Donaco International Limited / 2017 Annual Report Donaco International Limited / 2017 Annual Report 14 15 Directorsâ€™ Report Directorsâ€™ Report 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 1,500 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 has now moved to full management control of the Star Vegas operation, following the exit of the former Thai manager. This will provide greater flexibility and control in marketing the property. While VIP earnings at Star Vegas are expected to be lower in the September quarter of FY18 versus the corresponding period last year due to the transition to in-house management, the main hall and slot machine business is robust, and VIP revenues are already rebuilding well as new junket operators enter the property. In addition, no further management fees are payable to the former Thai manager. Material risks to the Companyâ€™s strategy include those affecting listed entities generally, and companies operating 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 Companyâ€™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 licences or legislation. These risks are carefully monitored by the Board and management team. These key risks should not be taken as the only risks that may affect the Companyâ€™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 on page 7. Meetings of directors The number of meetings of the Companyâ€™s Board of Directors (the Board) and of each Board committee held during the year ended 30 June 2017, and the number of meetings attended by each director were: Aristo International Hotel FY17/compared to FY16 â€¢ Net gaming revenue up 36.3% to RMB80.0 million â€¢ Non-gaming revenue up 11.6% to RMB53.6 million â€¢ EBITDA up 39.6% to RMB74.8 million â€¢ Property level NPAT up 130.9% to RMB31.8 million â€¢ VIP gross win rate 2.28%. The Aristo International Hotel continued to grow substantially, with the strategy to focus on mass market continuing to provide benefits to the Group. EBITDA increased by 39.6% in local currency terms to RMB74.8 million. Capital management The Company remains in a growth phase, and the Board aims to retain sufficient cash to pursue growth opportunities and repay debt as priorities. However, with the strong cash generated by the business and no imminent acquisition opportunities, the Board is pleased to announce a new dividend policy of paying out 10â€“30% of NPAT in the form of dividends, with the intention to provide regular half-yearly dividend payments, subject to the consolidated entityâ€™s then current working capital requirements and growth plans. In addition, the Board has announced an intention to pay a final dividend of 0.5 cents per share, unfranked. The planned record date for the dividend is 6 October 2017, and planned payment date is 20 October 2017. Shareholders should note that the payment of dividends is not guaranteed. Significant changes in the state of affairs There were no significant changes in the state of affairs of the consolidated entity during FY17. Matters subsequent to the end of the financial year Dividend On 29 August 2017, the Board of Donaco International Limited has announced that it intends to declare an ordinary dividend of 0.5 cents per share, amounting to $4,156,057. The dividend is 100% conduit foreign income and is unfranked. Proposed dates for the dividend payment are: ex-dividend date 5 October 2017, record date 6 October 2017 and payment date 20 October 2017. Refinance of loan with Mega International Commercial Bank Co. Limited The Company has refinanced its term loan facility with Mega International Commercial Bank Co. Limited of Taiwan. The Company has now repaid a total of USD63.4 million in the past two years, with the remaining principal amount of the previous facility standing at USD56.6 million. The previous facility had a three-year term, with the remaining USD56.6 million being repayable within the next 12 months. This consisted of USD20.8 million repayable in January 2018, and the remaining USD35.8 million repayable in July 2018. The new facility is for an amount of USD57 million. The term has been extended to three years from the date of drawdown, which occurred on 28 August 2017, following the completion of the conditions precedent. Under the new loan, 15% of the principal amount is repayable every six months. This means that the next principal repayment has been reduced to approximately USD8.6 million, due in February 2018. The interest rate on the loan has also been reduced slightly, from a margin of 6.75% over the six month USD LIBOR rate, to a margin of 6.0%, provided that the net debt (total borrowings minus cash) of Donaco Hong Kong Limited is less than the EBITDA of Donaco Hong Kong Limited. If net debt exceeds EBITDA, then the margin may increase to a maximum of 6.5%. In addition, a number of covenants controlling capital management (dividends and buybacks) have been relaxed, but there are still some restrictions in place until the remaining principal falls below USD50 million, which is expected to occur following the next repayment in February 2018. Share options On 28 July 2017, the Company announced the expiration of 1,651,883 options on 1 July 2017 in accordance to their terms. The options were part of the FY14 and FY15 option series. Currently, there are 5,444,810 remaining options on issue. No other matter or circumstance has arisen since 30 June 2017 that has significantly affected, or may significantly affect the consolidated entityâ€™s operations, the results of those operations, or the consolidated entityâ€™s state of affairs in future financial years. Full Board Audit & Risk Management Committee Nominations, Remuneration & Corporate Governance Committee Attended Held* Attended Held* Attended Held* Stuart James McGregor 9 9 2 2 1 1 Joey Lim Keong Yew 8 9 â€“ â€“ â€“ â€“ Benedict Paul Reichel 9 9 â€“ â€“ â€“ â€“ Benjamin Lim Keong Hoe 5 9 1 2 â€“ 1 Robert Andrew Hines 9 9 2 2 1 1 Ham Techatut Sukjaroenkraisri 6 9 â€“ â€“ â€“ â€“ Paul Porntat Amatavivadhana 8 9 â€“ â€“ â€“ â€“ * â€˜Heldâ€™: represents the number of meetings held during the time the director held office or was a member of the relevant committee.