14 15 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORT depreciation and amortisation costs. EBITDA decreased by 4.1% in local currency terms to RMB71.8 million, due to a lower win rate. CAPITAL MANAGEMENT No FY18 dividend is payable due to the impairment charge, as dividends are restricted to 100% of NPAT under the Mega Bank loan facility. Borrowings under the Mega Bank loan have been reduced to US$40 million, following a repayment in August 2018. Further capital management strategies, including any extension of the current buyback, will require approval from Mega Bank. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS There were no significant changes in the state of affairs of the consolidated entity during the financial year. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR DIVIDEND There will be no dividends declared for FY18. SHARE OPTIONS On 29 June 2018, the company announced the expiration of 2,930,625 options in accordance with their terms. The options were part of the FY14, FY15 and FY16 option series. Currently, there are 2,514,186 remaining options on issue. TERMINATION OF VIVO ARRANGEMENT On 23 August 2018, the contract between DNA Star Vegas Co., and Ltd and Vivo Tower Holdings Limited (‘Vivo’), announced to the market on 16 June 2017, was terminated. DNA Star Vegas will now receive direct rental payments from the sub-licensees brought into the Star Vegas property by Vivo, which will substantially replace the fixed fee previously paid by Vivo. Under a new agreement, Vivo’s role is to market and manage the online gaming platform owned by DNA Star Vegas, in return for a revenue share. No other matter or circumstance has arisen since 30 June 2018 that has significantly affected, or may significantly affect the consolidated entity’s operations, the results of those operations, or the consolidated entity’s state of affairs in future financial years. Reported loss after tax was $124.5 million, which included non-recurring items totalling negative $142.8 million. In contrast, the reported NPAT in FY17 was $31.0 million which included non-recurring items totalling negative $23.6 million. The non-recurring items in FY18 were largely due to the Star Vegas impairment of $143.9 million. There was no further management fee expense payable to the Star Vegas vendor. In addition, there was positive non-cash warrant revaluation income of $0.7 million (vs. $1.1 million in FY17) and a net foreign exchange gain of $0.3 million (vs. loss of $1.1 in FY17). The working capital facility has now been repaid and fully amortised. Excluding the non-recurring items, underlying NPAT for the group was $18.3 million, down from $54.6 million in FY17. VENUE PERFORMANCES Star Vegas vs. FY17 • net gaming revenue down 44.7% to THB1,519.7 million • non-gaming revenue up 2.7% to THB153.3 million • EBITDA down 53.9% to THB971.1 million • property level NPAT down 46.4% to THB785.2 million • VIP gross win rate of 3.0%. Gaming revenue at Star Vegas was affected by the breach of non-compete clauses by the previous Thai vendor, which had a significant adverse impact on business. Spending was also subdued due to weak domestic demand in Thailand. Property level NPAT was down, reflecting lower VIP turnover. However, operating expenses were also down 11% which reflects more efficient management by Donaco compared to the former Thai vendor. The VIP gross win rate of 3.0% is a better reflection of the normal theoretical range of 2.7–3.0%, compared to FY17’s win rate of 3.54%. Overall, for the full 12 month period, the EBITDA at Star Vegas declined by 53.9% in local currency terms to THB971.1 million. Aristo International Hotel vs. FY17 • net gaming revenue down 10.8% to RMB71.4 million • non-gaming revenue up 12.7% to RMB60.4 million • EBITDA down 4.1% to RMB71.8 million • property level NPAT up 19.3% to RMB38.0 million • VIP gross win rate 1.91% Gaming revenue declined by 10.8% while non-gaming revenue increased by 12.7%, reflecting management initiatives to diversify the business. The increase of 19.3% in property level NPAT was primarily due to lower finance, DIVIDENDS A dividend of $4,113,618 (AUD 0.5 cent per ordinary share) was paid on 20 October 2017. The dividend was 100% conduit foreign income and was unfranked. REVIEW OF OPERATIONS AND FINANCIAL RESULTS RESULT HIGHLIGHTS Underlying net profit after tax (NPAT) was $18.3 million, down from $54.6 million in FY17. Revenue at Star Vegas was significantly affected by the breach of contract by the vendor as well as subdued spending due to weak demand in Thailand. The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the ‘consolidated entity’ or ‘group’) consisting of Donaco International Limited (referred to hereafter as the ‘company’ or ‘parent entity’) and the entities it controlled at the end of, or during, the year ended 30 June 2018. DIRECTORS The following persons were directors of Donaco International Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: Stuart James McGregor – Chairman Joey Lim Keong Yew Benedict Paul Reichel Benjamin Lim Keong Hoe Robert Andrew Hines Ham Techatut Sukjaroenkraisri (retired 23 November 2017) Paul Porntat Amatavivadhana (resigned 3 July 2017) PRINCIPAL ACTIVITIES During the financial year the principal continuing activities of the consolidated entity consisted of the operation of leisure and hospitality businesses across the Asia-Pacific region. This included: • operation of a hotel and casino in northern Vietnam • operation of a hotel and casino in Cambodia. DIRECTORS’ REPORT DIRECTORS’ REPORT 2018 2017 $ million $ million Statutory NPAT (124.5) 31.0 Contribution of non-recurring items in NPAT result (142.8) (23.6) Underlying NPAT 18.3 54.6 Group revenue 92.6 136.4 – Star Vegas revenue 66.6 110.2 – Aristo revenue 26.0 26.2 Group earnings before interest, tax, depreciation, amortisation and impairment (EBITDA) 42.4 65.3 Underlying Group EBITDA 42.4 84.4 Strong balance sheet with – cash 47.1 66.0 – borrowings 70.4 108.4 – net debt 23.3 42.4 – net debt to equity ratio 6.3% 8.7% DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORT