The Star Entertainment Group
Annual Report 2017

Plain-text annual report

T H E S T A R E N T E R T A I N M E N T G R O U P ANNUAL REPORT 2017 CONTENTS O U R V I S I O N O U R F O O T P R I N T O U R H I G H L I G H T S M E S S A G E S Chairman’s Message CEO’s Message B O A R D A N D E X E C U T I V E Board of Directors Executive Team G R O U P P E R F O R M A N C E K E Y P R O J E C T S S U S TA I N A B I L I T Y Sustainability Strategy Delivering World Class Properties Leading Company Guest Wellbeing Talented Teams D I R E C T O R S ’ , R E M U N E R A T I O N A N D F I N A N C I A L R E P O R T Directors’ Report Remuneration Report Financial Report A D D I T I O N A L I N F O R M A T I O N Shareholder Information Corporate Governance Statement Details Annual General Meeting Details Company Directory Key Dates for FY2017/18 2 3 4 6 6 8 1 0 10 12 1 4 1 8 2 4 26 28 31 38 39 4 4 45 59 78 1 3 3 133 135 135 136 136 2017 has seen The Star Entertainment Group continue to mature as a business, with steady operating results reflecting a year of consolidation as focus sharpens on executing our strategic agenda. The pipeline of development and capital improvements of our properties, with partners Chow Tai Fook Enterprises Limited and Far East Consortium International Limited, has grown this year, and is progressing strongly to meet increasing tourism demand, as well as our evolving local markets. Our international VIP business has adjusted effectively to changing circumstances in North Asia, accelerating its existing diversification strategy. The Group’s master brand roll-out took important steps, with the launch of a new ‘The Star Club’ branded loyalty program in November 2016, and the rebranding of Jupiters Hotel & Casino to The Star Gold Coast in March 2017. Both initiatives have been well received by our members and guests, and are expected to work hard for the Group in 2018, as the loyalty platform begins to scale up, and The Star Gold Coast fully leverages its status as a major partner of the 2018 Commonwealth Games. The Sydney and Brisbane Festivals, the Queensland Maroons, and NSW Blues State of Origin rugby league teams, along with racing in Sydney were amongst other key partnerships that further reinforced our properties’ integral relationships with their cities and communities during the 2017 financial year. Eighteen months of emphasis on service excellence has also begun to pay dividends, with The Darling Hotel at The Star Sydney being recognised with a prestigious Forbes Five Star rating – the first and only one in Sydney. 1 The newly refurbished hotel at The Star Gold Coast displaying ‘The Star’ logo. The property rebranded in March 2017. THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017OUR VISION OUR FOOTPRINT TO BE AUSTRALIA’S LEADING INTEGRATED RESORT COMPANY BY FULLY HARNESSING OUR UNIQUE OPPORTUNITIES IN EACH PROPERTY, TO PROVIDE THE MOST THRILLING GUEST EXPERIENCES IN WAYS THAT TRULY REFLECT THE UNIQUE CHARACTER OF OUR CITIES. TREASURY BRISBANE 1,500+ Team members THE STAR GOLD COAST THE STAR SYDNEY 2,000+ Team members 4,500+ Team members 4MILLION Guests in FY2017 3.4MILLION Guests in FY2017 10.4MILLION Guests in FY2017 11 Restaurants and bars 127 Hotel rooms 14 Restaurants and bars 596 Hotel rooms 35 Restaurants and bars 606 Hotel rooms BRAND PILLARS PRIORITIES VALUES SERVICE COMMITMENTS Thrilling experiences Shareholder Value Ownership Accessible luxury World Class Properties True Teamwork Local spirit Leadership in Loyalty Welcoming Excellence in Guest Service Talented Teams City Pride Live it Be Human Bring it Be Your Best Self Own it Be a Star Player Deliver it Be the Perfect Host PROPERTY INVESTMENTS $3BN Redevelopment of Queen’s Wharf Brisbane UP TO$850M Potential investment in The Star Gold Coast UP TO$1BN Potential investment at The Star Sydney* *Subject to all approvals. Investments include contributions from joint venture partners. 2 3 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017OUR HIGHLIGHTS 62% OF PRE-TAX PROFITS PAID TO ALL LEVELS OF GOVERNMENT $13m+ $895m CONTRIBUTION TO CHARITIES, COMMUNITY GROUPS AND PARTNERSHIPS ESTIMATED SPEND ON 4,000+ SUPPLIERS AUSTRALIA WIDE $2,432m $264m 32.0¢ ACTUAL GROSS REVENUE ($M) STATUTORY NPAT ($M) BASIC EARNINGS PER SHARE (CENTS) #1 ‘GLOBAL LEADER’ CASINO AND GAMING INDUSTRY Dow Jones Sustainability Index (DJSI) assessment 2016 16.0¢ DIVIDEND PER SHARE (CENTS) AWARDS MEMBER Dow Jones Sustainability Index 2016 AWARDED RobecoSAM Sustainability Award Industry Mover 2016 (Dow Jones Sustainability Index assessment) AWARDED RobecoSAM Sustainability Award Gold Class 2016 (Dow Jones Sustainability Index assessment) CONSTITUENT The Star Entertainment Group remains a constituent of the FTSE4Good Index 2,432 2,358 2,258 264 32.0 194 169 23.6 20.5 13.0 11.0 16.0 FINALIST Australian HR Awards (Employer of Choice, Diversity & Inclusion, Reward & Recognition Program) SILVER EMPLOYER ‘Pride in Diversity’ Australian Workplace Equality Index for LGBTI Inclusion FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17 FORBES 5 STAR RATING The Darling Hotel at The Star Sydney is Sydney’s only luxury hotel to receive the prestigious Forbes Five-Star rating WINNER TAA AWARDS FOR EXCELLENCE Best Environmental Initiatives (Metropolitan Hotel) The Star Sydney Tourism Accommodation Australia NSW BACKGROUND IMAGE IS A CONCEPT IMAGE ONLY. SUBJECT TO APPROVALS. 4 5 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017CHAIRMAN’S MESSAGE Consistent with my messages in last year’s Annual Report and Annual General Meeting address, I am pleased to report to shareholders that FY2017 saw The Star Entertainment Group continue to mature as a business, with steady operating results reflecting a year of consolidation as our concentration sharpens on executing our strategic agenda. Core to this was further advancement in the company’s strategy of investing in key domestic assets and diversifying our international business. In delivering against strategic priorities, we have made significant progress in our pursuit of the opportunities that exist today and long-term for Australia in the tourism sector. In a landscape where international visitation, most notably from Asia, continues to rise substantially, we are expanding and enhancing our properties in the attractive destinations of Sydney, the Gold Coast and Brisbane. With continued stable leadership across the Board and executive management team, this concentration again delivered sustained operating momentum and financial performance, earnings growth and returns to shareholders, despite some disruption from capital works projects across the Sydney and Gold Coast properties as new and enhanced assets were completed and opened. Statutory net profit after tax (NPAT) for the Group was $264.4 million, up 36% on the prior year, supported by domestic revenue growth in the second half of the year along with ongoing effective cost management, and assisted by a favourable win rate in the International VIP Rebate business. In normalised terms, applying the normalised win rate of 1.35%, the full year NPAT result was $214.5 million, down 11.1% on FY2016 impacted by lower turnover in the International VIP Rebate business with disruption in the North Asia market. Statutory earnings before interest, tax, depreciation and amortisation (EBITDA) increased 19.9% on last financial year to $586.2 million and normalised EBITDA was down 7.4% to $515.1 million. With these results, the Board declared a final dividend of 8.5 cents per share (fully franked), taking total dividends for the year to 16 cents per share (fully franked), up 23.1% on FY2016 and representing growth in dividends returned to shareholders over each of the last five years. As highlighted, these results were achieved as transformational projects were carried out and delivered across the properties. This included completion of refurbished hotel rooms across Astral Towers at The Star Sydney and refurbishment of all 596 hotel rooms at the newly branded, The Star Gold Coast. These reinvigorated hotel assets along with new food and beverage and entertainment offerings reflect our ongoing commitment to delivering world-class tourism and entertainment destinations with wide- ranging offerings, coupled with excellence in guest service. The validation of this effort through The Darling at The Star Sydney receiving the first Forbes Travel Guide Five-Star rating in New South Wales was particularly pleasing. The 2017 financial year also saw the continued close collaboration with our Hong Kong based partners, Chow Tai Fook complex, will be open ahead of the Gold Coast 2018 Commonwealth Games, of which The Star is very proud to be an Official Partner. On behalf of the Board, I congratulate Matt Bekier and the management team on their continued drive to make The Star Entertainment Group Australia’s leading integrated resort company and return value to shareholders by delivering upon strategic priorities while maintaining momentum and efficiency in the existing business operations. I look forward to welcoming shareholders and providing another update at the 2017 Annual General Meeting at The Star, Sydney. Thank you for your ongoing support for The Star Entertainment Group. John O’Neill AO CHAIRMAN and Far East Consortium, on additional investment opportunities to expand and improve the value proposition of our properties on the Gold Coast and in Sydney. On the Gold Coast, we received approval from the Queensland Government to construct a new 700 room hotel and apartment tower costing approximately $400 million, which is the first stage in the master plan for the property announced in May 2016. In addition, our consortium purchased the iconic beachfront resort, the Sheraton Grand Mirage Resort Gold Coast, complementing our South- East Queensland integrated resorts and enhancing their appeal to a broad range of domestic and international visitors. In January 2017, a significant milestone was reached on the Queen’s Wharf Brisbane integrated resort development project with the Destination Brisbane Consortium taking possession of the 13 hectare CBD site and commencing demolition works, which are well underway and on schedule. We expect to progress to foundations work commencing in early 2018. The ongoing growth in our existing business, long-term tourism forecasts and our drive to deliver world-class integrated resorts with authentic local spirit provide confidence in the scale and nature of projects underway. In FY2018 we are looking forward to the completion and unveiling of the new suites hotel tower at The Star Gold Coast, including roof top dining and premium gaming areas. This new luxury asset, along with the reinvigorated existing 6 7 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017CEO’S MESSAGE The 2017 financial year witnessed the ongoing transformation of The Star Entertainment Group. We seek to become Australia’s leading integrated resort operator and seize opportunities emerging within the domestic market and the expanding international tourism sector. This year, we executed important steps in this strategy and delivered record statutory earnings and shareholder dividends. The Star Gold Coast – formerly Jupiters – became the latest physical expression of the Group’s ongoing evolution when rebranded in March to represent new standards of product excellence. The property will be further improved when a luxury suite hotel opens before the Gold Coast 2018 Commonwealth Games. Another milestone was the Group’s acquisition of the Sheraton Grand Mirage Resort on the Gold Coast in a joint venture with Hong Kong based partners Chow Tai Fook and Far East Consortium. This valued relationship continues to expand beyond the initial agreement for the Queen’s Wharf Brisbane project. It now extends to capital works in Sydney – the planned The Ritz-Carlton Hotel and apartment tower project – and a planned hotel and apartment tower on the Gold Coast. Other critical elements to the business strategy include the development of best in class Loyalty capabilities, developing talented teams and creating a culture of guest service excellence. These capabilities will ensure that The Star Entertainment Group, as a leading company, is operating world-class properties and maximising value to shareholders. OPERATING PERFORMANCE The 2017 financial year showed good progress in the performance of our core business, despite a softer trading environment and disruption in Sydney and the Gold Coast. The first half year involved major development works and the relaunch of the Loyalty program. We have seen positive momentum post the Loyalty relaunch, with member perception improving and pleasing growth in private gaming room revenues. In the second half of the year, we delivered solid domestic revenue growth in Sydney and the Gold Coast as disruption decreased and guests responded positively to completed investments. For the full year, actual gross revenue across the Group grew 3.2% to $2,432m, with The Star Sydney growing by 1.8% to $1,686m and the Queensland properties increasing 6.5% to $746m. Normalised gross revenue declined 3.9% to $2,337m. Domestic gaming revenues grew 2% to $1,545m across the Group in the 2017 financial year, largely due to a pleasing performance in table games. Non-gaming cash revenue of $248m was up 0.6% for the year. This result would have been further enhanced but for the impact of disruption in the first half year prior to the completion of key capital works. The International VIP Rebate business witnessed actual revenue growth of 7.3%, supported by a high win rate of 1.59% compared to the theoretical rate of 1.35%. International VIP Rebate business turnover was down 19.9%, with the lower volumes impacted by the high win rate and the well-documented disruption to the North Asian market. However, the diversification of our International VIP Rebate business delivered pleasing results. Our strategy of providing a compelling high-end tourism proposition for VIP and Premium Mass customers from an expanding range of source markets showed good traction. In support of this strategy, we expanded our sales teams to cover a broader international footprint. We welcomed VIP or Premium Mass guests from 13 countries and continue to assess entry into additional markets. It was also pleasing that our collections remained strong. This reflected a continuing focus on credit risk management and effective credit processes. Operating expenses for the 2017 financial year showed a particularly good result. Expenses were up 1% on last year to $971 million, despite record capital expenditure, the relaunch of Loyalty, the expansion of our VIP sales teams and the rebranding of the Gold Coast property. This reflects the company’s continued cost discipline and focus to drive efficiency improvements. AWARDS The Star Entertainment Group and its properties continued to receive acknowledgement and recognition for the quality of our offerings and our commitment to service excellence. The Darling at The Star Sydney had the distinction of becoming the first luxury hotel in NSW to be awarded the Forbes Five-Star Rating. The accolade from the Forbes Travel Guide is among the most sought-after in the tourism and hospitality sector. It was one of 34 awards bestowed on The Star Sydney during the 2017 financial year, including a Hall of Fame entry for The Star Event Centre after winning the “Best Specialty Event Venue” for the third successive year at the National Meetings and Events Awards. There were 14 awards for our Queensland properties. The Star Entertainment Group was also awarded Silver Employer status by the Australian Workplace Equality Index for its LGBTI inclusion, and was a finalist in the Australian HR awards in the Employer of Choice, Diversity & Inclusion and Reward & Recognition categories. In terms of sustainability, we were delighted that The Star Entertainment Group was acknowledged as the global leader in the Casinos and Gaming sector of the Dow Jones Sustainability Index (DJSI) assessment in 2016. The top ranking was achieved for a second successive year when the annual DJSI assessment was released in September 2017. The Queen’s Wharf Brisbane integrated resort development also achieved a 6-Star Green Star Communities Rating v1. This represents world leadership in master planning. TEAM AND COMMUNITY Thousands of jobs will be created as the transformation of our integrated resorts continues over the next five years. The growth of inbound tourism will also require the industry more generally to expand its collective workforce to cope with demand. We are preparing for this eventuality in a variety of ways, from embedding our values and culture to drive ongoing improvements in guest service excellence, to partnering with institutions in a practical and value- add manner. During the 2017 financial year, we partnered with TAFE NSW to establish a Sydney School of Hospitality Excellence. This follows the launch in the previous year of the Queensland Hotel & Hospitality School – a partnership with TAFE Queensland. In aligning with our business promise to deliver experiences with authentic local spirit, The Star Entertainment Group encourages and supports the communities in which we operate, providing widespread assistance to organisations and key events. In the 2017 financial year, the value of contributions to community groups, charitable organisations and partnerships by The Star Entertainment Group’s properties exceeded $13 million. The Star Sydney committed total funding of $1.5m to Barnardos Australia, Taronga Conservation Society Australia and Chris O’Brien Lifehouse. The property also partnered with a range of community groups and organisations including the Gay and Lesbian Mardi Gras, the NSW Rugby League, the Sydney Swans and the Australian Turf Club, while also joining OzHarvest, Australia’s leading food rescue organisation. In Queensland, ongoing support was provided to Ronald McDonald House South East Queensland, while a partnership with Choice, Passion, Life (formerly Cerebral Palsy League) entered its 15th year. Assistance to Surf Lifesaving Queensland has been continuous since 1994 and in the 2017 financial year included the donation of a new inflatable rescue boat. Events and sports partnerships included the Gold Coast 2018 Commonwealth Games, the Pan Pacific Masters Games, Blues on Broadwater and the Queensland Rugby League. CAPITAL EXPENDITURE AND PRIORITIES The Star Entertainment Group incurred capital expenditure of $420 million, up $114 million on the previous financial year. This growth is due to development works at The Star Sydney and The Star Gold Coast. At both properties, there were significant refurbishments of existing hotel rooms and, on the Gold Coast, a new luxury all-suite hotel neared completion. Capital expenditure in the 2018 financial year is expected to be at similar levels. The Star Entertainment Group has five priorities for the 2018 financial year. They represent the next stage of executing the transformation plan: ○ Improve earnings across the Group through continued focus on domestic gaming and operating efficiencies ○ Deliver on the next stage of the capital works program, including completion of demolition at Queen’s Wharf Brisbane and the commencement of excavation ○ Progress planning approvals for joint venture developments with Chow Tai Fook and Far East Consortium in Sydney and the Gold Coast ○ Continue diversification of the Group’s VIP and Premium Mass revenue base ○ Continue the drive to differentiate the value proposition at each property. To deliver on these priorities, The Star Entertainment Group continues to attract new talent and make key appointments across the business. I would like to extend my gratitude to the Board and management for their support and commitment during the 2017 financial year and, importantly, to the team members who have contributed so wonderfully to our ongoing growth and development. I also want to thank the millions of guests who visited us and experienced the significant changes we have made, and continue to make, to enhance each one of our properties. Matt Bekier MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER 8 9 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017BOARD OF DIRECTORS JOHN O’NEILL AO CHAIRMAN AND NON-EXECUTIVE DIRECTOR MATT BEKIER MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER KATIE LAHEY AM NON-EXECUTIVE DIRECTOR RICHARD SHEPPARD NON-EXECUTIVE DIRECTOR Diploma of Law; Foundation Fellow of the Australian Institute of Company Directors John O’Neill was formerly Managing Director and Chief Executive Officer of Australian Rugby Union Limited, Chief Executive Officer of Football Federation Australia, Managing Director and Chief Executive Officer of the State Bank of New South Wales, and Chairman of the Australian Wool Exchange Limited. Mr O’Neill was also formerly a Director of Tabcorp Holdings Limited and Rugby World Cup Limited. Mr O’Neill was also the inaugural Chairman of Events New South Wales, which flowed from the independent reviews he conducted into events strategy, convention and exhibition space, and tourism on behalf of the New South Wales Government. Mr O’Neill is currently a member of the Advisory Council of China Matters and a Director of Sport Australia Hall of Fame (SAHOF). Master of Economics and Commerce; PhD in Finance Matt Bekier was previously Chief Financial Officer and Executive Director of the Company. He was also Chief Financial Officer of Tabcorp Holdings Limited from late 2005 until the demerger of the Company and its controlled entities in June 2011. Prior to his role at Tabcorp, Mr Bekier held various roles with McKinsey and Company over 14 years. During that time, he focused on building a substantial practice in both post-merger management and financial services, working across four continents. Mr Bekier is currently a member of the Board of the Australasian Gaming Council and an Honorary Adjunct Professor at Macquarie University. Bachelor of Arts (First Class Honours), Master of Business Administration Katie Lahey has extensive experience in the retail, tourism and entertainment sectors and previously held chief executive roles in the public and private sectors. Ms Lahey is currently the Chair of Tourism & Transport Forum and the Executive Chairman Australasia for Korn Ferry International. She is also a member of the Australian Brandenburg Orchestra Board. Ms Lahey was previously the Chair of Carnival Australia and a member of the boards of David Jones Limited, Australia Council Major Performing Arts, Hills Motorway Limited, Australia Post and Garvan Research Foundation. Bachelor of Economics (First Class Honours), Fellow of the Australian Institute of Company Directors Richard Sheppard has had an extensive executive career in the banking and finance sector including an executive career with Macquarie Group Limited spanning more than 30 years. Mr Sheppard was previously the Managing Director and Chief Executive Officer of Macquarie Bank Limited and chaired the boards of a number of Macquarie’s listed entities. He has also served as Chairman of the Commonwealth Government’s Financial Sector Advisory Council. Mr Sheppard is currently the Chairman and a Non-Executive Director of Dexus Property Group and a Non-Executive Director of Snowy Hydro Limited. He is also a Director of the Bradman Foundation. GERARD BRADLEY NON-EXECUTIVE DIRECTOR SALLY PITKIN NON-EXECUTIVE DIRECTOR GREG HAYES NON-EXECUTIVE DIRECTOR Bachelor of Commerce; Diploma of Advanced Accounting; Fellow of the Institute of Chartered Accountants; Fellow of CPA Australia; Fellow of the Australian Institute of Company Directors; Fellow of the Institute of Managers and Leaders Gerard Bradley is the Chairman of Queensland Treasury Corporation and related companies, having served for 14 years as Under Treasurer and Under Secretary of the Queensland Treasury Department. He has extensive experience in public sector finance in both the Queensland and South Australian Treasury Departments. Mr Bradley has previously served as Chairman of the Board of Trustees at QSuper. His previous non-executive board memberships also include Funds SA, Queensland Investment Corporation, Suncorp (Insurance & Finance), Queensland Water Infrastructure Pty Ltd, and South Bank Corporation. Mr Bradley is currently a Non-Executive Director of Pinnacle Investment Management Group Limited and a Director of the Winston Churchill Memorial Trust. Doctor of Philosophy (Governance); Master of Laws; Bachelor of Laws; Fellow of the Australian Institute of Company Directors Sally Pitkin is a Queensland based company director and lawyer with extensive corporate experience and over 20 years’ experience as a non-executive director and board member across a wide range of industries in the private and public sectors. Dr Pitkin currently holds various board roles, including as a Non-Executive Director of Super Retail Group Limited, IPH Limited and Link Administration Holdings Limited. Dr Pitkin is the President of the Queensland Division, and a member of the National Board of the Australian Institute of Company Directors. Dr Pitkin was previously a Non-Executive Director of Aristocrat Leisure Limited. Master of Applied Finance; Graduate Diploma in Accounting; Bachelor of Arts; Advanced Management Programme (Harvard Business School, Massachusetts); Member of Institute of Chartered Accountants Greg Hayes is an experienced executive and director having worked across a range of industries including energy, infrastructure and logistics. Mr Hayes brings to the Board skills and experience in the areas of strategy, finance, mergers and acquisitions, and strategic risk management, in particular in listed companies with global operations. He is currently a Director of Incitec Pivot Limited, Precision Group, Aurrum Holdings Pty Ltd and Home Investment Consortium Company Pty Ltd. Mr Hayes was previously Chief Financial Officer and Executive Director of Brambles Limited, Chief Executive Officer & Group Managing Director of Tenix Pty Ltd, Chief Financial Officer and later interim CEO of the Australian Gaslight Company (AGL), Chief Financial Officer Australia and New Zealand of Westfield Holdings, and Executive General Manager, Finance of Southcorp Limited. 10 11 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017EXECUTIVE TEAM The Star Entertainment Group’s experienced executive team leads the company to deliver world-class integrated resort assets, develop its people and create shareholder value. Back row from left to right: JOHN DE ANGELIS CHIEF INFORMATION OFFICER PAULA MARTIN GROUP GENERAL COUNSEL & COMPANY SECRETARY GREG HAWKINS MANAGING DIRECTOR THE STAR SYDNEY MATT BEKIER MANAGING DIRECTOR & CHIEF EXECUTIVE OFFICER GEOFF HOGG MANAGING DIRECTOR QUEENSLAND JOHN CHONG PRESIDENT INTERNATIONAL MARKETING PAUL MCWILLIAMS CHIEF RISK OFFICER. Seated from left to right: GEOFF PARMENTER GROUP EXECUTIVE MARKETING & CORPORATE AFFAIRS CHAD BARTON CHIEF FINANCIAL OFFICER KIM LEE CHIEF HUMAN RESOURCES OFFICER 12 13 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017GROUP PERFORMANCE The Star Entertainment Group delivered record earnings in the 2017 financial year, enabling a 23% increase in dividends for the year. THE STAR SYDNEY The Star Sydney’s success in the 2017 financial year continued the momentum from 2016. Guests have responded to a repositioned and upgraded offering, with increased domestic and international revenues helping deliver earnings growth. The Star Sydney is one of the city’s most sought after entertainment and tourism destinations, welcoming over 10 million guests per year. In the 2017 financial year, The Star Sydney was the recipient of 34 awards. The Darling was the first ever Sydney-based hotel to receive a Five-Star rating by the prestigious Forbes Travel Guide. The Forbes Travel Guide’s anonymous inspectors travel the world to assess hotels, restaurants and spas against up to 800 strict objective standards in both service and facility. The Darling Spa was also awarded a Forbes Four-Star Rating. The Star Sydney was also proud to be nominated for 13 awards in NSW at the 2017 Tourism Accommodation Australia (TAA) Awards for Excellence with Momofuku Seiōbo winning Restaurant of the Year and Sokyo Lounge winning Bar of the Year in the Metropolitan Hotels category. The property also won the ‘Best Environmental Initiatives’ category at the TAA NSW Awards for Excellence 2017 after achieving finalist status in the previous two years. The consistently awarded The Star Event Centre was inducted into the Hall of Fame after winning ‘Best Specialty Event Venue’ for the third consecutive year at the National Meetings and Events Awards 2017. The Star Sydney’s operating performance for the 2017 financial year overall was pleasing. Domestic revenues were impacted by disruption from capital works in the first half of FY2017, with solid growth in the second half as new and refurbished assets became available. Our International VIP Rebate business faced disruption in North Asian markets from 2QFY2017, resulting in lower business volumes, although revenues were helped by a higher than expected win rate. Statutory gross revenues increased 1.8% to $1.7 billion (or down 8.5% on a normalised basis to $1.6 billion). EBITDA increased 32.6% to $401 million (excluding significant items) for the year (or down 16.0% on a normalised basis to $321 million). Domestic table games business revenue grew 5.7% for the year. Revenue from the slots business increased 1.8% for the year, with The Star Sydney increasing its market share in the third quarter of the 2017 financial year as disruption eased and gaming and non-gaming investments were completed. Revenue from non-gaming businesses declined 4.5% on the prior year, impacted by disruption from capital works. Turnover in the International VIP Rebate business was $33.5 billion (a 29% decline from the prior year), impacted by the high win rate of 1.59% in the 2017 financial year (up from 1.20% in the prior year) and disruption to the North Asian market. Effective cost management continued at The Star Sydney, with operating expenses down 0.8% to $614 million for the 2017 financial year, absorbing increases in domestic gaming volumes, investments in marketing, the relaunch of the loyalty program in November 2016 and wage indexation. Strategic priorities at The Star Sydney for the 2018 financial year remain focused on investing in our core businesses to attract repeat visitation from locals and tourists. This includes continued progress on investments to further enhance the offering at The Star Sydney, as well as submitting the Development Application for the proposed $500 million tower (including The Ritz-Carlton hotel and residential apartments) in partnership with our Hong Kong based partners, Chow Tai Fook Enterprises Limited and Far East Consortium International Limited. THE STAR ENTERTAINMENT GROUP THREE YEAR STATUTORY FINANCIAL RESULTS SUMMARY REPORTED RESULTS FY2015 FY2016 FY2017 $m $m % change $m % change STATUTORY REVENUE 2,140.3 2,268.1 EBITDA EBIT NPAT SIGNIFICANT ITEMS (AFTER TAX) 450.8 287.1 169.3 2.7 ↑6.0 ↑8.4 ↑13.2 ↑14.9 2,344.0 586.2 421.7 264.4 ↑3.3 ↑19.9 ↑29.8 ↑36.0 488.8 325.0 194.4 0 ↓100.0 8.9 ↑100.0 The Darling Hotel at The Star Sydney. The Darling Hotel is proud to be Sydney’s only luxury hotel to receive a Forbes Five-Star rating. NPAT BEFORE SIGNIFICANT ITEMS 172.0 194.4 BASIC EARNINGS PER SHARE 20.5 cents 23.6 cents FULL YEAR DIVIDEND (FULLY FRANKED) 11.0 cents 13.0 cents ↑13.0 ↑14.9 ↑18.2 273.3 32.0 cents ↑40.6 ↑36.0 16.0 cents ↑23.1% * For further information please refer to the financial report contained in the Annual Report for the relevant financial year. 14 15 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017QUEENSLAND The Group’s Queensland properties delivered another year of earnings growth in the 2017 financial year, whilst progressing investments in both Brisbane and the Gold Coast. These investments demonstrate our commitment to Queensland and tourism, whilst securing the Group’s long term strategic position in South East Queensland. Together with our partners in the Destination Brisbane Consortium, Chow Tai Fook Enterprises Limited and Far East Consortium International Limited, the Group took possession of 12 hectares in the Brisbane CBD in January 2017 to progress development of the Queen’s Wharf Brisbane integrated resort. Demolition works are on schedule, with foundations work expected to commence in early 2018. Jupiters Hotel & Casino has been successfully rebranded as The Star Gold Coast, with the completion of significant capital works repositioning and upgrading the resort. The new luxury suite hotel at The Star Gold Coast with its signature accommodation, gaming and dining offerings is scheduled to open before the Gold Coast 2018 Commonwealth Games. The Queensland Government has approved construction of a new approximately $400 million hotel and apartment tower that the Group will deliver in partnership with Chow Tai Fook Enterprises Limited and Far East Consortium International Limited subject to the completion of a successful apartment pre-sales program, with opening planned in 2021. Further, the Group completed the acquisition of the Sheraton Grand Mirage Resort, Gold Coast with its partners during the year, complementing our South East Queensland integrated resorts and enhancing their appeal to a broad range of domestic and international tourists. Our Queensland properties collectively received 14 awards in the 2017 financial year, with hotel and restaurant offerings recognised for their quality. Highlights included three awards at the prestigious Queensland Hotels Association Awards for Excellence. The Star Entertainment Group was recognised for its Outstanding Achievement in Training, and The Star Gold Coast’s Garden Kitchen & Bar was awarded Best Restaurant in the Accommodation Hotels category. Statutory gross revenue for the Queensland properties increased to $746 million, up 6.5% compared to the 2016 financial year (or up 7.9% on a normalised basis) due to increased International VIP Rebate business revenue. EBITDA of $199 million (excluding significant items) increased 6.6% (up 11.5% on a normalised basis) compared to the prior year. Revenue from domestic gaming was impacted by capital works disruption at The Star Gold Coast in the first half, and competitor investments and disruption to access from the construction of the Queen’s Wharf Brisbane development. Table games revenue declined 1.4% and slots revenues declined 2.8% in the 2017 financial year relative to the prior year. Non-gaming business revenues increased 7.1% for the year, reflecting positive customer response to new and refurbished offerings at The Star Gold Coast. Operating expenses of $357 million was up 4.3% on the prior year, driven by increased activity, investments in loyalty, marketing, the rebranding to The Star Gold Coast, and wage indexation. Strategic priorities for our Queensland properties for the 2018 financial year include completion of the luxury suite hotel at The Star Gold Coast prior to the Gold Coast 2018 Commonwealth Games, the completion of demolition, the commencement of excavation and finalising the Plan of Development at Queen’s Wharf Brisbane. 48 AWARDS RECEIVED ACROSS OUR PROPERTIES 5.7% INCREASE IN DOMESTIC TABLE GAMES REVENUE (SYDNEY) 11.5% INCREASE IN NORMALISED EBITDA (QLD) 17 Treasury Brisbane. 16 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017 KEY PROJECTS QUEEN’S WHARF BRISBANE © Destination Brisbane Consortium. All rights reserved. Artist's impression. Subject to planning approvals. 18 The Star Entertainment Group – together with Destination Brisbane Consortium partners Chow Tai Fook Enterprises Limited and Far East Consortium International Limited – is delivering an iconic development in Brisbane that will revitalise the city’s heritage buildings, deliver striking landmark architecture and will become a globally recognised destination. On 1 January 2017, Destination Brisbane Consortium took possession of the Queen’s Wharf Brisbane development site to begin demolition and enabling works on its $3 billion world-class project. During the 2017 financial year: ○ Two CBD roads closed from January 2017 to enable the development’s safe construction: a section of William Street, from Elizabeth to Margaret streets, during the build; and Queens Wharf Road permanently ○ Destination Brisbane Consortium appointed a demolition and early works contractor, which has erected safety hoarding stretching almost 1km around the site that uses creative messaging to showcase Brisbane as a changing and growing city ○ As part of Destination Brisbane Consortium’s heritage management approach, heritage footing investigations were conducted, extensive monitoring procedures and equipment were installed, and two of the nine heritage buildings in the precinct were braced by steel to ensure stability and security ahead of demolition ○ Demolition works commenced to remove three former government non-heritage buildings in the precinct. The site is expected to be level and ready for underground car park excavation works by early 2018. Main construction works are expected to begin in 2019, once excavation of the foundations, basements and underground car park is complete. The Star Entertainment Group will continue to operate Treasury Brisbane until the new integrated resort opens and the transition to a new casino occurs. The Star Entertainment Group’s two existing heritage buildings will be subsequently repurposed by The Star Entertainment Group into a hotel operated by The Ritz-Carlton and a premium retail precinct. The Star Entertainment Group will retain these buildings under a long-dated lease and will be a 50% equity owner of the integrated resort component, which includes the hotels and all public realm areas. The Queen’s Wharf Brisbane integrated resort development includes a range of tourism, infrastructure and residential developments, including: ○ 50 new bars and restaurants ○ Five new hotels, including the world renowned The Ritz-Carlton and the 6-star Rosewood, which will provide more than 1,000 premium hotel rooms ○ New retail space ○ Restored and repurposed heritage buildings ○ The equivalent of 12 football fields in size of public space ○ A public Sky Deck located more than 100 metres above William Street ○ World-class gaming facilities (to replace Brisbane’s existing Treasury casino) which will comprise less than 5% of the development footprint ○ 2,000 apartments ○ A new pedestrian bridge to South Bank. The Queen’s Wharf Brisbane integrated resort development is the largest private sector project in Queensland, stretching from George Street to the Brisbane River, and from Queen Street to Alice Street. The development will employ more than 2,000 workers during peak construction in 2020/21, and create more than 8,000 jobs in Queensland when fully operational. PROJECT TIMELINE* 2017 2017 Commence demolition and enabling works at Queen’s Wharf Brisbane 2019/20 Installation of above-ground infrastructure 2022 Expected opening of the core integrated resort development 2018 Commence excavation works to remove around 600,000m3 of spoil 2021 Internal fit-out of buildings in the development 2024 Anticipated opening of the repurposed Treasury Building 2024 *Timeline is indicative only. References to years are to calendar years. 19 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017KEY PROJECTS THE STAR GOLD COAST The property has relaunched as The Star Gold Coast after more than 30 years as Jupiters Hotel & Casino. This transition embodies an ongoing transformation. The luxury suite hotel under construction at The Star Gold Coast. The Star Entertainment Group, as part of its commitment to the Gold Coast, has also commenced work on the first phase of its future master plan concept, receiving approval from the City of Gold Coast Council and the Queensland Government for an additional hotel and apartment tower on Broadbeach Island. Subject to successful apartment pre-sales, the complex could take the property’s transformation to a combined investment of up to $850 million. The new hotel and apartment tower is a project of the joint venture vehicle – Destination Gold Coast Consortium – including The Star Entertainment Group and its partners Chow Tai Fook Enterprises Limited and Far East Consortium International Limited. The development is the first phase of a broader master plan concept that includes the potential for up to five hotel and/or residential towers, a world class recreational deck with water features, tropical gardens, pools and spa facilities, and new entertainment offerings. Development works at The Star Gold Coast are well advanced, with the following works already delivered: ○ A full refurbishment of all 596 hotel rooms ○ A refreshed and redesigned hotel lobby ○ Six new and exciting food and beverage offerings, including the one-hatted Kiyomi, Cucina Vivo, Garden Kitchen & Bar, M&G Café and Bar, Mei Wei Dumplings and a new-look Atrium Bar ○ A luxurious poolside experience ○ An exterior refresh of the existing hotel and a rejuvenated events lawn ○ One of Australia’s largest permanent outdoor projection systems. With these projects fully delivered, the next phase of the redevelopment and expansion is advancing with the following works program: ○ Construction of the new luxury 17 storey suite hotel, which is scheduled to open before the Gold Coast 2018 Commonwealth Games ○ Continued expansion of the food and beverage offering, with further new restaurants and bars ○ Re-energised main gaming floor experience, connecting the existing building through to the luxury suite hotel ○ A refreshed property arrival experience ○ Canal front parkland upgrade in partnership with City of Gold Coast Council. 20 PROJECT TIMELINE* 2017 2017 Application to construct a new hotel and apartment tower with joint venture partners approved 2018 Complete the luxury suite hotel (before the Gold Coast 2018 Commonwealth Games) 2021 Complete the new joint venture hotel and apartment tower (subject to pre-sales and associated facilities) 2018 Pre-sales for the apartments in the proposed joint venture hotel and apartment tower 2018 Commence preparatory works for the new joint venture hotel and apartment tower (subject to successful pre-sales) 2021 *Timeline is indicative only. References to years are to financial years. Concept image only. Subject to approvals. 21 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017KEY PROJECTS THE STAR SYDNEY The Star Sydney, one of Sydney’s most awarded entertainment and tourism destinations, has up to $1 billion in capital works projects completed, in progress or in planning. The Star Entertainment Group is working with its joint venture partners, Chow Tai Fook Enterprises Limited and Far East Consortium International Limited, to progress an additional $500 million of proposed development works at The Star Sydney. The proposed development is progressing through the planning stages and includes: ○ A new hotel and residential tower proposed to be operated by the world renowned The Ritz-Carlton. Following a design excellence competition overseen by a panel of industry experts and after analysis and consideration of community and stakeholder feedback, internationally acclaimed architects FJMT were selected to design the proposed hotel and residential tower. ○ Additional food and beverage, retail, function and event space, as well as other resort facilities and attractions. Concept image only. Subject to all approvals. An initial $500 million investment in The Star Sydney covers a range of works, including the expansion of restaurants and bars, upgrades to the Sovereign Room, gaming and retail offerings, the renovation of hotel rooms and facilities, and improved customer flow and property access. The 2017 financial year saw the commencement and delivery of a range of projects as part of this investment, including: ○ The completion of the Astral Tower hotel rooms upgrade and the Astral Residences refurbishment of 130 apartments ○ The completion of gaming works including the new Vantage Room (entry level domestic private gaming experience), Stadium (the new multi- terminal gaming experience) and the new poker experience on the main gaming floor area ○ The completion and launch of Latitude, the new main gaming floor bar experience ○ The commencement of the new Hotel Club Lounge located in the Astral Tower, due for completion in the 2018 financial year ○ The commencement of the Astral lobby and Porte Cochere upgrade and refresh, due for completion in the 2018 calendar year. FJMT’s proposed design for a new hotel and residential tower at The Star Sydney. Concept image only. Subject to all approvals. 22 PROJECT TIMELINE* 2017 Astral Tower room refurbishment completed Community engagement commences for proposed joint venture tower (The Ritz-Carlton) Astral Lobby and Port Cochere works to commence Development Approval to be submitted for joint venture tower 2021 Expected completion of Sovereign Room expansion 2018 Astral Residences upgrades to be completed Enabling works for Sovereign Room expansion to commence 2019 New food and beverage assets to be completed 2021 *Timeline is indicative only. References to years are to financial years. 23 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017SUSTAINABILITY At The Star Entertainment Group, we embrace a holistic approach to sustainability, and its importance to the workplace and the community. ‘Our Bright Future’ is the core strategy developed, which combines environmental, social and governance objectives under four pillars. The strategy is underpinned by an annual materiality assessment. WORLD CLASS PROPERTIES The Star develops and operates world class liveable, environmentally sustainable and resilient integrated resorts and precincts #1 ‘GLOBAL LEADER’ CASINO AND GAMING INDUSTRY The Star Entertainment Group was ranked global leader of the Casino and Gaming Industry in the Dow Jones Sustainability Index (DJSI) assessment 2016 6 STAR GREEN STAR COMMUNITIES RATING V1 Awarded for the Queen’s Wharf Brisbane integrated resort development $780K ONGOING COST SAVINGS ACHIEVED PER ANNUM Cost savings from energy, water and maintenance efficiency projects implemented in FY2017 LEADING COMPANY GUEST WELLBEING TALENTED TEAMS The Star is an ethical corporate citizen leading the way in responsible gaming and maintaining strong relationships with our stakeholders The Star is committed to giving our guests a safe, secure and comfortable experience The Star attracts, develops and retains a talented, diverse and engaged team $13+ MILLION CONTRIBUTION Value of contribution to community groups, charitable organisations and partnerships by The Star Entertainment Group’s properties 18 MILLION VISITORS The approximate number of guests who visited The Star Sydney, The Star Gold Coast and Treasury Brisbane in FY2017 20% TARGET OF ASIAN REPRESENTATION IN LEADERSHIP ROLES To better reflect the diversity of our team members and guests $350K DONATED LOCALLY IN SYDNEY The Star Sydney is proud to support its neighbours in the City of Sydney and launched a Community Grants Program in August 2016 400+ SECURITY AND SURVEILLANCE TEAM Security and surveillance team members across The Star Entertainment Group’s properties keep guests safe 70+ APPRENTICE CHEFS First, second and third year apprentice chefs studied at The Star Culinary Institute in FY2017 $18.9m CONTRIBUTED TO RESPONSIBLE GAMBLING FUND (NSW) The Responsible Gambling Fund (NSW) supports projects and services that aim to reduce and prevent the harms associated with problem gambling 15,000 #1 COMMUNITY NEWSLETTERS DELIVERED The Star Sydney communicates with local residents in Pyrmont providing development and operational updates OUTSTANDING ACHIEVEMENT IN TRAINING Awarded to our Queensland properties at the Queensland Hotel Association (QHA) Awards for Excellence 24 24 25 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017SUSTAINABILITY SUSTAINABILITY STRATEGY REDUCING RESOURCE USE The Star Entertainment Group continues to target sustainable reductions in resource use through capital and operational energy and water improvement projects. To support this commitment, The Star Entertainment Group set long term carbon and water targets in May 2017 to achieve a 30% reduction in carbon and water intensity by FY2023 against a baseline of FY2013 on a square meter basis. For the 2017 financial year and in this Report, resource intensity has been reported on a per visitor basis in addition to absolute consumption. From FY2018, intensity reporting will move from visitation to square meters. As the company’s portfolio is expected to grow substantially with new assets being developed and new loads coming on-line, resource use is expected to increase in absolute terms. However, consumption per square meter should decrease as energy and water retrofit projects occur and new, more efficient floor space opens over time. To ensure the Group continues to prioritise energy efficiency in an expanding portfolio with energy prices expected to continue to rise, an energy and water project pipeline was established in FY2015 to ensure projects are implemented each year that deliver cost and environmental benefits. To date, the Group has implemented over twenty six projects delivering environmental savings, with financial savings of over $1.4 million achieved in the last two financial years. The Group has also set more stringent controls for developments and new projects through the revised Sustainable Design and Operational Standards, specifying mandatory and voluntary requirements to ensure new build and refurbishment projects maximise energy and water savings and best practice sustainability opportunities. The following resource saving projects were delivered in FY2017: ○ The Star Sydney refurbished the Astral Tower and Residences, delivering 1,200 MWh in electricity savings and over 2,000 GJ in gas savings and over 26,000 kL of water savings per annum. ○ Treasury Brisbane introduced a chiller control strategy at 159 William Street, Brisbane (with expected savings of 240 MWh) and installed power factor correction to the Treasury buildings. To reduce energy from lighting, an upgrade to LEDs on the main gaming floor reduced the lighting load from 60 kW to 19 kW. ○ The Star Gold Coast has progressed through a $40 million infrastructure project to allow for expansion plans to the island with more efficient plant and equipment. The benefits of these upgrades are expected to be realised from FY2018 as the projects complete. The refurbishment of the existing hotel’s 596 rooms was completed in 2017 and included a number of sustainable design features, delivering estimated energy savings of 1,334 MWh and water savings of 22,000 kL per annum. ENERGY AND CARBON EMISSIONS The Group’s total emissions in carbon dioxide equivalents (CO2-e) from gas and electricity for the 2017 financial year were 101,170 tonnes. This footprint equates to a decrease of 3.5% from 2016 and a decrease of 6.8% from base year FY2013. The Group’s total energy consumption from gas and electricity for the 2017 financial year was 598,576 gigajoules (GJ) which was a 2.3% decrease from the 2016 financial year and a 1.5% reduction from base year FY2013. On an intensity basis, the Group’s carbon emissions decreased from 5.8 kg CO2-e/visitor in 2016 to 5.7 kg CO2-e/visitor in 2017 and achieved a 15% reduction from 6.7 kg CO2-e/visitor from base year FY2013. Energy consumption per visitor decreased from 33.8 MJ/visitor in FY2016 to 33.7 MJ/visitor in FY2017, and achieved a 9% MJ/visitor reduction from 37.2 MJ/visitor from base year FY2013. WATER CONSUMPTION The Group’s total potable water consumption was 817,121 kL in the 2017 financial year, a 3.4% decrease from FY2016 however an overall increase of 18.7% from base year FY2013. On an intensity basis, the Group’s water consumption has decreased from 46.6 litres per visitor in FY2016 to 46.1 litres per visitor in FY2017 however intensity has increased from 42.2 litres per visitor in base year FY2013. All properties except The Star Gold Coast experienced decreases in water consumption in the FY2017 when compared to FY2016, saving over 28,740 kL in total. The Star Gold Coast’s water consumption increased by 3,000 kL which was expected due to the reverse osmosis plant being stopped in September 2016 to allow for relocation and upsizing in capacity as part of the infrastructure improvement project. The new plant will double in size and will be installed in 2018. TARGETING RECYCLING IMPROVEMENTS The Group takes a comprehensive approach to improving landfill diversion with the Waste Strategy targeting recycling improvements across all areas of the business from offices, to bars, restaurants, hotel rooms and entertainment offerings. The Group has been tracking recycling performance against the base year FY2013 to ensure that improvements are measurable, continue to divert increased waste volumes from landfill and promote behavior change across the organisation. Across the Group, total recycling rates have increased from 10% diversion in FY2013 to 36% diversion across all operations in FY2017. The Star Sydney reached the highest diversion rate to date achieving a rate of 49% within the year. On an intensity basis, recycling per visitor in tonnes has increased as the Group’s recycling performance increased. During the financial year a number of initiatives have been introduced to ensure continuous improvement including: ○ the introduction of commingle bins as part of the Astral Tower and Residences refurbishment ○ the rollout of new dual recycling bins for guest use at The Star Gold Coast and Treasury Brisbane ○ the establishment of dedicated Waste Strategy Groups focusing on training, auditing, process improvement and behavioural change programs ○ undertaking multiple site audits at The Star Sydney with specialised training running in peak periods to maximise recycling in bars ○ expanding the Soap Aid recycling scheme to The Darling Hotel, collecting over 1,450 kgs of used soaps since the program began ○ the commencement of a program to recycle Nepresso capsules from The Star Gold Coast hotel rooms. To date over 3,500 capsules have been recycled ○ the celebration of National Recycling Week with information stands, team member giveaways, and training surveys on recycling. CLIMATE RISK ASSESSMENT The Star Entertainment Group recognises that its properties may be susceptible to future changes in climate. Accordingly, we are committed to improving the resilience of our business operations, our assets, and the precincts in which our properties are located. The Star Entertainment Group completed climate risk assessments for each of our properties during FY2017. The project assessed the predicted climate variables for each location including the expected changes in rainfall, temperature and extreme weather events, and assessed these predicted physical impacts on the buildings. By analysing the predicted climate exposure and property sensitivity, the climate risk was identified for each of our properties. To manage these risks into the future and to design and build with a changing climate in mind, prioritised mitigation and adaptation actions have been developed and are included in the Group’s Sustainable Design and Operational Standards. CARBON EMISSIONS ENERGY CONSUMPTION WATER CONSUMPTION RECYCLING RATES 6.7 , 5 9 5 8 0 1 37.2 33.2 32.5 33.8 33.7 46.6 46.1 0.15 0.16 0.14 42.2 42.0 0.09 6.0 , 3 5 9 4 0 1 5.7 9 9 0 5 0 1 , 5.8 , 9 2 8 4 0 1 5.7 0 7 1 1 0 1 , , 6 7 4 7 0 6 , 5 4 4 4 8 5 3 5 5 9, 9 5 8 7 8 2 1 6 , , 6 7 5 8 9 5 0 4 4 8 8 6 , 38.9 8 9 8 3 8 6 , 9 2 2 6 7 7 , , 1 6 8 5 4 8 0.03 0 1 1 2 1 7 1 8 , FY13 FY14 FY15 FY16 FY17 FY13 FY14 FY15 FY16 FY17 FY13 FY14 FY15 FY16 FY17 FY13 0 2 FY14 1 3 FY15 3 3 FY16 6 3 FY17 CARBON EMISSIONS (TONNES CO2-E) EMISSIONS INTENSITY (KG CO2-E/VISITOR) ENERGY CONSUMPTION (GJ) ENERGY INTENSITY (MJ/VISITOR) WATER CONSUMPTION (KL) WATER (L/VISITOR) RECYCLING RATE (%) RECYCLING RATE INTENSITY (KG/VISITOR) * 2.13% of FY2017 utility accounts were unbilled at the time of reporting. The missing usage has been estimated as 1.0% (1.1 GWh) for electricity, 0.7% (1.3 Tj) for gas and 3.5% (28.9 ML) for water. * The FY2013 baseline for waste has been recalculated. ‘Recycling intensity’ kg/visitor has been used in FY2017, not ‘waste to landfill intensity kg/visitor’ as used in the FY2016 report, which better reflects recycling performance. * Visitation numbers have been restated for The Star Sydney in FY2016 impacting the FY2016 intensity per visitor metric. 