when the customer obtains control of the goods. For services, the performance obligation is satisfied when the service has been provided, typically for promises to transfer services to customers. For performance obligations satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognised as the performance obligation is satisfied. Contracts with customers will be presented in an entity’s statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship between the entity’s performance and the customer’s payment. Sufficient quantitative and qualitative disclosure is required to enable users to understand the contracts with customers; the significant judgements made in applying the guidance to those contracts; and any assets recognised from the costs to obtain or fulfil a contract with a customer. The consolidated entity has assessed the impact of the adoption of this standard and will adopt it from 1 July 2018. Recognition of both gaming and non-gaming revenue under the previous requirements already reflects the concept of transfer of control of goods or services to customers (that is, revenue is recognised at the time that the performance obligation has been satisfied). The consolidated entity therefore does not expect any impact to the financial statements on adoption of this standard. AASB 16 Leases The new standard will be effective for annual periods beginning on or after 1 January 2019. Early application is permitted, provided the new revenue standard, AASB 15 Revenue from Contracts with Customers, has been applied, or is applied at the same date as AASB 16. AASB 16 will primarily affect the accounting by lessees and will result in the recognition of almost all leases on the balance sheet. The standard removes the current distinction between operating and financing leases and requires recognition of an asset (the right to use the leased item) and a financial liability to pay rentals for almost all lease contracts. The accounting by lessors, however, will not significantly change. The consolidated entity is currently assessing the impact of the adoption of this standard and will adopt it from 1 July 2019. The standard will primarily affect the accounting for the consolidated entity’s operating leases. As at the reporting date, the consolidated entity has non-cancellable operating lease commitments of $8,550,607, as disclosed in note 31. This relates entirely to the lease for the casino premises for a 50-year term. Based on preliminary assessment, the current arrangement will meet the definition of lease under AASB 16. The consolidated entity will recognise a right-of-use asset and a corresponding liability in respect of the property lease, and intends to apply the simplified transition approach and will not restate the comparative amounts for the year prior to adoption. IFRS 2 – Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2) This standard amends IFRS 2 Share-based Payment, clarifying how to account for certain types of share-based payment transactions. The amendments provide requirements on the accounting for the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments and a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. Adoption of IFRS 2 is not mandatory until the annual period beginning on or after 1 January 2018 and the consolidated entity is assessing the impact of its adoption, however it does not expect there to be a material impact. N EW AN D AM END ED STANDARDS ADOPTED BY TH E G ROU P AASB 2016-2 Amendments to Australian Accounting Standards – Disclosure Initiative Amendments to AASB 107 This standard requires entities to explain changes in their liabilities from financing activities. This includes changes arising from cash flows (for example, drawdowns and repayments of borrowings) and non-cash changes such as acquisitions, disposals, accretion of interest and unrealised exchange differences. The adoption of this amendment has no significant impact on the consolidated entity’s financial statements. NOTE 2. CRITICAL ACCOU NT IN G JUDGEMENTS, ESTIMATE S AN D 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. SH ARE-BASE D PAYM ENT TRANSACTIONS The consolidated entity measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. 44 44 4545 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018INCOME TA X NOTE 3. OPERATING SEGMENTS There is no aggregation of operating segments. I DEN TI FICATI ON OF RE PORTABLE OPE RATIN G SEG MEN TS The consolidated entity is organised into three operating segments: casino operations in Vietnam, casino operations in Cambodia and corporate 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. The consolidated entity is domiciled in Australia and operates predominantly in six countries: Australia, Cambodia, Vietnam, Singapore, Malaysia and Hong Kong. Casino operations are segmented geographically between casino operations in Vietnam and Cambodia. The CODM reviews EBITDA. 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 a monthly basis. TYPES OF PRO DU CTS AN D SERVI CE S The principal products and services of each of these operating segments are as follows: Casino Operations – Vietnam Comprises the Aristo International Hotel operating in Vietnam. These operations include hotel accommodation and gaming and leisure facilities. Casino Operations – Cambodia Comprises the Star Vegas Resort and Club, operating in Cambodia. These operations include hotel accommodation and gaming and leisure facilities. Corporate Operations Comprises of the development and implementation of corporate strategy, commercial negotiations, corporate finance, treasury, management accounting, corporate governance and investor relations functions. I NTERSE GM ENT TRANSACTI ON S Intersegment transactions were made at market rates. Intersegment transactions are eliminated on consolidation. NOTE 2 . CRITICA L ACCOU NTING JUD GE MENTS, ESTIMATES A ND A SS UMPTIO NS CONT I NU ED The fair value of options is determined by using an amended Black-Scholes Merton model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity- settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. The value of shares issued to employees is based on the market value of shares traded on the ASX at the time of issue. The consolidated entity is subject to income taxes in the jurisdictions in which it operates, including Cambodia, Vietnam and Hong Kong. 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. ESTIM ATION OF USEFUL LIVE S OF A S S ET S WA RRA NTS The consolidated entity determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down. The casino licence is stated at cost less impairment losses, if any. The licence issued by the Royal Government of Cambodia is renewable annually and deemed to be with indefinite useful life, and therefore should not be amortised. Its useful life is reviewed at each reporting period to determine whether events and circumstances continue to exist to support indefinite useful life assessment. Impairment testing by comparing its recoverable amount with its carrying amount is performed annually. In the event that the expected future economic benefits are no longer probable of being recovered, the licences are written down to their recoverable amount. GOODWILL AND OTHER INDEFINIT E LIF E INTANGI BLE A SSETS 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 the higher of value-in-use calculations and fair value less costs of disposal. 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. The consolidated entity measures the cost of warrants issued by the reference to the fair value of the equity instruments at the date at which they are granted. The fair value of warrants is determined by using an amended Black-Scholes Merton model taking into account the terms and conditions upon which the instruments were granted. EM PLOYEE SH A RE TRU ST A ND O PT IO N T RU ST The consolidated entity has engaged an external unrelated third party to form trusts to administer the group’s employee share schemes. The consolidated entity has no ownership interest in the trusts and the trusts are not consolidated as they are not controlled by the consolidated entity. In determining whether or not the consolidated entity had control over the trusts, management considered the trust’s status as an independent trust with an independent trustee, which holds the assets for the benefit of the employees rather than the consolidated entity. IM PA IRM ENT O F TRA DE A ND OT HE R REC EI VABLE S The consolidated entity reviews the collectability of trade receivables 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 judgement is required to determine if a receivable amount is impaired, based on indicators such as 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). The amount of the impairment allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows. 46 46 4747 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018INCOME TA X NOTE 3. OPERATING SEGMENTS There is no aggregation of operating segments. I DEN TI FICATI ON OF RE PORTABLE OPE RATIN G SEG MEN TS The consolidated entity is organised into three operating segments: casino operations in Vietnam, casino operations in Cambodia and corporate 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. The consolidated entity is domiciled in Australia and operates predominantly in six countries: Australia, Cambodia, Vietnam, Singapore, Malaysia and Hong Kong. Casino operations are segmented geographically between casino operations in Vietnam and Cambodia. The CODM reviews EBITDA. 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 a monthly basis. TYPES OF PRO DU CTS AN D SERVI CE S The principal products and services of each of these operating segments are as follows: Casino Operations – Vietnam Comprises the Aristo International Hotel operating in Vietnam. These operations include hotel accommodation and gaming and leisure facilities. Casino Operations – Cambodia Comprises the Star Vegas Resort and Club, operating in Cambodia. These operations include hotel accommodation and gaming and leisure facilities. Corporate Operations Comprises of the development and implementation of corporate strategy, commercial negotiations, corporate finance, treasury, management accounting, corporate governance and investor relations functions. I NTERSE GM ENT TRANSACTI ON S Intersegment transactions were made at market rates. Intersegment transactions are eliminated on consolidation. NOTE 2 . CRITICA L ACCOU NTING JUD GE MENTS, ESTIMATES A ND A SS UMPTIO NS CONT I NU ED The fair value of options is determined by using an amended Black-Scholes Merton model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity- settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. The value of shares issued to employees is based on the market value of shares traded on the ASX at the time of issue. The consolidated entity is subject to income taxes in the jurisdictions in which it operates, including Cambodia, Vietnam and Hong Kong. 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. ESTIM ATION OF USEFUL LIVE S OF A S S ET S WA RRA NTS The consolidated entity determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down. The casino licence is stated at cost less impairment losses, if any. The licence issued by the Royal Government of Cambodia is renewable annually and deemed to be with indefinite useful life, and therefore should not be amortised. Its useful life is reviewed at each reporting period to determine whether events and circumstances continue to exist to support indefinite useful life assessment. Impairment testing by comparing its recoverable amount with its carrying amount is performed annually. In the event that the expected future economic benefits are no longer probable of being recovered, the licences are written down to their recoverable amount. GOODWILL AND OTHER INDEFINIT E LIF E INTANGI BLE A SSETS 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 the higher of value-in-use calculations and fair value less costs of disposal. 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. The consolidated entity measures the cost of warrants issued by the reference to the fair value of the equity instruments at the date at which they are granted. The fair value of warrants is determined by using an amended Black-Scholes Merton model taking into account the terms and conditions upon which the instruments were granted. EM PLOYEE SH A RE TRU ST A ND O PT IO N T RU ST The consolidated entity has engaged an external unrelated third party to form trusts to administer the group’s employee share schemes. The consolidated entity has no ownership interest in the trusts and the trusts are not consolidated as they are not controlled by the consolidated entity. In determining whether or not the consolidated entity had control over the trusts, management considered the trust’s status as an independent trust with an independent trustee, which holds the assets for the benefit of the employees rather than the consolidated entity. IM PA IRM ENT O F TRA DE A ND OT HE R REC EI VABLE S The consolidated entity reviews the collectability of trade receivables 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 judgement is required to determine if a receivable amount is impaired, based on indicators such as 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). The amount of the impairment allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows. 46 46 4747 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTE 3 . OP ERATIN G SEGMEN TS CONTINUED OPERATIN G SEGMENT INFORMATION F O R CO NT INUI NG O PE RATIO NS Consolidated – 2018 $ $ $ CASINO OPERATIONS VIETNAM CASINO OPERATIONS CAMBODIA CORPORATE OPERATIONS TOTAL $ Consolidated – 2017 Revenue CASINO OPERATIONS VIETNAM CASINO OPERATIONS CAMBODIA CORPORATE OPERATIONS $ $ $ TOTAL $ Revenue Sales to external customers Interest and other income Total revenue EBITDA Depreciation and amortisation Impairment of intangible asset Interest revenue Non-recurring items Net exchange gains Non-controlling interest Finance costs 25,905,756 66,606,184 199 92,512,139 57,851 – 36,151 94,002 25,963,607 66,606,184 36,350 92,606,141 14,532,245 38,670,344 (10,808,527) 42,394,062 (4,719,576) (5,047,359) (214,385) (9,981,320) – (143,860,973) – (143,860,973) 57,851 – 171,936 (261,944) (1,156,882) – – – – – 36,151 681,507 169,435 94,002 681,507 341,371 – (261,944) (9,098,971) (10,255,853) Profit/(loss) before income tax expense 8,623,630 (110,237,988) (19,234,790) (120,849,148) Income tax expense Loss after income tax expense attributable to the owners of Donaco International Limited (3,661,667) (124,510,815) Assets Segment assets Total assets Liabilities Segment liabilities Total liabilities 87,094,230 373,661,535 17,357,251 478,113,016 478,113,016 16,657,078 26,608,658 65,099,901 108,365,637 108,365,637 Sales to external customers 26,156,663 110,188,090 235 136,344,988 Interest Total revenue EBITDA 29,478 – 69,323 98,801 26,186,141 110,188,090 69,558 136,443,789 14,676,730 61,190,103 (10,546,321) 65,320,512 Depreciation and amortisation (5,294,247) (4,624,353) (210,698) (10,129,298) Interest revenue Non-recurring items Net exchange gains Non-controlling interest Finance costs 29,478 – (727,577) (198,751) (1,591,881) – – – – – 69,323 98,801 1,113,012 1,113,012 (390,302) (1,117,879) – (198,751) (18,967,742) (20,559,623) Profit before income tax expense 6,893,752 56,565,750 (28,932,728) 34,526,774 Income tax expense Profit after income tax expense attributable to the owners of Donaco International Limited (3,536,476) 30,990,298 Assets Segment assets Total assets Liabilities Segment liabilities Total liabilities Geographical Information Australia Vietnam Cambodia 90,565,671 505,688,488 42,923,293 639,177,452 639,177,452 41,265,145 25,039,076 86,769,060 153,073,281 153,073,281 SALES TO EXTERNAL CUSTOMERS GEOGRAPHICAL NON-CURRENT ASSETS 2018 $ 2017 $ 2018 $ 2017 $ 199 235 2,761,664 2,828,823 25,905,756 26,156,663 68,654,062 71,201,964 66,606,184 110,188,090 345,416,638 477,053,600 92,512,139 136,344,988 416,832,364 551,084,387 48 48 4949 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTE 3 . OP ERATIN G SEGMEN TS CONTINUED OPERATIN G SEGMENT INFORMATION F O R CO NT INUI NG O PE RATIO NS Consolidated – 2018 $ $ $ CASINO OPERATIONS VIETNAM CASINO OPERATIONS CAMBODIA CORPORATE OPERATIONS TOTAL $ Consolidated – 2017 Revenue CASINO OPERATIONS VIETNAM CASINO OPERATIONS CAMBODIA CORPORATE OPERATIONS $ $ $ TOTAL $ Revenue Sales to external customers Interest and other income Total revenue EBITDA Depreciation and amortisation Impairment of intangible asset Interest revenue Non-recurring items Net exchange gains Non-controlling interest Finance costs 25,905,756 66,606,184 199 92,512,139 57,851 – 36,151 94,002 25,963,607 66,606,184 36,350 92,606,141 14,532,245 38,670,344 (10,808,527) 42,394,062 (4,719,576) (5,047,359) (214,385) (9,981,320) – (143,860,973) – (143,860,973) 57,851 – 171,936 (261,944) (1,156,882) – – – – – 36,151 681,507 169,435 94,002 681,507 341,371 – (261,944) (9,098,971) (10,255,853) Profit/(loss) before income tax expense 8,623,630 (110,237,988) (19,234,790) (120,849,148) Income tax expense Loss after income tax expense attributable to the owners of Donaco International Limited (3,661,667) (124,510,815) Assets Segment assets Total assets Liabilities Segment liabilities Total liabilities 87,094,230 373,661,535 17,357,251 478,113,016 478,113,016 16,657,078 26,608,658 65,099,901 108,365,637 108,365,637 Sales to external customers 26,156,663 110,188,090 235 136,344,988 Interest Total revenue EBITDA 29,478 – 69,323 98,801 26,186,141 110,188,090 69,558 136,443,789 14,676,730 61,190,103 (10,546,321) 65,320,512 Depreciation and amortisation (5,294,247) (4,624,353) (210,698) (10,129,298) Interest revenue Non-recurring items Net exchange gains Non-controlling interest Finance costs 29,478 – (727,577) (198,751) (1,591,881) – – – – – 69,323 98,801 1,113,012 1,113,012 (390,302) (1,117,879) – (198,751) (18,967,742) (20,559,623) Profit before income tax expense 6,893,752 56,565,750 (28,932,728) 34,526,774 Income tax expense Profit after income tax expense attributable to the owners of Donaco International Limited (3,536,476) 30,990,298 Assets Segment assets Total assets Liabilities Segment liabilities Total liabilities Geographical Information Australia Vietnam Cambodia 90,565,671 505,688,488 42,923,293 639,177,452 639,177,452 41,265,145 25,039,076 86,769,060 153,073,281 153,073,281 SALES TO EXTERNAL CUSTOMERS GEOGRAPHICAL NON-CURRENT ASSETS 2018 $ 2017 $ 2018 $ 2017 $ 199 235 2,761,664 2,828,823 25,905,756 26,156,663 68,654,062 71,201,964 66,606,184 110,188,090 345,416,638 477,053,600 92,512,139 136,344,988 416,832,364 551,084,387 48 48 4949 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTE 3 . OP ERATIN G SEGMEN TS CONTINUED NOTE 5. OTHER INCOM E/(EX PENS E) Revenue and other income Total reportable segment revenues Other segment revenues Total revenue and other income MAJOR CUSTOMERS CONSOLIDATED 2018 $ 2017 $ 92,512,139 136,344,988 1,116,880 93,934 93,629,019 136,438,922 Net foreign exchange gain/(loss) Gain on derivative financial instrument at fair value through the profit and loss Other income/(expense) NOTE 6. EXPENSES Transactions involving a single external customer amounting to 10% or more of the consolidated entity’s revenue during the current and previous financial years are shown below. 