The Star Entertainment Group
Annual Report 2019

Plain-text annual report

1 ANNUAL REPORT 2019 ANNUAL REPORT 20192 In FY2019, The Star Entertainment Group made significant strides in realising its vision of becoming Australia’s leading integrated resort. Included among these milestones was the commencement of construction phases across our South East Queensland projects that will deliver up to $9 billion investment into the region. Cover: © Destination Gold Coast Consortium. The Star Gold Coast Tower 2. Concept image only, subject to all approvals. THE STAR ENTERTAINMENT GROUP CONTENTS 3 04 05 06 08 10 12 OUR VISION OUR HIGHLIGHTS MESSAGES CHAIRMAN CEO BOARD AND EXECUTIVE BOARD OF DIRECTORS EXECUTIVE TEAM 14 GROUP PERFORMANCE KEY PROJECTS QUEEN’S WHARF BRISBANE THE STAR GOLD COAST THE STAR SYDNEY SUSTAINABILITY SUSTAINABILITY HIGHLIGHTS SUSTAINABILITY STRATEGY OUR APPROACH DELIVERING RESOURCE EFFICIENCY PROJECTS SUSTAINABILITY IN OUR SUPPLY CHAIN TRUSTED COMPANY PARTNERS LEADING COMPANY TALENTED TEAMS DIRECTORS’, REMUNERATION AND FINANCIAL REPORT DIRECTORS’ REPORT REMUNERATION REPORT FINANCIAL REPORT 16 18 20 22 23 24 28 32 34 38 42 46 47 62 80 141 SHAREHOLDER INFORMATION 145 CORPORATE GOVERNANCE STATEMENT DETAILS 145 ANNUAL GENERAL MEETING DETAILS 146 COMPANY DIRECTORY 147 KEY DATES © Destination Brisbane Consortium. All rights reserved. Artist impression only. Subject to planning approvals ANNUAL REPORT 2019 4 OUR VISION 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. PILLARS Thrilling Experiences Accessible Luxury Local Spirit PRIORITIES VALUES SERVICE COMMITMENTS Shareholder Value Ownership True Teamwork Welcoming City Pride World Class Properties Leadership in Loyalty Excellence in Guest Service Talented Teams LIVE IT Be Human BRING IT Be Your Best Self OWN IT Be a Star Player DELIVER IT Be the Perfect Host © Destination Brisbane Consortium. All rights reserved. Artist impression only. Subject to planning approvals THE STAR ENTERTAINMENT GROUP 5 OUR HIGHLIGHTS FINANCIALS 20.5 MAINTAINED RECORD DIVIDEND PER SHARE (cents) $198m STATUTORY NPAT ($M) $552.8m STATUTORY EBITDA ($M) 20.5 20.5 264.40 16 198 148.10 599.7 484.4 552.8 FY17 FY18 FY19 FY17 FY18 FY19 FY17 FY18 FY19 AWARDS FORBES 5 STAR RATING The Darling Sydney the only luxury hotel in New South Wales to receive the prestigious Forbes Five-Star rating. It has achieved this for three consecutive years (2017, 2018, 2019) WINNER TAA AWARDS FOR EXCELLENCE 2019 Best Deluxe Hotel (The Darling Sydney) Best Innovation Project (Single-Use Plastics) Tourism Accommodation Australia (NSW) WINNER Best Deluxe Accommodation (The Darling Gold Coast) Best Redeveloped Accommodation - Hotel / Resort (The Star Gold Coast) SILVER EMPLOYER ‘Pride in Diversity’ Australian Workplace Equality Index for LGBTI Inclusion AWARDED ROBECOSAM SUSTAINABILITY AWARD GOLD CLASS 2019 (Dow Jones Sustainability Index assessment) CONSTITUENT The Star Entertainment Group remains a constituent of the FTSE4Good Index #1 ‘GLOBAL LEADER’ CASINO AND GAMING INDUSTRY Dow Jones Sustainability Index assessment (2016, 2017, 2018) ANNUAL REPORT 20196 CHAIRMAN’S MESSAGE I am pleased to report to shareholders again this year, that the 2019 financial year saw The Star Entertainment Group’s portfolio of high-quality tourism, entertainment and gaming assets continue to expand in our attractive local destinations of Sydney, the Gold Coast and Brisbane. This continued expansion was coupled with strong domestic results and a reset of the organisational structure to ready the Group for the next stage of its growth and development. The strong performance of the domestic business, coupled with the increase in International VIP business visitors, is a testament to the investment being made in our properties and positioning to capitalise on opportunities within both domestic and international tourism markets. The Star’s growth strategy continues to be supported by the development of The Star’s strategic alliance with our Hong Kong-based joint venture partners, Chow Tai Fook Enterprises (CTF) and Far East Consortium (FEC), announced last year. The 2019 financial year marked five years of this valued partnership with CTF and FEC - the $3.6 billion Queen’s Wharf Brisbane bid being the vehicle that created the initial joint venture partnership. In the 2019 calendar year, we are looking forward to delivery of the first of the new public spaces within the Queen’s Wharf Brisbane development, including the Mangrove Walk and Waterline Park. Pleasingly, the depth of this partnership continues to develop, with pursuit of marketing opportunities through the strategic alliance and the ongoing development projects, including construction underway on the Dorsett hotel and residential tower within the Gold Coast masterplan, and pre-sales commenced for the residential component of the second tower, which is to include another five-star hotel. The value of existing assets and proposed investment in Queensland by The Star and its partners, CTF and FEC, underline our commitment to continue as a leading tourism infrastructure investor for the State. The 2019 financial year results were in line with the earnings guidance provided in June 2019. Pleasing growth in domestic earnings was offset by softer International VIP Rebate business results, which were impacted by market conditions, although visitor numbers were up. Statutory NPAT for the Group was $198 million, up 33.7% on the prior year (after significant items). Statutory earnings before interest, tax, depreciation and amortisation (EBITDA) increased 14.1% on last financial year to $553 million (before significant items). Statutory results were supported by an actual THE STAR ENTERTAINMENT GROUP win rate of 1.38% in the International VIP Rebate business as compared with 1.16% in FY2018. In normalised terms, at a win rate of 1.35%, the full year normalised NPAT result was $224 million (after equity accounted investments, but before significant items), down 8.4% on FY2018 and normalised EBITDA was down 2.0% to $557 million (before significant items). In light of the business performance overall, and the strength of the Company’s balance sheet, the Board declared a final dividend of 10 cents per share (fully franked), taking total dividends for the year to 20.5 cents per share (fully franked). This total dividend amount is in line with FY2018 and reflects a payout ratio of 84% of normalised NPAT. The Board has confidence that the organisational changes and cost management measures implemented in 2HFY2019 will position the Group to continue to deliver high-quality results in the context of softening macro- economic environment and some challenging market conditions, both domestically and internationally. With the Board’s full support, in 2019 Managing Director and Chief Executive Officer, Matt Bekier, led an organisational structure reset, including changes to the executive management team. These changes will support the company’s further transition over the coming years, in both a practical and an attitudinal sense, from development to readiness to deliver and operate extensive new assets in New South Wales and Queensland. 7 STATUTORY NPAT INCREASED BY 33.7% TO $198 MILLION STATUTORY EBITDA INCREASED BY 14.1% TO $553 MILLION MAINTAINED RECORD FULL YEAR DIVIDEND 20.5C The reset structure, under Matt Bekier’s leadership, provides confidence that the company is well positioned to continue to deliver against the rising expectations of external stakeholders, including guests, investors, regulatory authorities and the broader community, in relation to the sustainable and socially responsible delivery of services within our industry. The Board and management remain cognisant of the need for ongoing focus and vigilance as a hallmark of success. On behalf of the Board, I congratulate and thank Matt Bekier and the management team on their dedication to making The Star Entertainment Group Australia’s leading integrated resort company and returning value to shareholders. I also thank my fellow directors on the Company’s well-established Board of Directors for their ongoing commitment. I extend a warm invitation to all shareholders to join me and my fellow directors at the 2019 Annual General Meeting, which is being held in Brisbane for the first time as we prepare to deliver the first stages of public realm areas within the Queen’s Wharf Brisbane precinct. Thank you to all shareholders for your support for the Company’s vision and strategy to be Australia’s leading integrated resort company. John O’Neill AO Chairman To watch the Chairman’s message scan this code with your smartphone ANNUAL REPORT 2019 8 CEO’S MESSAGE The 2019 financial year was a period of consolidation and executing on a significant capital works program. Aligned to our vision of becoming Australia’s leading integrated resort company, transformational projects across the Gold Coast, Brisbane and Sydney developed momentum as we welcomed more than 21 million guests to our properties. This growth strategy continued during a softening economic environment. At The Star Gold Coast, construction commenced on a 53-storey mixed use tower that will herald the entry to Australia of the internationally-acclaimed Dorsett hotel brand. The $400 million tower will deliver a third hotel to the property, alongside The Star Grand and The Darling. There was a further significant development on the Gold Coast. The State Government approved in November 2018 a $2 billion-plus masterplan. This allows The Star Entertainment Group and our partners, Chow Tai Fook and Far East Consortium, to develop an additional four towers. During FY2019, the excavation stage of the Queen’s Wharf Brisbane project progressed to plan. At the same time, the shell, core and façade contract for the integrated resort development was awarded to Multiplex. This continues to de-risk the development with 60% of project costs completed or under lump sum contract in line with budget. Around 28% of additional project costs are expected to be contracted by the end of FY2020. In Sydney, an application to the NSW Department of Planning for a development of state significance at Pyrmont was submitted during FY2019. The application includes a tower to house the return of The Ritz-Carlton hotel brand to Sydney. At the time of writing, the Independent Planning Commission was deliberating on the proposal. There was significant progress elsewhere. The Star Lobby was completed and the new Grand Foyer opened with an art, light and water installation as its showpiece. The Star also broke new ground in establishing an off-property dining experience. The Japanese-Chinese fusion restaurant Chuuka opened in June. The Sovereign Resort upgrade also progressed to plan. Completion is scheduled for the final quarter of FY2020. A transitional Sovereign experience proved successful during FY2019, driving positive guest feedback. OPERATING PERFORMANCE The 2019 financial year returned record domestic gaming results. Solid increases in domestic revenue were underpinned by market share gains at the Gold Coast and Brisbane and growth in Sydney across both slots and tables. Domestic Private Gaming Rooms were the highlight in Sydney, up 12.4%, to compensate for a Main Gaming Floor affected by capital works. The effective commissioning of new assets and operational improvements provided further stimulus, particularly at the Gold Coast. THE STAR ENTERTAINMENT GROUP 9 The International VIP Rebate business produced mixed results. An impressive sales performance which delivered 10% growth in unique visitation on pcp was offset by a lower spend per customer. When macro market conditions improve, we are confident this ongoing increase in unique patrons will drive a return to earnings growth from this segment. Turnover was down 30.7% on pcp to $42.4 billion, with front money decreasing 7.1% on pcp and unusually low turns of 9.6 creating a further negative impact. Normalised International VIP Rebate business revenue was down 30.7% on pcp, while statutory International VIP Rebate business revenue declined at a lower rate of 17.6% due to a higher comparable win rate. For the past three years the Group has executed on a diversification strategy across the International VIP Rebate business. The aim has been to drive ongoing growth in non-North Asian source markets and the Premium Mass business. International Premium Mass turnover in FY2019 grew 19% on pcp. Operating costs were flat for FY2019. Increased domestic volumes and higher wages were offset by lower international gaming volumes. We also introduced Centres of Excellence in Gaming and Marketing to streamline operations and further improve decision making. It will ensure our business is more efficient, more agile and better focussed on delivering outstanding guest service. TEAM AND COMMUNITY destinations. We also remain focussed on delivering guest service excellence. There were several initiatives to celebrate in FY2019 that showcased our commitment to tourism, sustainability and the cities in which we operate. These included: • Committing to an exclusive Aboriginal native bee honey production business on Minjerribah (North Stradbroke Island), working alongside the Quandamooka Yoolooburrabee Aboriginal Corporation • Recognition for the third consecutive year as the Global Leader in the Casino & Gaming category of the Dow Jones Sustainability Index • Removing more than 7.5 million plastic straws per year as part of a single-use plastic reduction commitment • Having more than 100 apprentice chefs enrolled in The Star Culinary Institute • Achieving ‘Silver Employer’ status in the Australian Workplace Equality Index • Continuing to host the ARIA Awards and AACTA Awards in Sydney • Hosting the TV WEEK Logie Awards for the second time at The Star Gold Coast • Becoming the Naming Rights Partner for the Gold Coast Magic Millions Carnival and Raceday • An ongoing partnership with the Sydney Gay and Lesbian Mardi Gras • Celebrating International Women’s Day with the ‘Walk and Talk for Women in Leadership’. The Star Entertainment Group will significantly expand its workforce on completion of the projects that will embed our properties as world-class tourism and entertainment CAPITAL EXPENDITURE AND PRIORITIES The Star Entertainment Group incurred capital expenditure of $320 million in FY2019, down $157 million on the previous financial year. Key capex projects included the Oasis Private Gaming Room at the Gold Coast and the Sydney Sovereign Resort, with the latter still under construction. The Star Entertainment Group has the following priorities for 2020 financial year: • Execute on the Centre of Excellence operating model • Deliver on the investment strategy • Manage the competitive environment • Improve capital efficiency, I would like to extend my gratitude to the Board and management for their continued support during FY2019. Sincere thanks are also extended to the committed and enthusiastic team members whose efforts have been instrumental in our ongoing growth. Our vision is to become Australia’s leading integrated resort company. To do that, we also need to deliver thrilling experiences to those who visit us. So, to the millions of guests who did come to our properties this past financial year, we hope you enjoyed the changes we have made and will return to be part of an ongoing transformation. Matt Bekier Managing Director and Chief Executive Officer To watch the CEO’s message scan this code with your smartphone ANNUAL REPORT 2019 10 BOARD OF DIRECTORS JOHN O’NEILL AO | Chairman and Non-Executive Director Diploma of Law; Foundation Fellow of the Australian Institute of Company Directors; Officer of the Order of Australia; French decoration of Chevalier de la Légion d’Honneur 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, as well as a Director of Tabcorp Holdings 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, as well as a Director of Rugby World Cup Limited. Mr O’Neill is currently Chairman of Queensland Airports Limited. Mr O’Neill also chairs the Bates Smart Advisory Board and is a member of the Advisory Council of China Matters. MATT BEKIER | Managing Director and Chief Executive Officer Master of Economics and Commerce; PhD in Finance 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. Matt Bekier is a member of the Board of the Australasian Gaming Council. GERARD BRADLEY | 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. BEN HEAP | Non-Executive Director Bachelor of Commerce (Finance); Bachelor of Science (Mathematics) Ben Heap has wide-ranging experience in asset and capital management as well as technology and digital businesses. He has extensive business strategy, innovation, investment and governance expertise. Mr Heap is a Founding Partner of H2 Ventures, a venture capital investment firm and a Director of its related private companies. He is a Non-Executive Director of Colonial First State Investments Limited (a subsidiary of the Commonwealth Bank of Australia), the Vice President of Gymnastics Australia and a member of the Australian Commonwealth Government’s Fintech Advisory Group. Mr Heap was previously Managing Director for UBS Global Asset Management in Australasia and prior to this, Head of Infrastructure for UBS Global Asset Management in the Americas. He held a number of directorships associated with these roles. Earlier in his career, Mr Heap was Group Executive, E-Commerce & Corporate Development for TAB Limited. THE STAR ENTERTAINMENT GROUP 11 KATIE LAHEY AM | Non-Executive Director Bachelor of Arts (First Class Honours); Master of Business Administration; Member of the Order of Australia 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 Chairman Australasia of Korn Ferry International and a Director of Carnival Corporation & plc. Ms Lahey was previously the Chair of Carnival Australia and also a member of the boards of David Jones Limited, Australia Council Major Performing Arts, Hills Motorway Limited, Australia Post and Garvan Research Foundation. SALLY PITKIN | Non-Executive Director Doctor of Philosophy (Governance); Master of Laws; Bachelor of Laws; Fellow of the Australian Institute of Company Directors Sally Pitkin is a 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 is currently the Chair of Super Retail Group Limited and a Non-Executive Director of Link Administration Holdings Limited. She is also a member of the National Board of the Australian Institute of Company Directors and chairs its Corporate Governance Committee. RICHARD SHEPPARD | Non-Executive Director 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. ZLATKO TODORCEVSKI | Non-Executive Director Bachelor of Commerce (Accounting); Masters of Business Administration; Fellow of CPA Australia; Fellow of Governance Institute of Australia Zlatko Todorcevski is an experienced executive with over 30 years’ experience in the oil and gas, logistics and manufacturing sectors. He has a strong background in corporate strategy and planning, mergers and acquisitions, and strategic procurement. He also has deep finance expertise across capital markets, investor relations, accounting and tax. Mr Todorcevski was previously the Chief Financial Officer of Brambles Limited. Prior to that, he was Chief Financial Officer of Oil Search Limited and the Chief Financial Officer for Energy at BHP. Mr Todorcevski is currently Lead Independent and Deputy Chairman of Adelaide Brighton Limited and a member of the Council of the University of Wollongong. Mr Todorcevski is also a Non-Executive Director of Coles Group Limited. ANNUAL REPORT 201912 EXECUTIVE TEAM In the 2019 financial year, The Star Entertainment Group undertook a reorganisation to further enhance guest service and deliver ongoing cost benefits. As a result, the Group developed ‘centres of excellence’ across its Gaming and Marketing divisions while a third, Hospitality and Tourism, is being established to enable the Group to improve capability, processes and decision-making in these areas. MATT BEKIER | Chief Executive Officer and Managing Director As CEO of The Star Entertainment Group, Matt has guided the organisation and each of its properties through a period significant change and transformation including winning the tender for the $3.6 billion Queen’s Wharf Brisbane development, refurbishment and expansion of The Star Gold Coast – including two luxury hotels and approved $2 billion master plan and embedding The Star Sydney as the city’s premier tourism, dining and entertainment destination. With a focus on domestic and international tourism to the cities and communities in which we operate, Matt is driving The Star Entertainment Group’s vision of becoming Australia’s leading integrated resort. HARRY THEODORE | Chief Commercial Officer Harry joined The Star Entertainment Group in 2011 as Head of Strategy and Investor Relations and was appointed to the role of Chief Commercial Officer in October 2018. He led the Queen’s Wharf Brisbane bid and leads the Group’s joint venture partnerships with Chow Tai Fook and Far East Consortium in addition to a number of other commercial and finance functions. From November 2019, Harry will be responsible for the finance, strategy, investor relations and IT functions as the Group’s Chief Financial Officer. Prior to joining The Star Entertainment Group, Harry held the role of Director – Head of Gaming and Food & Beverage in the equities research team at the Royal Bank of Scotland and prior to that was a lawyer with Allens Arthur Robinson. PAULA MARTIN | Chief Legal & Risk Officer and Company Secretary Paula has over 14 years’ experience in the gaming industry, first with Tabcorp Ltd and continuing with The Star Entertainment Group. Following consolidation of the legal, risk, regulatory and compliance functions, Paula was appointed to the role of Chief Legal & Risk Officer in August 2019. She has a broad commercial law and regulatory background, having first practiced with King & Wood Mallesons in the telecommunications, information technology and competition law areas. GREG HAWKINS | Chief Casino Officer Greg was appointed to Chief Casino Officer at The Star Entertainment Group in January 2019. Prior to commencing this role, he was Managing Director of The Star Sydney for over four years. He has over 22 years’ experience spanning the Australian, Asian and New Zealand gaming markets. Having managed both a premium VIP hotel and casino and a large-scale integrated resort, Greg provides valuable insight into the Asian VIP and premium mass market sectors. THE STAR ENTERTAINMENT GROUP 13 GEOFF HOGG | Group Executive Operations Geoff has more than 20 years of operational casino experience at a senior executive level. He has group- wide responsibility for operations at The Star Sydney, The Star Gold Coast, The Gold Coast Convention & Exhibition Centre and Treasury Brisbane. Prior to commencing this role in July 2019, Geoff was Managing Director Queensland for The Star Entertainment Group for over 10 years. Geoff is an active participant in the Queensland business community and in particular, the tourism and entertainment industry. He is a member of the Responsible Gambling Advisory Committee, a director on the National Retail Association, and a governor of the American Chamber of Commerce Queensland Council. Geoff was recently appointed as a director on the Major Events Gold Coast Board. GEORGE HUGHES | Chief Marketing Officer George joined The Star Entertainment Group in 2017 and is responsible for its marketing activities. He joined from David Jones where he was responsible for direct and digital marketing, customer insights, loyalty and customer relationship management. Since his appointment, George has unified the marketing team and sought to drive brand growth nationally. He has transformed business unit and brought together specialist, functional expertise and talent both existing within the team as well as that available outside the business and from a variety of sectors. George is a passionate customer engagement professional with strong commercial and strategic acumen. He has wealth of executive experience in diverse roles across marketing, customer engagement, finance, M&A and strategy, gained in the retail, entertainment, postal and banking sectors. KIM LEE | Chief People and Performance Officer Kim Lee commenced at The Star Entertainment Group in 2015 and brings with her more than 18 years’ experience in human resource roles across various sectors. To facilitate The Star Entertainment Group’s expansion across its three properties and significant increase in its workforce, Kim has led the People and Performance team to ensure those plans are matched with highly capable leaders and teams which deliver superior customer service outcomes. Through Kim’s leadership and advocacy, The Star Entertainment Group has become a more diverse and inclusive environment. The Group has set targets across four key area: gender, multicultural, LGBTI and age and tracks its performance against internal and external benchmarks. Kim personally champions gender issues via her association with and directorship on Women in Gaming and Hospitality, a not for profit organisation aiming to identify and remove barriers for the advancement of women in the gaming, hospitality and gaming related industries. ALISON SMITH | Group Executive External Affairs Alison has been with The Star Entertainment Group since mid-2015. Her role covers government, industry and media relations, plus internal communications for the Group. In addition to her role with The Star, Alison is a director on the Brisbane Festival board; an executive committee member of The Committee for Brisbane; Vice President of the Queensland Futures Institute Corporate Affairs Council, a member of the Qld Advisory Board for the Accommodation Association of Australia, and a member of the American Chamber of Commerce Qld Tourism Committee. Prior to joining The Star Entertainment Group, Aliso worked in the public and private sectors in ICT, transport, energy, police and corrective services. In 2014 she was the project manager of Queensland’s international marketing campaign for the G20 Leaders’ Summit in Brisbane. ANNUAL REPORT 201914 FY2019 GROUP PERFORMANCE Three Year Statutory Financial Results Summary1 REPORTED RESULTS Gross Revenue Net Revenue3 EBITDA EBIT Significant Items (after tax) NPAT (before significant items) Earnings Per Share Full Year Dividend FY17 $m 2,432.2 2,110.0 599.7 435.2 8.9 273.3 $m 2,579.5 2,084.0 484.4 297.2 36.7 184.8 32.0 cents 17.5 cents 16.0 cents 20.5 cents FY18 FY19 % vs pcp2 $m % vs pcp ↑ 6.1 ↓ 1.2 ↓ 19.2 ↓ 31.7 ↑ 312.4 ↓ 32.4 ↓ 45.3 ↑ 28.1 2,514.0 2,158.1 552.8 347.0 18.4 216.4 21.6 cents ↓ 2.5 ↑ 3.6 ↑ 14.1 ↑ 16.8 ↑ 49.9 ↑ 17.1 ↑ 23.4 20.5 cents - GROUP PERFORMANCE HIGHLIGHTS • Increased statutory net revenue and earnings • Total FY2019 dividends of 20.5 cents per share, unchanged from FY2018 record levels • Continued effective execution of growth strategy. Gross Revenue Net Revenue EBITDA NPAT SOLID DOMESTIC BUSINESS OFFSET BY VIP • Domestic EBITDA up 5.4% on pcp with margin expansion, represents 88% of Group EBITDA • Slots share gains in Brisbane and Gold Coast, consolidation in Sydney. • Tables revenue up 4.0% on pcp (PGR5 up 9.1% on pcp) • VIP turnover impacted by market conditions. Unique VIP customers up 10% on pcp to record levels, offset by lower spend per visit NORMALISED4 STATUTORY $m 2,500.9 2,160.5 556.5 223.7 % vs pcp $m % vs pcp ↓ 7.2 ↓ 0.9 ↓ 2.0 ↓ 8.4 2,514.0 2,158.1 552.8 198.0 ↓ 2.5 ↑ 3.6 ↑ 14.1 ↑ 33.7 RECORD DIVIDEND PAYMENT MAINTAINED IN FY2019 • Final dividend of 10.0 cents per share fully franked • Total FY2019 dividends of 20.5 cents per share fully franked • Total dividends unchanged from FY2018 record levels, reflecting confidence in the business and balance sheet strength. RESTRUCTURE BENEFITS UNDERWAY • Approximately $45 million annualised cost benefits from restructuring by 31 December 2019 • Customer and employee risk management in place. THE STAR ENTERTAINMENT GROUP 15 CAPITAL PLANS ON SCHEDULE AND DE-RISKED CAPITAL EFFICIENCY IMPROVED • Queen’s Wharf Brisbane – approximately 60% under lump-sum contract, further approximately 28% by end FY2020 • Growth strategy through capital-efficient investments with partners progressed – Queen’s Wharf Brisbane, Gold Coast masterplan, Sydney • The Star Gold Coast – construction of first joint venture tower has commenced, second joint venture tower in pre-sales stage • Capital expenditure optimised for returns. FY2020- 21 plans reduced by approximately $125 million (excluding joint venture contributions). • The Star Sydney – Sovereign Resort expansion and upgrade to complete in 4Q FY2020. PROPERTY PERFORMANCE HIGHLIGHTS SYDNEY Gross Revenue Net Revenue EBITDA NORMALISED STATUTORY $m 1,631.4 1,374.5 367.4 % vs pcp $m % vs pcp ↓ 13.0 ↓ 4.0 ↓ 5.7 1,567.8 1,308.3 307.6 ↓ 9.7 ↓ 0.5 ↑ 7.6 • Domestic growth offset by declines in VIP impacted by market conditions • Domestic revenue up 3.1% on pcp, domestic EBITDA up 5.0% on pcp • Slots revenue up 3.4% on pcp (PGR up 9.4% on pcp), consolidating market share • Tables revenue up 4.0% (PGR up 8.6% on pcp) • International VIP Rebate business performance affected by market conditions. Unique VIP customers down 2%, spend per visitor declined, turnover down 39.7% on pcp. QUEENSLAND Gross Revenue Net Revenue EBITDA NORMALISED STATUTORY $m 869.5 786.0 189.1 % vs pcp $m % vs pcp ↑ 6.0 ↑ 5.2 ↑ 5.9 946.2 849.8 245.2 ↑ 12.3 ↑ 10.5 ↑ 23.5 • Continued growth – normalised and statutory net revenue and EBITDA • All segments contributed to growth. Gold Coast ramp up continuing • Slots market share increased at both Treasury Brisbane and The Star Gold Coast • Tables revenue up 3.9% • New facilities drive International VIP Rebate business performance. Unique VIP customers up over 100%, turnover up 23.5% on pcp. 1 For further information, please refer to the financial report contained in the Annual Report for the relevant financial year. 2 Prior comparable period. 3 Net of player rebates and promotional allowances following the adoption of AASB 15 from 1 July 2018. FY2017 comparable have also been restated. 4 Normalised results reflect the underlying performance of the business as they remove the inherent win rate volatility of the International VIP Rebate business Normalised results are adjusted using an average win rate of 1.35% on actual turnover, taxes and revenue share commissions, unless otherwise stated, and are before significant items. Normalising for revenue share commissions commenced in 1H FY2019. Normalising for revenue share commissions results in an increase in commissions of $20 million in FY2018. 