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Financial Review Of AGT For The Period For 2nd Quarter FY18/19

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Profit & Loss

Balance Sheet

Review of performance for the 2nd quarter and half year ended 30 September 2018

2Q FY18/19 vs 2Q FY17/18

Operating income for 2Q FY18/19 was JPY 12,039 million. The performance of the golf course was affected by poor weather conditions in the current quarter, including heavy rain in the western region in July, heat waves in July and August, and multiple typhoons in the current quarter which have resulted in lower utilisation rates.

Operating expenses for 2Q FY18/19 was JPY 10,838 million. The decrease was mainly due to lower utilisation of golf course materials due to poor weather conditions.

Operating profit for 2Q FY18/19 was JPY 1,201 million, which was lower than 2Q FY17/18. This was due primarily to lower revenue as a result of poor weather conditions in the current quarter. Profit attributable to Unitholders was JPY 347 million.

Total loss for the quarter was JPY 191 million, which was an improvement from the previous year due to greater movement of reserved items for the current quarter.

1H FY18/19 vs 1H FY17/18

Operating income for 1H FY18/19 was JPY 26,452 million. The performance of the golf course was poorer than 1H FY17/18 mainly due to the poorer weather conditions in the current year affecting utilisation rates at the golf courses.

Operating expenses for 1H FY18/19 was JPY 22,165 million. The decrease was due to lower utilisation of golf course materials due to poor weather conditions offset by a slight increase in selling, general and administrative expenses for third party booking site.

Operating profit for 1H FY18/19 was JPY 4,287 million, which was lower than 1H FY17/18. Profit attributable to Unitholders was JPY2,738 million.

Total distributable income available during 1H FY18/19 was JPY 1,474 million, which remained consistent from 1H FY17/18. This is mainly due to higher payment of refinancing costs on debt facility and lower returns from golf course operations, offset by lower withdrawal of membership deposits as compared to 1H FY17/18.

Commentary on the significant trends and competitive conditions of the industry in which the group operates and any known factors or events that may affect the group in the next reporting period and the next 12 months

During the 1st half of FY18/19, the Japanese economy showed a steady improvement in corporate performance and employment environment, and corporate production and consumer spending continued to recover moderately. Despite the rise in prices of natural resources and labour costs which affects corporate profits, the economy is expected to continue to recover, backed by infrastructure investments ahead of 2020 Summer Olympics and redevelopments in the metropolitan areas in the near future.

Notwithstanding the growth in the economy, the market size of Japan's golf industry declined from JPY 874 billion to JPY 870 billion year-on year in 2017(1). The number of golf players in Japan is likely to continue to decrease due to lower birth rate, aging population, and diverse lifestyles.

Accordia Golf group, as one of the leading golf business operators in Japan, displays strong presence in the shrinking market by leveraging on its economies of scale. We focus on generating stable profits from senior golfers over age 50 who represent the majority of golfers. This is done by promoting senior golfers' play on weekdays where utilisation rate is relatively lower, and through corporate golf events. Further, special programmes for lady golfers ("L-Style") and for juniors ("Accordia Kids") are offered to attract more plays by females and junior players and to revitalise the golf industry. We continue to improve on golfers' play experiences, through initiatives such as having golf buggies fitted with GPS navigation systems.

Taking advantage of our economies of scale, we will continue to enjoy cost reduction from the use of centralised procurement system to purchase food and supply items for the golf courses and the sharing of expensive golf course maintenance equipment among multiple golf courses.

With these efforts, AGT strives to maintain its competitive advantage over its competitors and deliver stable returns.

(1)White paper on leisure 2018