2018 There was no single external customer that contributed 10% or more of the consolidated entity’s revenue during 2018. 2017 Profit/(loss) before income tax from continuing operations includes the following specific expenses: Casino operations – Cambodia 1 23 31,417,980 NUMBER OF CUSTOMERS % OF REVENUE $ NOTE 4 . REVENU E From continuing operations Sales revenue Casino – gaming revenue – non-gaming revenue Management fee from Star Paradise Corporate operations Interest Revenue from continuing operations CONSOLIDATED 2018 $ 2017 $ 74,514,551 120,217,587 17,997,389 13,788,384 – 199 94,002 2,338,782 235 98,801 92,606,141 136,443,789 Depreciation Land, buildings and structures Furniture and fittings Machinery and equipment Office equipment and other Motor vehicles Consumables Amortisation Land right Total depreciation and amortisation Operating lease payments Superannuation expense CONSOLIDATED 2018 $ 2017 $ 341,371 (1,117,879) 681,507 1,113,012 1,022,878 (4,867) CONSOLIDATED 2018 $ 2017 $ 4,216,434 4,115,611 305,076 478,683 1,897,605 1,936,041 1,970,317 1,519,440 248,188 303,678 1,341,602 1,773,683 9,979,222 10,127,136 2,098 2,163 9,981,320 10,129,299 353,355 267,906 Defined contribution superannuation expense 76,766 103,292 Impairment of assets Leasehold buildings Furniture and fittings Other equipment and other Casino licence – – – 143,860,973 160,011 22,348 16,426 – 143,860,973 198,785 50 50 5151 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTE 3 . OP ERATIN G SEGMEN TS CONTINUED NOTE 5. OTHER INCOM E/(EX PENS E) Revenue and other income Total reportable segment revenues Other segment revenues Total revenue and other income MAJOR CUSTOMERS CONSOLIDATED 2018 $ 2017 $ 92,512,139 136,344,988 1,116,880 93,934 93,629,019 136,438,922 Net foreign exchange gain/(loss) Gain on derivative financial instrument at fair value through the profit and loss Other income/(expense) NOTE 6. EXPENSES Transactions involving a single external customer amounting to 10% or more of the consolidated entity’s revenue during the current and previous financial years are shown below. 2018 There was no single external customer that contributed 10% or more of the consolidated entity’s revenue during 2018. 2017 Profit/(loss) before income tax from continuing operations includes the following specific expenses: Casino operations – Cambodia 1 23 31,417,980 NUMBER OF CUSTOMERS % OF REVENUE $ NOTE 4 . REVENU E From continuing operations Sales revenue Casino – gaming revenue – non-gaming revenue Management fee from Star Paradise Corporate operations Interest Revenue from continuing operations CONSOLIDATED 2018 $ 2017 $ 74,514,551 120,217,587 17,997,389 13,788,384 – 199 94,002 2,338,782 235 98,801 92,606,141 136,443,789 Depreciation Land, buildings and structures Furniture and fittings Machinery and equipment Office equipment and other Motor vehicles Consumables Amortisation Land right Total depreciation and amortisation Operating lease payments Superannuation expense CONSOLIDATED 2018 $ 2017 $ 341,371 (1,117,879) 681,507 1,113,012 1,022,878 (4,867) CONSOLIDATED 2018 $ 2017 $ 4,216,434 4,115,611 305,076 478,683 1,897,605 1,936,041 1,970,317 1,519,440 248,188 303,678 1,341,602 1,773,683 9,979,222 10,127,136 2,098 2,163 9,981,320 10,129,299 353,355 267,906 Defined contribution superannuation expense 76,766 103,292 Impairment of assets Leasehold buildings Furniture and fittings Other equipment and other Casino licence – – – 143,860,973 160,011 22,348 16,426 – 143,860,973 198,785 50 50 5151 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTE 7 . I NCOME TAX EXPENS E Income tax expense Current tax Aggregate income tax expense Income tax expense is attributable to: Profit from continuing operations Aggregate income tax expense CONSOLIDATED 2018 $ 2017 $ 3,661,667 3,536,476 3,661,667 3,536,476 3,661,667 3,536,476 3,661,667 3,536,476 Numerical reconciliation of income tax expense and tax at the statutory rate Profit before income tax expense from continuing operations (120,587,204) 34,725,525 Profits tax using Australian corporation tax at the statutory tax rate of 30% (2017: 30%) (36,176,162) 10,417,658 Tax effect of difference in overseas corporation tax at the statutory tax rate of 20% (2017: 20%) 11,524,310 (4,270,855) Tax effect amounts which are not deductible in calculating taxable income 30,560,656 1,254,958 Losses not brought to account Tax exempt profits from Cambodian operations (note (a)) Obligation payments in Cambodia (note (a)) Adjustment for investment spending in Vietnam Income tax expense (a) Income tax in profit or loss Income tax includes obligation payments totalling $2,620,496 (2017: $2,654,361) payable to the Ministry of Economy and Finance of Cambodia (‘MOEF’). As at the date of this report, the Casino Law in respect of casino taxes in Cambodia is yet to be introduced. The MOEF levies an Obligatory Tax Payment, payable on a monthly basis. The Obligatory Tax Payment is comprised of a fixed gaming tax and a fixed non–gaming tax payment. In addition, an annual casino licence fee of US$30,000 is paid. In respect of gaming activities, DNA Star Vegas Co., Ltd (DNA Star Vegas) has to pay the Obligatory Tax Payment which is a fixed gaming tax, and with the payment of this fixed gaming tax, DNA Star Vegas will be exempted from all categories of taxes on gaming activities including advance profits tax, minimum tax and advance tax on distribution of dividends. 2,941,532 5,333,402 (7,005,429) (11,313,150) 2,620,496 2,654,361 (803,736) (539,898) 3,661,667 3,536,476 As for non–gaming obligatory payment, it is considered as a composite of various other taxes such as salary tax, fringe benefit tax, withholding tax, value–added tax, tax on rental of moveable and unmoveable assets, minimum tax, advance profit tax, advertising tax and specific tax on entertainment services. Monthly payments for the obligatory payment are due on the first week of the following month. DNA Star Vegas has made the obligatory payment on timely manner. In the event of late payment within seven days from the due date, there will be a penalty of 2% on the late payment and interest of 2% per month. In addition, after 15 days when official government notice is issued to DNA Star Vegas for the late payment and additional penalty of 25% will be imposed. In the case where DNA Star Vegas does not comply with the above–mentioned requirements, the MOEF will not issue the casino licences to DNA Star Vegas in the successive years. Certain amendments to the Law of Investment (‘LOI’) and Law of Taxation (‘LOT’) were promulgated in March 2003. Under the amendments made to the LOT, distribution of dividends to non–residents will be subject to a withholding tax on the distribution of net of 20% corporate tax, at a rate of 14%, resulting in a net distribution tax of 31.2%. These amendments are not applicable to DNA Star Vegas as they will be regulated by the Casino Law which is yet to be enacted. (b) The parent entity has not brought to account tax losses with a tax effect of $1,612,835 (2017: $1,449,439). NOTE 8. CURRENT ASSETS – CA SH AND C AS H EQ UIVA LE NT S Cash on hand Cash at bank Cash in transit Short–term deposit CONSOLIDATED 2018 $ 2017 $ 28,360,270 21,300,658 16,130,913 41,835,143 840,465 1,203,118 1,743,941 1,683,830 47,075,589 66,022,749 NOTE 9. CURRENT ASSETS – TRADE AND OTHER RECEI VA BLES Trade receivables Other receivables Interest receivable on bank deposits Tax-related receivables I MPAI RMEN T OF RECEIVABLE S CONSOLIDATED 2018 $ 2017 $ 2,389,633 17,581,840 8,132,629 2,806,040 683 22,085 467 14,460 10,545,030 20,402,807 The consolidated entity has not recognised any loss in profit or loss in respect of impairment of receivables for the year ended 30 June 2018 (2017: $nil). NOTE 10. CURRENT ASSETS – INVENTORIES Food and beverage – at cost CONSOLIDATED 2018 $ 2017 $ 1,397,344 893,474 52 52 5353 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018 NOTE 7 . I NCOME TAX EXPENS E Income tax expense Current tax Aggregate income tax expense Income tax expense is attributable to: Profit from continuing operations Aggregate income tax expense CONSOLIDATED 2018 $ 2017 $ 3,661,667 3,536,476 3,661,667 3,536,476 3,661,667 3,536,476 3,661,667 3,536,476 Numerical reconciliation of income tax expense and tax at the statutory rate Profit before income tax expense from continuing operations (120,587,204) 34,725,525 Profits tax using Australian corporation tax at the statutory tax rate of 30% (2017: 30%) (36,176,162) 10,417,658 Tax effect of difference in overseas corporation tax at the statutory tax rate of 20% (2017: 20%) 11,524,310 (4,270,855) Tax effect amounts which are not deductible in calculating taxable income 30,560,656 1,254,958 Losses not brought to account Tax exempt profits from Cambodian operations (note (a)) Obligation payments in Cambodia (note (a)) Adjustment for investment spending in Vietnam Income tax expense (a) Income tax in profit or loss Income tax includes obligation payments totalling $2,620,496 (2017: $2,654,361) payable to the Ministry of Economy and Finance of Cambodia (‘MOEF’). As at the date of this report, the Casino Law in respect of casino taxes in Cambodia is yet to be introduced. The MOEF levies an Obligatory Tax Payment, payable on a monthly basis. The Obligatory Tax Payment is comprised of a fixed gaming tax and a fixed non–gaming tax payment. In addition, an annual casino licence fee of US$30,000 is paid. In respect of gaming activities, DNA Star Vegas Co., Ltd (DNA Star Vegas) has to pay the Obligatory Tax Payment which is a fixed gaming tax, and with the payment of this fixed gaming tax, DNA Star Vegas will be exempted from all categories of taxes on gaming activities including advance profits tax, minimum tax and advance tax on distribution of dividends. 2,941,532 5,333,402 (7,005,429) (11,313,150) 2,620,496 2,654,361 (803,736) (539,898) 3,661,667 3,536,476 As for non–gaming obligatory payment, it is considered as a composite of various other taxes such as salary tax, fringe benefit tax, withholding tax, value–added tax, tax on rental of moveable and unmoveable assets, minimum tax, advance profit tax, advertising tax and specific tax on entertainment services. Monthly payments for the obligatory payment are due on the first week of the following month. DNA Star Vegas has made the obligatory payment on timely manner. In the event of late payment within seven days from the due date, there will be a penalty of 2% on the late payment and interest of 2% per month. In addition, after 15 days when official government notice is issued to DNA Star Vegas for the late payment and additional penalty of 25% will be imposed. In the case where DNA Star Vegas does not comply with the above–mentioned requirements, the MOEF will not issue the casino licences to DNA Star Vegas in the successive years. Certain amendments to the Law of Investment (‘LOI’) and Law of Taxation (‘LOT’) were promulgated in March 2003. Under the amendments made to the LOT, distribution of dividends to non–residents will be subject to a withholding tax on the distribution of net of 20% corporate tax, at a rate of 14%, resulting in a net distribution tax of 31.2%. These amendments are not applicable to DNA Star Vegas as they will be regulated by the Casino Law which is yet to be enacted. (b) The parent entity has not brought to account tax losses with a tax effect of $1,612,835 (2017: $1,449,439). NOTE 8. CURRENT ASSETS – CA SH AND C AS H EQ UIVA LE NT S Cash on hand Cash at bank Cash in transit Short–term deposit CONSOLIDATED 2018 $ 2017 $ 28,360,270 21,300,658 16,130,913 41,835,143 840,465 1,203,118 1,743,941 1,683,830 47,075,589 66,022,749 NOTE 9. CURRENT ASSETS – TRADE AND OTHER RECEI VA BLES Trade receivables Other receivables Interest receivable on bank deposits Tax-related receivables I MPAI RMEN T OF RECEIVABLE S CONSOLIDATED 2018 $ 2017 $ 2,389,633 17,581,840 8,132,629 2,806,040 683 22,085 467 14,460 10,545,030 20,402,807 The consolidated entity has not recognised any loss in profit or loss in respect of impairment of receivables for the year ended 30 June 2018 (2017: $nil). NOTE 10. CURRENT ASSETS – INVENTORIES Food and beverage – at cost CONSOLIDATED 2018 $ 2017 $ 1,397,344 893,474 52 52 5353 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018 NOTE 1 1. CURRENT ASSETS – PR EPA ID CONST RUCTION COSTS NOTE 12. CURRENT ASSETS – OTHER Prepaid construction costs CONSOLIDATED 2018 $ 2017 $ 1,811,360 341,184 Amounts recognised as prepaid construction costs relate to tranche payments made to third party developers in connection with the construction of the new Aristo 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 non–current construction in progress. Bonds and security deposits Prepayments Other current assets CONSOLIDATED 2018 $ 5,379 324,245 121,705 451,329 2017 $ 5,379 226,565 200,907 432,851 NOTE 13. NON–CURRENT ASSETS – PROPERTY, PLANT A ND EQUIP ME NT Leasehold buildings and structures – at cost Less: Accumulated depreciation for leasehold buildings and structures Furniture and fittings – at cost Less: Accumulated depreciation for furniture and fittings Machinery and equipment – at cost Less: Accumulated depreciation for machinery and equipment Motor vehicles – at cost Less: Accumulated depreciation for motor vehicles Office equipment and other – at cost Less: Accumulated depreciation for office equipment and other Consumables Less: Accumulated depreciation for consumables CONSOLIDATED 2018 $ 2017 $ 160,430,636 152,241,908 (17,975,569) (12,931,787) 142,455,067 139,310,121 4,905,381 4,597,726 (4,753,580) (4,160,572) 151,801 437,154 40,459,999 34,696,929 (24,964,399) (18,513,168) 15,495,600 16,183,761 2,298,287 1,869,091 (1,528,435) (1,312,898) 769,852 556,193 3,463,739 4,702,496 (1,594,665) (2,584,380) 1,869,074 2,118,116 1,430,844 2,739,028 – – 1,430,844 2,739,028 162,172,238 161,344,373 54 54 5555 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTE 1 1. CURRENT ASSETS – PR EPA ID CONST RUCTION COSTS NOTE 12. CURRENT ASSETS – OTHER Prepaid construction costs CONSOLIDATED 2018 $ 2017 $ 1,811,360 341,184 Amounts recognised as prepaid construction costs relate to tranche payments made to third party developers in connection with the construction of the new Aristo 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 non–current construction in progress. Bonds and security deposits Prepayments Other current assets CONSOLIDATED 2018 $ 5,379 324,245 121,705 451,329 2017 $ 5,379 226,565 200,907 432,851 NOTE 13. NON–CURRENT ASSETS – PROPERTY, PLANT A ND EQUIP ME NT Leasehold buildings and structures – at cost Less: Accumulated depreciation for leasehold buildings and structures Furniture and fittings – at cost Less: Accumulated depreciation for furniture and fittings Machinery and equipment – at cost Less: Accumulated depreciation for machinery and equipment Motor vehicles – at cost Less: Accumulated depreciation for motor vehicles Office equipment and other – at cost Less: Accumulated depreciation for office equipment and other Consumables Less: Accumulated depreciation for consumables CONSOLIDATED 2018 $ 2017 $ 160,430,636 152,241,908 (17,975,569) (12,931,787) 142,455,067 139,310,121 4,905,381 4,597,726 (4,753,580) (4,160,572) 151,801 437,154 40,459,999 34,696,929 (24,964,399) (18,513,168) 15,495,600 16,183,761 2,298,287 1,869,091 (1,528,435) (1,312,898) 769,852 556,193 3,463,739 4,702,496 (1,594,665) (2,584,380) 1,869,074 2,118,116 1,430,844 2,739,028 – – 1,430,844 2,739,028 162,172,238 161,344,373 54 54 5555 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTE 1 3. N ON–CURR ENT A SSE TS – PROPERT Y, PLANT A ND EQUIPMENT CONTINUED RECO NCIL IATI ON S Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are shown below. Reconciliations of the written down values at the beginning and end of the current and previous financial year are shown below. LEASEHOLD BUILDINGS FURNITURE AND FITTINGS MACHINERY AND EQUIPMENT MOTOR VEHICLES OFFICE EQUIPMENT AND OTHER CONSUMABLES Consolidated $ $ $ $ $ $ TOTAL $ Balance at 1 July 2016 147,459,568 956,691 17,237,000 620,492 1,337,378 4,104,829 171,715,958 Additions Disposals Impairment 1,461,303 7,045 693,813 319,835 1,168,053 – 3,650,049 (480,951) (20,817) (160,011) (22,348) – – (66,429) (21,604) (1,224,055) (1,813,856) – (16,426) – (198,785) Exchange differences (4,854,177) (4,734) (3,509,508) (14,027) 2,791,554 1,631,937 (3,958,955) Transfers in/(out) – – 3,698,497 – (1,621,399) – 2,077,098 Depreciation expense (4,115,611) (478,683) (1,93s6,041) (303,678) (1,519,440) (1,773,683) (10,127,136) Balance at 30 June 2017 139,310,121 437,154 16,183,761 556,193 2,118,116 2,739,028 161,344,373 Consolidated Balance at 1 July 2016 Disposals Exchange differences Amortisation expense Balance at 30 June 2017 Disposals Impairment of assets Exchange differences Amortisation expense Balance at 30 June 2018 GOODWILL LAND RIGHT CASINO LICENSE $ $ $ TOTAL $ 2,426,187 36,397 400,543,357 403,005,941 – – – – (1,881) (2,163) – – (13,861,663) (13,863,544) – (2,163) 2,426,187 32,353 386,681,694 389,140,234 – – – – – – 932 (2,098) – – (143,860,973) (143,860,973) 8,786,226 8,787,158 – (2,098) 2,426,187 31,187 251,606,947 254,064,321 Additions Disposals 1,394,907 – – – (368,940) (136,702) – – (505,642) 2,447,269 572,456 202,874 4,560 4,622,066 I MPAI RMEN T TESTI NG OF GO OD WI LL Exchange differences 5,966,473 19,723 (868,885) 26,093 1,518,401 28,858 6,690,663 Depreciation expense (4,216,434) (305,076) (1,897,605) (248,188) (1,970,317) (1,341,602) (9,979,222) Balance at 30 June 2018 142,455,067 151,801 15,495,600 769,852 1,869,074 1,430,844 162,172,238 Consumables represent low value, high turnover items that are depreciated in accordance with company policy and local legislation. N OT E 14. N ON–CUR RENT A SSE TS – INTANGIBLES Goodwill – at cost Land right – at cost Less: Accumulated amortisation for land right Casino license Less: Impairment CONSOLIDATED 2018 $ 2017 $ 2,426,187 2,426,187 69,449 (38,262) 31,187 67,004 (34,651) 32,353 395,467,920 386,681,694 (143,860,973) – 251,606,947 386,681,694 254,064,321 389,140,234 Goodwill is monitored by the Chief Operating Decision Maker (‘CODM’) at the cash generating unit level. CODM reviews the business performance based on geography and type of business. It has identified two reportable cash generating units, Lao Cai and DNA Star Vegas. A business–level summary of the goodwill allocation is shown below. Lao Cai International Hotel JVC Total goodwill LAO CAI – GO OD WIL L The recoverable amount of the cash generating unit of Lao Cai 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 is 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 FY19 based on the 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 CONSOLIDATED 2018 $ 2017 $ 2,426,187 2,426,187 2,426,187 2,426,187 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 earnings before interest and taxes (EBIT) margin on sales. Based on sensitivity analysis performed, no reasonable change in these assumptions would give rise to an impairment. No impairment has been recognised for the year ended 30 June 2018 (2017:nil). 