5 Private Gaming Room. ANNUAL REPORT 2019 16 KEY PROJECTS QUEEN’S WHARF BRISBANE The Star Entertainment Group – together with Destination Brisbane Consortium partners Chow Tai Fook Enterprises Limited and Far East Consortium International Limited – has commenced construction of the $3.6 billion Queen’s Wharf Brisbane development, which will cover more than 26 hectares across land and water, transforming Brisbane into a globally recognised destination by 2022. Over the 2019 financial year, the transformational Queen’s Wharf Brisbane development reached significant milestones. These included: • Major construction planning commenced for the Rosewood hotel, the Dorsett hotel and a double-tower The Star-branded hotel to be located beneath an iconic public Sky Deck • Excavation works progressed throughout the year, on track to be completed in early FY2020 • The awarding of contractor status to Multiplex for major construction including: ° shell and core works covering the basement, base services, tower structures and the façade of the main integrated resort ° four high-rise tower shells in the integrated resort to be ready for later fit-out works ° podium level to be nestled between the towers ° an iconic Sky Deck that will sit 100 metres above street level ° five levels of basement carpark ° back of house facilities including kitchen, laundry, staff cafeteria, amenities and central energy plant. • Works commenced on foundations at the base of the development, enabling the build of the basement which will feature thousands of car parks for the precinct, with construction works expected to reach George Street level in late-2020 • The transformation of Brisbane’s riverfront opposite South Bank, which commenced with the creation of a vibrant new public space comprising a 450 metre above-water pedestrian Mangrove Walk and a new public recreational area called Waterline Park – well underway, with completion due in the second half of the 2019 calendar year. Main construction works have commenced, with the erection of 10 new tower cranes scheduled across the second half of the 2019 calendar year marking the transition from excavation to construction and will continue throughout the 2020 calendar year. The Group will continue to operate Treasury Brisbane until the new integrated resort opens and the transition to a new casino occurs, at which point the two existing heritage buildings will be subsequently repurposed into a hotel operated by The Ritz-Carlton and a premium retail precinct. THE STAR ENTERTAINMENT GROUP 17 © Destination Brisbane Consortium. All rights reserved. Artist impression only. Subject to planning approvals. THE QUEEN’S WHARF BRISBANE DEVELOPMENT INCLUDES A RANGE OF TOURISM, INFRASTRUCTURE AND RESIDENTIAL DEVELOPMENTS 50 new bars and restaurants 4 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 HERITAGE BUILDINGS Restored and repurposed PUBLIC SPACE The equivalent of 12 football fields in size NEVILLE BONNER BRIDGE connecting South Bank to the Brisbane CBD WORLD-CLASS GAMING FACILITIES (to replace Brisbane’s existing Treasury casino) which will comprise less than 5% of the development footprint 2,000 apartments SKY DECK More than 100 metres above William Street The Queen’s Wharf Brisbane development is the largest private sector project in Queensland and will employ more than 2,000 workers during peak construction and create more than 8,000 jobs in Queensland when fully operational. ANNUAL REPORT 201918 THE STAR GOLD COAST The Star Gold Coast’s transformation has positioned the property as a world- class integrated resort and the region’s premier entertainment and tourism destination. © Destination Gold Coast Consortium. The Star Gold Coast Master Plan. Artist impression only. The 2019 financial year saw the delivery, as well as commencement of various key projects at The Star Gold Coast, including: • The launch of the Gold Coast’s ultimate buffet experience, Harvest Buffet, with poolside views, stunning indoor and outdoor spaces and private dining • The opening of the new Oasis premium gaming experiences at The Star Gold Coast • The commencement of the main gaming floor upgrade and expansion works, with expected completion in the second half of the 2019 calendar year. With these projects delivered and underway, the next phase of the redevelopment and expansion is advancing with the construction of the Dorsett hotel and apartments tower by Destination Gold Coast Consortium (DGCC) progressing on site, with expected completion in the 2022 financial year. THE STAR ENTERTAINMENT GROUP 19 The 700+ key hotel and apartment tower, being delivered by DGCC, is a joint venture development comprising The Star Entertainment Group and its Hong Kong-based partners, Chow Tai Fook Enterprises Limited and Far East Consortium International Limited. On 2 November 2018, The Star Entertainment Group, together with our partners welcomed the Queensland Government’s approval of our broader master plan concept and future vision for The Star Gold Coast. The master plan would see an additional $2 billion tourism investment at The Star Gold Coast and deliver a further four towers and associated resort facilities on Broadbeach Island such as new restaurants and bars, and increased entertainment and retail. Following this approval, the Group and its partners have launched the second stage of The Star Residences, Epsilon. Subject to pre-sales, Epsilon will feature a soaring 63-storey mixed-use tower incorporating 457 residential apartments, and a 200+ suite 5-star hotel with an exceptional retail offering of fine-dining, gourmet delis, cafes and wine bars. (L-R) John O’Neill AO, The Star Entertainment Group Chairman; Annastacia Palaszczuk, Queensland Premier; Matt Bekier, The Star Entertainment Group CEO. ANNUAL REPORT 201920 THE STAR SYDNEY The Star Sydney, one of Sydney’s most awarded and luxurious entertainment and tourism destinations, has seen further enhancements and premium product offering unveiled throughout the year. In the 2019 financial year, The Star Sydney commenced or delivered many key projects, including: • The relocation and opening of the interim Sovereign Room and the Chairman’s premium gaming areas, enabling the redevelopment of the current location into Sydney’s best private gaming and entertainment venue, Sovereign Resort • Launch of Flying Fish, The Star Sydney’s seafood restaurant and bar overlooking Sydney harbour • Rebranding of the Astral Tower and Residences to The Star Grand and Residences, aligning our product offering across Sydney, the Gold Coast and eventually Brisbane upon the opening of Queen’s Wharf Brisbane • Completion of the new The Star Grand Lobby and Porte-Cochère redevelopment • Launch of G&Tea, a bar and tea house located in The Star Grand Lobby • Launch of Jade Rabbit, the new feature-bar on the main gaming floor • The unveiling of the new Grand Foyer showcasing the world’s first permanent indoor light and interactive digital art foyer in an integrated resort • Commencement and completion of CHUUKA, The Star Sydney’s newest signature restaurant and first off-property establishment, located at Jones Bay Wharf. CHUUKA opened in early July 2019. With these projects at The Star Sydney fully delivered, the next phase of redevelopment and expansion is advancing with the following works program: • The advancement of Sydney’s best private gaming room and entertainment venue, Sovereign Resort, expected to be delivered towards the end of the 2020 financial year • The opening of the new Oasis and Vantage premium gaming experiences, with the launch expected to coincide with the launch of the new Sovereign Resort. The Star Entertainment Group continued to progress additional proposed development works with its joint venture partners, Chow Tai Fook Enterprises Limited and Far East Consortium International Limited. The proposed development works at The Star Sydney features: • A new hotel and residential tower proposed to be operated by the world renowned The Ritz-Carlton • Additional food and beverage, retail, function and event space, as well as other resort facilities and attractions. At the time of writing, the Independent Planning Commission was deliberating on the proposal. THE STAR ENTERTAINMENT GROUP 21 CHUUKA, Jones Bay Wharf. The Star Sydney’s ‘Grand Foyer’ entrance. ANNUAL REPORT 201922 SUSTAINABILITY HIGHLIGHTS 7.5 MILLION+ plastic straws per year removed through the launch of the Group’s Single-Use Plastic Reduction Commitment SILVER EMPLOYER Australian Workplace Equality Index ACHIEVED Green Star Performance Rating at The Star Sydney OBTAINED limited assurance from EY over the Group’s carbon emissions and energy data FINALIST Hotel Management Awards Environmental Program RELEASED the Group’s first Global Reporting Initiative ‘core’ compliant report ACHIEVED a 5 Star NABERS Tenancy rating for the newly refurbished Sydney corporate office at 60 Union Street, Pyrmont, New South Wales ‘GLOBAL LEADER’ of the Casino & Gaming category Dow Jones Sustainability Index 2016, 2017, 2018 100+ apprentice chefs enrolled in The Star Culinary Institute FINALIST City of Sydney CitySwitch Awards, NSW Signatory of the Year over 2,000 square metre category 9,000+ BARS of soap made from recycling hotel soaps through Soap Aid 13,600+ KILOGRAMS of food donated to Oz Harvest creating over 4,100 meals OVER $35,000 raised for OzHarvest’s CEO Cookout 21 MILLION+ visitors welcomed across our three properties BEST INNOVATION PROJECT WINNER Tourism Accommodation Australia (NSW) The Darling Sydney THE STAR ENTERTAINMENT GROUP 23 SUSTAINABILITY STRATEGY The Star Entertainment Group develops and operates world class, liveable, environmentally sustainable and resilient integrated resorts and precincts. The Star Entertainment Group has lifted performance and standards across its sustainability portfolio in the 2019 financial year. The Group’s commitment to sustainability continues to focus on creating long term value in the management of environmental, social and governance (ESG) risks and opportunities, and increasing performance and disclosures year on year. In the 2019 financial year, the Group’s Sustainability Strategy ‘Our Bright Future’ was expanded to align with the business priorities and plans and remains focused on material issues that are reaffirmed annually through our rigorous materiality assessment process. MATERIALITY Our Sustainability Strategy is underpinned by a structured materiality assessment process. The annual materiality assessment identifies the Group’s key emerging and operational ESG issues and seeks to respond to these as part of the Sustainability Strategy’s key priorities. In line with a series of standards, material ESG issues relevant to our business and industry are identified, prioritised and responded to accordingly through policy, process, targets and within our reporting. Material issues have been mapped to the United Nations Sustainable Development Goals which have also been addressed within the Sustainability Strategy. Each year our materiality assessment process is conducted to ensure material issues remain relevant and current. The material issues matrix demonstrates the relevance of these material issues to our business and stakeholders. MATERIALITY MATRIX The following Materiality Matrix outlines our significant issues assessed by their ‘Importance to The Star’ and ‘Importance to external stakeholders’. All issues have been classified as ‘Emerging/Strategic’ or ‘Ongoing/Operational’. S R E D L O H E K A T S O T E C N A T R O P M I Most Material Issues Community wellbeing and trust~ Responsible gaming~ Privacy and security^ Ethical Business Operation~ Guess safety & security~ Employee health, safety & wellbeing~ Climate resilience^ Sustainable precincts^ Healthy environments~ Sustainable and ethical supply chain^ Minimising environmental impacts~ Sustainable business performance^ Employee engagement and development~ ESG transparency~ Diversity inclusion and equal opportunity~ IMPORTANCE TO THE STAR LEADING COMPANY GUEST WELLBEING WORLD CLASS PROPERTIES TALENTED TEAMS ^ EMERGING/ STRATEGIC ~ ONGOING/ OPERATIONAL ANNUAL REPORT 2019 24 OUR APPROACH The Materiality approach adhered to the requirements of the following: (i) Global Reporting Initiative (GRI); (ii) AccountAbility AA1000 Materiality Principle and Assurance Standard International; (iii) the integrated Reporting Council Framework; and (iv) consider the United Nations Sustainable Development Goals (SDGs). The SDGs capture global sustainable development priorities and demonstrate where corporations can have an impact on global environmental and social issues. MATERIAL ISSUE UNITED NATIONS SUSTAINABLE DEVELOPMENT GOALS LEADING COMPANY WORLD CLASS PROPERTIES GUEST WELLBEING TALENTED TEAMS Ethical business operation Community well-being and trust Privacy and security Sustainable and ethical supply chain ESG transparency Sustainable Business Performance 9 16 16 9, 12, 17 9 8 Climate resilience 6, 7, 13, 14, 15 Minimising environmental impacts through operating efficiently 6, 7, 13, 14, 15 Sustainable precincts Responsible gaming Safety and security Healthy environments 11 3, 11 3 3 Diversity, inclusion and equal opportunity 5, 8, 10 Employee engagement and development 8, 4 Employee health, safety and well-being 3, 8 1 NO POVERTY 2 ZERO HUNGER 3 GOOD HEALTH AND WELLBEING 4 QUALITY EDUCATION 5 GENDER EQUALITY 6 CLEAN WATER AND SANITATION 7 AFFORDABLE AND CLEAN ENERGY 8 DECENT WORK AND ECONOMIC GROWTH 9 INDUSTRY, INNOVATION AND INFRASTRUCTURE 10 REDUCED INEQUALITIES 11 SUSTAINABLE CITIES AND COMMUNITIES 12 RESPONSIBLE CONSUMPTION AND PRODUCTION 13 CLIMATE ACTION 14 LIFE BELOW WATER 15 LIFE ON LAND 16 PEACE, JUSTICE AND STRONG INSTITUTIONS 17 PARTNERSHIPS FOR THE GOALS THE STAR ENTERTAINMENT GROUP 25 The Star Entertainment Group’s Sustainability Strategy continues to combine key priorities and objectives in a four-pillar framework that supports our business plan. Our four sustainability strategic objectives are: • We strive to be Australia’s leading integrated resort company • We build and operate world class properties • We actively support guest wellbeing • We attract, develop and retain talented teams. In line with best practice, the Group continues to improve sustainability reporting and disclosures year on year. Over the last financial year, the Group released its first report applying a ‘core’ level of compliance against the Global Reporting Initiative (GRI) and received limited assurance from EY for the Group’s carbon and energy data and reporting processes. CLIMATE CHANGE RESPONSE The Star Entertainment Group recognises that its properties may be susceptible to future changes in climate and that we have a responsibility to reduce resource consumption. Accordingly, we are committed to improving the resilience of our business operations, our assets, and the precincts in which our properties are located. We are doing this by continuing to conduct external climate risk assessments, managing our carbon emissions towards meeting our targets and continuing to embed mitigation and adaptation actions in the Group’s Sustainable Design and Operational Standards that are required to be applied to all major projects. The company recognises the recommendations of the Financial Stability Board Task Force on Climate-related Financial Disclosures (TCFD) and is working to align current and new projects to the framework. As part of progressing this commitment, in the 2019 financial year, the Group conducted a gap analysis to understand its progress to date against the four disclosure categories in the TCFD recommendations. As a result of this analysis, recommendations were identified for future activities to further support the understanding and disclosure of climate-related physical and transition risks and opportunities in accordance with the TCFD recommendations. INVESTING IN RENEWABLE ENERGY The Group has commenced plans to reduce its carbon footprint through the way we purchase energy in addition to other emission reduction activities. In FY2019, a power purchase agreement viability assessment was completed and the company is expecting to secure an agreement in the 2020 financial year to ensure a minimum of 25% of the Group’s load is sourced from renewable sources. SUSTAINABILITY EDUCATION AND ENGAGEMENT The Group prioritised sustainability engagement in the 2019 financial year by increasing training, workshops and communications. Quarterly Sustainability Team Leadership Workshops were established at The Star Sydney, Treasury Brisbane and The Star Gold Coast, with each of the properties’ Chief Operating Officers in attendance to drive business engagement, innovation and sustainability performance across all work streams. Through the celebration of domestic and international environmental campaigns such as National Recycling Week and Earth Hour, the Group supported the promotion of recycling and raised awareness of carbon and water reduction targets by providing team members with face to face education. Sustainability performance is monitored by the Property Sustainability Committees and is governed by the Group Sustainability Steering Committee which continues to report to the Board’s People, Culture and Social Responsibility Committee. The Star Entertainment Group became a founding partner of the City of Sydney’s Sustainable Destination Partnership and is represented at the Leadership Panel and Technical Working Groups to work collaboratively to increase environmental performance and lift industry standards in sustainability. DELIVERING WORLD CLASS PROPERTIES The Group focusses on delivering world class properties by committing to voluntary national accreditation programs that measure and report on environmental performance including Green Star and the National Australian Built Environment Rating System (NABERS). During FY2019, The Star Sydney obtained its first Green Star Performance Rating to assess and benchmark the integrated resort’s baseline operational performance. The Star Entertainment Group’s refurbished corporate office located at 60 Union Street, Pyrmont, New South Wales obtained its first 5 Star NABERS Tenancy rating to complement the 5 Star Green Star Interiors Rating attained in the 2018 financial year. ANNUAL REPORT 201926 Seabin Project Co-Founder & CEO and City of Sydney Councillor Cristine Forster and team members install Seabin at Sydney Wharf Marina. Destination Gold Coast Consortium (on behalf of its joint venture partners) continued to work towards its 5 Star Green Star Design and As Built Green Star Rating commitment for the Dorsett hotel and apartments tower, currently under construction on Broadbeach Island, Broadbeach, Queensland. achieved a 6 Star Green Star Communities rating for the Queen’s Wharf Brisbane development. Other commitments include the 6 Star Green Star Design & As Built ratings for all new buildings, and Australian best practice sustainability outcomes on the repurposing of existing heritage buildings. Destination Brisbane Consortium (on behalf of The Star Entertainment Group and its joint venture partners) continues to focus on its commitments, having The Queen’s Wharf Brisbane development has progressed significantly with its Communities and Design and As Built Green Star commitments by recycling 100% of the recyclable material from the shoring and excavation and 660,363 tonnes of the non-recyclable material being diverted for reuse on other infrastructure projects around Brisbane including the Auto Mall site at Brisbane Airport and the Trade Coast site. The Star Sydney has maintained its commitment to achieving a 5 Star Green Star Design & As Built v1.1 rating for the proposed The Ritz-Carlton hotel and apartments tower. THE STAR ENTERTAINMENT GROUP 27 THE STAR ENTERTAINMENT GROUP IS A COMMITTED TO THE FOLLOWING GREEN STAR AND NABERS DEVELOPMENT AND OPERATIONAL RATINGS. Queen’s Wharf Brisbane ACHIEVED a 6 Star Green Star Communities Rating v1 COMMITTED to achieving a 6 Star Green Star Design & As Built rating for non–residential new buildings COMMITTED to achieving Australian best practice sustainability outcomes for existing heritage buildings COMMITTED to achieving Green Star Performance ratings for each non-residential building + + + THE DORSETT HOTEL AND APARTMENTS TOWER, BROADBEACH ISLAND, BROADBEACH, QLD + COMMITTED to achieving a 5 Star Green Star Design & As Built rating The Star Gold Coast The Star Sydney THE STAR ENTERTAINMENT GROUP’S SYDNEY CORPORATE OFFICE, 60 UNION STREET, PYRMONT, NSW ACHIEVED a 5 Star Green Star Interiors rating ACHIEVED a 5 Star NABERS Tenancy Rating THE STAR SYDNEY, 80 PYRMONT STREET, PYRMONT, NSW ACHIEVED a Green Star Performance rating THE STAR SYDNEY – PROPOSED THE RITZ-CARLTON HOTEL AND APARTMENTS TOWER + COMMITTED to achieving a 5 Star Green Star Design & As Built rating ANNUAL REPORT 201928 DELIVERING RESOURCE EFFICIENCY PROJECTS In FY2019, 13 projects were completed within the Energy and Water Project Pipeline delivering cost benefits of $1.5 million. The Star Entertainment Group continues to target reductions in resource use through the allocation of capital and through operational energy and water improvement projects. Now in its fifth year, the Group’s ‘Energy and Water Project Pipeline’ identifies, prioritises and measures the outcomes of energy and water projects based on their cost savings, and combined energy and carbon benefit. In the 2019 financial year, a further 13 projects were completed within the Energy and Water Project Pipeline delivering cost benefits of $1.5 million against a business as usual model. To date, the Group has reached a milestone by delivering 50 projects from large scale capital upgrades to optimisation and lighting replacements. These 50 projects have delivered environmental and maintenance savings and over $4.3 million in cost savings in the last five financial years against a business as usual model. Resource consumption continues to be measured and reported in absolute terms and as an intensity metric measured on a per visitor and per square metre basis. Measuring energy, water, carbon and waste by intensity assists with measuring performance with growing visitation and an increasing portfolio. As more efficient buildings activate, we expect the consumption per square metre to decline as buildings become more efficient over time. With development and enhancement projects underway increasing the floorspace and scale of the property portfolio, the Group continues to prioritise energy efficiency through optimisation projects, green building ratings and sustainable design to limit the rise in absolute resource consumption. To support a decrease in future resource consumption intensity within the portfolio, the Group continues to set minimum standards within The Star Entertainment Group’s Sustainable Design and Operational Standards (located on the company website) for the building and large-scale redevelopment of assets. The Standards specify mandatory and voluntary requirements for development projects across eight material categories aligned to Green Star and the National Australian Built Environment Rating System (NABERS). The following resource saving projects were delivered in the 2019 financial year: • A building optimisation and analytics system has been implemented at The Star Gold Coast which has led to 42 controls, tuning and optimisation opportunities implemented within the year, delivering energy and cost savings • The Star Sydney continued with air handling unit and fan replacement initiatives and completed a lighting replacement project (replacing LED lighting in internal corridors, fire stairs and The Darling carpark) which is expected to deliver $53,000 in cost savings annually •The Star Gold Coast retrofitted all existing ‘waterless’ woks with knee levers to improve water efficiency. These improvements are estimated to deliver 4,577 kilolitres in water savings and $35,800 in cost savings annually • As part of water usage audits previously conducted across the properties in FY2018 and ongoing testing and leak rectification, flow management of showers and taps and operating practices are continually being upgraded or replaced. THE STAR ENTERTAINMENT GROUP 29 ENERGY AND CARBON EMISSIONS The Star Entertainment Group previously set carbon and water targets in the 2017 financial year to achieve a 30% reduction in carbon and water intensity by FY2023 against the FY2013 baseline on a square metre basis. In the 2019 financial year, the Group’s total emissions in carbon dioxide equivalents (CO2-e) from purchased gas and electricity were 106,845 tonnes. This footprint equates to an increase of 1,276 tonnes from FY2018, however an overall decrease of 1.6% from base year FY2013 which was 108,595 tonnes. On an intensity basis, carbon emissions remain relatively in line with FY2018 at 0.35 tonnes CO2-e/ per square meter and carbon emissions per visitor at 5.69 kilograms CO2-e/ visitor for the financial year 2019 despite a small reduction in visitor numbers and a reduction in overall square metres due to redevelopment works for the new Sovereign Resort at The Star Sydney. Overall carbon emissions intensity per square metre have reduced 15.5% from base year FY2013 towards the Group’s targets. A small increase in absolute emissions was expected due to the opening of The Darling Gold Coast in FY2018 which has now operated for a full year in FY2019 and the increase of construction activities at The Star Gold Coast. The Group’s total energy consumption from purchased gas and electricity for the 2019 financial year was 639,726 gigajoules (GJ), which was a 2.4% increase from FY2018. Energy consumption per visitor increased in FY2019 by 2.6% from 33.18 MJ/visitor in FY2018 however decreased 8.5% overall from base year FY2013. Energy consumption intensity per square metre also increased over the last financial year by 2.6% from 2.06 to 2.11, however reduced overall by 9.6% against base year FY2013. Energy consumption intensity increased in FY2019 due to the increase of onsite construction and is expected to reduce once enhancements and build activities conclude. POTABLE WATER USE The Group’s total potable water consumption was 825,971 kL in the 2019 financial year, an increase of 2.5% from FY2018 and an increase of 20% from base year 2013. On a visitor intensity basis, the Group’s water intensity increased from 42.78 litres per visitor in FY2018 to 43.96 litres per visitor in FY2019 and increased 4.2% against base year. CARBON EMISSIONS ENERGY CONSUMPTION 6.65 108,595 0.42 FY13 5.61 5.69 105,569 106,845 0.35 FY18 0.35 FY19 37.22 607,476 2.34 FY13 34.05 5.69 639,726 33.18 624,729 2.06 FY18 2.11 FY19 CARBON EMISSIONS (TONNES CO2-E) EMISSIONS INTENSITY (KG CO2-E/VISITOR) EMISSIONS INTENSITY (TONNES CO2-E/SQM) ENERGY CONSUMPTION (GJ) ENERGY INTENSITY (MJ/VISITOR) ENERGY INTENSITY (GJ/SQM) Notes: The Group’s total carbon emissions, as reported, equate to emissions from purchased gas and electricity only, which aligns with the Group’s targets that cover our material sources of carbon emissions. Additional sources of Scope 1 emissions include refrigerant gases, and fuel consumption, both of which comprise less than 1% of total emissions for the year. Additionally, 1.6% of FY2019 utility invoices were unbilled at the time of reporting (from water), based on cost. The missing usage has been estimated as 0.0% (12MWh) for electricity, 0.0% (122GJ) for gas. Square metres, are square metres of conditioned space only, which is defined as space that has been mechanically heated or cooled that the Group had operational control over at the close of each financial year. Visitation numbers have been restated for The Star Sydney in FY2016 impacting the FY2016 intensity per visitor metric. ANNUAL REPORT 201930 WATER CONSUMPTION RECYCLING RATES 42.19 42.78 43.96 805,570 825,971 2.65 FY18 2.73 FY19 0.03 10% 0.002 FY13 688,440 2.65 FY13 WATER CONSUMPTION (KL) WATER INTENSITY (L/VISITOR) WATER INTENSITY (KL/SQM) RECYCLING RATE (%) RECYCLING RATE INTENSITY (KG/VISITOR) RECYCLING INTENSITY (TONNES/SQM) 0.16 38% 0.16 39% 5.69 0.010 FY18 0.010 FY19 Notes: 1.6% of FY2019 utility invoices were unbilled at the time of reporting based on cost. The missing usage has been estimated as 8.15% (67ML) for water. The FY2013 baseline for waste has been recalculated. ‘Recycling intensity’ kg/visitor has been used in FY2019 to FY2017, not ‘waste to landfill intensity kg/visitor’ as used in FY2016, which better reflects recycling performance. Square metres, are square metres of conditioned space only, which is defined as space that has been mechanically heated or cooled that the Group had operational control over at the close of each financial year. Visitation numbers have been restated for The Star Sydney in FY2016 impacting the FY2016 intensity per visitor metric. Measuring water intensity by square metre, consumption has increased by 2.7% from 2.65 litres per square metre in FY2018 to 2.73 litres per square metre in FY2019 and increased 3% from base year FY2013. Absolute water use was expected to increase from base year due to the opening of new floor space including The Star Event Centre and The Darling Gold Coast since FY2013. The ongoing construction activities onsite at The Star Gold Coast including the building of The Darling and the Dorsett hotel, in addition to the ongoing refurbishment works, have affected water intensity. Water use remains a material issue and efficiency projects have been prioritised for FY2020 including maximising recycling water opportunities and expanding the existing water auditing and leak detection projects. Post construction, water intensity is expected to decrease. INCREASING RECYCLING As waste is a material issue, The Star Entertainment Group sets increased recycling targets each year to lift performance and continues to provide ongoing employee training and education. Waste and recycling includes all waste from operations, with recycling programs focusing on organic waste diversion, and increasing the number of recycling streams and the percentage of landfill diverted. The Group has been tracking recycling performance against a base year of FY2013 to ensure that improvements are measurable, continue to divert increased waste volumes from landfill and promote behavioural change across the organisation. Across the Group’s properties, total recycling rates have increased from 10% diversion in FY2013 to 39% diversion across all operations in the 2019 financial year. Recycling rates continue to be measured and performance reported monthly and annually. The Property Sustainability Committees have been tasked with innovation in waste reduction THE STAR ENTERTAINMENT GROUP 31 and process improvement. The Star Sydney continues to lead the individual property performance by achieving a recycling rate of 57% within the year, which is an increase from 54% in financial year 2018. On an intensity basis, recycling per square metre in tonnes has increased as the Group’s recycling performance increased. During the 2019 financial year a number of initiatives were introduced to achieve continuous improvement in recycling, including: • Launch of the Group’s ‘Single-Use Plastic Reduction Commitment’ which targets the removal of plastics in favour of Forest Stewardship Council certified wooden, cornstarch (compostable) and paper alternatives • Working in partnership with OzHarvest, The Star Gold Coast and The Star Sydney have redistributed 13,669 kilograms of food, contributing to the charity’s school program and providing the equivalent of 41,007 meals to vulnerable communities • The Star Sydney redistributed 4.5 tonnes of obsolete furniture, equipment, uniforms and hotel linen to charities in FY2019 – resulting in a total of 17 tonnes of redistributed items since the program began • Multiple site audits across the Group’s hotels, retail outlets, restaurants and bars have been undertaken and specialised training was conducted in waste management for housekeeping, public area and food and beverage teams to maximise recycling rates • Through Soap Aid’s used soap recycling program, the Group has recycled 905kgs of soap, creating 9,050 soap bars critical to communities facing major hygiene challenges • The Group expanded its Nespresso recycling program and recycled 29,200 capsules, an increase of 17,200 on the last financial year • Mei Wei at The Star Gold Coast introduced reusable portion containers in their kitchen, reducing the purchase of 300 cases of disposable lids and containers annually. SINGLE-USE PLASTIC REDUCTION As part of the Group’s wider sustainability strategy, during the 2019 financial year, The Star Entertainment Group launched its ‘Single-Use Plastic Reduction Commitment’ targeting the reduction and substitution of single use plastics items with alternatives where they exist on the market. This commitment focussed upon removing or replacing single-use plastics including straws, cutlery, and packaging over time in favour of sustainable paper, Forest Stewardship Council certified wood and compostable alternatives across the Group’s 60 bars and restaurants. The initiative has removed over 7.5 million plastic straws and a number of plastic cutlery items and takeaway packing lines from landfill within the year. Part of the ongoing commitment is to continue to test and improve our use of sustainable products over time as new alternatives come to market. The Group has taken an innovation approach with its partners to create and manufacture new sustainable cutlery and restaurant supplies where needed that deliver on exceptional guest experiences setting new industry benchmarks. Working across the food and beverage, procurement and sustainability teams, team members and restaurant managers have been trained as part of the consolidation and replacement project with single-use plastic stocks being depleted over a number of months to reduce wastage. Water fountains have been specified in new designs to reduce water bottles and other practices (including offering straws on request) are in place. Supporting this on-going commitment, The Star Sydney is a founding signatory to the City of Sydney’s Plastic Reduction Pledge. ANNUAL REPORT 2019 32 SUSTAINABILITY IN OUR SUPPLY CHAIN DEVELOPING A MORE SUSTAINABLE SUPPLY CHAIN and the extension of our supplier risk assessment activities. our single use plastic reduction commitments. The Star Entertainment Group continues to take a long-term view to managing and maintaining relationships with suppliers and contractors and is committed to continuous improvement in supply chain management and the sustainable sourcing of products and services. As part of our supply chain improvement program in financial year 2019, the