26 27 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017SUSTAINABILITY DELIVERING WORLD CLASS PROPERTIES GREEN BUILDING RATINGS In the 2017 financial year, The Star Entertainment Group continued to achieve and commit to green building ratings with both Green Star and the National Australian Built Environment Rating System (NABERS). Destination Brisbane Consortium (on behalf of The Star Entertainment Group and its joint venture partners) was awarded a 6 Star Green Star Communities Rating v1 for the Queen’s Wharf Brisbane development which represents world leadership in master planning. As development progresses, the Queen’s Wharf Brisbane integrated resort development will move towards achieving 6 Star Green Star Design & As Built rating commitments for all new buildings, and aims to achieve Australian best practice sustainability outcomes on the repurposing of existing heritage buildings. The Star Entertainment Group also registered the proposed The Ritz-Carlton hotel and residential tower at The Star Sydney for a 5 Star Green Star Design & As Built rating, and The Star Entertainment Group’s corporate office in New South Wales was certified with a NABERS Energy Tenancy Rating, achieving 5 Stars. QUEEN’S WHARF BRISBANE Integrated resort development Communities v1 RATING STATUS 6 Star Green Star Communities Rating v1 achieved Committed to achieving a 6 Star Green Star Design & As Built rating for non-residential new buildings Committed to achieving industry best practice design for existing heritage buildings Committed to achieving Green Star Performance ratings for each non-residential building 5 Star NABERS Energy Tenancy Rating achieved Committed to achieving a 5 Star Green Star Design & As Built rating SYDNEY CORPORATE OFFICE 60 Union Street, Pyrmont NSW THE STAR SYDNEY Proposed The Ritz-Carlton hotel and residential tower A newly refurbished room at The Astral Residences. PLANNING AND DESIGNING IN SUSTAINABILITY – THE ASTRAL TOWER AND RESIDENCES The Star Entertainment Group focuses on achieving energy and water efficiency outcomes in all refurbishment and development projects without comprising guest experience. In the recent $130 million refurbishment of the Astral Tower and Residences at The Star Sydney, modern luxury was achieved in each of the 375 rooms refurbished. This upgrade also contributed towards achievement of our sustainability goals. Our Sustainable Design and Operational Standards were applied in the planning and design phase, focusing on energy efficient lighting selection, smart controls, water efficient fixtures, fittings and toilets with high WELS ratings, and in-room recycling for guests. Through improved specifications in design, the refurbishment project is estimated to deliver over 1,200 MWh in electricity savings, over 2,000 GJ in gas savings and over 26,000 kL of water savings per annum. These energy savings equate to a total annual carbon saving of approximately 900 tonnes, which is approximately 2.4 tonnes of CO2 for each room refurbished. The sustainable design features used in the refurbishment of the Astral Tower and Residences are estimated to deliver annual cost savings of over $370,000 in energy, water and maintenance expenses. THE DESIGN ELEMENTS FOR THE ASTRAL TOWER AND RESIDENCES INCLUDED: 35W HALOGEN DOWNLIGHTS BEING REPLACED WITH 7.5W LED LIGHTS TOILETS ARE DUAL FLUSH 4 STAR WELS RATED REPLACEMENT OF OLD FAN COIL UNITS WITH MORE EFFICIENT MODELS BATHROOM TAPS AND SHOWER HEADS ARE NOW 5 STAR WELS RATED UPGRADING ROOM CONTROLS AND IN- ROOM TECHNOLOGY WITH C4 SUITE CONTROL SYSTEM THAT ENABLES THE ROOM TO GO INTO A SLEEP MODE TO CONSERVE ENERGY © Destination Brisbane Consortium. All rights reserved. Artist's impression. Subject to planning approvals. 28 Illustration only. Not to scale. 29 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017SUSTAINABILITY DELIVERING WORLD CLASS PROPERTIES SUSTAINABILITY LEADING COMPANY SUSTAINABLE PROCUREMENT The Star Entertainment Group is committed to continuous improvement in supply chain management and takes a long- term view to managing and maintaining relationships with suppliers and contractors. During the year, our Sustainable Procurement Principles were refreshed to require our suppliers to consider ethical, environmental and social sustainability impacts on the communities in which we operate, as well as overall resource use. We have taken steps to conduct a gap analysis of our supply chain to understand high impact areas that will form the basis of our Responsible Supply Chain Strategy. FY2017 SUSTAINABLE PROCUREMENT INITIATIVES Across the business, we have been working with our suppliers on innovative and sustainable product and process solutions which include the following improvements: ○ Installed wine taps in high volume bar areas and self-serve water fountains to reduce glass bottles and plastic packaging ○ Moving to polycarbonate and melamine reusable products in bars and restaurants, to avoid using disposable plastic for eat in options ○ Using iPads for stocktake and food safety recording, reducing paper wastage ○ Expanded the towel and sheet reuse choices for guests in the Astral Tower and Residences, reducing energy, water and detergent use from laundering ○ Implemented printing practices to reduce paper usage and subsequent CO2 emissions, by standardising printing configurations ○ Over 250,000 litres of our used cooking oil was recycled into biodiesel and stockfeed manufacture (our oil management program delivered cost savings of over $70,000 during the year) ○ Fresh cooking oil is now delivered in tanks, which has avoided the use of more than 22,500 20 litre bins that would have otherwise gone to landfill ○ Increasing spending on biodegradable and carbon neutral food service packaging and cups by 50% between FY2016 and FY2017 ○ All disposable napkin ranges are now made with Forest Stewardship Council (FSC) certified pulp and are carbon neutral. The Star Entertainment Group has a proud record of responsible corporate citizenship and embraces a culture of social responsibility, ethical behavior and community support, to promote sustainable business practices. REUSING WASTE OYSTER SHELLS TO IMPROVE HARBOURSIDE ECOLOGY WITH OCEANWATCH AUSTRALIA The Star Sydney was delighted to collaborate with OceanWatch Australia to donate used oyster shells from the Harvest Buffet at The Star Sydney to OceanWatch Australia’s Living Shoreline’s Program. The program aims to re-establish Australian intertidal reefs supporting habitat growth in dedicated rehabilitation areas across Sydney Harbour. Over a number of restaurant sittings, The Star Sydney’s Harvest Buffet and stewarding teams worked with OceanWatch Australia to collect over 500 kgs of used oyster shells. Once collected, the Ocean Watch Australia team processes, cleans and bags the shells for placement in Sydney Harbour to create artificial reefs which prevent erosion and create a habitat for marine life. OceanWatch Australia works with the community to ensure Australia’s marine environment is healthy, productive, valued and used in a responsible way. Image: The Star Entertainment Group team members with OceanWatch Australia Program Manager Simon Rowe during a visit to Oceanwatch Living Shoreline’s Program at Lane Cove National Park. Image above: The Star Sydney is honoured to partner with City West Housing, a non-for-profit organisation supporting low to moderate income earners with housing, to offer a free cricket pilot program for teenagers. TRUSTED COMMUNITY PARTNERS Supporting local and state based charities as well as community groups and events is an important factor in The Star Entertainment Group’s commitment to foster local spirit and be active and valued participants in each of the cities in which it operates. In the 2017 financial year, The Star Entertainment Group is proud to have made contributions in excess of $13 million to a range of community groups and events, and charitable and sporting organisations. Support is provided in a variety of forms, reflecting the diversity of groups with which The Star Entertainment Group engages. This includes active participation by team members, direct assistance via grants, and sponsorship arrangements. Each property is proud to also provide in-kind use of our world-class venues, including the provision of event management and food and beverage supplies. The Star Entertainment Group has built on its long-term involvement with charities in Queensland including Choice, Passion, Life (formerly the Cerebral Palsy League) and Surf Life Saving Queensland. Relationships with the premier partners announced by The Star Sydney in 2016 – Taronga Conservation Society Australia, Barnardos Australia and Chris O’Brien Lifehouse also continued in the 2017 financial year. To ensure the sustainability of our partnerships, contributions are characterised by strong synergies and a natural association with our properties in Sydney, Brisbane and the Gold Coast. 30 31 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017SUSTAINABILITY LEADING COMPANY THE STAR SYDNEY In the 2017 financial year, The Star Sydney committed collective financial funding of $1.5 million to Barnardos Australia, Taronga Conservation Society Australia and Chris O’Brien Lifehouse. To further support these relationships, team members participated in a wide range of volunteering activities, including a complete family home renovation project with Barnardos Australia, supporting bush regeneration for vital wildlife conservation programs for Taronga Zoo, and volunteering their time to art project ‘Arterie’ at Chris O’Brien Lifehouse. The Star Sydney is proud to support its neighbours in the city of Sydney and launched a Community Grants Program in August 2016. Friends of Pyrmont Community Centre, the Harris Community Scholarship Fund and the Pyrmont History Group were the first to receive a community grant from The Star Sydney. The Star is also proud to partner with City West Housing, a non-for-profit organisation supporting low to moderate income earners with housing, to offer a free cricket pilot program for teenagers living in the Ultimo and Pyrmont areas. The Star Sydney was also involved in a range of local event and sporting partnerships, including: ○ Being the Official Partner of the NSW Rugby League and the official home of the NSW Blues, including developing the NSW Blatchys Blues SMARTWiG campaign for fans ○ Being a Premier Partner of the Sydney Swans and hosting key Sydney Swans events, including the Sydney Swans Guernsey Presentation and Hall of Fame Induction Dinner ○ Being a Foundation Partner and the Official Entertainment Partner of the Australian Turf Club, including participation in The Star Doncaster Mile, The Star Epsom and The Star Chinese Festival of Racing ○ Joining OzHarvest, Australia’s leading food rescue organisation, to serve thousands of people a free hot meal in Martin Place, as part of the ‘Think. Eat. Save’ campaign. TREASURY BRISBANE Treasury Brisbane is a proud supporter to several community-focused organisations across the sporting, charity and cultural sectors. During the 2017 financial year, Treasury Brisbane continued its association with Queensland Rugby League as Official Partner, and in conjunction with The Star Gold Coast, was the official home of the XXXX Queensland Maroons. City pride and local spirit are key elements of our community strategy, and in September 2016, Treasury Brisbane was proud to support one of Australia’s major international arts and cultural events as one of the Principal Partners of the Brisbane Festival. Treasury Brisbane and the Brisbane Festival collaborated to deliver an interactive pop-up dance experience – ‘You should be Dancing’. In conjunction with The Star Gold Coast, Treasury Brisbane again supported Ronald McDonald House South East Queensland (RMHSEQ). Treasury Brisbane was a major sponsor of the Brisbane International tennis tournament and raised $83,500 for RMHSEQ through the ‘Aces for Hearts’ initiative (for every ace served, $100 was donated to the charity). Treasury team members also committed their time to create a ‘Make a Meal’ event for sick children and their families that included a buffet smorgasbord and a visit from Santa. Treasury Brisbane was also proud to be involved in other events and partnerships, including: ○ Celebrating 15 years of consecutive support for Choice, Passion, Life (formerly the Cerebral Palsy League) and being Presenting Partner for the Live Large Festival in South Bank ○ Being a Presenting Partner of the Asia Pacific Screen Awards (APSA), Asia Pacific’s highest accolade in film ○ Participating in the National Trust of Queensland’s Brisbane Open House event by opening Treasury to the public and conducting tours ○ Being a Partner of the Brisbane Racing Club with naming rights for Treasury Brisbane Ladies Oaks Day. More than $20,000 was also donated to other community organisations through direct contributions and our ‘Open Your Hearts’ program that invites team members to nominate worthy recipients for charitable donations. Entertainment on Sky Terrace during The Star Chinese Festival of Racing as part of The Star Sydney’s partnership with the Australian Turf Club (ATC). The Star Sydney's Managing Director Greg Hawkins with Momofuku Seiōbo Head Chef Paul Carmichael during Oz Harvest's 'CEO Cook Off’. Collectively the event raised $1.7 million, which results in 3.4 million meals to people in need. Treasury Brisbane was proud to support one of Australia’s major international arts and cultural events as one of the Principal Partners of the Brisbane Festival. 32 33 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017SUSTAINABILITY LEADING COMPANY The new inflatable rescue boat donated by The Star Gold Coast to Surf Life Saving Queensland. THE STAR GOLD COAST The Star Gold Coast maintains long-term relationships with key charity partners in Queensland, and actively encourages team members to contribute to the community in which they live, work and play. The Star Gold Coast continued its support of Surf Life Saving Queensland (a partnership which began in 1994) by donating a new inflatable rescue boat to assist in keeping local beachgoers safe. TO ENSURE THE SUSTAINABILITY OF OUR PARTNERSHIPS, CONTRIBUTIONS ARE CHARACTERISED BY STRONG SYNERGIES AND A NATURAL ASSOCIATION WITH OUR PROPERTIES. 34 The Gold Coast property hosted a Daffodil Day morning tea with charity partner Cancer Council Queensland, unveiling an edible display to celebrate 30 years of the iconic fundraiser which helps make a difference for cancer patients and their families. The Star Gold Coast also supported the Currumbin Wildlife Hospital Foundation and was a platinum sponsor of the Foundation’s ‘Sanctuary Under the Stars’ fundraising event. The Star Gold Coast provided much-needed winter warmth to sick or injured animals as well by donating hundreds of blankets to the Currumbin Wildlife Hospital. Team members nominated and supported local organisations and charities through our ‘Open Your Hearts’ program and other in-kind donations collectively totalling close to $60,000. The Star Gold Coast is also involved in various event and sporting partnerships on the Gold Coast, including: ○ First Official Partner of the Gold Coast 2018 Commonwealth Games. In April 2017, The Star Gold Coast proudly hosted a breakfast to celebrate one year until the Commonwealth Games. Guests included Gold Coast 2018 Commonwealth Games ambassadors and athletes Sally Pearson OAM, Steve Moneghetti AM, and Gold Coast 2018 Commonwealth Games Corporation Chairman Peter Beattie AC ○ Official Partner of Blues on Broadbeach, an iconic Australian blues festival that nurtures Australian talent and provides a stage for international acts ○ Naming rights sponsor of the Pan Pacific Masters Games, which attracted more than 14,000 athletes from 20 countries ○ Official Partner of the Queensland Rugby League (QRL) and Home of the XXXX Queensland Maroons, in conjunction with Treasury Brisbane. Treasury Brisbane chefs with mum Jenny Milne and her son Robbie. WE’RE PROUD TO SUPPORT RONALD MCDONALD HOUSE SOUTH EAST QUEENSLAND WITH THE OPENING OF THEIR NEW SOUTH BRISBANE HOUSE. GEOFF HOGG, MANAGING DIRECTOR QUEENSLAND THE STAR ENTERTAINMENT GROUP COMMUNITY PARTNERSHIP: RONALD MCDONALD HOUSE SOUTH EAST QUEENSLAND On 5 November 2016, Treasury Brisbane and The Star Gold Coast team members were proud to be on hand to support Ronald McDonald House South East Queensland (RMHSEQ) with the official opening of their new South Brisbane facility. RMHSEQ provides accommodation for the families of seriously ill children who live more than 50km from the treatment hospital in Brisbane. In 2014, Treasury Brisbane and The Star Gold Coast pledged $3 million over three years to assist in the construction of a new house in Brisbane. Both properties have undertaken a number of initiatives to raise money for the house. The new house is one of the largest Ronald McDonald Houses in the world, includes 70 accommodation rooms, play areas, outdoor space, laundry facilities and a rooftop function area. We are thrilled to have also delivered and sponsored the heart of house area that consists of a communal kitchen, dining and lounge area. The fundraising activities benefited Ronald McDonald House’s two Family Rooms at the Gold Coast University Hospital as well. The Star Entertainment Group also provided support to the fit-out works of the new house by putting RMHSEQ in touch with some of our furniture and kitchen suppliers to reap significant savings of approximately $140,000. In addition to their financial contribution, Treasury Brisbane and The Star Gold Coast have found other ways to help the charity through the provision of in-kind services. Treasury Brisbane hosted Ronald McDonald House ‘Captain of Industry’ fundraising lunches including their inaugural Business Leaders Group luncheon. 35 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017SUSTAINABILITY LEADING COMPANY AN INTEGRAL PART OF THE DAILY OPERATIONS IS THE PROVISION OF A SAFE AND SUPPORTIVE ENVIRONMENT FOR OUR TEAM MEMBERS AND OUR GUESTS. RESPONSIBLE GAMBLING The Star Entertainment Group provides a variety of engaging entertainment experiences at its properties. An integral part of the daily operations is the provision of a safe and supportive environment for our team members and our guests. While many of The Star Entertainment Group’s guests enjoy gambling as part of their leisure and entertainment experience and do so within their financial means, some guests experience problems in controlling their gambling habits. The Star Entertainment Group has in place a responsible gambling program which is designed to identify at an early stage guests who may be exhibiting signs of having problems in controlling their gambling habits, and subsequently support those guests while they seek counselling or other appropriate treatment. The objective of the responsible gambling program is to minimise the potential harm that may be caused by gambling (such as financial hardship, emotional distress and relationship breakdown), and to provide guests with the means to make informed decisions about managing their gambling behaviours. Key operational aspects of The Star Entertainment Group’s responsible gambling program are: Team members at The Australasian Croupier Championships held at The Star Gold Coast. ○ Providing sensitive and confidential support to guests seeking to exclude themselves from attending one or more of The Star Entertainment Group’s casinos (The Star Entertainment Group has agreements with selected Gambling Help Services in Queensland and New South Wales to allow individuals to self-exclude from a casino without having to attend the casino in person) ○ Assisting self-excluded guests to also self-exclude from other gambling venues ○ Providing clocks throughout the casinos so that guests are aware of time spent on gambling activities. ○ Encouraging guests to take regular breaks in play ○ Preventing intoxicated guests from participating in gambling activities ○ Prohibiting the cashing of cheques to fund gambling activities (other than by prior arrangement) $100+m CONTRIBUTED TO THE QLD GAMBLING COMMUNITY BENEFIT FUND* SINCE 1987 * previously the Jupiters Casino Community Benefit fund Board oversight of The Star Entertainment Group’s responsible gambling program is provided by the People, Culture and Social Responsibility Committee. The operational aspects of the responsible gambling program are implemented and applied by The Star Entertainment Group’s three Patron Liaison Managers who report directly to The Star Entertainment Group’s Chief Risk Officer. There are also Responsible Gambling Liaison Officers who are available at each property to provide on-the-floor support to guests and their relatives. The following initiatives also support The Star Entertainment Group’s approach to responsible gambling: ○ All new team members are introduced to responsible gambling practices as part of their orientation and complete a bi-annual responsible gambling refresher training session ○ Our Security and Surveillance staff are trained to prevent minors and those persons who have chosen to self-exclude themselves from gaining access to gaming areas ○ Each property operates under a ‘Responsible Gambling Code of Practice’ which sets the standards and requirements to be followed for the responsible delivery of gambling products and services ○ The Star Entertainment Group’s Patron Liaison Managers are members of the National Association for Gambling Studies Inc., which is a non-profit organisation that aims to promote discussion and research into all areas of gambling activity In Queensland, one of The Star Entertainment Group’s Patron Liaison Managers attends Responsible Gambling Network meetings on the Gold Coast, ○ Providing guests with readily ○ Prohibiting betting on credit terms ○ Conducting responsible advertising and marketing campaigns in compliance with applicable regulations and industry codes of practice accessible information about problem gambling, including symptoms and treatment options ○ Working with external support agencies to provide assistance and information for guests experiencing problems in controlling their gambling habits 36 SINCE 2013, THE STAR ENTERTAINMENT GROUP HAS CONDUCTED RESPONSIBLE GAMBLING AWARENESS WEEKS, IN ADDITION TO THOSE ALREADY ORGANISED BY COMMUNITY SUPPORT GROUPS. in Brisbane and on the Sunshine Coast. The meetings are conducted by the Gambling Help service in Queensland and are attended by industry participants and the Queensland Office of Liquor and Gaming Regulation. The Responsible Gambling Network provides a forum to exchange information and views about approaches to responsible gambling and finding solutions, to improve the management of problem gambling. A percentage of gaming taxes paid by The Star Entertainment Group is directed to the Gambling Community Benefit Fund in Queensland (previously the Jupiters Casino Benefit fund). Since 1987 more than $100 million has been contributed to the Gambling Community Benefit Fund for grants to community groups across Southern Queensland. In the 2017 financial year, The Star Entertainment Group contributed $18.9 million to the Responsible Gambling Fund (NSW). Funds are allocated, through the New South Wales government, to support various projects and services that aim to reduce and prevent the potential harms associated with problem gambling. In New South Wales, The Star Entertainment Group engages BetCare, a dedicated independent counselling service, to provide assistance for distressed guests, including 24/7 crisis intervention. BetCare also assists with gambling assessments for guests seeking revocation of self-exclusion agreements and provides specialised responsible gambling training to our Responsible Gambling Liaison Officers. Since 2013, The Star Entertainment Group has conducted responsible gambling awareness weeks, in addition to those already organised by community support groups. RESPONSIBLE SERVICE OF ALCOHOL Responsible Service of Alcohol (RSA) aims to reduce the adverse health, social and economic consequences of alcohol consumption for individuals, their family, friends and the community. The Star Entertainment Group’s properties operate in a highly regulated industry and the RSA obligations placed on its properties in Sydney, the Gold Coast and Brisbane are found in relevant state-based legislation, regulations and liquor licences. The Star Entertainment Group’s commitment to RSA is monitored by a RSA Committee comprising of senior operational team members who meet bi-monthly to review matters such as changes to legislation, incidents, trend reports and upcoming events. At each property, all team members who are directly involved in the service or supply of alcohol, including those supervising or managing these processes must have a current RSA training course certificate. Team members who are not directly involved in the service or supply of liquor are required to complete the in- house RSA training upon commencement of employment. For our guests, RSA awareness is promoted through brochures which are available at the casino entrances at each property. In addition to strict refusal of entry policies, each property has in place processes for: ○ Monitoring that guests on the premises are not unduly affected by excess consumption of alcohol ○ Empowering food and beverage managers to identify high-risk periods and manage consumption by limiting the amount of drinks that can be purchased at any one time ○ Mandatory reporting of all serious RSA related incidents (to be documented within the approved incident reporting databases and records) The Star Entertainment Group’s properties have also taken the following measures to support responsible service of alcohol: ○ The use of toughened or tempered glass for many of the beverages served in the public areas of the Gold Coast and Brisbane casino properties (excluding restaurants) ○ The use of toughened or tempered glass in the Main Gaming Floor venues and the use of plastic drinking vessels at Sky Terrace, the Sports Bar and Marquee Nightclub during restricted periods at The Star Sydney. 37 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017SUSTAINABILITY GUEST WELLBEING SUSTAINABILITY TALENTED TEAMS Promoting guest wellbeing by providing a safe and enjoyable environment across our properties is of paramount importance to The Star Entertainment Group. The Star Entertainment Group is proud of its talented and diverse workforce and is committed to equipping its team members with the knowledge, tools and passion to deliver thrilling and authentic guest experiences. The Star Entertainment Group properties welcome around 18 million guests per annum. SECURITY AND SURVEILLANCE The Star Entertainment Group’s properties maintain leading security and surveillance operations. All properties are supported by 24 hours-a-day seven-days-a-week security and surveillance operations. Across our three properties our security and surveillance team comprises more than 400 people. Each property has in place standard operating procedures to deal with and respond to any suspected undesirable conduct. An incidents register is maintained at each property and the internal compliance team reviews all requirements, and conducts regular audits to support compliance with relevant legislation and policies. The Star Entertainment Group’s properties are pre-eminent international tourist destinations that deliver a range of offerings including food and beverage, accommodation, theatre, live entertainment and gaming to around 18 million guests per year. The Star Entertainment Group is committed to providing all guests with a safe, secure and comfortable experience at each of our properties. Our properties are subject to a high level of oversight from various external regulators. The Star Entertainment Group works with police, casino regulators and the local community in each city so our properties remain safe for all our local and international guests. The Star Entertainment Group takes a zero-tolerance approach to illegal, undesirable and anti-social behaviour in conjunction with its Responsible Gambling and Responsible Service of Alcohol (RSA) practices. NEIGHBOURHOOD ENGAGEMENT A ‘Neighbourhood Advisory Panel’ has been set up at The Star Sydney to provide a formal and ongoing engagement opportunity between The Star Sydney and its neighbours. The panel provides an opportunity to learn more about The Star Sydney’s operations and to suggest solutions or address concerns to neighbourhood issues. A community newsletter is also delivered to 5,000 local residents and businesses in the Pyrmont area, providing updates on The Star Sydney’s plans. Online development updates for residents and stakeholders are provided at our Queensland properties. The Star Entertainment Group has initiated a pilot program at The Star Sydney to engage our guests on our sustainability products and services (to be conducted through outreach programs in our hotels). Matt Bekier, Managing Director and CEO The Star Entertainment Group, and Queensland Attorney-General, Minister for Justice and Minister for Training and Skills, Hon. Yvette D’Ath MP with graduates from the International Hospitality Service Program, the flagship program of the Queensland Hotel & Hospitality School. LEARNING AND DEVELOPMENT Building our internal capability through the provision of learning and development opportunities for our people is integral to The Star Entertainment Group’s vision to become Australia’s leading integrated resort company. Developing a pipeline of future tourism and hospitality workers by continuously upskilling our people in all areas and levels of the business is a core priority. In addition to internal training programs, Learning & Development teams across our properties partner with external training organisations such as TAFE, hospitality schools and universities, allowing us to provide our team members with a range of learning activities that are nationally recognised and accredited. KEY LEARNING AND DEVELOPMENT PROGRAMS ○ The Star Culinary Institute (delivered with TAFE NSW and TAFE QLD) continued to create training and mentoring opportunities for young chefs through the Apprentice Chef program. ○ The program provides unique, supportive onsite learning experiences including regular master classes in consultation with industry experts. In the 2017 financial year, over 70 apprentice chefs were enrolled in the program, undertaking rotations across our properties. ○ The Queensland Hotel & Hospitality School (a partnership with TAFE Queensland) celebrated its first year of operation in December 2016. The development of the school’s three courses – the International Hospitality Service Program, culinary arts apprenticeships, and front-of-house apprenticeships – is overseen by an industry panel comprised of many of the state’s leading global brands. The school’s flagship International Hospitality Service Program is designed to develop food and beverage service skills for work in luxury 5 and 6-star properties and students receive an accredited Certificate III in Hospitality upon graduation. The school is helping to build a pipeline of future workers ahead of the Queen’s Wharf Brisbane development that will require 8,000 operational roles. ○ Aboriginal and Torres Strait Islander work experience program (delivered by The Star Gold Coast in partnership with TAFE QLD and DMAC Personnel) is designed to build capability and create job opportunities in the hospitality industry for indigenous people. This program has been completed by 14 students who have successfully broadened their employability by attending classroom sessions and two weeks of practical work experience placements. On completion of the program, students are awarded a Certificate II in Hospitality. ○ The Macquarie Graduate School of Management (MGSM) ‘Women in MBA’ (Masters of Business Administration program launched in 2015 with The Star Entertainment Group as a founding partner) encourages diversity by financially supporting future female business leaders to complete an MBA. 38 39 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017SUSTAINABILITY TALENTED TEAMS DIVERSITY TARGETS OUR SAFETY GOALS 50% FEMALE REPRESENTATION IN LEADERSHIP LEVELS 1-4 BY 2020 20% ASIAN REPRESENTATION IN LEADERSHIP LEVELS 1-3 BY 2020 5% YEAR-ON-YEAR INCREASE IN AUSTRALIAN WORKPLACE EQUALITY INDEX SCORE EMPLOYEE ENGAGEMENT OF MATURE AGE TEAM MEMBERS We promote the following events internally to raise awareness amongst our team members: ○ International Day Against Homophobia, Transphobia and Biphobia (IDAHOT) ○ Wear it Purple Day (to support LGBTI youth) We have also produced and distributed our own guide to supporting gender- transitioning team members. AGE Mature Age Workers Expos are held at each of our properties to provide wellbeing and career development information. We also offer a seminar program that supports mature age team members in planning for the later stages of their careers. Education, awareness and training form a key part of The Star Entertainment Group’s Diversity and Inclusion Strategy. Our senior leaders take part in Unconscious Bias training, on-site training programs in cultural awareness are offered to all employees, and LGBTI-specific training for managers and employees continues to be provided by our partner in LGBTI inclusion, ‘Pride in Diversity’. ZERO FATALITIES AND SERIOUS INJURIES REDUCING LOW CONSEQUENCE INJURIES A HEALTHY AND ENGAGED WORKFORCE KEEPING OUR GUESTS SAFE WHILST VISITING OUR PROPERTIES WORK, HEALTH, SAFETY A new Work Health and Safety (WHS) Policy was developed by management and approved by the Board this financial year. The new WHS Policy reinforces that health and safety in the workplace is a shared responsibility between The Star Entertainment Group, its leaders, workers, contractors and visitors to our sites. To support the WHS Policy, the Board also approved a new strategy which outlines the following six key strategic focus areas: ○ Safety Culture ○ Safety Management Systems ○ Critical Risks ○ Risk Management and Human Factors ○ Safety Assurance and Investigation ○ Health and Wellbeing SAFETY CULTURE Our focus on safety culture has commenced with the implementation of safety programs to demonstrate active and visible safety leadership. Our leaders, Executive Committee and Board of Directors participate in safety leadership walks and activities to measure the success of our safety programs. SAFETY MANAGEMENT SYSTEMS Our safety management systems continue to evolve. During the 2017 financial year, The Star Entertainment Group introduced an online Workplace Safety Management system which provides a more effective process for induction, contractor management and visitor management at our properties. Robust work, health and safety practices are an important part of keeping our kitchens safe. CRITICAL RISKS In working towards achieving our goal of zero fatalities and serious injuries, we have reviewed our top WHS risks and validated that we have adequate critical risk controls in place. RISK MANAGEMENT AND HUMAN FACTORS We are implementing risk management programs that address hazard areas such as plant and equipment, hazardous chemicals, and manual tasks. During this financial year, we commenced ergonomic studies using wireless sensors on workers to create a manual task risk profile. This has helped The Star Entertainment Group introduce higher level controls in the design of tables and workplaces to reduce risks associated with manual tasks. SAFETY ASSURANCE AND INVESTIGATION Our safety assurance activities have been focused around high risk construction works. We have implemented a safety audit program on all high-risk principal contractors so that our construction partners understand that our safety goals extend to all works in which they have management or control over, on our properties and work sites. HEALTH AND WELLBEING We continue to provide health and wellbeing programs to our team members to promote a healthy and engaged workforce. The Star Entertainment Group uses a number of leading and outcome based safety indicators, including: ○ Total Recordable Incident Frequency Rate (TRIFR) ○ % of incidents reported within 24 hours ○ % of investigations commenced within 24 hours ○ % of WHS training undertaken Our TRIFR reduced by a further 5% from the 2016 financial year, achieving the assigned annual target set by the Board. TOTAL RECORDABLE INJURY FREQUENCY RATE (TRIFR) FY13 - 33.5 FY14 - 31.4 FY15 - 31.4 FY16 - 24.4 FY17 - 22.9 41 Around 200 Leaders and team members participated in the 'Walk and Talk for Women's Leadership' across The Star Entertainment Group properties. DIVERSITY AND INCLUSION The Star Entertainment Group is committed to promoting and fostering diversity and inclusion in the workplace and recognises the important contribution each team member’s unique perspectives and background brings to our organisation. Our policies, practices and behaviours all contribute to creating a safe, welcoming and inclusive workplace and support equitable and collaborative relationships and talented teams. This is underpinned by our Diversity and Inclusion Policy and is supported by our Diversity and Inclusion Strategy. The Star Entertainment Group’s internal Diversity and Inclusion Steering Committee continues to oversee the diversity and inclusion initiatives at The Star Entertainment Group, with input from four Diversity Working Groups that address four key diversity areas: gender, multicultural, lesbian, gay, bisexual, transgender and intersex (LGBTI) and age. We have measurable targets for each of these four areas (see graphic above) and our progress towards achieving these targets are reported back to the Board of Directors on an annual basis. Team members at each property have participated in the following initiatives and local and global events to support diversity and inclusion. 40 GENDER The Star Entertainment Group launched Women in Gaming Australasia (WGA) with Aristocrat Leisure Limited. WGA is an organisation dedicated to supporting the development and success of women who work in the gaming industry. In celebration of International Women’s Day, The Star Entertainment Group held ‘Walk and Talk for Women’s Leadership’ events across each of our properties. These events provided a platform for female employees to connect with leaders in the business. MULTICULTURAL Lunar New Year, Mid-Autumn Festival and Harmony Day are celebrated across our properties. In addition, focus groups were conducted to increase our understanding around the career experiences of our multicultural team members. This helped us develop a roadmap of initiatives to ensure we have a strong talent pipeline of multicultural team members. LGBTI The Star Sydney has been a proud partner of the Sydney Gay and Lesbian Mardi Gras for two years. Our sponsorship includes team members taking part in the Mardi Gras parade and supporting Queer Screen (a not-for-profit arts organisation that showcases LGBTI screen content at the Mardi Gras Film Festival and the Queer Screen Film Festival). THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017SUSTAINABILITY TALENTED TEAMS REWARD AND RECOGNITION To build a guest-centric and service focused culture, The Star Entertainment Group recognises the importance of celebrating and sharing the stories of our team members and leaders, who set the benchmark for guest service excellence and deliver a consistently high standard of performance. ‘Star awards’ is one way The Star Entertainment Group recognises and rewards top performers. Annual awards are given to team members who are delivering thrilling guest experiences by demonstrating qualifying behaviours called ‘Star Qualities’, and to leaders who are living our ‘Values’ of City Pride, Ownership, Welcoming and True Teamwork. CITY PRIDE STAR AWARD WINNERS JUSTIN BURNHAM FRONT OFFICE HOTEL SUPERVISOR, THE STAR GOLD COAST Justin is an outstanding leader in The Star Gold Coast hotel team, who consistently delivers exceptional guest excellence in his role of managing the busy hotel front office. Justin is known for his friendly, approachable attitude when dealing with guests’ queries. He listens to and empathises with guests, creating positive guest experiences that enhance and protect The Star Gold Coast’s brand. Justin is a “natural” in his space and the passion he brings to his role is an ongoing inspiration to his team. ASHLEIGH PAGE RECRUITMENT ADVISOR, TREASURY BRISBANE Ashleigh comes to work every day with a smile, commitment and a can-do attitude. Her approach to recruitment is based on her forward-thinking and collaborative approach, looking at the needs of the business and candidates now and in the future. Ashleigh has taken it upon herself to update processes to improve recruitment outcomes, especially during busy periods. Ashleigh’s positive and enthusiastic persona, together with her impressive work ethic makes her a great colleague. RACHAEL COX EXECUTIVE ASSISTANT TO CHIEF OPERATING OFFICER, THE STAR SYDNEY Rachael is a hardworking, organised executive assistant who takes time out of her busy workload to act as Network Co-ordinator and Chair to Spectrum, The Star Entertainment Group’s LGBTI diversity group. Rachael has assisted with organising a variety of events for Spectrum in her free time, including leading the participation of 100+ team members in the 2016 and 2017 Sydney Gay & Lesbian Mardi Gras Parades. Rachael is a passionate member of Spectrum and she also drives the team to support the initiatives of our other diversity working groups, Women@The Star, Young@Heart, and Unity@TheStar, to create a truly inclusive culture at The Star Sydney. SCOTT GILLELAND GROUP OPERATIONS MANAGER INFORMATION TECHNOLOGY, THE STAR ENTERTAINMENT GROUP Scott is a passionate and innovative IT professional who works tirelessly to understand the diverse businesses that his team services daily. Scott routinely walks the floor of different business areas, engaging with colleagues to learn about their work and to gain an understanding of issues that may impact the level of service his team can deliver. Like a true leader, Scott identified three areas of improvement in the way IT programs are delivered and took ownership to achieve a superior outcome. Scott is known as a mentor, always supporting and encouraging junior team members. 42 OWNERSHIP WELCOMING TRUE TEAMWORK 43 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017DIRECTORS’, REMUNERATION AND FINANCIAL REPORT F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 7 Directors' Report for the year ended 30 June 2017 T H E S T A R E N T E R T A I N M E N T G R O U P L I M I T E D A . C . N 1 4 9 6 2 9 0 2 3 A S X C O D E : S G R A N D I T S C O N T R O L L E D E N T I T I E S CONTENTS D I R E C T O R S ’ R E P O R T A U D I T O R ’ S I N D E P E N D E N C E D E C L A R A T I O N R E M U N E R A T I O N R E P O R T F I N A N C I A L R E P O R T Consolidated income statement Consolidated balance sheet Consolidated statement of cash flows Consolidated statement of changes in equity Notes to the financial statements A. Key income statement disclosures B. Key balance sheet disclosures C. Commitments, contingencies and subsequent events D. Group structure E. Risk management F. Other disclosures G. Accounting policies and corporate information D I R E C T O R S ’ D E C L A R A T I O N I N D E P E N D E N T A U D I T O R ’ S R E P O R T 4 5 5 8 5 9 7 8 79 80 81 82 83 84 88 97 98 106 112 121 1 2 7 128 The Directors of The Star Entertainment Group Limited (the Company) submit their report for the consolidated entity comprising the Company and its controlled entities (collectively referred to as the Group) in respect of the financial year ended 30 June 2017. 1. Directors The names and titles of the Company's Directors in office during the financial year ended 30 June 2017 and until the date of this report are set out below. Directors were in office for this entire period. Directors John O'Neill AO Matt Bekier Gerard Bradley Greg Hayes Katie Lahey AM Sally Pitkin Richard Sheppard Chairman and Non-Executive Director Managing Director and Chief Executive Officer Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director 2. Operating and Financial Review The Operating and Financial Review for the year ended 30 June 2017 has been designed to provide shareholders with a clear and concise overview of the Groupʼs operations, financial position, business strategies and prospects. The review also discusses the impact of key transactions, events that have taken place during the reporting period and material business risks faced by the Group, to allow shareholders to make an informed assessment of the results and future prospects of the Company. The review complements the Financial Report and has been prepared in accordance with the guidance set out in ASICʼs Regulatory Guide 247. 2.1. Principal activities The principal activities of the Group are the management of integrated resorts with gaming, entertainment and hospitality services. The Star Entertainment Group Limited owns and operates The Star Sydney (Sydney), The Star Gold Coast (Gold Coast) and Treasury Brisbane (Brisbane). The Group also manages the Gold Coast Convention and Exhibition Centre on behalf of the Queensland Government and invests in a number of strategic joint ventures. 2.2. Business strategies The key strategic priorities for the Group as initially outlined in the Company's 2014 Annual Report are to: • Create “world class casino resorts with local spirit”; • Manage planned capital expenditure programs in Queensland and Sydney to deliver value and returns for shareholders; Increase the volume of high-value visitation from local, domestic and international markets; • • Grow the domestic and International VIP Rebate business; • • Maximise value from technology, including further enhancing gaming and loyalty experiences and delivering Improve customer experience, including providing customers with tailored product and service offerings; and integrated and new IT platforms. The Group has continued to make good progress on all these key strategic priorities during the year, with: • Financial performance improved across all properties; • Balance sheet strength maintained; • Rebranding of Jupiters to The Star Gold Coast; • Relaunch of The Star Club loyalty program and improved customer service; • Leadership in place supplemented by strengthened functional capability; • Completion of a number of capital projects, including full refurbishment of Sydney and Gold Coast hotels, expansion of main gaming floor (MGF) in Sydney and additional food and beverage offerings in Gold Coast; • Continuing the focus on international diversification, across global VIP and Premium Mass markets; and • Invested in new joint venture with Chow Tai Fook Enterprises Limited (CTF) and Far East Consortium International Limited (FEC) that acquired the Sheraton Grand Mirage, Gold Coast. 44 1 45 ANNUAL REPORT 2017DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2017THE STAR ENTERTAINMENT GROUP Directors' Report for the year ended 30 June 2017 In FY2018, the focus will be on the following key strategic priorities: • • Deliver on the next stage of the capital development programs, in particular the completion of the new 6 star hotel Improve earnings across the Group through continued focus on domestic gaming and operating efficiency; in Gold Coast; • Progress planning approvals for joint venture developments with CTF and FEC in Sydney and Gold Coast; • Continue diversification of the Groupʼs international revenue base into global VIP and Premium Mass markets; and • Continue the drive to differentiate the value proposition at each of our properties, through brand, loyalty, customer service, and food and beverage offerings. The Directors have excluded from this report any further information on the likely developments in the operations of the Group and the expected results of those operations in future financial years, as the Directors have reasonable grounds to believe that to include such information will be likely to result in unreasonable prejudice to the Group. 2.3. Group performance Gross revenue of $2,432.2 million was up 3.2% on the prior comparable period (pcp), partly due to an above average win rate in the International VIP Rebate business and offset by disruption from capital works and a softer macro- economic environment. Normalised1 revenues decreased 3.9% for the period to $2,337.3 million, down from $2,431.0 million in the pcp, impacted by lower International VIP Rebate business volumes. Operating costs remain well managed, up 1.0%, reflecting increased domestic gaming volumes, ongoing investment in marketing, loyalty program relaunch and wage indexation. Significant operating expense items ($12.8 million) relate to costs relating to the unutilised aircraft. There were no significant items within the prior period. Earnings before interest, tax, depreciation and amortisation (EBITDA) of $586.2 million was up 19.9% on the pcp. Normalised EBITDA (excluding significant items) of $515.1 million was down 7.4% on the pcp. Normalised EBITDA margin of 22.0% is down from 22.9% in the pcp as a result of higher average gaming taxes in Sydney. Depreciation and amortisation expense of $164.5 million was flat on the pcp. Finance costs of $41.7 million were down 9.0% on the pcp. Net profit after tax (NPAT) was $264.4 million, up 36.0% on the pcp. Normalised NPAT, excluding significant items, was $214.5 million, down 11.1% on the pcp. Basic Earnings per Share (EPS) was 32.0 cents, up 36.0% on the pcp. Diluted EPS was 31.9 cents, 23.6 cents in the pcp. A final dividend of 8.5 cents fully franked was declared, totalling 16.0 cents per share for the year, up 23.1% on the pcp and reflecting a payout ratio of 50.0% of statutory NPAT for the year ended 30 June 2017. 2.4. Group financial position The Groupʼs net assets increased by 4.1% compared with the previous year. Receivables remain well managed, with receivables past due not impaired less than one year comprising over 95% of the total. Net receivables past due not impaired greater than 30 days of $33.3 million, flat on the pcp, reflecting new debts being offset by collections during the period. Net debt2 was $787.5 million (30 June 2016: $473.8 million) with $200.5 million in undrawn facilities and an average drawn debt maturity of 2.3 years. Gearing levels remain conservative at 1.3 times FY2017 net debt to actual EBITDA, positioning the Group well to continue executing on its growth projects. Operating cash flow before interest and tax was $567.9 million (30 June 2016: $477.4 million). EBITDA to cash conversion ratio of 97% (30 June 2016: 98%). Trade and other payables of $324.5 million were up 23.9% from June 2016 as a result of higher gaming related payables, representing players' funds deposited and chips in circulation at 30 June 2017. 1 Normalised results reflect the underlying performance of the business as they remove the inherent volatility of the International VIP Rebate business. Normalised results are adjusted using an average win rate of 1.35% of actual turnover. 2 Net debt is shown as interest bearing liabilities, less cash and cash equivalents, less net position of derivative financial instruments. Derivative financial instruments reflect the position of currency swaps and interest rate hedges entered into for the USPP debt. Directors' Report for the year ended 30 June 2017 2.5. Segment operations The Group comprises the following three operating segments: • Sydney; • Gold Coast; and • Brisbane. Refer to note A1 for more details of the financial performance of the Companyʼs operating segments. The activities and drivers of the results for these operations are discussed below. Sydney Gross revenue was $1,685.8 million, up 1.8% on the pcp and EBITDA was $401.1 million, up 32.6% on the pcp. Normalised EBITDA was $320.6 million, down 16.0% on the pcp. Normalised gross revenue in Sydney was $1,595.5 million, down 8.5% on the pcp. Revenue decreased due to lower International VIP Rebate business volumes, partially offset by solid domestic revenue growth in the second half of the year. Domestic gross gaming revenue was up 4.4% on the pcp, with growth across both tables and slots, up 5.7% and 1.8% respectively. Electronic gaming machine market share of 9.1% for Q1-Q3 FY2017 consistent with the pcp. Non- gaming cash revenue was down 4.5% on the pcp due to disruption from capital works in the first half of the year. Taxes, levies, rebates and commissions of $670.6 million were down 8.8% on the pcp as a result of lower International VIP Rebate business volumes, partially offset by higher average non-rebate gaming taxes. Sydneyʼs average non- rebate tax rate was 32.6%, up from 31.9% in the pcp (top marginal tax rate of 50.0% in both years). Operating expenditure of $614.1 million was down 0.8% on the pcp as continued cost control offset the investments in loyalty, marketing, wage indexation and higher domestic gaming volumes. Normalised EBITDA margin of 20.1% was down from 21.9% on the pcp. The Sydney property is one of the main partners to the Sydney Festival, a Leadership Partner of City of Sydney's Chinese New Year Festival and a sponsor of the Sydney Swans and New South Wales Rugby League (NSW Blues). The Sydney property also contributed to various charities during the period, including Barnardos Australia and Taronga Conservation Society Australia. Queensland (Gold Coast and Brisbane) Gross revenue was $746.4 million, up 6.5% on the pcp and EBITDA was $198.6 million, up 6.6% on the pcp. Normalised EBITDA was $194.5 million, up 11.5% on the pcp. Normalised gross revenue in Queensland was $741.8 million, up 7.9% on the pcp. Queensland experienced an increase in revenue performance due to increased International VIP Rebate business revenue. The domestic gaming business was down 2.2% on the pcp, with decline in both tables and slots, down 1.4% and 2.8% respectively. Non- gaming revenue was up 7.1% on the pcp. Taxes, levies, rebates and commissions were up 10.6% on the pcp, driven by increased International VIP Rebate business gaming in the period. Operating expenses of $356.7 million across the Queensland properties were up 4.3% on the pcp. Normalised EBITDA margin of 26.2% was up from 25.4% on the pcp. The Gold Coast property is the First Official Partner of the Gold Coast 2018 Commonwealth Games. The Brisbane property was a sponsor of the Brisbane Festival and Queensland Rugby League (Queensland Maroons) during the year. The Queensland properties also contribute to various charities and not-for-profit organisations including Ronald McDonald House and Surf Life Saving Queensland. International VIP Rebate business The results of the International VIP Rebate business are included in the segment performance overviews above. The International VIP Rebate business turnover was $39.7 billion, down 19.9% on the pcp. The actual win rate of 1.59% was above both the win rate for the pcp of 1.20% and the normalised rate of 1.35%. Normalised International VIP Rebate business revenue was $544.7 million, down 18.6% on the pcp, compared to statutory revenue of $639.6 million (up 7.3% on the pcp). 46 2 3 47 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2017DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2017Directors' Report for the year ended 30 June 2017 Directors' Report for the year ended 30 June 2017 2.6. Significant changes in the state of affairs and future developments 2.7. Risk management Other than those stated within this report, there were no significant changes in the state of affairs of the Group during the financial year. The section below discusses the impact of key transactions and events that have taken place during the reporting period. Sydney Sydney's casino licence continues until 2093 and includes exclusivity arrangements with the New South Wales Government until November 2019. The Group has previously disclosed a proposed investment of up to $1 billion (subject to various approvals) which includes a new tower to be developed with joint venture partners CTF and FEC. The capacity of the property is proposed to be expanded to approximately 1,000 hotel rooms and residences (including The Ritz Carlton hotel and luxury residences), with signature gaming experiences including new and refurbished premium gaming rooms and gaming salons, and over 50 food and beverage offerings. The Groupʼs share of capital expenditure is expected to be approximately $667 million (prior to the sale of any apartments). Capital expenditure in the year was approximately $180 million, including the completion of the Vantage Room, Latitude Bar, carpark upgrade, Astral Tower upgrade and MGF refurbishment. The redevelopment of the Astral Residences, Astral Lobby and Porte Cochere and Sovereign Room expansion continues. Gold Coast The Group holds a perpetual casino licence to operate The Star Gold Coast. The Group owns Broadbeach Island on which the casino is located. The Group has previously disclosed a major redevelopment of the property of up to $845 million capital spend (subject to various approvals), including a $400 million new 6 star hotel with joint venture partners CTF and FEC. The capacity of the property is proposed to be expanded to approximately 1,400 hotel rooms and residences with signature gaming facilities, over 20 restaurants and bars, and substantial resort facilities and attractions. The Groupʼs share of capital expenditure is expected to be approximately $578 million (prior to the sale of any apartments). Progress on the redevelopment project includes the completion of the hotel rooms upgrade, Atrium Bar refurbishment, new restaurants and MGF refurbishment. Capital expenditure in the year was approximately $210 million, including construction costs for the new 6 star hotel, refurbishment of the Atrium Bar and upgrades to hotel rooms. The Group continues to manage the Gold Coast Convention and Exhibition Centre adjacent to the casino. Brisbane In November 2015, contractual close was reached between the Queensland Government and Destination Brisbane Consortium (DBC) on the Queenʼs Wharf Brisbane development. DBCʼs integrated resort ownership structure requires capital to be contributed 50% by the Group and 25% each by CTF and FEC. The Group will act as the operator under a long dated casino management agreement. The Group holds a perpetual casino licence in Queensland that is attached to the lease of the current Treasury site that expires in 2070. Upon opening of the integrated resort, the Groupʼs casino licence will be surrendered and DBC will be granted a casino licence for 99 years including an exclusivity period of 25 years. CTF and FEC will each contribute 50% of the capital to undertake the residential and related components of the broader Queenʼs Wharf Brisbane development. The Group is not a party to the residential development joint venture. Initial work on the integrated resort is on schedule and on budget, with demolition works underway and foundation work expected to commence in early 2018. The Group takes a structured approach to identifying, evaluating and managing those risks which have the potential to affect achievement of strategic objectives. The commentary relating to Principle 7 in the Groupʼs Corporate Governance Statement describes the Groupʼs risk management framework which is based on ISO31000, the international standard on risk management. The Corporate Governance Statement can be viewed on the Groupʼs website. Details of the Groupʼs major risks and associated mitigation strategies are set out below. The mitigation strategies are designed to reduce the likelihood of the risk occurring and/or to minimise the adverse consequences of the risk should it happen. However, some risks are affected by factors external to, and beyond the control of, the Group. Risk and description Mitigation strategy Competitive Position The potential effect of increased competition in the Groupʼs key markets of Sydney, Brisbane and the Gold Coast Realising value from capital projects The ability to generate adequate returns from the in capital projects. financial capital invested Human capital management The ability to attract, recruit and retain the right people leadership and operational roles. key for Effective management of key stakeholders The ability to engage with key stakeholders to satisfy interests without the Groupʼs operations or compromising achievement of strategic objectives. their competing the Groupʼs Geo-political and regulatory changes The potential effect of political or regulatory changes in Australia affecting the operation of casinos, or the potential effect of changes in the administration of laws in foreign countries affecting the ability of foreign nationals to travel to and/or bring funds to Australia. the to protect Data and systems security and reliability The ability integrity of confidential business or customer data which is collected, used, stored, and disposed of in the course of business operations, and the ability to maintain the security and operating reliability of key business systems. The Groupʼs vision is to be Australiaʼs leading integrated resort company. The Group is making substantial investments in developing new or improved venue facilities in all key markets, diversifying revenue sources and in improving the customer service capabilities of employees. The Group has implemented a comprehensive project management framework and employed a number of appropriately skilled and experienced project managers to reduce the risk of delays in completion and/or overruns in costs of capital projects. The Group has also developed plans to market and promote its portfolio of attractive resort facilities to achieve the level of customer patronage required to deliver the expected returns on investment. The Group has in place a variety of avenues to attract, recruit and develop high performing and high potential employees, including an in-house talent acquisition team. The Group runs a number of training and development programs to provide employees with career development opportunities, and annually conducts an employee engagement survey to monitor for emerging issues which might affect the ability to retain talented employees. The Groupʼs diversity and inclusion programs are widely recognised as being among the best in the industry. The Group has developed strong communication lines with a variety of stakeholder groups, including State governments in New South Wales and Queensland, regulators in both States, investors, media and unions. The Group has also developed strategic partnerships local community groups and charitable with a number of organisations. The Group continuously monitors for potential legislative changes or changes in relevant government policy in the States and countries in which it conducts business operations. The Group also makes representations to governments and industry groups to promote effective, appropriate and consistent regulatory and policy outcomes. The Group has a dedicated IT security function which continuously tests and monitors our technology systems to detect and block viruses and other threats to the security of our data. Employees are regularly trained on the importance of maintaining effective cyber security and data privacy processes. 