56 56 5757 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018 NOTE 1 3. N ON–CURR ENT A SSE TS – PROPERT Y, PLANT A ND EQUIPMENT CONTINUED RECO NCIL IATI ON S Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are shown below. Reconciliations of the written down values at the beginning and end of the current and previous financial year are shown below. LEASEHOLD BUILDINGS FURNITURE AND FITTINGS MACHINERY AND EQUIPMENT MOTOR VEHICLES OFFICE EQUIPMENT AND OTHER CONSUMABLES Consolidated $ $ $ $ $ $ TOTAL $ Balance at 1 July 2016 147,459,568 956,691 17,237,000 620,492 1,337,378 4,104,829 171,715,958 Additions Disposals Impairment 1,461,303 7,045 693,813 319,835 1,168,053 – 3,650,049 (480,951) (20,817) (160,011) (22,348) – – (66,429) (21,604) (1,224,055) (1,813,856) – (16,426) – (198,785) Exchange differences (4,854,177) (4,734) (3,509,508) (14,027) 2,791,554 1,631,937 (3,958,955) Transfers in/(out) – – 3,698,497 – (1,621,399) – 2,077,098 Depreciation expense (4,115,611) (478,683) (1,93s6,041) (303,678) (1,519,440) (1,773,683) (10,127,136) Balance at 30 June 2017 139,310,121 437,154 16,183,761 556,193 2,118,116 2,739,028 161,344,373 Consolidated Balance at 1 July 2016 Disposals Exchange differences Amortisation expense Balance at 30 June 2017 Disposals Impairment of assets Exchange differences Amortisation expense Balance at 30 June 2018 GOODWILL LAND RIGHT CASINO LICENSE $ $ $ TOTAL $ 2,426,187 36,397 400,543,357 403,005,941 – – – – (1,881) (2,163) – – (13,861,663) (13,863,544) – (2,163) 2,426,187 32,353 386,681,694 389,140,234 – – – – – – 932 (2,098) – – (143,860,973) (143,860,973) 8,786,226 8,787,158 – (2,098) 2,426,187 31,187 251,606,947 254,064,321 Additions Disposals 1,394,907 – – – (368,940) (136,702) – – (505,642) 2,447,269 572,456 202,874 4,560 4,622,066 I MPAI RMEN T TESTI NG OF GO OD WI LL Exchange differences 5,966,473 19,723 (868,885) 26,093 1,518,401 28,858 6,690,663 Depreciation expense (4,216,434) (305,076) (1,897,605) (248,188) (1,970,317) (1,341,602) (9,979,222) Balance at 30 June 2018 142,455,067 151,801 15,495,600 769,852 1,869,074 1,430,844 162,172,238 Consumables represent low value, high turnover items that are depreciated in accordance with company policy and local legislation. N OT E 14. N ON–CUR RENT A SSE TS – INTANGIBLES Goodwill – at cost Land right – at cost Less: Accumulated amortisation for land right Casino license Less: Impairment CONSOLIDATED 2018 $ 2017 $ 2,426,187 2,426,187 69,449 (38,262) 31,187 67,004 (34,651) 32,353 395,467,920 386,681,694 (143,860,973) – 251,606,947 386,681,694 254,064,321 389,140,234 Goodwill is monitored by the Chief Operating Decision Maker (‘CODM’) at the cash generating unit level. CODM reviews the business performance based on geography and type of business. It has identified two reportable cash generating units, Lao Cai and DNA Star Vegas. A business–level summary of the goodwill allocation is shown below. Lao Cai International Hotel JVC Total goodwill LAO CAI – GO OD WIL L The recoverable amount of the cash generating unit of Lao Cai 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 is 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 FY19 based on the 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 CONSOLIDATED 2018 $ 2017 $ 2,426,187 2,426,187 2,426,187 2,426,187 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 earnings before interest and taxes (EBIT) margin on sales. Based on sensitivity analysis performed, no reasonable change in these assumptions would give rise to an impairment. No impairment has been recognised for the year ended 30 June 2018 (2017:nil). 56 56 5757 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018 DNA STAR VEGAS – CAS INO L IC E NC E The casino licence relates to the licence to operate the DNA Star Vegas casino acquired on 1 July 2015. The licence is stated at cost less any impairment losses. This intangible asset is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The recoverable amount of the cash generating unit of DNA Star Vegas has been determined based on the fair value less costs of disposal. An independent valuation of the 100% equity interest in DNA Star Vegas Company Limited was undertaken as at 31 December 2017. Adjustments were made to determine the fair value less cost of disposal of the cash generating unit which was reasonably determined to be $330,204,466 (US$257,550,000 converted at the spot rate). This amounts to $348,465,150 at the 30 June 2018 spot rate. The valuation was determined using budgeted gross margin based on past performance and its expectations for the future and are considered to be reasonably achievable. The valuation is classified as level 3 fair values in the fair value hierarchy as it was based on a five-year cash flow forecast period. The weighted average growth rates used are consistent with forecasts included in industry reports. The valuation uses a growth rate of 11% in the first year, 3% in the following four years and a terminal growth rate of 3%. The discount rates used of 15.06% reflect specific risks relating to the relevant segments and the countries in which they operate. The valuation was determined using a foreign exchange rate between Thai baht and US dollar of THB32.574: US$1. A capital expenditure percentage of 2.52% has also been included in the valuation. Furthermore, the valuation includes a Discount for Lack of Marketability (‘DLOM’) of 20.4%. Apart from the impairment loss, the movement in the historical cost of the casino license is due to foreign exchange translation as the licence is denominated in foreign currency. LA ND RIGHT Intangible asset of $31,187 (2017: $32,353) which relates to a 30-year land use right in the Socialist Republic of Vietnam. Land use right is stated at cost less accumulated amortisation and any impairment losses. The amortisation period is 30 years. This intangible asset is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Construction relates to costs incurred for the new construction of the Aristo Casino. Amounts previously recognised as prepaid construction costs are transferred to construction in progress, once associated works have been completed. 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 or non current prepayment and accounted for in accordance with the consolidated entity’s accounting policy for each asset class. NOTE 16. NON-CURRENT ASSETS – OTHER Other debtors CONSOLIDATED 2018 $ 4,018 2017 $ 3,895 NOTE 17. CURRENT LIABILITIES – TRADE AN D OTHER PAYABLE S Trade payables (note 28) Deposits received Floating chips (note 28) Interest payable CONSOLIDATED 2018 2017 4,842,651 4,472,103 97,285 101,974 6,624,856 13,013,770 646,922 2,060,154 22,440,301 22,140,106 34,652,015 41,788,107 NOTE 1 5. N ON-CU RRE NT ASSE T S – CONSTRUCT ION IN P RO GRESS Other payables and accrued expenses Property construction works in progress – at cost RECON CILIATIONS CONSOLIDATED 2018 $ 2017 $ 591,787 595,885 Refer to note 28 for further information on financial instruments. FLOAT IN G CH IPS 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. Reconciliations of the written down values at the beginning and end of the current and previous financial year are shown below. NOTE 18. CURRENT LIABILITIES – BORROWIN GS Consolidated Balance at 1 July 2016 Additions Exchange differences Transfer in/(out) Balance at 30 June 2017 Additions Disposals Exchange differences Transfers out Balance at 30 June 2018 58 58 CONSTRUCTION WIP $ 1,143,158 1,612,657 (82,832) (2,077,098) 595,885 270,209 (261,366) 23,912 (36,853) 591,787 Joint Stock Commercial Ocean Bank Mega International Commercial Bank Co Ltd Refer to note 28 for further information on financial instruments. Total secured liabilities The total secured current liabilities are as follows: Joint Stock Commercial Ocean Bank Mega International Commercial Bank Co Ltd CONSOLIDATED 2018 $ 2017 $ 2,882,374 2,791,979 21,712,541 52,116,619 24,594,915 54,908,598 2,882,374 2,791,979 21,712,541 52,116,619 24,594,915 54,908,598 5959 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018 DNA STAR VEGAS – CAS INO L IC E NC E The casino licence relates to the licence to operate the DNA Star Vegas casino acquired on 1 July 2015. The licence is stated at cost less any impairment losses. This intangible asset is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The recoverable amount of the cash generating unit of DNA Star Vegas has been determined based on the fair value less costs of disposal. An independent valuation of the 100% equity interest in DNA Star Vegas Company Limited was undertaken as at 31 December 2017. Adjustments were made to determine the fair value less cost of disposal of the cash generating unit which was reasonably determined to be $330,204,466 (US$257,550,000 converted at the spot rate). This amounts to $348,465,150 at the 30 June 2018 spot rate. The valuation was determined using budgeted gross margin based on past performance and its expectations for the future and are considered to be reasonably achievable. The valuation is classified as level 3 fair values in the fair value hierarchy as it was based on a five-year cash flow forecast period. The weighted average growth rates used are consistent with forecasts included in industry reports. The valuation uses a growth rate of 11% in the first year, 3% in the following four years and a terminal growth rate of 3%. The discount rates used of 15.06% reflect specific risks relating to the relevant segments and the countries in which they operate. The valuation was determined using a foreign exchange rate between Thai baht and US dollar of THB32.574: US$1. A capital expenditure percentage of 2.52% has also been included in the valuation. Furthermore, the valuation includes a Discount for Lack of Marketability (‘DLOM’) of 20.4%. Apart from the impairment loss, the movement in the historical cost of the casino license is due to foreign exchange translation as the licence is denominated in foreign currency. LA ND RIGHT Intangible asset of $31,187 (2017: $32,353) which relates to a 30-year land use right in the Socialist Republic of Vietnam. Land use right is stated at cost less accumulated amortisation and any impairment losses. The amortisation period is 30 years. This intangible asset is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Construction relates to costs incurred for the new construction of the Aristo Casino. Amounts previously recognised as prepaid construction costs are transferred to construction in progress, once associated works have been completed. 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 or non current prepayment and accounted for in accordance with the consolidated entity’s accounting policy for each asset class. NOTE 16. NON-CURRENT ASSETS – OTHER Other debtors CONSOLIDATED 2018 $ 4,018 2017 $ 3,895 NOTE 17. CURRENT LIABILITIES – TRADE AN D OTHER PAYABLE S Trade payables (note 28) Deposits received Floating chips (note 28) Interest payable CONSOLIDATED 2018 2017 4,842,651 4,472,103 97,285 101,974 6,624,856 13,013,770 646,922 2,060,154 22,440,301 22,140,106 34,652,015 41,788,107 NOTE 1 5. N ON-CU RRE NT ASSE T S – CONSTRUCT ION IN P RO GRESS Other payables and accrued expenses Property construction works in progress – at cost RECON CILIATIONS CONSOLIDATED 2018 $ 2017 $ 591,787 595,885 Refer to note 28 for further information on financial instruments. FLOAT IN G CH IPS 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. Reconciliations of the written down values at the beginning and end of the current and previous financial year are shown below. NOTE 18. CURRENT LIABILITIES – BORROWIN GS Consolidated Balance at 1 July 2016 Additions Exchange differences Transfer in/(out) Balance at 30 June 2017 Additions Disposals Exchange differences Transfers out Balance at 30 June 2018 58 58 CONSTRUCTION WIP $ 1,143,158 1,612,657 (82,832) (2,077,098) 595,885 270,209 (261,366) 23,912 (36,853) 591,787 Joint Stock Commercial Ocean Bank Mega International Commercial Bank Co Ltd Refer to note 28 for further information on financial instruments. Total secured liabilities The total secured current liabilities are as follows: Joint Stock Commercial Ocean Bank Mega International Commercial Bank Co Ltd CONSOLIDATED 2018 $ 2017 $ 2,882,374 2,791,979 21,712,541 52,116,619 24,594,915 54,908,598 2,882,374 2,791,979 21,712,541 52,116,619 24,594,915 54,908,598 5959 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018 The loan from Mega International Commercial Bank Co Ltd, which was initially drawn down on 1 July 2015, was refinanced under a new loan agreement dated 14 August 2017 for a total amount of US$57 million. The new loan was drawn down on 28 August 2017, the proceeds of which were used to settle the previous loan. Under the refinancing terms, the loan has been extended for a further three years with a final settlement date of 28 August 2020. The consolidated entity complied with loan covenants as amended by Mega Bank during the year and consequently continued to present the outstanding loan balance expected to be settled more than 12 months after the reporting period as a non-current liability as at 30 June 2018 (note 22). ASSETS PLEDG ED AS SECURITY The loan from Mega International Commercial Bank Co. Ltd is secured by the following: i. A parent company guarantee from the parent entity for the debt owed by Donaco Hong Kong Limited ii. A pledge of the shares in Donaco Hong Kong iii. A pledge of the shares in DNA Star Vegas Co. Ltd owned by Donaco Hong Kong Limited (carrying value $443,615,198, 2017: $426,270,598) iv. A pledge of the debt service reserve account maintained by Donaco Hong Kong Limited v. A security assignment of contractual rights held by the parent entity under the purchase agreement for DNA Star Vegas vi. A security agreement over the assets of DNA Star Vegas vii. A hypothec agreement over the land and buildings of DNA Star Vegas. MO RTGAG E TO JO INT STO C K COM M E RCI AL O CE AN BA NK A mortgage was registered by the Ocean Bank of Vietnam over the assets of the Aristo International Hotel on 11 July 2011. Total borrowings as per the statement of financial position as at 30 June 2018 under this arrangement were $7,205,935 (2017: $9,771,928). Limited owned by the parent entity (carrying value $293,608,393, 2017: $293,608,393) Subject to the continuance of satisfactory credit ratings, the bank loan facilities may be drawn down at any time. Financing arrangements Unrestricted access was available at the reporting date to the following lines of credit (current and non current): Total facilities Bank loans Used at the reporting date Bank loans Unused at the reporting date Bank loans NOTE 1 9. CURRENT LIABILITIES – FINA NCIAL LIA BILIT IES Derivative financial liability at fair value through profit and loss Warrants CONSOLIDATED 2018 $ 2017 $ 70,401,487 108,462,225 70,401,487 108,462,225 – – CONSOLIDATED 2018 $ – 2017 $ 681,507 warrants issued are measured at fair value. At each reporting date the derivative financial liability is re-valued to fair value with the movement in the fair value recorded in profit or loss. For the warrants granted during the 2016 financial year, fair value at grant date was $4,403,859. The valuation model inputs used to determine the fair value at the balance date are shown below. GRANT DATE EXPIRY DATE SHARE PRICE AT REPORTING DATE EXERCISE PRICE EXPECTED VOLATILITY DIVIDEND YIELD RISK-FREE INTEREST RATE FAIR VALUE 07/07/2015 07/10/2018 $0.145 $0.76 83.17% – 2.00% – The remaining contractual life at 30 June 2018 is 0.27 years (2017: 1.27 years). Given the fair value of the warrants at 30 June 2018 is immaterial in nature, no derivative financial liability has been disclosed at the