Heading Donaco International Limited / 2017 Annual Report Donaco International Limited / 2017 Annual Report 2 3 From the Chairman Overall we are confident that our focus on driving strong underlying performance at both of our blue-chip gaming assets will result in positive results for our shareholders over the long term. Dear fellow shareholders The 2017 financial year has been a busy year for Donaco as we laid the foundations for the transition to full management control of Star Vegas, while launching a number of international marketing initiatives at the venue and driving strong growth at Aristo. Although the Thai economy was depressed for most of the year following the passing of the late King of Thailand, our underlying Group profit was in line with the 2016 financial year (FY16). We believe we are well positioned to resume our growth trend following the cessation of the official mourning period from October 2017, with a fresh management team in place to deliver growth from new marketing initiatives, international junkets and online gaming. Following the expiration of the management contract with the Star Vegas vendor on 30 June 2017, management was taken in-house, and this allowed us to take full advantage of the Group’s expertise and experience in managing Asian gaming businesses. Accordingly, the management team was refreshed and a number of key appointments made – including Kenny Bee Meng Chuan as General Manager – to position Donaco for a strong year in 2018. Despite the challenging conditions in our major market, the strong earnings and cash flow generated from Star Vegas and Aristo further strengthened our financial position. The Board sees capital allocation as one of the most important areas of value creation for shareholders, and on behalf of the Board we were delighted to begin to implement a range of capital management initiatives. In addition to our debt obligations, we see the capital we have available as being directed in four possible ways: (i) To provide capital to support organic growth initiatives in our existing venues (ii) To look for acquisitive growth opportunities in the region (iii) To apply surplus capital towards dividends, and (iv) To apply surplus capital towards the buyback of shares. We recognise that as we reduce our debt, and gain greater flexibility with our balance sheet, all these areas of capital deployment become available. With the new debt facility that has come into effect for the 2018 financial year (FY18) we are pleased to announce our intention to move to regular six-monthly dividend payments, commencing with a dividend of half a cent per share payable in October 2017. As a further measure to create value for shareholders, the Board also announced an intention to implement an on-market share buyback program commencing in October 2017. Although the transition to in-house management at Star Vegas was a key focus towards the end of the 2017 financial year (FY17), our senior management team continued to implement initiatives to improve the performance of our Aristo business in Vietnam. Pleasingly, the trajectory of strong growth has continued, aided by initiatives to focus on mass market players (away from the more volatile VIP segment) and the strong economy in Vietnam underpinned by tourism from China. As Chairman of the Group it was pleasing to see the share price recover to be up 40% over the financial year, despite the challenging economic conditions in Thailand, and we believe that by delivering strong financial management and earnings growth, shareholders will continue to be rewarded in future years. One of Donaco’s strengths is our adherence to strong corporate governance practices. In the Asian region we are widely recognised by governments, our visitors and our customers, as a Group that operates with high standards of probity and good governance. We believe that this becomes a competitive advantage in pursuing further growth opportunities as they arise into the future. Our Board is culturally and geographically diverse, which is an element of our success, given we operate in multiple geographies and our target customers come from a diverse range of backgrounds. We believe it is important to make a positive contribution to the communities we operate in, and accordingly we engaged in a range of charitable activities to support the wellbeing of the underprivileged in our regions. During the year we presented gifts to students at Nam Lu School in Lao Cai province in Vietnam, and donated 50 computers to students at Nguyen Ba Ngoc Primary School, to assist them with their studies. We also presented gifts to students with blood cancer, school uniforms to other students, and warm blankets to underprivileged men and women during winter. Other initiatives included donating bicycles to students in the Lao Cai province, and donating to the Children’s Care Fund of Lao Cai. With the management of the Star Vegas being brought in-house, Non-Executive Director Paul Porntat Amatavivadhana resigned after the conclusion of the financial year. Mr Amatavivadhana made a valuable contribution to Donaco’s Board over the two-year period since Star Vegas became part of the Group, and I would like to thank him for his contribution on behalf of the Board. In summary, FY17 was one in which Donaco delivered strong results despite a challenging economic period. While the result at Star Vegas was down slightly on FY16, earnings at Aristo continued to grow strongly, and our underlying Group profit was in line with last year. In addition, our debt was further reduced, and we employed capital management initiatives including a dividend and a buyback program to reward shareholders. We are excited about the flexibility that in-house management of Star Vegas brings, and the opportunities to improve our financial performance over FY18, at a time when the mourning period in Thailand is about to conclude. Overall, we are confident that our focus on driving strong underlying performance at both of our blue-chip gaming assets will result in positive results for our shareholders over the long term. Stuart McGregor Chairman