48 4 5 49 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2017DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2017Directors' Report for the year ended 30 June 2017 Risk and description Mitigation strategy Major business disruption events The ability to anticipate, prevent, respond to and recover from events which have the potential to prevent the continued operation of one of our resort facilities, or which inhibit the ability of guests being able to visit one of our resort facilities for a sustained period of time. People health and safety The ability to operate the Groupʼs resort facilities without affecting the safety, security and wellbeing of our guests and employees. Financial management The ability to maintain financial performance and a strong balance sheet which enables the Group to fund future growth opportunities on commercially acceptable terms. Corporate governance The ability to maintain a strong and effective governance structure which supports a culture of and compliance. accountability, transparency, framework enables early The Groupʼs business continuity identification of material risks to the continued operation of a resort facility. The framework is supported by a suite of emergency response, crisis management, and disaster recovery plans that are regularly tested and updated. The Group takes a risk based approach to managing workplace health and safety. Critical safety risks have been identified with mitigation plans in place. Dedicated workplace health and safety and injury management specialists are employed at each resort facility. To assist in maintaining the safety and security of our guests and employees, each resort facility employs a substantial number of security and surveillance personnel to provide support in monitoring existential threats and managing potential incidents on a real time basis. The Group annually establishes a financial budget and 5 year plan which underpin the setting of performance targets incorporated in management incentive plans. Financial performance is continuously monitored for any variations from annual financial budgets and market expectations. The Groupʼs core business produces strong cashflow, allowing the Group to maintain low to moderate levels of debt while allowing shareholders to be paid dividends. The Group has a well-defined governance framework which identifies the roles and responsibilities of the Board, the Board Committees and senior management. The Group also has a complementary set of key policies, compliance with which is monitored on an ongoing basis. The Group operates an integrated “3 lines of defence” model to identify and manage key risks and to provide assurance that critical controls are effective in managing those risks. 2.8. Environmental regulation and performance The Group is committed to sustainability leadership in the entertainment sector and reducing resource consumption across its operations. In 2016 the Group set out a five-year Sustainability Strategy, 'Our Bright Future', focused on building business capacity and delivering continuous improvement in the management of environmental, social and governance issues (ESG). The Sustainability Strategy is aligned to the business strategy and groups ESG objectives and targets into four key pillars: • we strive to be Australia's leading integrated resort company; • we actively support guest wellbeing; • we attract, develop and retain talented teams; and • we develop and operate world class properties. The Sustainability Strategy is underpinned by a structured materiality assessment process that was first conducted in 2016 over a three month period to identify potential material issues and ESG risks relevant to the business and industry. To support the delivery of the Sustainability Strategy and to ensure the Group manages the resource consumption from an expanding portfolio, an energy and water project pipeline has been established to ensure projects are implemented each year that deliver cost and environmental benefits. The Group has now implemented over twenty four projects, delivering environmental and financial savings of over $1.4 million in the last two financial years. To ensure energy and water efficiency is achieved in refurbishment and development projects, the Groupʼs Sustainable Design Guidelines have been applied to achieve greener building outcomes by specifying energy efficient technologies and best practice water and waste management. During the year, the Group attained the global leadership position of the Casino and Gaming Industry in the Dow Jones Sustainability Index. The Group also attained its first National Australian Built Environment Rating System (NABERS) rating for its office located at 60 Union St, Pyrmont, New South Wales, achieving a result of 5 out of a possible 6 Stars for energy efficiency. 6 50 Directors' Report for the year ended 30 June 2017 The Company is registered under the National Greenhouse Energy Reporting System (NGERS) and reports all energy consumption and greenhouse gas emissions to the Federal Government every year. The Companyʼs Environmental Management Policy, Sustainability Strategy, Materiality Assessment and Sustainable Design Guidelines can be found on the Companyʼs website. Sustainability performance and progress against the Sustainability Strategy is reported to the People, Culture and Social Responsibility Committee regularly. 3. Earnings per share (EPS) Basic EPS for the financial year was 32.0 cents (2016: 23.6 cents), 36.0% up on the pcp as a result of the improved operational performance across the Group. Diluted EPS was 31.9 cents (2016: 23.6 cents). EPS is disclosed in note F3 of the Financial Report. 4. Dividends 4.1. Dividend payout An interim dividend of 7.5 cents per share (fully franked) was paid on 22 March 2017. A final dividend per share of 8.5 cents (fully franked) was declared, totalling 16.0 cents per share for the year, up 23.1% on the pcp and reflecting a payout ratio of 50.0% of statutory NPAT for the year ended 30 June 2017. 4.2. Dividend Reinvestment Plan (DRP) The Companyʼs DRP is in operation for the final dividend. The last date for receipt of election notices to enable participation for the final dividend is 30 August 2017. The price at which shares are allocated under the DRP is the daily volume weighted average market price of the Company's shares sold in the ordinary course of trading on the ASX over a period of 10 trading days beginning on (and including) the fourth trading day after the Record Date (29 August 2017). Shares allocated under the DRP will rank equally with the Company's existing fully paid ordinary shares. 5. Significant events after the end of the financial year On 23 August 2017, the Group completed a tender and reissue offer in relation to 73% of the Groupʼs US Private Placement (USPP) borrowings. This was undertaken to extend the Group's tenor on average drawn debt maturity by 3 years to 5.2 years, reduce finance costs on a like for like basis and lower refinancing requirements for the Group. The Group estimates that its average blended cost of debt on all USPP notes following the new issue will be approximately 5% (down from over 9% on previous notes). The transaction is expected to result in a one-off loss in the range of $30- $34 million (after tax) relating to the crystallisation of an existing obligation for the related out of the money interest rate swaps and other costs. This one-off loss will be recognised as a significant item in the FY2018 Financial Report. Further detail can be found in the ASX Announcement - The Star announces placement of long-term notes (dated 23 August 2017). Other than those events that have already been disclosed in this report or elsewhere in the Financial Report, there have been no other significant events occurring after 30 June 2017 and up to the date of this report that have materially affected or may materially affect the Groupʼs operations, the results of those operations or the Groupʼs state of affairs. 7 51 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2017DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2017Directors' Report for the year ended 30 June 2017 Directors' Report for the year ended 30 June 2017 6. Directors' qualifications, experience and special responsibilities The details of the Company's Directors in office during the financial year and until the date of this report (except as otherwise stated) are set out below. Current Directors Gerard Bradley Current Directors John O'Neill AO Chairman (from 8 June 2012); Non-Executive Director (from 28 March 2011) Diploma of Law; Foundation Fellow of the Australian Institute of Company Directors Experience: John OʼNeill was formerly Managing Director and Chief Executive Officer of Australian Rugby Union Limited, Chief Executive Officer of Football Federation Australia, Managing Director and Chief Executive Officer of the State Bank of New South Wales, and Chairman of the Australian Wool Exchange Limited. Mr OʼNeill was also formerly a Director of Tabcorp Holdings Limited and Rugby World Cup Limited. Mr OʼNeill was also the inaugural Chairman of Events New South Wales, which flowed from the independent reviews he conducted into events strategy, convention and exhibition space, and tourism on behalf of the New South Wales Government. Mr O'Neill is currently a member of the Advisory Council of China Matters. Special Responsibilities: Mr OʼNeill is Chairman of the Board and an ex-officio member of all Board committees. Directorships of other Australian listed companies held during the last 3 years: Nil Matt Bekier Managing Director and Chief Executive Officer (from 11 April 2014) Executive Director (from 2 March 2011) Master of Economics and Commerce; PhD in Finance Greg Hayes Experience: Matt Bekier is a member of the Board of the Australasian Gaming Council. Mr Bekier was previously Chief Financial Officer and Executive Director of the Company and also previously Chief Financial Officer of Tabcorp Holdings Limited from late 2005 and until the demerger of the Company and its controlled entities in June 2011. Prior to his role at Tabcorp, Mr Bekier previously held various roles with McKinsey & Company. Special Responsibilities: Nil Directorships of other Australian listed companies held during the last 3 years: Nil Non-Executive Director (from 30 May 2013) Bachelor of Commerce; Diploma of Advanced Accounting; Fellow of the Institute of Chartered Accountants; Fellow of CPA Australia; Fellow of the Australian Institute of Company Directors; Fellow of the Australian Institute of Managers and Leaders Experience: Gerard Bradley is the Chairman of Queensland Treasury Corporation and related companies, having served for 14 years as Under Treasurer and Under Secretary of the Queensland Treasury Department. He has extensive experience in public sector finance in both the Queensland and South Australian Treasury Departments. Mr Bradley has previously served as Chairman of the Board of Trustees at QSuper. His previous non-executive board memberships also include Funds SA, Queensland Investment Corporation, Suncorp (Insurance & Finance), Queensland Water Infrastructure Pty Ltd, and South Bank Corporation. Mr Bradley is currently a Director of the Winston Churchill Memorial Trust. Special Responsibilities: • Chair of the Risk and Compliance Committee • Member of the Audit Committee • Member of the Investment and Capital Expenditure Review Committee • Member of the Remuneration Committee Directorships of other Australian listed companies held during the last 3 years: Pinnacle Investment Management Group Limited (1 September 2016 to present) Non-Executive Director (from 24 April 2015) Master of Applied Finance; Graduate Diploma in Accounting; Bachelor of Arts; Advanced Management Programme (Harvard Business School, Massachusetts); Member of Institute of Chartered Accountants Experience: Greg Hayes is an experienced executive and director having worked across a range of industries including energy, infrastructure and logistics. Mr Hayes brings to the Board skills and experience in the areas of strategy, finance, mergers and acquisitions, and strategic risk management, in particular in listed companies with global operations. He is currently a Director of Precision Group, Aurrum Holdings Pty Ltd and Home Investment Consortium Company Pty Ltd. Mr Hayes was previously Chief Financial Officer and Executive Director of Brambles Limited, Chief Executive Officer & Group Managing Director of Tenix Pty Ltd, Chief Financial Officer and later interim CEO of the Australian Gaslight Company (AGL), Chief Financial Officer Australia and New Zealand of Westfield Holdings, and Executive General Manager, Finance of Southcorp Limited. Special Responsibilities: • Chair of the Audit Committee • Member of the Investment and Capital Expenditure Review Committee • Member of the Risk and Compliance Committee Directorships of other Australian listed companies held during the last 3 years: • Incitec Pivot Limited (1 October 2014 to present) 52 8 9 53 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2017DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2017Directors' Report for the year ended 30 June 2017 Directors' Report for the year ended 30 June 2017 Current Directors Katie Lahey AM Sally Pitkin Non-Executive Director (from 1 March 2013) Bachelor of Arts (First Class Honours); Master of Business Administration Experience: Katie Lahey has extensive experience in the retail, tourism and entertainment sectors and previously held chief executive roles in the public and private sectors. Ms Lahey is currently the Chair of Tourism & Transport Forum and Executive Chairman Australasia for Korn Ferry International. She is also a member of the Australian Brandenburg Orchestra Board. Ms Lahey was previously the Chair of Carnival Australia and a member of the boards of David Jones Limited, Australia Council Major Performing Arts, Hills Motorway Limited, Australia Post and Garvan Research Foundation. Special Responsibilities: • Chair of the People, Culture and Social Responsibility Committee • Member of the Remuneration Committee • Member of the Risk and Compliance Committee Directorships of other Australian listed companies held during the last 3 years: Nil Non-Executive Director (from 19 December 2014) Doctor of Philosophy (Governance); Master of Laws; Bachelor of Laws; Fellow of the Australian Institute of Company Directors Experience: Sally Pitkin is a Queensland based company director and lawyer with extensive corporate experience and over 20 yearsʼ experience as a non-executive director and board member across a wide range of industries in the private and public sectors. Dr Pitkin is the President of the Queensland Division, and a member of the National Board of the Australian Institute of Company Directors. Dr Pitkin was previously a Non-Executive Director of Aristocrat Leisure Limited. Special Responsibilities: • Chair of the Remuneration Committee • Member of the Audit Committee • Member of the People, Culture and Social Responsibility Committee Directorships of other Australian listed companies held during the last 3 years: • Super Retail Group Limited (1 July 2010 to present) • Billabong International Limited (28 February 2012 to 15 August 2016) • IPH Limited (23 September 2014 to present) • Link Administration Holdings Limited (23 September 2015 to present) Current Directors Richard Sheppard Non-Executive Director (from 1 March 2013) Bachelor of Economics (First Class Honours); Fellow of the Australian Institute of Company Directors Experience: Richard Sheppard has had an extensive executive career in the banking and finance sector including an executive career with Macquarie Group Limited spanning more than 30 years. Mr Sheppard was previously the Managing Director and Chief Executive Officer of Macquarie Bank Limited and chaired the boards of a number of Macquarieʼs listed entities. He has also served as Chairman of the Commonwealth Governmentʼs Financial Sector Advisory Council. Mr Sheppard is currently the Chairman and a Non-Executive Director of Dexus Property Group and a Non-Executive Director of Snowy Hydro Limited. He is also a Director of The Bradman Foundation. Special Responsibilities: • Chair of the Investment and Capital Expenditure Review Committee • Member of the Audit Committee • Member of the Risk and Compliance Committee Directorships of other Australian listed companies held during the last 3 years: • Dexus Property Group (1 January 2012 to present) 7. Directors' interests in securities At the date of this report (except as otherwise stated), the Directors had the following relevant interests in the securities of the Company: Name Current John O'Neill AO Matt Bekier Gerard Bradley Greg Hayes Katie Lahey AM Sally Pitkin Richard Sheppard Ordinary Shares Performance Rights 54,348 649,562 25,000 10,000 27,080 45,900 80,000 Nil 1,350,622 Nil Nil Nil Nil Nil 8. Company Secretary Paula Martin holds the position of Group General Counsel and Company Secretary. She holds a Bachelor of Business (Int. Bus.) and a Bachelor of Laws and a Graduate Diploma in Applied Corporate Governance. She has extensive commercial legal experience having worked with King & Wood Mallesons (formerly Mallesons Stephen Jaques) prior to joining the Company. Ms Martin is a member of the Queensland Law Society, Association of Corporate Counsel (Australia) and the Governance Institute of Australia. 54 10 11 55 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2017DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2017Directors' Report for the year ended 30 June 2017 Directors' Report for the year ended 30 June 2017 Description of services Other assurance related services in relation to the Company and any other entity in the consolidated group Other non-audit services including taxation services Total of all non-audit and other services $000 - 272.0 272.0 Amounts paid or payable by the Company for audit and non-audit services are disclosed in note F11 of the Financial Report. 13. Rounding of amounts The Star Entertainment Group Limited is a company of the kind specified in the Australian Securities and Investments Commissionʼs ASIC Corporations (Rounding in Financial/Directorsʼ Reports) Instrument 2016/191. In accordance with that Instrument, amounts in the Financial Report and the Directorsʼ Report have been rounded to the nearest hundred thousand dollars unless specifically stated to be otherwise. 14. Auditor's independence declaration Attached is a copy of the auditor's independence declaration provided under section 307C of the Corporations Act 2001 (Cth) in relation to the audit of the Financial Report for the year ended 30 June 2017. The auditor's independence declaration forms part of this Directorsʼ Report. This report has been signed in accordance with a resolution of Directors. John O'Neill AO Chairman Sydney 23 August 2017 9. Board and Committee meeting attendance During the financial year ended 30 June 2017, the Company held 13 meetings of the Board of Directors (including 4 unscheduled meetings which were attended by a majority of Directors). The numbers of Board and Committee meetings attended by each of the Directors during the year are set out in the table below. Board of Directors Audit Committee Risk and Compliance Committee Remuner- ation Committee People, Culture & Social Responsibi- lity Committee Investment & Capital Expenditure Review Committee Directors A B A B A B A B A B A B John O'Neill AO Matt Bekier (i) Gerard Bradley Greg Hayes Katie Lahey AM Sally Pitkin Richard Sheppard 13 13 13 12 12 13 13 13 13 13 13 13 13 13 5 - 5 5 - 5 5 5 - 5 5 - 5 5 4 - 4 3 4 - 4 4 - 4 4 4 - 4 4 - 4 - 4 4 - 4 - 4 - 4 4 - 4 - - - 4 4 - 4 - - - 4 4 - 5 - 5 4 - - 5 5 - 5 5 - - 5 A - Number of meetings attended as a Director or Committee member B - Maximum number of meetings available for attendance as a Committee member (i) The Managing Director and Chief Executive Officer is not a member of any Board Committee but may attend Board Committee meetings upon invitation, however this attendance is not recorded here Details of the functions and memberships of the Committees of the Board and the terms of reference for each Board Committee are available from the Corporate Governance section of the Companyʼs website. 10. Indemnification and insurance of Directors and Officers The Directors and Officers of the Company are indemnified against liabilities pursuant to agreements with the Company. The Company has entered into insurance contracts with third party insurance providers, in accordance with normal commercial practices. Under the terms of the insurance contracts, the nature of the liabilities insured against and the amount of premiums paid are confidential. 11. Indemnification of auditors To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young Australia, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the end of the financial year. 12. Non-audit services Ernst & Young, the external auditor to the Company and the Group, provided non-audit services to the Company during the financial year ended 30 June 2017. The Directors are satisfied that the provision of non-audit services during this period was compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 (Cth). The nature and scope of each type of non-audit service provided did not compromise auditor independence. These statements are made in accordance with advice provided by the Audit Committee. The Audit Committee reviews the activities of the independent external auditor and reviews the auditorʼs performance on an annual basis. Limited authority is delegated to the Company's Group Chief Financial Officer for the pre-approval of audit and non- audit services proposed by the external auditor, limited to $50,000 per engagement and capped at 40% of the relevant year's audit fee. Delegated authority is only exercised in relation to services that are not in conflict with the role of statutory auditors, where management does not consider the services to impair the independence of the external auditor and the external auditor has confirmed that the services would not impair their independence. Any other non- audit related work to be undertaken by the external auditor must be approved by the Chair of the Audit Committee. Further details relating to the Audit Committee and the engagement of auditors are available in the Corporate Governance Statement. Ernst & Young, acting as the Companyʼs external auditor, received or is due to receive the following amounts in relation to the provision of non-audit services to the Company: 56 12 13 57 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2017DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2017AUDITOR’S INDEPENDENCE DECLARATION Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Auditors Independence Declaration to the Directors of The Star Entertainment Group Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au REMUNERATION REPORT (AUDITED) F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 7 T H E S T A R E N T E R T A I N M E N T G R O U P L I M I T E D A . C . N 1 4 9 6 2 9 0 2 3 A S X C O D E : S G R A N D I T S C O N T R O L L E D E N T I T I E S As lead auditor for the audit of The Star Entertainment Group for the financial year ended 30 June 2017, I declare to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to Auditors Independence Declaration to the Directors of The Star the audit; and Entertainment Group b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of The Star Entertainment Group and the entities it controlled during the financial As lead auditor for the audit of The Star Entertainment Group for the financial year ended 30 June 2017, I year. declare to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. Ernst & Young This declaration is in respect of The Star Entertainment Group and the entities it controlled during the financial year. John Robinson Partner 23 August 2017 Ernst & Young John Robinson Partner 23 August 2017 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 58 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 14 14 59 ANNUAL REPORT 2017THE STAR ENTERTAINMENT GROUP Remune For the year eration R r ended 30 Ju Report (u une 2017 d) unaudited Remuneration Report (audited) For the year ended 30 June 2017 Introductio on from the Remunerati on Committ tee Chair Dear Shareh older, On behalf of report is prep the Board, I a pared on a con am pleased to nsistent basis present the R to the previou Remuneration us year for eas Report for the se of referenc e year ended 3 ce. 30 June 2017 2016 Annua l General Me eting (AGM) (FY17). This Summary for FY17 Remuneration Reviews The FY16 Re of the resolut emuneration R tion. Report receive ed positive sha areholder supp port at the 201 16 AGM, with 98.16% of vo tes in favour At the 2016 A share rights u 70% of total a AGM, shareho under the Lon annual reward olders approve ng Term Perfor d, with more th ed a grant to th rmance Plan ( han 55% deliv he Managing (LTPP). His to vered through Director and C otal at risk rem deferred equi ty. Chief Executiv muneration now ve Officer of p w accounts for erformance r more than Shareholders million per an s also approve nnum to provid ed an increase de future flexib e to the Non-E bility to increa Executive Dire se the size of ectors’ (NED) f f the Board. fee pool cap fr rom $2 million n to $2.5 FY17 Perform rmance and In ncentive Outc comes The Group d significant ite the performa performance dividends pai elivered Net P ems) of $214.5 nce period for as measured id to sharehol Profit after Tax 5 million was 1 r the Short Ter d against the G lders in FY17 x (NPAT) of $2 11.1% below t rm Performan Guest Satisfac were 16 cents 264.4 million, the pcp and be nce Plan (STP ction and Safe s per share, up 36.0% above elow the targe PP). The Group ty targets that p 23.1% on th the pcp. Norm et set by the B p delivered sa t were set by t he pcp. malised NPAT oard at the be atisfactory non the Board for F T (excluding eginning of n-financial FY17. Total As the financ FY17. cial performan ce gateway un nder the STPP P was not met t for FY17, no incentives ac ccrued to Exec cutives in The FY13 aw vest. Total Sh threshold req ward under the hareholder Re quired for vest e Long Term P eturn (TSR) of ting. Performance P f 54.5% was b Plan (LTPP) w below the 50th was tested for percentile of t vesting during the competitor g the period an r peer group a nd did not and below the Future even ts The FY14 LT Earnings per TPP is due to b r Share (EPS) be tested for v and 50% Rel vesting in Octo ative Total Sh ober 2017. Th hareholder Ret his is the first L turn (rTSR) hu LTPP award th urdles. hat comprises 50% The Board is strategic prio s presently und orities. dertaking a rev view of the LT TPP performan nce metrics fo or alignment w with the Group’ ’s key Further advic ce on these m atters is expe cted to be pro ovided at the u upcoming 201 7 Annual Gen neral Meeting. We thank you u for your sup port in FY17 a and welcome y your feedback k on our Remu uneration Rep port. Short Term Performance Plan (STPP) Long Term Performance Plan (LTPP) Non-Executive Director fees In accordance with the Reward Strategy, the Company annually assesses the remuneration levels and mix for Executives to identify where adjustments are appropriate based on market benchmarking against relevant peer groups. The Company considers companies with a market capitalisation within the range of 70%-160% of The Star Entertainment Group’s market capitalisation and appropriate gaming and entertainment peers. Following the remuneration review completed in September 2016, Executives received adjustments to their remuneration as detailed in Table 7. Payments under the STPP only accrue if the financial performance gateway for Normalised Net Profit After Tax (NPAT) for the Group is met. As the financial performance for FY17 was below the threshold of $245.4 million, set by the Board at the commencement of performance period, no incentives accrued to Executives in FY17. Figure 3 shows the link between pay and performance and the alignment of short term incentive outcomes to the performance of the Group. Performance rights relating to the FY13 LTPP were tested in September 2016. The TSR performance of the Group was 54.5%, with a percentile ranking of 46.77. As this was below the 50th percentile required for vesting, no awards were realised under the LTPP for FY13. The FY14 LTPP grant is due for testing on 1 October 2017 and comprises an EPS and TSR performance hurdle. The LTPP performance hurdles are being reviewed by the Board for alignment to the Group’s key strategic priorities. The resolution to increase the Non-Executive Directors’ fee pool from $2.0 million to $2.5 million was approved by shareholders at the 2016 Annual General Meeting. The increased fee pool provides future flexibility to increase the size of the Board, and to ensure the Company maintains the ability to attract and retain high calibre Non-Executive Directors with the appropriate qualifications, skills, experience and diversity to oversee the Company’s business and strategic direction. Whilst the fee pool was increased by $0.5 million, total increases to NED fees in FY17 was $0.073 million to align Committee fees with the appropriate benchmark. The unutilised fee pool is $0.875 million. This Remuneration Report is comprised of the following sections: Contents 1. Key Management Personnel .................................................................................................................. 17 CONTENTS 2. Remuneration Governance .................................................................................................................... 17 Yours sincere rely, Sally Pitkin Remuneratio on Committee Chair 62 1. Key Management Personnel 3. Remuneration Strategy and Programs ................................................................................................... 18 4. Executive Contracts and Remuneration ................................................................................................. 26 62 2. Remuneration Governance 5. Statutory Executive Remuneration......................................................................................................... 27 63 3. Remuneration Strategy and Programs 6. NED Remuneration ................................................................................................................................ 29 71 4. Executive Contracts and Remuneration 7. Other information .................................................................................................................................... 30 72 5. Statutory Executive Remuneration 7.1. KMP shareholdings ................................................................................................................................ 30 74 6. NED Remuneration 7.2. Loans and other transactions with KMP ................................................................................................. 31 75 7. Other Information 7.3. Variable Remuneration .......................................................................................................................... 32 75 7.1. KMP Shareholdings 7.2. Loans and other transaction with KMP 7.3. Variable Remuneration 76 77 60 15 16 61 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2017REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2017Remuneration Report (audited) For the year ended 30 June 2017 Gender pay equity The Group is committed to ensuring all employees are remunerated fairly and equitably. The Group conducts annual gender pay equity reviews that are presented to the Remuneration Committee. No significant gaps were identified during FY17. 3. Remuneration Strategy and Programs The remuneration strategy at The Star Entertainment Group is designed to support a high performance culture, achieve superior performance and as a result, sustainable value for shareholders. The reward programs are designed to promote individual accountability and entrepreneurship in employees. To achieve these objectives, the key reward principles are shaped around: x x x x Being market competitive in order to attract and retain high performing individuals (refer section 3.1 – fixed remuneration), Paying above market for superior performance behaviours (variable – at risk remuneration) that drive sustainable value for shareholders (refer section 3.2 – variable (at risk) remuneration), Delivering a meaningful quantum of awards in equity to create alignment with shareholders’ interest and manage risk, and Linking remuneration components and outcomes to the achievement of the Group’s strategic priorities. Total Annual Reward (TAR) is comprised of a fixed and a variable component. The variable component includes both a short term and long term incentive opportunity. The Group balances the level of fixed versus variable remuneration based on the industry’s market for talent, the views of shareholders and the need for effective reward mechanisms to connect short and long-term performance against the Group’s strategic priorities. Fixed remuneration and total target remuneration (fixed remuneration plus variable remuneration) is targeted at the median of the relevant market, with an opportunity to earn above median pay, up to the 75th percentile, where higher levels of performance are realised. Remuneration Report (audited) For the year ended 30 June 2017 The Directors of The Star Entertainment Group Limited (The Star Entertainment Group or the Company) have approved this Remuneration Report for the consolidated entity comprising the Company and its controlled entities (collectively referred to as the Group) in respect of the financial year ended 30 June 2017. This Remuneration Report outlines the remuneration arrangements for Key Management Personnel (KMP) who are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Group, directly or indirectly, including any director (whether executive or otherwise) of The Star Entertainment Group Limited. This report has been prepared in accordance with the requirements of the Corporations Act 2001(Cth) (the Corporations Act) and its regulations. The information has been audited as required by section 308(3C) of the Corporations Act where indicated. For purposes of this report, the term ‘Executives’ means the executive director (Managing Director and Chief Executive Officer) and senior executives (the Chief Financial Officer and the Managing Directors of The Star Sydney and Queensland properties), but excludes Non-Executive Directors (NEDs). 1. Key Management Personnel The names and titles of the Company’s KMP for the year ended 30 June 2017 are set out below. KMP were in office for the entire duration of the financial year, unless otherwise stated. There have been no changes to KMP since the end of the financial year. Non-Executive Directors Position John O’Neill AO Gerard Bradley Greg Hayes Katie Lahey AM Sally Pitkin Richard Sheppard Executives Matt Bekier Chad Barton Greg Hawkins Geoff Hogg Chairman and Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Managing Director and Chief Executive Officer Chief Financial Officer Managing Director, The Star Sydney Managing Director, Queensland 2. Remuneration Governance The Remuneration Committee (the Committee) considers matters relating to the remuneration of KMP as well as the remuneration policies of the Group generally. This includes reviewing and recommending to the Board, the remuneration of Executives and of the Chairman and NEDs. The main responsibilities of the Committee are outlined in the Remuneration Committee Terms of Reference, available on the corporate governance page of the Company’s website: https://www.starentertainmentgroup.com.au/corporate-governance/ Under the Remuneration Committee Terms of Reference, the majority of Committee members must be independent non- executive directors and the Chair of the Committee must be an independent non-executive director. All members of the Remuneration Committee (including the Chair of the Committee) are independent non-executive directors. Details of members of the Committee and their background are included in the Directors’ Report on pages 8 to 11. Use of remuneration advisors The Committee seeks external advice from time to time to ensure it is fully informed when making remuneration decisions. Remuneration advisors are engaged by, and report directly to, the Committee. PricewaterhouseCoopers (PwC) are the Group’s appointed independent external remuneration consultants. No remuneration recommendations as defined by the Corporations Act were provided by PwC during FY17. Remuneration Report approval at 2016 Annual General Meeting (AGM) The FY16 Remuneration Report received positive shareholder support at the 2016 AGM, with 98.16% of votes in favour of the resolution. 62 17 18 63 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2017REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2017 Remuneration Report (audited) For the year ended 30 June 2017 Figure 1 illustrates the components of Executives’ Total Annual Reward (TAR) opportunity and how these are linked to strategic objectives of the Group. Figure 1: Components of Executive TAR Opportunity Component/ Percentage of TAR Fixed remuneration CEO – 27% Other Execs – 48% Delivery Performance alignment Strategic objective Performance period Cash (i) and superannuation Market median Attraction and retention (Talented Teams) July 2016 to June 2017 Short-term incentive (STI) cash CEO – 18% Other Execs – 19% Cash and superannuation STI Restricted Shares CEO – 9 % Other Execs – 10% Restricted shares (ii) Group or property performance and individual performance (iii) Short-term financial and non - financial performance (iii) July 2016 to June 2017 Long-term incentive (LTI) CEO – 46% Other Execs – 23% Performance rights Relative Total Shareholder Return and Earnings per Share Sustainable Shareholder value creation (4-year period) September 2016 to September 2020 TAR opportunity 100% (i) Employees may voluntarily elect to salary sacrifice for additional superannuation contributions and motor vehicle novated leases (from fixed remuneration component only). (ii) A mandatory one-third of the Executives’ short-term incentive award is deferred into restricted shares which are subject to a holding lock for a period of twelve months from the date of the award. (iii) Table 2 provides details on the strategic priorities and the metrics used to assess performance against the strategic priorities Remune For the year eration R r ended 30 Ju Report (a une 2017 audited) 3.1 Fixed r remuneratio n The fixed rem The amount muneration rec of fixed remun ceived by Exe neration an Ex ecutives may in xecutive receiv nclude base s ves is based o salary, superan on the followin nnuation and ng: non-monetary y benefits. x Sco ope and respo nsibilities of th he role, x Refe base cap erence to the ed on similar italisation) and level of remun market capita d industry pee neration paid t lisation (range ers, and to Executives e 70% to 160% of comparable % of The Star e ASX-listed o Entertainmen organisations, t Group’s mar determined rket x Leve el of internatio onal and dome estic gaming k knowledge, sk kills and exper rience of the in ndividual. Fixed remune Fixed remune factors. eration is revie eration may d ewed annually eviate from th y, and the poli e market med cy is to target dian depending fixed remune g on the indiv eration at the m idual capabilit median of the ties and other market. business 3.2 Variabl e (at risk) re n emuneration The Star Ente Board approv are the Short programs are ertainment Gr ved business t Term Perform e set out in se roup has two v plan to ultimat mance Plan (S ction 3.3 and variable rewar tely deliver su STPP) and the 3.5 respective rd programs d uperior returns e Long Term P ely. esigned to dri s and long-term Performance P ve performan m value creati Plan (LTPP). F ce and execut on for shareho Further details tion of the olders. They s of these two Figure 2 illus (the Chief Fin trates the rem nancial Officer muneration mix r and the Man x for the Mana aging Directo aging Director rs of The Star and Chief Exe r Sydney and t ecutive Office the Queenslan r and senior e nd properties) executives ) respectively. Figure 2: Re emuneration m mix for FY17 Deferred Equity 55% Cash 45% LTI 46% STI D Deferred STI C Cash d Fixed 9% 18% 27% Cash vs. C erred Equity Def 73% At Risk 27% Fixed Fixed vs. F At Risk Manag ging Director an Total Target d Chief Executiv ve Officer rd Annual Rewar 52% At Risk 48% Fixed Fixed vs. At Risk Deferred Equity 33% LTI STI Deferred 23% 10% 19% STI Cash Cash 67% Fixed 48% Mana Ma aging Director Th anaging Directo Chief Financi otal Target Ann To Cash vs. Deferred Equ ity ey he Star - Sydne r Queensland al Officer nual Reward 64 19 20 65 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2017REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2017Remuneration Report (audited) For the year ended 30 June 2017 3.3 Short Term Performance Plan Design The STPP is designed to reward Executives for execution of the Group’s strategy during the performance period. Payments only accrue under the plan if the Group achieves its financial performance gateway, thereby aligning to shareholder interests and achieving a direct link between pay and performance (refer Figure 3). Payments are further moderated based on satisfactory performance against key non financial performance indicators. Individual payments are performance based and assessed using a weighted balanced scorecard approach (refer Figure 4). As the Group did not achieve the financial performance gateway for FY17, no incentives accrued to Executives under the STPP in FY17. The number of employees invited to participate in the STPP was approximately 692 (increased from 451 for FY16). Table 1 sets out the key features of the STPP, all of which are consistent with the prior year. Table 1: Key design features of the STPP Purpose To reward Executives for execution of the Group’s strategy during the performance period. Gateway The minimum level of financial performance required before any incentives accrue under the STPP is referred to as the gateway. The gateway hurdle is 95% of the budgeted Normalised1 NPAT of the Group as approved by the Board. This gateway applies to all Executives and other participants in the plan. The Board may use its discretion to make payments to reward for significant non-financial performance. Pool size The pool size is determined by the Board through an assessment of Group performance, including: 1. Financial performance (Normalised NPAT) 0% of target pool vests at below 95% of budgeted NPAT 50% of target pool vests at 95% of budgeted NPAT 100% of target pool vests at 100% of budgeted NPAT 150% of target pool vests at 110% of budgeted NPAT 2. Non-financial performance measures and strategic priorities (Guest Service and Safety). Opportunities are based on the Executive’s incentive target in their employment contract (refer Table 7) The payment range available is 0%-150% of the Executive’s incentive target. Incentive opportunity levels Payment calculation Individual performance is determined by using a weighted scorecard of measures (Figure 4) to arrive at a performance rating. Performance ratings link to payment ranges as follows: 5 = Outstanding (125 – 150% of target) 4 = Exceeds (100 – 125% of target) 3 = Meets (75 – 100% of target) 2 = Meets some (0 – 75% of target) 1 = Did not meet (0% of target) An Executive’s individual STI award is based on the following calculation: Fixed Remuneration x Individual Target STI % x Group Performance Multiplier % (0-150%) x Individual Performance Multiplier % (0-150%) Individual STI award (capped at 150% x target) Payments are capped at 150% of the Executive’s STPP target. Where performance and/or behaviours have been deemed unsatisfactory, no incentives are awarded. Delivery of payments (including deferrals) Clawback Two-thirds of payments are delivered in cash in September. One-third of all payments are held in restricted shares for a period of twelve months from the date of the award. These shares are forfeited in the event that the Executive voluntarily terminates from the Group. Executives are entitled to receive dividends and have voting rights during the restriction period, however they are unable to vote on remuneration resolutions at the AGM. Incentives may be clawed back where there has been a material misrepresentation of the financial outcomes on which the payment had been assessed and/or the Executive’s actions have been found to be fraudulent, dishonest or in breach of the Group’s Code of Conduct (e.g. misconduct). This provision may extend up to the prior three financial years of STPP payments. 1 Normalised results reflect the underlying performance of the business as they remove the inherent volatility of the International VIP Rebate business and exclude significant items that are considered by their nature and size unusual or not in the ordinary course of business. This methodology has been consistently applied since FY12. Remune For the year eration R r ended 30 Ju Report (a une 2017 audited) 3.4 Reward d Outcomes under STPP P In determinin financial and ng whether any non-financial y incentives a performance re being paid against target and the size o ts. of the incentiv e pool, the Bo oard considers s both x Financia al performanc ce The financial performance measure driv ving the size of f the STPP po ool is Normalis sed NPAT of t he Group. Figure 3 show percentage o ws the Compa of STIs awarde any’s reported ed relative to t d Normalised N the ‘on target’ NPAT relative amount. to target over r the last six fi nancial years and the As the financ accrued to Ex cial performan xecutives. ce gateway of f $245.4 millio on (i.e. 95% of f Target NPAT T) was not met t for FY17, no incentives Figure 3: No ormalised NP AT relative to o target and p percentage S TI paid Normalised NPAT relative to target and STI% 300.0 250.0 ) m $ ( T A P N 200.0 150.0 100.0 50.0 - % I T S 125% 115% 105% 95% 85% 75% 65% FY12 FY13 FY14 FY15 FY16 FY17 Normalised NPAT ($m) Target NPAT ($m) STI % No awards were ma ade in FY12, FY13 a and FY17, as targets were not achieved x STPP po ool moderatin ng measures s The two non- Safety (TRIF -financial mea R)^. asures conside ered when det termining the s size of the ST TPP pool are G Guest Satisfac ction and Guest Satisfa critical focus action is an ind area of the G dicator of the roup, particula value delivere arly during the ed from the qu e current capit uality of our cu al expansion a ustomer exper and redevelop ience and Saf pment phase. fety is a For FY17, the set by the Bo e Group came oard at the com e within 95% o mmencement of the Guest S of the perform Satisfaction tar mance period. rget and achie eved better tha an the Safety T TRIFR limit x Executiv ve scorecard ds (individual performance e) Although no against their incentives acc respective we crued to Execu eighted balanc utives in respe ced scorecard ect FY17, indiv objectives. D vidual perform etails of these mance for Exe e objectives ar cutives was a re shown in Fi ssessed gure 4. Figure 4: We eighted balan nced scoreca ard Ma anaging Director and Chief utive Officer and Chief Execu er f Financial Office Manag Mana ing Director, The aging Director, Q e Star Sydney Queensland Differentiated value p proposition x Guest Excellence c x Customer loyalty culture People x Safety TRIFR^ x Diversity and Enga x Talent developmen gement^ nt and retention Governance, risk and d ment stakeholder managem x Compliance x Sustainability x Key stakeholder ma anagement r Othe strateg gic es prioriti 40% Shareholder value creation 60% Deliver Sharehold and Work Class P er value roperties x Earnings and m arket share growth tar rgets x Diversification o f venue international rev x Operational effic ciencies x Delivery of capit tal plans on redevelopment p time, on budget x Balance sheet management / c ratios capital Differenti ated value proposition x Guest x Custom Excellence culture mer loyalty People Guest 20% x Safety x Diversi x Talent retentio TRIFR^ ity and Engagement^ development and on People 20% Sh valu hareholder ue creation 40% Governan stakehold nce, risk and der management x Compl x Sustain iance nability Governanc 20% e Deliver and Wo Shareholder value ork Class Properties x Net r x EBIT x EGM grow x Oper and x Deliv main redev time, revenue growth TDA growth M market share wth rational efficiencies margin optimisation very of capital ntenance and velopment plans on , on budget ^External p providers are enga aged to report on TRIFR, Guest Sa tisfaction and Emp ployee Engageme ent scores as app licable. 66 21 22 67 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2017REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2017 Remuneration Report (audited) For the year ended 30 June 2017 Table 2 provides a summary of performance against the strategic priorities of the Group for FY17. Table 2: FY17 Performance outcomes against strategic priorities and key performance indicators Strategic Priorities Shareholder Value and World Class Properties Key performance indicator Performance outcomes/ commentary FINANCIAL PERFORMANCE x Deliver budgeted Normalised NPAT and EBITDA (improving earnings and operating efficiencies) x Grow revenues and market share in domestic and International Rebate Business (IRB), including diversification of revenue x Grow EGM Market Share x Manage operational benchmarks, cash and receivables x The Group’s normalised EBITDA and NPAT performance were below budget, impacted by disruptions from capital works at the Sydney and Gold Coast properties and softer macro-environment and events in China x EGM Market share flat in Sydney and down ~1% in Qld x IRB actual win rate above normalised levels, receivables well controlled, increased dividend to shareholders x Benefits of around $48m in FY17 from “Fit for Growth” program that is focused at driving year on year sustainable improvements/operational efficiencies Overall Rating Below target CAPITAL REDEVELOPMENT PLANS x Deliver capital works within scope, timing and budget x Progress master planning for Sydney and the Gold Coast in line with business strategy x Progress Queen’s Wharf Brisbane (QWB) development in line with approved time frames x Manage balance sheet and key ratios in line with target x Master planning and redevelopment works progressing in line with expectations with Capital expenditure of more than $420m completed in FY17. Key projects delivered in FY17 include: On target o (Sydney) – upgrade to 303 room Astral Tower hotel, entry level domestic private gaming room (Vantage), multi-terminal gaming machine theatre o (Gold Coast) – main gaming floor refresh, upgrade to 596 room hotel, reception and Atrium area, launched two new restaurants x QWB development on track, demolition works commenced x Gearing and other key ratios were within target range Differentiated value proposition GUEST SERVICE CULTURE x Elevate the customer service culture through: o Implementation of world class Guest Service System (refers to a comprehensive system geared towards creating sustainable service culture) o Measuring the internal level of customer service through an independently managed Internal Customer Survey (ICS) x Guest service scores within 95% of target except on the Gold Coast where this was >10% below target x Over 85% of staff completed the ‘Star Quality’ service foundations training that is also embedded in induction programs across the Group x Over 17,500 guest surveys completed x Satisfactory ICS results from FY17 survey LEADERSHIP IN LOYALTY x To achieve a leadership position in Loyalty and thereby achieve growth in market share and earnings x Execution on Loyalty targets include: o relaunch of program on an upgraded platform to offer improved program features and enhanced analytics capability o focus on existing customer engagement levels to increase rated play and offer attainable mid-tier benefits and exemplary customer service, improving new member quality and acquisition metrics x Deliver the Group’s new branding for The Star Gold Coast x Loyalty program relaunched per plan in November 2016 x Relaunched loyalty program showing positive initial signs x Member perception improving month on month since relaunch in November 2016 x Electronic gaming rated play in FY2017 continued to grow faster than unrated play across key metrics – turnover, actual and theoretical win across both Slots and MTGMs x New member acquisition showing initial signs of improving quality – increased visitation within first 4 weeks of signing up and higher average gaming spend per trip in 2H2017 on pcp x The Star Gold Coast rebranding completed as per plan Slightly below target On track People EMPLOYEE ENGAGEMENT x Focus on ensuring continuous improvements in employee engagement and diversity through identification and delivery of appropriate targeted action plans and initiatives x Support a culture of continuous learning through implementation of contemporary Learning Management System (LMS) and effective leadership behaviours and competencies x Employee engagement action plans following FY16 Employee Opinion Survey (EOS) satisfactorily on track across all properties. x ICS completed with overall score within threshold x LMS implemented in Dec 2016 with more than 67,000 online compliance training modules completed x Multiple Diversity and Inclusion and HR awards and finalist nominations, including for Employer of Choice On track SAFETY x Deliver a safe environment for guests and team members x Revised WHS strategy approved and implemented in FY17 x TRIFR scores improved on pcp and on decreasing for all On track across the Group x Measure Work, Health & Safety (WHS) progress, including Total Reportable Injury Frequency Rate (TRIFR), Long Term Injury Frequency Rate (LTIFR) x Operationalise strategy and measures of progress, including implementation of robust WHS information technology platform and increased reporting properties except Gold Coast x LTIFR below expectations - remedial plans under review in conjunction with overall safety improvement plans x Phase 1 of Work Safety Management System implemented RISK, COMPLIANCE & SUSTAINABILITY x Foster a sound control and compliance environment x No material compliance or risk breaches x Casino licence review in Sydney completed with no underpinned by a strong governance framework, including: material findings o Effective implementation and monitoring of compliance with company policies and procedures o Active monitoring of regulatory and other legislative compliance requirements x Deliver on the Sustainability Strategy and achieve resource consumption reduction x Maintain and develop key stakeholder relationships including with regulatory and law enforcement agencies, community organisations, shareholders, trade unions and other key business partners. x The Group obtained the global leadership position of the Casino and Gaming Industry in the Dow Jones Sustainability Index and remains a member of the FTSE4Good Index x ESG Strategy on track x Progress made with QWB development and relations with broader stakeholder groups during development phase x Development approvals and submissions for expansion projects (including with joint venture partners) on track x Over $10m contributed to partnerships, community groups and charities Above target 23 Governance, risk and stakeholder management 68 Remuneration Report (audited) For the year ended 30 June 2017 3.5 Long Term Performance Plan The LTPP is principally designed to reward Executives for their contributions towards achieving the Group’s strategic priorities orientated around the achievement of sustainable shareholder value creation. Equity awards are granted annually and may vest after four years (subject to performance). Performance is measured at the test date against two criteria rTSR and EPS. The Board is presently reviewing the LTPP performance criteria in the context of its strategic priorities to ensure these are appropriate and effective in driving the execution of the strategy. Consultation with key stakeholders is an important part of this review. For FY17, there were 17 participants in the plan (9 participants for FY16). Each of the Executives participates in the plan. Table 3 sets out the key features of the LTPP, all of which are consistent with the prior year. Table 3: Key design features of the LTPP Purpose To reward Executives for execution of the Group’s strategy and delivering long term sustainable shareholder value creation. Type of equity award Determination of the number of rights Vesting conditions (hurdles) and schedule Performance Rights - when the performance rights vest, ordinary shares in The Star Entertainment Group are automatically registered in the participant’s name and the participant will have voting and dividend rights corresponding to the rights of all other holders of ordinary shares. These ordinary shares are free of restrictions but are still subject to The Star Entertainment Group’s Securities Trading Policy. The number of performance rights allocated to an Executive is based on the following calculation: Target LTI ($) y Moderated face value of a performance right Number of performance rights allocated Moderated face value reflects the face value of the share at the allocation date less the value of any dividends foregone by the award holder during the vesting period, i.e. Share price x Dividend Discount Factor. Details of annual grant values for Executives is set out in Table 7. rTSR (50% of the award) EPS (50% of the award) rTSR has been included to focus the Executives on the return received by shareholders (capital returns, dividends and share price movement) over the four year period relative to a peer group of companies. EPS has been included to drive line of sight between shareholder value creation and management’s financial performance, against the Group’s business plan. It measures growth in accounting-based earnings per ordinary share. TSR peer group: S&P ASX 100 FY17 EPS target: EPS Growth to FY20 Exclusions: property trusts, infrastructure groups, and mining companies, represented by the S&P Global Industry Classification Standards of Oil & Gas, Metals & Mining, Transportation Infrastructure and Real Estate. The EPS threshold and stretch target is set by the Board at the beginning of the performance period by reference to a Board approved long term plan. The Star Entertainment Group will disclose the actual EPS target on a retrospective basis to ensure that the Group’s competitive position is not undermined. The Star Entertainment Group’s relative TSR ranking Below 50th percentile At 50th percentile Above 50th and below 75th percentile At or above 75th percentile Percentage of performance rights that will vest 0% 50% Pro-rata between 50% (at 50th percentile) and 100% (at 75th percentile) 100% EPS performance outcome Below threshold At threshold Between threshold and stretch Percentage of performance rights that will vest 0% 50% Pro-rata between threshold and target At stretch 100% Test Date and Vesting date Cessation of employment, Change of Control and Clawback Performance rights are tested on the fourth anniversary of the grant and are not subject to retesting. All unvested performance rights lapse immediately upon cessation of employment with The Star Entertainment Group. However, the Board has discretion in special circumstances to determine the number of performance rights retained and the terms applicable. Special circumstances include events such as retirement, redundancy, death and permanent disability. If a Change of Control Event occurs, or the Board determines in its absolute discretion that a Change of Control Event may occur, the Board will determine in its absolute discretion appropriate treatment regarding any Awards. Unvested rights may be clawed back where there has been a material misrepresentation of the financial outcomes on which the award had been assessed and/or the Executive’s actions have been found to be fraudulent, dishonest or in breach of the Group’s Code of Conduct (e.g. misconduct). 