DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORT 20 21 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORT DIRECTORS’ REPORT DIRECTORS’ REPORT The Remuneration Committee considers that the remuneration framework has an appropriate mix of fixed and performance-based remuneration. Since performance during FY18 did not meet expectations, executives forfeited all or the majority of their short term incentive (except where personal KPIs were met), and all of their long term incentive. The Renumeration Committee also considers that the remuneration framework in place will assist to increase shareholder wealth if maintained over the coming years, subject to any adjustments that are necessary or desirable to reflect the company’s circumstances. Use of remuneration consultants There were no remuneration consultants engaged during FY17 and FY18. DETAILS OF REMUNERATION Amounts of remuneration Details of the remuneration of key management personnel of the consolidated entity are set out in the following tables. The key management personnel of the consolidated entity consisted of the following directors of Donaco International Limited: • Stuart James McGregor – Non-executive Director and Chairman • Joey Lim Keong Yew – Managing Director and Chief Executive Officer • Benedict Paul Reichel – Executive Director, General Counsel and Company Secretary • Benjamin Lim Keong Hoe – Non-executive Director • Robert Andrew Hines – Non-executive Director • Ham Techatut Sukjaroenkraisri – Executive Director (retired 23 November 2017) • Paul Porntat Amatavivadhana – Non-executive Director (resigned 3 July 2017) And the following persons: • Kenny Goh Kwey Biaw – Deputy Chief Financial Officer and CEO of Donaco Singapore (retired 31 March 2018) • Chong Kwong Yang – Chief Financial Officer • Att Asavanund – Chief Operating Officer and Deputy Chief Executive Officer (resigned 31 August 2017) RELATIONSHIP BETWEEN REMUNERATION POLICY AND COMPANY PERFORMANCE As detailed above, Donaco’s remuneration policy is directly linked to company performance, particularly in relation to top-line revenue growth and cost control, to ultimately create long-term shareholder value. STI and LTI awards are dependent on defined KPIs being met, which are primarily financial in nature, and are at the discretion of the Remuneration Committee. Donaco’s share price decrease during FY18, which also dragged down the share price performance over recent years, reflects lower earnings brought on by the Star Vegas vendor’s breaches of the non-compete agreement, and market concerns over the resulting legal disputes. is to ensure that executives are motivated to think like shareholders, with a focus on taking actions that will lead to sustainable increases in the share price. The structure of the scheme also ensures that there is no dilution of shareholders. The total annual dollar value of shares to be purchased is a maximum of $1 million. The number of shares to be purchased each year will depend on the share price at the time that purchases take place. The scheme is executed in a similar manner to an on-market buy back, allowing the Trust to stand in the market and purchase shares at appropriate times. However, the shares will not be cancelled, but will be held in the Trust, to be distributed to employees over the vesting period of three years. LTI awards are made on an annual basis, subject to achievement of applicable KPIs. This ensures that at any given time, the executives have at risk a number of LTI awards, with different vesting periods and amounts. This helps to smooth out both the risk and the cash flow for the company and for executives. The LTI scheme allows for an award of a maximum of 50% of base salary in the form of restricted shares, subject to achievement of applicable KPIs which are set annually. For FY18, the applicable KPI related to the achievement of the budgeted EBITDA target for the group. During FY18 the Trust did not purchase any shares on market. The applicable KPI was not satisfied, and accordingly no awards of shares were made. Short-term incentives The short-term incentive STI framework provides senior executives with the opportunity to earn an annual cash bonus, up to a maximum amount of 50% of base salary. Clear KPIs have been established by the Remuneration Committee. Achievement of these KPIs gives the executive an opportunity to earn a fixed percentage of their maximum STI, subject to final review and approval by the Board. For FY18, the KPIs applied and the applicable percentage of STI were: 1. Achievement of the budgeted EBITDA target for the group. The applicable EBITDA target was $65.6 million. (This KPI is worth 30% of the potential incentive.) 2. Achievement of the budgeted revenue target for the Star Vegas property, in Thai baht terms. The applicable revenue target was THB2.52 billion (25%). 3. Achievement of the budgeted revenue target for the Aristo property, in Chinese renminbi terms. The applicable revenue target was RMB141.2 million (25%). 4. Achievement of a personal KPI relating to the executive’s individual areas of responsibility (20%). The objective of these KPIs is clearly designed to focus on financial criteria, including top-line revenue growth, while maintaining a focus on disciplined cost control, as expressed through the EBITDA target for the group. In addition, executives also maintained a focus on key non-financial criteria, relating to the personal KPI applicable to the individual executive’s area of responsibility. During FY18, the first three KPIs were not satisfied. Two executives did satisfy their personal KPI, and thus are entitled to be paid 20% of their potential incentive. Accordingly, two executives forfeited 80%, and the others forfeited 100%, of their potential incentive. Long-term incentives The long-term incentive (‘LTI’) program currently consists of restricted shares purchased on market. This plan was adopted in FY17 to replace the former option plan, which was thought to be excessively complex, and could potentially result in significant dilution of shareholders. The objective of the LTI component is to focus on sustainable shareholder value creation, as expressed through share price growth. Under the LTI plan, the Board has actively sought to align senior executive remuneration with shareholder interests. Shares are purchased on market and held in an employee share trust (‘the Trust’). The shares will vest to the employees over the vesting period of three years. The aim of the scheme FY15 FY16 FY17 FY18 Revenue EBITDA 0 20 40 60 80 100 120 140 160 A$ (MILLION) DONACO REVENUE AND EBITDA -50% -60% -70% -10% -40% -30% -20% DNA SHARE PRICE GROWTH PER ANNUM -37% -42% -41% -75% -80% 4 YEARS 3 YEARS 2 YEARS 1 YEAR -90% 0%