Group continued to implement recommendations from the supply chain assessment and gap analysis conducted in financial year 2018, supported by the Group Sustainability Strategy and materiality assessment process. In the material and higher risk spend areas of food and capital developments, further progress was made to mitigate the impacts of our procurement via embedding sustainability considerations into all relevant tendering activities and adhering to sustainable construction guidelines for capital works. In the 2019 financial year, the Group progressed with its Sustainable Supply Chain Plan which included preparations to ensure compliance with the Modern Slavery Act 2019 (Cth) SUSTAINABILITY SOURCING IN OPERATIONS Managing close relationships with our suppliers leads to identifying and implementing operational improvements in the sustainability of our sourcing and property management activities. Our Queensland-based roadshows offer an opportunity for us to directly present our growth story and strategy to various agencies and potential vendors, providing the opportunity to build pathways to regional suppliers including those who have a specific sustainability offering. One supplier identified during these roadshows offered sustainable and natural cleaning products which were subsequently trialled and utilised in our commercial kitchens. In line with our Single-Use Plastics Reduction Commitment, supplier roadshows have been held to match sustainable and compostable packaging alternatives with the dishes that chefs produce meeting both a food presentation and customer requirement. This activity will see the Group reduce single use takeaway packaging in line with The Group undertook the following projects and initiatives during the 2019 financial year: • Plastic straws have been replaced by paper and compostable alternatives • Additional still and sparkling water fountains have been provided to reduce single-use water bottles • Single-use portion containers for internal use are being phased out at The Star Gold Coast and The Star Sydney in favour of reusable alternatives • Nineteen at The Star continues to lead in sustainable cuisine, sourcing and chef education on sustainable cooking practices • Napkins procured across our properties continue to be made with Forest Stewardship Council (FSC)-certified pulp and are carbon neutral • Following a company-wide review of washroom paper consumables (including hand towels and toilet rolls) in FY2019, the Group switched to FSC certified paper washroom products. THE STAR ENTERTAINMENT GROUP PRIDES ITSELF ON SOURCING LOCAL PRODUCE AND SUPPORTING OUR LOCAL COMMUNITIES. IN FY2019 WE CONTINUED TO ESTABLISH STRONG RELATIONSHIPS WITH FARMERS, FISHERIES AND SUPPLIERS ACROSS NEW SOUTH WALES, QUEENSLAND AND AUSTRALIA TO DELIVER THE BEST QUALITY PRODUCE TO OUR GUESTS. THE STAR ENTERTAINMENT GROUP 33 NINETEEN AT THE STAR’S SUSTAINABLE SOURCING Nineteen at The Star prides itself on sourcing its produce from ethical farmers that produce sustainable ingredients including fruit, vegetables, meat and seafood. As part of Nineteen at The Star’s strategy, the restaurant aims for all of our seafood suppliers to be recognised by the Marine Stewardship Council (MSC). The MSC regularly reviews global fishing standards aiming to eliminate over-fishing and ensure the supply of seafood for future generations. Since the over fishing of certain species of tuna has recently become apparent, we have sourced Walker Seafoods Australia to supply our tuna. Walker Seafoods is an ethical and sustainable supplier based on the Sunshine Coast and is the only tuna supplier in the world that is recognised by the MSC. We also pride ourselves on supporting local farmers and suppliers such as our sheep yoghurt supplier out of the Lockyer Valley in Toowoomba. Other examples of local, sustainable produce are our tomato and mushroom supplies from farmers on the Sunshine Coast. Part of being a sustainable restaurant is incorporating sustainable cooking practices. We aim to have zero waste by using all elements of our ingredients. For example, our fish arrive whole so that we can break them down and use every part of the animal - from making sauces, to using the bones to create our broths. To further showcase our sustainability credentials, Nineteen at The Star has developed a bespoke themed menu series. The six-part series includes a focus on sustainable seafood and ethical, local farming. South Australian Rock Lobster Bolognese, Nineteen at The Star ANNUAL REPORT 201934 TRUSTED COMMUNITY PARTNERS The Star Entertainment Group aims to foster and maintain close connections with the local communities and cities in which we operate. Reflecting this core value, in the 2019 financial year, we contributed more than $9 million to local community groups, events, charities and sporting organisations. LEADING COMPANY Our team members proudly volunteer their time and expertise to assist in various charitable events as well as participating in the “Open Your Heart” program, while our properties also provide in-kind support with the use of world-class venues, including the provision of event management and food and beverage supplies. The Star Entertainment Group continued its long-term support and involvement with Queensland-based community organisations and charities, including Surf Life Saving Queensland and Choice, Passion, Life (formerly Cerebral Palsy League). Since 2014, our Queensland properties have continually supported Ronald McDonald House South East Queensland (RMHSEQ). Over $3 million has been donated to RMHSEQ over this period, including more than $100,000 in the 2019 financial year. In addition to raising vital funds and awareness, team members at Treasury Brisbane have volunteered their time at “Make-a-Meal” events during Easter and Christmas to provide assistance to families and alleviate their stress through challenging times. In the 2019 financial year, our “Open Your Hearts” program celebrated its 10-year anniversary. Over this time, team members at The Star Gold Coast and Treasury Brisbane nominated and supported local community organisations and charities, donating more than $220,000 through direct contributions. In April 2019, The Star Entertainment Group announced that it had committed to an exclusive Aboriginal native bee honey production business on Minjerribah (North Stradbroke Island). The Group will work alongside the Quandamooka Yoolooburrabee Aboriginal Corporation (QYAC), representing the island’s Traditional Owners, the Quandamooka People to harvest up to 140 hives and a future supply of authentic and exclusive indigenous product. The Star Entertainment Group will be the only organisation outside of the Quandamooka People that can use the native bee honey – securing 50% of supply for gifts and as a key ingredient across its restaurants and bars. “WE ARE PROUD TO HAVE THE STAR’S SUPPORT AND SEE THIS TRIAL GROW INTO A LONG-TERM PARTNERSHIP THAT WILL CREATE MANY ECONOMIC GROWTH OPPORTUNITIES FOR OUR QUANDAMOOKA PEOPLE – ESPECIALLY IN JOBS AND TRAINING.” CAMERON COSTELLO, CEO QYAC THE STAR ENTERTAINMENT GROUP 35 THE STAR GOLD COAST (L-R) Michael Hodgson, General Manager Tourism, Food & Beverage, Strategy & Partnerships at The Star Entertainment Group; Cheyenne Doyle; Dr Tim Heard, Sugarbag Bees The Star Gold Coast maintains several long-term relationships with key charity partners in Queensland and continues to actively encourage team members to contribute to the community in which they live, work and play. The Star Gold Coast celebrated its 25 years’ support as a ‘Community Partner’ of Surf Life Saving Queensland in the 2019 financial year. Through this relationship, Surf Life Savers across the Gold Coast received around $40,000 of equipment including 17 marquees, 2 rescue boards and 124 water safety rash vests. Representing a commitment of over 20 years, The Star Gold Coast continued to raise awareness for cancer patients alongside Cancer Council Queensland. The Star Gold Coast was an Event Partner of the organisation’s Gold Coast ‘Relay for Life’ and donated over $26,000 in the 2019 financial year. The Gold Coast Hospital Foundation (GCHF) received a Charity Quarter Donation (Q2) of $23,454.28. GCHF is a Gold Coast based not-for-profit charity that exists to support sick and injured child and adult patients suffering distress and hardship in Gold Coast local public hospitals and across community health centres, as well as advancing treatment to improve patient outcomes for all. involved in developing tourism and visitation to the region through various events and sporting partnerships, including as: • Official venue and a major partner of the TV WEEK Logie Awards • Naming Rights Partner of Gold Coast Magic Millions Carnival and Raceday • Official Partner of ‘Blues on Broadbeach’ (an iconic Australian blues music festival that nurtures Australian talent and provides a stage for international acts) In the 2019 financial year, The Star Gold Coast was also • Groundwater Country Music Festival. ANNUAL REPORT 201936 THE STAR SYDNEY Launch of Lunar New Year at The Star Sydney The Star Sydney is an integral member of the local Pyrmont community. In FY2019, The Star Sydney was a major sponsor of local community events including the Pyrmont Food and Wine Festival and Christmas in Pyrmont. The Star Sydney is also proud to support its neighbours in the City of Sydney, local community groups and charities through the annual Grants Program. In the 2019 financial year, groups we assisted included: • Glebe TreeHouse • Before and After School Care • Beehive Industries • The Freedom Hub • Culture at Work • PCYC Marrickville Club • Ultimo Public School P&C Association Fun Run • Seabin Project. In the 2019 financial year, The Star Sydney extended its partnership with the Sydney FC to include both the men’s Hyundai A-League and women’s Westfield W-League squads. During this period, both teams were crowned champions of their respective leagues. The Star Sydney continued their strong partnership with the NSW Rugby League and encouraged NSW Blues fans to “Get into it” across the series by creating unique experiences for fans both on property and at games. The 24/7 Origin Shout promotion rewarded fans for vocally expressing their support for the team. These were in addition to the continuation of other partnerships with: • Sydney Swans • The Australian Turf Club’s key race meets including The Star Doncaster Mile, The Everest and The Star Chinese Festival of Racing • OzHarvest’s ‘Think. Eat. Save.’ Campaign • Sydney Gay & Lesbian Mardi Gras • City of Sydney Lunar New Year Festival. The Star Sydney continues to support Australia’s creative industries, holding long-term partnerships with the ARIA Awards and AACTA Awards. THE STAR ENTERTAINMENT GROUP TREASURY BRISBANE 37 Treasury Brisbane team members presenting a cheque to Children’s Hospital Foundation fundraiser. During the 2019 financial year, Treasury Brisbane supported numerous community focussed and charitable organisations. Treasury Brisbane returned as Presenting Partner of Brisbane Festival for the fifth consecutive year. The festival is one of Australia’s major international arts and cultural events, and complements the property’s focus on city pride and local spirit. Treasury Brisbane is a proud long- term supporter of CPL - Choice, Passion, Life (formerly the Cerebral Palsy League) and in the 2019 financial year, it extended its relationship to 17 consecutive years. CPL is the leading provider of integrated support, therapy and advice for people living with a disability in Queensland, and their families. Our $50,000 donation to CPL, in addition to raising over $14,000 for the organisation’s annual ‘We’ll Make a Change’ fundraising event, contributed to helping over 8,000 people in Queensland receive much needed support. Treasury Brisbane has also continued its support of a variety of multicultural and community events including: • Festitalia Italian Festival • Vietnamese Lunar Festival • Participating in the National Trust of Queensland’s ‘Brisbane Open House’ event by opening the Treasury Brisbane building to the public and conducting tours • Being partner of the Brisbane Racing Club with naming rights for Treasury Brisbane Ladies Oaks Day. ANNUAL REPORT 201938 LEADING COMPANY The Star Entertainment Group provides a variety of engaging entertainment experiences at its properties. RESPONSIBILE GAMBLING Most of our guests enjoy gambling as part of their leisure and entertainment experience and do so within their financial means. Unfortunately, a small percentage of our guests may experience some difficulty in controlling their gambling. The Group’s responsible gambling program promotes early identification and intervention with guests who may be exhibiting signs of problem gambling. The objective of the responsible gambling program is to minimise the potential harm caused by gambling (such as financial hardship, emotional distress and relationship breakdown), and to provide guests with the ability to make informed decisions about managing their gambling behaviours. 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. our casinos (we have in place 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) • We assist guests who have self- excluded from our casinos to also self-exclude from other gambling venues • Where we believe there is sufficient reason to do so, we exclude people who are at risk of gambling problems, including on the basis of third party information • We monitor the amount of time a guest spends on property and encourage regular breaks in play • We prevent intoxicated guests from participating in gambling activities • We prohibit the cashing of cheques to fund gambling activities (other than by prior arrangement) Key operational elements of our responsible gambling program are: • We do not allow betting on credit terms • We provide guests with readily accessible information about problem gambling, including symptoms and treatment options • We work with external support agencies to provide assistance to problem gamblers • We offer sensitive and confidential support to guests seeking to exclude themselves from attending one or more of • We conduct advertising and marketing campaigns in compliance with applicable regulations and industry codes of practice • Our security and surveillance staff are trained to prevent minors and excluded persons from gaining access to gaming areas. • We have a dedicated Responsible Gambling Team that oversees all areas of the responsible gambling program (including compliance with the Responsible Gambling Policy) across the Group. Board oversight of our responsible gambling program is provided by the People, Culture and Social Responsibility Committee. At each of our casinos, a Patron Liaison Manager from the Responsible Gambling Team supports the business in giving effect to the responsible gambling program. Each of the Patron Liaison Managers is a member 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. The Patron Liaison Managers report directly to the Group Manager Responsible Gambling. The position of Group Manager Responsible Gambling was introduced in April 2019 to manage the Responsible Gambling Team and to drive continuous improvement of the responsible gambling program. The newly created position reports directly to the Group General Manager Compliance and Responsible Gambling. In Queensland, a Patron Liaison Manager attends Responsible Gambling Network meetings on the Sunshine Coast, the Gold Coast and in Brisbane. THE STAR ENTERTAINMENT GROUP 39 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 Group is directed to the Gambling Community Benefit Fund in Queensland (previously the Jupiters Casino Benefit fund). In the 2019 financial year, the Group contributed $19.3 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, we engage BetCare, a dedicated independent counselling service, to provide assistance for distressed guests, including 24/7 crisis intervention. $100 MILLION+ CONTRIBUTED TO QUEENSLAND’S GAMBLING COMMUNITY BENEFIT FUND SINCE 1987 $19.3 MILLION TO THE RESPONSIBLE GAMBLING FUND (NSW) 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. We are finalising arrangements to provide the same support services for our Queensland casinos. In New South Wales and the Gold Coast we have completed Guest Support Centres, readily accessible from the main gaming area, to offer guests safe and discrete access to specialist gambling support and counselling services. The Guest Support Centre in our Brisbane casino will be completed in FY2020. RESPONSIBLE SERVICE OF ALCOHOL Excessive consumption of alcohol can have serious adverse health, social and economic consequences for individuals, their family and friends, and for the broader community. The Group’s responsible service of alcohol (RSA) practices comply with relevant state-based legislation, regulations and liquor licences supported by a group RSA policy framework 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. All other employees are also required to complete in-house RSA training upon commencement of employment, even though they are not directly involved in the service or supply of alcohol. 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 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. SECURITY AND SURVEILLANCE • 24/7 security and surveillance operations • Over 400 team members ensuring continuous guest safety, security and monitoring across all three properties • Each property maintains and incidents register, while an internal compliance team reviews all requirements and conducts regular audits to support compliance with relevant legislation and policies • $10 million total surveillance technology investment including introduction of facial recognition at The Star Sydney. ANNUAL REPORT 2019 40 TALENTED TEAMS RECOGNITION AND AWARDS 50% FEMALE REPRESENTATION in leadership levels 1-4 by 2020 20% ASIAN REPRESENTATION in leadership levels 1-3 by 2020 Australian Human Resource Institute Awards Finalist 5% YEAR-ON-YEAR INCREASE in the Australian Workplace Equality Index Score PROVIDING A WELCOMING CULTURE for our mature aged team members Australian Workplace Equality Index DIVERSITY AND INCLUSION • Supported by our Diversity and 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. Through our Diversity and Inclusion program, which is embedded in every aspect of the organisation, we aim to provide an environment that enables our team members to be the best they can be. Our policies, practices and behaviours all contribute to creating a safe, welcoming and inclusive workplace and support equitable and collaborative relationships and talented teams. Our Diversity and Inclusion program is: • Based on our company values of Ownership, True Teamwork, Welcoming and City Pride • Underpinned by our Diversity and Inclusion Policy Inclusion Strategy. The Group’s Diversity and Inclusion Strategy focuses on four key areas - Gender, Multicultural, Age and LGBTQI (lesbian, gay, bisexual, transgender, questioning and intersex). Each of these focus areas have measurable targets, with progress towards these goals reported back to the Board of Directors regularly throughout the year. The Group also tracks performance against external benchmarks, including the Workplace Gender Equality Agency report and the Australian Workplace Equality Index for LGBTQI inclusion. The Group’s Diversity & Inclusion Survey, launched in 2017, provides team members with an opportunity to provide feedback on experiences relating to inclusion, and enables the Group to continually enhance its approach to diversity and inclusion. Throughout the year, our team members have participated in a wide range of initiatives and local and global events, and this year saw the Group celebrate its inaugural Diversity and Inclusion Month during March. GENDER We promote gender equality in many ways and continue to focus on developing careers for female team members through education, targeted recruitment practices, flexible working practices and networking opportunities. As a founding partner of Women in Gaming and Hospitality Australasia (WGH), alongside Aristocrat Leisure Limited, the Group has assisted in the expansion of the organisation across several cities in Australia and in New Zealand throughout the last financial year. The Group held several events at its properties, empowering women in the gaming and hospitality industries by helping them to ‘Step Forward’ and influence their careers, and providing them with mentorship guidance. For the third consecutive year, the Group celebrated International Women’s Day with the annual ‘Walk and Talk for Women in Leadership’ THE STAR ENTERTAINMENT GROUP 41 event across all three properties. The event pairs groups of team members with leaders and opens dialogue on work place and gender topics affecting our female workforce. In 2019, more than 360 team members participated in the event, representing an increase of 63% since the first event in 2017. MULTICULTURAL More than half of the Group’s 9,000 team members come from culturally diverse backgrounds, and collectively are fluent in over 70 languages. In recognition of the rich diversity in our workforce, we celebrate Lunar New Year and Harmony Day across our properties. In 2019 we launched new name badges for our guest-facing employees – these badges enable guest-facing employees to display flags or icons on their name badges to represent the languages they speak. This showcases our cultural and linguistic diversity and also makes it easier for our guests to identify someone who can assist them in their preferred language. LGBTQI The Group champions LGBTQI inclusion both internally and externally. In FY2019, the Group introduced a provision of up to five days of gender transitioning leave. The integration of the Group’s diversity and inclusion and marketing strategies have resulted in a comprehensive portfolio of strategic LGBTQI-related partnerships. The Star Sydney has been a proud partner of the Sydney Gay and Lesbian Mardi Gras for four consecutive years. Our sponsorship includes property activations, 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 The Group’s CEO Matt Bekier and CMO George Hughes with team members celebrating the 2019 Sydney Gay and Lesbian Mardi Gras. Film Festival and the Queer Screen Film Festival). In addition, the Group partners with the following LGBTQI organisations and events: Pride in Diversity, Pride in Practice Conference, Australian LGBTI Awards and Wear it Purple Day. Significant dates and awareness campaigns are celebrated and promoted throughout the year, including International Day Against Homophobia, Biphobia, Intersexism and Transphobia, Wear it Purple Day (to support LGBTQI youth) and World AIDS Day (raising awareness about the issues surrounding HIV and AIDS). MATURE AGE The Group aims to provide a welcoming culture for mature age employees. This involves the provision of greater career support to encourage everyone to be their best self at every age and every stage of their lives. We provide a range of policies and practices that allow mature age workers to optimise their late careers, including transition to retirement and flexible working options. We also engage older workers in continued learning and development via a self-paced, online platform, and we offer workshops that support mature age team members in planning for the later stages of their careers and lives. Education, awareness and training form a key part of the Group’s Diversity and Inclusion Strategy. On-site and online training programs in fostering diversity and inclusion, cultural awareness and LGBTI awareness are offered to all our employees. ANNUAL REPORT 201942 TALENTED TEAMS The Star Entertainment Group recognised that it is training the next generation of world-class hospitality and tourism team members. We are committed to developing talented teams who deliver exceptional guest experiences, and in turn, create shareholder value. 5% YEAR-ON-YEAR INCREASE in Australian Workplace Equality Index Score The Star Culinary Institute apprentices plating at Nineteen at The Star DEVELOPING FUTURE TALENT In FY2019, The Star Entertainment Group continued to build on the success of its award-winning training arm – The Star Culinary Institute – which had registered more than 100 apprentice chefs across its three properties, making it one of the largest private culinary training programs in Australia. The Star Entertainment Group’s partnership with New South Wales Department of Education and Queensland Department of Education has provided a talent development pathway to The Star Culinary Institute through the schools-based apprenticeship and traineeship program. The success of the apprenticeship program over the last financial year is showcased through the awards and recognition our apprentices have received, including: • Representing The Star and Australia in the 2019 WorldSkills final to be hosted in Russia • Ryde TAFE Excellence in Commercial Cookery Certificate III • Silver Medal: Global Skills Challenge; Cookery Melbourne • Gold Medal: La Chaine Rotisseurs Regional Competition • Silver Medal: La Chaine Rotisseurs National Competition • Australian Representative Global Young Chefs Award Asia Pacific • Nestlé Professional 30 Under 30 recipient. THE STAR ENTERTAINMENT GROUP 43 The Group has made a significant investment to showcase the benefits of the tourism and hospitality industry and career pathways through a formulised school work experience program. This program hosted over 180 students to spend a week at one of the Group’s properties, providing them with an opportunity to gain experience in, and learn about, a career in hospitality and tourism. In addition, 112 internships were offered to tertiary students studying in the fields of business, hospitality and tourism. Following a pilot program, the investment resulted in the Group officially launching its Leadership and Technical Graduate program in FY2019. The program attracted highly talented, enthusiastic and diverse university graduates to our talented teams. The graduates learn on-the-job career skills and real-world experiences. The Group’s hospitality and gaming leadership programs continue to upskill and develop internal talent, providing them with a growth mind set, supervisory skills and a solid framework reflecting the Group’s leadership competencies. WORLD-CLASS BAR STAFF The Star Gold Coast has introduced ‘The Master Bartender Project’ – a learning and development initiative to upskill bar enthusiasts from across the property. This project will be a tiered training package of micro- learning, classroom learning, workshops, masterclasses and practical assessments. In the 2019 financial year, The Star Sydney launched ‘The Star Spirits Academy’ and invited 15 highly engaged and high-performing team members from around the property to join the program. This 6-month training platform provides team members with comprehensive Matt Bekier, The Star Entertainment Group CEO with chefs and apprentices at Nineteen at The Star. skills and knowledge of the history of spirits, cocktail techniques and emerging trends from around the globe. The Star Spirits Academy concludes with team members completing the Wine and Spirits Education Trust (WSET) Level 1 & 2 Award, which is a globally certified and recognised accreditation. PLAYING TO OUR STRENGTHS The Star launched Strengths Finder in FY2015, which to date has delivered 690 strengths development coaching assignments, 40 team strengths sessions and leadership focus across the organisation. The Star’s strengths-based cultural transformation is influenced by a dedicated group of internal certified coaches. This group is comprised of 12 members from across the Group’s People & Performance team. The coaches’ responsibilities include conducting individual and team coaching and other strength- based interventions, linking strength-based activities with strategic priorities, and influencing a change and transformation mindset across the business. HIGHLIGHTS 100+ APPRENTICES NATIONALLY 180 WORK EXPERIENCE PLACEMENTS 112 TERTIARY INTERNSHIPS 11 TECHNICAL AND LEADERSHIP GRADUATE ROLES The Group continues to deliver ‘just in time’ development offerings to team members working in a 24/7 environment through online eLearning platforms, and has created micro-learning programs to inspire and engage team members to embrace and self-manage their own learning and development. ANNUAL REPORT 201944 WORK, HEALTH & SAFETY At The Star Entertainment Group, the health and safety of our team members and our guests is paramount. We believe that everyone has a right to return home healthy and safely every day, and that everyone has a responsibility to care for themselves and those around them. Our goals include eliminating work related injuries, illnesses and unsafe work practices and promoting the health and welfare of our team members. In FY2019 we continued to drive improvements in six key areas. Our safety management system Reporting and quality of data The management of our critical risks Learning from every incident Assurance activities Injury management 53% REDUCTION OF WORK-RELATED INJURIES OVER THE LAST FIVE YEARS While we have continued to enhance our properties with significant construction activity, we have worked closely with contractors to ensure minimal disruption to guests whilst ensuring a safe environment for all who work and play on our properties. In addition, we have continued to stage significant events without incident, which is evidence of our effective processes and fabulous teamwork. Training sessions aimed at improving how we care for our team members in relation to injury prevention, reporting and management of workplace injuries have been delivered to more than 550 managers and supervisors. The Group has also increased initiatives focussing on psychological safety. Mental Health Awareness training aimed at increasing our managers’ confidence and skills in identifying and supporting our team members with mental health issues has commenced. Wellness and coaching sessions incorporating principles of positive psychology are also now available to all team members through our enhanced Employee Assistance Program. To achieve the Group’s goal of always working and playing safely, we will continue to focus on operational safety at the design stage of construction, assessing and managing risk when planning and executing building projects, managing our health and safety risk in a disciplined and consistent manner, and engaging our people to create a culture of consistently caring for ourselves and others. THE STAR ENTERTAINMENT GROUP 45 REWARD AND RECOGNITION At The Star Entertainment Group, we recognise the importance of sharing and celebrating our team members and leaders as well as their individual and collective stories. Together they set the benchmark for the delivery of guest service excellence. The Star Awards are our way of recognising and rewarding our top performers. Following team member feedback, in the 2019 financial year the Group has made several changes ensuring that the significance and prestige of these awards are widely recognised. These changes include: • Aligning celebrations and events across the Group • Creation of a new ‘Team Award’ category to recognise our core value of true teamwork • A clear and transparent scoring system for nominees • An easier process to nominate recipients – with an online form. Additionally, to demonstrate the Group’s appreciation of its team members, we have created the Annual Star Awards Gala – a red- carpet event which celebrates ‘Star Award’ winners and other ‘heroes’. SAMANTHA LEVETT Junior Sous Chef, Momofuku Seiōbo VICKI ELDRIDGE Dealer/Floor Manager, Treasury Brisbane WAYNE DESIRA Sous Chef, The Star Gold Coast Samantha is a talented chef, who’s dedicated and thoughtful work ethic has allowed her to take on a myriad of challenges where she has excelled beyond expectations. Since commencing with The Star Culinary Institute in December 2014, Samantha has continually impressed our head chefs and the Institute’s management through her commitment to her craft. Samantha has delivered outstanding six-star hospitality experiences across The Star Sydney’s food and beverage offerings including the property’s signature restaurants, BLACK Bar & Grill, Sokyo and Momofuku Seiōbo where she is now a junior sous chef. An energetic team player, Samantha is an inspiration to those around her and for the future of the industry. Vicki is the absolute epitome of all our Star Qualities and she delivers them with such boundless energy and enthusiasm. She is also a proactive supporter of all things that represent City Pride, diversity and culture, as well as team engagement initiatives. Vicki is a true guest service champion and pro-actively drives guest promotions and offers, especially encouraging guests to join our loyalty program. Vicki sets the bar high – the positive guest experiences she creates and the wonderful rapport she builds with others are a true inspiration, and we are fortunate to have Vicki as a representative of our team and The Star Entertainment Group. Wayne embodies the essence of what our values at The Star Gold Coast represent. He takes ownership daily, is a true team player and assists all outlets with their requirements. Generous with his time and expertise, Wayne welcomes and guides new starters and work experience students to take their first steps into the business. He leads by example and his leadership qualities are highlighted by the longevity of his team. Outside of his role, Wayne also inspires all our staff by creating and executing specialty themed meals for Christmas, Chinese New Year and Halloween, which reinvigorates the whole property. Wayne is an understanding and passionate individual who is willing to go the extra mile to provide our internal and external guests with the best possible meals. REBECCA FIRMAN Learning & Development Coordinator, The Star Entertainment Group Rebecca is an integral member of The Star Entertainment Group’s People and Performance team for over nine years. In this time, she has led The Star Gold Coast’s ‘Welcome Day’ which introduces new team members to the property and has since inducted over 1,000 team members. Rebecca is quick to support others, whilst also ensuring she is available for any task – nothing is too big or too small. Her authenticity and optimistic nature contribute to a positive work environment where everyone feels valued, which resonates throughout the organisation. She consistently inspires team members to strive to be their best selves and deliver exceptional guest experiences. ANNUAL REPORT 2019 46 DIRECTORS’, REMUNERATION AND FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 THE STAR ENTERTAINMENT GROUP LIMITED A.C.N. 149 629 023 ASX CODE: SGR AND ITS CONTROLLED ENTITIES CONTENTS DIRECTORS’ REPORT AUDITOR’S INDEPENDENCE DECLARATION REMUNERATION REPORT DIRECTORS’, REMUNERATION AND FINANCIAL REPORT 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 DIRECTORS’ DECLARATION INDEPENDENT AUDITOR’S REPORT 47 61 62 80 81 82 83 84 85 86 91 102 101 110 117 127 135 136 THE STAR ENTERTAINMENT GROUP 47 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2019 Directors' Report for the year ended 30 June 2019 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 2019. 