reporting date. NOTE 20. CURRENT LIABILITIES – INCOME TAX Provision for income tax NOTE 21. CURRENT LIABILITIES – EMPLOYEE BENEFI TS Annual leave Accrued salaries, wages and other benefits NOTE 22. NON-CURRENT LIABILITIES – BORROWINGS Joint Stock Commercial Ocean Bank Mega International Commercial Bank Co Ltd Refer to note 28 for further information on financial instruments. Total secured liabilities The total secured liabilities (current and non-current) are as follows: Joint Stock Commercial Ocean Bank Mega International Commercial Bank Co Ltd NOTE 23. NON-CURRENT LIABILITIES – EMPLOYEE BENE FITS CONSOLIDATED 2018 $ 2017 $ 2,008,402 1,127,767 CONSOLIDATED 2018 $ 140,590 1,120,735 1,261,325 2017 $ 95,613 885,393 981,006 CONSOLIDATED 2018 $ 2017 $ 4,323,561 6,979,949 41,483,011 46,573,678 45,806,572 53,553,627 7,205,935 9,771,928 63,195,552 98,690,297 70,401,487 108,462,225 CONSOLIDATED 2018 $ 42,408 42,408 2017 $ 32,669 32,669 As a requirement of the terms of the group’s facility previously provided by OL Master Limited, the company as guarantor has issued 70 warrants to subscribe for its ordinary shares. Each warrant has a notional value of US$100,000. The warrants have a term of 39 months and expire on 6 October 2018. The exercise price is $0.7579 and the maximum number of ordinary shares which may be issued is 12,334,408, and the company may elect to settle the difference between the share price and exercise price in cash. The warrants associated with this transaction are classified as a derivative financial liability. On initial recognition the Long service leave 60 60 6161 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018The loan from Mega International Commercial Bank Co Ltd, which was initially drawn down on 1 July 2015, was refinanced under a new loan agreement dated 14 August 2017 for a total amount of US$57 million. The new loan was drawn down on 28 August 2017, the proceeds of which were used to settle the previous loan. Under the refinancing terms, the loan has been extended for a further three years with a final settlement date of 28 August 2020. The consolidated entity complied with loan covenants as amended by Mega Bank during the year and consequently continued to present the outstanding loan balance expected to be settled more than 12 months after the reporting period as a non-current liability as at 30 June 2018 (note 22). ASSETS PLEDG ED AS SECURITY The loan from Mega International Commercial Bank Co. Ltd is secured by the following: i. A parent company guarantee from the parent entity for the debt owed by Donaco Hong Kong Limited ii. A pledge of the shares in Donaco Hong Kong iii. A pledge of the shares in DNA Star Vegas Co. Ltd owned by Donaco Hong Kong Limited (carrying value $443,615,198, 2017: $426,270,598) iv. A pledge of the debt service reserve account maintained by Donaco Hong Kong Limited v. A security assignment of contractual rights held by the parent entity under the purchase agreement for DNA Star Vegas vi. A security agreement over the assets of DNA Star Vegas vii. A hypothec agreement over the land and buildings of DNA Star Vegas. MO RTGAG E TO JO INT STO C K COM M E RCI AL O CE AN BA NK A mortgage was registered by the Ocean Bank of Vietnam over the assets of the Aristo International Hotel on 11 July 2011. Total borrowings as per the statement of financial position as at 30 June 2018 under this arrangement were $7,205,935 (2017: $9,771,928). Limited owned by the parent entity (carrying value $293,608,393, 2017: $293,608,393) Subject to the continuance of satisfactory credit ratings, the bank loan facilities may be drawn down at any time. Financing arrangements Unrestricted access was available at the reporting date to the following lines of credit (current and non current): Total facilities Bank loans Used at the reporting date Bank loans Unused at the reporting date Bank loans NOTE 1 9. CURRENT LIABILITIES – FINA NCIAL LIA BILIT IES Derivative financial liability at fair value through profit and loss Warrants CONSOLIDATED 2018 $ 2017 $ 70,401,487 108,462,225 70,401,487 108,462,225 – – CONSOLIDATED 2018 $ – 2017 $ 681,507 warrants issued are measured at fair value. At each reporting date the derivative financial liability is re-valued to fair value with the movement in the fair value recorded in profit or loss. For the warrants granted during the 2016 financial year, fair value at grant date was $4,403,859. The valuation model inputs used to determine the fair value at the balance date are shown below. GRANT DATE EXPIRY DATE SHARE PRICE AT REPORTING DATE EXERCISE PRICE EXPECTED VOLATILITY DIVIDEND YIELD RISK-FREE INTEREST RATE FAIR VALUE 07/07/2015 07/10/2018 $0.145 $0.76 83.17% – 2.00% – The remaining contractual life at 30 June 2018 is 0.27 years (2017: 1.27 years). Given the fair value of the warrants at 30 June 2018 is immaterial in nature, no derivative financial liability has been disclosed at the reporting date. NOTE 20. CURRENT LIABILITIES – INCOME TAX Provision for income tax NOTE 21. CURRENT LIABILITIES – EMPLOYEE BENEFI TS Annual leave Accrued salaries, wages and other benefits NOTE 22. NON-CURRENT LIABILITIES – BORROWINGS Joint Stock Commercial Ocean Bank Mega International Commercial Bank Co Ltd Refer to note 28 for further information on financial instruments. Total secured liabilities The total secured liabilities (current and non-current) are as follows: Joint Stock Commercial Ocean Bank Mega International Commercial Bank Co Ltd NOTE 23. NON-CURRENT LIABILITIES – EMPLOYEE BENE FITS CONSOLIDATED 2018 $ 2017 $ 2,008,402 1,127,767 CONSOLIDATED 2018 $ 140,590 1,120,735 1,261,325 2017 $ 95,613 885,393 981,006 CONSOLIDATED 2018 $ 2017 $ 4,323,561 6,979,949 41,483,011 46,573,678 45,806,572 53,553,627 7,205,935 9,771,928 63,195,552 98,690,297 70,401,487 108,462,225 CONSOLIDATED 2018 $ 42,408 42,408 2017 $ 32,669 32,669 As a requirement of the terms of the group’s facility previously provided by OL Master Limited, the company as guarantor has issued 70 warrants to subscribe for its ordinary shares. Each warrant has a notional value of US$100,000. The warrants have a term of 39 months and expire on 6 October 2018. The exercise price is $0.7579 and the maximum number of ordinary shares which may be issued is 12,334,408, and the company may elect to settle the difference between the share price and exercise price in cash. The warrants associated with this transaction are classified as a derivative financial liability. On initial recognition the Long service leave 60 60 6161 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTE 2 4. EQU ITY – ISSU ED C A P ITAL NOTE 25. EQUITY – RESERVES Ordinary shares – fully paid 823,592,773 831,211,424 358,656,945 359,968,884 CONSOLIDATED 2018 Shares 2017 Shares 2018 $ 2017 $ DETAILS Balance at 30 June 2016 Acquisition of shares for employee share scheme Balance at 30 June 2017 Employee short term incentive Share buybacks Balance at 30 June 2018 ORDINARY SH ARES 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. CAPITAL RISK MA NAGE MENT 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 to 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. SHARES ISSUE PRICE $ 831,211,424 – 831,211,424 – (7,618,651) 823,592,773 360,968,368 999,484) 359,968,884 766,014 (2,077,953) 358,656,945 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. The financing arrangements contain certain covenants relating to interest cover (the ratio of consolidated EBITDA to consolidated finance charges), and debt ratio (the ratio of consolidated net debt to EBITDA), which apply to Donaco Hong Kong Limited. In addition, covenants relating to the debt equity ratio (the ratio of consolidated total debt to consolidated total equity), and minimum cash holdings, apply to the consolidated entity. There have been no events of default on the financing arrangements during the financial year. The capital risk management policy remains unchanged from the 2017 financial statements. Treasury shares are shares in Donaco International Limited that are held by Smartequity EIS Pty Ltd for the purpose of issuing shares under the employee share scheme. Shares issued to employees are recognised on a first-in-first-out basis. DETAILS Opening balance 1 July 2016 Acquisition of shares by the Trust (average price: $0.4199 per share) Balance 30 June 2017 Shares issued to employees Balance 30 June 2018 62 62 NUMBER OF SHARES $ – 2,376,653 2,376,653 (1,781,429) 595,224 – 999,484 999,484 (766,014) 233,470 Revaluation surplus reserve Foreign currency reserve Employee share option reserve Consolidated Balance at 1 July 2016 Foreign currency translation Employee share option expense Balance at 30 June 2017 Foreign currency translation Shares allocated to employees Employee share options CONSOLIDATED 2018 $ 1,855,327 17,875,486 2,809,651 22,540,464 REVALUATION SURPLUS RESERVE SHARE-BASED PAYMENT RESERVE FOREIGN CURRENCY RESERVE $ $ $ 2017 $ 1,855,327 4,275,055 3,295,396 9,425,778 TOTAL $ 1,855,327 3,021,680 19,697,748 24,574,755 – – – (15,422,693) (15,422,693) 273,716 – 273,716 1,855,327 3,295,396 – – (766,014) 280,269 4,275,055 13,600,431 – – 9,425,778 13,600,431 (766,014) 280,269 Balance at 30 June 2018 1,855,327 2,809,651 17,875,486 22,540,464 NATU RE AN D PURPO SE OF EQU IT Y RE SERVES Revaluation surplus Foreign currency The revaluation surplus reserve is used to record increments and decrements in the fair value of net assets of disposed entities. Share-based payment The reserve is used to recognise: • • the grant date fair value of options issued to key management personnel but not exercised the issue of options held by the Employee Share Option Trust to key management personnel. Exchange differences arising on translation of the foreign controlled entity are recognised in other comprehensive income as described in note 1 and accumulated in a separate reserve within equity. The cumulative amount is reclassified to profit or loss when the net investment is disposed of. 6363 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTE 2 4. EQU ITY – ISSU ED C A P ITAL NOTE 25. EQUITY – RESERVES Ordinary shares – fully paid 823,592,773 831,211,424 358,656,945 359,968,884 CONSOLIDATED 2018 Shares 2017 Shares 2018 $ 2017 $ DETAILS Balance at 30 June 2016 Acquisition of shares for employee share scheme Balance at 30 June 2017 Employee short term incentive Share buybacks Balance at 30 June 2018 ORDINARY SH ARES 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. CAPITAL RISK MA NAGE MENT 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 to 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. SHARES ISSUE PRICE $ 831,211,424 – 831,211,424 – (7,618,651) 823,592,773 360,968,368 999,484) 359,968,884 766,014 (2,077,953) 358,656,945 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. The financing arrangements contain certain covenants relating to interest cover (the ratio of consolidated EBITDA to consolidated finance charges), and debt ratio (the ratio of consolidated net debt to EBITDA), which apply to Donaco Hong Kong Limited. In addition, covenants relating to the debt equity ratio (the ratio of consolidated total debt to consolidated total equity), and minimum cash holdings, apply to the consolidated entity. There have been no events of default on the financing arrangements during the financial year. The capital risk management policy remains unchanged from the 2017 financial statements. Treasury shares are shares in Donaco International Limited that are held by Smartequity EIS Pty Ltd for the purpose of issuing shares under the employee share scheme. Shares issued to employees are recognised on a first-in-first-out basis. DETAILS Opening balance 1 July 2016 Acquisition of shares by the Trust (average price: $0.4199 per share) Balance 30 June 2017 Shares issued to employees Balance 30 June 2018 62 62 NUMBER OF SHARES $ – 2,376,653 2,376,653 (1,781,429) 595,224 – 999,484 999,484 (766,014) 233,470 Revaluation surplus reserve Foreign currency reserve Employee share option reserve Consolidated Balance at 1 July 2016 Foreign currency translation Employee share option expense Balance at 30 June 2017 Foreign currency translation Shares allocated to employees Employee share options CONSOLIDATED 2018 $ 1,855,327 17,875,486 2,809,651 22,540,464 REVALUATION SURPLUS RESERVE SHARE-BASED PAYMENT RESERVE FOREIGN CURRENCY RESERVE $ $ $ 2017 $ 1,855,327 4,275,055 3,295,396 9,425,778 TOTAL $ 1,855,327 3,021,680 19,697,748 24,574,755 – – – (15,422,693) (15,422,693) 273,716 – 273,716 1,855,327 3,295,396 – – (766,014) 280,269 4,275,055 13,600,431 – – 9,425,778 13,600,431 (766,014) 280,269 Balance at 30 June 2018 1,855,327 2,809,651 17,875,486 22,540,464 NATU RE AN D PURPO SE OF EQU IT Y RE SERVES Revaluation surplus Foreign currency The revaluation surplus reserve is used to record increments and decrements in the fair value of net assets of disposed entities. Share-based payment The reserve is used to recognise: • • the grant date fair value of options issued to key management personnel but not exercised the issue of options held by the Employee Share Option Trust to key management personnel. Exchange differences arising on translation of the foreign controlled entity are recognised in other comprehensive income as described in note 1 and accumulated in a separate reserve within equity. The cumulative amount is reclassified to profit or loss when the net investment is disposed of. 6363 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTE 2 6. EQU ITY – RETA IN ED P ROFITS The average exchange rates and reporting date exchange rates applied are shown below. CONSOLIDATED 2018 $ 2017 $ 115,374,413 92,630,958 (124,510,815) 30,990,298 (4,113,618) (8,246,843) (13,250,020) 115,374,413 USD THB VND CNY MYR SGD HKD AUSTRALIAN DOLLARS AVERAGE EXCHANGE RATE REPORTING DATE EXCHANGE RATE 2018 1.2897 0.0397 0.0001 0.1982 0.3163 0.9608 0.1648 2017 1.3254 0.0380 0.0001 0.1946 0.3093 0.9520 0.1707 2018 1.3530 0.0409 0.0001 0.2045 0.3352 0.9923 0.1724 2017 1.3001 0.0382 0.0001 0.1921 0.3028 0.9436 0.1666 working capital requirements and growth plans. Shareholders should note that the payment of dividends is not guaranteed. The carrying amount of the consolidated entity’s foreign currency denominated financial assets and financial liabilities at the reporting date are shown below. Retained profits at the beginning of the financial year (Loss)/profit after income tax expense for the year Dividends paid (Accumulated losses)/retained profits at the end of the financial year NOTE 2 7. EQU ITY – DIVID END S A new dividend policy was announced on 29 August 2017, which stated that the consolidated entity intends to pay out 10–30% of net profit after tax as dividends to shareholders, with the intention to provide regular half-yearly dividend payments, subject to the consolidated entity’s then current FRANKING CREDIT BA LA NCE A dividend of $4,113,618 (0.5 cents per ordinary share) was paid on 20 October 2017. The dividend was 100% conduit foreign income and was unfranked. The dividend recommended after 30 June 2018 is fully unfranked and 100% conduit foreign income. CONSOLIDATED 2018 $ 2017 $ Franking credits available for subsequent reporting periods after payment of tax liability based on a tax rate of 30% (2017: 30%) 471,682 471,682 NOTE 2 8. FI NA NCIAL IN STRUME NTS FINAN CIAL RI SK MANAGEMENT OBJEC T IV E S 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. 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. M ARKE T RI SK Market risk is the risk that changes in market prices, such as interest rate and foreign exchange rate will affect the consolidated entity’s income. FO RE IGN CURRE NCY RI SK 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, in which the functional currencies are Vietnamese dong and Thai baht. 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. Consolidated USD VND CNY MYR THB SGD EUR HKD ASSETS LIABILITIES 2018 13,044,387 5,299,495 12,133,109 800,324 27,070,484 132,179 – 257,378 58,737,356 2017 39,885,279 6,666,217 14,514,911 34,749 26,675,967 203,720 6,685 183,740 2018 2017 (61,506,058) (101,805,116) (9,690,246) (6,175,459) (72,731) (11,036,948) (13,013,771) (82,477) (26,610,202) (25,316,206) (16,382) – (67,324) (13,219) – (55,193) 88,171,268 (104,138,402) (151,322,930) 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. Consolidated % change Effect on profit after tax Effect on profit after tax AUD STRENGTHENED USD VND CNY MYR THB SGD EUR HKD 5 5 5 5 5 5 5 5 2018 2,423,084 219,538 (297,883) (36,380) (23,014) (5,790) – (9,503) 2,270,052 2017 3,095,992 218,537 (75,057) 2,386 (67,988) (9,525) (334) (6,427) 3,157,584 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. 64 64 6565 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTE 2 6. EQU ITY – RETA IN ED P ROFITS The average exchange rates and reporting date exchange rates applied are shown below. CONSOLIDATED 2018 $ 2017 $ 115,374,413 92,630,958 (124,510,815) 30,990,298 (4,113,618) (8,246,843) (13,250,020) 115,374,413 USD THB VND CNY MYR SGD HKD AUSTRALIAN DOLLARS AVERAGE EXCHANGE RATE REPORTING DATE EXCHANGE RATE 2018 1.2897 0.0397 0.0001 0.1982 0.3163 0.9608 0.1648 2017 1.3254 0.0380 0.0001 0.1946 0.3093 0.9520 0.1707 2018 1.3530 0.0409 0.0001 0.2045 0.3352 0.9923 0.1724 2017 1.3001 0.0382 0.0001 0.1921 0.3028 0.9436 0.1666 working capital requirements and growth plans. Shareholders should note that the payment of dividends is not guaranteed. The carrying amount of the consolidated entity’s foreign currency denominated financial assets and financial liabilities at the reporting date are shown below. Retained profits at the beginning of the financial year (Loss)/profit after income tax expense for the year Dividends paid (Accumulated losses)/retained profits at the end of the financial year NOTE 2 7. EQU ITY – DIVID END S A new dividend policy was announced on 29 August 2017, which stated that the consolidated entity intends to pay out 10–30% of net profit after tax as dividends to shareholders, with the intention to provide regular half-yearly dividend payments, subject to the consolidated entity’s then current FRANKING CREDIT BA LA NCE A dividend of $4,113,618 (0.5 cents per ordinary share) was paid on 20 October 2017. The dividend was 100% conduit foreign income and was unfranked. The dividend recommended after 30 June 2018 is fully unfranked and 100% conduit foreign income. CONSOLIDATED 2018 $ 2017 $ Franking credits available for subsequent reporting periods after payment of tax liability based on a tax rate of 30% (2017: 30%) 471,682 471,682 NOTE 2 8. FI NA NCIAL IN STRUME NTS FINAN CIAL RI SK MANAGEMENT OBJEC T IV E S 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. 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. M ARKE T RI SK Market risk is the risk that changes in market prices, such as interest rate and foreign exchange rate will affect the consolidated entity’s income. FO RE IGN CURRE NCY RI SK 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, in which the functional currencies are Vietnamese dong and Thai baht. 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. Consolidated USD VND CNY MYR THB SGD EUR HKD ASSETS LIABILITIES 2018 13,044,387 5,299,495 12,133,109 800,324 27,070,484 132,179 – 257,378 58,737,356 2017 39,885,279 6,666,217 14,514,911 34,749 26,675,967 203,720 6,685 183,740 2018 2017 (61,506,058) (101,805,116) (9,690,246) (6,175,459) (72,731) (11,036,948) (13,013,771) (82,477) (26,610,202) (25,316,206) (16,382) – (67,324) (13,219) – (55,193) 88,171,268 (104,138,402) (151,322,930) 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. Consolidated % change Effect on profit after tax Effect on profit after tax AUD STRENGTHENED USD VND CNY MYR THB SGD EUR HKD 5 5 5 5 5 5 5 5 2018 2,423,084 219,538 (297,883) (36,380) (23,014) (5,790) – (9,503) 2,270,052 2017 3,095,992 218,537 (75,057) 2,386 (67,988) (9,525) (334) (6,427) 3,157,584 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. 64 64 6565 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTE 2 8. FI NA NCIAL IN STRUME NTS CONTINUE D INTER EST RATE RISK entity’s bank loans and debt obligations and its cash and cash equivalents. The consolidated entity manages its interest rate risk by using a combination of variable and fixed rate borrowings. The consolidated entity’s exposure to the risk of changes in market interest rates relates primarily to the consolidated As at the reporting date, the consolidated entity had the cash and cash equivalents shown below. CONSOLIDATED Bank loans Cash on hand and cash at bank Fixed deposits Net exposure to cash flow interest rate risk WEIGHTED AVERAGE INTEREST RATE BALANCE WEIGHTED AVERAGE INTEREST RATE BALANCE 2018 2017 % 8.19 0.18 5.05 $ (70,401,487) 45,331,648 1,743,941 (23,325,898) % 8.09 0.41 4.80 $ (108,462,225) 64,338,919 1,683,830 (42,439,476) An analysis by remaining contractual maturities is shown in ‘liquidity and interest rate risk management’ below. 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. CREDIT 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. LI QU IDITY RI SK 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. Remaining contractual maturities 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. 1 YEAR OR LESS BETWEEN 1 AND 2 YEARS BETWEEN 2 AND 5 YEARS OVER 5 YEARS TOTAL CONTRACTUAL MATURITIES 1 YEAR OR LESS BETWEEN 1 AND 2 YEARS BETWEEN 2 AND 5 YEARS OVER 5 YEARS TOTAL CONTRACTUAL MATURITIES WEIGHTED AVERAGE INTEREST RATE % – – $ $ 4,472,103 13,013,770 – – 8.09 54,908,598 53,553,627 72,394,471 53,553,627 Consolidated – 2017 Non-derivatives Non-interest bearing Trade payables Floating chips Interest bearing – variable Bank loans Total non-derivatives $ – – – – $ – – – – $ 4,472,103 13,013,770 108,462,225 125,948,098 The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. FAI R VALUE OF F INAN CIAL I N STRUMEN TS Unless otherwise stated, the carrying amounts of financial instruments reflect their fair value. NOTE 29. KEY MANAGEMEN T PERSONNEL DISCLOSU RES D IRECTORS The following persons were directors of Donaco International Limited during the financial year: Stuart James McGregor Joey Lim Keong Yew Benedict Paul Reichel Non-executive Director and Chairman Managing Director and CEO Executive Director and Company Secretary Benjamin Lim Keong Hoe Non-executive Director OTH ER KEY M ANAG EMEN T 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: Kenny Goh Kwey Biaw Deputy Chief Financial Officer and CEO of Donaco Singapore (retired 31 March 2018) Chong Kwong Yang Chief Financial Officer Att Asavanund Chief Operating Officer and Deputy CEO (resigned 31 August 2017) Robert Andrew Hines Non-executive Director COM PENSATION Ham Techatut Sukjaroenkraisri Executive Director (retired 23 November 2017) Paul Porntat Amatavivadhana Non-executive Director (resigned 3 July 2017) The aggregate compensation made to directors and other members of key management personnel of the consolidated entity is shown below. WEIGHTED AVERAGE INTEREST RATE % – – $ $ 4,842,651 6,624,856 – – 8.19 24,594,915 45,806,572 36,062,422 45,806,572 Consolidated – 2018 Non-derivatives Non-interest bearing Trade payables Floating chips Interest bearing – variable Bank loans Total non-derivatives 66 66 $ – – – – $ – – – – $ 4,842,651 6,624,856 70,401,487 81,868,994 Short-term employee benefits Post-employment benefits Share-based payments CONSOLIDATED 2018 $ 2017 $ 2,744,060 3,148,000 326,958 259,516 103,293 196,804 3,330,534 3,448,097 6767 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018 NOTE 2 8. FI NA NCIAL IN STRUME NTS CONTINUE D INTER EST RATE RISK entity’s bank loans and debt obligations and its cash and cash equivalents. The consolidated entity manages its interest rate risk by using a combination of variable and fixed rate borrowings. The consolidated entity’s exposure to the risk of changes in market interest rates relates primarily to the consolidated As at the reporting date, the consolidated entity had the cash and cash equivalents shown below. CONSOLIDATED Bank loans Cash on hand and cash at bank Fixed deposits Net exposure to cash flow interest rate risk WEIGHTED AVERAGE INTEREST RATE BALANCE WEIGHTED AVERAGE INTEREST RATE BALANCE 2018 2017 % 8.19 0.18 5.05 $ (70,401,487) 45,331,648 1,743,941 (23,325,898) % 8.09 0.41 4.80 $ (108,462,225) 64,338,919 1,683,830 (42,439,476) An analysis by remaining contractual maturities is shown in ‘liquidity and interest rate risk management’ below. 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. CREDIT 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. LI QU IDITY RI SK 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. Remaining contractual maturities 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. 1 YEAR OR LESS BETWEEN 1 AND 2 YEARS BETWEEN 2 AND 5 YEARS OVER 5 YEARS TOTAL CONTRACTUAL MATURITIES 1 YEAR OR LESS BETWEEN 1 AND 2 YEARS BETWEEN 2 AND 5 YEARS OVER 5 YEARS TOTAL CONTRACTUAL MATURITIES WEIGHTED AVERAGE INTEREST RATE % – – $ $ 4,472,103 13,013,770 – – 8.09 54,908,598 53,553,627 72,394,471 53,553,627 Consolidated – 2017 Non-derivatives Non-interest bearing Trade payables Floating chips Interest bearing – variable Bank loans Total non-derivatives $ – – – – $ – – – – $ 4,472,103 13,013,770 108,462,225 125,948,098 The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. FAI R VALUE OF F INAN CIAL I N STRUMEN TS Unless otherwise stated, the carrying amounts of financial instruments reflect their fair value. NOTE 29. KEY MANAGEMEN T PERSONNEL DISCLOSU RES D IRECTORS The following persons were directors of Donaco International Limited during the financial year: Stuart James McGregor Joey Lim Keong Yew Benedict Paul Reichel Non-executive Director and Chairman Managing Director and CEO Executive Director and Company Secretary Benjamin Lim Keong Hoe Non-executive Director OTH ER KEY M ANAG EMEN T 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: Kenny Goh Kwey Biaw Deputy Chief Financial Officer and CEO of Donaco Singapore (retired 31 March 2018) Chong Kwong Yang Chief Financial Officer Att Asavanund Chief Operating Officer and Deputy CEO (resigned 31 August 2017) Robert Andrew Hines Non-executive Director COM PENSATION Ham Techatut Sukjaroenkraisri Executive Director (retired 23 November 2017) Paul Porntat Amatavivadhana Non-executive Director (resigned 3 July 2017) The aggregate compensation made to directors and other members of key management personnel of the consolidated entity is shown below. WEIGHTED AVERAGE INTEREST RATE % – – $ $ 4,842,651 6,624,856 – – 8.19 24,594,915 45,806,572 36,062,422 45,806,572 Consolidated – 2018 Non-derivatives Non-interest bearing Trade payables Floating chips Interest bearing – variable Bank loans Total non-derivatives 66 66 $ – – – – $ – – – – $ 4,842,651 6,624,856 70,401,487 81,868,994 Short-term employee benefits Post-employment benefits Share-based payments CONSOLIDATED 2018 $ 2017 $ 2,744,060 3,148,000 326,958 259,516 103,293 196,804 3,330,534 3,448,097 6767 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018 NOTE 3 0. REMUNER ATION OF AUDITORS During the financial year the following fees were paid or payable for services provided by Crowe Horwath the auditor of the company, and unrelated firms. Audit services – Crowe Horwath Sydney Audit or review of the financial statements Audit services – related firms Audit or review of the financial statements Preparation of the tax return Audit services – unrelated firms Audit or review of the financial statements Other services – unrelated firms Preparation of the tax return NOTE 3 1. COMMITMENTS Capital commitments Committed at the reporting date but not recognised as liabilities, payable: Property construction works Property, plant and equipment Car Lease commitments – operating Committed at the reporting date but not recognised as liabilities, payable: Within one year One to five years More than five years CONSOLIDATED 2018 $ 97,500 97,500 206,044 984 207,028 2017 $ 97,500 97,500 239,202 1,022 240,224 72,660 74,135 1,803 74,463 5,019 79,154 CONSOLIDATED 2018 $ 2017 $ 599,871 37,914 – 637,785 637,089 – 44,028 681,117 311,063 659,182 7,580,362 8,550,607 371,396 792,453 7,443,115 8,606,964 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 NOTE 32. RELATED PARTY TRANSACTIONS PAREN T E NTI TY Donaco International Limited is the legal parent entity. Donaco International Limited is listed on the Australian Securities Exchange (ASX: DNA). Interests in subsidiaries are set out in note 34. KEY M ANAGE MEN T PERSONNEL Disclosures relating to key management personnel are set out in note 29 and the remuneration report included in the directors’ report. TRANSACTI ON S WI TH RELATED PARTIES The following transactions occurred with related parties during 2018. Leasing fees paid to Lee Hoe Property Co., Ltd – a director-related entity Rental received from director’s immediate family Technical support fees paid by Lao Cai JVC to iSentric Limited – a director-related entity CONSOLIDATED 2018 $ 77,382 58,332 139,243 2017 $ 156,012 111,734 187,214 Management fees received for Star Paradise Casino property from MMD Travel Co Ltd – a director-related entity 477,992 2,338,782 Disposal of property, plant and equipment to previous owner of DNA Star Vegas Co, Ltd – a director-related entity 141,351 586,237 The above transactions occurred at commercial rates. In 2017, the following transactions occurred with parties who ceased to be related parties during 2018: Labour hire fee paid to Star Vegas Resort & Club Co, Ltd – a director-related entity Licence agreement for occupation of office space paid to Infinite Capital Co., Ltd – a director-related entity Management fees accrued to previous owner of DNA Star Vegas Co, Ltd – a director-related entity – – – 11,959,472 45,840 19,045,688 There were no other payables or receivables from related parties at the current or previous reporting date. 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. 68 68 6969 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTE 3 0. REMUNER ATION OF AUDITORS During the financial year the following fees were paid or payable for services provided by Crowe Horwath the auditor of the company, and unrelated firms. Audit services – Crowe Horwath Sydney Audit or review of the financial statements Audit services – related firms Audit or review of the financial statements Preparation of the tax return Audit services – unrelated firms Audit or review of the financial statements Other services – unrelated firms Preparation of the tax return NOTE 3 1. COMMITMENTS Capital commitments Committed at the reporting date but not recognised as liabilities, payable: Property construction works Property, plant and equipment Car Lease commitments – operating Committed at the reporting date but not recognised as liabilities, payable: Within one year One to five years More than five years CONSOLIDATED 2018 $ 97,500 97,500 206,044 984 207,028 2017 $ 97,500 97,500 239,202 1,022 240,224 72,660 74,135 1,803 74,463 5,019 79,154 CONSOLIDATED 2018 $ 2017 $ 599,871 37,914 – 637,785 637,089 – 44,028 681,117 311,063 659,182 7,580,362 8,550,607 371,396 792,453 7,443,115 8,606,964 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 NOTE 32. RELATED PARTY TRANSACTIONS PAREN T E NTI TY Donaco International Limited is the legal parent entity. Donaco International Limited is listed on the Australian Securities Exchange (ASX: DNA). Interests in subsidiaries are set out in note 34. KEY M ANAGE MEN T PERSONNEL Disclosures relating to key management personnel are set out in note 29 and the remuneration report included in the directors’ report. TRANSACTI ON S WI TH RELATED PARTIES The following transactions occurred with related parties during 2018. Leasing fees paid to Lee Hoe Property Co., Ltd – a director-related entity Rental received from director’s immediate family Technical support fees paid by Lao Cai JVC to iSentric Limited – a director-related entity CONSOLIDATED 2018 $ 77,382 58,332 139,243 2017 $ 156,012 111,734 187,214 Management fees received for Star Paradise Casino property from MMD Travel Co Ltd – a director-related entity 477,992 2,338,782 Disposal of property, plant and equipment to previous owner of DNA Star Vegas Co, Ltd – a director-related entity 141,351 586,237 The above transactions occurred at commercial rates. In 2017, the following transactions occurred with parties who ceased to be related parties during 2018: Labour hire fee paid to Star Vegas Resort & Club Co, Ltd – a director-related entity Licence agreement for occupation of office space paid to Infinite Capital Co., Ltd – a director-related entity Management fees accrued to previous owner of DNA Star Vegas Co, Ltd – a director-related entity – – – 11,959,472 45,840 19,045,688 There were no other payables or receivables from related parties at the current or previous reporting date. 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. 68 68 6969 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTE 3 3. PA RENT ENTITY IN FO RMAT ION NOTE 34. INTERESTS IN SUBSIDIARIES Set out below is the supplementary information about the parent entity. The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1. Statement of profit or loss and other comprehensive income Profit after income tax Total comprehensive income Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Issued capital Employee share option reserve Accumulated losses Total equity PARENT 2018 $ 2017 $ (344,111) (344,111) 2,015,705 2,015,705 22,588,546 19,672,065 372,987,687 370,065,828 43,137,126 33,990,140 43,179,534 33,982,653 406,620,031 407,931,972 2,809,651 3,295,396 (79,621,529) (75,144,193) 329,808,153 336,083,175 GUAR ANTEES ENTERED INTO BY T HE PAR E NT ENTITY IN RELATION TO THE DEBT S OF ITS SUB SID IARIES As at 30 June 2018, the parent entity acts as a guarantor for the facility provided by Mega International Commercial Bank Co. Ltd to a controlled entity, Donaco Hong Kong Limited. CONTINGENT LIABILITIES The parent entity had no contingent liabilities as at 30 June 2018 and 30 June 2017. CAPITAL COMMITMENTS – PROP E RTY, P L A NT AND EQUIPMENT The parent entity had no capital commitments for property, plant and equipment at as 30 June 2018 and 30 June 2017. SIGN IFIC AN T ACCOU NTIN G P OL IC IE S 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. Name Donaco Australia Pty Ltd Donaco Singapore Pte Ltd Donaco Holdings Ltd * Donaco Holdings Sdn Bhd * Lao Cai International Hotel Joint Venture Company * Donaco Hong Kong Limited Prime Standard Limited Donaco Holdings (Hong Kong) Pte Ltd * DNA Star Vegas Co. Limited ** Donaco Entertainment & Marketing (Thailand) Ltd * Donaco Investment (S) Pte Ltd * Subsidiary of Donaco Singapore Pty Ltd * ** Subsidiary of Donaco Hong Kong Limited The principal activities of each subsidiary are: Donaco Australia Pty Ltd OWNERSHIP INTEREST Principal place of business/ Country of incorporation 2018 2017 Australia Singapore British Virgin Islands Malaysia Vietnam Hong Kong Hong Kong Hong Kong Cambodia Thailand Singapore % 100 100 100 100 95 100 100 100 100 49 100 % 100 100 100 100 95 100 100 100 100 49 – Dormant (previously operated New Zealand games service, discontinued in January 2015). Donaco Singapore Pte Ltd Holding company for Vietnamese casino operations. Donaco Holdings Ltd Cost centre for corporate operations. Donaco Holdings Sdn Bhd Cost centre for corporate operations. Donaco Holdings (Hong Kong) Pte Ltd Cost centre for corporate operations and marketing activities. Lao Cai International Hotel Joint Venture Company Operates Vietnamese casino operations. Donaco Hong Kong Limited Holding company for Cambodian casino operations. Prime Standard Limited Dormant (previously cost centre for corporate operations). DNA Star Vegas Co. Limited Operates Cambodian casino operations. Donaco Entertainment & Marketing (Thailand) Ltd Dormant (previously provided marketing services). While the ownership of this entity is below 50%, it is considered a controlled entity due to the provisions of the shareholders agreement which give the consolidated entity the right to appoint a majority of the board. Donaco Investment (S) Pte Ltd Investment company. 70 70 7171 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018 NOTE 3 3. PA RENT ENTITY IN FO RMAT ION NOTE 34. INTERESTS IN SUBSIDIARIES Set out below is the supplementary information about the parent entity. The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1. Statement of profit or loss and other comprehensive income Profit after income tax Total comprehensive income Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Issued capital Employee share option reserve Accumulated losses Total equity PARENT 2018 $ 2017 $ (344,111) (344,111) 2,015,705 2,015,705 22,588,546 19,672,065 372,987,687 370,065,828 43,137,126 33,990,140 43,179,534 33,982,653 406,620,031 407,931,972 2,809,651 3,295,396 (79,621,529) (75,144,193) 329,808,153 336,083,175 GUAR ANTEES ENTERED INTO BY T HE PAR E NT ENTITY IN RELATION TO THE DEBT S OF ITS SUB SID IARIES As at 30 June 2018, the parent entity acts as a guarantor for the facility provided by Mega International Commercial Bank Co. Ltd to a controlled entity, Donaco Hong Kong Limited. CONTINGENT LIABILITIES The parent entity had no contingent liabilities as at 30 June 2018 and 30 June 2017. CAPITAL COMMITMENTS – PROP E RTY, P L A NT AND EQUIPMENT The parent entity had no capital commitments for property, plant and equipment at as 30 June 2018 and 30 June 2017. SIGN IFIC AN T ACCOU NTIN G P OL IC IE S 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. Name Donaco Australia Pty Ltd Donaco Singapore Pte Ltd Donaco Holdings Ltd * Donaco Holdings Sdn Bhd * Lao Cai International Hotel Joint Venture Company * Donaco Hong Kong Limited Prime Standard Limited Donaco Holdings (Hong Kong) Pte Ltd * DNA Star Vegas Co. Limited ** Donaco Entertainment & Marketing (Thailand) Ltd * Donaco Investment (S) Pte Ltd * Subsidiary of Donaco Singapore Pty Ltd * ** Subsidiary of Donaco Hong Kong Limited The principal activities of each subsidiary are: Donaco Australia Pty Ltd OWNERSHIP INTEREST Principal place of business/ Country of incorporation 2018 2017 Australia Singapore British Virgin Islands Malaysia Vietnam Hong Kong Hong Kong Hong Kong Cambodia Thailand Singapore % 100 100 100 100 95 100 100 100 100 49 100 % 100 100 100 100 95 100 100 100 100 49 – Dormant (previously operated New Zealand games service, discontinued in January 2015). Donaco Singapore Pte Ltd Holding company for Vietnamese casino operations. Donaco Holdings Ltd Cost centre for corporate operations. Donaco Holdings Sdn Bhd Cost centre for corporate operations. Donaco Holdings (Hong Kong) Pte Ltd Cost centre for corporate operations and marketing activities. Lao Cai International Hotel Joint Venture Company Operates Vietnamese casino operations. Donaco Hong Kong Limited Holding company for Cambodian casino operations. Prime Standard Limited Dormant (previously cost centre for corporate operations). DNA Star Vegas Co. Limited Operates Cambodian casino operations. Donaco Entertainment & Marketing (Thailand) Ltd Dormant (previously provided marketing services). While the ownership of this entity is below 50%, it is considered a controlled entity due to the provisions of the shareholders agreement which give the consolidated entity the right to appoint a majority of the board. Donaco Investment (S) Pte Ltd Investment company. 70 70 7171 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018 NOTE 3 4. I NTERESTS IN SU BS IDIARIES CONTINUED NOTE 36. NET CASH FLOWS F ROM OP ER ATING ACTIVITI ES S UMMARISED FINANCIAL INFORM AT ION Summarised financial information of the subsidiary with non-controlling interests that are material to the consolidated entity are shown below. CONSOLIDATED 2018 $ 2017 $ LAO CAI I NTERNATIONAL HOT EL JOINT V E NT URE COM PA NY a) Reconciliation of (loss)/profit after income tax to net cash from operating activities (Loss)/profit after income tax expense for the year (124,248,871) 31,189,049 Adjustments for: Depreciation and amortisation Impairment of assets Share-based payments Non-cash finance costs Gain on revaluation of derivative financial liability Change in operating assets and liabilities: Decrease in trade and other receivables (Increase)/decrease in inventories (Increase)/decrease in other operating assets Decrease in trade and other payables Increase/(decrease) in provision for income tax Increase in provisions for employee benefits Net cash from operating activities b) Change in liabilities arising from financing activities Borrowings at beginning of the year (note 22) Repayments Foreign exchange adjustments Other non-cash movements Borrowings at end of the year (note 22) 9,981,320 10,129,299 143,860,973 280,269 198,785 273,716 3,839,305 8,037,166 (681,507) (1,113,012) 9,505,655 (503,870) (1,390,974) 5,581,440 525,402 38,057 (7,180,789) (7,587,489) 880,635 290,058 (432,382) 515,367 34,632,204 47,355,398 2018 $ 108,462,225 (44,326,139) 2,426,096 3,839,305 70,401,487 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 Statement of cash flows Net cash from operating activities Net cash used in investing activities Net cash used in financing activities Net (decrease)/increase in cash and cash equivalents Other financial information Profit attributable to non-controlling interests Accumulated non-controlling interests at the end of reporting period 2018 $ 2017 $ 18,440,168 14,894,013 68,654,062 54,766,529 87,094,230 69,660,542 20,065,651 18,413,616 11,816,389 13,326,362 31,882,040 31,739,978 55,212,190 37,920,564 25,963,606 26,186,141 (17,078,032) (19,093,638) 8,885,574 (1,035,477) 7,850,097 7,092,503 (880,886) 6,211,617 6,077,364 13,982,466 (1,529,638) (1,556,309) (7,652,100) (9,897,377) (3,104,374) 2,528,780 261,944 198,751 1,799,990 1,335,096 NOTE 3 5. EVE NTS A FTER TH E R EP ORT ING PERIOD S HARE OPTIONS On 29 June 2018 the company announced the expiration of 2,930,625 options on 1 July 2018 in accordance with their terms. The options were part of the FY14, FY15 and FY16 option series. Currently, there are 2,514,186 remaining options on issue. TE RMINATIO N O F VI VO AR RA NG EM ENT On 23 August 2018, the contract between DNA Star Vegas Co., Ltd and Vivo Tower Holdings Limited (‘Vivo’), announced to the market on 16 June 2017, was terminated. DNA Star Vegas will now receive direct rental payments from the sub-licensees brought into the Star Vegas property by Vivo, which will substantially replace the fixed fee previously paid by Vivo. Under a new agreement, Vivo’s role is to market and manage the online gaming platform owned by DNA Star Vegas, in return for a revenue share. The directors are not aware of any other events subsequent to the reporting period that may have a material impact on the financial statements. 72 72 7373 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTE 3 4. I NTERESTS IN SU BS IDIARIES CONTINUED NOTE 36. NET CASH FLOWS F ROM OP ER ATING ACTIVITI ES S UMMARISED FINANCIAL INFORM AT ION Summarised financial information of the subsidiary with non-controlling interests that are material to the consolidated entity are shown below. CONSOLIDATED 2018 $ 2017 $ LAO CAI I NTERNATIONAL HOT EL JOINT V E NT URE COM PA NY a) Reconciliation of (loss)/profit after income tax to net cash from operating activities (Loss)/profit after income tax expense for the year (124,248,871) 31,189,049 Adjustments for: Depreciation and amortisation Impairment of assets Share-based payments Non-cash finance costs Gain on revaluation of derivative financial liability Change in operating assets and liabilities: Decrease in trade and other receivables (Increase)/decrease in inventories (Increase)/decrease in other operating assets Decrease in trade and other payables Increase/(decrease) in provision for income tax Increase in provisions for employee benefits Net cash from operating activities b) Change in liabilities arising from financing activities Borrowings at beginning of the year (note 22) Repayments Foreign exchange adjustments Other non-cash movements Borrowings at end of the year (note 22) 9,981,320 10,129,299 143,860,973 280,269 198,785 273,716 3,839,305 8,037,166 (681,507) (1,113,012) 9,505,655 (503,870) (1,390,974) 5,581,440 525,402 38,057 (7,180,789) (7,587,489) 880,635 290,058 (432,382) 515,367 34,632,204 47,355,398 2018 $ 108,462,225 (44,326,139) 2,426,096 3,839,305 70,401,487 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 Statement of cash flows Net cash from operating activities Net cash used in investing activities Net cash used in financing activities Net (decrease)/increase in cash and cash equivalents Other financial information Profit attributable to non-controlling interests Accumulated non-controlling interests at the end of reporting period 2018 $ 2017 $ 18,440,168 14,894,013 68,654,062 54,766,529 87,094,230 69,660,542 20,065,651 18,413,616 11,816,389 13,326,362 31,882,040 31,739,978 55,212,190 37,920,564 25,963,606 26,186,141 (17,078,032) (19,093,638) 8,885,574 (1,035,477) 7,850,097 7,092,503 (880,886) 6,211,617 6,077,364 13,982,466 (1,529,638) (1,556,309) (7,652,100) (9,897,377) (3,104,374) 2,528,780 261,944 198,751 1,799,990 1,335,096 NOTE 3 5. EVE NTS A FTER TH E R EP ORT ING PERIOD S HARE OPTIONS On 29 June 2018 the company announced the expiration of 2,930,625 options on 1 July 2018 in accordance with their terms. The options were part of the FY14, FY15 and FY16 option series. Currently, there are 2,514,186 remaining options on issue. TE RMINATIO N O F VI VO AR RA NG EM ENT On 23 August 2018, the contract between DNA Star Vegas Co., Ltd and Vivo Tower Holdings Limited (‘Vivo’), announced to the market on 16 June 2017, was terminated. DNA Star Vegas will now receive direct rental payments from the sub-licensees brought into the Star Vegas property by Vivo, which will substantially replace the fixed fee previously paid by Vivo. Under a new agreement, Vivo’s role is to market and manage the online gaming platform owned by DNA Star Vegas, in return for a revenue share. The directors are not aware of any other events subsequent to the reporting period that may have a material impact on the financial statements. 72 72 7373 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTE 3 7. EARNIN GS PER SHA R E Set out below are summaries of options outstanding under the plan during the year ended 30 June 2018: Earnings per share for (loss)/profit from continuing operations (Loss)/profit after income tax Non-controlling interest CONSOLIDATED 2018 $ 2017 $ (124,248,871) 31,189,049 (261,944) (198,751) (Loss)/profit after income tax attributable to the owners of Donaco International Limited (124,510,815) 30,990,298 Weighted average number of ordinary shares used in calculating basic earnings per share 828,178,915 831,211,424 Adjustments for calculation of diluted earnings per share: Options over ordinary shares – – Weighted average number of ordinary shares used in calculating diluted earnings per share 828,178,915 831,211,424 CONSOLIDATED 2018 2017 Numbers Numbers GRANT DATE EXPIRY DATE EXERCISE PRICE BALANCE AT START OF THE YEAR GRANTED EXERCISED 01/07/2014 01/07/2017 01/07/2014 01/07/2018 01/07/2015 01/07/2017 01/07/2015 01/07/2018 01/07/2015 01/07/2019 25/08/2015 01/07/2018 25/08/2015 01/07/2019 25/08/2015 01/07/2020 $0.59 $0.59 $0.89 $0.89 $0.89 $0.77 $0.77 $0.77 1,194,836 1,149,717 457,047 395,208 349,377 1,385,700 1,156,784 1,008,025 7,096,694 – – – – – – – – – – – – – – – – – – EXPIRED/ FORFEITED/ OTHER BALANCE AT THE END OF THE YEAR (1,194,836) – – 1,149,717 (457,047) – – – – – – 395,208 349,377 1,385,700 1,156,784 1,008,025 (1,651,883) 5,444,811 Set out below are the options exercisable at the end of the financial year: GRANT DATE EXPIRY DATE EXERCISE PRICE NUMBER NUMBER Basic earnings per share Diluted earnings per share CONSOLIDATED 2018 Cents (15.03) (15.03) 2017 Cents 3.73 3.73 01/07/2014 01/07/2014 01/07/2015 01/07/2015 25/08/2015 01/07/2015 01/07/2017 01/07/2018 01/07/2017 01/07/2018 01/07/2018 01/07/2019 $ 0.59 0.59 0.89 0.89 0.77 0.89 2018 2017 – 1,149,717 – 395,208 1,385,700 349,377 3,280,002 1,194,836 1,149,717 457,047 395,208 1,385,700 – 4,582,508 The weighted average share price during the financial year was $0.34 (2017: $0.43). The weighted average remaining contractual life of options outstanding at the end of the financial year was 0.65 years (2017: 1.27 years). The weighted average exercise price for all outstanding options is $0.75 (2017: $0.73). An additional 5,444,811 options over ordinary shares and 12,339,408 shares subject to warrants are anti-dilutive and have been excluded from the above calculations as the exercise price of these options and warrants exceeds the average market share price during the year. NOTE 3 8. S HARE-BA SE D PAYM EN TS EMPLOYEE SHARES Share allocation FY18 Under the employee share scheme, 1,781,429 shares were issued to employees on 3 October 2017, held by an employee share trust. These shares were issued at 41.99 cents per share and will vest over the three-year vesting period commencing on 1 July 2017. EMPLOYEE OPT IONS Employee option allocation FY14 At the Annual General Meeting on 21 November 2013, shareholders approved the establishment of a LTI plan for executives, consisting of the annual 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. Employee option allocation FY15 Pursuant to the approval granted by shareholders at the FY13 Annual General Meeting, further options were contributed to the OST for FY15. These options were not contributed to the OST until 1 July 2015, and accordingly employees were not allocated additional units in the OST until 1 July 2015. Employee option allocation FY16 Pursuant to the approval granted by shareholders at the FY13 Annual General Meeting, further options were contributed to the OST for FY16. These options were contributed to the OST and employees were allocated additional units on 25 August 2015. 74 74 7575 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018 NOTE 3 7. EARNIN GS PER SHA R E Set out below are summaries of options outstanding under the plan during the year ended 30 June 2018: Earnings per share for (loss)/profit from continuing operations (Loss)/profit after income tax Non-controlling interest CONSOLIDATED 2018 $ 2017 $ (124,248,871) 31,189,049 (261,944) (198,751) (Loss)/profit after income tax attributable to the owners of Donaco International Limited (124,510,815) 30,990,298 Weighted average number of ordinary shares used in calculating basic earnings per share 828,178,915 831,211,424 Adjustments for calculation of diluted earnings per share: Options over ordinary shares – – Weighted average number of ordinary shares used in calculating diluted earnings per share 828,178,915 831,211,424 CONSOLIDATED 2018 2017 Numbers Numbers GRANT DATE EXPIRY DATE EXERCISE PRICE BALANCE AT START OF THE YEAR GRANTED EXERCISED 01/07/2014 01/07/2017 01/07/2014 01/07/2018 01/07/2015 01/07/2017 01/07/2015 01/07/2018 01/07/2015 01/07/2019 25/08/2015 01/07/2018 25/08/2015 01/07/2019 25/08/2015 01/07/2020 $0.59 $0.59 $0.89 $0.89 $0.89 $0.77 $0.77 $0.77 1,194,836 1,149,717 457,047 395,208 349,377 1,385,700 1,156,784 1,008,025 7,096,694 – – – – – – – – – – – – – – – – – – EXPIRED/ FORFEITED/ OTHER BALANCE AT THE END OF THE YEAR (1,194,836) – – 1,149,717 (457,047) – – – – – – 395,208 349,377 1,385,700 1,156,784 1,008,025 (1,651,883) 5,444,811 Set out below are the options exercisable at the end of the financial year: GRANT DATE EXPIRY DATE EXERCISE PRICE NUMBER NUMBER Basic earnings per share Diluted earnings per share CONSOLIDATED 2018 Cents (15.03) (15.03) 2017 Cents 3.73 3.73 01/07/2014 01/07/2014 01/07/2015 01/07/2015 25/08/2015 01/07/2015 01/07/2017 01/07/2018 01/07/2017 01/07/2018 01/07/2018 01/07/2019 $ 0.59 0.59 0.89 0.89 0.77 0.89 2018 2017 – 1,149,717 – 395,208 1,385,700 349,377 3,280,002 1,194,836 1,149,717 457,047 395,208 1,385,700 – 4,582,508 The weighted average share price during the financial year was $0.34 (2017: $0.43). The weighted average remaining contractual life of options outstanding at the end of the financial year was 0.65 years (2017: 1.27 years). The weighted average exercise price for all outstanding options is $0.75 (2017: $0.73). An additional 5,444,811 options over ordinary shares and 12,339,408 shares subject to warrants are anti-dilutive and have been excluded from the above calculations as the exercise price of these options and warrants exceeds the average market share price during the year. NOTE 3 8. S HARE-BA SE D PAYM EN TS EMPLOYEE SHARES Share allocation FY18 Under the employee share scheme, 1,781,429 shares were issued to employees on 3 October 2017, held by an employee share trust. These shares were issued at 41.99 cents per share and will vest over the three-year vesting period commencing on 1 July 2017. EMPLOYEE OPT IONS Employee option allocation FY14 At the Annual General Meeting on 21 November 2013, shareholders approved the establishment of a LTI plan for executives, consisting of the annual 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. Employee option allocation FY15 Pursuant to the approval granted by shareholders at the FY13 Annual General Meeting, further options were contributed to the OST for FY15. These options were not contributed to the OST until 1 July 2015, and accordingly employees were not allocated additional units in the OST until 1 July 2015. Employee option allocation FY16 Pursuant to the approval granted by shareholders at the FY13 Annual General Meeting, further options were contributed to the OST for FY16. These options were contributed to the OST and employees were allocated additional units on 25 August 2015. 