24 69 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2017REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2017 Remuneration Report (audited) For the year ended 30 June 2017 3.6 Vesting under the LTPP Since the Group’s inception in 2011, there have been six grants made under the LTPP, with two grants tested and no vesting outcomes (refer Table 4). Table 4: Details of performance rights issued to date Detail Grant date Test date FY12 Grant FY13 Grant FY14 Grant FY15 Grant FY16 Grant FY17 Grant 20 Sep 2011 19 Sep 2012 1 Oct 2013 26 Sep 2014 21 Sep 2015 5 Oct 2016 20 Sep 2014 19 Sep 2016 1 Oct 2017 26 Sep 2018 21 Sep 2019 5 Oct 2020 Vesting hurdle(s) TSR TSR TSR & EPS TSR & EPS TSR & EPS TSR & EPS Test result 0% vested 0% vested N/A N/A N/A N/A During FY17, the FY13 grant was tested and did not vest as performance hurdles were not met. The next test date will be in October 2017, for performance rights granted in FY14. The FY13 Grant was the first grant with a four year performance period, resulting in a gap year in 2015. Prior to this, the vesting period was three years. Performance rights relating to the FY13 grant were tested in September 2016. The TSR performance of the Group was 54.5% (excluding the value of franking credits), with a percentile ranking of 46.77. As this was below the 50th percentile required for vesting, no awards were realised under the LTPP for FY13. The FY14 Grant, due to be tested on 1 October 2017, is the first award with an EPS performance hurdle that comprises 50% of the award outcome. The Group introduced the EPS measure in FY14 to better align the reward outcomes under the LTPP with the execution of the Group’s strategic priorities. The outcomes will be reported in the FY18 Remuneration Report. Table 5 outlines the performance of the Group and shareholder returns over the last six financial years. Table 5: Statutory key performance indicators Performance metric Statutory NPAT Basic EPS (statutory) Full year dividend (fully franked, cents per share) Share price at year end Increase/(decrease) in share price FY12 $42.2m 5.9c 4.0c $4.28 N/A FY13 $83.5m 10.1c 6.0c $3.06 (29%) FY14 FY15 FY16 FY17 $106.3m $169.3m $194.4m $264.4m 12.9c 8.0c $3.14 +3% 20.5c 11.0c $4.36 +39% 23.6c 13.0c $5.40 +24% 32.0c 16.0c $5.05 (6%) Table 6 summarises the unvested performance rights held by Executives as at 30 June 2017. Table 6: Performance rights by grant held by Executives at 30 June 2017 Executive Matt Bekier Chad Barton Greg Hawkins Geoff Hogg FY14 Grant FY15 Grant FY16 Grant FY17 Grant Total performance rights held 196,850 352,112 - - 62,992 91,549 169,014 70,422 253,456 62,903 110,599 50,691 477,649 548,204 67,108 117,958 54,064 787,334 1,350,622 221,560 397,571 238,169 2,207,922 Total performance rights 259,842 683,097 The FY13 Grant was tested in September 2016 and as performance hurdles were not met and there is no retesting of hurdles, these rights lapsed. 6 1 Y F 0 0 0 , 0 5 5 $ 7 1 Y F 6 1 Y F 7 1 Y F 6 1 Y F 7 1 Y F 6 1 Y F 7 1 Y F 0 0 0 , 5 0 6 $ 0 0 0 , 0 0 2 , 1 $ 0 0 0 , 0 6 2 , 1 $ 0 0 5 , 2 8 6 $ 8 8 6 , 3 3 7 $ 0 0 0 , 0 5 6 , 1 $ 0 0 0 , 5 9 6 , 1 $ . p a C e e t n a r a u G n o i t a u n n a r e p u S e c i f f O x a T n a i l a r t s u A e h t r e p s a n o i t a r e n u m e r d e x i f ’ s e v i t u c e x E e h t m o r f n o i t a u n n a r e p u s s t c u d e d p u o r G i t n e m n a t r e t n E r a t S e h T n o i t a r e n u m e r d e x F i n o i t a u n n a r e p u S 0 0 0 , 0 3 3 $ 0 0 0 , 0 2 2 $ 0 0 0 , 3 6 3 $ 0 0 0 , 6 8 2 $ 0 0 0 , 0 2 7 $ 0 0 0 , 0 8 4 $ 0 0 0 , 6 5 7 $ 0 0 0 , 4 2 6 $ 0 0 5 , 9 0 4 $ 0 0 0 , 3 7 2 $ 3 1 2 , 0 4 4 $ 0 0 0 , 5 5 3 $ 0 0 0 , 0 5 6 , 1 $ 0 0 0 , 5 9 6 , 1 $ t e g r a t e v i t n e c n i m r e t - t r o h S 0 0 0 , 0 0 1 , 1 $ 0 0 0 , 0 0 9 , 2 $ ) e u a v l t n a r g l a u n n a ( e v i t n e c n i m r e t - g n o L 0 0 0 , 0 0 1 , 1 $ 0 0 0 , 4 5 2 , 1 $ 0 0 0 , 0 0 4 , 2 $ 0 0 0 , 0 4 6 , 2 $ 0 0 0 , 5 6 3 , 1 $ 1 0 9 , 8 2 5 , 1 $ 0 0 0 , 0 0 4 , 4 $ 0 0 0 , 0 9 2 , 6 $ d r a w e R l a u n n A t e g r a T l a t o T g g o H f f o e G , r o t c e r i D g n g a n a M i d n a l s n e e u Q s n i k w a H g e r G , r o t c e r i D g n g a n a M i y e n d y S r a t S e h T n o t r a B d a h C r e c i f f O l a i c n a n F f e i h C i r e i k e B t t a M d n a r o t c e r i D g n g a n a M i r e c i f f O e v i t u c e x E f e i h C s t c a r t n o C l t n e m y o p m E e v i t u c e x E : 7 e l b a T s l i a t e D t c a r t n o C . n o i t a r e n u m e r i g n d u c n l i , s t c a r t n o c t n e m y o p m e l e v i t u c e x E f o s l i a t e d t u o s t e s 7 l e b a T . s t c a r t n o c t n e m y o p m e l n i d e s i l a m r o f e r a s e v i t u c e x E r o f s t n e m e g n a r r a n o i t a r e n u m e R n o i t a r e n u m e R d n a s t c a r t n o C e v i t u c e x E . 4 / A N / A N s h t n o m 6 s h t n o m 9 / A N / A N s h t n o m 9 s h t n o m 9 / A N / A N s h t n o m 6 s h t n o m 9 s h t n o m 2 1 d e d n e n e p O s h t n o m 2 1 d e d n e n e p O . n o s a e r y n a r o f s h t n o m 2 1 d e d n e n e p O s h t n o m 2 1 s h t n o m 2 1 i g n w o l l o f s h t n o m 6 r o d o i r e p e c i t o N p u o r G e h t y b n o i t a n m r e t i f o e c i t o n e h t / A N / A N s h t n o m 2 1 s h t n o m 2 1 s h t n o m 2 1 s h t n o m 2 1 d e d n e n e p O s t i f e n e b y r a t e n o m - n o N e v i t u c e x E e h t y b e c i t o N p u o r G e h t y b e c i t o N s t i f e n e b r e h O t n o i t a r u d t c a r t n o C n o i t a t i c i l o s n o N ) i ( t i n a r t s e R 6 2 . p u o r G i t n e m n a t r e t n E r a t S e h T f o s s e n s u b i e h t o t r a l i m s i y l l a i t n a t s b u s s i r o h t i w s e t e p m o c i h c h w a i l a r t s u A n i y t i v i t c a r o i s s e n s u b y n a n i d e g a g n e i g n e b m o r f i n o s u c x E l ) i ( ) d e t i d u a ( 7 1 0 2 t r o p e R n o i t a r e n u m e R e n u J 0 3 d e d n e r a e y e h t r o F 70 71 25 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2017REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2017 e c n a m r o f r e P l a t o T s n o i t a c o l l a d e s a b e r a h s r o f e g r a h C t n e m y o p m E l - t s o P m r e t - g n o L m r e t - t r o h S % 6 3 % 4 6 % 8 1 % 6 4 % 8 1 % 1 4 % 1 2 % 6 4 3 9 6 , 1 4 7 , 2 1 7 5 , 2 4 6 , 4 7 1 5 , 6 1 9 2 9 6 , 7 4 3 , 1 2 2 7 , 6 3 6 , 1 4 6 8 , 3 0 7 , 2 6 9 4 , 1 8 7 5 7 8 , 2 7 0 , 1 8 2 4 , 6 7 0 , 6 2 0 0 , 7 6 7 , 9 $ - 0 0 0 , 2 9 7 - 0 9 9 , 1 7 1 - 0 0 0 , 5 1 3 - 0 0 5 , 5 1 1 - 0 9 4 , 4 9 3 , 1 d e t a l e r % n o i t a r e n u m e r $ s e r a h s d e t c ) i i ( i r t s e R e c n a m r o f r e P ) v ( $ s t h g i r 0 5 8 , 6 7 9 4 0 1 , 7 0 6 5 3 2 , 5 6 1 9 4 6 , 7 9 7 2 4 , 5 9 2 0 2 6 , 6 7 1 3 4 7 , 2 6 1 0 9 2 , 3 4 1 5 5 2 , 0 0 6 , 1 3 6 6 , 4 2 0 , 1 ) v i ( n o i t a u n n a r e p u S e c i v r e s g n o L $ 0 0 0 , 5 3 4 2 5 , 0 3 0 0 0 , 0 3 0 0 0 , 0 3 6 1 2 , 5 3 8 0 6 , 9 3 6 1 6 , 9 1 8 0 3 , 9 1 2 3 8 , 9 1 1 0 4 4 , 9 1 1 e v a e l $ 8 1 0 , 6 3 5 8 0 , 1 5 1 0 0 , 4 1 1 6 9 , 1 1 9 1 8 , 2 2 8 0 0 , 0 2 5 5 6 , 7 1 9 1 2 , 5 1 3 9 4 , 0 9 3 7 2 , 8 9 0 4 0 , 1 3 5 3 , 2 0 4 0 , 1 4 9 1 7 1 3 , 1 $ s t i f e n e b $ - 0 0 0 , 4 8 5 , 1 - 0 8 9 , 3 4 3 - 9 0 5 , 9 9 2 0 0 0 , 0 3 6 9 2 9 , 4 7 9 7 , 4 6 2 3 , 8 - 0 0 0 , 1 3 2 - 3 5 8 , 6 0 3 0 8 9 , 8 8 7 , 2 $ 5 8 7 , 2 9 6 , 1 5 0 5 , 5 7 5 , 1 1 4 2 , 6 0 7 8 1 9 , 1 9 6 3 4 9 , 1 8 2 , 1 9 1 1 , 3 2 2 , 1 3 5 5 , 6 7 5 1 6 7 , 3 4 5 2 2 5 , 7 5 2 , 4 3 0 3 , 4 3 0 , 4 7 1 0 2 6 1 0 2 7 1 0 2 6 1 0 2 7 1 0 2 6 1 0 2 7 1 0 2 6 1 0 2 r e i k e B t t a M n o t r a B d a h C s n i k w a H g e r G g g o H f f o e G 7 1 Y F L A T O T 6 1 Y F L A T O T l a i c n a n F i r a e y e v i t u c e x E ) i i i ( y r a t e n o m - n o N ) i i ( s u n o B ) i ( s e e f & y r a l a S e m o c n i e h t n i e s n e p x e t n e m y a p d e s a b e r a h s a s a i d e s n g o c e r s i s e r a h s d e t c i r t s e r f o t n a r g e h t o t g n i t a e r l e g r a h c e h t , s e s o p r u p g n i t n u o c c a r o F . s e r a h s d e t c i r t s e r d r i h t - e n o d n a d r a w a h s a c s d r i h t - o w t s a d e r e v i l e d d r a w a P P T S s t n e s e r p e R f f o e G d n a , 2 8 1 0 6 1 $ i s n k w a H g e r G , 6 0 2 , 3 9 $ n o t r a B d a h C , 3 0 4 , 1 8 3 $ i r e k e B t t a M : e r e w s d r a w a P P T S 6 1 Y F d n a 5 1 Y F f o t c e p s e r n i 7 1 Y F n i e s n e p x e s t n e m y a p d e s a b e r a h s n i i d e s n g o c e r s t n u o m a e h T . d o i r e p g n i t s e v e h t r e v o t n e m e t a t s l . e b a c i l p p a e r e h w s e c v r e s i n o i t a x a t d n a s t i f e n e b e m o h m o r f y a w a g n v i i l , s e s n e p x e n o i t a c o e r l , s t s o c l e v a r t , s e r a f r i a , n o i t a d o m m o c c a i , g n k r a p r a c s e s i r p m o C . 8 0 6 , 6 7 $ g g o H . s d r a w a P P T L o t n o i t a e r l n i p u o r G i t n e m n a t r e t n E r a t S e h T y b d e s n e p x e s t n e m y a p d e s a b e r a h s f o e u a v l r i a f e h t s t n e s e r p e R . n o i t a u n n a r e p u s d e c i f i r c a s y r a a s l d n a n o i t a s g e i l l e e t n a r a u G n o i t a u n n a r e p u S r e p s n o i t u b i r t n o c n o i t a u n n a r e p u s s e s i r p m o C . e s n e p x e e v a e l l a u n n a d n a ) s e s a e l d e t a v o n l i e c h e v r o t o m g n d u c n i ( l i s t i f e n e b d e c i f i r c a s y r a a s l , y r a a s l s e s i r p m o C ) i ( ) i i ( ) i i i ( ) v i ( ) v ( 7 2 ) d e t i d u a ( 7 1 0 2 t r o p e R n o i t a r e n u m e R e n u J 0 3 d e d n e r a e y e h t r o F l i . s e p c n i r p . 7 1 Y F g n i r u d ) d e t i e f r o f r o ( d e t s e v d n a e d a m s d r a w a n o d e s a b 7 1 Y F r o f n o i t a r e n u m e r ’ s e v i t u c e x E e h t s e s i r a m m u s 9 l e b a T . t n o c n o i t a r e n u m e R e v i t u c e x E y r o t u t a t S . 5 d r a d n a t S g n i t n u o c c A n a i l a r t s u A n o d e s a b e r a t a h t 8 l e b a T n i d e s o c s d i l n o i t a r e n u m e r y r o t u t a t s e h t o t r e f f i d s e m o c t u o e s e h T s e v i t u c e x E – 7 1 0 2 e n u J 0 3 d e d n e r a e y e h t r o f s e m o c t u o n o i t a r e n u m e R : 9 l e b a T l i . s e p c n i r p d r a d n a t S g n i t n u o c c A n a i l a r t s u A t n a v e e r l e h t i g n d u c n l i , s n o i t a u g e r l s t i d n a t c A s n o i t a r o p r o C e h t y b d e r i u q e r s a n o i t a r e n u m e r e v i t u c e x E t u o s t e s 8 l e b a T n o i t a r e n u m e R e v i t u c e x E y r o t u t a t S . 5 n o i t a r e n u m e R e v i t u c e x E y r o t u t a t S : 8 e l b a T ) d e t i d u a ( 7 1 0 2 t r o p e R n o i t a r e n u m e R e n u J 0 3 d e d n e r a e y e h t r o F $ ) 0 8 1 , 3 4 3 , 1 ( - - ) 0 9 0 , 6 7 3 ( ) 0 7 2 , 9 1 7 , 1 ( 8 2 ) i i i ( r a e y e h t g n i r u d d e s p a l $ r a e y s e v i t n e c n i m r e t - g n o L n o i t a r e n u m e r l a t o T s e v i t n e c n i m r e t - g n o L s e v i t n e c n i m r e t - t r o h S ) $ i i ( e h t g n i r u d d e t s e v 0 0 0 , 5 9 6 , 1 8 8 6 , 3 3 7 0 0 0 , 0 6 2 , 1 0 0 0 , 5 0 6 8 8 6 , 3 9 2 , 4 - - - - - ) i ( s e r a h S $ - - - - - h s a C $ - - - - - y a p d e x i F h s a C $ 0 0 0 , 5 9 6 , 1 8 8 6 , 3 3 7 0 0 0 , 0 6 2 , 1 0 0 0 , 5 0 6 8 8 6 , 3 9 2 , 4 e v i t u c e x E i r e k e B t t a M n o t r a B d a h C i s n k w a H g e r G g g o H f f o e G 7 1 Y F L A T O T . e t a d e s p a l t a s t h g i r e c n a m r o f r e p f o e u a v l l e b a s i l a e r e h t s i n w o h s t n u o m a e h T . t e m . t e m t o n t o n e r e w s e d r u h l e c n a m r o f r e p e r e w s e d r u h l e c n a m r o f r e p s a s a 7 1 Y F n i d e t s e v s t h g i r e c n a m r o f r e p 7 1 Y F n i d e t s e v s t h g i r e c n a m r o f r e p o N o N 7 1 Y F n i P P T S e h t r e d n u s e v i t u c e x E o t d e u r c c a s e v i t n e c n i o n , 7 1 Y F r o f t e m t o n s a w P P T S e h t r e d n u y a w e t a g e c n a m r o f r e p l i a c n a n i f e h t s A ) i ( ) i i ( ) i i i ( 72 73 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2017REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2017 Remuneration Report (audited) For the year ended 30 June 2017 6. NED Remuneration Remuneration Policy x x x NEDs receive a Board fee and a Committee fee for their participation as Chair or member of each Committee. NEDs do not receive any performance or incentive payments and are not eligible to participate in any of The Star Entertainment Group’s reward programs. This policy aligns with the principle that NEDs act independently and impartially. Board fees are not paid to the Managing Director and Chief Executive Officer. Executives do not receive fees for directorships of any subsidiaries. NED Fees The aggregate fees payable to NEDs for their services as directors are limited to the maximum annual amount approved by shareholders, currently set at $2,500,000 including superannuation contributions. There were small increases to Committee fees in FY17 to align with the increasing demands on Committee members and to maintain market competitiveness. Board and Committee fees effective from 1 July 2016 are shown in Table 10. Table 10: Annual NED Fees (inclusive of superannuation) Board Audit Risk & Compliance Remuneration People, Culture & Social Responsibility Investment & Capital Expenditure Review Chair $475,000 $35,000 $35,000 $35,000 $30,000 $30,000 Member $160,000 $17,500 $17,500 $17,500 $15,000 $15,000 The Star Entertainment Group remunerates NEDs for the full month of fees irrespective of their commencement date. Observer fees are paid where the NED appointment is subject to regulatory approvals being obtained. Observer fees are equivalent to applicable Board and Committee fees. A summary of the total remuneration received by each NED is set out in Table 11. Table 11: NED Remuneration NED Financial year Board and Committee Fees $ Superannuation (i) $ John O'Neill AO Gerard Bradley Greg Hayes Katie Lahey AM Sally Pitkin Richard Sheppard TOTAL FY17 TOTAL FY16 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 439,168 439,476 225,384 208,609 207,965 203,139 205,580 191,781 207,983 194,064 205,562 196,419 1,491,642 1,433,488 35,832 35,524 19,616 19,308 19,535 18,944 19,420 18,219 19,517 18,436 19,438 18,581 133,358 129,012 (i) Comprises superannuation contributions per Superannuation Guarantee legislation and salary sacrificed superannuation. Total $ 475,000 475,000 245,000 227,917 227,500 222,083 225,000 210,000 227,500 212,500 225,000 215,000 1,625,000 1,562,500 Remuneration Report (audited) For the year ended 30 June 2017 7. Other information 7.1. KMP shareholdings To align the interests of the Board and Executives with the interests of shareholders generally, the Company introduced in FY16, a minimum shareholding policy for KMP. There is a separate Minimum Shareholding Policy that applies to other executives who report directly to the Managing Director and Chief Executive Officer. Minimum Shareholding Policy for Executives Executives are encouraged to progressively acquire shares over a five year period from the date of their appointment (for new Executives), or within five years from the date of commencement of the policy (for existing Executives). The Managing Director and Chief Executive Officer is to hold a minimum number of shares which is of equal value to 150% of one year’s base salary at the time of his unconditional appointment. Other Executives are to hold a minimum number of shares which is of equal value to 100% of one year’s base salary at the time of their unconditional appointment. Direct and indirect holdings in shares or performance rights will each count towards the minimum shareholding target. Minimum Shareholding Policy for NEDs NEDs are encouraged to progressively acquire shares over a three year period from the date of commencement of their unconditional appointment (for within three years from the date of commencement of the policy (for existing directors). NEDs are to hold shares of equal value to their respective annual base fees applicable at the time of their unconditional appointment. Direct and indirect holdings will both count towards the minimum shareholding target. Tables 12 and 13 show the number of shares and performance rights held by NEDs and Executives respectively at the beginning and end of the financial year. Table 12: Shares held by NEDs at 30 June 2017 NED Balance at start of the year Number acquired Number divested Balance at the end of the year John O’Neill AO Gerard Bradley Greg Hayes Katie Lahey AM Sally Pitkin Richard Sheppard 51,172 25,000 10,000 27,080 26,900 50,000 Total ordinary shares 190,152 3,176 - - - 19,000 30,000 52,176 - - - - - - - 54,348 25,000 10,000 27,080 45,900 80,000 242,328 74 29 30 75 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2017REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2017Remuneration Report (audited) For the year ended 30 June 2017 Table 13: Shares and Performance Rights held by Executives at 30 June 2017 Executive Holding Balance at start of the year Acquired or granted as compensationi Disposed of, lapsed or transferred during the year ii Balance at the end of the year Matt Bekier Performance Rights 1,029,690 Ordinary Shares 361,140 548,204 148,633 (227,272) - Restricted Shares 146,733 141,689 (148,633) Chad Barton Performance Rights 154,452 Ordinary Shares - Restricted Shares Greg Hawkins Performance Rights Ordinary Shares 32,366 279,613 - Restricted Shares 47,536 Geoff Hogg Performance Rights 247,741 Ordinary Shares Restricted Shares iii 62,081 30,897 67,108 33,273 30,775 117,958 48,868 56,212 54,064 31,938 20,993 - - (32,785) - - (48,151) (63,636) - (30,575) 1,350,622 509,773 139,789 221,560 33,273 30,356 397,571 48,868 55,597 238,169 94,019 21,315 Note: The closing balances of restricted shares are subject to a deferral period of one year that ends on 15 September 2017. (i) Includes shares acquired under the Dividend Reinvestment Plan and transfers from restricted shares where the holding lock has been lifted (ii) Restricted shares that are no longer subject to a holding lock are converted into ordinary shares (iii) Includes 217 ordinary shares acquired through salary sacrifice under the General Employee Share Plan that are subject to a holding lock for three years from the acquisition date 7.2. Loans and other transactions with KMP There have been no loans or other transactions with KMP during the year. ) d e t i d u a ( 7 1 0 2 t r o p e R n o i t a r e n u m e R e n u J 0 3 d e d n e r a e y e h t r o F e h t g n i r u d d e s p a l r o d e t s e v , d e t n a r g s t h g i r e c n a m r o f r e p f o r e b m u n e h t f o s l i a t e D . d o i r e p e h t g n i r u d P P T L d n a P P T S e h t r e d n u s e v i t u c e x E f o n o i t a r e n u m e r e b a i r a v l e h t s w o h s 4 1 l e b a T n o i t a r e n u m e R e b a i r a V l . 3 . 7 l i . s e p c n i r p d r a d n a t S g n i t n u o c c A n a i l a r t s u A t n a v e e r l e h t i g n d u c n l i , s n o i t a u g e r l s t i d n a t c A s n o i t a r o p r o C e h t r e d n u d e r i u q e r s a i d e d v o r p o s a l e r a d o i r e p f o r e b m u N e c n a m r o f r e p d e s p a l s t h g i r ) i i i ( f o r e b m u N e c n a m r o f r e p d e t s e v s t h g i r ) i i ( f o % a s A l a t o t n o i t a r e n u m e r P P T L e t a d t s e T e t a d t n a r G ) 2 7 2 , 7 2 2 ( - - - ) 6 3 6 , 3 6 ( - ) 8 0 9 , 0 9 2 ( - - - - - - - - - - % 6 3 % 3 1 % 8 1 % 7 % 8 1 % 7 % 1 2 % 3 1 0 2 0 2 0 1 / / 5 6 1 0 2 / 0 1 / 5 9 1 0 2 / 9 0 / 1 2 5 1 0 2 / 9 0 / 1 2 0 2 0 2 / 0 1 / 5 6 1 0 2 / 0 1 / 5 9 1 0 2 / 9 0 / 1 2 5 1 0 2 / 9 0 / 1 2 0 2 0 2 / 0 1 / 5 6 1 0 2 / 0 1 / 5 9 1 0 2 / 9 0 / 1 2 5 1 0 2 / 9 0 / 1 2 0 2 0 2 / 0 1 / 5 6 1 0 2 / 0 1 / 5 9 1 0 2 / 9 0 / 1 2 5 1 0 2 / 9 0 / 1 2 e g a r e v A e u l a v r i a F t a t h g i r r e p e t a d t n a r g $ 7 2 . 4 3 5 . 3 7 2 . 4 3 5 . 3 7 2 . 4 3 5 . 3 7 2 . 4 3 5 . 3 f o e u l a v r i a F e c n a m r o f r e p f o r e b m u N t o n I T S e c n a m r o f r e p s a d e v e i h c a l a t o t t n a r g e r a h s $ 1 9 0 , 8 3 3 , 2 3 3 4 , 3 9 8 7 1 2 , 6 8 2 4 3 7 , 1 2 2 1 9 0 , 3 0 5 2 6 8 , 9 8 3 4 8 5 , 0 3 2 7 8 6 , 8 7 1 3 8 9 , 7 5 3 , 3 6 1 7 , 3 8 6 , 1 4 0 2 , 8 4 5 6 5 4 , 3 5 2 8 0 1 , 7 6 3 0 9 , 2 6 8 5 9 , 7 1 1 9 9 5 , 0 1 1 4 6 0 , 4 5 1 9 6 , 0 5 4 3 3 , 7 8 7 9 4 6 , 7 7 4 d e t n a r g s t h g i r d e t n a r g s t h g i r t e g r a t f o % a ) i ( n o i t a r e n u m e r % 0 0 1 % 0 % 0 0 1 % 0 % 0 0 1 % 0 % 0 0 1 % 0 % 0 % 1 5 % 0 % 8 3 % 0 % 5 3 % 0 % 2 3 $ - $ - 0 0 0 , 2 9 7 0 0 0 , 4 8 5 , 1 - - 0 9 9 , 1 7 1 0 8 9 , 3 4 3 - - 0 0 0 , 5 1 3 0 0 0 , 0 3 6 - - 0 0 5 , 5 1 1 0 0 0 , 1 3 2 - - 0 9 4 , 4 9 3 , 1 0 8 9 , 8 8 7 , 2 r a e y 7 1 0 2 6 1 0 2 7 1 0 2 6 1 0 2 7 1 0 2 6 1 0 2 7 1 0 2 6 1 0 2 r e i k e B t t a M n o t r a B d a h C s n i k w a H g e r G g g o H f f o e G 7 1 Y F l a t o T 6 1 Y F l a t o T P P T S f o % a s A d e t c i r t s e R d r a w a h s a C l a i c n a n F i e v i t u c e x E n o i t a r e n u m e R e b a l i r a V : 4 1 e l b a T 2 3 . 7 1 0 2 r e b o t c O n i g n i t s e t r o f e u d e r a s t h g i r e c n a m r o f r e p 4 1 Y F . s t h g i r e c n a m r o f r e p f o g n i t s e v o n n i d e t l u s e r d n a 6 1 0 2 r e b m e t p e S n i d e t s e t e r e w 3 1 Y F n i d e t n a r g s t h g i r e c n a m r o f r e P ) i i i ( . 8 l e b a T n i d e t r o p e r s a n o i t a r e n u m e r l a t o t d n a e s n e p x e I T L g n i t n u o c c a n o d e s a b l n o i t a u c a c l e g a t n e c r e P . l e v e l e v i t n e c n i t e g r a t ’ s e v i t u c e x E e h t f o % 0 5 1 s i l e b a l i a v a y t i n u t r o p p o m u m x a M i ) i ( ) i i ( 76 31 77 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2017REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2017 FINANCIAL REPORT F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 7 Consolidated income statement For the year ended 30 June 2017 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2017 T H E S T A R E N T E R T A I N M E N T G R O U P L I M I T E D A . C . N 1 4 9 6 2 9 0 2 3 A S X C O D E : S G R A N D I T S C O N T R O L L E D E N T I T I E S Revenue Other income Government taxes and levies Commissions and fees Employment costs Depreciation and amortisation Cost of sales Property costs Advertising and promotions Other expenses Share of net loss of associate and joint venture entities accounted for using the equity method Earnings before interest and tax (EBIT) Net finance costs Profit before income tax (PBT) Income tax expense Net profit after tax (NPAT) Other comprehensive (loss)/income Items that may be reclassified subsequently to profit or loss Change in fair value of cash flow hedges taken to equity, net of tax Total comprehensive income for the period Earnings per share: Basic earnings per share Diluted earnings per share Fully franked dividend per share Note A2 2017 $m 2016 $m 2,344.0 2,268.1 A3 A3 A3 A4 A3 D5 A5 F2 F1 F3 F3 A6 1.1 (526.2) (247.3) (609.1) (164.5) (85.7) (77.9) (91.5) (120.5) (0.7) 421.7 (41.7) 380.0 (115.6) 264.4 0.8 (504.6) (313.7) (600.5) (163.8) (81.8) (77.8) (85.7) (116.0) - 325.0 (45.8) 279.2 (84.8) 194.4 (13.4) 251.0 9.6 204.0 32.0 cents 23.6 cents 31.9 cents 16.0 cents 23.6 cents 13.0 cents The above consolidated income statement should be read in conjunction with accompanying notes. 33 79 ANNUAL REPORT 2017 Consolidated balance sheet For the year ended 30 June 2017 CONSOLIDATED BALANCE SHEET FOR THE YEAR ENDED 30 JUNE 2017 Consolidated statement of cash flows For the year ended 30 June 2017 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2017 ASSETS Cash and cash equivalents Trade and other receivables Inventories Derivative financial instruments Other assets Total current assets Property, plant and equipment Intangible assets Derivative financial instruments Investment in associate and joint venture entities Other assets Total non current assets TOTAL ASSETS LIABILITIES Trade and other payables Interest bearing liabilities Income tax payable Provisions Derivative financial instruments Other liabilities Total current liabilities Interest bearing liabilities Deferred tax liabilities Provisions Derivative financial instruments Total non current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Share capital Retained earnings Reserves TOTAL EQUITY Note B1 B2 B3 F4 B4 B5 B3 D5 F4 F5 B7 F2 F6 B3 F7 B7 F2 F6 B3 F8 F8 2017 $m 113.7 192.7 11.9 48.4 60.9 427.6 2,360.5 1,851.8 151.1 212.4 11.9 4,587.7 5,015.3 324.5 130.0 28.8 66.5 18.4 21.1 589.3 915.0 188.2 9.9 37.3 1,150.4 1,739.7 3,275.6 2,580.5 702.3 (7.2) 3,275.6 The above consolidated balance sheet should be read in conjunction with the accompanying notes. 80 2016 $m 159.0 130.3 9.0 14.5 38.5 351.3 2,120.9 1,836.7 242.0 29.3 15.2 4,244.1 4,595.4 261.9 - 20.8 58.3 17.8 20.9 379.7 813.5 181.9 14.6 58.0 1,068.0 1,447.7 3,147.7 2,580.5 561.8 5.4 3,147.7 34 Cash flows from operating activities Net cash receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Payment of government levies, gaming taxes and GST Interest received Income taxes paid Net cash inflow from operating activities Cash flows from investing activities Payments for property, plant, equipment and intangibles Payments for investment in associate and joint venture entities Net cash (outflow) from investing activities Cash flows from financing activities Proceeds from interest bearing liabilities Repayment of interest bearing liabilities Dividends paid Finance costs Net cash inflow/(outflow) from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year Note 2017 $m 2016 $m 2,348.3 (1,259.4) (521.0) 1.0 (95.6) 2,287.6 (1,307.7) (502.5) 1.3 (100.8) 473.3 377.9 (407.6) (183.9) (591.5) 434.5 (185.0) (123.9) (52.7) 72.9 (292.5) (29.3) (321.8) 160.0 (110.0) (94.9) (48.8) (93.7) (45.3) (37.6) 159.0 113.7 196.6 159.0 F2 F9 B7 B7 A6 B1 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 35 81 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017Consolidated statement of changes in equity For the year ended 30 June 2017 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2017 2017 Balance at 1 July 2016 Profit for the year Other comprehensive income Total comprehensive income Dividends paid Employee share based payments Balance at 30 June 2017 2016 Balance at 1 July 2015 Profit for the year Other comprehensive income Total comprehensive income Dividends paid Employee share based payments Balance at 30 June 2016 Note F1 A6 F10 F1 A6 F10 Ordinary shares $m Retained earnings $m Hedging reserve $m Share based payment reserve $m 2,580.5 - - - - - 2,580.5 2,580.5 - - - - - 2,580.5 561.8 264.4 - 264.4 (123.9) - 702.3 462.3 194.4 - 194.4 (94.9) - 561.8 (0.4) - (13.4) (13.4) - - (13.8) (10.0) - 9.6 9.6 - - (0.4) 5.8 - - - - 0.8 6.6 2.6 - - - - 3.2 5.8 Total $m 3,147.7 264.4 (13.4) 251.0 (123.9) 0.8 3,275.6 3,035.4 194.4 9.6 204.0 (94.9) 3.2 3,147.7 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. NOTES TO THE FINANCIAL STATEMENTS F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 7 Refer to the Operating Financial Review (OFR) within the Directors’ Report for details of key transactions during the year. CONTENTS A K E Y I N C O M E S TA T E M E N T D I S C L O S U R E S A1. Segment information A2. Revenue A3. Expenses A4. Depreciation and amortisation A5. Net finance costs A6. Dividends A7. Significant items B K E Y B A L A N C E S H E E T D I S C L O S U R E S A S S E T S B1. Cash and cash equivalents B2. Trade and other receivables B3. Derivative financial instruments B4. Property, plant and equipment B5. Intangible assets B6. Impairment testing and goodwill L I A B I L I T I E S B7. Interest bearing liabilities C C O M M I T M E N T S , C O N T I N G E N C I E S A N D S U B S E Q U E N T E V E N T S C1. Commitments C2. Contingent liabilities C3. Subsequent events D G R O U P S T R U C T U R E D1. Related party disclosures D2. Parent entity disclosures D3. Deed of cross guarantee D4. Key Management Personnel disclosures D5. Investment in associates and joint venture entities E R I S K M A N A G E M E N T E1. Financial risk management objectives and policies E2. Additional financial instruments disclosures F O T H E R D I S C L O S U R E S F1. Other comprehensive income F2. Income tax F3. Earnings per share F4. Other assets F5. Trade and other payables F6. Provisions F7. Other liabilities (current) F8. Share capital and reserves F9. Reconciliation of net profit after tax to net cash inflow from operations F10. Employee share plans F11. Auditor’s remuneration 82 G A C C O U N T I N G P O L I C I E S A N D C O R P O R A T E I N F O R M A T I O N 36 8 4 84 85 85 86 86 87 87 8 8 88 88 90 91 92 93 9 5 95 9 7 97 97 97 9 8 98 100 101 102 103 1 0 6 106 109 1 1 2 112 112 115 115 115 116 117 117 118 119 120 1 2 1 83 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 A Key income statement disclosures A Key income statement disclosures A1 Segment information A1 Segment information The Group's operating segments have been determined based on the internal management reporting structure and the The Group's operating segments have been determined based on the internal management reporting structure and the nature of products and services provided by the Group. They reflect the business level at which financial information is nature of products and services provided by the Group. They reflect the business level at which financial information is provided to the executive decision makers, being the Managing Director and Chief Executive Officer and the Group provided to the executive decision makers, being the Managing Director and Chief Executive Officer and the Group Chief Financial Officer, for decision making regarding resource allocation and performance assessment. Chief Financial Officer, for decision making regarding resource allocation and performance assessment. The Group has three reportable segments: The Group has three reportable segments: Sydney Sydney Comprises The Star Sydney's casino operations, including hotels, apartment complex, restaurants Comprises The Star Sydney's casino operations, including hotels, apartment complex, restaurants and bars. and bars. Comprises The Star Gold Coast's casino operations, including hotel, theatre, restaurants and bars. Comprises The Star Gold Coast's casino operations, including hotel, theatre, restaurants and bars. Comprises Treasury's casino operations, including hotel, restaurants and bars. Comprises Treasury's casino operations, including hotel, restaurants and bars. Gold Coast Gold Coast Brisbane Brisbane Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 A2 Revenue A2 Revenue Gaming Gaming Non-gaming and other Non-gaming and other Total gross revenue Total gross revenue Player rebates and promotional allowances Player rebates and promotional allowances 2017 2017 Gross revenues - VIP a Gross revenues - VIP a Gross revenues - domestic a Gross revenues - domestic a Segment revenue (refer to note A2) Segment revenue (refer to note A2) Segment earnings before interest, tax and Segment earnings before interest, tax and significant items significant items Depreciation and amortisation Depreciation and amortisation Capital expenditure Capital expenditure 2016 2016 Gross revenues - VIP a Gross revenues - VIP a Gross revenues - domestic a Gross revenues - domestic a Segment revenue (refer to note A2) Segment revenue (refer to note A2) Segment earnings before Segment earnings before significant items significant items Depreciation and amortisation Depreciation and amortisation Capital expenditure Capital expenditure interest, interest, tax and tax and Sydney Sydney $m $m 547.9 547.9 1,137.9 1,137.9 1,685.8 1,685.8 Gold Coast Gold Coast $m $m 66.3 66.3 331.3 331.3 397.6 397.6 Brisbane Brisbane $m $m 25.4 25.4 323.4 323.4 348.8 348.8 300.9 300.9 100.2 100.2 180.0 180.0 Sydney Sydney $m $m 555.1 555.1 1,101.7 1,101.7 1,656.8 1,656.8 200.7 200.7 101.7 101.7 150.2 150.2 58.1 58.1 36.3 36.3 209.1 209.1 Gold Coast Gold Coast $m $m 39.9 39.9 321.1 321.1 361.0 361.0 49.1 49.1 35.2 35.2 132.4 132.4 76.2 76.2 28.0 28.0 30.5 30.5 Brisbane Brisbane $m $m 1.3 1.3 338.6 338.6 339.9 339.9 75.2 75.2 26.9 26.9 23.6 23.6 a a Gross revenue is presented as the gross gaming win before player rebates and promotional allowances. Gross revenue is presented as the gross gaming win before player rebates and promotional allowances. Reconciliation of reportable segment profit to profit before income tax Reconciliation of reportable segment profit to profit before income tax Segment earnings before interest, tax and significant items Segment earnings before interest, tax and significant items Significant items (refer to note A7) Significant items (refer to note A7) Unallocated items: Unallocated items: - net finance costs (refer to note A5) - net finance costs (refer to note A5) - share of net loss of associate and joint venture entities accounted for using - share of net loss of associate and joint venture entities accounted for using the equity method the equity method Profit before income tax (PBT) Profit before income tax (PBT) 2017 2017 $m $m 435.2 435.2 (12.8) (12.8) (41.7) (41.7) (0.7) (0.7) 380.0 380.0 Total Total $m $m 639.6 639.6 1,792.6 1,792.6 2,432.2 2,432.2 435.2 435.2 164.5 164.5 419.6 419.6 Total Total $m $m 596.3 596.3 1,761.4 1,761.4 2,357.7 2,357.7 325.0 325.0 163.8 163.8 306.2 306.2 2016 2016 $m $m 325.0 325.0 - - (45.8) (45.8) - - 279.2 279.2 38 38 Revenue is up $75.9m or 3.3% on the prior comparable period (pcp) driven by growth in domestic gaming and Revenue is up $75.9m or 3.3% on the prior comparable period (pcp) driven by growth in domestic gaming and the high win rate in the International VIP Rebate business. the high win rate in the International VIP Rebate business. Revenue Revenue Revenue is measured at the fair value of the consideration received or receivable from the sale of goods and services Revenue is measured at the fair value of the consideration received or receivable from the sale of goods and services in the ordinary course of the Group's activities. Revenue is recognised to the extent that it is probable that the in the ordinary course of the Group's activities. Revenue is recognised to the extent that it is probable that the economic benefits associated with a transaction will flow to the Group and the amount of revenue and associated economic benefits associated with a transaction will flow to the Group and the amount of revenue and associated costs incurred can be reliably measured. Revenue comprises net gaming win less player rebates and promotional costs incurred can be reliably measured. Revenue comprises net gaming win less player rebates and promotional allowances, as well as other non-gaming revenue from the hotels, restaurants and bars. allowances, as well as other non-gaming revenue from the hotels, restaurants and bars. Customer loyalty programs Customer loyalty programs The Group operates customer loyalty programs enabling customers to accumulate award credits for gaming and on- The Group operates customer loyalty programs enabling customers to accumulate award credits for gaming and on- property spend. A portion of the spend, equal to the fair value of the award credits earned and reduced for expected property spend. A portion of the spend, equal to the fair value of the award credits earned and reduced for expected breakage, is treated as deferred revenue (refer to note F7). Revenue from the award credits is recognised in the breakage, is treated as deferred revenue (refer to note F7). Revenue from the award credits is recognised in the income statement when the award is redeemed or expires. income statement when the award is redeemed or expires. A3 Expenses A3 Expenses Profit before income tax is stated after charging the following expenses and significant items: Profit before income tax is stated after charging the following expenses and significant items: Other income Other income Net foreign exchange gain Net foreign exchange gain Government taxes and levies (including gaming GST): Government taxes and levies (including gaming GST): New South Wales New South Wales Queensland Queensland 1.1 1.1 0.8 0.8 Government taxes and levies is up $21.6m or 4.3% on the pcp in line with higher gaming revenues, as well as a Government taxes and levies is up $21.6m or 4.3% on the pcp in line with higher gaming revenues, as well as a higher average gaming tax rate in Sydney. higher average gaming tax rate in Sydney. Employment costs: Employment costs: Salaries, wages, bonuses and other benefits Salaries, wages, bonuses and other benefits Defined contribution plan expense (superannuation guarantee charges) Defined contribution plan expense (superannuation guarantee charges) Share based payment expense (refer to note F10) Share based payment expense (refer to note F10) Cost of inventories recognised as an expense during the year Cost of inventories recognised as an expense during the year Movement in provision for impairment of trade receivables (refer to note B2) Movement in provision for impairment of trade receivables (refer to note B2) Operating lease charges Operating lease charges Significant items (refer to note A7) Significant items (refer to note A7) 2017 2017 $m $m 2,184.2 2,184.2 248.0 248.0 2,432.2 2,432.2 (88.2) (88.2) 2,344.0 2,344.0 2016 2016 $m $m 2,111.1 2,111.1 246.6 246.6 2,357.7 2,357.7 (89.6) (89.6) 2,268.1 2,268.1 369.4 369.4 156.8 156.8 526.2 526.2 559.8 559.8 45.5 45.5 3.8 3.8 609.1 609.1 85.7 85.7 18.7 18.7 13.0 13.0 12.8 12.8 350.0 350.0 154.6 154.6 504.6 504.6 551.9 551.9 43.0 43.0 5.6 5.6 600.5 600.5 81.8 81.8 23.1 23.1 12.3 12.3 - - 39 39 85 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 84 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 A4 Depreciation and amortisation A4 Depreciation and amortisation Property, plant and equipment (refer to note B4) Property, plant and equipment (refer to note B4) Intangible assets (refer to note B5) Intangible assets (refer to note B5) Other Other 2017 2017 $m $m 137.1 137.1 26.2 26.2 1.2 1.2 164.5 164.5 2016 2016 $m $m 135.6 135.6 27.1 27.1 1.1 1.1 163.8 163.8 Depreciation is calculated using a straight line method. The useful lives over which the assets are depreciated are as Depreciation is calculated using a straight line method. The useful lives over which the assets are depreciated are as follows (for further details of the useful lives of intangible assets refer to note B5): follows (for further details of the useful lives of intangible assets refer to note B5): Freehold and leasehold buildings Freehold and leasehold buildings Leasehold improvements Leasehold improvements Plant and equipment Plant and equipment Software Software Licences Licences Operating equipment (which includes uniforms, casino chips, kitchen utensils, crockery, cutlery and linen) is Operating equipment (which includes uniforms, casino chips, kitchen utensils, crockery, cutlery and linen) is recognised as a depreciation expense based on usage. The period of usage depends on the nature of the operating recognised as a depreciation expense based on usage. The period of usage depends on the nature of the operating equipment and varies between 1 to 3 years. equipment and varies between 1 to 3 years. The residual values and useful lives are reviewed annually, and adjusted if appropriate, at each financial reporting The residual values and useful lives are reviewed annually, and adjusted if appropriate, at each financial reporting date. date. 10 - 95 years 10 - 95 years 4 - 75 years 4 - 75 years 5 - 20 years 5 - 20 years 3 - 10 years 3 - 10 years Until expiry Until expiry A5 Net finance costs A5 Net finance costs Interest paid on borrowings Interest paid on borrowings Capitalised to property, plant and equipmenta Capitalised to property, plant and equipmenta Borrowing costs Borrowing costs Finance costs Finance costs Interest income Interest income Net finance costs recognised in the income statement Net finance costs recognised in the income statement 49.4 49.4 (10.0) (10.0) 3.3 3.3 42.7 42.7 (1.0) (1.0) 41.7 41.7 44.6 44.6 (1.7) (1.7) 4.2 4.2 47.1 47.1 (1.3) (1.3) 45.8 45.8 a a Borrowing costs of $10.0 million were capitalised during the year and are included in 'Additions' in note B4. The capitalisation Borrowing costs of $10.0 million were capitalised during the year and are included in 'Additions' in note B4. The capitalisation rate was equal to the Group's weighted average cost of borrowings applicable to the Group's outstanding borrowings during the rate was equal to the Group's weighted average cost of borrowings applicable to the Group's outstanding borrowings during the year. year. Net finance costs of $41.7 million were down 9.0% on the pcp as a result of higher capitalised interest partially Net finance costs of $41.7 million were down 9.0% on the pcp as a result of higher capitalised interest partially offset by an increase in average debt year on year. offset by an increase in average debt year on year. Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 A6 Dividends A6 Dividends 2017 2017 Cents per Cents per share share 2016 2016 Cents per Cents per share share Dividends per share Dividends per share Interim dividend Interim dividend Final dividend Final dividend Total dividend Total dividend A final dividend per share of 8.5 cents fully franked was declared, totalling 16.0 cents per share for the year, up A final dividend per share of 8.5 cents fully franked was declared, totalling 16.0 cents per share for the year, up 23.1% on the pcp and reflecting the improved performance and financial position of the Group. 23.1% on the pcp and reflecting the improved performance and financial position of the Group. 2017 2017 $m $m 5.5 5.5 7.5a 7.5a 13.0 13.0 7.5b 7.5b 8.5c 8.5c 16.0 16.0 2016 2016 $m $m Dividends declared and paid during the year on ordinary shares Dividends declared and paid during the year on ordinary shares Final dividend paid during the year in respect of the year ended 30 June 2016 a Final dividend paid during the year in respect of the year ended 30 June 2016 a Interim dividend paid during the year in respect of the half year ended 31 Interim dividend paid during the year in respect of the half year ended 31 December 2016 b December 2016 b a A final dividend of 7.5 cents per share fully franked for the year ended 30 June 2016 (30 June 2015: 6 cents) was declared on 25 a A final dividend of 7.5 cents per share fully franked for the year ended 30 June 2016 (30 June 2015: 6 cents) was declared on 25 August 2016 and paid on 30 September 2016 (2015: declared on 11 August 2015 and paid on 16 September 2015). August 2016 and paid on 30 September 2016 (2015: declared on 11 August 2015 and paid on 16 September 2015). b An interim dividend of 7.5 cents per share fully franked for the half year ended 31 December 2016 (31 December 2015: 5.5 cents) b An interim dividend of 7.5 cents per share fully franked for the half year ended 31 December 2016 (31 December 2015: 5.5 cents) was declared on 15 February 2017 and paid on 22 March 2017 (2016: declared on 15 February 2016 and paid on 22 March was declared on 15 February 2017 and paid on 22 March 2017 (2016: declared on 15 February 2016 and paid on 22 March 2016). 2016). Dividends declared after balance date Dividends declared after balance date Final dividend declared for the year ended 30 June 2017 c Final dividend declared for the year ended 30 June 2017 c 70.2 70.2 c Since the end of the financial year, the Directors have declared a final dividend of 8.5 cents per ordinary share (2016: 7.5 cents), c Since the end of the financial year, the Directors have declared a final dividend of 8.5 cents per ordinary share (2016: 7.5 cents), fully franked. The aggregate amount is expected to be paid on 26 September 2017 out of retained earnings at 30 June 2017, but fully franked. The aggregate amount is expected to be paid on 26 September 2017 out of retained earnings at 30 June 2017, but not recognised as a liability at the end of the year. not recognised as a liability at the end of the year. Franking credit balance Franking credit balance Amount of franking credits available to shareholders Amount of franking credits available to shareholders 61.9 61.9 62.0 62.0 123.9 123.9 49.5 49.5 45.4 45.4 94.9 94.9 2017 2017 $m $m 2016 2016 $m $m 61.9 61.9 121.7 121.7 79.2 79.2 A7 Significant items A7 Significant items 12.8 12.8 12.8 12.8 Costs relating to the unutilised aircraft, including unavoidable lease payments, maintenance and other costs. Costs relating to the unutilised aircraft, including unavoidable lease payments, maintenance and other costs. Earnings before interest and tax (EBIT) is stated after charging the following significant items: Earnings before interest and tax (EBIT) is stated after charging the following significant items: Costs associated with the International VIP Rebate business a Costs associated with the International VIP Rebate business a Net significant items Net significant items a a Significant items are determined by management based on their nature and size. They are items of income or expense Significant items are determined by management based on their nature and size. They are items of income or expense which are, either individually or in aggregate, material to the Group or to the relevant business segment and: which are, either individually or in aggregate, material to the Group or to the relevant business segment and: − not in the ordinary course of business (for example, the cost of significant reorganisations or restructuring); or − not in the ordinary course of business (for example, the cost of significant reorganisations or restructuring); or − part of the ordinary activities of the business but unusual due to their size and nature (for example, impairment of − part of the ordinary activities of the business but unusual due to their size and nature (for example, impairment of - - - - assets). assets). The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 86 40 40 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 41 41 87 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 Other receivables Other receivables Other receivables are not past due or considered impaired. It is expected that these balances will be received as they Other receivables are not past due or considered impaired. It is expected that these balances will be received as they fall due. fall due. The chart below compares the ageing of trade receivables and amounts considered impaired as at 30 June 2017 and The chart below compares the ageing of trade receivables and amounts considered impaired as at 30 June 2017 and 30 June 2016 respectively. 30 June 2016 respectively. Trade receivables ageing profile m $ 200.0 180.0 160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0 – 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 Total trade receivables Not yet due (0-30 days) 30 days - 1 Year (past due) 1-3 Years (past due) 3+ Years (past due) Considered impaired Not impaired Provision for impairment of trade receivables Provision for impairment of trade receivables The Group recognises a provision for impairment of trade receivables when there is objective evidence that an The Group recognises a provision for impairment of trade receivables when there is objective evidence that an individual trade debt is impaired. Factors considered when determining if an impairment exists include the age of the individual trade debt is impaired. Factors considered when determining if an impairment exists include the age of the debt, management's experienced judgement, and other specific facts related to the debt. debt, management's experienced judgement, and other specific facts related to the debt. B Key balance sheet disclosures B Key balance sheet disclosures Assets Assets B1 Cash and cash equivalents B1 Cash and cash equivalents Cash on hand and in banks Cash on hand and in banks Short term deposits, maturing within 30 days Short term deposits, maturing within 30 days B2 Trade and other receivables B2 Trade and other receivables Trade receivables a Trade receivables a Less provision for impairment Less provision for impairment Net trade receivables Net trade receivables Other receivables Other receivables Includes patron cheques not deposited of $123.2 million (2016: $69.6 million). Includes patron cheques not deposited of $123.2 million (2016: $69.6 million). a a Past due not impaired receivables of $33.3 million are consistent with the pcp. Past due not impaired receivables of $33.3 million are consistent with the pcp. (i) Provision for impairment reconciliation (i) Provision for impairment reconciliation Balance at beginning of year Balance at beginning of year Provision for impairment recognised during the year b Provision for impairment recognised during the year b Less amounts written off as uncollectible Less amounts written off as uncollectible Balance at end of year Balance at end of year b These amounts are included in other expenses in the income statement (refer to note A3). b These amounts are included in other expenses in the income statement (refer to note A3). Trade receivables are non-interest bearing and are generally on 30 day terms. Trade receivables are non-interest bearing and are generally on 30 day terms. 2017 2017 $m $m 107.7 107.7 6.0 6.0 113.7 113.7 176.6 176.6 (14.0) (14.0) 162.6 162.6 30.1 30.1 192.7 192.7 (12.8) (12.8) (18.7) (18.7) 17.5 17.5 (14.0) (14.0) 2016 2016 $m $m 103.4 103.4 55.6 55.6 159.0 159.0 123.2 123.2 (12.8) (12.8) 110.4 110.4 19.9 19.9 130.3 130.3 (9.4) (9.4) (23.1) (23.1) 19.7 19.7 (12.8) (12.8) (ii) Ageing of trade and other receivables (ii) Ageing of trade and other receivables Trade receivables Trade receivables 2017 2017 Not yet due Not yet due Past due not impaired Past due not impaired Considered impaired Considered impaired 2016 2016 Not yet due Not yet due Past due not impaired Past due not impaired Considered impaired Considered impaired 0 - 30 days 0 - 30 days $m $m 30 days - 1 30 days - 1 year year $m $m 1 - 3 years 1 - 3 years $m $m 3 years + 3 years + $m $m Total Total $m $m 129.3 129.3 - - - - 129.3 129.3 77.2 77.2 - - - - 77.2 77.2 - - 27.1 27.1 2.8 2.8 29.9 29.9 - - 31.5 31.5 11.5 11.5 43.0 43.0 - - 6.2 6.2 11.2 11.2 17.4 17.4 - - 1.7 1.7 1.3 1.3 3.0 3.0 - - - - - - - - - - - - - - - - 129.3 129.3 33.3 33.3 14.0 14.0 176.6 176.6 77.2 77.2 33.2 33.2 12.8 12.8 123.2 123.2 42 42 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 88 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 43 43 89 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 B3 Derivative financial instruments B3 Derivative financial instruments Current assets Current assets Cross currency swaps Cross currency swaps Forward currency contracts Forward currency contracts Non current assets Non current assets Cross currency swaps Cross currency swaps Forward currency contracts Forward currency contracts Interest rate swaps Interest rate swaps Current liabilities Current liabilities Interest rate swaps Interest rate swaps Non current liabilities Non current liabilities Interest rate swaps Interest rate swaps Net financial assets Net financial assets 2017 2017 $m $m 47.0 47.0 1.4 1.4 48.4 48.4 150.0 150.0 0.2 0.2 0.9 0.9 151.1 151.1 18.4 18.4 18.4 18.4 37.3 37.3 37.3 37.3 143.8 143.8 2016 2016 $m $m 12.6 12.6 1.9 1.9 14.5 14.5 239.8 239.8 2.2 2.2 - - 242.0 242.0 17.8 17.8 17.8 17.8 58.0 58.0 58.0 58.0 180.7 180.7 Net derivative assets down $36.9 million due to a decrease in the value of the cross currency swap used to Net derivative assets down $36.9 million due to a decrease in the value of the cross currency swap used to hedge the USPP loan as a result of an appreciation in the AUD vs USD exchange rate. hedge the USPP loan as a result of an appreciation in the AUD vs USD exchange rate. Valuation of derivatives and other financial instruments Valuation of derivatives and other financial instruments The valuation of derivatives and financial instruments is based on market conditions at the balance sheet date. The The valuation of derivatives and financial instruments is based on market conditions at the balance sheet date. The value of the instrument fluctuates on a daily basis and the actual amounts realised may differ materially from their value of the instrument fluctuates on a daily basis and the actual amounts realised may differ materially from their value at the balance sheet date. value at the balance sheet date. Refer to note E2 for additional financial instruments disclosure. Refer to note E2 for additional financial instruments disclosure. Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 B4 Property, plant and equipment B4 Property, plant and equipment Freehold Freehold land land $m $m Note Note Freehold Freehold and and leasehold leasehold buildings buildings $m $m Leasehold Leasehold improvements improvements $m $m Plant and Plant and equipment equipment $m $m 2017 2017 Cost Cost Opening balance at beginning of the year Opening balance at beginning of the year Additions Additions Disposals Disposals Reclassification / transfer a Reclassification / transfer a Closing balance at end of the year b Closing balance at end of the year b Accumulated depreciation Accumulated depreciation Opening balance at beginning of the year Opening balance at beginning of the year Depreciation expense Depreciation expense Disposals Disposals Closing balance at end of the year Closing balance at end of the year Carrying Amount Carrying Amount Opening balance at beginning of the year Opening balance at beginning of the year Closing balance at end of the year Closing balance at end of the year 2016 2016 Cost Cost Opening balance at beginning of the year Opening balance at beginning of the year Additions Additions Disposals Disposals Reclassification / transfer Reclassification / transfer Closing balance at end of the year Closing balance at end of the year Accumulated depreciation Accumulated depreciation Opening balance at beginning of the year Opening balance at beginning of the year Depreciation expense Depreciation expense Disposals Disposals Closing balance at end of the year Closing balance at end of the year A4 A4 A4 A4 Carrying Amount Carrying Amount Opening balance at beginning of the year Opening balance at beginning of the year Closing balance at end of the year Closing balance at end of the year a a 81.5 81.5 - - - - - - 81.5 81.5 - - - - - - - - 81.5 81.5 81.5 81.5 81.5 81.5 - - - - - - 81.5 81.5 - - - - - - - - 1,794.7 1,794.7 267.8 267.8 (9.3) (9.3) (5.3) (5.3) 2,047.9 2,047.9 306.7 306.7 43.6 43.6 (8.7) (8.7) 341.6 341.6 1,488.0 1,488.0 1,706.3 1,706.3 1,622.6 1,622.6 189.6 189.6 (6.3) (6.3) (11.2) (11.2) 1,794.7 1,794.7 264.5 264.5 48.5 48.5 (6.3) (6.3) 306.7 306.7 81.5 81.5 81.5 81.5 1,358.1 1,358.1 1,488.0 1,488.0 279.7 279.7 6.8 6.8 (0.3) (0.3) (0.1) (0.1) 286.1 286.1 88.6 88.6 10.4 10.4 (0.3) (0.3) 98.7 98.7 191.1 191.1 187.4 187.4 275.1 275.1 5.9 5.9 - - (1.3) (1.3) 279.7 279.7 79.2 79.2 9.4 9.4 - - 88.6 88.6 195.9 195.9 191.1 191.1 922.8 922.8 102.5 102.5 (30.5) (30.5) 6.9 6.9 1,001.7 1,001.7 562.5 562.5 83.1 83.1 (29.2) (29.2) 616.4 616.4 360.3 360.3 385.3 385.3 845.2 845.2 85.5 85.5 (21.8) (21.8) 13.9 13.9 922.8 922.8 506.5 506.5 77.7 77.7 (21.7) (21.7) 562.5 562.5 338.7 338.7 360.3 360.3 2017 2017 $m $m Includes reclassifications of $1.5 million (2016: $1.4 million) from intangibles to plant and equipment (refer to note B5). Includes reclassifications of $1.5 million (2016: $1.4 million) from intangibles to plant and equipment (refer to note B5). b Includes capital works in progress of: b Includes capital works in progress of: Buildings - at cost Buildings - at cost Leasehold improvements - at cost Leasehold improvements - at cost Plant and equipment - at cost Plant and equipment - at cost 33.0 33.0 3.8 3.8 47.8 47.8 Total Total $m $m 3,078.7 3,078.7 377.1 377.1 (40.1) (40.1) 1.5 1.5 3,417.2 3,417.2 957.8 957.8 137.1 137.1 (38.2) (38.2) 1,056.7 1,056.7 2,120.9 2,120.9 2,360.5 2,360.5 2,824.4 2,824.4 281.0 281.0 (28.1) (28.1) 1.4 1.4 3,078.7 3,078.7 850.2 850.2 135.6 135.6 (28.0) (28.0) 957.8 957.8 1,974.2 1,974.2 2,120.9 2,120.9 2016 2016 $m $m 117.3 117.3 1.5 1.5 40.7 40.7 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 90 44 44 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 45 45 91 Total capital works in progress 159.5 Total capital works in progress 159.5 Additions of $377.1 million, up 34.2% on the pcp consisting predominantly of redevelopment works in the Gold Additions of $377.1 million, up 34.2% on the pcp consisting predominantly of redevelopment works in the Gold Coast and Sydney properties. For details on capital activities refer to section 2.6 of the Directors' Report. Coast and Sydney properties. For details on capital activities refer to section 2.6 of the Directors' Report. 84.6 84.6 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 Property, plant and equipment is comprised of the following assets: Property, plant and equipment is comprised of the following assets: − Freehold land - Gold Coast property; − Freehold land - Gold Coast property; − Freehold and leasehold buildings - Brisbane, Gold Coast and Sydney properties; − Freehold and leasehold buildings - Brisbane, Gold Coast and Sydney properties; − Leasehold improvements - Brisbane property; and − Leasehold improvements - Brisbane property; and − Plant and equipment - operational and other equipment. − Plant and equipment - operational and other equipment. Asset useful lives and residual values Asset useful lives and residual values For the accounting policy on depreciation and useful lives of property, plant and equipment refer to note A4. For the accounting policy on depreciation and useful lives of property, plant and equipment refer to note A4. Capital works in progress Capital works in progress Major ongoing projects include the refurbishment at the Sydney property and the expansion and refurbishment of the Major ongoing projects include the refurbishment at the Sydney property and the expansion and refurbishment of the Gold Coast property. Minor refurbishment is also being undertaken at the Brisbane property. Gold Coast property. Minor refurbishment is also being undertaken at the Brisbane property. Impairment Impairment Refer to note B6 for details of the accounting policy and key assumptions included in the impairment calculation. Refer to note B6 for details of the accounting policy and key assumptions included in the impairment calculation. B5 Intangible assets B5 Intangible assets Sydney and Sydney and Brisbane Brisbane casino casino licences licences $m $m Sydney Sydney casino casino concessions concessions $m $m Goodwill Goodwill $m $m Note Note Software a Software a $m $m Other Other $m $m 1,442.2 1,442.2 - - - - - - 1,442.2 1,442.2 - - - - - - - - 1,442.2 1,442.2 1,442.2 1,442.2 1,442.2 1,442.2 - - - - - - 1,442.2 1,442.2 - - - - - - - - A4 A4 A4 A4 294.7 294.7 - - - - - - 294.7 294.7 62.9 62.9 3.2 3.2 - - 66.1 66.1 231.8 231.8 228.6 228.6 294.7 294.7 - - - - - - 294.7 294.7 59.7 59.7 3.2 3.2 - - 62.9 62.9 100.0 100.0 - - - - - - 100.0 100.0 20.2 20.2 2.9 2.9 - - 23.1 23.1 79.8 79.8 76.9 76.9 100.0 100.0 - - - - - - 100.0 100.0 17.4 17.4 2.8 2.8 - - 20.2 20.2 162.4 162.4 42.5 42.5 (7.7) (7.7) (1.5) (1.5) 195.7 195.7 99.5 99.5 17.1 17.1 (8.0) (8.0) 108.6 108.6 62.9 62.9 87.1 87.1 139.4 139.4 25.2 25.2 (0.8) (0.8) (1.4) (1.4) 162.4 162.4 82.2 82.2 18.1 18.1 (0.8) (0.8) 99.5 99.5 27.2 27.2 - - - - - - 27.2 27.2 7.2 7.2 3.0 3.0 - - 10.2 10.2 20.0 20.0 17.0 17.0 27.2 27.2 - - - - - - 27.2 27.2 4.2 4.2 3.0 3.0 - - 7.2 7.2 2017 2017 Cost Cost Opening balance at beginning of the year Opening balance at beginning of the year Additions a Additions a Disposals Disposals Reclassification / transfer b Reclassification / transfer b Closing balance at end of the year Closing balance at end of the year Accumulated amortisation Accumulated amortisation Opening balance at beginning of the year Opening balance at beginning of the year Amortisation expense Amortisation expense Disposals Disposals Closing balance at end of the year Closing balance at end of the year Carrying Amount Carrying Amount Opening balance at beginning of the year Opening balance at beginning of the year Closing balance at end of the year Closing balance at end of the year 2016 2016 Cost Cost Opening balance at beginning of the year Opening balance at beginning of the year Additions Additions Disposals Disposals Reclassification / transfer Reclassification / transfer Closing balance at end of the year Closing balance at end of the year Accumulated amortisation Accumulated amortisation Opening balance at beginning of the year Opening balance at beginning of the year Amortisation expense Amortisation expense Disposals Disposals Closing balance at end of the year Closing balance at end of the year Carrying Amount Carrying Amount Opening balance at beginning of the year Opening balance at beginning of the year Closing balance at end of the year Closing balance at end of the year a a b b 235.0 235.0 231.8 231.8 Includes capital works in progress of $24.5 million (2016: $18.1 million). Includes capital works in progress of $24.5 million (2016: $18.1 million). Includes reclassifications of $1.5 million (2016: $1.4 million) to property, plant and equipment (refer to note B4). Includes reclassifications of $1.5 million (2016: $1.4 million) to property, plant and equipment (refer to note B4). 1,442.2 1,442.2 1,442.2 1,442.2 82.6 82.6 79.8 79.8 57.2 57.2 62.9 62.9 23.0 23.0 20.0 20.0 Total Total $m $m 2,026.5 2,026.5 42.5 42.5 (7.7) (7.7) (1.5) (1.5) 2,059.8 2,059.8 189.8 189.8 26.2 26.2 (8.0) (8.0) 208.0 208.0 1,836.7 1,836.7 1,851.8 1,851.8 2,003.5 2,003.5 25.2 25.2 (0.8) (0.8) (1.4) (1.4) 2,026.5 2,026.5 163.5 163.5 27.1 27.1 (0.8) (0.8) 189.8 189.8 1,840.0 1,840.0 1,836.7 1,836.7 46 46 Intangible asset additions relate predominantly to software as the Group progresses its strategic priority to Intangible asset additions relate predominantly to software as the Group progresses its strategic priority to maximise value from technology, including further enhancing gaming and loyalty experience and delivering maximise value from technology, including further enhancing gaming and loyalty experience and delivering integrated and new IT platforms. integrated and new IT platforms. Asset useful lives and residual values Asset useful lives and residual values Intangible assets are amortised using the straight line method as follows: Intangible assets are amortised using the straight line method as follows: − The Sydney casino licence is amortised from its date of issue until expiry in 2093. − The Sydney casino licence is amortised from its date of issue until expiry in 2093. − The Brisbane casino licence is amortised over the remaining life of the lease to which the licence is linked, which − The Brisbane casino licence is amortised over the remaining life of the lease to which the licence is linked, which expires in 2070. The Group will continue to amortise the casino licence over its current term up until it is expires in 2070. The Group will continue to amortise the casino licence over its current term up until it is surrendered, following the opening of the integrated resort at Queen's Wharf Brisbane (QWB) which is expected in surrendered, following the opening of the integrated resort at Queen's Wharf Brisbane (QWB) which is expected in 2022. 2022. − The Sydney casino concessions granted by the New South Wales government include effective casino exclusivity − The Sydney casino concessions granted by the New South Wales government include effective casino exclusivity and product concessions in New South Wales which are amortised over the period of expected benefits, which is and product concessions in New South Wales which are amortised over the period of expected benefits, which is until 2019 and 2093 respectively. until 2019 and 2093 respectively. − Software is amortised over useful lives of 3 to 10 years. − Software is amortised over useful lives of 3 to 10 years. − Other assets include the contribution to the construction costs of the state government owned Gold Coast − Other assets include the contribution to the construction costs of the state government owned Gold Coast Convention and Exhibition Centre. The Group's Gold Coast casino is deriving future benefits from the contribution, Convention and Exhibition Centre. The Group's Gold Coast casino is deriving future benefits from the contribution, which is being amortised over a period of 50 years. which is being amortised over a period of 50 years. Goodwill and impairment testing Goodwill and impairment testing Goodwill is assessed for impairment on an annual basis and is carried at cost less accumulated impairment losses. Goodwill is assessed for impairment on an annual basis and is carried at cost less accumulated impairment losses. Refer to note B6 for the accounting policy on asset impairment and details of key assumptions included in the Refer to note B6 for the accounting policy on asset impairment and details of key assumptions included in the impairment testing calculation. impairment testing calculation. B6 Impairment testing and goodwill B6 Impairment testing and goodwill Sydney Sydney $m $m 1,013.5 1,013.5 1,013.5 1,013.5 Brisbane Brisbane $m $m 263.2 263.2 263.2 263.2 Gold Coast Gold Coast $m $m 165.5 165.5 165.5 165.5 Total carrying Total carrying amount amount $m $m 1,442.2 1,442.2 1,442.2 1,442.2 Goodwill acquired through business combinations has been allocated to the applicable cash generating unit for Goodwill acquired through business combinations has been allocated to the applicable cash generating unit for impairment testing. Each cash generating unit represents a business operation of the Group. impairment testing. Each cash generating unit represents a business operation of the Group. Carrying amount of goodwill allocated to each cash generating unit Carrying amount of goodwill allocated to each cash generating unit Cash generating unit Cash generating unit (Reportable segment) (Reportable segment) 2017 2017 2016 2016 The recoverable amount of each of the three cash generating units at year end (Sydney, Gold Coast and Brisbane) is The recoverable amount of each of the three cash generating units at year end (Sydney, Gold Coast and Brisbane) is determined based on 'fair value less costs of disposal', which is calculated using the discounted cash flow approach. determined based on 'fair value less costs of disposal', which is calculated using the discounted cash flow approach. This approach utilises cash flow forecasts that represent a market participant's view of the future cash flows that would This approach utilises cash flow forecasts that represent a market participant's view of the future cash flows that would arise from operating and developing the Group's assets. These cash flows are principally based upon Board approved arise from operating and developing the Group's assets. These cash flows are principally based upon Board approved business plans for a five-year period, together with longer term projections and approved capital investment plans, business plans for a five-year period, together with longer term projections and approved capital investment plans, extrapolated using an implied terminal growth rate of 2.5% (2016: 2.5%). These cash flows are then discounted using extrapolated using an implied terminal growth rate of 2.5% (2016: 2.5%). These cash flows are then discounted using a relevant long term post-tax discount rate specific to each cash generating unit, ranging between 8.9% to 9.7% (2016: a relevant long term post-tax discount rate specific to each cash generating unit, ranging between 8.9% to 9.7% (2016: 9.0% to 9.5%). The pre-tax discount rates range between 12.7% to 13.8% (2016: 12.9% to 13.6%). 9.0% to 9.5%). The pre-tax discount rates range between 12.7% to 13.8% (2016: 12.9% to 13.6%). No impairment was recognised in any of the cash generating units at 30 June 2017 (2016: nil). The No impairment was recognised in any of the cash generating units at 30 June 2017 (2016: nil). The performance of the Group was driven by growth in the domestic gaming business (+1.7%) and a high win rate performance of the Group was driven by growth in the domestic gaming business (+1.7%) and a high win rate in the International VIP Rebate Business (IRB) with revenue up 7.3%. in the International VIP Rebate Business (IRB) with revenue up 7.3%. Key assumptions Key assumptions The fair value measurement is valued using level 3 valuation techniques (refer to note E2(vi) for details of the levels). The fair value measurement is valued using level 3 valuation techniques (refer to note E2(vi) for details of the levels). The key assumptions on which management based its cash flow projections when determining 'fair value less costs of The key assumptions on which management based its cash flow projections when determining 'fair value less costs of disposal' are as follows: disposal' are as follows: i. Cash flow forecasts i. Cash flow forecasts The cash flow forecasts are based upon Board approved business plans for a five-year period, together with longer The cash flow forecasts are based upon Board approved business plans for a five-year period, together with longer term projections and approved capital investment plans for each cash generating unit. term projections and approved capital investment plans for each cash generating unit. ii. Terminal value ii. Terminal value The terminal growth rate used is in line with the forecast long term underlying growth rate in the Consumer Price Index The terminal growth rate used is in line with the forecast long term underlying growth rate in the Consumer Price Index (CPI). (CPI). The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 92 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 47 47 93 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 iii. Discount rates iii. Discount rates Discount rates applied are based on the post tax weighted average cost of capital applicable to the relevant cash Discount rates applied are based on the post tax weighted average cost of capital applicable to the relevant cash generating unit. generating unit. iv. Regulatory changes iv. Regulatory changes Queensland Queensland Upon opening of the integrated resort in 2022, the existing Brisbane casino will cease to operate and the Group will act Upon opening of the integrated resort in 2022, the existing Brisbane casino will cease to operate and the Group will act as the operator of the QWB casino. as the operator of the QWB casino. The Group currently holds a perpetual casino licence in Queensland that is attached to the lease of the current The Group currently holds a perpetual casino licence in Queensland that is attached to the lease of the current Brisbane site that expires in 2070. Upon opening of the integrated resort, the Group's casino licence will be Brisbane site that expires in 2070. Upon opening of the integrated resort, the Group's casino licence will be surrendered and Destination Brisbane Consortium (DBC) will be granted a casino licence for 99 years including an surrendered and Destination Brisbane Consortium (DBC) will be granted a casino licence for 99 years including an exclusivity period of 25 years. exclusivity period of 25 years. The Group will surrender the Brisbane casino licence in exchange for the right to operate the new QWB casino. The Group will surrender the Brisbane casino licence in exchange for the right to operate the new QWB casino. New South Wales New South Wales On 8 July 2014, Liquor and Gaming NSW issued a restricted gaming licence to Crown Resorts Limited (Crown) to On 8 July 2014, Liquor and Gaming NSW issued a restricted gaming licence to Crown Resorts Limited (Crown) to operate a restricted gaming facility at Barangaroo South, Crown Sydney Hotel Resort (Crown Sydney) from operate a restricted gaming facility at Barangaroo South, Crown Sydney Hotel Resort (Crown Sydney) from November 2019 onwards. On 28 June 2016, Crown announced that conditional planning approval had been received November 2019 onwards. On 28 June 2016, Crown announced that conditional planning approval had been received from the NSW Planning Assessment Commission, and that Crown is expecting to complete construction and open from the NSW Planning Assessment Commission, and that Crown is expecting to complete construction and open Crown Sydney in 2021. The expected impact of Crown Sydney has been taken into consideration in determining the Crown Sydney in 2021. The expected impact of Crown Sydney has been taken into consideration in determining the recoverable amount of Sydney's cash generating unit at 30 June 2017. As further details of the final scope and timing recoverable amount of Sydney's cash generating unit at 30 June 2017. As further details of the final scope and timing of the proposed gaming facility become known, management will continue to consider the impact that this may have on of the proposed gaming facility become known, management will continue to consider the impact that this may have on the cash generating unit's carrying value. the cash generating unit's carrying value. v. Sensitivities v. Sensitivities The key estimates and assumptions used to determine the 'fair value less costs of disposal' of a cash generating unit The key estimates and assumptions used to determine the 'fair value less costs of disposal' of a cash generating unit are based on management's current expectations after considering past experience, future investment plans and are based on management's current expectations after considering past experience, future investment plans and external information. They are considered to be reasonably achievable, however, significant changes in any of these external information. They are considered to be reasonably achievable, however, significant changes in any of these key estimates, assumptions or regulatory environments may result in a cash generating unit's carrying value exceeding key estimates, assumptions or regulatory environments may result in a cash generating unit's carrying value exceeding its recoverable value, requiring an impairment charge to be recognised. its recoverable value, requiring an impairment charge to be recognised. For the Gold Coast, management considers that a 3.6 percentage point decline (2016: 4.0 percentage point decline) in For the Gold Coast, management considers that a 3.6 percentage point decline (2016: 4.0 percentage point decline) in the compound average growth rate is a reasonable possible change that could give rise to an impairment. the compound average growth rate is a reasonable possible change that could give rise to an impairment. For the Sydney property, the impact of Crown Sydney on the projected earnings and cash generating unit's carrying For the Sydney property, the impact of Crown Sydney on the projected earnings and cash generating unit's carrying value has been assessed, taking into consideration the expected increase in competition as well as the expected value has been assessed, taking into consideration the expected increase in competition as well as the expected increase in market size. A reasonably possible change in any of the assumptions used does not result in an increase in market size. A reasonably possible change in any of the assumptions used does not result in an impairment charge at 30 June 2017, however management will continue to monitor the assumptions with regards to impairment charge at 30 June 2017, however management will continue to monitor the assumptions with regards to the expected impact of Crown Sydney on Sydney's carrying value. the expected impact of Crown Sydney on Sydney's carrying value. Impairment of assets Impairment of assets Goodwill and indefinite life intangible assets are tested for impairment at least annually. Property, plant and equipment, Goodwill and indefinite life intangible assets are tested for impairment at least annually. Property, plant and equipment, other intangible assets and other financial assets are considered for impairment if there is a reason to believe that other intangible assets and other financial assets are considered for impairment if there is a reason to believe that impairment may be necessary. Factors taken into consideration in reaching such a decision include the economic impairment may be necessary. Factors taken into consideration in reaching such a decision include the economic viability of the asset itself and where it is a component of a larger economic entity, the viability of the unit itself. viability of the asset itself and where it is a component of a larger economic entity, the viability of the unit itself. Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 Liabilities Liabilities B7 Interest bearing liabilities B7 Interest bearing liabilities Current Current Private placement - US dollar (ii) Private placement - US dollar (ii) Non current Non current Bank loans - unsecured (net of unamortised borrowing costs) (i) Bank loans - unsecured (net of unamortised borrowing costs) (i) Private placement - US dollar (ii) Private placement - US dollar (ii) 2017 2017 $m $m 130.0 130.0 130.0 130.0 446.9 446.9 468.1 468.1 915.0 915.0 2016 2016 $m $m - - - - 196.2 196.2 617.3 617.3 813.5 813.5 The Group has undrawn bank facilities of $200.5 million at year end and an average drawn debt maturity of 2.3 The Group has undrawn bank facilities of $200.5 million at year end and an average drawn debt maturity of 2.3 years. years. Net debt was $787.5 million, up 66.2% on the pcp with gearing levels increased to 1.3x at 30 June 2017 Net debt was $787.5 million, up 66.2% on the pcp with gearing levels increased to 1.3x at 30 June 2017 compared to 1.0x at 30 June 2016. compared to 1.0x at 30 June 2016. Refer also to note C3 Subsequent events. Refer also to note C3 Subsequent events. Refer to note F8 (iii) for Capital management disclosures and the calculation of the gearing ratio. Refer to note F8 (iii) for Capital management disclosures and the calculation of the gearing ratio. (i) Bank loans - unsecured (net of unamortised borrowing costs) (i) Bank loans - unsecured (net of unamortised borrowing costs) Syndicated revolving facility Syndicated revolving facility The Group has drawn down $250.0 million of the syndicated revolving facility (SFA) and $49.5 million of the syndicated The Group has drawn down $250.0 million of the syndicated revolving facility (SFA) and $49.5 million of the syndicated revolving facility (SFB). revolving facility (SFB). 2017 2017 Type Type Syndicated revolving facility - tranche A Syndicated revolving facility - tranche A Syndicated revolving facility - tranche B Syndicated revolving facility - tranche B 2016 2016 Type Type Syndicated revolving facility - tranche A Syndicated revolving facility - tranche A Syndicated revolving facility - tranche B Syndicated revolving facility - tranche B Facility amount Facility amount $m $m 250.0 250.0 250.0 250.0 500.0 500.0 Facility amount Facility amount $m $m 250.0 250.0 250.0 250.0 500.0 500.0 Unutilised at 30 June Unutilised at 30 June $m $m - - 200.5 200.5 200.5 200.5 Unutilised at 30 June Unutilised at 30 June $m $m 200.0 200.0 250.0 250.0 450.0 450.0 Maturity date Maturity date July 2018 July 2018 July 2019 July 2019 Maturity date Maturity date July 2018 July 2018 July 2019 July 2019 Interest is variable, linked to BBSY (Bank Bill Swap Bid Rate), plus a margin tiered against the reported gearing ratio at Interest is variable, linked to BBSY (Bank Bill Swap Bid Rate), plus a margin tiered against the reported gearing ratio at the end of certain test dates. the end of certain test dates. The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 94 48 48 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 49 49 95 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 Working capital facility Working capital facility On 31 May 2017, the Group rolled over its working capital facility. This working capital facility has been executed on On 31 May 2017, the Group rolled over its working capital facility. This working capital facility has been executed on the same terms and conditions as the existing syndicated revolving facility agreement. the same terms and conditions as the existing syndicated revolving facility agreement. C Commitments, contingencies and subsequent events C Commitments, contingencies and subsequent events C1 Commitments C1 Commitments (i) Operating lease commitments a (i) Operating lease commitments a Facility amount Facility amount $m $m 150.0 150.0 150.0 150.0 Unutilised at 30 June Unutilised at 30 June $m $m - - - - 2017/2016 2017/2016 Maturity date Type Maturity date Type January 2019 Working capital facility January 2019 Working capital facility January 2018 Working capital facility January 2018 Working capital facility Interest is variable, linked to BBSY, plus a margin tiered against the reported gearing ratio at the end of certain test Interest is variable, linked to BBSY, plus a margin tiered against the reported gearing ratio at the end of certain test dates. dates. (ii) US Private Placement (USPP) (ii) US Private Placement (USPP) The Group's USPP borrowings have not changed during the year, and are summarised below. The Group's USPP borrowings have not changed during the year, and are summarised below. 2017/2016 2017/2016 Type Type Series A Series A Series B Series B Maturity date Maturity date June 2018 June 2018 June 2021 June 2021 $m USD $m USD 100.0 100.0 360.0 360.0 460.0 460.0 $m (AUD)* $m (AUD)* 94.0 94.0 336.0 336.0 430.0 430.0 * The $430.0 million USPP borrowings are stated in the table above at the AUD amount repayable under cross currency swaps at maturity. Interest is variable, linked to BBSW (Bank Bill Swap Rate), and a defined gearing ratio at the end of certain test dates. The * The $430.0 million USPP borrowings are stated in the table above at the AUD amount repayable under cross currency swaps at $460.0 million USD translates to $598.1m AUD at 30 June 2017 of which $130.0 million is disclosed as a current interest bearing maturity. Interest is variable, linked to BBSW (Bank Bill Swap Rate), and a defined gearing ratio at the end of certain test dates. The liability. $460.0 million USD translates to $598.1m AUD at 30 June 2017 of which $130.0 million is disclosed as a current interest bearing liability. All of the above borrowings are subject to financial undertakings as to gearing and interest cover. All of the above borrowings are subject to financial undertakings as to gearing and interest cover. Fair value disclosures Fair value disclosures Details of the fair value of the Group's interest bearing liabilities are set out in note E2. Details of the fair value of the Group's interest bearing liabilities are set out in note E2. Financial Risk Management Financial Risk Management As a result of USPP borrowings, the Group is exposed to the foreign currency risk through the movements in As a result of USPP borrowings, the Group is exposed to the foreign currency risk through the movements in USD/AUD exchange rate. The Group has entered into cross currency swaps in order to hedge this exposure. As at 30 USD/AUD exchange rate. The Group has entered into cross currency swaps in order to hedge this exposure. As at 30 June 2017, 100% of the USPP borrowings balance of US$460.0 million is hedged. June 2017, 100% of the USPP borrowings balance of US$460.0 million is hedged. The Group is also exposed to the interest rate risk as a result of bank loans and USPP borrowings. To hedge against The Group is also exposed to the interest rate risk as a result of bank loans and USPP borrowings. To hedge against this risk, the Group has entered into interest rate swaps. As at 30 June 2017, out of the total interest bearing liabilities, this risk, the Group has entered into interest rate swaps. As at 30 June 2017, out of the total interest bearing liabilities, 60.3% (2016: 68.3%) has been hedged against the interest rate risk. Further details about the Group's exposure to 60.3% (2016: 68.3%) has been hedged against the interest rate risk. Further details about the Group's exposure to interest rate and foreign currency movements are provided in notes E1 and E2. interest rate and foreign currency movements are provided in notes E1 and E2. Not later than one year Not later than one year Later than one year but not later than five years Later than one year but not later than five years Later than five years Later than five years (ii) Other commitments b (ii) Other commitments b Not later than one year Not later than one year Later than one year but not later than five years Later than one year but not later than five years Later than five years Later than five years a The Group leases property (including Sydney and Brisbane property leases) under operating leases expiring between 1 to 76 a The Group leases property (including Sydney and Brisbane property leases) under operating leases expiring between 1 to 76 years. Leases generally provide the Group with a right of renewal at which time all terms are renegotiated. Lease payments years. Leases generally provide the Group with a right of renewal at which time all terms are renegotiated. Lease payments comprise a base amount plus an incremental contingent rental. Contingent rentals are based on either movements in the CPI or comprise a base amount plus an incremental contingent rental. Contingent rentals are based on either movements in the CPI or are subject to market rate review. Operating lease commitments also include commitments in relation to the leasing of aircraft. are subject to market rate review. Operating lease commitments also include commitments in relation to the leasing of aircraft. 2017 2017 $m $m 14.3 14.3 11.4 11.4 79.1 79.1 104.8 104.8 2016 2016 $m $m 13.6 13.6 19.9 19.9 80.6 80.6 114.1 114.1 197.5 197.5 4.2 4.2 - - 201.7 201.7 238.2 238.2 40.7 40.7 - - 278.9 278.9 refurbishment and redevelopment in Sydney. refurbishment and redevelopment in Sydney. b Other commitments as at 30 June 2017 mainly include capital construction and related costs in connection with the Gold Coast b Other commitments as at 30 June 2017 mainly include capital construction and related costs in connection with the Gold Coast The Group will invest approximately $1 billion into Destination Brisbane Consortium to fund the construction of the The Group will invest approximately $1 billion into Destination Brisbane Consortium to fund the construction of the Integrated Resort (expected to open in 2022). Integrated Resort (expected to open in 2022). Commitments include operating lease commitments for the Sydney and Brisbane properties, as well as capital Commitments include operating lease commitments for the Sydney and Brisbane properties, as well as capital commitments in relation to the redevelopment of the Gold Coast and Sydney, both of which are well underway. commitments in relation to the redevelopment of the Gold Coast and Sydney, both of which are well underway. Refer to note D5 for commitments in respect of investment in associate and joint venture entities. Refer to note D5 for commitments in respect of investment in associate and joint venture entities. C2 Contingent liabilities C2 Contingent liabilities C3 Subsequent events C3 Subsequent events Legal challenges Legal challenges There are outstanding legal actions between the Company and its controlled entities and third parties as at 30 June There are outstanding legal actions between the Company and its controlled entities and third parties as at 30 June 2017. The Group has notified its insurance carrier of all relevant litigation and believes that any damages (other than 2017. The Group has notified its insurance carrier of all relevant litigation and believes that any damages (other than exemplary damages) that may be awarded against the Group, in addition to its costs incurred in connection with the exemplary damages) that may be awarded against the Group, in addition to its costs incurred in connection with the action, will be covered by its insurance policies where such policies are in place. Where there are no policies in place, action, will be covered by its insurance policies where such policies are in place. Where there are no policies in place, provisions are made for known obligations where the existence of a liability is probable and can be reasonably provisions are made for known obligations where the existence of a liability is probable and can be reasonably quantified. As the outcomes of these actions remain uncertain, contingent liabilities exist for possible amounts quantified. As the outcomes of these actions remain uncertain, contingent liabilities exist for possible amounts eventually payable that are in excess of the amounts covered for by the insurance policies in place or of the amounts eventually payable that are in excess of the amounts covered for by the insurance policies in place or of the amounts provided for. provided for. Financial guarantees Financial guarantees Refer to note E1 for details of financial guarantees provided by the Group at the reporting date. Refer to note E1 for details of financial guarantees provided by the Group at the reporting date. On 23 August 2017, the Group completed a tender and reissue offer in relation to 73% of the Groupʼs US Private On 23 August 2017, the Group completed a tender and reissue offer in relation to 73% of the Groupʼs US Private Placement (USPP) borrowings. This was undertaken to extend the Group's tenor on average drawn debt maturity by 3 Placement (USPP) borrowings. This was undertaken to extend the Group's tenor on average drawn debt maturity by 3 years to 5.2 years, reduce finance costs on a like for like basis and lower refinancing requirements for the Group. The years to 5.2 years, reduce finance costs on a like for like basis and lower refinancing requirements for the Group. The Group estimates that its average blended cost of debt on all USPP notes following the new issue will be approximately Group estimates that its average blended cost of debt on all USPP notes following the new issue will be approximately 5% (down from over 9% on previous notes). The transaction is expected to result in a one-off loss in the range of $30- 5% (down from over 9% on previous notes). The transaction is expected to result in a one-off loss in the range of $30- $34 million (after tax) relating to the crystallisation of an existing obligation for the related out of the money interest rate $34 million (after tax) relating to the crystallisation of an existing obligation for the related out of the money interest rate swaps and other costs. This one-off loss will be recognised as a significant item in the FY2018 Financial Report. swaps and other costs. This one-off loss will be recognised as a significant item in the FY2018 Financial Report. Further detail can be found in the ASX Announcement - The Star announces placement of long-term notes (dated 23 Further detail can be found in the ASX Announcement - The Star announces placement of long-term notes (dated 23 August 2017). August 2017). Other than those events disclosed in the Directors' Report or elsewhere in these financial statements, there have been Other than those events disclosed in the Directors' Report or elsewhere in these financial statements, there have been no other significant events occurring after the balance sheet date and up to the date of this report, which may no other significant events occurring after the balance sheet date and up to the date of this report, which may materially affect either the Group's operations or results of those operations or the Group's state of affairs. materially affect either the Group's operations or results of those operations or the Group's state of affairs. The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 96 50 50 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 51 51 97 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 a These companies entered into a deed of cross guarantee with The Star Entertainment Sydney Holdings Limited on 31 May 2011, a These companies entered into a deed of cross guarantee with The Star Entertainment Sydney Holdings Limited on 31 May 2011, and as such are members of the closed group as defined in Australian Securities and Investments Commission Instrument and as such are members of the closed group as defined in Australian Securities and Investments Commission Instrument 2016/785 (refer to note D3) 2016/785 (refer to note D3) b These companies have provided a charge over their assets and undertakings as explained in note E1 b These companies have provided a charge over their assets and undertakings as explained in note E1 c Deregistered on 24 August 2016 c Deregistered on 24 August 2016 d Incorporated on 18 October 2016 d Incorporated on 18 October 2016 e The following entity changed its company name on 18 October 2016: e The following entity changed its company name on 18 October 2016: f f - The Star Entertainment (Macau) Limited was previously known as Jupiters Resorts (Macau) Limited - The Star Entertainment (Macau) Limited was previously known as Jupiters Resorts (Macau) Limited The following entity changed its company name on 3 November 2016: The following entity changed its company name on 3 November 2016: - EEI Services (Hong Kong) Holdings Limited was previously known as Echo Entertainment International (Hong Kong) Limited - EEI Services (Hong Kong) Holdings Limited was previously known as Echo Entertainment International (Hong Kong) Limited g The following entities changed their company name on 2 February 2017: g The following entities changed their company name on 2 February 2017: - The Star Entertainment International Pty Ltd was previously known as Destination Brisbane Pty Ltd - The Star Entertainment International Pty Ltd was previously known as Destination Brisbane Pty Ltd - The Star Entertainment Sydney Apartments Pty Ltd was previously known as Sydney Harbour Apartments Pty Limited - The Star Entertainment Sydney Apartments Pty Ltd was previously known as Sydney Harbour Apartments Pty Limited - The Star Entertainment Sydney Properties Pty Ltd was previously known as Sydney Harbour Casino Properties Pty Limited - The Star Entertainment Sydney Properties Pty Ltd was previously known as Sydney Harbour Casino Properties Pty Limited h The following entities changed their company name on 3 February 2017: h The following entities changed their company name on 3 February 2017: - The Star Entertainment QLD Limited was previously known as Jupiters Limited - The Star Entertainment QLD Limited was previously known as Jupiters Limited - The Star Entertainment QLD Custodian Pty Ltd was previously known as Jupiters Custodian Pty Ltd - The Star Entertainment QLD Custodian Pty Ltd was previously known as Jupiters Custodian Pty Ltd The following entity changed its name on 24 May 2017: The following entity changed its name on 24 May 2017: - The Star Entertainment Gold Coast Trust was previously known as Jupiters Trust - The Star Entertainment Gold Coast Trust was previously known as Jupiters Trust Incorporated on 15 June 2017 Incorporated on 15 June 2017 i i j j (iii) Transactions with controlled entities (iii) Transactions with controlled entities The Star Entertainment Group Limited The Star Entertainment Group Limited During the period, the Company entered into the following transactions with controlled entities: During the period, the Company entered into the following transactions with controlled entities: − loans of $128.4 million were advanced by controlled entities (2016: the Company advanced loans of $32.9 million); − loans of $128.4 million were advanced by controlled entities (2016: the Company advanced loans of $32.9 million); and and − income tax and GST paid on behalf of controlled entities was $230.6 million (2016: $225.2 million). − income tax and GST paid on behalf of controlled entities was $230.6 million (2016: $225.2 million). The amount receivable by the Company from controlled entities at year end is $279.7 million (2016: $151.3 million). All The amount receivable by the Company from controlled entities at year end is $279.7 million (2016: $151.3 million). All the transactions were undertaken on normal commercial terms and conditions. the transactions were undertaken on normal commercial terms and conditions. (iv) Transactions with other related parties (iv) Transactions with other related parties Other transactions Other transactions During the period, in addition to equity contributions (refer to note D5), the Group entered into the following During the period, in addition to equity contributions (refer to note D5), the Group entered into the following transactions with related parties: transactions with related parties: - Amount recharged to Destination Brisbane Consortium Integrated Resort Holdings Pty Ltd was $0.2 million (2016: - Amount recharged to Destination Brisbane Consortium Integrated Resort Holdings Pty Ltd was $0.2 million (2016: $0.9 million); and $0.9 million); and - Amount paid to Destination Brisbane Consortium Integrated Resort Holdings Pty Ltd was $1.5 million (2016: nil) - Amount paid to Destination Brisbane Consortium Integrated Resort Holdings Pty Ltd was $1.5 million (2016: nil) relating to capital works. relating to capital works. D Group structure D Group structure D1 Related party disclosure D1 Related party disclosure (i) Parent entity (i) Parent entity (ii) (ii) The ultimate parent entity within the Group is The Star Entertainment Group Limited. The ultimate parent entity within the Group is The Star Entertainment Group Limited. Investments in controlled entities Investments in controlled entities The consolidated financial statements incorporate the assets, liabilities and results of the following controlled entities in The consolidated financial statements incorporate the assets, liabilities and results of the following controlled entities in accordance with the accounting policy described in note G. The financial years of all controlled entities are the same accordance with the accounting policy described in note G. The financial years of all controlled entities are the same as that of the Company (unless stated otherwise below). as that of the Company (unless stated otherwise below). Equity interest Equity interest at 30 June at 30 June 2016 2016 % % Equity interest Equity interest at 30 June at 30 June 2017 2017 % % Country of Country of incorporation incorporation Equity type Equity type Note Note Name of controlled entity Name of controlled entity Parent entity Parent entity The Star Entertainment Group Limited The Star Entertainment Group Limited Controlled entities Controlled entities The Star Entertainment Sydney Holdings Limited The Star Entertainment Sydney Holdings Limited The Star Pty Limited The Star Pty Limited The Star Entertainment Pty Ltd The Star Entertainment Pty Ltd The Star Entertainment Sydney Properties Pty Ltd The Star Entertainment Sydney Properties Pty Ltd The Star Entertainment Sydney Apartments Pty Ltd The Star Entertainment Sydney Apartments Pty Ltd Star City Investments Pty Limited Star City Investments Pty Limited Star City Share Plan Company Pty Ltd Star City Share Plan Company Pty Ltd The Star Entertainment QLD Limited The Star Entertainment QLD Limited The Star Entertainment QLD Custodian Pty Ltd The Star Entertainment QLD Custodian Pty Ltd The Star Entertainment Gold Coast Trust The Star Entertainment Gold Coast Trust The Star Entertainment International No.1 Pty Ltd The Star Entertainment International No.1 Pty Ltd The Star Entertainment International No.2 Pty Ltd The Star Entertainment International No.2 Pty Ltd The Star Entertainment (Macau) Limited The Star Entertainment (Macau) Limited The Star Entertainment International No.3 Pty Ltd The Star Entertainment International No.3 Pty Ltd EEI Services (Hong Kong) Holdings Limited EEI Services (Hong Kong) Holdings Limited Echo Entertainment (Shanghai) Trading Co. Ltd Echo Entertainment (Shanghai) Trading Co. Ltd EEI Services (Hong Kong) Limited EEI Services (Hong Kong) Limited EEI C&C Services Pte Ltd EEI C&C Services Pte Ltd The Star Entertainment RTO Pty Ltd The Star Entertainment RTO Pty Ltd The Star Entertainment Finance Limited The Star Entertainment Finance Limited The Star Entertainment International Pty Ltd The Star Entertainment International Pty Ltd The Star Entertainment Technology Services Pty Ltd The Star Entertainment Technology Services Pty Ltd The Star Entertainment Training Company Pty Ltd The Star Entertainment Training Company Pty Ltd PPIT Pty Ltd PPIT Pty Ltd The Star Entertainment International No.4 Pty Ltd The Star Entertainment International No.4 Pty Ltd The Star Entertainment Online Holdings Pty Ltd The Star Entertainment Online Holdings Pty Ltd The Star Entertainment Online Pty Ltd The Star Entertainment Online Pty Ltd The Star Entertainment Brisbane Holdings Pty Ltd The Star Entertainment Brisbane Holdings Pty Ltd The Star Entertainment Brisbane Operations Pty Ltd The Star Entertainment Brisbane Operations Pty Ltd The Star Entertainment DBC Holdings Pty Ltd The Star Entertainment DBC Holdings Pty Ltd The Star Brisbane Car Park Holdings Pty Ltd The Star Brisbane Car Park Holdings Pty Ltd d The Star Entertainment Gold Coast Holdings Pty Ltd d The Star Entertainment Gold Coast Holdings Pty Ltd d The Star Entertainment GC Investments Pty Ltd d The Star Entertainment GC Investments Pty Ltd The Star Entertainment GC Investments No.1 Pty Ltd d The Star Entertainment GC Investments No.1 Pty Ltd d j The Star Entertainment International No.5 Pty Ltd j The Star Entertainment International No.5 Pty Ltd f f c c Australia Australia e e h h h h i i a b Australia a b Australia a b Australia a b Australia a Australia a Australia a b g Australia a b g Australia a g Australia a g Australia a Australia a Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Macau Macau Australia Australia Hong Kong Hong Kong China China Hong Kong Hong Kong Singapore Singapore Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia g g ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares units units ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 0.0 0.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 52 52 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 98 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 53 53 99 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 D2 Parent entity disclosures D2 Parent entity disclosures The Star Entertainment Group Limited, the parent entity of the Group, was incorporated on 2 March 2011. The Star Entertainment Group Limited, the parent entity of the Group, was incorporated on 2 March 2011. 2017 2017 $m $m Result of the parent entity Result of the parent entity Profit for the year Profit for the year Total comprehensive income for the year a Total comprehensive income for the year a 244.8 244.8 244.8 244.8 2016 2016 $m $m 142.3 142.3 142.3 142.3 a a Since the end of the financial year, the Company has declared a final dividend of 8.5 cents per ordinary share (2016: 7.5 cents), Since the end of the financial year, the Company has declared a final dividend of 8.5 cents per ordinary share (2016: 7.5 cents), which is expected to be paid on 26 September 2017 out of retained earnings at 30 June 2017 to its shareholders (refer to note which is expected to be paid on 26 September 2017 out of retained earnings at 30 June 2017 to its shareholders (refer to note A6). A6). Financial position of the parent entity Financial position of the parent entity Current assets Current assets Non current assets Non current assets Total assets Total assets Current liabilities Current liabilities Non current liabilities Non current liabilities Total liabilities Total liabilities Net assets Net assets Total equity of the parent entity Total equity of the parent entity Issued capital Issued capital Retained earnings Retained earnings Shared based payments benefits reserve Shared based payments benefits reserve Total equity Total equity 1,310.0 1,310.0 2,589.5 2,589.5 3,899.5 3,899.5 43.5 43.5 1,031.5 1,031.5 1,075.0 1,075.0 1,181.3 1,181.3 2,589.4 2,589.4 3,770.7 3,770.7 36.9 36.9 1,031.2 1,031.2 1,068.1 1,068.1 2,824.5 2,824.5 2,702.6 2,702.6 2,580.5 2,580.5 237.2 237.2 6.8 6.8 2,824.5 2,824.5 2,580.5 2,580.5 116.3 116.3 5.8 5.8 2,702.6 2,702.6 Contingent liabilities Contingent liabilities There were no contingent liabilities for the parent entity at 30 June 2017 (2016: nil). There were no contingent liabilities for the parent entity at 30 June 2017 (2016: nil). Capital expenditure Capital expenditure The parent entity does not have any capital expenditure commitments for the acquisition of property, plant and The parent entity does not have any capital expenditure commitments for the acquisition of property, plant and equipment contracted but not provided for at 30 June 2017 (2016: nil). equipment contracted but not provided for at 30 June 2017 (2016: nil). Guarantees Guarantees The Star Entertainment Group Limited has guaranteed the liabilities of The Star Entertainment Finance Limited and The Star Entertainment Group Limited has guaranteed the liabilities of The Star Entertainment Finance Limited and The Star Entertainment International No.3 Pty Ltd. As at 30 June 2017, the carrying amount included in current The Star Entertainment International No.3 Pty Ltd. As at 30 June 2017, the carrying amount included in current liabilities at 30 June 2017 was nil (2016: nil), and the maximum amount of these guarantees was $117.7 million (2016: liabilities at 30 June 2017 was nil (2016: nil), and the maximum amount of these guarantees was $117.7 million (2016: $117.3 million) (refer to note E1). The Company has also undertaken to support its controlled entities when necessary $117.3 million) (refer to note E1). The Company has also undertaken to support its controlled entities when necessary to enable them to pay their debts as and when they fall due. to enable them to pay their debts as and when they fall due. Accounting policy for investments in controlled entities Accounting policy for investments in controlled entities All investments are initially recognised at cost, being the fair value of the consideration given. Subsequently All investments are initially recognised at cost, being the fair value of the consideration given. Subsequently investments are carried at cost less any impairment losses. investments are carried at cost less any impairment losses. D3 Deed of cross guarantee D3 Deed of cross guarantee The Star Entertainment Sydney Holdings Limited, The Star Pty Limited, The Star Entertainment Pty Ltd, The Star The Star Entertainment Sydney Holdings Limited, The Star Pty Limited, The Star Entertainment Pty Ltd, The Star Entertainment Sydney Properties Pty Ltd, The Star Entertainment Sydney Apartments Pty Ltd and Star City Entertainment Sydney Properties Pty Ltd, The Star Entertainment Sydney Apartments Pty Ltd and Star City Investments Pty Limited are parties to a deed of cross guarantee under which each company guarantees the debts of Investments Pty Limited are parties to a deed of cross guarantee under which each company guarantees the debts of the others. By entering into the deed, the wholly-owned entities have been relieved from the requirements to prepare a the others. By entering into the deed, the wholly-owned entities have been relieved from the requirements to prepare a Financial Report and Directors' Report under Instrument 2016/785 issued by the Australian Securities and Investments Financial Report and Directors' Report under Instrument 2016/785 issued by the Australian Securities and Investments Commission. Commission. (i) Consolidated income statement and summary of movements in consolidated earnings (i) Consolidated income statement and summary of movements in consolidated earnings The above companies represent a 'closed group' for the purposes of the Class Order, and as there are no other parties The above companies represent a 'closed group' for the purposes of the Class Order, and as there are no other parties to the deed of cross guarantee that are controlled by The Star Entertainment Sydney Holdings Limited, they also to the deed of cross guarantee that are controlled by The Star Entertainment Sydney Holdings Limited, they also represent the 'extended closed group'. represent the 'extended closed group'. Set out below is a consolidated income statement and a summary of movements in consolidated retained earnings for Set out below is a consolidated income statement and a summary of movements in consolidated retained earnings for the year ended 30 June 2017 of the closed group. the year ended 30 June 2017 of the closed group. Consolidated income statement Consolidated income statement Revenue Revenue Other income Other income Government taxes and levies Government taxes and levies Commissions and fees Commissions and fees Employment costs Employment costs Depreciation, amortisation and impairment Depreciation, amortisation and impairment Cost of sales Cost of sales Property costs Property costs Advertising and promotions Advertising and promotions Other expenses Other expenses Earnings before interest and tax (EBIT) Earnings before interest and tax (EBIT) Net finance costs Net finance costs Profit before income tax (PBT) Profit before income tax (PBT) Income tax expense Income tax expense Net profit after tax (NPAT) Net profit after tax (NPAT) Total comprehensive income for the period Total comprehensive income for the period Summary of movements in consolidated retained earnings Summary of movements in consolidated retained earnings Accumulated profit/(loss) at the beginning of the financial year Accumulated profit/(loss) at the beginning of the financial year Profit for the year Profit for the year Dividends paid Dividends paid Accumulated profit at the end of the financial year Accumulated profit at the end of the financial year 2017 2017 $m $m 1,620.4 1,620.4 2016 2016 $m $m 1,575.7 1,575.7 (0.1) (0.1) (369.4) (369.4) (222.4) (222.4) (338.3) (338.3) (88.1) (88.1) (48.7) (48.7) (50.3) (50.3) (53.7) (53.7) (229.1) (229.1) 220.3 220.3 - - 220.3 220.3 (67.9) (67.9) 152.4 152.4 152.4 152.4 141.6 141.6 152.4 152.4 (164.0) (164.0) 130.0 130.0 0.5 0.5 (349.9) (349.9) (294.3) (294.3) (335.2) (335.2) (93.9) (93.9) (45.1) (45.1) (51.0) (51.0) (52.4) (52.4) (113.1) (113.1) 241.3 241.3 - - 241.3 241.3 (68.8) (68.8) 172.5 172.5 172.5 172.5 45.1 45.1 172.5 172.5 (76.0) (76.0) 141.6 141.6 (ii) Consolidated balance sheet (ii) Consolidated balance sheet Set out below is a consolidated balance sheet as at 30 June 2017 of the closed group consisting of The Star Set out below is a consolidated balance sheet as at 30 June 2017 of the closed group consisting of The Star Entertainment Sydney Holdings Limited, The Star Pty Limited, The Star Entertainment Pty Ltd, The Star Entertainment Entertainment Sydney Holdings Limited, The Star Pty Limited, The Star Entertainment Pty Ltd, The Star Entertainment Sydney Properties Pty Limited, The Star Entertainment Sydney Apartments Pty Limited, and Star City Investments Pty Sydney Properties Pty Limited, The Star Entertainment Sydney Apartments Pty Limited, and Star City Investments Pty Limited. Limited. The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 100 54 54 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 55 55 101 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 Consolidated balance sheet Consolidated balance sheet ASSETS ASSETS Cash assets Cash assets Trade and other receivables Trade and other receivables Inventories Inventories Other Other Total current assets Total current assets Property, plant and equipment Property, plant and equipment Intangible assets Intangible assets Other assets Other assets Total non current assets Total non current assets TOTAL ASSETS TOTAL ASSETS LIABILITIES LIABILITIES Trade and other payables Trade and other payables Provisions Provisions Other liabilities Other liabilities Total current liabilities Total current liabilities Deferred tax liabilities Deferred tax liabilities Provisions Provisions Total non current liabilities Total non current liabilities TOTAL LIABILITIES TOTAL LIABILITIES NET ASSETS NET ASSETS EQUITY EQUITY Issued Capital Issued Capital Retained Earnings Retained Earnings TOTAL EQUITY TOTAL EQUITY D4 Key Management Personnel disclosures D4 Key Management Personnel disclosures Compensation of Key Management Personnel Compensation of Key Management Personnel Short term Short term Long term Long term Share based payments Share based payments 2017 2017 $m $m 2016 2016 $m $m 28.7 28.7 145.0 145.0 8.0 8.0 21.9 21.9 203.6 203.6 1,315.0 1,315.0 287.7 287.7 11.8 11.8 1,614.5 1,614.5 1,818.1 1,818.1 437.7 437.7 38.3 38.3 12.2 12.2 488.2 488.2 54.5 54.5 5.5 5.5 60.0 60.0 548.2 548.2 1,269.9 1,269.9 1,139.9 1,139.9 130.0 130.0 1,269.9 1,269.9 2017 2017 $000 $000 5,757 5,757 344 344 2,304 2,304 49.7 49.7 115.3 115.3 5.8 5.8 18.7 18.7 189.5 189.5 1,240.4 1,240.4 292.0 292.0 12.7 12.7 1,545.1 1,545.1 1,734.6 1,734.6 348.3 348.3 35.6 35.6 11.9 11.9 395.8 395.8 51.7 51.7 5.6 5.6 57.3 57.3 453.1 453.1 1,281.5 1,281.5 1,139.9 1,139.9 141.6 141.6 1,281.5 1,281.5 2016 2016 $000 $000 8,564 8,564 347 347 2,419 2,419 Total compensation Total compensation The above reflects the compensation for individuals who are Key Management Personnel of the Group. The note The above reflects the compensation for individuals who are Key Management Personnel of the Group. The note should be read in conjunction with the Remuneration Report. should be read in conjunction with the Remuneration Report. 11,330 11,330 8,405 8,405 D5 Investment in associate and joint venture entities D5 Investment in associate and joint venture entities Set out below are the investments of the Group as at 30 June 2017 which, in the opinion of the Directors, are material Set out below are the investments of the Group as at 30 June 2017 which, in the opinion of the Directors, are material to the Group. The entities listed below have share capital consisting solely of ordinary shares, which are held by the to the Group. The entities listed below have share capital consisting solely of ordinary shares, which are held by the Group. The country of incorporation is also their principal place of business, and the proportion of ownership interest is Group. The country of incorporation is also their principal place of business, and the proportion of ownership interest is the same as the proportion of voting rights held. the same as the proportion of voting rights held. 2017 2017 Name of entity Name of entity Destination Brisbane Consortium Integrated Resort Destination Brisbane Consortium Integrated Resort Holdings Pty Ltd (i) Holdings Pty Ltd (i) Festival Car Park Pty Ltd (ii) Festival Car Park Pty Ltd (ii) Destination Gold Coast Investments Pty Ltd (iii) Destination Gold Coast Investments Pty Ltd (iii) Total equity accounted investments Total equity accounted investments Country of Country of incorporation incorporation % of % of ownership ownership Nature of Nature of ownership ownership Measurement Measurement method method Australia Australia Australia Australia Australia Australia 50 50 50 50 50 50 Associate Associate Joint venture Joint venture Joint venture Joint venture Equity method Equity method Equity method Equity method Equity method Equity method Carrying Carrying amount amount $m $m 152.6 152.6 13.5 13.5 46.3 46.3 212.4 212.4 (i) Destination Brisbane Consortium Integrated Resort Holdings Pty Ltd (i) Destination Brisbane Consortium Integrated Resort Holdings Pty Ltd The Group has partnered with Hong Kong-based organisations Chow Tai Fook Enterprises Limited (CTF) and Far East The Group has partnered with Hong Kong-based organisations Chow Tai Fook Enterprises Limited (CTF) and Far East Consortium International Limited (FEC) to form Destination Brisbane Consortium (DBC) for the Queenʼs Wharf Consortium International Limited (FEC) to form Destination Brisbane Consortium (DBC) for the Queenʼs Wharf Brisbane Project. The parties have formed two vehicles (the Integrated Resort Joint Venture and the Residential Joint Brisbane Project. The parties have formed two vehicles (the Integrated Resort Joint Venture and the Residential Joint Venture), which together are responsible for completing the Queenʼs Wharf Brisbane project. Venture), which together are responsible for completing the Queenʼs Wharf Brisbane project. Consistent with the ownership structure, the Group will contribute 50% of the capital to the development of the Consistent with the ownership structure, the Group will contribute 50% of the capital to the development of the Integrated Resort and act as the casino operator under a long dated casino management agreement. CTF and FEC Integrated Resort and act as the casino operator under a long dated casino management agreement. CTF and FEC will each contribute 25% of the capital to the development of the integrated resort. CTF and FEC will each contribute will each contribute 25% of the capital to the development of the integrated resort. CTF and FEC will each contribute 50% of the capital to undertake the residential and related component of the broader Queenʼs Wharf Brisbane 50% of the capital to undertake the residential and related component of the broader Queenʼs Wharf Brisbane development. The Group is not a party to the residential joint venture. development. The Group is not a party to the residential joint venture. 30 June 2017 30 June 2017 Commitments and contingent liabilities Commitments and contingent liabilities DBC will invest approximately $2 billion to fund the construction of the integrated resort, which is expected to open in DBC will invest approximately $2 billion to fund the construction of the integrated resort, which is expected to open in 2022 (subject to various approvals). 2022 (subject to various approvals). Summarised financial information Summarised financial information The financial statements of the associate is prepared for the same reporting period as the Group and follow the same The financial statements of the associate is prepared for the same reporting period as the Group and follow the same accounting policies of the Group. accounting policies of the Group. Balance sheet Balance sheet Total current assets Total current assets Total non current assets Total non current assets Total current liabilities Total current liabilities Total non current liabilities Total non current liabilities Net assets Net assets Reconciliation to investment carrying amount: Reconciliation to investment carrying amount: Carrying amount at the beginning of the year Carrying amount at the beginning of the year Share of equity contributions for the Group Share of equity contributions for the Group Share of loss for the period Share of loss for the period Capitalised costs Capitalised costs Carrying amount at the end of the year Carrying amount at the end of the year 2017 2017 $m $m 2016 2016 $m $m 53.2 53.2 327.2 327.2 (14.8) (14.8) (75.0) (75.0) 290.6 290.6 16.2 16.2 136.7 136.7 (1.1) (1.1) 0.8 0.8 152.6 152.6 5.4 5.4 21.4 21.4 (7.3) (7.3) - - 19.5 19.5 - - 10.0 10.0 (0.1) (0.1) 6.3 6.3 16.2 16.2 57 57 103 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 102 56 56 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 Income statement Income statement Loss before tax Loss before tax Income tax benefit Income tax benefit Loss for the year (continuing operations) Loss for the year (continuing operations) Total comprehensive loss for the year (continuing operations) Total comprehensive loss for the year (continuing operations) Group's share of loss for the year Group's share of loss for the year Dividends received from the associate entity Dividends received from the associate entity 2017 2017 $m $m (2.1) (2.1) - - (2.1) (2.1) (2.1) (2.1) (1.1) (1.1) - - 2016 2016 $m $m (0.3) (0.3) 0.1 0.1 (0.2) (0.2) (0.2) (0.2) (0.1) (0.1) - - (ii) Festival Car Park Pty Ltd (ii) Festival Car Park Pty Ltd The Group has a 50% interest in Festival Car Park Pty Ltd, a joint venture that operates the Festival Car Park on The Group has a 50% interest in Festival Car Park Pty Ltd, a joint venture that operates the Festival Car Park on Charlotte Street in Brisbane. This is a joint venture with CTF and FEC. Charlotte Street in Brisbane. This is a joint venture with CTF and FEC. Commitments and contingent liabilities Commitments and contingent liabilities The joint venture had capital commitments of $0.1 million (2016: $0.3 million) as at 30 June 2017. There were no other The joint venture had capital commitments of $0.1 million (2016: $0.3 million) as at 30 June 2017. There were no other contingent liabilities. contingent liabilities. Summarised financial information Summarised financial information The financial statements of the joint venture are prepared on financial information that is unaudited and prepared for The financial statements of the joint venture are prepared on financial information that is unaudited and prepared for reporting purposes. The joint venture has a financial year end date of 31 March. reporting purposes. The joint venture has a financial year end date of 31 March. 2017 2017 $m $m 2016 2016 $m $m Balance sheet Balance sheet Cash and cash equivalents Cash and cash equivalents Total current assets excluding cash and cash equivalents Total current assets excluding cash and cash equivalents Total non current assets Total non current assets Total current liabilities Total current liabilities Total non current liabilities - financial liabilities Total non current liabilities - financial liabilities Net assets Net assets Reconciliation to investment carrying amount: Reconciliation to investment carrying amount: Carrying amount at the beginning of the year Carrying amount at the beginning of the year Share of profit for the period Share of profit for the period Share of equity contributions for the Group Share of equity contributions for the Group Carrying amount at the end of the year Carrying amount at the end of the year Income statement Income statement Revenue Revenue Interest expense Interest expense Other expenses Other expenses Profit before tax Profit before tax Income tax expense Income tax expense Profit for the year (continuing operations) Profit for the year (continuing operations) Total comprehensive income for the year (continuing operations) Total comprehensive income for the year (continuing operations) Group's share of profit for the year Group's share of profit for the year 1.7 1.7 0.1 0.1 48.3 48.3 (0.6) (0.6) (22.5) (22.5) 27.0 27.0 13.1 13.1 0.4 0.4 - - 13.5 13.5 3.1 3.1 (0.7) (0.7) (1.4) (1.4) 1.0 1.0 (0.3) (0.3) 0.7 0.7 0.7 0.7 0.4 0.4 0.4 0.4 0.9 0.9 47.6 47.6 (0.2) (0.2) (22.5) (22.5) 26.2 26.2 - - 0.1 0.1 13.0 13.0 13.1 13.1 0.7 0.7 (0.2) (0.2) (0.2) (0.2) 0.3 0.3 (0.1) (0.1) 0.2 0.2 0.2 0.2 0.1 0.1 58 58 (iii) Destination Gold Coast Investments Pty Ltd (iii) Destination Gold Coast Investments Pty Ltd On 20 October 2016, a 50% interest was acquired in Destination Gold Coast Investments Pty Ltd (DGCI). DGCI is a On 20 October 2016, a 50% interest was acquired in Destination Gold Coast Investments Pty Ltd (DGCI). DGCI is a joint venture with CTF and FEC involved in the operation of the Sheraton Grand Mirage Resort, Gold Coast. The joint venture with CTF and FEC involved in the operation of the Sheraton Grand Mirage Resort, Gold Coast. The Group's interest is accounted for using the equity method. Group's interest is accounted for using the equity method. The Securityholdersʼ Deed for Destination Gold Coast Investments Pty Ltd requires unanimous consent for each Board The Securityholdersʼ Deed for Destination Gold Coast Investments Pty Ltd requires unanimous consent for each Board resolution. Due to the unanimous requirement for decisions, each party has joint control of the entity. The entity is resolution. Due to the unanimous requirement for decisions, each party has joint control of the entity. The entity is designed to exist on its own and the Deed does not grant the rights to assets and liabilities directly to the Group. The designed to exist on its own and the Deed does not grant the rights to assets and liabilities directly to the Group. The investment has therefore been classified as a joint venture. investment has therefore been classified as a joint venture. DGCI has provisionally accounted for a business combination in which DGCI is in the process of ascertaining the fair DGCI has provisionally accounted for a business combination in which DGCI is in the process of ascertaining the fair values of the identifiable assets, liabilities and contingent liabilities acquired. In doing so, the Group has relied on the values of the identifiable assets, liabilities and contingent liabilities acquired. In doing so, the Group has relied on the best estimate of the identifiable assets, liabilities and contingent liabilities of DGCI, until the quantification and best estimate of the identifiable assets, liabilities and contingent liabilities of DGCI, until the quantification and treatment of items under review is complete. treatment of items under review is complete. Commitments and contingent liabilities Commitments and contingent liabilities The joint venture had capital commitments of $0.2 million (2016: nil) as at 30 June 2017. There were no other The joint venture had capital commitments of $0.2 million (2016: nil) as at 30 June 2017. There were no other contingent liabilities. contingent liabilities. Summarised financial information Summarised financial information The financial statements of the joint venture is prepared for the same reporting period as the Group and follow the The financial statements of the joint venture is prepared for the same reporting period as the Group and follow the same accounting policies of the Group. same accounting policies of the Group. Balance sheet Balance sheet Cash and cash equivalents Cash and cash equivalents Total current assets excluding cash and cash equivalents Total current assets excluding cash and cash equivalents Total non current assets Total non current assets Total current liabilities Total current liabilities Total non current liabilities - financial liabilities Total non current liabilities - financial liabilities Other non current liabilities Other non current liabilities Net assets Net assets Reconciliation to investment carrying amount: Reconciliation to investment carrying amount: Share of profit for the period Share of profit for the period Share of equity contributions for the Group Share of equity contributions for the Group Carrying amount Carrying amount Income statement Income statement Revenue Revenue Interest expense Interest expense Depreciation expense Depreciation expense Operating expenses Operating expenses Profit before tax Profit before tax Income tax expense Income tax expense Profit for the year (continuing operations) Profit for the year (continuing operations) Total comprehensive income for the year (continuing operations) Total comprehensive income for the year (continuing operations) Group's share of profit for the year Group's share of profit for the year 2017 2017 $m $m 2016 2016 $m $m 6.7 6.7 0.9 0.9 167.1 167.1 (11.9) (11.9) (72.2) (72.2) (14.3) (14.3) 76.3 76.3 - - 46.3 46.3 46.3 46.3 16.2 16.2 (0.9) (0.9) (1.2) (1.2) (13.9) (13.9) 0.3 0.3 (0.3) (0.3) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 59 59 105 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 104 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 E Risk Management E Risk Management E1 Financial risk management objectives and policies E1 Financial risk management objectives and policies The Group's principal financial instruments, other than derivatives, comprise cash, short term deposits, bank bills, The Group's principal financial instruments, other than derivatives, comprise cash, short term deposits, bank bills, Australian denominated bank loans, and foreign currency denominated notes. Australian denominated bank loans, and foreign currency denominated notes. The main purpose of these financial instruments is to raise debt capital for the Group's operations. The Group has The main purpose of these financial instruments is to raise debt capital for the Group's operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. Derivative transactions are also entered into by the Group, being interest rate swaps, cross currency operations. Derivative transactions are also entered into by the Group, being interest rate swaps, cross currency swaps and forward currency contracts, the purpose being to manage interest rate and currency risks arising from the swaps and forward currency contracts, the purpose being to manage interest rate and currency risks arising from the Group's operations and sources of finance. Group's operations and sources of finance. The Group's risk management policy is carried out by the Corporate Treasury function under the Group Treasury The Group's risk management policy is carried out by the Corporate Treasury function under the Group Treasury Policy approved by the Board. Corporate Treasury reports regularly to the Board on the Group's risk management Policy approved by the Board. Corporate Treasury reports regularly to the Board on the Group's risk management activities and policies. It is, and has been throughout the period under review, the Group's policy that no trading in activities and policies. It is, and has been throughout the period under review, the Group's policy that no trading in financial instruments shall be undertaken. financial instruments shall be undertaken. The main risks arising from the Group's financial instruments are interest rate risk, foreign currency risk, credit risk and The main risks arising from the Group's financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. liquidity risk. Details of significant accounting policies and methods adopted, including criteria for recognition, the basis of Details of significant accounting policies and methods adopted, including criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument, are disclosed in note G. financial liability and equity instrument, are disclosed in note G. Interest rate risk Interest rate risk The Group has a policy of controlling exposure to interest rate fluctuations by the use of fixed and variable rate debt The Group has a policy of controlling exposure to interest rate fluctuations by the use of fixed and variable rate debt and by the use of interest rate swaps or caps. The Group has entered into interest rate swap agreements to hedge and by the use of interest rate swaps or caps. The Group has entered into interest rate swap agreements to hedge underlying debt obligations and allow floating rate borrowings to be swapped to fixed rate borrowings. Under these underlying debt obligations and allow floating rate borrowings to be swapped to fixed rate borrowings. Under these arrangements, the Group will pay fixed interest rates and receive the bank bill swap rate calculated on the notional arrangements, the Group will pay fixed interest rates and receive the bank bill swap rate calculated on the notional principal amount of the contracts. principal amount of the contracts. At 30 June 2017 after taking into account the effect of interest rate swaps, approximately 60.3% (2016: 68.3%) of the At 30 June 2017 after taking into account the effect of interest rate swaps, approximately 60.3% (2016: 68.3%) of the Group's borrowings are at a fixed rate of interest. Group's borrowings are at a fixed rate of interest. Foreign currency risk Foreign currency risk As a result of issuing private notes denominated in US Dollars (USD), the Group's balance sheet can be affected by As a result of issuing private notes denominated in US Dollars (USD), the Group's balance sheet can be affected by movements in the USD/AUD exchange rate. In order to manage this exposure, the Group has entered into cross movements in the USD/AUD exchange rate. In order to manage this exposure, the Group has entered into cross currency swaps to fix the exchange rate on the notes until maturity. The Group agrees to exchange a fixed USD currency swaps to fix the exchange rate on the notes until maturity. The Group agrees to exchange a fixed USD amount for an agreed Australian Dollar (AUD) amount with swap counterparties, and re-exchange this again at amount for an agreed Australian Dollar (AUD) amount with swap counterparties, and re-exchange this again at maturity. These swaps are designated to hedge the principal and interest obligations under the private notes. maturity. These swaps are designated to hedge the principal and interest obligations under the private notes. The Group has operating leases for two aircrafts invoiced in USD. The Group has entered into foreign exchange The Group has operating leases for two aircrafts invoiced in USD. The Group has entered into foreign exchange forward contracts to hedge against the USD currency risk, by exchanging the future USD lease payments to AUD forward contracts to hedge against the USD currency risk, by exchanging the future USD lease payments to AUD amounts. amounts. Credit risk Credit risk Credit risk on financial assets which have been recognised on the balance sheet, is the carrying amount less any Credit risk on financial assets which have been recognised on the balance sheet, is the carrying amount less any allowance for non recovery. The Group minimises credit risk via adherence to a strict credit risk management policy. allowance for non recovery. The Group minimises credit risk via adherence to a strict credit risk management policy. Collateral is not held as security. Collateral is not held as security. Credit risk in trade receivables is managed in the following ways: Credit risk in trade receivables is managed in the following ways: − The provision of cheque cashing facilities for casino gaming patrons is subject to detailed policies and procedures − The provision of cheque cashing facilities for casino gaming patrons is subject to detailed policies and procedures designed to minimise any potential loss, including the use of a central credit agency which collates information from designed to minimise any potential loss, including the use of a central credit agency which collates information from the major casinos around the world; and the major casinos around the world; and − The provision of non gaming credit is covered by a risk assessment process for customers using the Credit − The provision of non gaming credit is covered by a risk assessment process for customers using the Credit Reference Association of Australia, bank opinions and trade references. Reference Association of Australia, bank opinions and trade references. Receivable balances are monitored on an ongoing basis with the result that the Group's exposure to bad debts is Receivable balances are monitored on an ongoing basis with the result that the Group's exposure to bad debts is carefully managed and controlled. carefully managed and controlled. With respect to credit risk arising from other financial assets of the Group, which comprise cash and cash equivalents With respect to credit risk arising from other financial assets of the Group, which comprise cash and cash equivalents (including short term deposits and bank bills), the maximum exposure of the Group to credit risk from default of a (including short term deposits and bank bills), the maximum exposure of the Group to credit risk from default of a counterparty is equal to the carrying amount of these instruments. counterparty is equal to the carrying amount of these instruments. In relation to financial liabilities, credit risk arises from the potential failure of counterparties to meet their obligations In relation to financial liabilities, credit risk arises from the potential failure of counterparties to meet their obligations under the contract or arrangement. The Group's maximum credit risk exposure in respect of interest rate swap under the contract or arrangement. The Group's maximum credit risk exposure in respect of interest rate swap contracts, cross currency swap contracts and forward currency contracts is detailed in note E2. contracts, cross currency swap contracts and forward currency contracts is detailed in note E2. Credit risk includes liabilities under financial guarantees. For financial guarantee contract liabilities, the fair value at Credit risk includes liabilities under financial guarantees. For financial guarantee contract liabilities, the fair value at initial recognition is determined using a probability weighted discounted cash flow approach. The fair value of financial initial recognition is determined using a probability weighted discounted cash flow approach. The fair value of financial guarantee contract liabilities has been assessed as nil (2016: nil), as the possibility of an outflow occurring is guarantee contract liabilities has been assessed as nil (2016: nil), as the possibility of an outflow occurring is considered remote. Details of the financial guarantee contracts in the balance sheet are outlined below. considered remote. Details of the financial guarantee contracts in the balance sheet are outlined below. Fixed and floating charges Fixed and floating charges The controlled entities denoted (b) in note D1 have provided Liquor and Gaming NSW with a fixed and floating charge The controlled entities denoted (b) in note D1 have provided Liquor and Gaming NSW with a fixed and floating charge over all of the assets and undertakings of each company to secure payment of all monies and the performance of all over all of the assets and undertakings of each company to secure payment of all monies and the performance of all obligations which they have to Liquor and Gaming NSW. obligations which they have to Liquor and Gaming NSW. Guarantees and indemnities Guarantees and indemnities The controlled entities denoted (b) in note D1 have entered into a guarantee and indemnity agreement in favour of The controlled entities denoted (b) in note D1 have entered into a guarantee and indemnity agreement in favour of Liquor and Gaming NSW whereby all parties to the agreement are jointly and severally liable for the performance of Liquor and Gaming NSW whereby all parties to the agreement are jointly and severally liable for the performance of the obligations and liabilities of each company participating in the agreement with respect to agreements entered into the obligations and liabilities of each company participating in the agreement with respect to agreements entered into and guarantees given. and guarantees given. The Star Entertainment Finance Limited and The Star Entertainment International No. 3 Pty Ltd are called upon to give The Star Entertainment Finance Limited and The Star Entertainment International No. 3 Pty Ltd are called upon to give in the ordinary course of business, guarantees and indemnities in respect of the performance of their contractual and in the ordinary course of business, guarantees and indemnities in respect of the performance of their contractual and financial obligations. The maximum amount of these guarantees and indemnities is $117.7 million (2016: $117.3 financial obligations. The maximum amount of these guarantees and indemnities is $117.7 million (2016: $117.3 million). million). Liquidity risk Liquidity risk Liquidity risk arises from the financial liabilities of the Group and the Group's subsequent ability to meet its obligations Liquidity risk arises from the financial liabilities of the Group and the Group's subsequent ability to meet its obligations to repay its financial liabilities as and when they fall due. to repay its financial liabilities as and when they fall due. The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of bank The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans and notes. loans and notes. The Group manages liquidity risk by maintaining a forecast of expected cash flow which is monitored and reviewed on The Group manages liquidity risk by maintaining a forecast of expected cash flow which is monitored and reviewed on a regular basis. To help reduce liquidity risk, the Group targets a minimum level of cash and cash equivalents to be a regular basis. To help reduce liquidity risk, the Group targets a minimum level of cash and cash equivalents to be maintained, and has revolving facilities in place with sufficient undrawn funds available. maintained, and has revolving facilities in place with sufficient undrawn funds available. The Group's policy is that not more than 33% of debt facilities should mature in any financial year within the next four The Group's policy is that not more than 33% of debt facilities should mature in any financial year within the next four years. At 30 June 2017, the Group's debt facilities that will mature in less than one year is $130.0 million (2016: nil), years. At 30 June 2017, the Group's debt facilities that will mature in less than one year is $130.0 million (2016: nil), representing 12.4% of total debt. The next debt maturity is the Syndicated Facility Agreement facility of $250.0 million representing 12.4% of total debt. The next debt maturity is the Syndicated Facility Agreement facility of $250.0 million on 20 July 2018. This represents 23.9% of total debt and is within the Group's policy. on 20 July 2018. This represents 23.9% of total debt and is within the Group's policy. Refer to notes B7 and E2 for maturity of financial liabilities. Refer to notes B7 and E2 for maturity of financial liabilities. The contractual cash flows including principal and estimated interest receipts or payments of financial assets or The contractual cash flows including principal and estimated interest receipts or payments of financial assets or liabilities are as follows: liabilities are as follows: (i) Non-derivative financial instruments (i) Non-derivative financial instruments 2017 2017 1 - 5 years 1 - 5 years $m $m < 1 year < 1 year $m $m > 5 years > 5 years $m $m < 1 year < 1 year $m $m 2016 2016 1 - 5 years 1 - 5 years $m $m > 5 years > 5 years $m $m Financial assets Financial assets Cash assets Cash assets Short term deposits Short term deposits Net trade and other receivables Net trade and other receivables Financial liabilities Financial liabilities Trade creditors and accrued expenses Trade creditors and accrued expenses Bank loans - unsecured Bank loans - unsecured Private placement - US dollar Private placement - US dollar 107.7 107.7 6.0 6.0 192.7 192.7 306.4 306.4 322.4 322.4 12.9 12.9 163.0 163.0 498.3 498.3 - - - - - - - - - - 453.8 453.8 546.9 546.9 1,000.7 1,000.7 Net (outflow)/inflow Net (outflow)/inflow (191.9) (191.9) (1,000.7) (1,000.7) - - - - - - - - - - - - - - - - - - 103.4 103.4 55.7 55.7 130.4 130.4 289.5 289.5 259.9 259.9 6.1 6.1 34.3 34.3 300.3 300.3 - - - - - - - - - - 209.6 209.6 257.5 257.5 467.1 467.1 - - - - - - - - - - - - 509.5 509.5 509.5 509.5 (10.8) (10.8) (467.1) (467.1) (509.5) (509.5) The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 106 60 60 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 61 61 107 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 (ii) Derivative financial instruments (ii) Derivative financial instruments Financial assets Financial assets Interest rate swaps - receive AUD floating Interest rate swaps - receive AUD floating Cross currency swaps - receive USD fixed Cross currency swaps - receive USD fixed Forward currency contract - receive USD Forward currency contract - receive USD fixed fixed Financial liabilities Financial liabilities Interest rate swaps - pay AUD fixed Interest rate swaps - pay AUD fixed Cross currency swaps - pay AUD floating Cross currency swaps - pay AUD floating Forward currency contract - pay AUD Forward currency contract - pay AUD fixed fixed Net (outflow)/inflow Net (outflow)/inflow 2017 2017 1 - 5 years 1 - 5 years $m $m < 1 year < 1 year $m $m > 5 years > 5 years $m $m < 1 year < 1 year $m $m 2016 2016 1 - 5 years 1 - 5 years $m $m > 5 years > 5 years $m $m 9.0 9.0 163.0 163.0 9.2 9.2 181.2 181.2 29.1 29.1 163.0 163.0 7.8 7.8 199.9 199.9 (18.7) (18.7) 24.0 24.0 546.9 546.9 1.2 1.2 572.1 572.1 72.3 72.3 546.9 546.9 0.9 0.9 620.1 620.1 (48.0) (48.0) 3.2 3.2 - - - - 3.2 3.2 4.7 4.7 - - - - 4.7 4.7 (1.5) (1.5) 8.7 8.7 34.3 34.3 9.5 9.5 52.5 52.5 26.8 26.8 22.0 22.0 7.7 7.7 56.5 56.5 (4.0) (4.0) 30.9 30.9 257.5 257.5 10.8 10.8 299.2 299.2 95.6 95.6 172.4 172.4 8.7 8.7 276.7 276.7 22.5 22.5 6.5 6.5 509.5 509.5 - - 516.0 516.0 20.2 20.2 352.6 352.6 - - 372.8 372.8 143.2 143.2 For floating rate instruments, the amount disclosed is determined by reference to the interest rate at the last repricing For floating rate instruments, the amount disclosed is determined by reference to the interest rate at the last repricing date. For foreign currency receipts and payments, the amount disclosed is determined by reference to the AUD/USD date. For foreign currency receipts and payments, the amount disclosed is determined by reference to the AUD/USD rate at balance sheet date. rate at balance sheet date. (iii) Financial instruments - sensitivity analysis (iii) Financial instruments - sensitivity analysis Interest rates - AUD and USD Interest rates - AUD and USD The following sensitivity analysis is based on interest rate risk exposures in existence at year end. The following sensitivity analysis is based on interest rate risk exposures in existence at year end. At 30 June, if interest rates had moved, as illustrated in the table below, with all other variables held constant, post tax At 30 June, if interest rates had moved, as illustrated in the table below, with all other variables held constant, post tax profit and other comprehensive income would have been affected as follows: profit and other comprehensive income would have been affected as follows: 2017 2017 AUD AUD + 0.5% (50 basis points) + 0.5% (50 basis points) - 0.5% (50 basis points) - 0.5% (50 basis points) USD USD + 0.5% (50 basis points) + 0.5% (50 basis points) - 0.25% (25 basis points) - 0.25% (25 basis points) 2016 2016 AUD AUD + 0.5% (50 basis points) + 0.5% (50 basis points) - 0.5% (50 basis points) - 0.5% (50 basis points) USD USD + 0.5% (50 basis points) + 0.5% (50 basis points) - 0.25% (25 basis points) - 0.25% (25 basis points) Net profit after tax Net profit after tax higher/(lower) higher/(lower) $m $m Other Other comprehensive comprehensive income income higher/(lower) higher/(lower) $m $m (1.6) (1.6) 1.6 1.6 - - - - (0.5) (0.5) 0.5 0.5 - - - - 7.3 7.3 (7.5) (7.5) (7.0) (7.0) (3.5) (3.5) 6.9 6.9 (7.1) (7.1) (10.1) (10.1) 5.2 5.2 62 62 Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 The movements in profit are due to higher/lower interest costs from variable rate debt and investments. The movement The movements in profit are due to higher/lower interest costs from variable rate debt and investments. The movement in other comprehensive income is due to an increase/decrease in the fair value of financial instruments designated as in other comprehensive income is due to an increase/decrease in the fair value of financial instruments designated as cash flow hedges. cash flow hedges. The numbers derived in the sensitivity analysis are indicative only. The numbers derived in the sensitivity analysis are indicative only. Significant assumptions used in the interest rate sensitivity analysis include: Significant assumptions used in the interest rate sensitivity analysis include: − reasonably possible movements in interest rates were determined based on the Group's current credit rating and − reasonably possible movements in interest rates were determined based on the Group's current credit rating and mix of debt, relationships with financial institutions and the level of debt that is expected to be renewed, as well as mix of debt, relationships with financial institutions and the level of debt that is expected to be renewed, as well as a review of the last two years' historical movements and economic forecaster's expectations; a review of the last two years' historical movements and economic forecaster's expectations; − price sensitivity of derivatives is based on a reasonably possible movement of spot rates at the balance sheet − price sensitivity of derivatives is based on a reasonably possible movement of spot rates at the balance sheet − the net exposure at the balance sheet date is representative of what the Group was, and is expecting to be, − the net exposure at the balance sheet date is representative of what the Group was, and is expecting to be, dates; and dates; and exposed to in the next twelve months. exposed to in the next twelve months. Foreign Exchange Foreign Exchange The following sensitivity analysis is based on foreign currency risk exposures in existence at the balance sheet date. At The following sensitivity analysis is based on foreign currency risk exposures in existence at the balance sheet date. At 30 June, had the AUD moved, as illustrated in the table below, with all other variables held constant, post tax profit and 30 June, had the AUD moved, as illustrated in the table below, with all other variables held constant, post tax profit and other comprehensive income would have been affected as follows: other comprehensive income would have been affected as follows: Judgements of reasonably possible movements: Judgements of reasonably possible movements: Net profit after tax Net profit after tax higher/(lower) higher/(lower) 2016 2016 $m $m - - - - Net profit after tax Net profit after tax higher/(lower) higher/(lower) 2017 2017 $m $m - - - - Other Other comprehensive comprehensive income income higher/(lower) higher/(lower) 2017 2017 $m $m (53.8) (53.8) 69.8 69.8 Other Other comprehensive comprehensive income income higher/(lower) higher/(lower) 2016 2016 $m $m (10.9) AUD/USD + 10 cents (10.9) AUD/USD + 10 cents 14.3 AUD/USD - 10 cents 14.3 AUD/USD - 10 cents There is no movement in net profit after tax as the Group has fully hedged its foreign currency exposure to the USPP. There is no movement in net profit after tax as the Group has fully hedged its foreign currency exposure to the USPP. The movement in other comprehensive income is due to an increase/decrease in the fair value of financial instruments The movement in other comprehensive income is due to an increase/decrease in the fair value of financial instruments designated as cash flow hedges. Management believes the balance sheet date risk exposures are representative of designated as cash flow hedges. Management believes the balance sheet date risk exposures are representative of the risk exposure inherent in the financial instruments. The numbers derived in the sensitivity analysis are indicative the risk exposure inherent in the financial instruments. The numbers derived in the sensitivity analysis are indicative only. only. Significant assumptions used in the foreign currency exposure sensitivity analysis include: Significant assumptions used in the foreign currency exposure sensitivity analysis include: − reasonably possible movements in foreign exchange rates were determined based on a review of the last two − reasonably possible movements in foreign exchange rates were determined based on a review of the last two − the reasonably possible movement of 10 cents was calculated by taking the USD spot rate as at balance sheet − the reasonably possible movement of 10 cents was calculated by taking the USD spot rate as at balance sheet date, moving this spot rate by 10 cents and then re-converting the USD into AUD with the 'new spot-rate'. This date, moving this spot rate by 10 cents and then re-converting the USD into AUD with the 'new spot-rate'. This methodology reflects the translation methodology undertaken by the Group; methodology reflects the translation methodology undertaken by the Group; − price sensitivity of derivatives is based on a reasonably possible movement of spot rates at the balance sheet − price sensitivity of derivatives is based on a reasonably possible movement of spot rates at the balance sheet − the net exposure at the balance sheet date is representative of what the Group was, and is expecting to be, − the net exposure at the balance sheet date is representative of what the Group was, and is expecting to be, years' historical movements and economic forecaster's expectations; years' historical movements and economic forecaster's expectations; dates; and dates; and exposed to in the next 12 months. exposed to in the next 12 months. E2 Additional financial instruments disclosure E2 Additional financial instruments disclosure (i) (i) Fair values Fair values The fair value of the Group's financial assets and financial liabilities approximates their carrying value as at the The fair value of the Group's financial assets and financial liabilities approximates their carrying value as at the balance sheet date. balance sheet date. Swaps Swaps Fair value is calculated using discounted future cash flow techniques, where estimated cash flows and estimated Fair value is calculated using discounted future cash flow techniques, where estimated cash flows and estimated discount rates are based on market data at the balance sheet date. discount rates are based on market data at the balance sheet date. Forward currency contracts Forward currency contracts Fair value is calculated using forward exchange market rates at the balance sheet date. Fair value is calculated using forward exchange market rates at the balance sheet date. The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 108 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 63 63 109 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 USPP USPP Fair value is calculated using discounted future cash flow techniques, where estimated cash flows and estimated Fair value is calculated using discounted future cash flow techniques, where estimated cash flows and estimated discount rates are based on market data at the balance sheet date, in combination with restatement to current foreign discount rates are based on market data at the balance sheet date, in combination with restatement to current foreign exchange rates. exchange rates. Interest rate risk Interest rate risk The Group had the following classes of financial assets and financial liabilities exposed to floating interest rate risk: The Group had the following classes of financial assets and financial liabilities exposed to floating interest rate risk: (ii) (ii) 2017 2017 $m $m 2016 2016 $m $m Financial assets Financial assets Cash assets Cash assets Short term deposits Short term deposits Total financial assets Total financial assets Financial liabilities Financial liabilities Bank loans - unsecured a Bank loans - unsecured a USPP cross currency swaps USPP cross currency swaps Derivatives b Derivatives b Total financial liabilities Total financial liabilities 29.8 29.8 6.0 6.0 35.8 35.8 449.5 449.5 430.0 430.0 (430.0) (430.0) 449.5 449.5 30.2 30.2 55.7 55.7 85.9 85.9 200.0 200.0 430.0 430.0 (430.0) (430.0) 200.0 200.0 a a Interest on financial instruments classified as floating rate is repriced at intervals of less than one year. The floating rates Interest on financial instruments classified as floating rate is repriced at intervals of less than one year. The floating rates represent the most recently determined rate applicable to the instrument at the balance sheet date. represent the most recently determined rate applicable to the instrument at the balance sheet date. b Notional principal amounts. b Notional principal amounts. (iii) Financial instruments - interest rate swaps (iii) Financial instruments - interest rate swaps Interest rate swaps meet the requirements to qualify for cash flow hedge accounting and are stated at fair value. Interest rate swaps meet the requirements to qualify for cash flow hedge accounting and are stated at fair value. These swaps are being used to hedge the exposure to variability in cash flows attributable to movements in the These swaps are being used to hedge the exposure to variability in cash flows attributable to movements in the reference interest rate of the designated debt or instrument and are assessed as highly effective in offsetting changes reference interest rate of the designated debt or instrument and are assessed as highly effective in offsetting changes in the cash flows attributable to such movements. Hedge effectiveness is measured by comparing the change in the in the cash flows attributable to such movements. Hedge effectiveness is measured by comparing the change in the fair value of the hedged item and the hedging instrument respectively each quarter. Any difference represents fair value of the hedged item and the hedging instrument respectively each quarter. Any difference represents ineffectiveness and is recorded in the income statement. ineffectiveness and is recorded in the income statement. The notional principal amounts and periods of expiry of the interest rate swap contracts are as follows: The notional principal amounts and periods of expiry of the interest rate swap contracts are as follows: 94.0 Less than one year 94.0 Less than one year 336.0 One to five years 336.0 One to five years 100.0 More than five years 100.0 More than five years Notional Principal 530.0 Notional Principal 530.0 - - 94.0 94.0 336.0 336.0 430.0 430.0 2.4% - 7.3% 6.0% - 7.3% Fixed interest rate range p.a. 2.4% - 7.3% 6.0% - 7.3% Fixed interest rate range p.a. 2.0% Variable interest rate range p.a. 2.0% Variable interest rate range p.a. Net settlement receipts and payments are recognised as an adjustment to interest expense on an accruals basis over Net settlement receipts and payments are recognised as an adjustment to interest expense on an accruals basis over the term of the swaps, such that the overall interest expense on borrowings reflects the average cost of funds achieved the term of the swaps, such that the overall interest expense on borrowings reflects the average cost of funds achieved by entering into the swap agreements. by entering into the swap agreements. 1.7% 1.7% (iv) Financial instruments - cross currency swaps (iv) Financial instruments - cross currency swaps Cross currency swap contracts are classified as cash flow hedges and are stated at fair value. Cross currency swap contracts are classified as cash flow hedges and are stated at fair value. These cross currency swaps, in conjunction with interest rate swaps are being used to hedge the exposure to the cash These cross currency swaps, in conjunction with interest rate swaps are being used to hedge the exposure to the cash flow variability in the value of the USD debt under the USPP and are assessed as highly effective in offsetting changes flow variability in the value of the USD debt under the USPP and are assessed as highly effective in offsetting changes in movements in the forward USD exchange rate. Hedge effectiveness is measured by comparing the change in the in movements in the forward USD exchange rate. Hedge effectiveness is measured by comparing the change in the fair value of the hedged item and the hedging instrument respectively each quarter. Any difference represents fair value of the hedged item and the hedging instrument respectively each quarter. Any difference represents ineffectiveness and is recorded in the income statement. ineffectiveness and is recorded in the income statement. The principal amounts and periods of expiry of the cross currency swap contracts are as follows: The principal amounts and periods of expiry of the cross currency swap contracts are as follows: Less than one year Less than one year One to five years One to five years More than five years More than five years Notional principal Notional principal 2017 2017 2016 2016 AUD $m AUD $m 94.0 94.0 336.0 336.0 - - 430.0 430.0 USD $m USD $m 100.0 100.0 360.0 360.0 - - 460.0 460.0 AUD $m AUD $m - - 94.0 94.0 336.0 336.0 430.0 430.0 USD $m USD $m - - 100.0 100.0 360.0 360.0 460.0 460.0 Fixed interest rate range p.a. Fixed interest rate range p.a. Variable interest rate range p.a. Variable interest rate range p.a. 5.1% - 5.7% 5.1% - 5.7% 5.1% - 5.7% 5.1% - 5.7% 4.6% - 4.9% 4.6% - 4.9% 4.9% - 5.2% 4.9% - 5.2% The terms and conditions in relation to interest rate and maturity of the cross currency swaps are similar to the terms The terms and conditions in relation to interest rate and maturity of the cross currency swaps are similar to the terms and conditions of the underlying hedged USPP borrowings as set out in note B7. and conditions of the underlying hedged USPP borrowings as set out in note B7. (v) Financial instruments - forward currency contracts (v) Financial instruments - forward currency contracts Forward currency contracts meet the requirements to qualify for cash flow hedge accounting and are stated at fair Forward currency contracts meet the requirements to qualify for cash flow hedge accounting and are stated at fair value. value. These contracts are being used to hedge the exposure to variability in the movement USD exchange rate arising from These contracts are being used to hedge the exposure to variability in the movement USD exchange rate arising from the Group's operations and are assessed as highly effective hedges as they are matched against known and the Group's operations and are assessed as highly effective hedges as they are matched against known and committed payments. Any gain or loss on the hedged risk is taken directly to equity. committed payments. Any gain or loss on the hedged risk is taken directly to equity. The notional amounts and periods of expiry of the foreign currency contracts are as follows: The notional amounts and periods of expiry of the foreign currency contracts are as follows: 2017 2017 $m $m 2016 2016 $m $m Buy USD / sell AUD Buy USD / sell AUD Less than one year Less than one year One to five years One to five years More than five years More than five years Notional principal Notional principal Average exchange rate (AUD/USD) Average exchange rate (AUD/USD) 7.8 7.8 0.9 0.9 - - 8.7 8.7 0.92 0.92 7.7 7.7 8.7 8.7 - - 16.4 16.4 0.92 0.92 (vi) Financial instruments - fair value hierarchy (vi) Financial instruments - fair value hierarchy There are various methods available in estimating the fair value of a financial instrument. There are various methods available in estimating the fair value of a financial instrument. The methods comprise: The methods comprise: Level 1 Level 1 Level 2 Level 2 the fair value is calculated using quoted prices in active markets. the fair value is calculated using quoted prices in active markets. the fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for the fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices). the asset or liability, either directly (as prices) or indirectly (derived from prices). the fair value is estimated using inputs for the asset or liability that are not based on observable market the fair value is estimated using inputs for the asset or liability that are not based on observable market data. data. Level 3 Level 3 All of the Group's derivative financial instruments are valued using the Level 2 valuation techniques, being observable All of the Group's derivative financial instruments are valued using the Level 2 valuation techniques, being observable inputs. There have been no transfers between levels during the year. inputs. There have been no transfers between levels during the year. The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 110 64 64 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 65 65 111 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 F Other disclosures F Other disclosures F1 Other comprehensive income F1 Other comprehensive income Net (loss)/gain on cash flow hedges Net (loss)/gain on cash flow hedges Transfer of hedging reserve to the income statement a Transfer of hedging reserve to the income statement a Tax on above items recognised in other comprehensive income Tax on above items recognised in other comprehensive income 2017 2017 $m $m (38.3) (38.3) 19.2 19.2 5.7 5.7 (13.4) (13.4) 2016 2016 $m $m 31.9 31.9 (18.2) (18.2) (4.1) (4.1) 9.6 9.6 a The transfer related to the foreign exchange spot retranslation of the foreign debt is offset by the retranslation on the cross a The transfer related to the foreign exchange spot retranslation of the foreign debt is offset by the retranslation on the cross currency swaps in the net foreign exchange gain line in the income statement. currency swaps in the net foreign exchange gain line in the income statement. F2 Income tax F2 Income tax (i) (i) Income tax expense Income tax expense The major components of income tax expenses are: The major components of income tax expenses are: Current tax (expense) Current tax (expense) Adjustments in respect of current income tax of previous years Adjustments in respect of current income tax of previous years Deferred income tax expense Deferred income tax expense Income tax expense reported in the income statement Income tax expense reported in the income statement Aggregate of current and deferred tax relating to items charged Aggregate of current and deferred tax relating to items charged or credited to equity: or credited to equity: Current tax (expense)/benefit reported in equity Current tax (expense)/benefit reported in equity Deferred tax benefit/(expense) reported in equity Deferred tax benefit/(expense) reported in equity Income tax benefit/(expense) reported in equity Income tax benefit/(expense) reported in equity Income tax expense Income tax expense A reconciliation between income tax expense and the product of A reconciliation between income tax expense and the product of accounting profit before income tax multiplied by the income tax rate accounting profit before income tax multiplied by the income tax rate is as follows: is as follows: Accounting profit before income tax expense Accounting profit before income tax expense At the Group's statutory income tax rate of 30% At the Group's statutory income tax rate of 30% - (Recognition)/derecognition of temporary differences - (Recognition)/derecognition of temporary differences - Research & Development tax offset - Research & Development tax offset - Other items - Other items Aggregate income tax expense Aggregate income tax expense Effective income tax rate Effective income tax rate 2017 2017 $m $m (106.2) (106.2) 2.6 2.6 (12.0) (12.0) (115.6) (115.6) - - 5.7 5.7 5.7 5.7 380.0 380.0 (114.0) (114.0) (1.7) (1.7) 2.5 2.5 (2.4) (2.4) (115.6) (115.6) %30.4 %30.4 2016 2016 $m $m (80.3) (80.3) (1.5) (1.5) (3.0) (3.0) (84.8) (84.8) - - (4.1) (4.1) (4.1) (4.1) 279.2 279.2 (83.8) (83.8) (0.2) (0.2) 0.7 0.7 (1.5) (1.5) (84.8) (84.8) %30.4 %30.4 66 66 Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 (ii) Deferred tax balances (ii) Deferred tax balances The balance comprises temporary differences attributable to: The balance comprises temporary differences attributable to: 2017 2017 Employee provisions Employee provisions Other provisions and accruals Other provisions and accruals Provision for trade impaired debtors Provision for trade impaired debtors Unrealised financial liabilities Unrealised financial liabilities Other Other Deferred tax assets set off Deferred tax assets set off Intangible assets Intangible assets Property, plant and equipment Property, plant and equipment Unrealised financial assets Unrealised financial assets Other Other Balance Balance 1 July 2016 1 July 2016 $m $m 18.2 18.2 14.6 14.6 3.9 3.9 78.8 78.8 6.6 6.6 122.1 122.1 (72.4) (72.4) (133.8) (133.8) (76.8) (76.8) (21.0) (21.0) (304.0) (304.0) Recognised Recognised in the in the income income statement statement $m $m 0.1 0.1 (3.9) (3.9) 0.3 0.3 (6.2) (6.2) (0.2) (0.2) (9.9) (9.9) (1.3) (1.3) (1.9) (1.9) 5.8 5.8 (4.7) (4.7) (2.1) (2.1) Net deferred tax (liabilities)/assets Net deferred tax (liabilities)/assets (181.9) (181.9) (12.0) (12.0) Recognised Recognised directly in directly in equity equity $m $m - - - - - - (5.6) (5.6) - - Balance Balance 30 June 2017 30 June 2017 $m $m 18.3 18.3 10.7 10.7 4.2 4.2 67.0 67.0 6.4 6.4 (5.6) (5.6) 106.6 106.6 - - - - 11.3 11.3 - - 11.3 11.3 5.7 5.7 (73.7) (73.7) (135.7) (135.7) (59.7) (59.7) (25.7) (25.7) (294.8) (294.8) (188.2) (188.2) 2016 2016 Employee provisions Employee provisions Other provisions and accruals Other provisions and accruals Provision for trade impaired debtors Provision for trade impaired debtors Unrealised financial liabilities Unrealised financial liabilities Other Other Deferred tax assets set off Deferred tax assets set off Intangible assets Intangible assets Property, plant and equipment Property, plant and equipment Unrealised financial assets Unrealised financial assets Other Other Net deferred tax liabilities Net deferred tax liabilities Balance Balance 1 July 2015 1 July 2015 $m $m 17.0 17.0 14.7 14.7 2.9 2.9 72.3 72.3 9.6 9.6 Recognised Recognised in the in the income income statement statement $m $m 1.2 1.2 (0.1) (0.1) 1.0 1.0 5.0 5.0 (3.0) (3.0) Recognised Recognised directly in directly in equity equity $m $m - - - - - - 1.5 1.5 - - Balance Balance 30 June 2016 30 June 2016 $m $m 18.2 18.2 14.6 14.6 3.9 3.9 78.8 78.8 6.6 6.6 116.5 116.5 (72.7) (72.7) (135.1) (135.1) (65.8) (65.8) (17.7) (17.7) (291.3) (291.3) (174.8) (174.8) 4.1 4.1 0.3 0.3 1.3 1.3 (5.4) (5.4) (3.3) (3.3) (7.1) (7.1) (3.0) (3.0) 1.5 1.5 - - - - (5.6) (5.6) - - (5.6) (5.6) (4.1) (4.1) 122.1 122.1 (72.4) (72.4) (133.8) (133.8) (76.8) (76.8) (21.0) (21.0) (304.0) (304.0) (181.9) (181.9) The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 112 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 67 67 113 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 (iii) Tax consolidation F3 Earnings per share Effective June 2011, The Star Entertainment Group Limited (the Head Company) and its 100% owned subsidiaries 2016 formed an income tax consolidation group. Members of the tax consolidation group entered into a tax sharing arrangement that provides for the allocation of income tax liabilities between the entities should the Head Company $m default on its tax payment obligations. At balance date, the possibility of default is remote. Net profit after tax attributable to ordinary shareholders Tax effect accounting by members of the tax consolidation group 23.6 Basic earnings per share (cents per share) Members of the tax consolidation group have entered into a tax funding agreement effective June 2011. Under the 23.6 Diluted earnings per share (cents per share) terms of the tax funding agreement, the Head Company and each of the members in the tax consolidation group have