1. Directors The names and titles of the Company's Directors in office during the financial year ended 30 June 2019 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 Ben Heap Katie Lahey AM Sally Pitkin Richard Sheppard Zlatko Todorcevski 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 Non-Executive Director 2. Operating and Financial Review The Operating and Financial Review for the year ended 30 June 2019 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 and 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 Group 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, in pursuit of its vision to be Australia's leading integrated resort company, are to: • Create world class integrated resorts with local spirit; • Manage planned capital expenditure programs on time and budget to deliver value and returns for shareholders; • Increase visitation from local, domestic and international markets through continued emphasis on loyalty, signature gaming, premium hotels and diversity of food and beverage offerings; Identify, retain, develop and engage a highly talented team of employees across properties and the Group; and Improve customer experience, including providing customers with tailored product and service offerings. • • The Group has continued to make good progress on all these key strategic priorities during the year, with: • Continued above-system growth in domestic gaming with slots market share gains at all properties, solid tables growth and continued private gaming room (PGR) growth; • Capital works delivered to plan, including the Sydney and Gold Coast PGR upgrades and the Sydney lobby and • • porte cochere; Joint venture capital works delivering to plan including Queenʼs Wharf Brisbane and the Gold Coast tower; Improving capital efficiency in a low growth environment by targeted reductions and commencement of a process to release further capital; and • Focus on shareholder returns through continuous cost management and operational leadership in moving to the Centres of Excellence model. Looking forward into FY2020, the focus will be on the following key strategic priorities: • Leveraging the Centre of Excellence operating model to continue to build on solid PGR member growth and improve main gaming floor (MGF) performance as well as extract and retain efficiencies; • Delivering on the next stage of the capital development programs with joint venture partners including Queenʼs Wharf Brisbane and Gold Coast masterplan; • Continuing to seek approvals for the proposed construction of The Ritz-Carlton Hotel and Residences in Sydney; • Managing the competitive environment for the Sydney new entrant and Gold Coast market; and 1 ANNUAL REPORT 201948 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2019 Directors' Report for the year ended 30 June 2019 • Continuing to improve capital efficiency, through reduced capital outlook and potential capital recycling of supporting assets. 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, before commissions, of $2,514.0 million was down 2.5% on the prior comparable period (pcp), largely due to an unusually low turn rate in the International VIP Rebate business given the higher win rate of 1.38% (1.16% in the pcp). This was partially offset by broad based growth in domestic gaming and non-gaming. Normalised1 gross revenue decreased 7.2% for the period to $2,500.9 million, down from $2,694.7 million in the pcp, as a result of lower International VIP Rebate business volumes, down 30.7%. Operating costs were flat on pcp, reflecting domestic volume growth, higher wages and higher interim service levels for recently commissioned Gold Coast assets and Sydney transition to Sovereign Resort, offset by lower International VIP Rebate business volumes and continuing cost management. Gaming taxes and levies were up 1.0%, in line with increased revenue. Significant expense items ($32.4 million before tax) relate to restructuring and redundancy costs of $42.1 million partially offset by a gain on disposal of land of $9.7 million. Earnings before interest, tax, depreciation, amortisation (EBITDA) (excluding significant items) of $552.8 million was up 14.1% on the pcp. Normalised EBITDA, excluding significant items, was $556.5 million, down 2.0% on the pcp. Depreciation and amortisation expense of $205.8 million was up 9.9% on the pcp as new investments are commissioned. Finance costs of $35.3 million were up 2.9% on the pcp (excluding significant items). Net profit after tax (NPAT) was $198.0 million, up 33.7% on the pcp. Normalised NPAT, excluding significant items, was $223.7 million, down 8.4% on the pcp. Basic and Diluted Earnings per Share were both 21.6 cents (both 17.5 cents in the pcp). A final dividend of 10.0 cents fully franked was declared. The full year dividend totalling 20.5 cents per share is equal to the pcp. This reflects the dividend payout policy of a minimum dividend of 70% of normalised NPAT. This amounts to 84% of normalised NPAT (95% of statutory NPAT) for the year ended 30 June 2019. 2.4. Group financial position The Groupʼs net asset position was in line with the pcp. Receivables remain well managed, with receivables not impaired less than one year comprising 95% of the total. Net receivables past due, not impaired, greater than 30 days of $54.7 million, were up 90.6% on the pcp, reflecting a small number of high value players. Net debt2 was $972.6 million (30 June 2018: $678.0 million). On 3 July 2019, the Group refinanced its bank facilities, increasing the total facility limit to $1.2 billion and average drawn debt maturity to 5.3 years. Gearing levels support investment plans at 1.9 times FY2019 net debt to statutory EBITDA. This, coupled with refinancing the Groupʼs bank facilities in July 2019, positions the Group well to continue executing on its growth projects. Operating cash flow before interest and tax was $478.8 million (30 June 2018: $496.7 million) with an EBITDA to cash conversion ratio of 92% (30 June 2018: 105%). Trade and other payables of $340.9 million were down 6.8%, predominately relating to players' funds deposited at 30 June 2019, which decreased in line with the International VIP Rebate business volumes. 1 Normalised results reflect the underlying performance of the business as they remove the inherent win rate volatility of the International VIP Rebate business. Until FY18, normalised results were adjusted using an average win rate of 1.35% on turnover and taxes. Commencing FY19, the Group also normalises commissions on revenue share programs with the impact on the prior year comparative being an increase in commissions of $20.1m. Normalised earnings exclude significant items. 2 Net debt is shown as interest bearing liabilities, less cash and cash equivalents, less net position of derivative financial instruments. 2 THE STAR ENTERTAINMENT GROUP 49 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2019 Directors' Report for the year ended 30 June 2019 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 $1,567.8 million, down 9.7% on the pcp and EBITDA (excluding significant items) was $307.6 million, up 7.6% on the pcp. Normalised EBITDA was $367.4 million, down 5.7% on the pcp. Normalised gross revenue in Sydney was $1,631.4 million, down 13.0% on the pcp. Revenue decreased due to lower International VIP Rebate business volumes (down 39.7% on the pcp), partially offset by continued domestic revenue growth. Electronic gaming machine market share remained consistent with the pcp. Non-gaming revenue was down 1.3% with increased hotel capacity offset by impact from food and beverage vendor refurbishments. Gaming taxes and levies of $360.0 million were down 2.4% on the pcp as a result of lower International VIP Rebate business volumes. Sydneyʼs average non-rebate tax rate was 31.0%, down from 32.0% in the pcp (top marginal tax rate of 50.0% in both years). Operating expenditure of $640.7 million was down 2.9% on the pcp, reflecting increased domestic volumes and higher wages offset by lower International VIP Rebate business volumes. Normalised EBITDA margin of 22.5% was up 1.7% on the pcp. The Sydney property is a Leadership Partner for Sydneyʼs Lunar Festival, a proud major sponsor and participant in the Sydney Gay and Lesbian Mardi Gras, and a Foundation Partner of the Australian Turf Club, in addition to participating in The Everest, the world's richest race on turf. The Sydney property is also a sponsor of the Sydney Swans, New South Wales Rugby League (NSW Blues) and Sydney FC. The 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 $946.2 million up 12.3% on the pcp and EBITDA (excluding significant items) was $245.2 million, up 23.5% on the pcp. Normalised EBITDA was $189.1 million, up 5.9% on the pcp. Normalised gross revenue in Queensland was $869.5 million, up 6.0% on the pcp. Revenue increased due to higher International VIP Rebate business volumes up 23.5% on the pcp and win rate of 2.06% (1.61% in the pcp). Queensland revenue increased with all business segments contributing to growth. Non-gaming revenue was up 2.4% on the pcp, with customers continuing to respond to the enlarged and upgraded offering. Gaming taxes and levies were up 8.5% on the pcp, driven by increased International VIP Rebate business volumes through the period. Operating expenses of $420.6 million across the Queensland properties were up 4.9% on the pcp. This was driven by increased domestic and international volumes, higher wages and newly commissioned assets on the Gold Coast, offset by continued cost management. Normalised EBITDA margin of 21.7% was flat on the pcp. The Gold Coast property is the home of the TV Week Logie Awards and major sponsor of The Star Magic Millions Raceday and Carnival. The Brisbane property was a sponsor of the Brisbane Festival and Brisbane Racing Club. The Queensland properties also contribute to various charities and not-for-profit organisations including Surf Life Saving Queensland and Cerebral Palsy League Queensland. International VIP Rebate business The results of the International VIP Rebate business are embedded in the segment performance overviews above. The International VIP Rebate business turnover was $42.4 billion, down 30.7% on the pcp. The actual win rate of 1.38% was above both the win rate for the pcp of 1.16% and the theoretical rate of 1.35%. Statutory revenue was $586.0 million, down 17.6% on the pcp, compared to normalised International VIP Rebate business revenue of $572.9 million (down 30.7% on the pcp). Player rebates and levies of $355.9m were down 28.2% on pcp, reflecting the lower turnover offset by win rate improvements. 3 ANNUAL REPORT 201950 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2019 Directors' Report for the year ended 30 June 2019 2.6. Significant changes in the state of affairs and future developments 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 that support the operation of a single casino in NSW until November 2019. The Group has previously disclosed a proposed investment for up to $1 billion (subject to various approvals) which includes a new tower to be developed with joint venture partners Chow Tai Fook Enterprises Limited (CTF) and Far East Consortium International Limited (FEC). The scale 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 VIP suites and gaming salons, and over 50 food and beverage offerings. The Groupʼs share of the proposed investment is expected to be approximately $667 million (prior to the sale of any apartments). On 25 July 2019, the NSW Government Department of Planning, Industry and Environment recommended against the proposed construction of The Ritz-Carlton Hotel and Residences. The Star continues to seek approval for the development from the NSW Government Independent Planning Commission, which is the decision making authority. Capital expenditure in the year was approximately $240.0 million, including the completion of the redevelopment of The Star Grand lobby and porte cochere. The Sovereign Resort expansion continues. Gold Coast The Group currently 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, including a new tower with joint venture partners CTF and FEC. The construction of the tower continues and is expected to cost approximately $370 million. Presales on the second tower have commenced (construction is subject to presales and all other approvals). Once developed, the scale of the property under the masterplan 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 the proposed investment is expected to be approximately $578 million (prior to the sale of any apartments). As announced on 5 March 2019, the Group has been invited into the second stage of the Queensland Government's process in relation to a global tourism hub on the Gold Coast. The second stage is to provide an expression of interest for the Gold Coast tourism hub. This stage has not yet been commenced. Capital expenditure in the current year was approximately $70 million. This included redevelopment of the Harvest Buffet and Oasis Lounge. The Group also 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 hold 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 apartments development joint venture. Initial work on the Integrated Resort is on schedule and on budget, with excavation work completed in July 2019. Target total project costs are estimated to be approximately $2.4 billion, excluding Government payments and Treasury Brisbane repurposing costs. In July 2019 DBC secured contracts for approximately 60% of the project costs for the development of the shell, core and façade stage. The fit-out stage is expected to be contracted in FY2020, securing a further 28% of the project costs. 4 THE STAR ENTERTAINMENT GROUP 51 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2019 Directors' Report for the year ended 30 June 2019 2.7. Risk management 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 Companyʼs 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 Companyʼs 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 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 interests satisfy without the Groupʼs operations or compromising strategic achievement of objectives. the Groupʼs competing 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 Groupʼs vision is to be Australiaʼs leading integrated resort company. Substantial investments have been made to develop new or improved venue facilities in all key markets, and to improving customer service capabilities of employees. Revenue sources have also been diversified. The Group has implemented a comprehensive project management framework and employed appropriately skilled and experienced project managers to reduce the risk of delays in completion and/or overruns in costs of capital projects. The Group continues to improve capital efficiency, through reduced capital outlook and potential capital recycling of supporting assets. The Group markets and promotes 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. It undertakes training and development programs to provide employees with career development opportunities. The Group regularly conducts employee engagement surveys 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, key Federal and State regulators, investors, media and unions. The Group has also developed partnerships with a number of local community groups and charitable 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. This includes matters core to the integrity of gaming operations such as gaming regulatory compliance, responsible gaming and service of alcohol and Anti- Money Laundering and Counter-Terrorism Financing (AML & CTF) Act compliance. The Group has dedicated regulatory and compliance teams and a specialist AML & CTF compliance team that has recently enhanced the Group's AML Program. The Group also makes representations to government and industry groups to promote effective, appropriate and consistent regulatory and policy outcomes. 5 ANNUAL REPORT 201952 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2019 Directors' Report for the year ended 30 June 2019 Risk and description Mitigation strategy 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. 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 the Group's resort facilities, or which inhibit the ability of guests being able to visit one of its 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 its 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, The Group has a dedicated IT security function which continuously tests and monitors technology systems to detect and block viruses and other threats to the security of the Company's data. Employees are regularly trained on the importance of maintaining effective cyber security and data privacy processes. The Groupʼs business continuity framework enables early 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 health and safety. Critical safety risks have been identified with mitigation plans in place. Dedicated health and safety and injury management specialists are employed at each resort facility. To assist in maintaining the safety and security of its 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 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. The Group has in place a five-year Sustainability Strategy, 'Our Bright Future', which is 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 is conducted annually to ensure ESG issues remain relevant. As part of the Groupʼs commitment to building world class properties, the Group continues to target sustainable reductions in resource use through capital, and operational energy and water improvement projects. To support this commitment, the Group has in place carbon and water targets to achieve a 30% reduction in carbon and water intensity by FY2023 against a baseline of FY2013 on a square metre basis. An 6 THE STAR ENTERTAINMENT GROUP 53 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2019 Directors' Report for the year ended 30 June 2019 active energy and water project pipeline, first established in FY2014, continues to monitor and track projects that deliver cost and environmental benefits. To ensure energy and water efficiency is achieved in refurbishment and development projects, the Groupʼs Sustainable Design and Operational Standards have been applied to achieve greener building outcomes by specifying energy efficient technologies and best practice water and waste management. Implementation of these Standards has led to the Sydney property obtaining its first Green Star Performance Rating, enabling the benchmarking of operational performance of The Star's assets. The Companyʼs offices at 60 Union Street, Pyrmont, New South Wales have achieved a 5 Star Green Star Interiors Rating as part of the refurbishment process. The Group retained the global leadership position in the Casino and Gaming Industry in the Dow Jones Sustainability Index for the third year running. The Sydney property achieved finalist status for the Groupʼs ʻEnvironmental Programʼ at the HM Awards in September 2018 and won a sustainability award at the ʻGlobal Trend Marketing Awardsʼ for the video case study promoting water savings by using waterless works. The Group's Global Reporting Index (GRI) report is published on the Company's website, demonstrating a ʻcoreʼ level of compliance. The GRI Reporting Standards are the most widely used standards for sustainability reporting, and represent global best practice for reporting on economic, environmental and social impacts. 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 each year. The Companyʼs Environmental Management Policy, Sustainability Strategy, Materiality Assessment and Sustainable Design and Operational Standards 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 and diluted EPS for the financial year was 21.6 cents (2018: 17.5 cents), 23.4% up on the pcp as a result of the increase in net profit after tax. EPS is disclosed in note F3 of the Financial Report. 4. Dividends 4.1. Dividend payout An interim dividend of 10.5 cents per share (fully franked) was paid on 3 April 2019. A final dividend per share of 10.0 cents (fully franked) was declared. The full year dividend totalling 20.5 cents per share is equal to the pcp and reflects a payout ratio of 84% of normalised NPAT (95% of statutory NPAT) for the year ended 30 June 2019. 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 23 August 2019. 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 (22 August 2019). 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 3 July 2019, the Company successfully refinanced its bank facilities, with new bilateral bank facilities replacing all Syndicated Bank Facilities, which have been repaid and cancelled. The new bilateral facilities have a total limit of $1.2 billion (increased from $0.8 billion of bank facilities at 30 June 2019). The new facilities have maturities of between three and five years, increasing the weighted average maturity of the company's debt facilities from 3.8 to 5.3 years. Unamortised borrowing costs of $1.7 million associated with the existing facilities will be expensed to the income statement in FY2020. On 25 July 2019, the NSW Government Department of Planning, Industry and Environment recommended against the proposed construction of The Ritz-Carlton Hotel and Residences in Sydney. The Star continues to seek approval for the development from the NSW Government Independent Planning Commission, which is the decision making authority. 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 2019 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 ANNUAL REPORT 201954 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2019 Directors' Report for the year ended 30 June 2019 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 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; Officer of the Order of Australia; French decoration of Chevalier de la Legion d'Honneur 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, as well as a Director of Tabcorp Holdings 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, as well as a Director of Rugby World Cup Limited. Mr O'Neill is currently Chairman of Queensland Airports Limited. Mr O'Neill also chairs the Bates Smart Advisory Board and is 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 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 held various roles with McKinsey & Company. Special Responsibilities: Nil Directorships of other Australian listed companies held during the last 3 years: Nil 8 THE STAR ENTERTAINMENT GROUP 55 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2019 Directors' Report for the year ended 30 June 2019 Current Directors Gerard Bradley 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 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 Non-Executive Director of Pinnacle Investment Management Group Limited and 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 Directorships of other Australian listed companies held during the last 3 years: • Pinnacle Investment Management Group Limited (1 September 2016 to present) Ben Heap Non-Executive Director (from 23 May 2018) Bachelor of Commerce (Finance); Bachelor of Science (Mathematics) Experience: Ben Heap has wide-ranging experience in asset and capital management as well as technology and digital businesses. He has extensive business strategy, innovation, investment and governance expertise. Mr Heap is a Founding Partner of H2 Ventures, a venture capital investment firm and a Director of its related private companies. He is a Non-Executive Director of Colonial First State Investments Limited (a subsidiary of the Commonwealth Bank of Australia), the Vice President of Gymnastics Australia and a member of the Australian Commonwealth Governmentʼs Fintech Advisory Group. Mr Heap was previously Managing Director for UBS Global Asset Management in Australasia and prior to this, Head of Infrastructure for UBS Global Asset Management in the Americas. He held a number of directorships associated with these roles. Earlier in his career, Mr Heap was Group Executive, E-Commerce & Corporate Development for TAB Limited. Special Responsibilities: • Member of the Risk and Compliance Committee • Member of the Remuneration Committee • Member of the People, Culture and Social Responsibility Committee Directorships of other Australian listed companies held during the last 3 years: Nil 9 ANNUAL REPORT 201956 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2019 Directors' Report for the year ended 30 June 2019 Current Directors Katie Lahey AM Sally Pitkin Non-Executive Director (from 1 March 2013) Bachelor of Arts (First Class Honours); Master of Business Administration; Member of the Order of Australia 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 Chairman Australasia of Korn Ferry International and a Director of Carnival Corporation & plc. Ms Lahey was previously the Chair of Carnival Australia and also 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 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 currently the Chair of Super Retail Group Limited and a Non-Executive Director of Link Administration Holdings Limited. She is also a member of the National Board of the Australian Institute of Company Directors and chairs its Corporate Governance Committee. 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) • Link Administration Holdings Limited (23 September 2015 to present) • Billabong International Limited (28 February 2012 to 15 August 2016) • IPH Limited (23 September 2014 to 20 November 2017) 10 THE STAR ENTERTAINMENT GROUP 57 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2019 Directors' Report for the year ended 30 June 2019 Current Directors Richard Sheppard Zlatko Todorcevski 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) Non-Executive Director (from 23 May 2018) Bachelor of Commerce (Accounting); Masters of Business Administration; Fellow of CPA Australia; Fellow of Governance Institute of Australia Experience: Zlatko Todorcevski is an experienced executive with over 30 years' experience in the oil and gas, logistics and manufacturing sectors. He has a strong background in corporate strategy and planning, mergers and acquisitions, and strategic procurement. He also has deep finance expertise across capital markets, investor relations, accounting and tax. Mr Todorcevski was previously the Chief Financial Officer of Brambles Limited. Prior to that, he was Chief Financial Officer of Oil Search Limited and the Chief Financial Officer for Energy at BHP. Mr Todorcevski is currently the Lead Independent and Deputy Chairman of Adelaide Brighton Limited and a member of the Council of the University of Wollongong. Mr Todorcevski is also a Non-Executive Director of Coles Group Limited. Special Responsibilities: • Chair of the Audit Committee • Member of the Risk and Compliance Committee • Member of the Investment and Capital Expenditure Review Committee Directorships of other Australian listed companies held during the last 3 years: • Adelaide Brighton Limited (22 March 2017 to present) • Coles Group Limited (19 November 2018 to present) 11 ANNUAL REPORT 201958 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2019 Directors' Report for the year ended 30 June 2019 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 Performance Rights Ordinary Shares Current John O'Neill AO Matt Bekier Gerard Bradley Ben Heap Katie Lahey AM Sally Pitkin Richard Sheppard Zlatko Todorcevski 80,858 1,006,320 50,000 30,000 36,907 45,900 150,000 70,000 Nil 2,097,569 Nil 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. 9. Board and Committee meeting attendance During the financial year ended 30 June 2019, the Company held 10 meetings of the Board of Directors (including two 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. Investment & Capital Expenditure Review Committee A B A B A B A B A B A B People, Culture & Social Responsibility Committee Risk and Compliance Committee Remuner- ation Committee Audit Committee Board of Directors 10 10 10 10 10 9 9 10 10 10 10 10 10 10 10 10 4 - 4 3 2 4 4 4 4 - 4 - - 4 4 4 4 - 4 4 4 4 4 4 4 - 4 4 4 - 4 4 4 - - 4 4 4 - 2 4 - - 4 4 4 - - 4 - - 4 4 4 - 3 4 - - 4 4 4 - - 3 - 3 1 - 2 3 3 3 - 3 - - - 3 3 Directors John O'Neill AO Matt Bekier c Gerard Bradley Ben Heap Katie Lahey AM Sally Pitkin Richard Sheppard Zlatko Todorcevski A - Number of meetings attended as a Board or Committee member. B - Maximum number of meetings available for attendance as a Board or Committee member. c C - The Managing Director and Chief Executive Officer is not a member of any Board Committee but may attend Board Committee meetings upon invitation. 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. 12 THE STAR ENTERTAINMENT GROUP 59 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2019 Directors' Report for the year ended 30 June 2019 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 2019. 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: Description of services Other assurance related services in relation to the Company and any other entity in the consolidated group Other non-audit services Total of all non-audit and other services $000 10.0 78.9 88.9 Amounts paid or payable by the Company for audit and non-audit services are disclosed in note F12 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. 13 ANNUAL REPORT 201960 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2019 Directors' Report for the year ended 30 June 2019 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 2019. 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 16 August 2019 14 THE STAR ENTERTAINMENT GROUP AUDITOR’S INDEPENDENCE DECLARATION FOR THE YEAR ENDED 30 JUNE 2019 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 As lead auditor for the audit of the financial report of The Star Entertainment Group for the financial year ended 30 June 2019, 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 the audit; and 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 year. Ernst & Young Megan Wilson Partner 16 August 2019 61 15 ANNUAL REPORT 2019 6262 THE STAR ENTERTAINMENT GROUP REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2019 THE STAR ENTERTAINMENT GROUP LIMITED A.C.N. 149 629 023 ASX CODE: SGR AND ITS CONTROLLED ENTITIES THE STAR ENTERTAINMENT GROUP REMUNERATION REPORT (UNAUDITED) FOR THE YEAR ENDED 30 JUNE 2019 63 16 ANNUAL REPORT 201964 REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2019 65 66 66 67 75 76 77 78 78 79 79 17 THE STAR ENTERTAINMENT GROUP REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2019 65 18 ANNUAL REPORT 201966 REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2019 54 to 57. 19 THE STAR ENTERTAINMENT GROUP REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2019 67 20 ANNUAL REPORT 201968 REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2019 21 THE STAR ENTERTAINMENT GROUP REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2019 69 22 ANNUAL REPORT 201970 REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2019 23 THE STAR ENTERTAINMENT GROUP REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2019 71 24 ANNUAL REPORT 201972 REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2019 25 THE STAR ENTERTAINMENT GROUP REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2019 73 26 ANNUAL REPORT 201974 REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2019 27 THE STAR ENTERTAINMENT GROUP REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2019 75 8 2 ANNUAL REPORT 201976 REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2019 9 2 THE STAR ENTERTAINMENT GROUP REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2019 77 30 ANNUAL REPORT 201978 REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2019 31 THE STAR ENTERTAINMENT GROUP REMUNERATION REPORT (AUDITED) FOR THE YEAR ENDED 30 JUNE 2019 79 2 3 ANNUAL REPORT 201980 80 THE STAR ENTERTAINMENT GROUP FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 THE STAR ENTERTAINMENT GROUP LIMITED A.C.N. 149 629 023 ASX CODE: SGR AND ITS CONTROLLED ENTITIES THE STAR ENTERTAINMENT GROUP CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2019 Consolidated income statement For the year ended 30 June 2019 Revenue Other income Government taxes and levies 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 income tax (EBIT) Net finance costs Profit before income tax (PBT) Income tax expense Net profit after tax (NPAT) Other comprehensive loss 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 81 2019 $m 2018 Restated* $m 2,158.1 2,084.0 Note A2,G A3 A3 A3 A4 A3 D5 A5 F2 F1 F3 F3 A6 11.5 (544.0) (704.9) (205.8) (95.0) (81.5) (107.3) (116.5) (0.6) 314.0 (35.3) 278.7 (80.7) 198.0 - (538.5) (669.4) (187.2) (91.5) (81.9) (115.9) (111.9) (0.1) 287.6 (77.2) 210.4 (62.3) 148.1 (5.4) 192.6 (3.4) 144.7 21.6 cents 17.5 cents 21.6 cents 20.5 cents 17.5 cents 20.5 cents The above consolidated income statement should be read in conjunction with the accompanying notes. * 2018 comparatives have been restated as part of the transition to AASB 15 Revenue from Contracts with Customers. Refer to note G(i) for further information. 33 ANNUAL REPORT 201982 CONSOLIDATED BALANCE SHEET FOR THE YEAR ENDED 30 JUNE 2019 Consolidated balance sheet For the year ended 30 June 2019 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 Other liabilities 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 F7 F9 F9 The above consolidated balance sheet should be read in conjunction with the accompanying notes. 2019 $m 114.3 235.5 17.5 7.9 52.0 427.2 2,779.8 1,861.4 82.7 385.0 47.6 5,156.5 5,583.7 340.9 196.4 12.2 99.9 5.6 18.8 673.8 965.9 170.7 16.9 9.6 5.9 1,169.0 1,842.8 3,740.9 2018 $m 110.3 221.5 15.5 3.9 44.8 396.0 2,658.6 1,858.7 57.4 288.9 11.2 4,874.8 5,270.8 365.8 133.8 0.3 64.5 4.2 20.3 588.9 686.2 175.9 12.9 25.4 - 900.4 1,489.3 3,781.5 3,063.0 693.5 (15.6) 3,070.2 718.3 (7.0) 3,740.9 3,781.5 34 THE STAR ENTERTAINMENT GROUP CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2019 Consolidated statement of cash flows For the year ended 30 June 2019 83 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 Proceeds from settlement of derivative financial instruments Dividends paid Finance costs Proceeds from issue of shares Purchase of treasury shares Issuance fees on purchase of shares Net cash inflow from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year 2019 $m 2018 Restated* $m 2,162.7 (1,158.8) (525.1) 0.4 (67.8) 2,084.4 (1,068.7) (519.0) 1.0 (100.6) 411.4 397.1 (327.6) (105.4) (433.0) 546.0 (250.0) - (215.6) (47.6) - (6.7) (0.5) 25.6 4.0 110.3 114.3 (475.6) (76.5) (552.1) 1,268.4 (1,517.1) 102.5 (132.1) (59.5) 489.4 - - 151.6 (3.4) 113.7 110.3 Note F2 F10 E2 E2 E2 A6 F9 F8 B1 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. * 2018 comparatives have been restated as part of the transition to AASB 15 Revenue from Contracts with Customers. Refer to note G(i) for further information. 35 ANNUAL REPORT 201984 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2019 m $ l a t o T ) 4 . 5 ( 0 . 8 9 1 5 . 1 8 7 , 3 6 . 2 9 1 ) 6 . 5 1 2 ( ) 7 . 6 ( ) 2 . 7 ( - ) 5 . 0 ( ) 2 . 3 ( 9 . 0 4 7 , 3 1 . 8 4 1 6 . 5 7 2 , 3 ) 4 . 3 ( 7 . 9 8 4 6 . 3 4 . 4 3 6 ) 1 . 2 3 1 ( 5 . 1 8 7 , 3 6 3 m $ e v r e s e r t n e m y a p d e s a b e r a h S m $ f o t s o C i g n g d e h e v r e s e r m $ e v r e s e r i g n g d e H m $ i d e n a t e R i s g n n r a e m $ s e r a h s y r u s a e r T m $ s e r a h s y r a n d r O i - - - - - - - - 2 . 0 1 ) 2 . 3 ( 0 . 7 6 . 6 - - - - - 6 . 3 2 . 0 1 - - ) 2 . 1 ( ) 2 . 1 ( - - - - - 1 . 6 9 . 4 - - - - - - - - - ) 2 . 4 ( ) 2 . 4 ( ) 2 . 7 1 ( - - - - - ) 1 . 6 ( - 3 . 8 1 7 0 . 8 9 1 - ) 2 . 7 ( 0 . 8 9 1 ) 6 . 5 1 2 ( - - - - - - - - - - - - ) 7 . 6 ( - - - - - - - - ) 5 . 0 ( 2 . 0 7 0 , 3 ) 5 . 7 2 ( 5 . 3 9 6 ) 7 . 6 ( 7 . 9 6 0 , 3 - - ) 4 . 3 ( ) 4 . 3 ( ) 8 . 3 1 ( - - ) 2 . 7 1 ( - - 3 . 2 0 7 1 . 8 4 1 - 1 . 8 4 1 ) 1 . 2 3 1 ( 3 . 8 1 7 - - - - - - - - - - - - 7 . 9 8 4 7 . 9 8 4 5 . 0 8 5 , 2 2 . 0 7 0 , 3 e t o N 1 F 6 A 8 F ) i i ( G 1 1 F 1 F 9 F 1 1 F 6 A y t i u q e n i s e g n a h c f o t n e m e t a t s d e t a d i l o s n o C 9 1 0 2 e n u J 0 3 d e d n e r a e y e h t r o F e m o c n i i e v s n e h e r p m o c r e h t O 8 1 0 2 y l u J 1 t a e c n a l a B r a e y e h t r o f t i f o r P e m o c n i e v i s n e h e r p m o c l a t o T 9 1 0 2 t n e m t s u d a j i g n n e p o i i n o s v o r p s r o t b e D 9 B S A A o t n o i t i s n a r T s e r a h s y r u s a e r t f o e s a h c r u P e v r e s e r i g n g d e h f o t s o C 9 B S A A o t n o i t i s n a r T s t n e m y a p d e s a b e r a h s e e y o p m E l s e e f e c n a u s s I 9 1 0 2 e n u J 0 3 t a e c n a l a B e m o c n i i e v s n e h e r p m o c r e h t O l a t i p a c e r a h s f o e u s s I 7 1 0 2 y l u J 1 t a e c n a l a B r a e y e h t r o f t i f o r P 8 1 0 2 e m o c n i e v i s n e h e r p m o c l a t o T s t n e m y a p d e s a b e r a h s e e y o p m E l 8 1 0 2 e n u J 0 3 t a e c n a l a B i d a p s d n e d v D i i i d a p s d n e d v D i i . s e t o n i g n y n a p m o c c a e h t h t i w n o i t c n u n o c j n i d a e r e b l d u o h s y t i u q e n i s e g n a h c f o t n e m e t a t s d e t a d i l o s n o c e v o b a e h T THE STAR ENTERTAINMENT GROUP 85 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 Refer to the Operating and Financial Review (OFR) within the Directors' Report for details of the key transactions during the year. Contents A Key income statement disclosures ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ B Key balance sheet disclosures A1 Segment information A2 Revenue A3 Other income and expenses A4 Depreciation and amortisation A5 Net finance costs A6 Dividends A7 Significant items 38 39 39 40 40 41 42 86 87 87 88 88 89 90 ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ Intangible assets Impairment testing and goodwill 43 43 45 46 47 48 91 91 93 94 95 96 Assets B1 Cash and cash equivalents B2 Trade and other receivables B3 Derivative financial instruments B4 Property, plant and equipment B5 B6 Liabilities B7 Interest bearing liabilities 98 50 52 52 52 100 100 100 Investment in associate and joint venture entities Financial risk management objectives and policies C1 Commitments C2 Contingent liabilities C3 Subsequent events E1 E2 Additional financial instruments disclosures D1 Related party disclosures D2 Parent entity disclosures D3 Deed of cross guarantee D4 Key Management Personnel disclosures D5 ................................................................................................................................................................................................................................................................ C Commitments, contingencies and subsequent events ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ D Group structure ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ E Risk Management ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ F Other disclosures ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................................ G Accounting policies and corporate information F1 Other comprehensive income F2 F3 F4 Other assets Trade and other payables F5 F6 Provisions F7 Other liabilities F8 F9 F10 Reconciliation of net profit after tax to net cash inflow from operations F11 Employee share plans F12 Auditor's remuneration Treasury shares Share capital and reserves Income tax Earnings per share 69 69 72 72 72 73 74 74 74 76 77 78 79 117 117 120 120 120 121 122 122 122 124 125 126 127 101 103 104 105 106 53 55 56 57 58 110 114 62 66 37 ANNUAL REPORT 201986 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 A Key income statement disclosures A1 Segment information 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 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. The Group has three reportable segments: Sydney Gold Coast Comprises The Star Sydney's casino operations, including hotels, apartment complex, restaurants and bars. Comprises The Star Gold Coast's casino operations, including hotels, theatre, restaurants and bars. Brisbane Comprises Treasury's casino operations, including hotel, restaurants and bars. 2019 Gross revenues - VIP a Gross revenues - domestic a Segment revenue tax, Segment depreciation, amortisation and significant items earnings interest, before Depreciation and amortisation (refer to note A4) Capital expenditure 2018 Gross revenues - VIP a Gross revenues - domestic a Segment revenue Segment earnings before interest, tax, depreciation, amortisation and significant items Depreciation and amortisation (refer to note A4) Capital expenditure Sydney $m 364.5 1,203.3 1,567.8 307.6 123.6 238.4 Sydney $m 571.4 1,165.3 1,736.7 285.8 114.2 192.0 Gold Coast $m Brisbane $m 213.8 384.4 598.2 148.2 54.9 69.9 7.7 340.3 348.0 97.0 27.3 25.6 Gold Coast $m Brisbane $m 132.8 376.9 509.7 116.9 42.3 258.5 7.3 325.8 333.1 81.7 30.7 39.5 Total $m 586.0 1,928.0 2,514.0 552.8 205.8 333.9 Total $m 711.5 1,868.0 2,579.5 484.4 187.2 490.0 a Gross revenue is presented as the gross gaming win before player rebates and promotional allowances of $355.9 million (2018: $495.5 million). Reconciliation of reportable segment profit to profit before income tax Segment earnings before interest, tax, depreciation, amortisation and significant items Depreciation and amortisation (refer to note A4) Significant items (refer to note A7) Unallocated items: - net finance costs (refer to note A5) - share of net loss of associate and joint venture entities accounted for using the equity method (refer to note D5) Profit before income tax (PBT) 2019 $m 552.8 (205.8) (32.4) 2018 $m 484.4 (187.2) (52.4) (35.3) (34.3) (0.6) 278.7 (0.1) 210.4 38 THE STAR ENTERTAINMENT GROUP NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 A2 Revenue Domestic gaming International VIP Rebate business Non-gaming Other 87 2019 $m 1,342.4 255.9 548.8 11.0 2,158.1 2018 Restated* $m 1,304.9 245.9 524.0 9.2 2,084.0 *2018 comparatives have been restated as part of the transition to AASB 15 Revenue from Contracts with Customers. Refer to note G(i) for further information. Revenue is up $74.1 million or 3.6% on the prior comparable period (pcp) mainly due to growth in domestic gaming driven by the successful opening of Sovereign Resort in Sydney. Revenue Revenue is recognised when the Group satisfies its obligations in relation to the provision of goods and services to its customers in the ordinary course of business. Revenue is measured at an amount that reflects the consideration to which the Group expects to be entitled in exchange for performing these obligations, including any discounts, rebates, price concessions, incentives or performance bonuses. Revenue is constrained such that the significant reversal of revenue in a future period is not highly probable. Revenue comprises net gaming win, less player and gaming promoter rebates and promotional allowances, as well as other non-gaming revenue from hotels, restaurants and bars. Customer loyalty programs 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 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. The stand alone selling price of complimentary services (including hotel room nights, food and beverage, and other services) that are provided to casino guests as incentives related to gaming play are recorded as revenues related to the respective goods or services, as they are provided to the patron. The residual amount is recorded as gaming revenue. A3 Other income and expenses Profit before income tax is stated after charging the following expenses and significant items: Other income Net foreign exchange gain Gain on disposal of assets a a Balance includes $9.7m gain on disposal of Gold Coast land (refer to note A7). Government taxes and levies (including gaming GST): New South Wales Queensland Employment costs: Salaries, wages, bonuses, redundancies and other benefits Defined contribution plan expense (superannuation guarantee charges) Share based payment expense (refer to note F11) 2019 $m 0.9 10.6 11.5 360.0 184.0 544.0 652.7 50.1 2.1 704.9 2018 $m - - - 368.9 169.6 538.5 616.7 47.2 5.5 669.4 39 ANNUAL REPORT 201988 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 Cost of inventories recognised as an expense during the year Impairment of trade receivables (refer to note B2) Operating lease charges Significant items (refer to note A7) A4 Depreciation and amortisation Property, plant and equipment (refer to note B4) Intangible assets (refer to note B5) Other 2019 $m 95.0 5.5 11.1 32.4 172.3 32.3 1.2 205.8 2018 $m 91.5 7.6 12.0 52.4 155.2 30.8 1.2 187.2 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): Freehold and leasehold buildings Leasehold improvements Plant and equipment Software Licences 10 - 95 years 4 - 75 years 5 - 20 years 3 - 10 years Until expiry 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 equipment and averages up to 3 years. The residual values and useful lives are reviewed annually, and adjusted if appropriate, at each financial reporting date. A5 Net finance costs Interest paid on borrowings Capitalised to property, plant and equipment a Borrowing costs US Private Placement premium unwind Fair value hedging adjustment Interest income Net finance costs before significant items US Private Placement tender and reissue costs Net finance costs recognised in the income statement 44.0 (7.1) 4.7 (5.3) (0.6) (0.4) 35.3 - 35.3 49.1 (10.0) 3.3 (5.2) (1.9) (1.0) 34.3 42.9 77.2 a Borrowing costs of $7.1 million (2018: $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 year. Net finance costs of $35.3 million were down 54.3% on the pcp predominately due to the US Private Placement tender and reissue costs in FY2018. 40 THE STAR ENTERTAINMENT GROUP NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 A6 Dividends Dividends per share Interim dividend Final dividend Total dividend 89 2019 Cents per share 2018 Cents per share 10.5 b 10.0 c 20.5 7.5 13.0a 20.5 A final dividend per share of 10.0 cents fully franked was declared. The full year dividend totalling 20.5 cents per share is equal to the pcp and in line with the dividend payout policy. Dividends declared and paid during the year on ordinary shares Final dividend paid during the year in respect of the year ended 30 June 2018 a Interim dividend paid during the year in respect of the half year ended 31 December 2018 b 2019 $m 119.2 96.4 215.6 2018 $m 70.2 61.9 132.1 a A final dividend of 13.0 cents per share fully franked for the year ended 30 June 2018 (30 June 2017: 8.5 cents) was declared on 23 August 2018 and paid on 4 October 2018 (2017: declared on 22 August 2017 and paid on 26 September 2017). b An interim dividend of 10.5 cents per share fully franked for the half year ended 31 December 2018 (31 December 2017: 7.5 cents) was declared on 20 February 2019 and paid on 3 April 2019 (2018: declared on 15 February 2018 and paid on 22 March 2018). Dividends declared after balance date Final dividend declared for the year ended 30 June 2019 c 2019 $m 2018 $m 91.7 119.3 c Since the end of the financial year, the Directors have declared a final dividend of 10.0 cents per ordinary share (2018: 13.0 cents), fully franked. The aggregate amount is expected to be paid on 26 September 2019 out of retained earnings at 30 June 2019, but not recognised as a liability at the end of the year. Franking credit balance Amount of franking credits available to shareholders 146.9 165.8 41 ANNUAL REPORT 201990 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 A7 Significant items Profit before income tax (PBT) is stated after charging the following significant items: Gain on Disposal a Restructuring and redundancy costs b Finance costs relating to US Private Placement tender and reissue c Pre opening expenses d Net significant items Tax on significant items Significant items net of tax 2019 $m (9.7) 42.1 - - 32.4 (14.0) 18.4 2018 $m - - 42.9 9.5 52.4 (15.7) 36.7 a b c d Gain on disposal of Gold Coast land to the Destination Gold Coast Consortium joint venture for construction of the first residential, hotel and retail tower. One-off restructuring and redundancy costs relating to Group reorganisation. In August 2017, the Group completed a tender and reissue offer in relation to 73% of the Group's US Private Placement 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 average blended cost of debt on all US Private Placement notes following the issue was 5% (down from over 9% on previous notes). The transaction resulted in a one-off loss relating to the crystallisation of an existing obligation for the related out of the money interest rate swaps and other costs. Consistent with previous accounting treatment, pre opening expenses such as marketing, operating and training expenses incurred prior to the opening of The Darling Gold Coast, have been treated as significant due to their size and non-recurring nature. 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: − 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 assets). 42 THE STAR ENTERTAINMENT GROUP NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 B Key balance sheet disclosures Assets B1 Cash and cash equivalents Cash on hand and in banks Short term deposits, maturing within 30 days B2 Trade and other receivables Trade receivables Less provision for impairment Net trade receivables Other receivables Past due not impaired receivables of $54.7 million were up from $28.7 million in the pcp. (i) Provision for impairment reconciliation Balance at beginning of year Impairment of trade receivables a Less amounts written off as uncollectible Transition to AASB 9 opening adjustment Balance at end of year a 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. (ii) Ageing of trade and other receivables 91 2018 $m 95.4 14.9 110.3 208.4 (16.0) 192.4 29.1 221.5 (14.0) (7.6) 5.6 - (16.0) 2019 $m 104.3 10.0 114.3 218.9 (11.3) 207.6 27.9 235.5 (16.0) (5.5) 20.5 (10.3) (11.3) Trade receivables 2019 Not yet due Past due not impaired Considered impaired 2018 Not yet due Past due not impaired Considered impaired 0 - 30 days $m 30 days - 1 year $m 1 - 3 years $m Total $m 152.9 - 2.8 155.7 163.7 0.5 1.0 165.2 - 44.5 1.3 45.8 - 17.8 0.6 18.4 - 10.2 7.2 17.4 - 10.4 14.4 24.8 152.9 54.7 11.3 218.9 163.7 28.7 16.0 208.4 43 ANNUAL REPORT 201992 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 Other receivables Other receivables are not past due or considered impaired. It is expected that these balances will be received as they fall due. The chart below compares the ageing of trade receivables and amounts considered impaired as at 30 June 2019 and 30 June 2018 respectively. Impairment of trade receivables The Group impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on days past due for groupings of various customer segments with similar loss patterns by geographical region, product type, customer type and rating, and coverage by letters of credit or other forms of credit insurance. The calculation reflects the probability-weighted outcome, reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. 44 THE STAR ENTERTAINMENT GROUP NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 B3 Derivative financial instruments Current assets Cross currency swaps Forward currency contracts Non current assets Cross currency swaps Current liabilities Cross currency swaps Interest rate swaps Non current liabilities Cross currency swaps Interest rate swaps Net financial assets 93 2019 $m 2018 $m 7.9 - 7.9 82.7 82.7 - 5.6 5.6 - 9.6 9.6 75.4 3.6 0.3 3.9 57.4 57.4 0.3 3.9 4.2 18.4 7.0 25.4 31.7 Net derivative assets up $43.7 million due to decline in the AUD/USD exchange rate and Bank Bill Swap Rate. 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 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. Refer to note E2 for additional financial instruments disclosure. 45 ANNUAL REPORT 201994 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 B4 Property, plant and equipment Freehold and leasehold buildings Freehold land Leasehold improvements Plant and equipment Note $m $m $m $m Total $m 2019 Cost Opening balance at beginning of the year Additions Disposals Reclassification / transfer Closing balance at end of the year a Accumulated depreciation Opening balance at beginning of the year Depreciation expense Disposals / transfers Closing balance at end of the year Carrying Amount Opening balance at beginning of the year Closing balance at end of the year 2018 Cost Opening balance at beginning of the year Additions Disposals Reclassification / transfer b A4 81.5 - (4.5) - 2,340.0 292.7 1,135.1 3,849.3 209.0 (1.6) (17.5) 8.6 (4.8) (3.3) 82.1 (22.9) 20.8 299.7 (33.8) - 77.0 2,529.9 293.2 1,215.1 4,115.2 - - - - 402.6 64.0 (0.8) 465.8 81.5 77.0 1,937.4 2,064.1 109.4 9.2 (4.8) 113.8 183.3 179.4 678.7 99.1 (22.0) 1,190.7 172.3 (27.6) 755.8 1,335.4 456.4 459.3 2,658.6 2,779.8 81.5 2,047.9 286.1 1,001.7 3,417.2 - - - 281.6 (1.5) 12.0 7.0 - (0.4) 160.9 (18.7) (8.8) 449.5 (20.2) 2.8 Closing balance at end of the year 81.5 2,340.0 292.7 1,135.1 3,849.3 Accumulated depreciation Opening balance at beginning of the year Depreciation expense Disposals Closing balance at end of the year Carrying Amount A4 - - - - 341.6 63.7 (2.7) 402.6 98.7 10.7 - 616.4 80.8 (18.5) 1,056.7 155.2 (21.2) 109.4 678.7 1,190.7 Opening balance at beginning of the year 81.5 1,706.3 Closing balance at end of the year 81.5 1,937.4 187.4 183.3 385.3 2,360.5 456.4 2,658.6 a Includes capital works in progress of: Buildings - at cost Leasehold improvements - at cost Plant and equipment - at cost Total capital works in progress 2019 $m 140.2 6.9 46.5 193.6 2018 $m 40.7 3.0 147.2 190.9 b Includes reclassifications of $2.8 million from intangibles to plant and equipment (refer to note B5). Additions of $299.7 million, down 33.3% on the pcp consist predominantly of redevelopment works in the Sydney property. For details on capital activities refer to section 2.6 of the Directors' Report. 46 THE STAR ENTERTAINMENT GROUP 95 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 Property, plant and equipment is comprised of the following assets: − Freehold land - Gold Coast property; − Freehold and leasehold buildings - Brisbane, Gold Coast and Sydney properties; − Leasehold improvements - Brisbane and Sydney properties; and − Plant and equipment - operational and other equipment. Asset useful lives and residual values For the accounting policy on depreciation and useful lives of property, plant and equipment refer to note A4. Capital works in progress 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. Impairment Refer to note B6 for details of the accounting policy and key assumptions included in the impairment calculation. B5 Intangible assets Sydney and Brisbane casino licences Sydney casino concessions Goodwill Software a Note $m $m $m $m Other $m Total $m 2019 Cost Opening balance at beginning of the year Additions a Disposals 1,442.2 294.7 100.0 - - - - - - 229.8 34.2 (1.3) 20.1 2,086.8 - - 34.2 (1.3) Closing balance at end of the year 1,442.2 294.7 100.0 262.7 20.1 2,119.7 Accumulated amortisation Opening balance at beginning of the year Amortisation expense A4 Disposals Reclassification / transfer Closing balance at end of the year Carrying Amount Opening balance at beginning of the year Closing balance at end of the year 2018 Cost Opening balance at beginning of the year Additions Disposals Reclassification / transfer b - - - - - 1,442.2 1,442.2 69.3 3.0 - - 72.3 225.4 222.4 26.0 2.7 - - 127.4 26.1 (1.3) (0.8) 28.7 151.4 5.4 0.5 - - 5.9 228.1 32.3 (1.3) (0.8) 258.3 74.0 71.3 102.4 111.3 14.7 14.2 1,858.7 1,861.4 1,442.2 294.7 100.0 - - - - - - - - - 195.7 40.5 (3.6) (2.8) 27.2 - (7.1) - 2,059.8 40.5 (10.7) (2.8) Closing balance at end of the year 1,442.2 294.7 100.0 229.8 20.1 2,086.8 Accumulated amortisation Opening balance at beginning of the year Amortisation expense A4 Disposals Closing balance at end of the year Carrying Amount Opening balance at beginning of the year Closing balance at end of the year - - - - 1,442.2 1,442.2 66.1 3.2 - 69.3 228.6 225.4 23.1 2.9 - 26.0 76.9 74.0 108.6 22.4 (3.6) 127.4 87.1 102.4 10.2 2.3 (7.1) 208.0 30.8 (10.7) 5.4 228.1 17.0 14.7 1,851.8 1,858.7 a b Includes capital works in progress of $29.9 million (2018: $27.2 million). Includes reclassifications of $2.8 million to property, plant and equipment (refer to note B4). 47 ANNUAL REPORT 201996 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 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 new integrated IT platforms. Asset useful lives and residual values 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 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 until 2019 and 2093 respectively. − 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 surrendered, following the opening of the Integrated Resort at Queen's Wharf Brisbane (QWB) which is expected in 2022. − 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 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. Goodwill and impairment testing 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 impairment testing calculation. B6 Impairment testing and goodwill 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. Carrying amount of goodwill allocated to each cash generating unit Cash generating unit (Reportable segment) 2019 2018 Sydney $m Gold Coast $m Brisbane $m 1,013.5 1,013.5 165.5 165.5 263.2 263.2 Total carrying amount $m 1,442.2 1,442.2 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. 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 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% (2018: 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 8.3% to 8.8% (2018: 8.3% to 8.9%). The pre-tax discount rates range between 10.4% to 11.3% (2018: 10.2% to 11.0%). No impairment was recognised in any of the cash generating units at 30 June 2019 (2018: nil). The performance of the Group was driven by growth in the domestic business revenue (+3.1%). The International VIP Rebate Business (IRB) had mixed results, with a high win rate partially offset by reduced turnover. Key assumptions 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 disposal' are as follows: i. Cash flow forecasts The cash flow forecasts are based upon Board approved business plans for a five-year period, together with longer term projections, growth rates and approved capital investment plans for each cash generating unit. ii. Terminal value The terminal growth rate used is in line with the forecast long term underlying growth rate in the Consumer Price Index (CPI). iii. Discount rates Discount rates applied are based on the post tax weighted average cost of capital applicable to the relevant cash generating unit. 48 THE STAR ENTERTAINMENT GROUP 97 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 iv. Regulatory changes Brisbane 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. The Group currently holds a perpetual casino licence in Brisbane that is attached to the lease of the current Brisbane site that expires in 2070. Upon opening of the QWB casino, the Group's casino licence will be surrendered and Destination Brisbane Consortium (DBC) will be granted a casino licence for 99 years including an exclusivity period of 25 years. The Group will surrender the Brisbane casino licence in exchange for the right to operate the new QWB casino. Gold Coast The Star continues to participate in the Queensland Governmentʼs process in relation to a global tourism hub on the Gold Coast. The Star has been invited into the second stage of the process to provide an expression of interest for the Gold Coast tourism hub. Sydney 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). 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 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 2019. 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 the cash generating unit's carrying value. v. Sensitivities 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 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 its recoverable value, requiring an impairment charge to be recognised. For the Gold Coast, management considers that a 2% reduction in the expected growth rate is a reasonably possible change that could give rise to a potential impairment. 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 increase in market size. A reasonably possible change in any of the assumptions used does not result in an impairment charge at 30 June 2019. However, management will continue to monitor the assumptions with regards to the expected impact of Crown Sydney on Sydney's carrying value. Impairment of assets 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 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. 49 ANNUAL REPORT 201998 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 Liabilities B7 Interest bearing liabilities Current Bank loans - unsecured (net of unamortised borrowing costs) (i) Private placement - US dollar - amortised cost (ii) Non current Bank loans - unsecured (net of unamortised borrowing costs) (i) Private placement - US dollar (ii) 2019 $m 191.3 5.1 196.4 322.6 643.3 965.9 2018 $m 128.7 5.1 133.8 88.3 597.9 686.2 The Group successfully refinanced its bank facilities on 3 July 2019, with new bilateral bank facilities replacing all Syndicate Bank Facilities, which have been repaid and cancelled. The new bilateral facilities have a total limit of $1.2 billion (increased from $0.8 billion of bank facilities at 30 June 2019). The new facilities have maturities of between three and five years (compared to one month to five years), increasing the weighted average maturity of the Group's debt facilities from 3.8 to 5.3 years. Refer to note C3. Net debt was $972.6 million, up 43.5% on the pcp with gearing levels increased to 1.9x at 30 June 2019 compared to 1.4x at 30 June 2018. Refer to note F9 (iii) for Capital management disclosures and the calculation of the gearing ratio. (i) Bank loans - unsecured (net of unamortised borrowing costs) Interest on bank facilities is variable, linked to Bank Bill Swap Bid Rate (BBSY), plus a margin tiered against the reported gearing ratio at the end of certain test dates. Syndicated revolving facility The Group has drawn down $382.0 million of the syndicated revolving facility (SFA). 