DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORT 16 17 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORT DIRECTORS’ REPORT DIRECTORS’ REPORT EXECUTIVE SUMMARY Donaco uses a simple framework for executive remuneration, consisting of three elements: 1. Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits (if any). 2. Short-term incentives, which are paid in cash, but only if executives satisfy applicable key performance indicators (‘KPIs’). 3. Long-term incentives, under which executives may receive annual grants of restricted shares purchased on market, but only if applicable KPIs are satisfied. The shares vest over a three-year period. For short-term incentives in FY18, the following KPIs applied: 1. Achievement of the budgeted EBITDA target for the Donaco Group (30%). 2. Achievement of the budgeted revenue target for the Star Vegas property, in Thai baht terms (25%). 3. Achievement of the budgeted revenue target for the Aristo property, in Chinese renminbi terms (25%). 4. Achievement of a personal KPI relating to the executive’s individual areas of responsibility (20%). The first three KPIs were not satisfied. Two executives did satisfy their personal KPI, and thus are entitled to be paid 20% of their potential incentive. Accordingly, two executives forfeited 80%, and the others forfeited 100%, of their potential incentive. MEETINGS OF DIRECTORS The number of meetings of the company’s Board of Directors (‘the Board’) and of each Board committee held during the year ended 30 June 2018, and the number of meetings attended by each director were as follows. Held: represents the number of meetings held during the time the director held office or was a member of the relevant committee. 1 During the year, a special committee was established on a temporary basis to deal with the management transition at Star Vegas. REMUNERATION REPORT (AUDITED) The remuneration report details the key management personnel remuneration arrangements for the consolidated entity, in accordance with the requirements of the Corporations Act 2001and its regulations. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including all directors. The remuneration report is set out under the following main headings: • executive summary • principles used to determine the nature and amount of remuneration • details of remuneration • share-based compensation • additional disclosures relating to key management personnel. in Thailand, Cambodia and Vietnam generally. These risks include the possibility of adverse macroeconomic developments, such as exchange rate declines; cross-border disputes; or terrorist attacks affecting the company’s key target markets. Other material risks include the possibility of adverse regulatory change affecting casino operators, such as changes in tax rates, and the possibility of breach of licence or legislation. These risks are carefully monitored by the Board and management team. Multiple legal actions are in progress involving the Star Vegas vendor. The company is of the opinion that its position is strong, as shown by favourable court decisions issued to date. An injunction continues in force to prevent the vendor’s attempt to terminate the Star Vegas lease. The company also believes that this matter will be resolved in its favour within the next six months. The arbitration in Singapore for the company’s US$190 million damages claim is likely to exceed 12 months, with a hearing due to commence on 29 July 2019. These key risks should not be taken as the only risks that may affect the company’s operations, and many risks are outside the control of the Board and management team. Except as noted above, information on likely developments in the operations of the consolidated entity and the expected results of operations have not been included in this report because the directors believe it would be likely to result in unreasonable prejudice to the consolidated entity. ENVIRONMENTAL REGULATIONS The consolidated entity is not subject to any significant environmental regulation under Australian Commonwealth or state law. COMPANY SECRETARY Benedict Paul Reichel is an Executive Director and the Company Secretary. His qualifications and experience are set out above under ‘Board of Directors’. LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS The company operates leisure and entertainment businesses across the Asia-Pacific region. Our largest business is the Star Vegas Resort & Club, a successful casino and hotel complex in Poipet, Cambodia, on the border with Thailand. Star Vegas was established in 1999, and is the largest and highest quality of the Poipet casino hotels. The property has more than 100 gaming tables, more than 1,000 slot machines, and 385 hotel rooms. Our flagship business is the Aristo International Hotel, a successful boutique casino in northern Vietnam, located on the border with Yunnan Province, China. Established in 2002, the property has recently been expanded to a brand new five star resort complex with 400 hotel rooms. Donaco is a pioneer casino operator in Vietnam, and owns a 95% interest in the business, in a joint venture with the government of Vietnam. The operation and marketing of both of these properties will underpin our growth during the next 12 months. Our strategy is to take advantage of the demand for leisure and entertainment in the Asia-Pacific region, and to leverage the experience of the Board and management in the gaming sector. This will complement the growth at the expanded casinos in both Cambodia and Vietnam, and provide for diversification. The company continues to rebuild and improve the business at Star Vegas, with multiple initiatives in progress. Medium- term growth is expected from the newly launched online gaming platform. Marketing strategies for Aristo continue to be focused on increasing the number of mass market players visiting the property, while selectively allowing junket play where appropriate. The company is also focused on growing non-gaming revenues at both Star Vegas and Aristo to diversify earnings streams. Material risks to the company’s strategy include those affecting listed entities generally, and companies operating Full board Audit & Risk Management Committee Nominations, Remuneration and Corporate Governance Committee Special Committee1 Attended Held Attended Held Attended Held Attended Held Stuart James McGregor 9 9 3 3 1 1 2 2 Joey Lim Keong Yew 6 9 – – – – 2 2 Benedict Paul Reichel 9 9 – – – – 2 2 Benjamin Lim Keong Hoe 7 9 2 3 1 1 – – Robert Andrew Hines 9 9 3 3 1 1 2 2 Ham Techatut Sukjaroenkraisri 3 4 – – – – – – Paul Porntat Amatavivadhana – – – – – – – –