agreed to make a tax equivalent payment to or from the Head Company, based on the current tax liability or current tax asset of the member. Deferred taxes are recorded by members of the tax consolidation group in accordance with the 2016 principles of AASB 112 'Income Taxes'. Calculations under the tax funding agreement are undertaken for statutory reporting purposes. Number 2017 Number 2017 $m 194.4 264.4 31.9 32.0 The allocation of taxes under the tax funding agreement is recognised as either an increase or decrease in the Weighted average number of shares used as the denominator subsidiaries' intercompany accounts with the Head Company. The Group has chosen to adopt the Group Allocation Weighted average number of ordinary shares issued method as outlined in Interpretation 1052 'Tax Consolidation Accounting' as the basis to determine each members' current and deferred taxes. The Group Allocation method as adopted by the Group will not give rise to any contribution Adjustment for calculation of diluted earnings per share: or distribution of the subsidiaries' equity accounts as there will not be any differences between the current tax amount - Adjustment for Performance Rights that is allocated under the tax funding agreement and the amount that is allocated under the Group Allocation method. Weighted average number of ordinary shares and potential ordinary shares Income tax payable as used as the denominator in calculating diluted earnings per share The balance of income tax payable is the net of current tax and tax instalments/refunds during the year. A current tax liability arises where current tax exceeds tax instalments paid and a current tax receivable arises where tax instalments paid exceed current tax. 825,672,730 827,710,326 825,672,730 825,672,730 2,037,596 F4 Other assets (iv) The income tax (payable) balance is attributable to: (Payable) 1 July 2016 (Increase) in tax payable Tax instalment paid $m $m $m Over $m Current Prepayments 2017 Other assets Tax consolidated group - year ended 30 June 2017 Tax consolidated group - year ended Non current 30 June 2016 Rental paid in advance Prior years Other assets Total Australia - (106.2) (20.8) - - - (20.8) (106.2) - Overseas subsidiaries Other assets above are shown net of impairment of nil (2016: nil). Total (20.8) (106.2) - 2017 $m Other 56.7 4.2 $m 2016 $m (Payable) 30 June 2017 34.0 $m 4.5 38.5 (28.8) - 10.0 - 5.2 (28.8) 15.2 - (28.8) 77.4 18.2 - 95.6 - 95.6 - 60.9 9.9 2.0 11.9 2.6 - 2.6 - 2.6 - - - - - - F5 Trade and other payables Trade creditors and accrued expenses Interest payable 2016 (Payable)/ receivable 1 July 2015 $m (Increase) in tax payable $m Tax instalment paid/(refund) $m (Under)/over $m 322.4 2.1 Other $m 324.5 259.9 (Payable) 2.0 30 June 2016 $m 261.9 Tax consolidated group - year ended Trade and other payables of $324.5 million were up 23.9%, predominately relating to higher gaming related (20.8) 30 June 2016 payables, representing players' funds deposited and chips in circulation at 30 June 2017. Tax consolidated group - year ended 30 June 2015 Prior years a (41.8) (80.2) (0.3) (2.7) (2.2) 44.0 59.4 1.0 2.0 - - - - - - - - Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 F3 Earnings per share F3 Earnings per share Net profit after tax attributable to ordinary shareholders Net profit after tax attributable to ordinary shareholders Basic earnings per share (cents per share) Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Diluted earnings per share (cents per share) Weighted average number of shares used as the denominator Weighted average number of shares used as the denominator Weighted average number of ordinary shares issued Weighted average number of ordinary shares issued Adjustment for calculation of diluted earnings per share: Adjustment for calculation of diluted earnings per share: Adjustment for Performance Rights Adjustment for Performance Rights Weighted average number of ordinary shares and potential ordinary shares Weighted average number of ordinary shares and potential ordinary shares as used as the denominator in calculating diluted earnings per share as used as the denominator in calculating diluted earnings per share F4 Other assets F4 Other assets Current Current Prepayments Prepayments Other assets Other assets Non current Non current Rental paid in advance Rental paid in advance Other assets Other assets Other assets above are shown net of impairment of nil (2016: nil). Other assets above are shown net of impairment of nil (2016: nil). F5 Trade and other payables F5 Trade and other payables Trade creditors and accrued expenses Trade creditors and accrued expenses Interest payable Interest payable 2017 2017 $m $m 264.4 264.4 32.0 32.0 31.9 31.9 2016 2016 $m $m 194.4 194.4 23.6 23.6 23.6 23.6 2017 2017 Number Number 2016 2016 Number Number 825,672,730 825,672,730 825,672,730 825,672,730 2,037,596 2,037,596 - - 827,710,326 827,710,326 825,672,730 825,672,730 2017 2017 $m $m 56.7 56.7 4.2 4.2 60.9 60.9 9.9 9.9 2.0 2.0 11.9 11.9 322.4 322.4 2.1 2.1 324.5 324.5 2016 2016 $m $m 34.0 34.0 4.5 4.5 38.5 38.5 10.0 10.0 5.2 5.2 15.2 15.2 259.9 259.9 2.0 2.0 261.9 261.9 Trade and other payables of $324.5 million were up 23.9%, predominately relating to higher gaming related Trade and other payables of $324.5 million were up 23.9%, predominately relating to higher gaming related payables, representing players' funds deposited and chips in circulation at 30 June 2017. payables, representing players' funds deposited and chips in circulation at 30 June 2017. Total Australia Overseas subsidiaries (39.8) - (80.2) (0.1) 100.7 0.1 (1.2) (0.3) - - (20.8) - Total a Changes in tax payable relating to amendments to the income tax returns following the application of tax consolidation tax cost (80.3) (39.8) 100.8 (1.2) (0.3) (20.8) setting process. The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 114 69 68 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 69 69 115 ANNUAL REPORT 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017THE STAR ENTERTAINMENT GROUP Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 F6 Provisions F6 Provisions Current Current Employee benefits Employee benefits Workers' compensation Workers' compensation Other Other Non-current Non-current Employee benefits Employee benefits Other Other 2017 2017 $m $m 52.8 52.8 7.6 7.6 6.1 6.1 66.5 66.5 8.2 8.2 1.7 1.7 9.9 9.9 2016 2016 $m $m 49.5 49.5 7.8 7.8 1.0 1.0 58.3 58.3 11.2 11.2 3.4 3.4 14.6 14.6 Reconciliation Reconciliation Reconciliations of each class of provision, except for employee benefits and other, at the end of each financial year are Reconciliations of each class of provision, except for employee benefits and other, at the end of each financial year are set out below: set out below: Workers' compensation reconciliation Workers' compensation reconciliation 2017 2017 Carrying amount at beginning of the year Carrying amount at beginning of the year Provisions made during the year Provisions made during the year Provisions utilised during the year Provisions utilised during the year Carrying amount at end of the year Carrying amount at end of the year Workers' Workers' compensation compensation (current) (current) $m $m 7.8 7.8 1.3 1.3 (1.5) (1.5) 7.6 7.6 Other (non- Other (non- current) current) $m $m 3.4 3.4 - - (1.7) (1.7) 1.7 1.7 2016 2016 Carrying amount at beginning of the year Carrying amount at beginning of the year Provisions made during the year Provisions made during the year Provisions utilised during the year Provisions utilised during the year Carrying amount at end of the year Carrying amount at end of the year Nature and timing of provisions Nature and timing of provisions Workers' compensation Workers' compensation The Group self insures for workers' compensation in both New South Wales and Queensland. A valuation of the The Group self insures for workers' compensation in both New South Wales and Queensland. A valuation of the estimated claims liability for workers' compensation is undertaken annually by an independent actuary. The valuations estimated claims liability for workers' compensation is undertaken annually by an independent actuary. The valuations are prepared in accordance with the relevant legislative requirements of each state and 'Professional Standard 300' of are prepared in accordance with the relevant legislative requirements of each state and 'Professional Standard 300' of the Institute of Actuaries. The estimate of claims liability includes a margin over case estimates to allow for the future the Institute of Actuaries. The estimate of claims liability includes a margin over case estimates to allow for the future development of known claims, the cost of incurred but not reported claims and claims handling expenses, which are development of known claims, the cost of incurred but not reported claims and claims handling expenses, which are determined using a range of assumptions. The timing of when these costs will be incurred is uncertain. determined using a range of assumptions. The timing of when these costs will be incurred is uncertain. 3.8 3.8 - - (0.4) (0.4) 3.4 3.4 9.2 9.2 0.5 0.5 (1.9) (1.9) 7.8 7.8 Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 F7 Other liabilities (current) F7 Other liabilities (current) Customer loyalty deferred revenue a Customer loyalty deferred revenue a Other deferred revenue Other deferred revenue 2017 2017 $m $m 18.2 18.2 2.9 2.9 21.1 21.1 2016 2016 $m $m 18.5 18.5 2.4 2.4 20.9 20.9 a The Group operates customer loyalty programs enabling customers to accumulate award credits for gaming and on-property a The Group operates customer loyalty programs enabling customers to accumulate award credits for gaming and on-property spend. A portion of the spend, equal to the fair value of the award credits earned, is treated as deferred revenue, and recognised spend. A portion of the spend, equal to the fair value of the award credits earned, is treated as deferred revenue, and recognised in the income statement when the award is redeemed or expires. in the income statement when the award is redeemed or expires. F8 Share capital and reserves F8 Share capital and reserves (i) Share capital (i) Share capital Ordinary shares - issued and fully paid a Ordinary shares - issued and fully paid a 2,580.5 2,580.5 2,580.5 2,580.5 a There is only one class of shares (ordinary shares) on issue. These ordinary shares entitle the holder to participate in dividends a There is only one class of shares (ordinary shares) on issue. These ordinary shares entitle the holder to participate in dividends and proceeds on winding up of the Company, in proportion to the number and amounts paid on the shares held. On a show of and proceeds on winding up of the Company, in proportion to the number and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. The Company does not have authorised capital nor par value in respect of its issued shares. share is entitled to one vote. The Company does not have authorised capital nor par value in respect of its issued shares. Movements in ordinary share capital Movements in ordinary share capital Balance at beginning and end of year Balance at beginning and end of year (ii) Reserves (net of tax) (ii) Reserves (net of tax) Hedging reserve a Hedging reserve a Share based payments reserve b Share based payments reserve b 2017 2017 Number of Number of shares shares 2016 2016 Number of Number of shares shares 825,672,730 825,672,730 825,672,730 825,672,730 2017 2017 $m $m (13.8) (13.8) 6.6 6.6 (7.2) (7.2) 2016 2016 $m $m (0.4) (0.4) 5.8 5.8 5.4 5.4 Nature and purpose of reserves Nature and purpose of reserves a The hedging reserve records fair value changes on the portion of the gain or loss on a hedging instrument in a cash flow hedge a The hedging reserve records fair value changes on the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective hedge. that is determined to be an effective hedge. b The share based payments reserve is used to recognise the value of equity settled share based payment transactions provided b The share based payments reserve is used to recognise the value of equity settled share based payment transactions provided to employees, including Key Management Personnel as part of their remuneration. Refer to note F10 for further details on these to employees, including Key Management Personnel as part of their remuneration. Refer to note F10 for further details on these plans. plans. (iii) Capital management (iii) Capital management The Group's objectives when managing capital are to ensure the Group continues as a going concern while providing The Group's objectives when managing capital are to ensure the Group continues as a going concern while providing optimal returns to shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to optimal returns to shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital. reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends to be paid to In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends to be paid to shareholders, return capital to shareholders or issue new shares. Gearing is managed primarily through the ratio of net shareholders, return capital to shareholders or issue new shares. Gearing is managed primarily through the ratio of net debt to earnings before interest, tax, depreciation, amortisation, impairment, significant items and share of the net loss debt to earnings before interest, tax, depreciation, amortisation, impairment, significant items and share of the net loss of associate and joint venture entities. of associate and joint venture entities. Net debt comprises interest bearing liabilities, with US dollar borrowings translated at the 30 June 2017 USD/AUD spot Net debt comprises interest bearing liabilities, with US dollar borrowings translated at the 30 June 2017 USD/AUD spot rate of 1.3003 (2016: 1.3421), after adjusting for cash and cash equivalents and derivative financial instruments. rate of 1.3003 (2016: 1.3421), after adjusting for cash and cash equivalents and derivative financial instruments. The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 116 70 70 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 71 71 117 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 The Groupʼs capital management also aims to ensure that it meets financial covenants attached to the interest bearing The Groupʼs capital management also aims to ensure that it meets financial covenants attached to the interest bearing loans and borrowings that define capital structure requirements. There have been no breaches of the financial loans and borrowings that define capital structure requirements. There have been no breaches of the financial covenants of any interest bearing loans and borrowings in the current period. Other than these banking covenants, the covenants of any interest bearing loans and borrowings in the current period. Other than these banking covenants, the Group is not subject to externally imposed capital requirements. Group is not subject to externally imposed capital requirements. Gross Debt Gross Debt Net Debt a Net Debt a EBITDA EBITDA Gearing ratio (times) Gearing ratio (times) 2017 2017 $m $m 1,045.0 1,045.0 787.5 787.5 586.2 586.2 1.3 x 1.3 x a Net debt is stated after adjusting for cash and cash equivalents less the net position of derivative financial instruments. a Net debt is stated after adjusting for cash and cash equivalents less the net position of derivative financial instruments. F9 Reconciliation of net profit after tax to net cash inflow from operations F9 Reconciliation of net profit after tax to net cash inflow from operations Net profit after tax Net profit after tax - Depreciation and amortisation - Depreciation and amortisation - Employee share based payments expense - Employee share based payments expense - Unrealised foreign exchange gain - Unrealised foreign exchange gain - Bad and doubtful debts expense - Bad and doubtful debts expense - Finance costs - Finance costs - Share of net loss of associate and joint venture entities - Share of net loss of associate and joint venture entities Working capital changes Working capital changes - (Increase) in trade and other receivables and other assets - (Increase) in trade and other receivables and other assets - (Increase) in inventories - (Increase) in inventories - Increase in trade and other payables, accruals and provisions - Increase in trade and other payables, accruals and provisions - Increase/(decrease) in tax provisions - Increase/(decrease) in tax provisions Net cash inflow from operating activities Net cash inflow from operating activities Note Note A4 A4 F10 F10 A3 A3 A3 A3 A5 A5 D5 D5 2017 2017 $m $m 264.4 264.4 164.5 164.5 3.8 3.8 (1.1) (1.1) 18.7 18.7 42.7 42.7 0.7 0.7 (99.4) (99.4) (2.9) (2.9) 62.0 62.0 19.9 19.9 473.3 473.3 2016 2016 $m $m 813.5 813.5 473.8 473.8 488.8 488.8 1.0 x 1.0 x 2016 2016 $m $m 194.4 194.4 163.8 163.8 5.6 5.6 (0.8) (0.8) 23.1 23.1 47.1 47.1 - - (48.8) (48.8) (1.7) (1.7) 11.1 11.1 (15.9) (15.9) 377.9 377.9 Operating cash flow before interest and tax was $567.9 million, up 19.0% on the pcp, with 97% EBITDA to cash Operating cash flow before interest and tax was $567.9 million, up 19.0% on the pcp, with 97% EBITDA to cash conversion ratio. conversion ratio. F10 Employee share plans F10 Employee share plans During the current and prior periods, the Company issued Performance Rights under the Long Term Performance Plan During the current and prior periods, the Company issued Performance Rights under the Long Term Performance Plan to eligible employees. The share based payment expense is $3.8 million (2016: $5.6 million) in respect of the equity to eligible employees. The share based payment expense is $3.8 million (2016: $5.6 million) in respect of the equity instruments granted is recognised in the income statement. instruments granted is recognised in the income statement. The number of Performance Rights granted to employees and forfeited or lapsed during the year are set out below. The number of Performance Rights granted to employees and forfeited or lapsed during the year are set out below. 2017 2017 Grant Date Grant Date 19 September 2012 19 September 2012 1 October 2013 1 October 2013 26 September 2014 26 September 2014 21 September 2015 21 September 2015 5 October 2016 5 October 2016 Balance at start of year Balance at start of year 540,583 540,583 461,198 461,198 895,208 895,208 662,328 662,328 - - 2,559,317 2,559,317 Granted during the year Granted during the year - - - - - - - - 1,158,988 1,158,988 1,158,988 1,158,988 Forfeited during the Forfeited year during the year - - - - - - - - 17,013 17,013 17,013 17,013 Lapsed during the Lapsed year a during the year a 540,583 540,583 - - - - - - - - 540,583 540,583 Vested during the year Vested during the year - - - - - - - - - - - - Balance at end of year Balance at end of year - - 461,198 461,198 895,208 895,208 662,328 662,328 1,141,975 1,141,975 3,160,709 3,160,709 2016 2016 Grant Date Grant Date 19 September 2012 19 September 2012 1 October 2013 1 October 2013 26 September 2014 26 September 2014 21 September 2015 21 September 2015 Granted during the year Granted during the year - - - - - - 696,893 696,893 696,893 696,893 Balance at start of year Balance at start of year 540,583 540,583 461,198 461,198 895,208 895,208 - - 1,896,989 1,896,989 Balance at end of year Balance at end of year 540,583 540,583 461,198 461,198 895,208 895,208 662,328 662,328 2,559,317 2,559,317 The grant on 19 September 2012 included market-based hurdles. Grants from 1 October 2013 includes a market The grant on 19 September 2012 included market-based hurdles. Grants from 1 October 2013 includes a market based hurdle (relative TSR) and an EPS component. The Performance Rights have been independently valued. For based hurdle (relative TSR) and an EPS component. The Performance Rights have been independently valued. For the relative TSR component, valuation was based on assumptions underlying the Black-Scholes methodology to the relative TSR component, valuation was based on assumptions underlying the Black-Scholes methodology to produce a Monte-Carlo simulation model. For the EPS component, a discounted cash flow technique was utilised. The produce a Monte-Carlo simulation model. For the EPS component, a discounted cash flow technique was utilised. The total value does not contain any specific discount for forfeiture if the employee leaves the Group during the vesting total value does not contain any specific discount for forfeiture if the employee leaves the Group during the vesting period. This adjustment, if required, is based on the number of equity instruments expected to vest at the end of each period. This adjustment, if required, is based on the number of equity instruments expected to vest at the end of each reporting period. reporting period. Lapsed during the year Lapsed during the year - - - - - - - - - - Vested during the year Vested during the year - - - - - - - - - - Forfeited during the Forfeited year during the year - - - - - - 34,565 34,565 34,565 34,565 a Performance rights granted on 19 September 2012 were tested on 19 September 2016 and did not vest. The TSR percentile rank for the Company was 46.77% and TSR was 54.54%; as a result these Performance Rights lapsed and no shares were issued to a Performance rights granted on 19 September 2012 were tested on 19 September 2016 and did not vest. The TSR percentile rank participants. for the Company was 46.77% and TSR was 54.54%; as a result these Performance Rights lapsed and no shares were issued to participants. The key assumptions underlying the Performance Rights valuations are set out below: The key assumptions underlying the Performance Rights valuations are set out below: Effective grant date Effective grant date 19 September 2012 19 September 2012 1 October 2013 1 October 2013 26 September 2014 26 September 2014 21 September 2015 21 September 2015 5 October 2016 5 October 2016 Test and vesting date Test and vesting date 19 September 2016 19 September 2016 1 October 2017 1 October 2017 26 September 2018 26 September 2018 21 September 2019 21 September 2019 5 October 2020 5 October 2020 Share price at date of Share price grant at date of grant $ $ 3.86 3.86 2.68 2.68 3.31 3.31 4.82 4.82 5.89 5.89 Expected volatility in Expected share price volatility in share price % % % % % % % % % % % % 25.00 25.00 27.00 27.00 27.00 27.00 28.00 28.00 25.03 25.03 Expected dividend yield Expected dividend yield % % %2.18 %2.18 %1.75 %1.75 %2.90 %2.90 %2.70 %2.70 %2.74 %2.74 Risk free interest rate Risk free interest rate % % %2.70 %2.70 %3.03 %3.03 %2.88 %2.88 %1.98 %1.98 %1.68 %1.68 Average Fair Value per Average Fair Performance Value per Right Performance Right $ $ 2.20 2.20 2.01 2.01 2.45 2.45 3.53 3.53 4.27 4.27 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 118 72 72 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 73 73 119 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 F11 Auditor's remuneration F11 Auditor's remuneration Amounts received or due and receivable by Ernst & Young (Australia) for: Amounts received or due and receivable by Ernst & Young (Australia) for: - An audit or review of the Financial Report of the Company and any other - An audit or review of the Financial Report of the Company and any other entity in the consolidated group entity in the consolidated group - Other services in relation to the Company and any other entity in the - Other services in relation to the Company and any other entity in the consolidated group: consolidated group: - Assurance related - Assurance related - Other non-audit services including taxation services - Other non-audit services including taxation services Amounts received or due and receivable by related practices of Ernst & Amounts received or due and receivable by related practices of Ernst & Young (Australia) for: Young (Australia) for: - Assurance related services - Assurance related services 2017 2017 $ $ 2016 2016 $ $ 899,603 899,603 827,499 827,499 - - 272,439 272,439 - - 301,661 301,661 1,172,042 1,172,042 1,129,160 1,129,160 - - - - The auditor of the Company and its controlled entities is Ernst & Young. From time to time, Ernst & Young provides The auditor of the Company and its controlled entities is Ernst & Young. From time to time, Ernst & Young provides other services to the Group, which are subject to strict corporate governance procedures encompassing the selection other services to the Group, which are subject to strict corporate governance procedures encompassing the selection of service providers and the setting of their remuneration. The Chair of the Audit Committee (or authorised delegate) of service providers and the setting of their remuneration. The Chair of the Audit Committee (or authorised delegate) must approve any other services provided by Ernst & Young to the Group. must approve any other services provided by Ernst & Young to the Group. 74 74 Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 G Accounting policies and corporate information G Accounting policies and corporate information Investments Commission Investments Commission Significant accounting policies are contained within the Significant accounting policies are contained within the financial statement notes to which they relate and are not financial statement notes to which they relate and are not detailed in this section. detailed in this section. Corporate Information Corporate Information The Star Entertainment Group Limited (the Company) is The Star Entertainment Group Limited (the Company) is a company incorporated and domiciled in Australia. The a company incorporated and domiciled in Australia. The Financial Report of the Company for the year ended 30 Financial Report of the Company for the year ended 30 June 2017 comprises the Company and its controlled June 2017 comprises the Company and its controlled entities (collectively referred to as the Group). The entities (collectively referred to as the Group). The Company's registered office is Level 3, 159 William Company's registered office is Level 3, 159 William Street, Brisbane QLD 4000. Street, Brisbane QLD 4000. The Company is of the kind specified in Australian The Company is of the kind specified in Australian (ASIC) Securities and Securities and (ASIC) Instrument 2016/191. In accordance with that Instrument, Instrument 2016/191. In accordance with that Instrument, amounts in the Financial Report and the Directors' amounts in the Financial Report and the Directors' Report have been rounded to the nearest hundred Report have been rounded to the nearest hundred to be thousand dollars, unless specifically stated to be thousand dollars, unless specifically stated otherwise. All amounts are in Australian dollars ($). The otherwise. All amounts are in Australian dollars ($). The Company is a for profit organisation. Company is a for profit organisation. The Financial Report was authorised for issue by the The Financial Report was authorised for issue by the Directors on 23 August 2017. Directors on 23 August 2017. Basis of preparation Basis of preparation The Financial Report is a general purpose Financial The Financial Report is a general purpose Financial Report which has been prepared in accordance with the Report which has been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards Corporations Act 2001, Australian Accounting Standards and other mandatory Financial Reporting requirements in and other mandatory Financial Reporting requirements in Australia. Australia. International financial statements comply with The The International financial statements comply with Financial Reporting Standards (IFRS) as issued by the Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. International Accounting Standards Board. The financial statements have been prepared under the The financial statements have been prepared under the historical cost convention except as disclosed in the historical cost convention except as disclosed in the accounting policies below and elsewhere in this report. accounting policies below and elsewhere in this report. The policies used in preparing the financial statements The policies used in preparing the financial statements are consistent with those of the previous year except as are consistent with those of the previous year except as indicated under 'Changes in accounting policies and indicated under 'Changes in accounting policies and disclosures'. disclosures'. Significant accounting judgements, estimates and Significant accounting judgements, estimates and assumptions assumptions Preparation of the financial statements in conformity with Preparation of the financial statements in conformity with Australian Accounting Standards and IFRS requires Australian Accounting Standards and IFRS requires judgements, estimates and management management judgements, estimates and assumptions that affect the reported amounts of assets assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported at the date of the financial statements and the reported amounts of revenues and expenses during the reporting amounts of revenues and expenses during the reporting period. period. In the process of applying the Group's accounting In the process of applying the Group's accounting following policies, management has made policies, management has made following judgements, which have the most significant effect on judgements, which have the most significant effect on the amounts recognised in the consolidated financial the amounts recognised in the consolidated financial statements: statements: − Asset useful lives and residual values (refer notes A4 − Asset useful lives and residual values (refer notes A4 − Impairment of assets (refer note B6); − Impairment of assets (refer note B6); − Valuation of derivatives and other − Valuation of derivatives and other to make to make and B5); and B5); financial financial the the instruments (refer note B3); instruments (refer note B3); note B2); note B2); in outcomes in outcomes − Provision for impairment of trade receivables (refer − Provision for impairment of trade receivables (refer − Significant items (refer note A7); and − Significant items (refer note A7); and − Provisions (refer note F6). − Provisions (refer note F6). Uncertainty about these assumptions and estimates Uncertainty about these assumptions and estimates that require a material could result could result that require a material adjustment to the carrying amount of the asset or liability adjustment to the carrying amount of the asset or liability in future periods. in future periods. Changes in accounting policies and disclosures Changes in accounting policies and disclosures The Group has adopted the following new and amended The Group has adopted the following new and amended accounting standards, which became applicable from 1 accounting standards, which became applicable from 1 July 2016: July 2016: Reference Reference AASB 2014-4 AASB 2014-4 Title Title Clarification of Acceptable Methods of Clarification of Acceptable Methods of Amortisation and Depreciation Depreciation Amortisation and (Amendments to AASB 116 and AASB (Amendments to AASB 116 and AASB 138) 138) Amendments to Australian Accounting Amendments to Australian Accounting Standards – Annual Improvements to Standards – Annual Improvements to Standards Accounting Australian Australian Standards Accounting 2012-2014 Cycle 2012-2014 Cycle Amendments to Australian Accounting Amendments to Australian Accounting Initiative Standards Standards Initiative Amendments to AASB 101 Amendments to AASB 101 Amendments to Australian Accounting Amendments to Australian Accounting for Accounting - Standards Accounting - for Standards in Joint Interest Acquisitions of Acquisitions of in Joint Interest Operations (AASB 1 & AASB 11) Operations (AASB 1 & AASB 11) - Disclosure - Disclosure AASB 2015-1 AASB 2015-1 AASB 2015-2 AASB 2015-2 AASB 2014-3 AASB 2014-3 Financial Instruments Financial Instruments The adoption of these standards did not have any The adoption of these standards did not have any material effect on the financial position or performance of material effect on the financial position or performance of the Group, additional disclosures have been made where the Group, additional disclosures have been made where required. required. Standards and amendments issued but not yet Standards and amendments issued but not yet effective effective The Group has not applied Australian Accounting The Group has not applied Australian Accounting Standards and IFRS that were issued or amended but Standards and IFRS that were issued or amended but not yet effective. Those significant pronouncements are not yet effective. Those significant pronouncements are disclosed in the table below: disclosed in the table below: Application Reference Title date Application Reference Title date AASB 9 * 1 January 2018 AASB 9 * 1 January 2018 AASB 15 * Revenue from Contracts with Customers 1 January 2018 AASB 15 * Revenue from Contracts with Customers 1 January 2018 AASB 16 * Leases 1 January 2019 AASB 16 * Leases 1 January 2019 *AASB 9 will replace AASB 139 and introduces a single, *AASB 9 will replace AASB 139 and introduces a single, impairment model and a loss forward-looking expected impairment model and a loss forward-looking expected substantially reformed approach to hedge accounting. substantially reformed approach to hedge accounting. AASB 9 is effective for annual periods beginning on or after 1 AASB 9 is effective for annual periods beginning on or after 1 January 2018. The impact of the adoption is not expected to be January 2018. The impact of the adoption is not expected to be material. The new Standard will not result in a significant change material. The new Standard will not result in a significant change to the classification of financial assets and liabilities. Based on to the classification of financial assets and liabilities. Based on the Group's current derivative portfolio, the Group does not the Group's current derivative portfolio, the Group does not expect a significant impact on hedge accounting. Under AASB9, expect a significant impact on hedge accounting. Under AASB9, hedge effectiveness testing will only be performed on a hedge effectiveness testing will only be performed on a prospective basis. prospective basis. *AASB 15 replaces AASB 111, AASB 118 and related IFRIC *AASB 15 replaces AASB 111, AASB 118 and related IFRIC Interpretations. AASB 15 provides a new five step approach for Interpretations. AASB 15 provides a new five step approach for revenue recognition in determining when and how revenue revenue recognition in determining when and how revenue should be recognised. The core principle of the new standard is should be recognised. The core principle of the new standard is that revenue is recognised in a manner that depicts the transfer that revenue is recognised in a manner that depicts the transfer of promised goods or services to customers in an amount that of promised goods or services to customers in an amount that 75 75 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 120 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 121 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 to recognise to recognise reflects the consideration to which the Group expects to be reflects the consideration to which the Group expects to be entitled. Under the approach, revenue is recognised once the entitled. Under the approach, revenue is recognised once the performance obligations of a contract are satisfied. performance obligations of a contract are satisfied. The standard permits entities to apply guidance retrospectively The standard permits entities to apply guidance retrospectively the with comparative balances restated or the with comparative balances restated or cumulative effect of initially applying the standard as an opening cumulative effect of initially applying the standard as an opening adjustment to retained earnings on 1 July 2018. adjustment to retained earnings on 1 July 2018. AASB 15 includes extensive disclosure requirements intended AASB 15 includes extensive disclosure requirements intended to enable users of financial statements to understand judgments to enable users of financial statements to understand judgments related to revenue recognition. related to revenue recognition. The Group continues to assess the impact of adopting the new The Group continues to assess the impact of adopting the new standard on its consolidated financial statements. standard on its consolidated financial statements. *Under AASB 16, the distinction between finance and operating *Under AASB 16, the distinction between finance and operating leases is eliminated for lessees (with the exception of short-term leases is eliminated for lessees (with the exception of short-term and low value leases). Both finance leases and operating leases and low value leases). Both finance leases and operating leases will result in the recognition a right-of-use (“ROU”) asset and a will result in the recognition a right-of-use (“ROU”) asset and a corresponding lease liability on the balance sheet. The liability is corresponding lease liability on the balance sheet. The liability is initially measured at the present value of future lease payments initially measured at the present value of future lease payments for the lease term and the ROU asset reflects the lease liability for the lease term and the ROU asset reflects the lease liability and initial direct costs, less any lease incentives and amounts and initial direct costs, less any lease incentives and amounts required for dismantling. required for dismantling. AASB 16 must be implemented retrospectively, however the AASB 16 must be implemented retrospectively, however the Group has the option as to whether restate comparatives or Group has the option as to whether restate comparatives or have the cumulative impact of application recognised in opening have the cumulative impact of application recognised in opening retained earnings on 1 July 2019 ("modified retrospective retained earnings on 1 July 2019 ("modified retrospective approach"). approach"). The standard is expected to have a material impact on the The standard is expected to have a material impact on the Group's consolidated balance sheet and income statement. Group's consolidated balance sheet and income statement. The ROU asset and lease liability is expected to be material for The ROU asset and lease liability is expected to be material for the Group's current lease portfolio, including long-term leases the Group's current lease portfolio, including long-term leases for the Sydney and Brisbane properties. The transition to AASB for the Sydney and Brisbane properties. The transition to AASB 16 will result in a change in presentation in the consolidated 16 will result in a change in presentation in the consolidated income statement. Rental expenses currently disclosed under income statement. Rental expenses currently disclosed under interest expense property costs will be replaced by an property costs will be replaced by an interest expense attributable to the lease liability and a depreciation charge for attributable to the lease liability and a depreciation charge for the ROU asset. the ROU asset. The Group will continue to assess the impact of the standard The Group will continue to assess the impact of the standard with the next steps including a detailed review of all agreements. with the next steps including a detailed review of all agreements. Basis of consolidation Basis of consolidation Controlled entities Controlled entities The Group controls an entity when the Group is exposed, The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns the entity and has the ability to affect those returns through its power over the entity. through its power over the entity. Controlled entities are consolidated from the date control Controlled entities are consolidated from the date control longer is longer is consolidated from the date control ceases. consolidated from the date control ceases. transactions, balances and unrealised Intercompany Intercompany transactions, balances and unrealised gains on transactions between Group companies are gains on transactions between Group companies are eliminated. eliminated. Foreign currency Foreign currency The consolidated financial statements are presented in The consolidated financial statements are presented in Australian dollars ($) which is the Group's functional and Australian dollars ($) which is the Group's functional and presentation currency. presentation currency. Transactions and balances Transactions and balances Transactions denominated in foreign currencies are Transactions denominated in foreign currencies are the translated at translated at the transaction date. transaction date. Monetary items denominated in foreign currencies are Monetary items denominated in foreign currencies are translated at the rate of exchange ruling at the end of the translated at the rate of exchange ruling at the end of the reporting period. Gains and losses arising from the reporting period. Gains and losses arising from the the rate of exchange ruling on the rate of exchange ruling on the Group and are no the Group and are no transferred transferred to to the effective the effective translation are credited or charged to the income translation are credited or charged to the income statement with the exception of differences on foreign statement with the exception of differences on foreign currency borrowings that are in an effective hedge currency borrowings that are in an effective hedge relationship. These are taken directly to equity until the relationship. These are taken directly to equity until the liability is extinguished, at which time they are recognised liability is extinguished, at which time they are recognised in the income statement. in the income statement. Net finance costs Net finance costs Finance income is recognised as the interest accrues, Finance income is recognised as the interest accrues, interest method. Finance costs using interest method. Finance costs using consist of interest and other borrowing costs incurred in consist of interest and other borrowing costs incurred in connection with the borrowing of funds. Finance costs connection with the borrowing of funds. Finance costs directly associated with qualifying assets are capitalised, directly associated with qualifying assets are capitalised, all other finance costs are expensed in the period, in all other finance costs are expensed in the period, in which they occur. which they occur. Taxation Taxation Income tax Income tax Income tax comprises current and deferred income tax. Income tax comprises current and deferred income tax. Income tax is recognised in the income statement except Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable Current tax is the expected tax payable on the taxable income for the period, and any adjustment to tax payable income for the period, and any adjustment to tax payable in respect of previous years. in respect of previous years. Deferred tax is provided using the balance sheet method, Deferred tax is provided using the balance sheet method, providing for temporary differences between the carrying providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: The following temporary differences are not provided for: − goodwill; and − goodwill; and − the initial recognition of an asset or liability in a − the initial recognition of an asset or liability in a transaction which is not a business combination and transaction which is not a business combination and that affect neither accounting nor taxable profit at the that affect neither accounting nor taxable profit at the time of the transaction. time of the transaction. The amount of deferred tax provided is based on the The amount of deferred tax provided is based on the expected manner of realisation or settlement of the expected manner of realisation or settlement of the carrying amount of assets and liabilities. carrying amount of assets and liabilities. A deferred tax asset is recognised only to the extent that A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available it is probable that future taxable profits will be available against which the asset can be utilised. against which the asset can be utilised. Deferred tax assets and deferred tax liabilities are offset Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity tax assets and liabilities relate to the same taxable entity and the same taxation authority. and the same taxation authority. Deferred income tax assets and liabilities are measured Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. substantively enacted at the reporting date. Goods and Services Tax (GST) Goods and Services Tax (GST) Revenues, expenses, assets and liabilities are Revenues, expenses, assets and liabilities are recognised net of the amount of GST except: recognised net of the amount of GST except: − when the GST incurred on a purchase of goods and − when the GST incurred on a purchase of goods and taxation recoverable services services taxation recoverable authority, in which case the GST is recognised as authority, in which case the GST is recognised as 76 76 is not is not from from the the part of the cost of acquisition of the asset or as part part of the cost of acquisition of the asset or as part of the expense item as applicable; of the expense item as applicable; − casino revenues, due to the GST being offset against − casino revenues, due to the GST being offset against − receivables and payables, which are stated with the − receivables and payables, which are stated with the government taxes; and government taxes; and amount of GST included. amount of GST included. The net amount of GST recoverable from, or payable to, The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or the taxation authority is included as part of receivables or payables in the balance sheet. payables in the balance sheet. Cash flows are included in the statement of cash flows Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority is recoverable from, or payable to, the taxation authority is classified as operating cash flows. classified as operating cash flows. Cash and cash equivalents Cash and cash equivalents Cash and cash equivalents are carried in the balance Cash and cash equivalents are carried in the balance sheet at face value. Cash and cash equivalents include sheet at face value. Cash and cash equivalents include cash balances and call deposits with an original maturity cash balances and call deposits with an original maturity of three months or less. Bank overdrafts that are of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the repayable on demand and form an integral part of the Group's cash management are included as a component Group's cash management are included as a component of cash for the purpose of the statement of cash flows. of cash for the purpose of the statement of cash flows. Trade and other receivables Trade and other receivables Trade receivables are recognised and carried at original Trade receivables are recognised and carried at original settlement amount less a provision for impairment, settlement amount less a provision for impairment, where applicable. Bad debts are written off when they where applicable. Bad debts are written off when they are known to be uncollectible. Subsequent recoveries of are known to be uncollectible. Subsequent recoveries of amounts previously written off are credited to the income amounts previously written off are credited to the income statement. Other receivables are carried at amortised statement. Other receivables are carried at amortised cost less impairment. cost less impairment. Inventories Inventories food and include consumable stores, Inventories Inventories food and include consumable stores, beverage and are carried at the lower of cost and net beverage and are carried at the lower of cost and net realisable value. Inventories are costed on a weighted realisable value. Inventories are costed on a weighted average basis. Net realisable value is the estimated average basis. Net realisable value is the estimated selling price in the ordinary course of business. selling price in the ordinary course of business. Property, plant and equipment Property, plant and equipment Refer to notes A4 and B4 for further details of the Refer to notes A4 and B4 for further details of the accounting policy, including useful lives of property, plant accounting policy, including useful lives of property, plant and equipment. and equipment. Freehold land is included at cost and is not depreciated. Freehold land is included at cost and is not depreciated. All other items of property, plant and equipment are All other items of property, plant and equipment are stated at historical cost net of depreciation, amortisation stated at historical cost net of depreciation, amortisation and impairment, and depreciated over periods deemed and impairment, and depreciated over periods deemed appropriate to reduce carrying values to estimated appropriate to reduce carrying values to estimated residual values over their useful lives. Historical cost residual values over their useful lives. Historical cost includes expenditure that is directly attributable to the includes expenditure that is directly attributable to the acquisition of these items. acquisition of these items. Gains and losses on disposals are determined by Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and comparing the proceeds with the carrying amount and are recognised in the income statement. are recognised in the income statement. When the carrying amount of an asset is greater than its When the carrying amount of an asset is greater than its is written down it estimated estimated is written down it immediately to its recoverable amount. immediately to its recoverable amount. Costs arising subsequent to the acquisition of an asset Costs arising subsequent to the acquisition of an asset recoverable amount, recoverable amount, The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 122 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities reliably. All other reliably. All other with the item will flow to the entity; and with the item will flow to the entity; and are included in the asset's carrying amount or recognised are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is as a separate asset, as appropriate, only when it is probable that future economic benefits associated with probable that future economic benefits associated with the item will flow to the Group and the cost of the item the item will flow to the Group and the cost of the item repairs and can be measured can be measured repairs and maintenance costs are charged to the income statement maintenance costs are charged to the income statement during the financial year in which they are incurred. during the financial year in which they are incurred. Costs relating to development projects are recognised as Costs relating to development projects are recognised as an asset when it is: an asset when it is: − probable that any future economic benefit associated − probable that any future economic benefit associated − it can be measured reliably. − it can be measured reliably. If it becomes apparent that the development will not If it becomes apparent that the development will not occur, the amount is expensed to the income statement. occur, the amount is expensed to the income statement. Intangible assets Intangible assets Goodwill Goodwill Goodwill represents the excess of the consideration Goodwill represents the excess of the consideration transferred over the fair value of the identifiable net transferred over the fair value of the identifiable net assets acquired and liabilities assumed. Goodwill is assets acquired and liabilities assumed. Goodwill is assessed for impairment on an annual basis and is assessed for impairment on an annual basis and is carried at cost less accumulated impairment losses. carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Impairment losses on goodwill are not reversed. Goodwill is allocated to cash generating units for the Goodwill is allocated to cash generating units for the purpose of impairment testing. The allocation is made to purpose of impairment testing. The allocation is made to those cash generating units or groups of cash generating those cash generating units or groups of cash generating units that are expected to benefit from the business units that are expected to benefit from the business combination in which the goodwill arose. combination in which the goodwill arose. Other intangible assets Other intangible assets Indefinite life intangible assets are not amortised and are Indefinite life intangible assets are not amortised and are impairment. Expenditure on assessed annually impairment. Expenditure on assessed annually gaming licences acquired, casino concessions acquired, gaming licences acquired, casino concessions acquired, computer software and other intangibles are capitalised computer software and other intangibles are capitalised line method as and amortised using and amortised using line method as described in note B5. described in note B5. Software Software Costs associated with developing or maintaining Costs associated with developing or maintaining recognised as computer software programs are computer software programs are recognised as expenses as incurred. However, costs that are directly expenses as incurred. However, costs that are directly associated with identifiable and unique software products associated with identifiable and unique software products controlled by the Group and which have probable controlled by the Group and which have probable economic benefits exceeding the costs beyond one year economic benefits exceeding the costs beyond one year are recognised as intangible assets. Direct costs include are recognised as intangible assets. Direct costs include staff costs of the software development team and an staff costs of the software development team and an relevant overheads. appropriate portion of relevant overheads. appropriate portion of is Expenditure meeting Expenditure meeting is recognised as a capital improvement and added to the recognised as a capital improvement and added to the original cost of the asset. These costs are amortised original cost of the asset. These costs are amortised over using the straight line method, as described in note over using the straight line method, as described in note B5. B5. Casino licences and concessions Casino licences and concessions Refer to note B5 for details and accounting policy. Refer to note B5 for details and accounting policy. the definition of an asset the definition of an asset the straight the straight the the for for 77 77 123 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 Impairment of assets Impairment of assets Assets that have an indefinite useful life are not subject Assets that have an indefinite useful life are not subject to depreciation or amortisation and are tested annually to depreciation or amortisation and are tested annually for impairment. Assets that are subject to depreciation or for impairment. Assets that are subject to depreciation or amortisation are reviewed for impairment whenever amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value recoverable amount is the higher of an asset's fair value less costs of disposal and value in use. For the purpose less costs of disposal and value in use. For the purpose of assessing impairment, assets are grouped at the of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable lowest level for which there are separately identifiable cash flows (cash generating units). Refer to note B6 for cash flows (cash generating units). Refer to note B6 for further details of key assumptions included in the further details of key assumptions included in the impairment calculation. impairment calculation. Provisions Provisions A provision is recognised in the balance sheet when the A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow result of a past event, and it is probable that an outflow of economic benefits will be required to settle the of economic benefits will be required to settle the obligation and the amount can be reliably estimated. If obligation and the amount can be reliably estimated. If the effect is material, provisions are determined by the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific value of money and, where appropriate, the risks specific to the liability. to the liability. Investment in associate and joint venture entities Investment in associate and joint venture entities Associates are all entities over which the Group has Associates are all entities over which the Group has significant influence but not control or joint control. Joint significant influence but not control or joint control. Joint control is the contractually agreed sharing of the joint control is the contractually agreed sharing of the joint arrangement, which exists only when decisions about the arrangement, which exists only when decisions about the relevant activities require unanimous consent of the relevant activities require unanimous consent of the parties sharing control. A joint venture is a type of parties sharing control. A joint venture is a type of arrangement whereby the parties that have joint control arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the of the arrangement have rights to the net assets of the joint venture. The Group's investments in associate and joint venture. The Group's investments in associate and joint venture entities are accounted for using the equity joint venture entities are accounted for using the equity method of accounting, after initially being recognised at method of accounting, after initially being recognised at cost. Under the equity method of accounting, the cost. Under the equity method of accounting, the investments are initially recognised at cost and are investments are initially recognised at cost and are subsequently adjusted to recognise the Group's share of subsequently adjusted to recognise the Group's share of the post-acquisition profits or losses of the investee in the post-acquisition profits or losses of the investee in the Group's share of the the the Group's share of movements in other comprehensive income of the movements in other comprehensive income of the investee in other comprehensive income. Dividends investee in other comprehensive income. Dividends received are recognised as a reduction in the carrying received are recognised as a reduction in the carrying amount of the investment. The carrying amount of equity- amount of the investment. The carrying amount of equity- in tested investments accounted accounted tested investments in accordance with the Group's policy. accordance with the Group's policy. Interest bearing liabilities Interest bearing liabilities Interest bearing liabilities are recognised initially at fair Interest bearing liabilities are recognised initially at fair value and include transaction costs. Subsequent to initial value and include transaction costs. Subsequent to initial recognition, interest bearing liabilities are recognised at recognition, interest bearing liabilities are recognised at amortised cost using the effective interest rate method. amortised cost using the effective interest rate method. Any difference between proceeds and the redemption Any difference between proceeds and the redemption value is recognised in the income statement over the value is recognised in the income statement over the period of the borrowing using the effective interest rate period of the borrowing using the effective interest rate method. method. income statement, and income statement, and impairment impairment for for is is liabilities are classified as current Interest bearing Interest bearing liabilities are classified as current liabilities unless the Group has an unconditional right to liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months defer settlement of the liability for at least 12 months after the balance sheet date. after the balance sheet date. Leases Leases Leases of assets where the Group assumes substantially Leases of assets where the Group assumes substantially all the benefits and risks of ownership are classified as all the benefits and risks of ownership are classified as finance leases. finance leases. Leases of assets under which substantially all the risks Leases of assets under which substantially all the risks and benefits of ownership are effectively retained by the and benefits of ownership are effectively retained by the lessor are classified as operating leases. Payments lessor are classified as operating leases. Payments made under operating leases are charged to the income made under operating leases are charged to the income statement on a straight line basis over the period of the statement on a straight line basis over the period of the lease. lease. Employee benefits Employee benefits Post-employment benefits Post-employment benefits The Group's commitment to defined contribution plans is The Group's commitment to defined contribution plans is limited to making the contributions in accordance with limited to making the contributions in accordance with the minimum statutory requirements. There is no legal or the minimum statutory requirements. There is no legal or constructive obligation to pay further contributions if the constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employees fund does not hold sufficient assets to pay all employees relating to current and past employee services. relating to current and past employee services. Superannuation guarantee charges are recognised as Superannuation guarantee charges are recognised as expenses in the income statement as the contributions expenses in the income statement as the contributions become payable. A liability is recognised when the become payable. A liability is recognised when the Group is required to make future payments as a result of Group is required to make future payments as a result of employees' services provided. employees' services provided. Long service leave Long service leave The Group's net obligation in respect of long term service The Group's net obligation in respect of long term service benefits, other than pension plans, is the amount of benefits, other than pension plans, is the amount of future benefit that employees have earned in return for future benefit that employees have earned in return for their service in the current and prior periods. The their service in the current and prior periods. The future obligation obligation future increases in wage and salary rates including related on- increases in wage and salary rates including related on- costs and expected settlement dates, and is discounted costs and expected settlement dates, and is discounted using rates attached to bonds with sufficiently long using rates attached to bonds with sufficiently long maturities at the balance sheet date, which have maturity maturities at the balance sheet date, which have maturity the Group's the dates approximating the Group's dates approximating the obligations. obligations. Annual leave Annual leave Liabilities for annual leave are calculated at discounted Liabilities for annual leave are calculated at discounted amounts based on remuneration rates the Group expects amounts based on remuneration rates the Group expects to pay, including related on-costs when the liability is to pay, including related on-costs when the liability is expected to be settled. Annual leave is another long term expected to be settled. Annual leave is another long term benefit and is measured using the projected credit unit benefit and is measured using the projected credit unit method. method. Share based payment transactions Share based payment transactions The Company operates the Long Term Performance The Company operates the Long Term Performance Plan (LTPP), which is available to employees at the most Plan (LTPP), which is available to employees at the most senior executive levels. Under the LTPP, employees may senior executive levels. Under the LTPP, employees may become entitled to Performance Rights which may become entitled to Performance Rights which may potentially convert to ordinary shares in the Company. potentially convert to ordinary shares in the Company. The fair value of Performance Rights is measured at The fair value of Performance Rights is measured at grant date and is recognised as an employee expense grant date and is recognised as an employee expense (with a corresponding increase in the share based (with a corresponding increase in the share based payment reserve) over four years from the grant date payment reserve) over four years from the grant date irrespective of whether the Performance Rights vest to irrespective of whether the Performance Rights vest to 78 78 is calculated using is calculated using the expected the expected terms of terms of to to in in fair value fair value recognised recognised the holder. A reversal of the expense is only recognised the holder. A reversal of the expense is only recognised in the event the instruments lapse due to cessation of in the event the instruments lapse due to cessation of employment within the vesting period. employment within the vesting period. The fair value of the Performance Rights is determined The fair value of the Performance Rights is determined by an external valuer and takes into account the terms by an external valuer and takes into account the terms and conditions upon which the Performance Rights were and conditions upon which the Performance Rights were granted. granted. Under the Company's short term performance plan Under the Company's short term performance plan (STPP), eligible employees receive two thirds of their (STPP), eligible employees receive two thirds of their annual STPP entitlement in cash and one third in the annual STPP entitlement in cash and one third in the form of restricted shares which are subject to a holding form of restricted shares which are subject to a holding lock for a period of twelve months. These shares are lock for a period of twelve months. These shares are forfeited in the event that the employee voluntarily forfeited in the event that the employee voluntarily terminates from the Company during the 12 month terminates from the Company during the 12 month holding lock period. holding lock period. The cost is recognised in employment costs, together The cost is recognised in employment costs, together with a corresponding increase in equity (share based with a corresponding increase in equity (share based payment reserve) over the service period. No expense is payment reserve) over the service period. No expense is recognised for awards that do not ultimately vest. A recognised for awards that do not ultimately vest. A liability is recognised for the fair value of cash settled liability is recognised for the fair value of cash settled transactions. The fair value is measured initially and at transactions. The fair value is measured initially and at each reporting date up to and including the settlement each reporting date up to and including the settlement in date, with changes date, with changes in employment costs. employment costs. Derivative financial instruments Derivative financial instruments The Group uses derivative financial instruments to hedge The Group uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks its exposure to foreign exchange and interest rate risks investment from operational, arising investment arising from operational, activities. In accordance with its Treasury Policy, the activities. In accordance with its Treasury Policy, the financial Group does not hold or Group does not hold or financial instruments for trading purposes. However, derivatives instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted that do not qualify for hedge accounting are accounted for as trading instruments. for as trading instruments. Derivative financial instruments are recognised initially at Derivative financial instruments are recognised initially at fair value at the date the derivative contract is entered fair value at the date the derivative contract is entered into and are subsequently remeasured to fair value at the into and are subsequently remeasured to fair value at the end of each reporting period. The resulting gain or loss is end of each reporting period. The resulting gain or loss is income statement. in recognised income statement. recognised in However, where derivatives qualify for cash flow hedge However, where derivatives qualify for cash flow hedge accounting, the effective portion of the gain or loss is accounting, the effective portion of the gain or loss is is in equity while deferred deferred in equity while is recognised in the income statement. recognised in the income statement. The fair value of interest rate swap, cross currency swap The fair value of interest rate swap, cross currency swap is determined by and and is determined by reference to market values for similar instruments. Refer reference to market values for similar instruments. Refer to note E2 for details of fair value determination. to note E2 for details of fair value determination. Derivative assets and liabilities are offset and the net Derivative assets and liabilities are offset and the net amount reported in the consolidated balance sheet if, amount reported in the consolidated balance sheet if, and only if: and only if: − there is a currently enforceable legal right to offset − there is a currently enforceable legal right to offset − there is an intention to settle on a net basis, or to − there is an intention to settle on a net basis, or to liabilities liabilities financing and financing and issue derivative issue derivative forward currency contracts forward currency contracts the recognised amount; and the recognised amount; and the assets and settle the assets and settle ineffective portion ineffective portion immediately immediately the the the the the the realise realise simultaneously. simultaneously. Hedging Hedging Cash flow hedge Cash flow hedge Where a derivative financial instrument is designated as Where a derivative financial instrument is designated as The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 124 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities is is the the losses losses forecast forecast revoked but revoked but transaction affects transaction affects the associated gains and the associated gains and instrument expires or instrument expires or the hedged the hedged a hedge of the exposure to variability in cash flows that a hedge of the exposure to variability in cash flows that are attributable to a particular risk associated with a are attributable to a particular risk associated with a recognised asset or liability, or a highly probable forecast recognised asset or liability, or a highly probable forecast transaction, the effective part of any gain or loss on the transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in derivative financial instrument is recognised directly in equity. When the forecast transaction subsequently equity. When the forecast transaction subsequently results in the recognition of a non financial asset or results in the recognition of a non financial asset or the associated cumulative gain or loss is liability, liability, the associated cumulative gain or loss is removed from equity and included in the initial cost or removed from equity and included in the initial cost or other carrying amount of the non financial asset or other carrying amount of the non financial asset or liability. liability. If a hedge of a forecast transaction subsequently results If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or financial liability, in the recognition of a financial asset or financial liability, that were then then that were recognised directly in equity are reclassified into the recognised directly in equity are reclassified into the income statement in the same period or periods during income statement in the same period or periods during which the asset acquired or liability assumed affects the which the asset acquired or liability assumed affects the income statement (i.e. when interest income or expense income statement (i.e. when interest income or expense is recognised). For cash flow hedges, the effective part is recognised). For cash flow hedges, the effective part of any gain or loss on the derivative financial instrument of any gain or loss on the derivative financial instrument is removed from equity and recognised in the income is removed from equity and recognised in the income statement in the same period or periods during which the statement in the same period or periods during which the income hedged income hedged statement. The ineffective part of any gain or loss is statement. The ineffective part of any gain or loss is recognised immediately in the income statement. recognised immediately in the income statement. is sold, When a hedging is sold, When a hedging terminated or exercised, or the designation of the hedge terminated or exercised, or the designation of the hedge forecast relationship relationship forecast transaction is still expected to occur, the cumulative gain transaction is still expected to occur, the cumulative gain or loss at that point remains in equity and is recognised or loss at that point remains in equity and is recognised in accordance with the above when the transaction in accordance with the above when the transaction occurs. If the hedged transaction is no longer expected occurs. If the hedged transaction is no longer expected to take place, then the cumulative unrealised gain or loss to take place, then the cumulative unrealised gain or loss recognised in equity is recognised immediately in the recognised in equity is recognised immediately in the income statement. income statement. Issued capital Issued capital Issued and paid up capital is recognised at the fair value Issued and paid up capital is recognised at the fair value of the consideration received. Issued capital comprises of the consideration received. Issued capital comprises transaction costs directly ordinary ordinary transaction costs directly issue of ordinary shares are to attributable attributable to issue of ordinary shares are recognised directly in equity, net of tax, as a reduction of recognised directly in equity, net of tax, as a reduction of the share proceeds received. the share proceeds received. Operating segment Operating segment An operating segment is a component of an entity that An operating segment is a component of an entity that engages in business activities from which it may earn engages in business activities from which it may earn revenues and incur expenses (including revenues and revenues and incur expenses (including revenues and expenses relating to transactions with other components expenses relating to transactions with other components of the same entity), whose operating results are regularly of the same entity), whose operating results are regularly reviewed by the entity's executive decision makers to reviewed by the entity's executive decision makers to allocate resources and assess its performance. allocate resources and assess its performance. The Group aggregates two or more operating segments The Group aggregates two or more operating segments when they have similar economic characteristics, and the when they have similar economic characteristics, and the segments are similar in each of the following respects: segments are similar in each of the following respects: − nature of the products and services; − nature of the products and services; − type or class of customer for the products and − type or class of customer for the products and − methods used to distribute the products or provide − methods used to distribute the products or provide shares. Any shares. Any the the services; services; the services; and the services; and 79 79 125 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017Notes to the financial statements Notes to the financial statements For the year ended 30 June 2017 For the year ended 30 June 2017 Directors' Declaration DIRECTORS’ DECLARATION FOR THE YEAR ENDED 30 JUNE 2017 in in liability liability the Group's the Group's − nature of the regulatory environment. − nature of the regulatory environment. Segment results include revenue and expenses directly Segment results include revenue and expenses directly attributable to a segment and exclude significant items. attributable to a segment and exclude significant items. Capital expenditure represents the total costs incurred Capital expenditure represents the total costs incurred during the period to acquire segment assets, including during the period to acquire segment assets, including capitalised interest. capitalised interest. Dividend distributions Dividend distributions Dividend distributions to the Company's shareholders are Dividend distributions to the Company's shareholders are financial recognised as a financial recognised as a statements in the period in which the dividends are statements in the period in which the dividends are declared. declared. Basic earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the net Basic earnings per share is calculated by dividing the net earnings after tax for the period by the weighted average earnings after tax for the period by the weighted average number of ordinary shares outstanding during the period. number of ordinary shares outstanding during the period. Diluted earnings per share Diluted earnings per share Diluted earnings per share is calculated by dividing the Diluted earnings per share is calculated by dividing the net earnings attributable to ordinary equity holders net earnings attributable to ordinary equity holders adjusted by the after tax effect of: adjusted by the after tax effect of: − any dividends or other items related to dilutive − any dividends or other items related to dilutive potential ordinary shares deducted in arriving at profit potential ordinary shares deducted in arriving at profit or loss attributable to ordinary equity holders; or loss attributable to ordinary equity holders; − any interest recognised in the period related to − any interest recognised in the period related to − any other changes in income or expense that would − any other changes in income or expense that would result from the conversion of the dilutive potential result from the conversion of the dilutive potential ordinary shares; ordinary shares; dilutive potential ordinary shares; and dilutive potential ordinary shares; and by the weighted average number of issued ordinary by the weighted average number of issued ordinary shares plus the weighted average number of ordinary shares plus the weighted average number of ordinary shares that would be issued on the conversion of all the shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. dilutive potential ordinary shares into ordinary shares. In the opinion of the Directors of The Star Entertainment Group Limited (the Company): (a) the financial statements and notes of the Group are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group's consolidated financial position as at 30 June 2017 and of its performance for the year ended on that date; and (ii) complying with the Accounting Standards and the Corporations Regulations 2001; (b) the Financial Report also complies with International Financial Reporting Standards as disclosed in note G; and (c) there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable. This declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Corporations Act 2001. Signed in accordance with a resolution of Directors. John O'Neill AO Chairman Sydney 23 August 2017 The Star Entertainment Group Limited and its controlled entities The Star Entertainment Group Limited and its controlled entities 126 80 80 81 127 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017INDEPENDENT AUDITOR’S REPORT FOR THE YEAR ENDED 30 JUNE 2017 INDEPENDENT AUDITOR’S REPORT FOR THE YEAR ENDED 30 JUNE 2017 Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Independent Audit or's Report t o t he Members of The St ar Ent er t ainment Group Limit ed Independent Audit or's Report t o t he Members of The St ar Ent er t ainment Group Limit ed Report on t he Audit of t he Financial Report Opinion Report on t he Audit of t he Financial Report We have audited the financial report of The Star Entertainment Group Limited (t he Company) and its subsidiaries (collectively t he Group), which comprises the consolidated statement of f inancial position as at 30 June 2017, the Opinion consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of We have audited the financial report of The Star Entertainment Group Limited (t he Company) and its subsidiaries significant accounting policies, and the directors' declarat ion. (collectively t he Group), which comprises the consolidated statement of f inancial position as at 30 June 2017, the In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated including: statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors' declarat ion. a) In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: b) a) giving a true and fair view of the consolidated f inancial position of the Group as at 30 June 2017 and of it s consolidated financial performance for the year ended on that date; and complying wit h Australian Accounting Standards and the Corporations Regulations 2001. giving a true and fair view of the consolidated f inancial position of the Group as at 30 June 2017 and of it s consolidated financial performance for the year ended on that date; and complying wit h Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion b) 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 Basis for Opinion report . We are independent of the Group in accordance wit h the auditor independence requirement s of the Corporations Act 2001 and the ethical requirement s of the Accounting Professional and Ethical Standards Board’s We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report in Australia. We have also fulfilled our other et hical responsibilities in accordance with the Code. report . We are independent of the Group in accordance wit h the auditor independence requirement s of the We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Corporations Act 2001 and the ethical requirement s 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 Key Audit Mat t ers report in Australia. We have also fulfilled our other et hical 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. Key audit mat t ers are those mat ters that, in our professional judgment , were of most significance in our audit of t he financial report of the current year. These matters were addressed in the context of our audit of t he financial Key Audit Mat t ers report as a whole, and in forming our opinion thereon, but we do not provide a separat e opinion on these mat t ers. For each mat ter below, our description of how our audit addressed t he matt er is provided in that cont ext. Key audit mat t ers are those mat ters that, in our professional judgment , were of most significance in our audit of t he financial report of the current year. These matters were addressed in the context of our audit of t he financial We have fulfilled the responsibilities described in the Auditor’s Responsibilities f or t he Audit of t he Financial Report report as a whole, and in forming our opinion thereon, but we do not provide a separat e opinion on these mat t ers. section of our report , including in relation to these matt ers. Accordingly, our audit included the perf ormance of For each mat ter below, our description of how our audit addressed t he matt er is provided in that cont ext. procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the mat ters below, provide the We have fulfilled the responsibilities described in the Auditor’s Responsibilities f or t he Audit of t he Financial Report basis for our audit opinion on the accompanying financial report . section of our report , including in relation to these matt ers. Accordingly, our audit included the perf ormance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the mat ters below, provide the basis for our audit opinion on the accompanying financial report . Goodwill impairment assessment Goodwill impairment assessment Why significant t o the audit How our audit addressed t he key audit mat t er As at 30 June 2017, the Group’s consolidated balance Why significant t o the audit sheet included $1,442m of goodwill. As at 30 June 2017, the Group’s consolidated balance As disclosed in Note B6 to the consolidated financial sheet included $1,442m of goodwill. stat ements, the Directors’ assessment of goodwill involves crit ical accounting estimates and assumptions, As disclosed in Note B6 to the consolidated financial specifically relating to f uture discount ed cash flows. stat ements, the Directors’ assessment of goodwill These estimates and assumptions, summarised in Note involves crit ical accounting estimates and assumptions, B6 to the consolidated financial st atements, are specifically relating to f uture discount ed cash flows. impacted by the future performance of the Group, These estimates and assumptions, summarised in Note market and regulatory environments. B6 to the consolidated financial st atements, are We considered t his to be a key audit matter due to the impacted by the future performance of the Group, magnitude of the balance and the significant judgments market and regulatory environments. and assumpt ions involved in the calculat ion of the Fair We considered t his to be a key audit matter due to the Value less Cost of Disposal model. magnitude of the balance and the significant judgments and assumpt ions involved in the calculat ion of the Fair Value less Cost of Disposal model. Our audit procedures included the following: How our audit addressed t he key audit mat t er • Assessed whether the methodology used by the Our audit procedures included the following: Directors met the requirements of Australian Accounting St andards - AASB 136 Impairment of • Assessed whether the methodology used by the Assets. Directors met the requirements of Australian Accounting St andards - AASB 136 Impairment of • Tested the mat hemat ical accuracy of the cash Assets. flow models. • Tested the mat hemat ical accuracy of the cash • Compared the cash flow forecasts with the Board flow models. approved f ive-year business plan and long term capit al invest ment plans. • Compared the cash flow forecasts with the Board approved f ive-year business plan and long term • Together with our valuat ion specialists assessed capit al invest ment plans. the assumptions supporting the cash flow forecasts. • Together with our valuat ion specialists assessed the assumptions supporting the cash flow • Considered the accuracy of the discount rat e and forecasts. the terminal growth rate used with involvement from our valuation specialists. • Considered the accuracy of the discount rat e and the terminal growth rate used with involvement • Tested the sensitivit y analysis performed by t he from our valuation specialists. Group focusing on the Cash-Generating Units where a reasonably possible change in • Tested the sensitivit y analysis performed by t he assumpt ions could cause the carrying amount to Group focusing on the Cash-Generating Units exceed its recoverable amount. where a reasonably possible change in assumpt ions could cause the carrying amount to • Evaluat ed whether the judgments and estimates exceed its recoverable amount. disclosures in the consolidated financial statements met the requirement s of Australian • Evaluat ed whether the judgments and estimates Accounting st andards. disclosures in the consolidated financial statements met the requirement s of Australian Accounting st andards. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 128 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 82 82 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 129 83 83 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017INDEPENDENT AUDITOR’S REPORT FOR THE YEAR ENDED 30 JUNE 2017 INDEPENDENT AUDITOR’S REPORT FOR THE YEAR ENDED 30 JUNE 2017 Recoverabilit y of t rade receivables Recoverabilit y of t rade receivables Why signif icant t o t he audit How our audit addr essed t he key audit mat t er As disclosed in Not e B2, at 30 June 2017, the Group’s Why signif icant t o t he audit consolidated balance sheet included $176.6m of gross trade receivables and a provision for impairment of As disclosed in Not e B2, at 30 June 2017, the Group’s $14.0m. consolidated balance sheet included $176.6m of gross trade receivables and a provision for impairment of The Directors’ assessment of t rade receivable for $14.0m. impairment involves judgment, specifically relat ing to t he individual circumstances of each debtor. The Directors’ assessment of t rade receivable for impairment involves judgment, specifically relat ing to As a consequence, recoverability of trade receivables is t he individual circumstances of each debtor. a key audit matt er due to the inherent subjectivit y that is involved in making judgment s in relation to credit As a consequence, recoverability of trade receivables is exposures to det ermine the recoverability of trade a key audit matt er due to the inherent subjectivit y that is receivables. involved in making judgment s in relation to credit exposures to det ermine the recoverability of trade receivables. Our procedures included assessing the overall How our audit addr essed t he key audit mat t er reasonableness of the provision f or impairment. In doing so, we: Our procedures included assessing the overall reasonableness of the provision f or impairment. In • Reviewed the Group’s dat a around historical doing so, we: collections to determine the reasonableness of current provisioning. • Reviewed the Group’s dat a around historical collections to determine the reasonableness of • Tested the aging of the outstanding receivables current provisioning. by selecting a sample and agreeing det ails to support ing document ation. • Tested the aging of the outstanding receivables by selecting a sample and agreeing det ails to • Select ed a sample of the larger t rade receivable support ing document ation. balances where a provision for impairment of trade receivables was recognised and understood the • Select ed a sample of the larger t rade receivable rat ionale behind the provisioning by considering balances where a provision for impairment of trade the hist orical payment patt erns, whether any post receivables was recognised and understood the year-end payments had been received up to t he rat ionale behind the provisioning by considering dat e of our audit report and examining the Group’s the hist orical payment patt erns, whether any post available information on individual debtors. year-end payments had been received up to t he dat e of our audit report and examining the Group’s • Tested a sample of aged balances where no available information on individual debtors. provision was recognised to assess that there were no indicators of impairment. This included, • Tested a sample of aged balances where no amongst others, assessing if payments had been provision was recognised to assess that there were received since the year-end, reviewing historical no indicators of impairment. This included, payment pat terns and examining the Group’s amongst others, assessing if payments had been available information on each debtor. received since the year-end, reviewing historical payment pat terns and examining the Group’s • Reviewed the historical provision position available information on each debtor. recorded by the Group against actual outcomes for debt recovery and/ or write off and assessed the • Reviewed the historical provision position accuracy of the Group’s provisioning. recorded by the Group against actual outcomes for debt recovery and/ or write off and assessed the accuracy of the Group’s provisioning. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 130 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 84 84 Inf ormat ion Ot her t han t he Financial Report and Audit or’s Report The directors are responsible for the ot her information. The other informat ion comprises the information included Inf ormat ion Ot her t han t he Financial Report and Audit or’s Report in t he Group’s 2017 Annual Report other than the financial report and our auditor’s report thereon. We obtained t he Directors’ Report that is to be included in the Annual Report, prior to the date of this auditor’s report , and we The directors are responsible for the ot her information. The other informat ion comprises the information included expect to obtain the remaining sections of the Annual Report af ter the date of this auditor’s report . in t he Group’s 2017 Annual Report other than the financial report and our auditor’s report thereon. We obtained t he Directors’ Report that is to be included in the Annual Report, prior to the date of this auditor’s report , and we Our opinion on the financial report does not cover the other informat ion and we do not and will not express any expect to obtain the remaining sections of the Annual Report af ter the date of this auditor’s report . form of assurance conclusion thereon. Our opinion on the financial report does not cover the other informat ion and we do not and will not express any In connection wit h our audit of the financial report , our responsibility is to read the other informat ion and, in doing form of assurance conclusion thereon. so, consider whether the other information is materially inconsistent wit h the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. In connection wit h our audit of the financial report , our responsibility is to read the other informat ion and, in doing so, consider whether the other information is materially inconsistent wit h the financial report or our knowledge If, based on the work we have performed on the other informat ion obtained prior to the date of this auditor’s obtained in the audit or otherwise appears to be materially misstated. report , we conclude that there is a material misstatement of t his other informat ion, we are required to report that fact. We have nothing to report in this regard. If, based on the work we have performed on the other informat ion obtained prior to the date of this auditor’s report , we conclude that there is a material misstatement of t his other informat ion, we are required to report that Responsibilit ies of t he Dir ect ors for t he Financial Repor t fact. We have nothing to report in this regard. The directors of the Company are responsible for the preparat ion of the financial report that gives a true and fair Responsibilit ies of t he Dir ect ors for t he Financial Repor t 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 t he preparation of the financial report that gives a t rue The directors of the Company are responsible for the preparat ion of the financial report that gives a true and fair and fair view and is f ree from material misstatement, whet her due to fraud or error. 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 t he preparation of the financial report that gives a t rue In preparing t he financial report , the directors are responsible for assessing the Group’s ability to continue as a and fair view and is f ree from material misstatement, whet her due to fraud or error. going concern, disclosing, as applicable, matters relat ing to going concern and using the going concern basis of accounting unless t he directors either intend to liquidate the Group or to cease operat ions, or have no realistic In preparing t he financial report , the directors are responsible for assessing the Group’s ability to continue as a alternative but to do so. going concern, disclosing, as applicable, matters relat ing to going concern and using the going concern basis of accounting unless t he directors either intend to liquidate the Group or to cease operat ions, or have no realistic Audit or's Responsibilit ies for t he Audit of t he Financial Repor t alternative but to do so. Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free f rom Audit or's Responsibilit ies for t he Audit of t he Financial Repor t material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free f rom with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. can arise f rom fraud or error and are considered material if, individually or in the aggregate, they could reasonably Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance be expected to influence the economic decisions of users taken on the basis of this financial report. with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise f rom fraud or error and are considered material if, individually or in the aggregate, they could reasonably As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgment and be expected to influence the economic decisions of users taken on the basis of this financial report. maintain professional scepticism throughout the audit. We also: As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: Identif y and assess t he risks of material misstatement of the financial report , whether due to f raud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence t hat is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement Identif y and assess t he risks of material misstatement of the financial report , whether due to f raud or error, resulting from f raud is higher than for one resulting from error, as fraud may involve collusion, forgery, design and perform audit procedures responsive to those risks, and obtain audit evidence t hat is sufficient intentional omissions, misrepresentat ions, or the override of internal control. and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from f raud is higher than for one resulting from error, as fraud may involve collusion, forgery, Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are intentional omissions, misrepresentat ions, or the override of internal control. appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of t he Group’s 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 Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates t he Group’s internal control. and related disclosures made by the directors. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based and related disclosures made by the directors. on the audit evidence obtained, whet her a material uncertainty exist s related to events or conditions that may cast significant doubt on t he Group’s ability to cont inue as a going concern. If we conclude that a Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based material uncertainty exists, we are required to draw attention in our auditor’s report to the related on the audit evidence obtained, whet her a material uncertainty exist s related to events or conditions that disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our may cast significant doubt on t he Group’s ability to cont inue as a going concern. If we conclude that a conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, fut ure material uncertainty exists, we are required to draw attention in our auditor’s report to the related event s or conditions may cause t he Group to cease to continue as a going concern. 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, fut ure event s or conditions may cause t he Group to cease to continue as a going concern. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 131 85 85 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017INDEPENDENT AUDITOR’S REPORT FOR THE YEAR ENDED 30 JUNE 2017 SHAREHOLDER INFORMATION AS AT 25 AUGUST 2017 Evaluate the overall presentation, structure and content of the f inancial report , including the disclosures, and whether the financial report represents the underlying transactions and event s in a manner that achieves fair presentation. Evaluate the overall presentation, structure and content of the f inancial report , including the disclosures, and whether the financial report represents the underlying transactions and event s in a manner that Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business achieves fair presentation. activities within the Group to express an opinion on t he financial report . We are responsible for the direct ion, supervision and performance of the Group audit. We remain solely responsible for our audit Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business opinion. activities within the Group to express an opinion on t he financial report . We are responsible for the direct ion, supervision and performance of the Group audit. We remain solely responsible for our audit We communicate wit h the directors regarding, among other matters, the planned scope and timing of the audit and opinion. significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We communicate wit h the directors regarding, among other matters, the planned scope and timing of the audit and We also provide the directors with a st atement that we have complied with relevant ethical requirements regarding significant audit findings, including any significant deficiencies in internal control that we identify during our audit. independence, and t o communicate with them all relationships and other matters that may reasonably be t hought to bear on our independence, and where applicable, related safeguards. We also provide the directors with a st atement that we have complied with relevant ethical requirements regarding independence, and t o communicate with them all relationships and other matters that may reasonably be t hought From the matters communicated to the directors, we determine those matters t hat were of most significance in the to bear on our independence, and where applicable, related safeguards. audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulat ion precludes public disclosure about the matter or when, in extremely From the matters communicated to the directors, we determine those matters t hat were of most significance in the rare circumstances, we determine that a matter should not be communicated in our report because the adverse audit of the financial report of the current year and are therefore the key audit matters. We describe these matters consequences of doing so would reasonably be expected to outweigh the public interest benef its of such in our auditor’s report unless law or regulat ion precludes public disclosure about the matter or when, in extremely communication. rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benef its of such communication. Report on t he Audit of t he Remunerat ion Report Opinion on t he Remunerat ion Repor t Report on t he Audit of t he Remunerat ion Report We have audited the Remunerat ion Report included in pages 15 to 32 of the directors' report for the year ended Opinion on t he Remunerat ion Repor t 30 June 2017. We have audited the Remunerat ion Report included in pages 15 to 32 of the directors' report for the year ended In our opinion, the Remunerat ion Report of The Star Entert ainment Group Limited for the year ended 30 June 30 June 2017. 2017, complies with section 300A of the Corporations Act 2001. In our opinion, the Remunerat ion Report of The Star Entert ainment Group Limited for the year ended 30 June Responsibilit ies 2017, complies with section 300A of the Corporations Act 2001. The directors of the Company are responsible for t he preparat ion and present ation of the Remuneration Report in Responsibilit ies accordance with section 300A of the Corporations Act 2001. Our responsibilit y is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing St andards. The directors of the Company are responsible for t he preparat ion and present ation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibilit y is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing St andards. Ernst & Young Ernst & Young John Robinson Partner Sydney John Robinson 23 August 2017 Partner Sydney 23 August 2017 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 132 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 86 86 ORDINARY SHARE CAPITAL The Star Entertainment Group Limited has 825,672,730 fully paid ordinary shares on issue. SHAREHOLDING RESTRICTIONS The Star Entertainment Group’s Constitution, as well as certain agreements entered into with the New South Wales Independent Liquor and Gaming Authority and the Queensland Office of Liquor and Gaming Regulation, contain certain restrictions prohibiting an individual from having a voting power of more than 10% in The Star Entertainment Group without the written consent of the New South Wales Independent Liquor and Gaming Authority and of the Queensland Minister. The Star Entertainment Group may refuse to register any transfer of shares which would contravene these shareholding restrictions or require divestiture of the shares that cause an individual to exceed the shareholding restrictions. In July 2012, written consent was granted by the New South Wales Independent Liquor and Gaming Authority and the relevant Queensland Minister for Perpetual Investment Management Limited to increase its shareholding in The Star Entertainment Group from 10% up to a maximum of 15% of issued shares. In May 2013, written consent was granted by the New South Wales Independent Liquor and Gaming Authority and the relevant Queensland Minister for Crown Resorts Limited to increase its potential voting power in The Star Entertainment Group from 10% up to an effective maximum of 23% (which may be adjusted in certain circumstances). In December 2015, written consent was granted by the New South Wales Independent Liquor and Gaming Authority and the relevant Queensland Minister for Genting Hong Kong Limited and its associates to increase their aggregate potential voting power in The Star Entertainment Group from 10% up to an effective maximum of 23% (which may be adjusted in certain circumstances). VOTING RIGHTS All ordinary shares issued by The Star Entertainment Group Limited carry one vote per share. Performance options and performance rights do not carry any voting rights. Gambling legislation in New South Wales and Queensland and The Star Entertainment Group’s Constitution contain provisions regulating the exercise of voting rights by persons with prohibited shareholding interests, as well as the regulation of shareholding interests. The relevant Minister has the power to request information to determine whether a person has a prohibited shareholding interest. If a person fails to furnish these details within the time specified or, in the opinion of the Minister, the information is false or misleading, then the Minister can declare the voting rights of those shares suspended. Failure to comply with gambling legislation in New South Wales and Queensland or The Star Entertainment Group’s Constitution, including the shareholder restrictions mentioned above, may result in suspension of voting rights. SUBSTANTIAL SHAREHOLDERS The following is a summary of the substantial shareholders as at 25 August 2017 pursuant to notices lodged with ASX in accordance with section 671B of the Corporations Act 2001: NAME DATE OF INTEREST NUMBER OF ORDINARY SHARES (i) % OF ISSUED CAPITAL (ii) FIL Limited, FIL Investment Management (Australia) Limited and FIL Pension Management Commonwealth Bank of Australia and its related bodies corporate Yarra Funds Management Limited, Yarra Capital Management Holdings Pty Ltd, Yarra Management Nominees Pty Ltd, AA Australia Finco Pty Ltd, TA SP Australia Topco Pty Ltd and TA Universal Investment Holdings Ltd Ellerston Capital Perpetual Limited and its related bodies corporate (including Perpetual Investment Management Limited) 31 May 2017 16 June 2017 6 July 2017 13 July 2017 14 July 2017 49,777,604 6.03% 53,280,893 6.45% 41,568,222 5.0345% 41,896,846 121,592,298 5.07% 14.73% (i) As disclosed in the last notice lodged with the ASX by the substantial shareholder. (ii) The percentage set out in the notice lodged with the ASX is based on the total issued share capital of The Star Entertainment Group Limited at the date of interest. 133 ANNUAL REPORT 2017THE STAR ENTERTAINMENT GROUP SHAREHOLDER INFORMATION AS AT 25 AUGUST 2017 SHAREHOLDER INFORMATION AS AT 25 AUGUST 2017 LESS THAN MARKETABLE PARCELS DISTRIBUTION OF SECURITIES HELD There were 6,736 shareholders holding less than a marketable parcel of 95 ordinary shares (valued at $500 or less, based on a market price of $5.28) at the close of trading on 25 August 2017 and they hold a total of 428,124 ordinary shares. RANGE OF HOLDING NO. OF HOLDERS NO. OF SECURITIES NO. OF HOLDERS NO. OF SECURITIES ORDINARY SHARES PERFORMANCE RIGHTS 1 SECURITIES PURCHASED ON-MARKET The following securities were purchased on-market during the financial year for the purposes of The Star Entertainment Group’s Short Term Performance Plan (STPP) and General Employee Share Plan (GESP). Ordinary Shares (for STPP) Ordinary Shares (for GESP) 613,992 30,177 $5.75 $5.7295 NUMBER OF SHARES PURCHASED AVERAGE PRICE PAID PER SHARE TWENTY LARGEST REGISTERED SHAREHOLDERS – ORDINARY SHARES* RANK NAME NUMBER OF SHARES HELD % OF ISSUED CAPITAL 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. HSBC CUSTODY NOMINEES J P MORGAN NOMINEES AUSTRALIA LIMITED CITICORP NOMINEES PTY LIMITED NATIONAL NOMINEES LIMITED BNP PARIBAS NOMINEES PTY LTD CITICORP NOMINEES PTY LIMITED BNP PARIBAS NOMS PTY LTD UBS NOMINEES PTY LTD AMP LIFE LIMITED RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LTD WOODROSS NOMINEES PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA SBN NOMINEES PTY LIMITED <10004 ACCOUNT> SEYMOUR GROUP PTY LTD BNP PARIBAS NOMS (NZ) LTD CS THIRD NOMINEES PTY LIMITED RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LTD MUTUAL TRUST PTY LTD PACIFIC CUSTODIANS PTY LIMITED 256,525,111 167,107,559 75,064,095 71,525,994 34,936,431 30,218,655 28,468,874 25,228,696 4,556,733 4,036,871 3,972,776 3,233,380 2,693,299 2,265,400 1,750,000 1,393,030 1,282,637 1,271,059 1,206,724 1,187,005 31.07% 20.24% 9.09% 8.66% 4.23% 3.66% 3.45% 3.06% 0.55% 0.49% 0.48% 0.39% 0.33% 0.27% 0.21% 0.17% 0.16% 0.15% 0.15% 0.14% Total of top 20 registered shareholders 717,924,329 86.95% *on a grouped basis 134 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Total 48,945 19,762 2,433 1,078 63 72,281 16,908,427 41,651,579 16,910,470 21,625,678 728,576,576 825,672,730 0 0 0 9 8 17 0 0 0 353,899 2,865,363 3,219,262 1. Performance Rights were issued pursuant to The Star Entertainment Group’s Long Term Performance Plan. Refer to the Remuneration Report for more information about The Star Entertainment Group’s Long Term Performance Plan. VOLUNTARY ESCROW SHAREHOLDER ENQUIRIES There are no securities under voluntary escrow. SHARE BUY-BACKS There is no current or planned buy-back of The Star Entertainment Group’s shares. Investors seeking information about their shares in The Star Entertainment Group should contact The Star Entertainment Group’s share registry. Investors should have their Shareholder Reference Number (SRN) or Holder Identification Number (HIN) available to assist the share registry in responding to their enquiries. ANNUAL REPORT This Annual Report is available on-line from The Star Entertainment Group’s website: www.starentertainmentgroup.com.au. Annual Reports will only be sent to those shareholders who have requested to receive a copy. Shareholders who no longer wish to receive a hard copy of the Annual Report or wish to receive the Annual Report electronically are encouraged to contact the share registry. This will assist with reducing the costs of production of the hard copy of the Annual Report. WEBSITE The Star Entertainment Group’s website www.starentertainmentgroup.com.au offers investors a wide range of information regarding its activities and performance, including Annual Reports, interim and full year financial results, webcasts of results and Annual General Meeting presentations, major news releases and other company statements. SHAREHOLDER RELATIONS Investors seeking more information about the Company are invited to contact The Star Entertainment Group’s Shareholder Relations Team: Address: GPO Box 13348 George Street Post Shop Brisbane QLD 4003 Telephone: +61 7 3228 0000 +61 7 3228 0099 Facsimile: investor@star.com.au Email: SHARE REGISTRY LINK MARKET SERVICES LIMITED Address: Level 12, 680 George Street Sydney NSW 2000 Postal address: The Star Entertainment Group Limited C/- Link Market Services Limited Locked Bag A14 Sydney South NSW 1235 Australia Telephone: +61 1300 880 923 (toll free within Australia) Facsimile: +61 2 9287 0303 E-mail: Website: starentertainment@linkmarketservices.com.au www.linkmarketservices.com.au GENERAL ENQUIRIES Investor information is available on The Star Entertainment Group’s website www.starentertainmentgroup.com.au, including major announcements, Annual Reports, and general company information. 2017 CORPORATE GOVERNANCE STATEMENT The 2017 Corporate Governance Statement can be found on The Star Entertainment Group’s website www.starentertainmentgroup.com.au/corporate-governance. 2017 ANNUAL GENERAL MEETING The Annual General Meeting of The Star Entertainment Group Limited will be held on Thursday, 26 October 2017 in the Sydney Lyric Theatre at The Star Sydney, 80 Pyrmont Street, Pyrmont, New South Wales, commencing at 11:00am (Sydney time). 135 THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017 COMPANY DIRECTORY REGISTERED OFFICE QUEEN’S WHARF BRISBANE KEY DATES FOR FY2017/18* The Star Entertainment Group Limited Level 3, 159 William Street Brisbane Qld 4000 Telephone: Facsimile: Email: + 61 7 3228 0000 + 61 7 3228 0099 investor@star.com.au WEBSITE www.starentertainmentgroup.com.au NEW SOUTH WALES OFFICE Ground Floor, 60 Union Street Pyrmont NSW 2009 Telephone: + 61 2 9657 7600 QUEENSLAND OFFICE Level 3 159 William Street Brisbane QLD 4000 Telephone: + 61 7 3228 0000 STOCK EXCHANGE LISTING The Star Entertainment Group’s securities are quoted on the Australian Securities Exchange (ASX) under the share code “SGR”. THE STAR SYDNEY 80 Pyrmont Street Pyrmont NSW 2009 Reservations: 1800 700 700 Telephone: www.thestarsydney.com.au + 61 2 9777 9000 THE STAR GOLD COAST Broadbeach Island Gold Coast QLD 4218 Reservations: 1800 074 344 Telephone: www.thestargoldcoast.com.au + 61 7 5592 8100 TREASURY CASINO AND HOTEL BRISBANE George Street Brisbane QLD 4000 Reservations: 1800 506 889 Telephone: + 61 7 3306 8888 www.treasurybrisbane.com.au 136 1800 104 535 GENERAL ENQUIRIES Telephone: Email: qwbenquiries@destinationbrisbane.com.au www.queenswharfbrisbane.com.au FY2017 FULL YEAR RESULTS ANNOUNCEMENT 23 August 2017 FINAL DIVIDEND RECORD DATE 29 August 2017 AUDITOR Ernst & Young ABOUT THIS ANNUAL REPORT CURRENCY References to currency in this Annual Report are in Australian Dollars unless otherwise stated. COPYRIGHT Information in this report has been prepared by The Star Entertainment Group Limited, unless otherwise indicated. Information may be reproduced provided it is reproduced accurately and not in a misleading context. Where the material is being published or issued to others, the sources and copyright status should be acknowledged. FINAL DIVIDEND PAYMENT DATE 26 September 2017 2017 ANNUAL GENERAL MEETING 26 October 2017 FY2018 HALF YEAR RESULTS ANNOUNCEMENT 16 February 2018 2018 FINANCIAL YEAR END 30 June 2018 FY2018 FULL YEAR RESULTS ANNOUNCEMENT 24 August 2018 2018 ANNUAL GENERAL MEETING 1 November 2018 *Dates are subject to change INVESTMENT WARNING This Annual Report may include forward looking statements and references which, by their very nature, involve inherent risks and uncertainties. These risks and uncertainties may be matters beyond The Star Entertainment Group’s control and could cause actual results to vary (including materially) from those predicted. Forward looking statements are not guarantees of future performance. Past performance of shares is not indicative of future performance and should not be relied upon as such. The value of investments and any income from them is not guaranteed and can fall as well as rise. The Star Entertainment Group recommends that investors make their own assessments and seek independent professional advice before making investment decisions. PRIVACY The Star Entertainment Group respects the privacy of its stakeholders. The Star Entertainment Group’s Privacy Policy Statement is available on The Star Entertainment Group’s website at www.starentertainmentgroup.com.au. THE STAR ENTERTAINMENT GROUP ANNUAL REPORT 2017 

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