2019 Unutilised at 30 June Type Syndicated revolving facility - tranche A Syndicated revolving facility - tranche B Syndicated revolving facility - tranche C Syndicated revolving facility - tranche D 2018 Type Syndicated revolving facility - tranche A Syndicated revolving facility - tranche B Syndicated revolving facility - tranche C Syndicated revolving facility - tranche D Working capital facility 2019 Type Working capital facility Facility amount $m $m Maturity date 100.0 250.0 100.0 200.0 650.0 - 58.0 10.0 200.0 268.0 Facility amount $m Unutilised at 30 June $m 100.0 250.0 100.0 200.0 650.0 10.0 250.0 100.0 200.0 560.0 July 2021 July 2019 July 2022 July 2023 Maturity date July 2021 July 2019 July 2022 July 2023 Facility amount $m 150.0 Unutilised at 30 June $m 16.0 Maturity date July 2020 50 THE STAR ENTERTAINMENT GROUP 99 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 2018 Type Working capital facility Facility amount $m Unutilised at 30 June $m 150.0 20.0 Maturity date January 2019 The Group has entered into interest rate swaps agreements to hedge underlying debt obligations and allow $100 million of floating rate borrowings (comprising syndicated revolving facility and working capital facility) to be swapped to fixed rate borrowings. Further details about the Group's exposure to interest rate movements are provided in notes E1 and E2. (ii) US Private Placement (USPP) The Group's USPP borrowings are summarised below. 2019 Type Series B Series C Series D Series E Series F Series G Series H 2018 Type Series B Series C Series D Series E Series F Series G Series H $m USD $m (AUD) Maturity date 105.0 9.0 12.5 10.0 60.0 31.0 215.9 443.4 98.1 11.5 16.0 12.8 76.9 39.7 276.5 531.5 June 2021 August 2025 August 2027 August 2025 August 2027 August 2025 August 2027 $m USD $m (AUD) Maturity date 105.0 9.0 12.5 10.0 60.0 31.0 215.9 443.4 98.1 11.5 16.0 12.8 76.9 39.7 276.5 531.5 June 2021 August 2025 August 2027 August 2025 August 2027 August 2025 August 2027 The $531.5 million (2018: $531.5 million) USPP borrowings are stated in the table above at the AUD amount repayable under cross currency swaps at maturity. Interest is a combination of fixed and variable, linked to BBSW (Bank Bill Swap Rate), and a defined gearing ratio at the end of certain test dates. The US$443.4 million (2018: US$443.4 million) translated at 30 June 2019 spot rate is $632.3 million AUD (2018: $598.8 million). Fair value disclosures Details of the fair value of the Group's interest bearing liabilities are set out in note E2. Financial Risk Management As a result of the USPP borrowings, the Group is exposed to 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 June 2019, 100% of the USPP borrowings balance of US$443.4 million (2018: US$443.4 million) is hedged. The Group is also exposed to the interest rate risk as a result of bank loans and the USPP borrowings. To hedge against this risk, the Group has entered into interest rate swaps. As at 30 June 2019, 38.8% (2018: 56.2%) of interest bearing liabilities had been hedged. Further details about the Group's exposure to interest rate and foreign currency movements are provided in notes E1 and E2. 51 ANNUAL REPORT 2019100 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 C Commitments, contingencies and subsequent events C1 Commitments (i) Operating lease commitments a Not later than one year Later than one year but not later than five years Later than five years 2019 $m 9.2 43.7 90.2 2018 $m 10.4 29.0 97.0 143.1 136.4 a The Group leases property (including Sydney and Brisbane property leases) under operating leases expiring between 1 to 74 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 are subject to market rate review. (ii) Other commitments b Not later than one year Later than one year but not later than five years Later than five years 116.2 - - 116.2 64.3 1.3 - 65.6 b Other commitments as at 30 June 2019 mainly include capital construction and related costs in connection with the Sydney redevelopment. The Group has current capital commitments of approximately $1.0 billion in Destination Brisbane Consortium and $0.1 billion in Destination Gold Coast Consortium to fund the construction of the Integrated Resort which is expected to open in 2022 (subject to various approvals) and the new residential and hotel tower on the Gold Coast respectively. Refer to note D5 for commitments in respect of investment in associate and joint venture entities. C2 Contingent liabilities Legal challenges There are outstanding legal actions between the Company and its controlled entities and third parties as at 30 June 2019. 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 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 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 provided for. Financial guarantees Refer to note E1 for details of financial guarantees provided by the Group at the reporting date. C3 Subsequent events On 3 July 2019, the Company successfully refinanced its bank facilities, with new bilateral bank facilities replacing all Syndicated Bank Facilities, which have been repaid and cancelled. The new bilateral facilities have a total limit of $1.2 billion (increased from $0.8 billion of bank facilities at 30 June 2019). The new facilities have maturities of between three and five years (compared to one month to five years), increasing the weighted average maturity of the company's debt facilities from 3.8 to 5.3 years. Unamortised borrowing costs of $1.7 million associated with the existing facilities will be expensed to the income statement in July 2019. On 25 July 2019, the NSW Government Department of Planning, Industry and Environment recommended against the proposed construction of The Ritz-Carlton Hotel and Residences in Sydney. The Star continues to seek approval for the development from the NSW Government Independent Planning Commission, which is the decision making authority. 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 materially affect either the Group's operations or results of those operations or the Group's state of affairs. 52 THE STAR ENTERTAINMENT GROUP 101 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 D Group structure D1 Related party disclosures (i) Parent entity (ii) The ultimate parent entity within the Group is The Star Entertainment Group Limited. Investments in controlled entities 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 as that of the Company (unless stated otherwise below). Name of controlled entity Parent entity The Star Entertainment Group Limited Controlled entities 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 Star City Investments Pty Limited Star City Share Plan Company Pty Ltd The Star Entertainment QLD Limited The Star Entertainment QLD Custodian Pty Ltd The Star Entertainment Gold Coast Trust The Star Entertainment International No.1 Pty Ltd The Star Entertainment International No.2 Pty Ltd The Star Entertainment (Macau) Limited The Star Entertainment International No.3 Pty Ltd EEI Services (Hong Kong) Holdings Limited EEI Services (Hong Kong) Limited EEI C&C Services Pte Ltd The Star Entertainment RTO Pty Ltd The Star Entertainment Finance Limited Destination Cairns Consortium Pty Limited e The Star Entertainment Technology Services Pty Ltd The Star Entertainment Training Company Pty Ltd PPIT Pty Ltd The Star Entertainment International No.4 Pty Ltd The Star Entertainment Online Holdings Pty Ltd The Star Entertainment Online Pty Ltd The Star Entertainment Brisbane Holdings Pty Ltd The Star Entertainment Brisbane Operations Pty Ltd The Star Entertainment DBC Holdings Pty Ltd The Star Brisbane Car Park Holdings Pty Ltd The Star Entertainment Gold Coast Holdings Pty Ltd The Star Entertainment GC Investments Pty Ltd The Star Entertainment GC Investments No.1 Pty Ltd The Star Entertainment International No.5 Pty Ltd EEI Services Holdings No.1 Pty Ltd EEI Services Holdings No.2 Pty Ltd EEI Services (Macau) Limited The Star Entertainment International Tourism Pty Ltd Note Country of incorporation Equity type Australia ordinary shares a b a b a a b a a Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Macau Australia ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares ordinary shares units ordinary shares ordinary shares ordinary shares ordinary shares Hong Kong ordinary shares Hong Kong ordinary shares Singapore ordinary shares Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Macau Australia 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 Equity interest at 30 June 2019 % Equity interest at 30 June 2018 % 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 53 ANNUAL REPORT 2019102 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 Name of controlled entity Note Country of incorporation Equity type Equity interest at 30 June 2019 % Equity interest at 30 June 2018 % Destination Sydney Consortium Pty Limited The Star Entertainment Pyrmont Investments No.1 Pty Ltd The Star Entertainment GC No.1 Pty Ltd c e c d The Star Entertainment GC No.2 Pty Ltd d The Star Entertainment Group Limited Employee Share Trust f Australia Australia Australia Australia Australia ordinary shares ordinary shares ordinary shares ordinary shares units 100.0 100.0 100.0 100.0 0.0 0.0 0.0 0.0 0.0 0.0 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 2016/785 (refer to note D3). b These companies have provided a charge over their assets and undertakings as explained in note E1. c Incorporated on 10 October 2018 Incorporated on 18 April 2019 d e The following entities changed their company name on 5 April 2019: - Destination Cairns Consortium Pty Limited was previously known as The Star Entertainment International Pty Ltd - Destination Sydney Consortium Pty Limited was previously known as The Star Entertainment Pyrmont Holdings Pty Ltd f Formed on 11 September 2018 (iii) Transactions with controlled entities The Star Entertainment Group Limited During the period, the Company entered into the following transactions with controlled entities: − loans of $46.5 million were repaid by controlled entities (2018: the Company advanced loans of $602.6 million); and − income tax and GST paid on behalf of controlled entities was $211.6 million (2018: $230.3 million). The amount receivable by the Company from controlled entities at year end is $835.8 million (2018: $882.3 million). All the transactions were undertaken on normal commercial terms and conditions. (iv) Transactions with other related parties Other transactions During the period, in addition to equity contributions (refer to note D5), the Group entered into the following transactions with related parties: − Amount recharged to Destination Brisbane Consortium Integrated Resort Holdings Pty Ltd was nil (2018: $0.3 million); − Amount paid to Destination Brisbane Consortium Integrated Resort Holdings Pty Ltd was $0.1 million (2018: nil) relating to capital works; − Amount recharged to Destination Gold Coast Consortium Pty Ltd was $1.9 million (2018: $8.3 million), of which $0.1 million (2018: $4.7 million) was held as a receivable at 30 June 2019; and − Amount paid to Destination Gold Coast Consortium Pty Ltd was $3.4 million (2018: nil) relating to capital works. 54 THE STAR ENTERTAINMENT GROUP 103 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 D2 Parent entity disclosures The Star Entertainment Group Limited, the parent entity of the Group, was incorporated on 2 March 2011. Result of the parent entity Profit for the year Total comprehensive income for the year a 2019 $m 158.5 158.5 2018 $m 263.2 263.2 a Since the end of the financial year, the Company has declared a final dividend of 10.0 cents per ordinary share (2018: 13.0 cents), which is expected to be paid to its shareholders on 26 September 2019 out of retained earnings at 30 June 2019 (refer to note A6). Financial position of the parent entity Current assets Non current assets Total assets Current liabilities Non current liabilities Total liabilities Net assets Total equity of the parent entity Issued capital Retained earnings Shared based payments benefits reserve Total equity 1,865.8 2,590.3 4,456.1 34.5 1,034.0 1,068.5 1,912.3 2,590.1 4,502.4 22.3 1,031.4 1,053.7 3,387.6 3,448.7 3,069.7 311.2 6.7 3,387.6 3,070.2 368.4 10.1 3,448.7 Contingent liabilities There were no contingent liabilities for the parent entity at 30 June 2019 (2018: nil). Capital expenditure 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 2019 (2018: nil). Guarantees 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 2019, the carrying amount included in current liabilities at 30 June 2019 was nil (2018: nil), and the maximum amount of these guarantees was $121.9 million (2018: $118.3 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. Accounting policy for investments in controlled entities 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. 55 ANNUAL REPORT 2019104 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 D3 Deed of cross guarantee 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 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 Financial Report and Directors' Report under Instrument 2016/785 issued by the Australian Securities and Investments Commission. 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 to the deed of cross guarantee that are controlled by The Star Entertainment Sydney Holdings Limited, they also represent the 'extended closed group'. Set out below is a consolidated income statement and a summary of movements in consolidated retained earnings for the year ended 30 June 2019 of the closed group. Consolidated income statement Revenue Other income Government taxes and levies Employment costs Depreciation, amortisation and impairment Cost of sales Property costs Advertising and promotions Other expenses Earnings before interest and tax (EBIT) Net finance costs Profit before income tax (PBT) Income tax expense Net profit after tax (NPAT) Total comprehensive income for the period 2019 $m 1,321.9 0.6 (360.0) (351.6) (100.8) (51.0) (46.1) (62.4) (188.8) 161.8 11.3 173.1 (54.8) 118.3 118.3 2018* Restated $m 1,325.5 (0.2) (368.9) (349.5) (103.7) (50.6) (48.1) (73.4) (209.9) 121.2 - 121.2 (37.1) 84.1 84.1 * 2018 comparatives have been restated as part of the transition to AASB 15 Revenue from Contracts. Refer to note G(i) for further information. Summary of movements in consolidated retained earnings Accumulated profit/(loss) at the beginning of the financial year Profit for the year Transition to AASB 9 adjustment Dividends paid Accumulated profit at the end of the financial year 23.1 118.3 (6.8) (81.0) 53.6 130.0 84.1 - (191.0) 23.1 Consolidated balance sheet Set out below is a consolidated balance sheet as at 30 June 2019 of the closed group consisting of The Star 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 Limited. 56 THE STAR ENTERTAINMENT GROUP NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 Consolidated balance sheet ASSETS Cash assets Trade and other receivables Inventories Other Total current assets Property, plant and equipment Intangible assets Other assets Total non current assets TOTAL ASSETS LIABILITIES Trade and other payables Provisions Other liabilities Total current liabilities Deferred tax liabilities Provisions Total non current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued Capital Retained Earnings TOTAL EQUITY D4 Key Management Personnel disclosures Compensation of Key Management Personnel Short term Long term Share based payments Total compensation 105 2019 $m 2018 $m 48.9 176.6 8.8 27.7 262.0 1,460.9 278.6 10.3 1,749.8 2,011.8 713.9 35.1 10.1 759.1 54.9 4.3 59.2 52.7 190.9 8.5 26.2 278.3 1,341.4 281.1 11.1 1,633.6 1,911.9 647.3 34.8 11.3 693.4 51.3 4.2 55.5 818.3 748.9 1,193.5 1,163.0 1,139.9 53.6 1,193.5 2019 $000 6,047 314 779 7,140 1,139.9 23.1 1,163.0 2018 $000 7,842 334 2,973 11,149 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. 57 ANNUAL REPORT 2019106 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 D5 Investment in associate and joint venture entities Set out below are the investments of the Group as at 30 June 2019 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 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. 2019 Name of entity Destination Brisbane Consortium Integrated Resort Holdings Pty Ltd (i) Festival Car Park Pty Ltd (ii) Destination Gold Coast Investments Pty Ltd (iii) Destination Gold Coast Consortium Pty Ltd (iv) Total equity accounted investments Country of incorporation % of ownership Nature of ownership Measurement method Australia Australia Australia Australia 50 50 50 Associate Equity method Joint venture Equity method Joint venture Equity method 33.3 Joint venture Equity method Carrying amount $m 312.9 14.3 45.6 12.2 385.0 (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 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 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 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 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 apartments development joint venture.30 June 2019 Commitments and contingent liabilities DBC has current capital commitments of approximately $2.0 billion (2018: $2.2 billion) to fund the construction of the Integrated Resort, which is expected to open in 2022 (subject to various approvals). Summarised financial information 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. Balance sheet Total current assets Total non current assets Total current liabilities Total non current liabilities Net assets Reconciliation to investment carrying amount: Carrying amount at the beginning of the year Share of equity contributions for the Group Share of loss for the period Carrying amount at the end of the year 2019 $m 139.0 564.5 (39.3) (52.8) 611.4 223.7 90.0 (0.8) 312.9 2018 $m 112.1 423.2 (17.4) (75.0) 442.9 152.6 72.2 (1.1) 223.7 58 THE STAR ENTERTAINMENT GROUP NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 Income statement Loss before tax Income tax benefit Loss for the year (continuing operations) Total comprehensive loss for the year (continuing operations) Group's share of loss for the year Dividends received from the associate entity (ii) Festival Car Park Pty Ltd 107 2019 $m (1.5) - (1.5) (1.5) (0.8) - 2018 $m (2.2) - (2.2) (2.2) (1.1) - 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. Commitments and contingent liabilities The joint venture had no capital commitments as at 30 June 2019 (2018: $0.1 million). There were no other contingent liabilities. Summarised financial information 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. Balance sheet Cash and cash equivalents Total current assets excluding cash and cash equivalents Total non current assets Total current liabilities Total non current liabilities - financial liabilities Net assets Reconciliation to investment carrying amount: Carrying amount at the beginning of the year Share of profit for the period Carrying amount at the end of the year Income statement Revenue Interest expense Other expenses Profit before tax Income tax expense Profit for the year (continuing operations) Total comprehensive income for the year (continuing operations) Group's share of profit for the year 2019 $m 3.3 - 48.4 (0.3) (22.5) 28.9 13.8 0.5 14.3 3.3 (0.7) (1.3) 1.3 (0.4) 0.9 0.9 0.5 2018 $m 2.7 0.1 48.3 (0.6) (22.5) 28.0 13.5 0.3 13.8 3.4 (0.7) (1.3) 1.4 (0.4) 1.0 1.0 0.3 59 ANNUAL REPORT 2019108 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 (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 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. 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 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. Commitments and contingent liabilities The joint venture had no capital commitments as at 30 June 2019 (2018: $0.3 million). There were no other contingent liabilities. Summarised financial information The financial statements of the joint venture are prepared for the same reporting period as the Group and follow the same accounting policies of the Group. Balance sheet Cash and cash equivalents Total current assets excluding cash and cash equivalents Total non current assets Total current liabilities Total non current liabilities - financial liabilities Other non current liabilities Net assets Reconciliation to investment carrying amount: Carrying amount at the beginning of the year Share of profit for the period Share of equity contributions for the Group Carrying amount at the end of the year Income statement Revenue Interest expense Depreciation expense Operating expenses Profit before tax Income tax expense Profit for the year (continuing operations) Total comprehensive income for the year (continuing operations) Group's share of profit for the year 2019 $m 12.8 0.9 171.9 (10.7) (72.4) (14.5) 88.0 44.6 1.0 - 45.6 45.1 (2.6) (3.2) (36.9) 2.4 (0.4) 2.0 2.0 1.0 2018 $m 11.1 4.4 173.6 (12.4) (72.2) (15.1) 89.4 46.3 2.4 (4.1) 44.6 47.0 (1.8) (3.1) (36.4) 5.7 (0.9) 4.8 4.8 2.4 60 THE STAR ENTERTAINMENT GROUP 109 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 (iv) Destination Gold Coast Consortium Pty Ltd On 22 November 2016, a 33.3% interest was acquired in Destination Gold Coast Consortium Pty Ltd (DGCC). DGCC is a joint venture with CTF and FEC for the purpose of constructing a new residential and hotel tower in Gold Coast. The Group's interest is accounted for using the equity method. Commitments and contingent liabilities On 16 August 2018, DGCC entered in to an agreement to commence construction in relation to the first residential, hotel and retail tower in Gold Coast. DGCC's total commitments for the development of the tower is $370.0 million, 8% lower than initial expectations. The joint venture had no capital commitments as at 30 June 2019. Summarised financial information The financial statements of the joint venture are prepared for the same reporting period as the Group and follow the same accounting polices of the Group. Balance sheet Cash and cash equivalents Total current assets excluding cash and cash equivalents Total non current assets Total current liabilities Total non current liabilities Net assets Reconciliation to investment carrying amounts: Carrying amount at the beginning of the year Share of loss for the period Share of equity contributions for the Group Elimination of gain on sale of land Carrying amount at the end of the year Income statement Loss before tax Income tax benefit Loss for the year (continuing operations) Total comprehensive loss for the year (continuing operations) Group's share of loss for the year 2019 $m 6.5 0.5 61.3 (4.1) (28.2) 36.0 6.8 (1.4) 15.3 (8.5) 12.2 (4.1) - (4.1) (4.1) (1.4) 2018 $m 4.5 0.6 22.7 (7.3) - 20.5 - (1.7) 8.5 - 6.8 (5.1) - (5.1) (5.1) (1.7) 61 ANNUAL REPORT 2019110 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 E Risk Management E1 Financial risk management objectives and policies 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. 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 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 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 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 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 liquidity risk. 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, financial liability and equity instrument, are disclosed in note G. Interest rate risk The Group manages interest rate risk by using a floating versus fixed rate debt framework. The relative mix of fixed and floating interest rate funding is managed by using interest rate swap contracts. The Group manages its cash flow interest rate risk by using floating-to-fixed interest rate swap contracts. At 30 June 2019 after taking into account the effect of interest rate swaps, approximately 38.8% (2018: 56.2%) of the Group's borrowings are at a fixed rate of interest. Foreign currency risk 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 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 maturity. These swaps are designated to hedge the principal and interest obligations under the private notes. Credit risk 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. Collateral is not held as security. Customer credit risk 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 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 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. Receivable balances are monitored on an ongoing basis with the result that the Group's exposure to bad debts is carefully managed and controlled. Financial institution credit risk Credit risk arising from other financial assets of the Group, which comprise cash, cash equivalents and derivative contracts, is reduced by transacting with relationship banks that have acceptable credit ratings, as determined by a recognised ratings agency. Cash investments, derivative financial instruments, bank guarantees, and other contingent instruments create credit risk in relation to the relevant counterparties, which are principally large relationship banks. The maximum counterparty credit exposure on forward currency and cross currency swaps is the fair value amount that the Group receives when settlement occurs, should the counterparty fail to pay the amount which it has committed to pay the Group. The credit risk on interest rate hedges is limited to the positive mark to market amount to be received from counterparties over the life of contracts that are favourable to the Group. 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. 62 THE STAR ENTERTAINMENT GROUP 111 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 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 guarantee contract liabilities has been assessed as nil (2018: nil), as the possibility of an outflow occurring is considered remote. Details of the financial guarantee contracts in the balance sheet are outlined below. Fixed and floating charges 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 obligations which they have to Liquor and Gaming NSW. Guarantees and indemnities 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 the obligations and liabilities of each company participating in the agreement with respect to agreements entered into and guarantees given. 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 financial obligations. The maximum amount of these guarantees and indemnities is $121.9 million (2018: $118.3 million). Liquidity risk 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. The Group manages liquidity risk through maintaining sufficient cash and adequate amount of committed credit facilities to be held above the forecast requirements of the business. The Group manages liquidity risk centrally by monitoring cash flow forecasts and maintaining adequate cash reserves and debt facilities. The debt portfolio is periodically reviewed to ensure there is funding flexibility across an appropriate maturity profile. Refer to notes B7 and E2 for maturity of financial liabilities. The contractual timing of cash flows on derivatives and non-derivative financial assets and liabilities at the reporting date, including drawn borrowings and estimated interest, are set out in the tables below: (i) Non-derivative financial instruments Financial assets Cash assets Short term deposits Trade and other receivables Financial liabilities Trade and other payables Bank loans - unsecured Private placement - US dollar 2019 2018 < 1 year $m 1 - 5 years $m > 5 years $m < 1 year $m 1 - 5 years $m > 5 years $m 104.3 10.0 235.5 349.8 338.3 201.6 33.5 573.4 - - - - - - - - - 335.4 191.1 526.5 - - 490.4 490.4 95.4 14.9 221.5 331.8 363.3 132.3 32.9 528.5 - - - - - - - - - 99.8 246.4 346.2 - - 531.5 531.5 Net outflow (223.6) (526.5) (490.4) (196.7) (346.2) (531.5) 63 ANNUAL REPORT 2019112 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 (ii) Derivative financial instruments 2019 2018 < 1 year $m 1 - 5 years $m > 5 years $m < 1 year $m 1 - 5 years $m > 5 years $m Financial assets Interest rate swaps - receive AUD floating Cross currency swaps - receive USD fixed Forward currency contract - receive USD fixed Financial liabilities Interest rate swaps - pay AUD fixed Cross currency swaps - pay AUD floating Cross currency swaps - pay AUD fixed Forward currency contract - pay AUD fixed Net inflow/(outflow) 2.4 33.5 - 5.3 191.1 - 490.4 - - 35.9 196.4 490.4 13.9 137.5 54.2 - 231.5 266.8 - - 205.6 498.3 8.4 13.1 13.6 - 35.1 0.8 4.2 32.9 1.2 38.3 8.4 15.7 13.5 0.9 38.5 12.5 246.4 1.9 531.5 - - 258.9 533.4 21.3 144.9 54.2 - 220.4 38.5 2.4 235.0 280.3 - 517.7 15.7 (9.2) (7.9) (0.2) 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 rate at balance sheet date. (iii) Financial instruments - sensitivity analysis Interest rates - AUD and USD 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 profit and other comprehensive income would have been affected as follows: 2019 AUD + 0.5% (50 basis points) - 0.5% (50 basis points) USD + 0.5% (50 basis points) - 0.5% (50 basis points) 2018 AUD + 0.5% (50 basis points) - 0.5% (50 basis points) USD + 0.5% (50 basis points) - 0.50% (50 basis points) Net profit after tax higher/(lower) $m Other comprehensive income higher/(lower) $m (1.6) 1.6 - - (1.0) 1.0 - - 12.9 (13.3) (11.2) 11.7 12.8 (13.3) (20.7) 21.6 64 THE STAR ENTERTAINMENT GROUP 113 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 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 cash flow hedges. The numbers derived in the sensitivity analysis are indicative only. 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 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; − price sensitivity of derivatives is based on a reasonably possible movement of spot rates at the balance sheet dates; and − the net exposure at the balance sheet date is representative of what the Group was, and is expecting to be, exposed to in the next twelve months. Foreign Exchange 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 other comprehensive income would have been affected as follows: Judgements of reasonably possible movements: Net profit after tax higher/(lower) Other comprehensive income higher/(lower) Net profit after tax higher/(lower) Other comprehensive income higher/(lower) 2019 $m - - 2019 $m (17.0) 16.4 2018 $m - - 2018 $m (11.1) 14.6 AUD/USD + 10 cents 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. 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 the risk exposure inherent in the financial instruments. The numbers derived in the sensitivity analysis are indicative only. 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 years' historical movements and economic forecaster's expectations; − 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 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 dates; and − the net exposure at the balance sheet date is representative of what the Group was, and is expecting to be, exposed to in the next twelve months. 65 ANNUAL REPORT 2019114 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 E2 Additional financial instruments disclosures (i) Fair values The fair value of the Group's financial assets and financial liabilities approximates their carrying value as at the balance sheet date. There are various methods available in estimating the fair value of a financial instrument. The methods comprise: Level 1 Level 2 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 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 data. Level 3 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. Interest rate swaps and cross currency swaps The fair value of cross currency contracts is calculated as the present value of expected future cash flows of these instruments. Key variables include market pricing data, discount rates and credit risk of the group or counterparty where relevant. Variables reflect those which would be used by the market participants to execute and value the instruments. Forward currency contracts Fair value is calculated using forward exchange market rates at the balance sheet date. USPP 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 exchange rates. (ii) Financial instruments - interest rate swaps Interest rate swaps meet the requirements to qualify for cash flow hedge accounting and are stated at fair value. These swaps are 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 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 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: 2019 $m 2018 $m Less than one year One to five years More than five years Notional Principal - 198.0 - 198.0 - 148.0 50.0 198.0 Fixed interest rate range p.a. 2.4% - 6.0% 2.4% - 6.0% 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 by entering into the swap agreements. (iii) Financial instruments - cross currency swaps (cash flow hedges) 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 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 fair value of the hedged item and the hedging instrument respectively each quarter. Any difference represents ineffectiveness and is recorded in the income statement. 