74 74 7575 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018NOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018 NOTE 39. CONTINGENT ASSETS AND LIABILITIES CO URT PRO CE EDI NGS During the year to 30 June 2018, the company commenced proceedings against the vendor for breach of non- competition clauses under the agreements of the sale and purchase of Star Vegas. The company obtained an injunction on 25 December 2017, ordering the closure of the Star Paradise and Star Paramax casinos which were illegally operated by the vendor. A further appeal was submitted to a higher court by the vendor, contesting against the injunction. As at the date of this report, the appeal has not been resolved. The vendor had also attempted to seek security rights over certain assets of Star Vegas in relation to his claim for the unpaid FY2017 management fee, however this was rejected by the court on 6 July 2018. The vendors are also joint owners of a Cambodian company, Lee Hoe Property Co. Ltd, which owns and leases the land occupied by the Star Vegas business. During the reporting period, threats were made by the vendor to terminate the lease, however an injunction against this was granted in favour of the company. The vendor has commenced arbitration proceedings in Cambodia which is likely to take three to six months to resolve. On 20 August 2018, the lessor obtained an order allowing him to develop the land outside the Star Vegas boundary, which was always agreed under the lease, provided that no competing casino or gaming business is built. The vendor has also commenced defamation proceedings in Thailand against Donaco and two of its directors, seeking damages of THB1 million (equivalent to $40,900). No amounts have been recognised as at 30 June 2018 in relation to these proceedings as they are still in the early stages and no damages have been determined. As at 30 June 2018, Donaco was also in the process of enforcing its legal rights via arbitration proceedings in Singapore. Having considered expert legal and financial advice, the company has increased the size of its damages claim from US$120 million (equivalent to $162 million) to US$190 million (equivalent to $257 million). The hearing date is currently set for July 2019. No amount receivable has been recognised as at 30 June 2018 given the delayed hearing date and the uncertainty over the outcome of the proceedings. DI RECTOR’S DECLAR ATION for the year ended 30 June 2018 In the directors’ opinion: • • • • the attached financial statements and notes 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 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 give a true and fair view of the consolidated entity’s financial position as at 30 June 2018 and of its performance for the financial year ended on that date 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 28 September 2018 Melbourne 7777 “As at 30 June 2018, Donaco was also in the process of enforcing its legal rights via arbitration proceedings in Singapore. Having considered expert legal and financial advice, the company has increased the size of its damages claim from US$120 million (equivalent to $162 million) to US$190 million (equivalent to $257 million).” 76 76 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018 NOTE 39. CONTINGENT ASSETS AND LIABILITIES CO URT PRO CE EDI NGS During the year to 30 June 2018, the company commenced proceedings against the vendor for breach of non- competition clauses under the agreements of the sale and purchase of Star Vegas. The company obtained an injunction on 25 December 2017, ordering the closure of the Star Paradise and Star Paramax casinos which were illegally operated by the vendor. A further appeal was submitted to a higher court by the vendor, contesting against the injunction. As at the date of this report, the appeal has not been resolved. The vendor had also attempted to seek security rights over certain assets of Star Vegas in relation to his claim for the unpaid FY2017 management fee, however this was rejected by the court on 6 July 2018. The vendors are also joint owners of a Cambodian company, Lee Hoe Property Co. Ltd, which owns and leases the land occupied by the Star Vegas business. During the reporting period, threats were made by the vendor to terminate the lease, however an injunction against this was granted in favour of the company. The vendor has commenced arbitration proceedings in Cambodia which is likely to take three to six months to resolve. On 20 August 2018, the lessor obtained an order allowing him to develop the land outside the Star Vegas boundary, which was always agreed under the lease, provided that no competing casino or gaming business is built. The vendor has also commenced defamation proceedings in Thailand against Donaco and two of its directors, seeking damages of THB1 million (equivalent to $40,900). No amounts have been recognised as at 30 June 2018 in relation to these proceedings as they are still in the early stages and no damages have been determined. As at 30 June 2018, Donaco was also in the process of enforcing its legal rights via arbitration proceedings in Singapore. Having considered expert legal and financial advice, the company has increased the size of its damages claim from US$120 million (equivalent to $162 million) to US$190 million (equivalent to $257 million). The hearing date is currently set for July 2019. No amount receivable has been recognised as at 30 June 2018 given the delayed hearing date and the uncertainty over the outcome of the proceedings. DI RECTOR’S DECLAR ATION for the year ended 30 June 2018 In the directors’ opinion: • • • • the attached financial statements and notes 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 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 give a true and fair view of the consolidated entity’s financial position as at 30 June 2018 and of its performance for the financial year ended on that date 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 28 September 2018 Melbourne 7777 “As at 30 June 2018, Donaco was also in the process of enforcing its legal rights via arbitration proceedings in Singapore. Having considered expert legal and financial advice, the company has increased the size of its damages claim from US$120 million (equivalent to $162 million) to US$190 million (equivalent to $257 million).” 76 76 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTNOTES TO THE FINANCIAL STATEMENTS for the year ended 30 June 2018 INDEPENDEN T AU DI TOR ’S REP ORT TO THE MEMBER S OF D ONACO INT ERNAT IONA L L IMIT ED IN DEPEND EN T AU DITO R’S REP ORT TO THE MEMBER S OF DONACO I N TER NATI ONAL LIMITED R EP ORT ON THE AU D IT OF TH E FINA NCIAL REPORT Decentralised operations Opinion We have audited the financial report of Donaco International Limited (the company) and its subsidiaries (the consolidated entity), which comprises the consolidated statement of financial position as at 30 June 2018, 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, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the consolidated entity is in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2018 and of its financial performance for the year then ended; and (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the consolidated entity in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Crowe Horwath Sydney is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and independent legal entity. Liability limited by a scheme approved under professional standards legislation. Liability limited other than for the acts or omissions of financial services licensees. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. KEY AUDIT MATTER HOW WE ADDRESSED THE KEY AUDIT MATTER The consolidated entity comprises subsidiaries (components) whose operations are spread across Cambodia, Vietnam and Hong Kong. The decentralised and varied nature of these operations require significant oversight by management to monitor the activities, to review financial reporting by the components, and to undertake the consolidated entity’s consolidation. This matter has been identified as a key audit matter given the following: • number and significance of the subsidiaries to the consolidated entity Our audit procedures included, amongst others, the following: • visited and held discussion with the component auditor of DNA Star Vegas Co. Limited • held discussions with the component auditors of Donaco Hong Kong Limited and Lao Cai International Hotel Joint Venture Company • tailored our group reporting instructions and designed audit procedures based on information obtained during audit planning and our assessment of the consolidated entity’s overall audit risks • varied nature of the operations and accounting systems • maintained communication with the component auditors and processes throughout the audit process • manual nature of the consolidation process • evaluated the work performed by the component auditors • multiple foreign currencies involved. for sufficiency for our overall group audit purpose • agreed the financial data used in the consolidation to the component auditors’ group reporting • tested the mathematical accuracy of the consolidation workings, including reperforming foreign currency translations and evaluating the completeness and accuracy of the consolidation elimination entries. Crowe Horwath Sydney is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and independent legal entity. Liability limited by a scheme approved under professional standards legislation. Liability limited other than for the acts or omissions of financial services licensees. 78 78 7979 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTINDEPENDEN T AU DI TOR ’S REP ORT TO THE MEMBER S OF D ONACO INT ERNAT IONA L L IMIT ED IN DEPEND EN T AU DITO R’S REP ORT TO THE MEMBER S OF DONACO I N TER NATI ONAL LIMITED R EP ORT ON THE AU D IT OF TH E FINA NCIAL REPORT Decentralised operations Opinion We have audited the financial report of Donaco International Limited (the company) and its subsidiaries (the consolidated entity), which comprises the consolidated statement of financial position as at 30 June 2018, 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, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the consolidated entity is in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2018 and of its financial performance for the year then ended; and (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the consolidated entity in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Crowe Horwath Sydney is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and independent legal entity. Liability limited by a scheme approved under professional standards legislation. Liability limited other than for the acts or omissions of financial services licensees. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. KEY AUDIT MATTER HOW WE ADDRESSED THE KEY AUDIT MATTER The consolidated entity comprises subsidiaries (components) whose operations are spread across Cambodia, Vietnam and Hong Kong. The decentralised and varied nature of these operations require significant oversight by management to monitor the activities, to review financial reporting by the components, and to undertake the consolidated entity’s consolidation. This matter has been identified as a key audit matter given the following: • number and significance of the subsidiaries to the consolidated entity Our audit procedures included, amongst others, the following: • visited and held discussion with the component auditor of DNA Star Vegas Co. Limited • held discussions with the component auditors of Donaco Hong Kong Limited and Lao Cai International Hotel Joint Venture Company • tailored our group reporting instructions and designed audit procedures based on information obtained during audit planning and our assessment of the consolidated entity’s overall audit risks • varied nature of the operations and accounting systems • maintained communication with the component auditors and processes throughout the audit process • manual nature of the consolidation process • evaluated the work performed by the component auditors • multiple foreign currencies involved. for sufficiency for our overall group audit purpose • agreed the financial data used in the consolidation to the component auditors’ group reporting • tested the mathematical accuracy of the consolidation workings, including reperforming foreign currency translations and evaluating the completeness and accuracy of the consolidation elimination entries. Crowe Horwath Sydney is a member of Crowe Horwath International, a Swiss verein. Each member of Crowe Horwath is a separate and independent legal entity. Liability limited by a scheme approved under professional standards legislation. Liability limited other than for the acts or omissions of financial services licensees. 78 78 7979 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTINDEPENDEN T AU DI TOR ’S REP ORT TO THE MEMBER S OF D ONACO INT ERNAT IONA L L IMIT ED IN DEPEND EN T AU DITO R’S REP ORT TO THE MEMBER S OF DONACO I N TER NATI ONAL LIMITED Impairment assessment of intangible assets (Note 14) Contingent assets and liabilities (Note 39) KEY AUDIT MATTER HOW WE ADDRESSED THE KEY AUDIT MATTER KEY AUDIT MATTER HOW WE ADDRESSED THE KEY AUDIT MATTER The consolidated entity recorded a casino licence asset of $251.61 million as at 30 June 2018. The licence is classified as an intangible asset with indefinite useful life and is subject to annual impairment assessment. Impairment of $143.86 million was recognised in the statement of profit or loss and other comprehensive income for the year based on the annual impairment assessment made as at 31 December 2017. At 30 June 2018, management performed an impairment indicators assessment and concluded that no further impairment testing was required. The impairment assessment of the intangible asset is a key audit matter because of the complexity and subjectivity involved, specifically in relation to the Fair Value less Cost of Disposal model adopted by management and the key assumptions that are used to determine the inputs to the assessment. Our audit procedures included, amongst others, the following: Annual impairment assessment made as at 31 December 2017 • Assessed management’s determination of the cash generating unit (‘CGU’) and the CGU’s carrying value. • Assessed reasonableness of cash flow forecasts by comparing the base year in the forecast calculation to the current period’s actual results. • Assessed the appropriateness of the currency used in the model. The cash flow forecast is calculated in the Thai baht (THB) and translated to the US dollar (USD) at the valuation date. • Together with our valuation specialists, assessed reasonableness of the key assumptions used, being revenue growth rate, discount rate, terminal growth rate and discount for lack of marketability. • Together with our valuation specialists, tested the mathematical accuracy and components of the model that supports the impairment assessment. • Checked the sensitivity of the impairment assessment by focusing on the discount for lack of marketability and THB/ USD translation rate. • Evaluated the adequacy of the judgements and sources of estimation uncertainty disclosures in the consolidated financial report. Management’s conclusion that there was no further impairment indications as at 30 June 2018 • Held discussions with management and assessed the reasonableness of the management’s impairment indicators assessment. • Assessed the reasonableness of the market inputs used by management in calculating the discount rate as at 30 June 2018. • Reviewed reasonableness of the management’s forecast for the year ending 30 June 2019. The group is a party to several ongoing legal actions both initiated by and directed against its subsidiaries. Outcomes of these proceedings were uncertain at 30 June 2018. We determined this to be a key audit matter given the materiality of the amounts involved together with the level of judgement required in assessing the developments to ensure they are appropriately reflected in the financial report. Our audit procedures, amongst others, included the following: • obtained a list of litigation matters and held discussions with management on the status and outcome of each matter up to the date of this audit report • reviewed all solicitor’s representation letters, including those received by the component auditors of DNA Star Vegas Co. Limited and Donaco Hong Kong Limited • held discussions with the component auditors of DNA Star Vegas Co. Limited and Donaco Hong Kong Limited to gain understanding of the impact on the consolidated financial report. Reviewed group reporting package received • ensured completeness and accuracy of the disclosures included in the consolidated financial report. Bank loan covenant compliance (Notes 18 and 22) KEY AUDIT MATTER HOW WE ADDRESSED THE KEY AUDIT MATTER The group’s liabilities included a bank loan from Mega International Commercial Bank Co Ltd of $63,195,552 at 30 June 2018, with $41,483,011 classified a non-current. The loan agreement included certain covenants that, if breached by the group, permitted the lender to demand repayment before the loan’s normal maturity date. We determined this to be a key audit matter given the magnitude of the potential impact on the consolidated statement of financial position and the going concern asessment if the covenants were breached and the borrowings were to be reclassified as a current liability. Our procedures included, amongst others: • reviewed bank loan agreements to identify covenants requirements • reviewed a letter from Mega International Commercial Bank Co Ltd that approved an amended covenant ratio to be effective for 30 June 2018 compliance reporting • reviewed the management’s covenant calculation and assessed compliance to the amended covenant ratio • assessed appropriateness of the bank loan classification in the consolidated statement of financial position as at 30 June 2018 and adequacy of the disclosures in Notes 18 and 22. Other information The directors are responsible for the other information. The other information comprises the information included in the consolidated entity’s annual report for the year ended 30 June 2018, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. 