66 THE STAR ENTERTAINMENT GROUP 115 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 Financial instruments - cross currency swaps (fair value hedges) These cross currency swaps are being used to hedge the exposure to fair value changes of the USD debt under the USPP as a result of fluctuations in the underlying USD to AUD exchange rate and US interest benchmark and are assessed as highly effective. The decrease in fair value of the cross currency swaps at fair value of $17.9 million (2018: $12.1 million) has been recognised in finance costs and offsetting gain on the USPP borrowings. The ineffectiveness recognised in FY2019 was immaterial. The principal amounts and periods of expiry of the cross currency swap contracts are as follows: Less than one year One to five years More than five years Notional principal 2019 2018 AUD $m USD $m AUD $m USD $m - 98.1 433.4 531.5 - 105.0 338.4 443.4 - 98.1 433.4 531.5 - 105.0 338.4 443.4 Fixed interest rate range p.a. 4.3% - 5.9% 4.3% - 5.9% 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. (iv) Financial instruments - forward currency contracts Forward currency contracts meet the requirements to qualify for cash flow hedge accounting and are stated at fair value. These contracts are 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 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: Buy USD / sell AUD Less than one year One to five years More than five years Notional principal Average exchange rate (AUD/USD) (v) Reconciliation of movement in financing activities 2019 $m - - - - - 2018 $m 0.9 - - 0.9 0.97 Cash flows $m Changes in fair values $m Foreign exchange movement $m 2018 $m Option premium $m Borrowing costs $m 2019 $m liabilities Interest bearing (refer to note B7) Net derivative assets (refer to note B3) (820.0) (296.0) (17.9) (32.7) 31.7 - 43.7 - 5.3 - (1.0) (1,162.3) - 75.4 67 ANNUAL REPORT 2019116 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 Cash flows $m Changes in fair values $m Foreign exchange movement $m 2017 $m Option premium $m Borrowing costs $m 2018 $m liabilities Interest bearing (refer to note B7) Net derivative assets (refer to note B3) (1,045.0) 248.7 12.1 (19.9) (16.4) 0.5 (820.0) 143.8 (102.5) (9.6) - - - 31.7 68 THE STAR ENTERTAINMENT GROUP NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 F Other disclosures F1 Other comprehensive income Net loss on derivatives Transfer of hedging reserve to the income statement a Tax on above items recognised in other comprehensive income 117 2019 $m (7.7) - 2.3 (5.4) 2018 $m (18.9) 14.1 1.4 (3.4) 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 other income in the income statement. F2 Income tax (i) Income tax expense The major components of income tax expenses are: Current tax expense Adjustments in respect of current income tax of previous years Deferred income tax (expense)/benefit Income tax expense reported in the income statement Aggregate of current and deferred tax relating to items charged or credited to equity: Current tax benefit reported in equity Deferred tax benefit reported in equity Income tax benefit reported in equity Income tax expense A reconciliation between income tax expense and the product of accounting profit before income tax multiplied by the income tax rate is as follows: Accounting profit before income tax expense At the Group's statutory income tax rate of 30% - Non assessable gain on sale - Recognition/(derecognition) of temporary differences - Research & Development tax offset - Tax consolidation reset - Over provision in prior years - Other items Aggregate income tax expense Effective income tax rate 2019 $m (80.0) (0.6) (0.1) (80.7) 0.8 2.2 3.0 278.7 (83.6) 2.9 1.3 0.6 - (0.6) (1.3) (80.7) 2018 $m (77.2) 4.3 10.6 (62.3) 0.5 1.7 2.2 210.4 (63.1) - (2.2) 2.9 2.6 - (2.5) (62.3) %28.9 %29.6 69 ANNUAL REPORT 2019118 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 (ii) Deferred tax balances The balance comprises temporary differences attributable to: 2019 Employee provisions Other provisions and accruals Impairment of trade receivables* Unrealised financial liabilities Other Deferred tax assets set off Intangible assets Property, plant and equipment Unrealised financial assets Other Balance 1 July 2018 $m Recognised in the income statement $m Recognised directly in equity $m Balance 30 June 2019 $m 19.9 14.9 7.9 30.1 4.2 77.0 (72.1) (134.3) (18.2) (25.2) (249.8) 1.0 6.7 (4.5) 18.1 (2.0) 19.3 3.9 3.0 (19.8) (6.5) (19.4) - - - (8.8) - (8.8) - - 11.0 - 11.0 20.9 21.6 3.4 39.4 2.2 87.5 (68.2) (131.3) (27.0) (31.7) (258.2) Net deferred tax (liabilities)/assets (172.8) (0.1) 2.2 (170.7) * Opening balance has increased by $3.1 million for AASB 9 transition adjustment to retained earnings 2018 Employee provisions Other provisions and accruals Impairment of trade receivables Unrealised financial liabilities Other Deferred tax assets set off Intangible assets Property, plant and equipment Unrealised financial assets Other Balance 1 July 2017 $m Recognised in the income statement $m Recognised directly in equity $m Balance 30 June 2018 $m 18.3 10.7 4.2 67.0 6.4 106.6 (73.7) (135.7) (59.7) (25.7) (294.8) 1.6 4.2 0.6 (38.7) (2.5) (34.8) 1.6 1.4 41.9 0.5 45.4 - - - 1.8 0.3 2.1 - - (0.4) - (0.4) 19.9 14.9 4.8 30.1 4.2 73.9 (72.1) (134.3) (18.2) (25.2) (249.8) Net deferred tax (liabilities)/assets (188.2) 10.6 1.7 (175.9) 70 THE STAR ENTERTAINMENT GROUP 119 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 (iii) Tax consolidation Effective June 2011, The Star Entertainment Group Limited (the Head Company) and its 100% owned subsidiaries 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 default on its tax payment obligations. At balance date, the possibility of default is remote. Tax effect accounting by members of the tax consolidation group Members of the tax consolidation group have entered into a tax funding agreement effective June 2011. Under the 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 principles of AASB 112 'Income Taxes'. Calculations under the tax funding agreement are undertaken for statutory reporting purposes. The allocation of taxes under the tax funding agreement is recognised as either an increase or decrease in the subsidiaries' intercompany accounts with the Head Company. The Group has chosen to adopt the Group Allocation 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 or distribution of the subsidiaries' equity accounts as there will not be any differences between the current tax amount that is allocated under the tax funding agreement and the amount that is allocated under the Group Allocation method. (iv) Income tax payable 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. The income tax (payable) balance is attributable to: 2019 Tax consolidated group - year ended 30 June 2019 Tax consolidated group - year ended 30 June 2018 a Prior years Total Australia Overseas subsidiaries Total (Payable) / receivable 1 July 2018 (Increase) / decrease in tax payable Tax instalment paid Over provision of tax $m - (2.1) 1.8 (0.3) - (0.3) $m $m $m (84.2) 2.5 0.4 (81.3) - (81.3) 65.8 2.0 - 67.8 - 67.8 - 1.5 - 1.5 - 1.5 (Payable) / receivable 30 June 2019 $m (18.4) 4.0 2.2 (12.2) - (12.2) Other $m - 0.1 - 0.1 - 0.1 a The decrease in tax payable is an amendment to the income tax return relating to the application of the tax consolidation reset. 2018 Tax consolidated group - year ended 30 June 2018 Tax consolidated group - year ended 30 June 2017 Prior years Total Australia Overseas subsidiaries Total (Payable) 1 July 2017 $m (Increase) / decrease in tax payable $m Tax instalment paid $m Over provision of tax $m (Payable) / receivable 30 June 2018 $m Other $m - (76.7) (28.8) - (28.8) - (28.8) 1.7 - (75.0) - (75.0) 74.6 26.0 - 100.6 - 100.6 - 2.6 - 2.6 - 2.6 - 0.3 - 0.3 - 0.3 (2.1) 1.8 - (0.3) - (0.3) 71 ANNUAL REPORT 2019120 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 F3 Earnings per share Net profit after tax attributable to ordinary shareholders Basic earnings per share (cents per share) Diluted earnings per share (cents per share) 2019 $m 198.0 21.6 21.6 2018 $m 148.1 17.5 17.5 2019 Number 2018 Number Weighted average number of shares used as the denominator Weighted average number of ordinary shares issued at the beginning of the year Adjustment for issue of new share capital on 16 April 2018 a 917,322,730 825,672,730 - 19,083,288 Weighted average number of shares used as the denominator 917,322,730 844,756,018 Adjustment for calculation of diluted earnings per share: Adjustment for Performance Rights 1,589,665 1,243,216 Weighted average number of ordinary shares and potential ordinary shares as used as the denominator in calculating diluted earnings per share at the end of the year 918,912,395 845,999,234 a New shares issued in FY2018 of 91,650,000, being a weighted average for 76 days of 19,083,288. F4 Other assets Current Prepayments Other assets Non current Rental paid in advance Other assets Other assets above are shown net of impairment of nil (2018: nil). F5 Trade and other payables Trade creditors and accrued expenses Interest payable 2019 $m 49.4 2.6 52.0 9.7 37.9 47.6 2018 $m 41.4 3.4 44.8 9.7 1.5 11.2 338.3 2.6 340.9 363.3 2.5 365.8 Trade and other payables of $340.9 million were down 6.8%, predominately relating to the reduction in safe keeping and patron deposits linked to the decrease in IRB volume on pcp. 72 THE STAR ENTERTAINMENT GROUP NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 F6 Provisions Current Employee benefits Workers' compensation Other a Non-current Employee benefits Other 121 2019 $m 60.9 6.6 32.4 99.9 8.6 8.3 16.9 2018 $m 57.6 6.9 - 64.5 7.9 5.0 12.9 a Restructuring and redundancy provision relating to Group reorganisation. Reconciliation Reconciliations of each class of provision, except for employee benefits and other, at the end of each financial year are set out below: Workers' compensation reconciliation 2019 Carrying amount at beginning of the year Provisions made during the year Provisions utilised during the year Carrying amount at end of the year 2018 Carrying amount at beginning of the year Provisions made during the year Provisions utilised during the year Carrying amount at end of the year Workers' compensation (current) $m Other (non- current) $m 6.9 1.4 (1.7) 6.6 7.6 0.9 (1.6) 6.9 5.0 3.3 - 8.3 1.7 3.3 - 5.0 Nature and timing of provisions Workers' compensation 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 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 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. 73 ANNUAL REPORT 2019122 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 F7 Other liabilities Current Customer loyalty deferred revenue a Other deferred revenue Non current Other 2019 $m 17.1 1.7 18.8 5.9 5.9 2018 $m 18.7 1.6 20.3 - - 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 in the income statement when the award is redeemed or expires. F8 Treasury shares During the year, the Group purchased 1,458,361 of its own shares for use to settle future employee share based payments scheme. Value of treasury shares purchased Number of treasury shares purchased F9 Share capital and reserves (i) Share capital Ordinary shares - issued and fully paid a Issue of share capital b Purchase of treasury shares c Issuance fees 2019 $m 6.7 2018 $m - 2019 Number 1,458,361 2018 Number - 2019 $m 2018 $m 3,070.2 2,580.5 - (6.7) (0.5) 489.7 - - 3,063.0 3,070.2 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 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. b On 16 April 2018, the Company issued fully paid ordinary shares to nominated entities of CTF and FEC, as announced to the market on 29 March 2018. c The Group purchased 1,458,361 of its own shares for use to settle future employee shared based payment schemes. 74 THE STAR ENTERTAINMENT GROUP NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 Movements in ordinary share capital Balance at beginning of the year Issue of fully paid ordinary shares on 16 April 2018 Balance at the end of the year (ii) Reserves (net of tax) Hedging reserve a Cost of hedging reserve b Share based payments reserve c 123 2019 Number of shares 2018 Number of shares 917,322,730 825,672,730 - 91,650,000 917,322,730 917,322,730 2019 $m (27.5) 4.9 7.0 (15.6) 2018 $m (17.2) - 10.2 (7.0) Nature and purpose of reserves a The hedging reserve records the spot element of 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. b The spot element of derivative contracts are designated as hedging instruments with fair value changes recorded in the hedging reserve. The forward element is recognised in other comprehensive income and accumulated in a separate component of equity under costs of hedging reserve. c 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 F11 for further details on these plans. (iii) Capital management 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 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 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 of associate and joint venture entities. Net debt comprises interest bearing liabilities, with US dollar borrowings translated at the 30 June 2019 USD/AUD spot rate of 1.4261 (2018: 1.3505), after adjusting for cash and cash equivalents and derivative financial instruments. 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 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. Gross Debt Net Debt a EBITDA b Gearing ratio (times) 2019 $m 1,162.3 972.6 519.8 1.9 x 2018 $m 820.0 678.0 474.8 1.4 x a Net debt is stated after adjusting for cash and cash equivalents less the net position of derivative financial instruments. b EBITDA is a non-IFRS disclosure and stands for earnings before interest, tax, depreciation and amortisation. 75 ANNUAL REPORT 2019124 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 F10 Reconciliation of net profit after tax to net cash inflow from operations Net profit after tax - Depreciation and amortisation - Employee share based payments expense - Unrealised foreign exchange gain - Impairment of trade receivables - Gain on disposal of property, plant and equipment - Finance costs - Share of net loss of associate and joint venture entities - Gain on disposal of Gold coast land Working capital changes - Increase in trade and other receivables and other assets - Increase in inventories - Increase in trade and other payables, accruals and provisions - Increase/(decrease) in tax provisions Net cash inflow from operating activities Note A4 F11 A3 A3 A5 D5 2019 $m 198.0 205.8 2.1 (0.9) 5.5 (0.9) 35.7 0.6 (9.7) (39.4) (2.0) 7.7 8.9 411.4 2018 $m 148.1 187.2 5.5 - 7.6 - 78.2 0.1 - (19.8) (3.6) 32.2 (38.4) 397.1 Operating cash flow before interest and tax was $478.8 million, down 3.6% on the pcp, with 92% EBITDA to cash conversion ratio. 76 THE STAR ENTERTAINMENT GROUP 125 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 F11 Employee share plans Long term incentive plan During the current and prior periods, the Company issued Performance Rights under the long term incentive plan to eligible employees. The share based payment expense of $0.7 million (2018: $5.5 million) in respect of the equity 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. 2019 Grant Date 26 September 2014 21 September 2015 5 October 2016 2 October 2017 3 October 2018 2018 Grant Date 1 October 2013 26 September 2014 21 September 2015 5 October 2016 2 October 2017 Balance at start of year Granted during the year Forfeited during the year Lapsed during the year 921,619 665,548 1,146,415 1,734,717 - - - - - 1,599,402 3,224 43,781 83,855 134,261 - 4,468,299 1,599,402 265,121 - - - - - - Vested during the year a 918,395 - - - - Balance at end of year - 621,767 1,062,560 1,600,456 1,599,402 918,395 4,884,185 Balance at start of year Granted during the year 461,198 921,619 694,470 - - - 1,141,975 47,904 - 1,785,585 Forfeited during the year - - 28,922 43,464 50,868 3,219,262 1,833,489 123,254 Lapsed during the year Vested during the year Balance at end of year - - - - - - 461,198 - - - - - 921,619 665,548 1,146,415 1,734,717 461,198 4,468,299 Grants from 1 October 2013 include a market based hurdle (relative total shareholder return (TSR)) and an EPS component. Grants from 2 October 2017 include a market based hurdle (relative TSR), an EPS component and a return on investment capital (ROIC) component. The Performance Rights have been independently valued. For the relative TSR component, valuation was based on assumptions underlying the Black-Scholes methodology to produce a Monte-Carlo simulation model. For the EPS and ROIC 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 period. This adjustment, if required, is based on the number of equity instruments expected to vest at the end of each reporting period. a Performance rights granted on 26 September 2014 were tested and vested on 26 September 2018. The TSR percentile rank for the Company was 83.0%, above the target percentile of 75%. Accordingly 99.3% of the TSR component vested. The EPS performance was 26.2 cents and was above the target of 25.1 cents approved by the Board. Accordingly 100% of the EPS component vested. The key assumptions underlying the Performance Rights valuations are set out below: Effective grant date Test and vesting date 26 September 2014 26 September 2018 21 September 2015 21 September 2019 5 October 2016 2 October 2017 3 October 2018 5 October 2020 2 October 2021 3 October 2022 Share price at date of grant Expected volatility in share price Expected dividend yield Risk free interest rate Average Fair Value per Performance Right $ 3.31 4.82 5.89 5.17 5.21 % 27.00 % 28.00 % 25.03 % 24.40 % 22.76 % % %2.90 %2.70 %2.74 %2.98 %4.66 % %2.88 %1.98 %1.68 %2.28 %2.14 $ 2.45 3.53 4.27 4.02 3.77 77 ANNUAL REPORT 2019126 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 Equity retention plan During the current period, the Company issued restricted shares under the equity retention plan to eligible employees. The share based payment expense of $1.4 million (2018: nil) in respect of the equity instruments granted is recognised in the income statement. The number of restricted shares granted to employees and forfeited during the year are set out below. 2019 Grant Date 1 July 2018 Balance at start of year Granted during the year Forfeited during the year Lapsed during the year Vested during the year Balance at end of year - - 1,458,361 1,458,361 24,402 24,402 - - - - 1,433,959 1,433,959 The awards are issued at no cost to participants and are subject to a service condition of five years. Participants are entitled to dividends and may benefit from share price growth over the vesting period. F12 Auditor's remuneration 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 entity in the consolidated group - Other services in relation to the Company and any other entity in the consolidated group: - Assurance related - Other non-audit services 2019 $ 2018 $ 1,067,766 1,005,000 10,000 78,860 22,000 116,253 1,156,626 1,143,253 Amounts received or due and receivable by related practices of Ernst & Young (Australia) for: - Assurance related services - - 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 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. 78 THE STAR ENTERTAINMENT GROUP 127 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 G Accounting policies and corporate information Significant accounting policies are contained within the financial statement notes to which they relate and are not detailed in this section. Corporate Information The Star Entertainment Group Limited (the Company) is a company incorporated and domiciled in Australia. The Financial Report of the Company for the year ended 30 June 2019 comprises the Company and its controlled entities (collectively referred to as the Group). The Company's registered office is Level 3, 159 William Street, Brisbane QLD 4000. The Company is of the kind specified in Australian Securities and Investments Commission (ASIC) Instrument 2016/191. In accordance with that Instrument, amounts in the Financial Report and the Directors' Report have been rounded to the nearest hundred thousand dollars, unless specifically stated to be otherwise. All amounts are in Australian dollars ($). The Company is a for profit organisation. The Financial Report was authorised for issue by the Directors on 16 August 2019. Basis of preparation The Financial Report is a general purpose Financial Report which has been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards and other mandatory Financial Reporting requirements in Australia. The financial statements comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. The financial statements have been prepared under the historical cost convention except as disclosed in the accounting policies below and elsewhere in this report. The policies used in preparing the financial statements are consistent with those of the previous year except as indicated under 'Changes in accounting policies and disclosures'. Significant accounting judgements, estimates and assumptions Preparation of the financial statements in conformity with Australian Accounting Standards and IFRS requires management to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In the process of applying the Group's accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the consolidated financial statements: − Asset useful lives and residual values (refer notes A4 and B5); − Impairment of assets (refer note B6); − Valuation of derivatives and other financial instruments (refer note B3); − Impairment of trade receivables (refer note B2); − Significant items (refer note A7); and − Provisions (refer note F6). Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability in future periods. Changes in accounting policies and disclosures The Group has adopted the following new and amended accounting standards, which became applicable for the year ended 30 June 2019: Reference Title Revenue from Contracts with Customers AASB 15 (i) AASB 9 (ii) Financial Instruments (i) AASB 15 Revenue from Contracts with Customers The Group applies, for the first time for the year ended 30 June 2019, AASB 15 Revenue from Contracts with Customer. AASB 15 establishes a single comprehensive model that applies to accounting for revenue arising from contracts with customers. The core principle of AASB 15 is that an entity should recognise revenue equating to the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The principles in AASB 15 provide a more structured approach to measuring and recognising revenue. 79 ANNUAL REPORT 2019128 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 The Group has adopted the new standard using the full retrospective method of adoption. The effect of the transition on the current period has not been disclosed as the standard provides an optional practical expedient to do so. The Group did not apply any of the other available practical expedients. The major changes as a result of the adoption of the new standard are as follows: − Under the new revenue standard, the stand-alone selling price of complimentary services (including hotel room nights, food and beverage, and other services) that are provided to casino guests as incentives related to gaming play are recorded as revenues related to the respective goods or services as they are provided to the patron. Historically, these amounts were recorded as gaming revenue along with the original gaming transaction. The allocation of revenue to non-gaming activities is measured based on the stand-alone selling price of the goods and services provided. After allocation of revenue to non-gaming, the residual amount is recorded as gaming revenue. This change primarily results in a decrease in gaming revenue and an increase in non-gaming revenues related to the respective goods or services provided to the customer. − A portion of commissions and rebates paid to gaming promoters, representing the estimated incentives that were returned to customers, were previously reported as reductions in revenues, with the balance of commission expenses reflected as casino expenses. As a result of the adoption of the new standard, all commissions and rebates paid to gaming promoters are reflected as reductions in casino revenues. This change primarily results in a decrease in casino expenses and a corresponding decrease in casino revenues. The amounts of affected financial statement line items in the consolidated income statement and the consolidated statement of cash flows for the prior period before and after the adoption of the new revenue standard are as follows: Reported 30 June 2018 $m Adjustments for AASB 15 $m Reclassified c $m Restated 30 June 2018 $m Consolidated income statement Domestic gaming a International VIP Rebate a Non-gaming b Other b Gross revenue Players rebates and promotional allowances Revenue Commissions and fees Advertising and promotions 2,293.0 - 286.5 - 2,579.5 (107.5) 2,472.0 (410.9) (93.0) 1,968.1 (277.5) (464.7) 246.7 - (495.5) 107.5 (388.0) 388.0 - - Consolidated statement of cash flows Net cash receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) 2,386.9 (302.5) (1,371.2) 302.5 (710.6) 710.6 (9.2) 9.2 - - - 22.9 (22.9) - - - 1,304.9 245.9 524.0 9.2 2,084.0 - 2,084.0 - (115.9) 1,968.1 2,084.4 (1,068.7) 1,015.7 - a Domestic gaming and International VIP Rebate were previously disclosed together as Gaming. b Non-gaming and Other were previously disclosed together. c Incentives previously included in Commissions and fees have moved to Advertising and promotions. (ii) AASB 9 Financial Instruments The accounting standard replaces ʻAASB 139 - Financial Instruments: Recognition and Measurementʼ that relates to the recognition, classification and measurement of financial assets and liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting. The adoption of AASB 9, including an election for hedging, from 1 July 2018 resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements. In accordance with the transition provisions in AASB 9 (7.2.15), comparative figures have not been restated. 1,015.7 - 80 THE STAR ENTERTAINMENT GROUP NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 The effect of the changes on retained earnings is as follows: Closing retained earnings as of 30 June 2018 Increase in provision for impairment (net of tax) Opening retained earnings as of 1 July 2018 129 2018 $m 718.3 (7.2) 711.1 Impairment of financial assets The Groupʼs financial assets consist of cash and cash equivalents and trade and other receivables that are subsequently recognised at amortised cost. The Group applies the AASB 9 simplified approach to measuring expected credit losses, using a lifetime expected loss allowance for all trade and other receivables. Cash and cash equivalents are also subject to the impairment requirements of AASB 9 however due to their nature the expected loss allowance is immaterial. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and days past due. The provision for impairment of trade receivables applying lifetime expected credit loss as compared to the incurred loss model of AASB 139 resulted in a $7.2 million adjustment, net of tax, to opening retained earnings as of 1 July 2018. Standards and amendments issued but not yet effective The Group has not applied Australian Accounting Standards and IFRS that were issued or amended but not yet effective. The standard is: Reference Title AASB 16 Application date 1 July 2019 Leases Under AASB 16, the distinction between finance and operating leases is eliminated for lessees (with the exception of short-term and low value leases). Both finance leases and operating leases will result in the recognition of a right-of- use (ROU) asset and a corresponding lease liability on the balance sheet. The liability is initially measured at the present value of future lease payments for the lease term and the ROU asset reflects the lease liability and initial direct costs, less any lease incentives and amounts required for dismantling. Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the ROU asset. Lessor accounting under AASB 16 is substantially unchanged from todayʼs accounting under AASB 117. Lessors will continue to classify all leases using the same classification principle as in AASB 117 and distinguish between two types of leases: operating and finance leases. The Group plans to adopt the modified retrospective approach on transition, where, for existing leases, the lease liability is measured at the present value of future lease payments on the initial date of application, being 1 July 2019. The ROU asset is measured at the value of the corresponding lease liability, adjusted for any existing lease related assets or liabilities (prepaid lease payments or accrued lease incentives). Under this transition method, prior period comparative financial statements are not required to be restated and any cumulative impact of applying the standard is recognised in opening retained earnings on the initial date of application, being 1 January 2019. The Group has completed an impact assessment of AASB 16 and estimates the following impact on its consolidated statement of financial position as at 1 July 2019: Estimated impact on Consolidated Balance Sheet Right of use assets Lease liabilities Prepayments Non-current provisions $m 60 (58) (9) 7 The leases recognised by the Group under AASB 16 predominately relate to property rentals. On adoption of AASB 16, operating lease expense will no longer be recognised in property costs and other expenses, depreciation of ROU assets will be recognised in depreciation and amortisation expense and lease financing costs will be recognised in net finance costs. 81 ANNUAL REPORT 2019130 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 Basis of consolidation Controlled entities The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Controlled entities are consolidated from the date control is transferred to the Group and are no longer consolidated from the date control ceases. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Foreign currency The consolidated financial statements are presented in Australian dollars ($) which is the Group's functional and presentation currency. Transactions and balances Transactions denominated in foreign currencies are translated at the rate of exchange ruling on the transaction date. Monetary items denominated in foreign currencies are translated at the rate of exchange ruling at the end of the reporting period. Gains and losses arising from the translation are credited or charged to the income statement, with the exception of differences on foreign currency borrowings that are in an effective hedge relationship. These are taken directly to equity until the liability is extinguished, at which time they are recognised in the income statement. Net finance costs Finance income is recognised as the interest accrues, using the effective interest method. Finance costs consist of interest and other borrowing costs incurred in connection with the borrowing of funds. Finance costs directly associated with qualifying assets are capitalised, all other finance costs are expensed, in the period in which they occur. Taxation Income tax Income tax comprises current and deferred income tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the period, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: − goodwill; and − the initial recognition of an asset or liability in a transaction which is not a business combination and that affect neither accounting nor taxable profit at the time of the transaction. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Goods and Services Tax (GST) Revenues, expenses, assets and liabilities are recognised net of the amount of GST except: − when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; − casino revenues, due to the GST being offset against government taxes; and − receivables and payables, which are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet. Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as operating cash flows. 82 THE STAR ENTERTAINMENT GROUP 131 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at face value. Cash and cash equivalents include cash balances and call deposits with an original maturity of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash for the purpose of the statement of cash flows. Trade and other receivables Trade receivables are recognised and carried at original settlement amount less a provision for expected credit loss impaired, where applicable. Bad debts are written off when they are known to be uncollectible. Subsequent recoveries of amounts previously written off are credited to the income statement. Other receivables are carried at amortised cost less impairment. The 2018 comparatives have not been restated for transition to AASB 9 Financial Instruments and remain in accordance with the prior year accounting policy, which reads: 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 debt, discussions with the patron, management's experienced judgement, and other specific facts related to the debt. Inventories Inventories include consumable stores, food and beverage and are carried at the lower of cost and net realisable value. Inventories are costed on a weighted average basis. Net realisable value is the estimated selling price in the ordinary course of business. Property, plant and equipment Refer to notes A4 and B4 for further details of the accounting policy, including useful lives of property, plant and equipment. Freehold land is included at cost and is not depreciated. All other items of property, plant and equipment are stated at historical cost net of depreciation, amortisation and impairment, and depreciated over periods deemed appropriate to reduce carrying values to estimated residual values over their useful lives. Historical cost includes expenditure that is directly attributable to the acquisition of these items. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in the income statement. When the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Costs arising subsequent to the acquisition of an asset are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the income statement during the financial year in which they are incurred. Costs relating to development projects are recognised as an asset when it is: − probable that any future economic benefit associated with the item will flow to the entity; and − it can be measured reliably. If it becomes apparent that the development will not occur, the amount is expensed to the income statement. Intangible assets Goodwill Goodwill represents the excess of the consideration transferred over the fair value of the identifiable net assets acquired and liabilities assumed. Goodwill is assessed for impairment on an annual basis and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Goodwill is allocated to cash generating units for the purpose of impairment testing. The allocation is made to those cash generating units or groups of cash generating units that are expected to benefit from the business combination in which the goodwill arose. Other intangible assets Indefinite life intangible assets are not amortised and are assessed annually for impairment. Expenditure on gaming licences acquired, casino concessions acquired, computer software and other intangibles are capitalised and amortised using the straight line method as described in note B5. Software Costs associated with developing or maintaining computer software programs are recognised as expenses as incurred. However, costs that are directly associated with identifiable and unique software products controlled by the Group and which have probable economic benefits exceeding the costs beyond one year are recognised as intangible assets. Direct costs include staff costs of the software development team and an appropriate portion of the relevant overheads. Expenditure meeting the definition of an asset is recognised as a capital improvement and added to the original cost of the asset. These costs are amortised using the straight line method, as described in note B5. 83 ANNUAL REPORT 2019132 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 Casino licences and concessions Refer to note B5 for details and accounting policy. Impairment of assets Assets that have an indefinite useful life are not subject to depreciation or amortisation and are tested annually for impairment. Assets that are subject to depreciation or amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal and value in use. For the purpose of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows (cash generating units). Refer to note B6 for further details of key assumptions included in the impairment calculation. Provisions A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and the amount can be reliably estimated. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Investment in associate and joint venture entities Associates are all entities over which the Group has significant influence but not control or joint control. Joint control is the contractually agreed sharing of the joint arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. A joint venture is a type of arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. The Group's investments in associate and joint venture entities are accounted for using the equity method of accounting, after initially being recognised at cost. Under the equity method of accounting, the investments are initially recognised at cost and are subsequently adjusted to recognise the Group's share of the post-acquisition profits or losses of the investee in the income statement, and the Group's share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received are recognised as a reduction in the carrying amount of the investment. The carrying amount of equity-accounted investments is tested for impairment in accordance with the Group's policy. Interest bearing liabilities Interest bearing liabilities are recognised initially at fair value and include transaction costs. Subsequent to initial recognition, interest bearing liabilities are recognised at amortised cost using the effective interest rate method. Any difference between proceeds and the redemption value is recognised in the income statement over the period of the borrowing using the effective interest rate method. Interest bearing liabilities are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Leases Leases of assets where the Group assumes substantially all the benefits and risks of ownership are classified as finance leases. Leases of assets under which substantially all the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight line basis over the period of the lease. Employee benefits Post-employment benefits The Group's commitment to defined contribution plans is limited to making the contributions in accordance with the minimum statutory requirements. There is no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employees relating to current and past employee services. Superannuation guarantee charges are recognised as expenses in the income statement as the contributions become payable. A liability is recognised when the Group is required to make future payments as a result of employees' services provided. Long service leave The Group's net obligation in respect of long term service benefits, other than pension plans, is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The obligation is calculated using the expected future increases in wage and salary rates including related on-costs and expected settlement dates, and is discounted using rates attached to bonds with sufficiently long maturities at the balance sheet date, which have maturity dates approximating to the terms of the Group's obligations. 84 THE STAR ENTERTAINMENT GROUP 133 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 Annual leave Liabilities for annual leave are calculated at discounted amounts based on remuneration rates the Group expects to pay, including related on-costs when the liability is expected to be settled. Annual leave is another long term benefit and is measured using the projected credit unit method. Share based payment transactions The Company operates a long term incentive plan (LTI), which is available to employees at the most senior executive levels. Under the LTI, employees may become entitled to Performance Rights which may potentially convert to ordinary shares in the Company. The fair value of Performance Rights is measured at grant date and is recognised as an employee expense (with a corresponding increase in the share based payment reserve) over four years from the grant date irrespective of whether the Performance Rights vest to the holder. A reversal of the expense is only recognised in the event the instruments lapse due to cessation of employment within the vesting period. The fair value of the Performance Rights is determined by an external valuer and takes into account the terms and conditions upon which the Performance Rights were granted. The Company operates an Equity Retention Plan, whereby eligible employees may receive up to 100% of their fixed annual remuneration amount in value as fully paid ordinary shares after five years. The awards are issued at no cost to participants and are subject to a service condition of five years. Participants are entitled to dividends and may benefit from share price growth over the vesting period. Under the Company's short term incentive plan (STI), eligible employees receive two thirds of their annual STI entitlement in cash and one third in the form of restricted shares which are subject to a holding lock for a period of twelve months. These shares are forfeited in the event that the employee voluntarily terminates from the Company during the 12 month holding lock period. The cost is recognised in employment costs, together with a corresponding increase in equity (share based payment reserve) over the service period. No expense is recognised for awards that do not ultimately vest. A liability is recognised for the fair value of cash settled transactions. The fair value is measured initially and at each reporting date up to and including the settlement date, with changes in fair value recognised in employment costs. Derivative financial instruments The Group uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from operational, financing and investment activities. In accordance with its Treasury Policy, the Group does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments. Derivative financial instruments are recognised initially at fair value at the date the derivative contract is entered into and are subsequently remeasured to fair value at the end of each reporting period. The resulting gain or loss is recognised immediately in the income statement. However, where derivatives qualify for cash flow hedge accounting, the effective portion of the gain or loss is deferred in equity while the ineffective portion is recognised in the income statement. The fair value of interest rate swap, cross currency swap and forward currency contracts is determined by reference to market values for similar instruments. Refer to note E2 for details of fair value determination. Derivative assets and liabilities are offset and the net amount reported in the consolidated balance sheet if, and only if: − there is a currently enforceable legal right to offset the recognised amount; and − there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously. Hedging Cash flow hedges Where a derivative financial instrument is designated as a hedge of the exposure to variability in cash flows that are attributable to a particular risk associated with a recognised asset or liability, or a highly probable forecast transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in equity. When the forecast transaction subsequently results in the recognition of a non financial asset or liability, the associated cumulative gain or loss is removed from equity and included in the initial cost or other carrying amount of the non financial asset or liability. If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or financial liability, then the associated gains and losses that were recognised directly in equity are reclassified into the income statement in the same period or periods during which the asset acquired or liability assumed affects the income statement (i.e. when interest income or expense is recognised). For cash flow hedges, the effective part of any gain or loss on the derivative financial instrument is removed from equity and recognised in the income statement in the same period or periods during which the hedged forecast transaction affects the income statement. The ineffective part of any gain or loss is recognised immediately in the income statement. When a hedging instrument expires or is sold, terminated or exercised, or the designation of the hedge relationship is revoked but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in equity and is recognised in accordance with the above when the transaction occurs. If the hedged transaction is no 85 ANNUAL REPORT 2019134 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 Notes to the financial statements For the year ended 30 June 2019 longer expected to take place, then the cumulative unrealised gain or loss recognised in equity is recognised immediately in the income statement. Fair value hedges Where a derivative financial instrument is designated as a hedge of the exposure to variability in the fair value of a recognised asset or liability, any change in the fair value of the hedge is recognised in the income statement as a finance cost. The change in the fair value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item and is also recognised in the income statement as a finance cost. Issued capital Issued and paid up capital is recognised at the fair value of the consideration received. Issued capital comprises ordinary shares. Any transaction costs directly attributable to the issue of ordinary shares are recognised directly in equity, net of tax, as a reduction of the share proceeds received. Operating segment An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the entity's executive decision makers to allocate resources and assess its performance. The Group aggregates two or more operating segments when they have similar economic characteristics, and the segments are similar in each of the following respects: − nature of the products and services; − type or class of customer for the products and services; − methods used to distribute the products or provide the services; and − nature of the regulatory environment. Segment results include revenue and expenses directly attributable to a segment and exclude significant items. Capital expenditure represents the total costs incurred during the period to acquire segment assets, including capitalised interest. Dividend distributions Dividend distributions to the Company's shareholders are recognised as a liability in the Group's financial statements in the period in which the dividends are declared. Basic earnings per share Basic earnings per share is calculated by dividing the net earnings after tax for the period by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share Diluted earnings per share is calculated by dividing the net earnings attributable to ordinary equity holders adjusted by the after tax effect of: − any dividends or other items related to dilutive potential ordinary shares deducted in arriving at profit or loss attributable to ordinary equity holders; − any interest recognised in the period related to dilutive potential ordinary shares; and − any other changes in income or expense that would result from the conversion of the dilutive potential ordinary shares; by the weighted average number of issued ordinary shares plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. 86 THE STAR ENTERTAINMENT GROUP 135 DIRECTORS’ DECLARATION FOR THE YEAR ENDED 30 JUNE 2019 Directors' Declaration 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 2019 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 16 August 2019 87 ANNUAL REPORT 2019136 INDEPENDENT AUDITOR’S REPORT FOR THE YEAR ENDED 30 JUNE 2019 Independent Auditor's Report to the Members of The Star Entertainment Group Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of The Star Entertainment Group Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2019, the 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 significant accounting policies, and the directors' declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a) b) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2019 and of its consolidated financial performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Boards APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditors Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance 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 matters below, provide the basis for our audit opinion on the accompanying financial report. 88 THE STAR ENTERTAINMENT GROUP INDEPENDENT AUDITOR’S REPORT FOR THE YEAR ENDED 30 JUNE 2019 137 Recoverability of trade receivables Why significant to the audit How our audit addressed the key audit matter As disclosed in Note B2, the Groups consolidated statement of financial position included $218.9m of gross trade receivables and an associated provision for impairment of $11.3m at 30 June 2019. Our audit procedures included the following: assessed whether the ageing of trade receivables was being correctly calculated for a sample of customer balances; The Directors assessment as to the recoverability of trade receivables relating to VIP revenue involves judgement, specifically relating to the individual circumstances of each aged debtor. The Group applies Australian Accounting Standard AASB 9 Financial Instruments in calculating the provision for doubtful debts, applying a forwardlooking expected loss impairment model. This involves judgement as the expected credit losses must reflect information about past events, current conditions and forecasts of future conditions. This was a key audit matter due to the inherent subjectivity that is involved in making judgements in relation to credit exposures to determine the recoverability of trade receivables. assessed the effectiveness of relevant controls in relation to the granting of credit facilities, including credit checks; considered the Groups assessment of individual customers circumstances; evaluated whether the expected credit loss impairment model met the criteria set out in AASB 9 and tested the mathematical accuracy of the calculations; compared the Groups provisioning rates against historical write off data; evaluated cash receipts after yearend to determine any remaining exposure at the date of the financial report; and assessed the adequacy of the Groups disclosures in relation to trade receivables included in the financial report. 89 ANNUAL REPORT 2019 138 INDEPENDENT AUDITOR’S REPORT FOR THE YEAR ENDED 30 JUNE 2019 Impairment testing of Goodwill Why significant to the audit How our audit addressed the key audit matter The Group has goodwill of $1,442.2 million as at 30 June 2019. The Group performs an impairment assessment on an annual basis to support the carrying value of goodwill. In addition, an impairment assessment is performed when there is an impairment indicator present. The impairment assessment is complex and judgemental, as it includes modelling a range of assumptions and estimates that are affected by expected future performance and market conditions such as cash flow forecasts, growth rates, discount rates and terminal value assumptions. Accordingly, the Groups impairment assessment was a key audit matter. Key assumptions, judgements and estimates used in the Groups assessment of impairment of intangibles assets are set out in Note B6 of the financial report. Our audit procedures included the following: Evaluated the cash flow forecasts, which supported the valueinuse impairment models for goodwill. Compared the forecasts to the Board approved budgets and fiveyear financial plan. We also considered the historical reliability of the Groups cash flow forecasting and budgeting processes. Involved our valuation specialists to assess whether the methodology applied was in accordance with Australian Accounting Standards and to evaluate the key assumptions applied in the impairment models. These included the discount rates, growth rates, and terminal value assumptions. Tested whether the models used were mathematically accurate. Performed sensitivity analysis around the key assumptions to ascertain the extent to which changes in those assumptions that would result in impairment. Assessed the adequacy of the disclosures included in Notes B5 and B6 of the financial report. 90 THE STAR ENTERTAINMENT GROUP INDEPENDENT AUDITOR’S REPORT FOR THE YEAR ENDED 30 JUNE 2019 139 Information Other than the Financial Report and Auditors Report The directors are responsible for the other information. The other information comprises the information included in the Groups 2019 Annual Report other than the financial report and our auditors report thereon. We obtained the Directors Report that is to be included in the Annual Report prior to the date of this auditors report, and we expect to obtain the remaining sections of the Annual Report after the date of this auditors report. Our opinion on the financial report does not cover the other information and we do not and will not express any form of assurance conclusion thereon with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information obtained prior to the date of this auditors report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the Groups ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor's Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from 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 with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Groups internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Groups ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our 91 ANNUAL REPORT 2019 140 INDEPENDENT AUDITOR’S REPORT FOR THE YEAR ENDED 30 JUNE 2019 conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated to the directors, we determine those matters that were of most significance in the 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 regulation precludes public disclosure about the matter or when, in extremely 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 benefits of such communication. Report on the Audit of the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 16 to 32 of the directors' report for the year ended 30 June 2019. In our opinion, the Remuneration Report of The Star Entertainment Group Limited for the year ended 30 June 2019, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Ernst & Young Megan Wilson Partner Sydney 16 August 2019 92 THE STAR ENTERTAINMENT GROUP 141 SHAREHOLDER INFORMATION AS AT 23 AUGUST 2019 ORDINARY SHARE CAPITAL The Star Entertainment Group Limited has 917,322,730 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. 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. EQUITY PLACEMENT On 29 March 2018, The Star Entertainment Group Limited announced that: a) it had entered into a subscription agreement dated 28 March 2018 with its joint venture partners, Chow Tai Fook Enterprises Limited (CTF) and Far East Consortium International Limited (FEC) (Subscription Agreement) under which the respective nominated entities of each of CTF and FEC separately acquire 45,825,000 new fully paid ordinary shares in The Star Entertainment Group (equivalent to a 4.99% stake each) at $5.35 per share, for a total consideration of $245,163,750 each; and b) in addition to existing agreements, The Star Entertainment Group had entered into a Strategic Alliance Agreement with CTF and FEC which provides a framework for the three parties to work together further to grow The Star Entertainment Group’s properties and businesses, collaborate on potentially mutually beneficial development opportunities and establish a marketing alliance (Strategic Alliance). In accordance with the terms of the Subscription Agreement, 45,825,000 new fully paid ordinary shares were issued to each of the respective nominated entities of CTF and FEC on 16 April 2018. TOP-UP RIGHT The Subscription Agreement grants to CTF and FEC certain top-up rights that entitles each of them to participate in future equity raisings undertaken by The Star Entertainment Group during the term of the Strategic Alliance in order to maintain their pre-equity raising ownership interests (Top-Up Right). ANNUAL REPORT 2019142 SHAREHOLDER INFORMATION AS AT 23 AUGUST 2019 The ASX has granted The Star Entertainment Group a waiver from listing rule 6.18 which prohibits an entity from granting an option exercisable over a percentage of the entity’s capital. The waiver granted by ASX permits CTF and FEC (and their nominees) to maintain, by way of a right to participate in any issue of shares or to subscribe for shares, their percentage relevant interest in the issued share capital of The Star Entertainment Group in respect of a diluting event. The waiver from listing rule 6.18 is subject to the terms and conditions imposed by ASX which are set out in The Star Entertainment Group’s ASX Announcement dated 21 May 2018, including a requirement that a summary of the Top-Up Right be included in each Annual Report. In accordance with the Top-Up Right, if The Star Entertainment Group undertakes an equity raising during the term of the Strategic Alliance which would result in The Star Entertainment Group issuing 1% or more of its share capital (or would have such an effect in the case of an issue of convertible securities) (Equity Raising), then The Star Entertainment Group must give each of CTF and FEC (or their respective nominees) an opportunity to participate in the Equity Raising on a basis that allows them to maintain their pre-Equity Raising shareholding percentage. CTF and FEC (or their respective nominees) will be entitled to participate in the Equity Raising on the same terms and conditions (including price) as all other participants in the Equity Raising. The Top-Up Right does not operate in respect of issues of securities: • under a dividend or distribution plan; • under an employee incentive scheme (including on the conversion of any convertible securities issued under any such scheme); • pursuant to any takeover bid or scheme of arrangement; or • as consideration for the acquisition of an asset by The Star Entertainment Group or any of its related bodies corporate. The Top-Up Right will automatically terminate in circumstances where: • CTF or FEC or their respective nominees and affiliates (as applicable) cease to hold the shares issued under the Subscription Agreement; or • the waiver of ASX Listing Rule 6.18 ceases to apply (either as a result of the lapse of time or CTF or FEC no longer complying with the terms and conditions of the waiver), whichever occurs first. If the Top-Up Right ceases or terminates, and The Star Entertainment Group undertakes an Equity Raising then (subject to any applicable laws, rules or regulations) it must consider making (but is not obliged to make) an offer to CTF and FEC (or their respective nominees) to participate in the Equity Raising on a basis that allows them to maintain their pre-Equity Raising shareholding percentage. SUBSTANTIAL SHAREHOLDERS The following is a summary of the substantial shareholders as at 23 August 2019 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) Firmament Investment Pte. Ltd and its associated entities 16 April 2018 45,825,000 Far East Consortium International Limited, its controlled entities and its associated entities Perpetual Limited and its related bodies corporate (including Perpetual Investment Management Limited) 16 April 2018 45,825,000 29 July 2019 57,523,080 4.995% 4.995% 6.27% 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 9 August 2019 47,440,726 5.1717% (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. THE STAR ENTERTAINMENT GROUP 143 SHAREHOLDER INFORMATION AS AT 23 AUGUST 2019 LESS THAN MARKETABLE PARCELS There were 13,534 shareholders holding less than a marketable parcel of 127 ordinary shares (valued at $500 or less, based on a market price of $3.95) at the close of trading on 23 August 2019 and they hold a total of 1,191,441 ordinary shares. SECURITIES PURCHASED ON-MARKET The following securities were purchased on-market during the financial year for the purposes of The Star Entertainment Group’s employee share plans, namely, the General Employee Share Plan (GESP), the Short Term Performance Plan (STPP), the long term incentive component (LTI) of the Employee Performance Plan and the Equity Retention Plan (ERP). Ordinary Shares (for GESP) Ordinary Shares (for STPP) Ordinary Shares (for LTI) Ordinary Shares (for ERP) Number of shares purchased Average price paid per share 50,443 587,896 918,395 1,458,361 $4.9835 $5.2684 $4.5636 $4.5664 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 CITICORP NOMINEES PTY LIMITED J P MORGAN NOMINEES AUSTRALIA PTY LIMITED NATIONAL NOMINEES LIMITED BNP PARIBAS NOMINEES PTY LTD CS THIRD NOMINEES PTY LIMITED BNP PARIBAS NOMS PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA UBS NOMINEES PTY LTD CITICORP NOMINEES PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED ARGO INVESTMENTS LIMITED NAVIGATOR AUSTRALIA LTD ECAPITAL NOMINEES PTY LIMITED WARBONT NOMINEES PTY LTD MEDICH CAPITAL PTY LTD AMP LIFE LIMITED MUTUAL TRUST PTY LTD PACIFIC CUSTODIANS PTY LIMITED SEYMOUR GROUP PTY LTD Total of top 20 registered shareholders * on a grouped basis 325,746,793 129,125,985 123,679,611 82,479,354 24,780,464 16,212,564 11,449,740 8,149,034 8,049,520 7,990,098 7,205,646 5,800,000 3,214,041 3,043,275 2,934,269 2,650,000 2,267,005 2,248,930 2,053,544 2,034,507 35.51% 14.08% 13.48% 8.99% 2.70% 1.77% 1.25% 0.89% 0.88% 0.87% 0.79% 0.63% 0.35% 0.33% 0.32% 0.29% 0.25% 0.25% 0.22% 0.22% 771,114,380 84.07% ANNUAL REPORT 2019 144 SHAREHOLDER INFORMATION AS AT 23 AUGUST 2019 DISTRIBUTION OF SECURITIES HELD RANGE OF HOLDING No. of Holders No. of Securities No. of Holders No. of Securities ORDINARY SHARES PERFORMANCE RIGHTS 1 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Total 47,619 20,811 3,149 1,659 82 73,320 16,563,125 45,557,425 22,432,095 35,073,607 797,691,478 917,317,730 0 0 1 22 8 31 0 0 6,830 1,021,874 3,855,481 4,884,185 1 Performance Rights were issued pursuant to the long term incentive component of The Star Entertainment Group’s Employee Performance Plan. Refer to the Remuneration Report for more information about the long term incentive plan. VOLUNTARY ESCROW 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. 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 Facsimile: +61 7 3228 0099 Email: investor@star.com.au SHAREHOLDER ENQUIRIES 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. THE STAR ENTERTAINMENT GROUP 145 SHAREHOLDER INFORMATION AS AT 23 AUGUST 2019 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: starentertainment@linkmarketservices.com.au Website: 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. 2019 CORPORATE GOVERNANCE STATEMENT The 2019 Corporate Governance Statement can be found on The Star Entertainment Group’s website www.starentertainmentgroup.com.au/corporate-governance. 2019 ANNUAL GENERAL MEETING The Annual General Meeting of The Star Entertainment Group Limited will be held on Thursday, 24 October 2019 at The Westin Brisbane, 111 Mary Street, Brisbane, Queensland, commencing at 11:00am (Queensland time). REPORTING AND ASSUARANCE In FY2019, The Star Entertainment Group sought to apply a ‘core’ level of compliance against the Global Reporting Initiative – a globally recognised sustainability reporting framework, which demonstrates our efforts to continually improve our sustainability practices and reporting. The Star Entertainment Group has obtained ‘Limited Assurance’ by EY for FY2019 across its energy and carbon data. ANNUAL REPORT 2019 146 COMPANY DIRECTORY REGISTERED OFFICE The Star Entertainment Group Limited Level 3, 159 William Street Brisbane Qld 4000 Telephone: + 61 7 3228 0000 Facsimile: + 61 7 3228 0099 Email: investor@star.com.au WEBSITE www.starentertainmentgroup.com.au NEW SOUTH WALES OFFICE Level 3, 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: + 61 2 9777 9000 www.thestarsydney.com.au THE STAR GOLD COAST Broadbeach Island Broadbeach QLD 4218 Reservations: 1800 074 344 Telephone: + 61 7 5592 8100 www.thestargoldcoast.com.au TREASURY CASINO AND HOTEL BRISBANE George Street Brisbane QLD 4000 Reservations: 1800 506 889 Telephone: + 61 7 3306 8888 www.treasurybrisbane.com.au QUEEN’S WHARF BRISBANE General Enquiries Telephone: 1800 104 535 Email: qwbenquiries@destinationbrisbane.com.au www.queenswharfbrisbane.com.au 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. 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 2019 147 147 COMPANY DIRECTORY KEY DATES FOR FY2019/20* FY2019 FULL YEAR RESULTS ANNOUNCEMENT: 16 August 2019 FINAL DIVIDEND RECORD DATE: 22 August 2019 FINAL DIVIDEND PAYMENT DATE: 26 September 2019 2019 ANNUAL GENERAL MEETING: 24 October 2019 FY2020 HALF YEAR RESULTS ANNOUNCEMENT: 20 February 2020 2020 FINANCIAL YEAR END: 30 June 2020 FY2020 FULL YEAR RESULTS ANNOUNCEMENT: 20 August 2020 2020 ANNUAL GENERAL MEETING: 22 October 2020 *2020 dates are subject to change ANNUAL REPORT 2019148 THE STAR ENTERTAINMENT GROUP 

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