80 80 8181 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTINDEPENDEN T AU DI TOR ’S REP ORT TO THE MEMBER S OF D ONACO INT ERNAT IONA L L IMIT ED IN DEPEND EN T AU DITO R’S REP ORT TO THE MEMBER S OF DONACO I N TER NATI ONAL LIMITED Impairment assessment of intangible assets (Note 14) Contingent assets and liabilities (Note 39) KEY AUDIT MATTER HOW WE ADDRESSED THE KEY AUDIT MATTER KEY AUDIT MATTER HOW WE ADDRESSED THE KEY AUDIT MATTER The consolidated entity recorded a casino licence asset of $251.61 million as at 30 June 2018. The licence is classified as an intangible asset with indefinite useful life and is subject to annual impairment assessment. Impairment of $143.86 million was recognised in the statement of profit or loss and other comprehensive income for the year based on the annual impairment assessment made as at 31 December 2017. At 30 June 2018, management performed an impairment indicators assessment and concluded that no further impairment testing was required. The impairment assessment of the intangible asset is a key audit matter because of the complexity and subjectivity involved, specifically in relation to the Fair Value less Cost of Disposal model adopted by management and the key assumptions that are used to determine the inputs to the assessment. Our audit procedures included, amongst others, the following: Annual impairment assessment made as at 31 December 2017 • Assessed management’s determination of the cash generating unit (‘CGU’) and the CGU’s carrying value. • Assessed reasonableness of cash flow forecasts by comparing the base year in the forecast calculation to the current period’s actual results. • Assessed the appropriateness of the currency used in the model. The cash flow forecast is calculated in the Thai baht (THB) and translated to the US dollar (USD) at the valuation date. • Together with our valuation specialists, assessed reasonableness of the key assumptions used, being revenue growth rate, discount rate, terminal growth rate and discount for lack of marketability. • Together with our valuation specialists, tested the mathematical accuracy and components of the model that supports the impairment assessment. • Checked the sensitivity of the impairment assessment by focusing on the discount for lack of marketability and THB/ USD translation rate. • Evaluated the adequacy of the judgements and sources of estimation uncertainty disclosures in the consolidated financial report. Management’s conclusion that there was no further impairment indications as at 30 June 2018 • Held discussions with management and assessed the reasonableness of the management’s impairment indicators assessment. • Assessed the reasonableness of the market inputs used by management in calculating the discount rate as at 30 June 2018. • Reviewed reasonableness of the management’s forecast for the year ending 30 June 2019. The group is a party to several ongoing legal actions both initiated by and directed against its subsidiaries. Outcomes of these proceedings were uncertain at 30 June 2018. We determined this to be a key audit matter given the materiality of the amounts involved together with the level of judgement required in assessing the developments to ensure they are appropriately reflected in the financial report. Our audit procedures, amongst others, included the following: • obtained a list of litigation matters and held discussions with management on the status and outcome of each matter up to the date of this audit report • reviewed all solicitor’s representation letters, including those received by the component auditors of DNA Star Vegas Co. Limited and Donaco Hong Kong Limited • held discussions with the component auditors of DNA Star Vegas Co. Limited and Donaco Hong Kong Limited to gain understanding of the impact on the consolidated financial report. Reviewed group reporting package received • ensured completeness and accuracy of the disclosures included in the consolidated financial report. Bank loan covenant compliance (Notes 18 and 22) KEY AUDIT MATTER HOW WE ADDRESSED THE KEY AUDIT MATTER The group’s liabilities included a bank loan from Mega International Commercial Bank Co Ltd of $63,195,552 at 30 June 2018, with $41,483,011 classified a non-current. The loan agreement included certain covenants that, if breached by the group, permitted the lender to demand repayment before the loan’s normal maturity date. We determined this to be a key audit matter given the magnitude of the potential impact on the consolidated statement of financial position and the going concern asessment if the covenants were breached and the borrowings were to be reclassified as a current liability. Our procedures included, amongst others: • reviewed bank loan agreements to identify covenants requirements • reviewed a letter from Mega International Commercial Bank Co Ltd that approved an amended covenant ratio to be effective for 30 June 2018 compliance reporting • reviewed the management’s covenant calculation and assessed compliance to the amended covenant ratio • assessed appropriateness of the bank loan classification in the consolidated statement of financial position as at 30 June 2018 and adequacy of the disclosures in Notes 18 and 22. Other information The directors are responsible for the other information. The other information comprises the information included in the consolidated entity’s annual report for the year ended 30 June 2018, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. 80 80 8181 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTIN DEPEN DENT AU DI TOR’S RE P ORT TO THE MEMBER S OF D ONACO INT ERNAT IONA L L IMIT ED IN DEPEND ENT AU DI TO R’S REP ORT TO THE MEMBER S OF DONACO I N TER NATI ONAL LIMITED If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors 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 preparing the financial report, the directors are responsible for assessing the ability of the consolidated entity to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the consolidated entity or to cease operations, or have no realistic alternative but to do so. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in the auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in the auditor’s report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. REPORT ON THE REMUNERATION REPORT Opinion on the remuneration report We have audited the remuneration report included in pages 11 to 19 of the directors’ report for the year 30 June 2018. In our opinion, the remuneration report of Donaco International Limited, for the year ended 30 June 2018, complies with section 300A of the Corporations Act 2001. Auditor’s responsibilities for the audit of the financial report Responsibilities As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit 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 consolidated entity’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the consolidated entity’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the consolidated entity to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the consolidated entity to express an opinion on the consolidated financial report. The auditor is responsible for the direction, supervision and performance of the group audit. The auditor remains solely responsible for the audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during the audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. 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. CROWE HORWATH SYDNEY SUWARTI ASMONO Partner 28 September 2018 Sydney 82 82 8383 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORT IN DEPEN DENT AU DI TOR’S RE P ORT TO THE MEMBER S OF D ONACO INT ERNAT IONA L L IMIT ED IN DEPEND ENT AU DI TO R’S REP ORT TO THE MEMBER S OF DONACO I N TER NATI ONAL LIMITED If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors 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 preparing the financial report, the directors are responsible for assessing the ability of the consolidated entity to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the consolidated entity or to cease operations, or have no realistic alternative but to do so. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in the auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in the auditor’s report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. REPORT ON THE REMUNERATION REPORT Opinion on the remuneration report We have audited the remuneration report included in pages 11 to 19 of the directors’ report for the year 30 June 2018. In our opinion, the remuneration report of Donaco International Limited, for the year ended 30 June 2018, complies with section 300A of the Corporations Act 2001. Auditor’s responsibilities for the audit of the financial report Responsibilities As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit 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 consolidated entity’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the consolidated entity’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the consolidated entity to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the consolidated entity to express an opinion on the consolidated financial report. The auditor is responsible for the direction, supervision and performance of the group audit. The auditor remains solely responsible for the audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during the audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. 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. CROWE HORWATH SYDNEY SUWARTI ASMONO Partner 28 September 2018 Sydney 82 82 8383 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORT SHA REH OLD ER IN FOR MAT ION for the year ended 30 June 2018 SHAR EHOLDER I NFO RMATIO N for the year ended 30 June 2018 The shareholder information set out below was applicable as at 31 August 2018. SU BSTANTI AL H OLD ERS DISTRIBUTION OF EQUITABL E S EC UR IT IE S Analysis of 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 EQUITY SECURIT Y HOLDERS The names of the twenty largest security holders of quoted equity securities are shown below. NUMBER OF HOLDERS OF ORDINARY SHARES 333 509 309 718 162 2,031 Substantial holders in the company are shown below. Lim Keong Yew Lim Keong Hoe (jointly held as part of Lim Keong Yew’s holding) Perpetual Limited and subsidiaries Fidelity International and subsidiaries Lee Bug Tong Lee Bug Huy ORDINARY SHARES Number held % of total shares issued 231,406,797 107,311,200 120,080,387 68,554,883 73,599,765 74,599,764 28.10 13.03 14.56 8.31 8.93 9.06 VOTIN G RIG HT S Options The voting rights attached to ordinary shares and options are discussed below. There are no voting rights attached to options. Upon exercise of the option, the issued shares will confer full voting rights. ORDINARY SHARES Ordinary shares Warrants Twenty largest quoted equity security holders Number held % of total shares issued HSBC Custody Nominees (Australia) Limited 359,033,138 43.59 Convent Fine Limited Total Alpha Investments Limited Slim Twinkle Limited Citicorp Nominees Pty Limited J P Morgan Nominees Australia Limited Mr Keong Yew Lim National Nominees Limited Max Union Corporate Development Ltd BNP Paribas Noms Pty Ltd HSBC Custody Nominees (Australia) Limited – A/C 2 BNP Paribas Noms Pty Ltd BNP Paribas Nominees Pty Ltd BNP Paribas Noms Pty Ltd Mrs Antonia Collopy Smartequity EIS Pty Ltd Vintage Crop Pty Ltd Holdex Nominees Pty Ltd N2 Global (HK) Limited Bt Portfolio Services Limited Mr Michael Stewart Bunker 60,353,318 56,962,025 46,937,882 41,521,511 39,588,305 34,208,800 28,585,456 26,000,000 17,767,451 12,951,352 5,832,443 5,501,769 3,686,147 3,000,000 2,376,653 2,348,338 2,000,000 1,650,000 1,500,000 1,500,000 7.33 6.92 5.70 5.04 4.81 4.15 3.47 3.16 2.16 1.57 0.71 0.67 0.45 0.36 0.29 0.29 0.24 0.20 0.18 0.18 Unquoted equity securities Employee options Warrants 84 84 753,304,588 91.47 NUMBER ON ISSUE 5,444,810 70 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. There are no voting rights attached to warrants. Upon conversion of the warrant, the issued shares will confer full voting rights. There are no other classes of equity securities. 8585 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTSHA REH OLD ER IN FOR MAT ION for the year ended 30 June 2018 SHAR EHOLDER I NFO RMATIO N for the year ended 30 June 2018 The shareholder information set out below was applicable as at 31 August 2018. SU BSTANTI AL H OLD ERS DISTRIBUTION OF EQUITABL E S EC UR IT IE S Analysis of 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 EQUITY SECURIT Y HOLDERS The names of the twenty largest security holders of quoted equity securities are shown below. NUMBER OF HOLDERS OF ORDINARY SHARES 333 509 309 718 162 2,031 Substantial holders in the company are shown below. Lim Keong Yew Lim Keong Hoe (jointly held as part of Lim Keong Yew’s holding) Perpetual Limited and subsidiaries Fidelity International and subsidiaries Lee Bug Tong Lee Bug Huy ORDINARY SHARES Number held % of total shares issued 231,406,797 107,311,200 120,080,387 68,554,883 73,599,765 74,599,764 28.10 13.03 14.56 8.31 8.93 9.06 VOTIN G RIG HT S Options The voting rights attached to ordinary shares and options are discussed below. There are no voting rights attached to options. Upon exercise of the option, the issued shares will confer full voting rights. ORDINARY SHARES Ordinary shares Warrants Twenty largest quoted equity security holders Number held % of total shares issued HSBC Custody Nominees (Australia) Limited 359,033,138 43.59 Convent Fine Limited Total Alpha Investments Limited Slim Twinkle Limited Citicorp Nominees Pty Limited J P Morgan Nominees Australia Limited Mr Keong Yew Lim National Nominees Limited Max Union Corporate Development Ltd BNP Paribas Noms Pty Ltd HSBC Custody Nominees (Australia) Limited – A/C 2 BNP Paribas Noms Pty Ltd BNP Paribas Nominees Pty Ltd BNP Paribas Noms Pty Ltd Mrs Antonia Collopy Smartequity EIS Pty Ltd Vintage Crop Pty Ltd Holdex Nominees Pty Ltd N2 Global (HK) Limited Bt Portfolio Services Limited Mr Michael Stewart Bunker 60,353,318 56,962,025 46,937,882 41,521,511 39,588,305 34,208,800 28,585,456 26,000,000 17,767,451 12,951,352 5,832,443 5,501,769 3,686,147 3,000,000 2,376,653 2,348,338 2,000,000 1,650,000 1,500,000 1,500,000 7.33 6.92 5.70 5.04 4.81 4.15 3.47 3.16 2.16 1.57 0.71 0.67 0.45 0.36 0.29 0.29 0.24 0.20 0.18 0.18 Unquoted equity securities Employee options Warrants 84 84 753,304,588 91.47 NUMBER ON ISSUE 5,444,810 70 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. There are no voting rights attached to warrants. Upon conversion of the warrant, the issued shares will confer full voting rights. There are no other classes of equity securities. 8585 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTDONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORTCORPORATE D IR ECTORY for the year ended 30 June 2018 DIRECTORS Stuart James McGregor – Non-executive Chairman Joey Lim Keong Yew – Managing Director and CEO Benedict Paul Reichel – Executive Director Benjamin Lim Keong Hoe – Non-executive Director Robert Andrew Hines – Non-executive Director COMPANY SECRETARY Benedict Paul Reichel REGISTERED OFFICE PRINCIPAL PLACE OF BUSINESS SHARE REGISTER AUDITOR Level 18, 420 George Street Sydney NSW 2000, Australia Level 18, 420 George Street Sydney NSW 2000, Australia Boardroom Pty Limited Level 12, 225 George Street Sydney NSW 2000 +61 2 9290 9600 Crowe Horwath Sydney Level 15, 1 O’Connell Street Sydney NSW 2000, Australia STOCK EXCHANGE LISTING Donaco International Limited shares are listed on the Australian Securities Exchange (ASX code: DNA) WEBSITE www.donacointernational.com CORPORATE GOVERNANCE STATEMENT The Corporate Governance Statement of Donaco International Limited is available from our website www.donacointernational.com, under the tab headed ‘Investor Relations’. GEN ERAL I NFORMATI ON The financial statements cover Donaco International Limited as a consolidated entity consisting of Donaco International Limited and the entities it controlled at the end of, or during, the year. 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: Level 18 420 George Street Sydney NSW 2000 Australia 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 28 September 2018. The directors have the power to amend and reissue the financial statements. 8686 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORT CORPORATE D IR ECTORY for the year ended 30 June 2018 DIRECTORS Stuart James McGregor – Non-executive Chairman Joey Lim Keong Yew – Managing Director and CEO Benedict Paul Reichel – Executive Director Benjamin Lim Keong Hoe – Non-executive Director Robert Andrew Hines – Non-executive Director COMPANY SECRETARY Benedict Paul Reichel REGISTERED OFFICE PRINCIPAL PLACE OF BUSINESS SHARE REGISTER AUDITOR Level 18, 420 George Street Sydney NSW 2000, Australia Level 18, 420 George Street Sydney NSW 2000, Australia Boardroom Pty Limited Level 12, 225 George Street Sydney NSW 2000 +61 2 9290 9600 Crowe Horwath Sydney Level 15, 1 O’Connell Street Sydney NSW 2000, Australia STOCK EXCHANGE LISTING Donaco International Limited shares are listed on the Australian Securities Exchange (ASX code: DNA) WEBSITE www.donacointernational.com CORPORATE GOVERNANCE STATEMENT The Corporate Governance Statement of Donaco International Limited is available from our website www.donacointernational.com, under the tab headed ‘Investor Relations’. GEN ERAL I NFORMATI ON The financial statements cover Donaco International Limited as a consolidated entity consisting of Donaco International Limited and the entities it controlled at the end of, or during, the year. 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: Level 18 420 George Street Sydney NSW 2000 Australia 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 28 September 2018. The directors have the power to amend and reissue the financial statements. 8686 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORT Donaco International Limited ABN: 28 007 424 777 Level 18, 420 George Street, Sydney NSW 2000, Australia Phone: +61 2 9106 2149 Fax: +61 2 9106 2106 Email: enquiries@donacointernational.com www.donacointernational.com 

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