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Financial Results

Financial Review of AGT For 4th Quarter And Full Year Ended 31 March 2020

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Profit & Loss

Balance Sheet

Review of performance for the 4th quarter and full year ended 31 March 2020

4Q FY19/20 vs 4Q FY18/19

Operating income for 4Q FY19/20 was JPY 10,168 million, a slight increase from the same quarter in the previous financial year, contributed by good weather conditions early in the quarter resulting in an increase in the number of players and operating days. This was offset by a slight decline in performance in March 2020 as the Covid-19 outbreak led to cancellations of reservations at the golf courses.

Operating expenses for 4Q FY19/20 was JPY 14,799 million, including impairment of property, plant and equipment of JPY 2,641 million. An assessment of the recoverable amounts of property, plant and equipment and goodwill was performed in 4Q FY 19/20. The lower amount of impairment loss recognised during the current financial year, as compared to the previous financial year, is mainly attributed to the prior year's large impairment loss on Northern Country Club Nishikigahara Golf Course arising from the infrastructure project announced by the Japanese Ministry of Land, Infrastructure, Transport and Tourism. For the quarter under review, having considered the deterioration in performance of 19 golf courses and lower utilisation rates and prices in view of the Covid-19 outbreak, an impairment loss of JPY 2,641 million (FY18/19: JPY 4,818 million) and JPY Nil (FY18/19: 13,144 million) was recognised on property, plant and equipment and goodwill respectively. Management has taken guidance from the actual performance of the golf courses in the months of April and May 2020 to forecast the full year's performance and cashflow impact from the Covid-19 outbreak, resulting from the declaration of a state of emergency in Japan on 7 April 2020. A reversal of impairment charge on the property, plant and equipment may result in the following year arising from the difference in the management's forecast and the actual performance.

Operating loss for 4Q FY19/20 was JPY 4,631 million and loss attributable to Unitholders was JPY 4,623 million. The loss in the quarter was contributed by the recognition of impairment loss on property, plant and equipment, property tax expense, and slower business performance due to the winter season in the fourth quarter.

Total distributable loss attributable to Unitholders for the quarter was JPY 585 million. This is mainly due to a higher quantum of reserved items during the quarter end specifically due to JPY 1,200 million set aside based on the projected business impact of Covid-19 outbreak in FY20/21 for compliance with financial covenants, including the maintenance of JPY 3 billion in current deposits, as required by financial institutions.

FY19/20 vs FY18/19

Operating income for FY19/20 was JPY 51,667 million. Management's effort to improve utilisation rates at the golf courses by focusing on discounts during off-peak periods, have resulted in a record 5.92 million players for the year, a 3.6% increase from prior year. This was in spite of poor weather conditions in the 3rd quarter of the financial year, which saw multiple typhoons, particularly Typhoon Hagibis in October 2019, resulting in closures of certain golf courses and in the later part of March 2020, the Covid-19 outbreak, resulting in increased cancellations from golfers.

Operating expenses for FY19/20 was JPY 47,256 million. The decrease in operating expense was mainly due to lower impairment loss on property, plant and equipment and no impairment of goodwill as compared to the previous financial year. Excluding the impairment recognised in both years, operating expense remains relatively stable at JPY 44,615 million (FY18/19: JPY 44,415 million).

Operating profit for FY19/20 was JPY 4,411 million. Excluding impairment loss, operating profit would be JPY 7,052 million (FY18/19: JPY 6,744 million), which represents a year-on-year increase of 4.6%. The operating profit in the current financial year as compared to the loss in the previous financial year was attributable largely to the lower impairment loss on property, plant and equipment and the absence of goodwill impairment. Profit attributable to Unitholders was JPY 1,663 million.

Total distributable income available during FY19/20 was JPY 3,657 million, representing a full year distribution per unit of SGD 4.30 cents (FY18/19: SGD 3.77 cents). The increase of distributable income by 7.9% is attributable to greater cash flows generated from operations in the current year and that is offset by reserve of JPY 1,200 million set aside based on the projected business impact of Covid-19 outbreak in FY20/21 for compliance with financial covenants, including the maintenance of JPY 3 billion in current deposits, as required by financial institutions. The distribution per unit in SGD cents showed an increase of 14.1%, as compared to the 7.9% distributable income in JPY, due to the strengthening of the Japanese Yen against the Singapore Dollar during the year.

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

Economic Outlook

World economies have been rattled by the outbreak of the Covid-19. In Japan, a country-wide State of Emergency was declared in mid-April 2020. In response, the government announced a record JPY 117 trillion economic stimulus package in April 2020 and another JPY 117 trillion economic stimulus package in May 2020, to protect the Japanese economy with one of the world's largest economic stimulus packages.

The International Monetary Fund (IMF) projected a contraction of growth by - 5.2% for Japan in 2020 which is in contrast with its earlier growth forecast of 0.7% in January 2020. The Covid-19 outbreak might push worldwide economies into recessions, including the Japanese economy. For the time being, economic activity will remain at a lower level than pre-Covid-19 and changes in the golf course industry is expected to continue, with new measures in place to minimise the spread of the Covid-19 outbreak.

Japan's Golf Industry

On 24 March 2020, it was announced that the Tokyo summer Olympics will be officially postponed to July 2021. Golf will still be on the schedule for the second time in more than a century. We see this event as an opportunity to promote golf as a sport. Golf is a sport that has not changed, but the environment and approach to the sport is ever changing.

There are 2,248 golf courses in Japan, according to Nihon Golf-jo Keiesha Kyokai (Japan Golf Course Management Association) in 2018. We expect further consolidation in the coming year as more golf courses with weak balance sheets shutter, exacerbated by the impact of Covid-19.

Looking Ahead

Given the fluidity of the unfolding Covid-19 situation, and the potential long drawn recovery process, we will adopt an agile and continuous learning mindset to ensure social distancing measures are adopted. During the state of emergency declared in Japan, we have taken active steps to close certain higher risk segments of our business such as restaurants, locker rooms and baths, and have implemented 18 hole thru-play, bypassing the Japan's traditional one-hour lunch break practice. Shuttle services provided at the various golf courses have also been suspended.

We will continue to streamline our cost structure to align with the new norm and establish stringent health and safety protocols to restore consumer confidence and employee safety. Employees are now required to put on masks and have been advised to adopt good hygiene practices. At the same time, we have stepped up efforts to increase the frequency of sanitisation of the golf course premises. Large meeting and business trips are also cancelled, with non-customer facing employees encouraged to work from home as much as possible.

As a long term, community focused golf Group, we stand united with the Japanese and Singapore government in their national efforts to contain Covid-19. While our financial performance during our usual best performing spring season have been impacted, the Group's decision to set aside some reserve from the strong performance achieved in the current financial year, will help the Group to stay in the game, allowing operations to continue smoothly and the Group to emerge stronger from this crisis.

Receipt of non-binding proposal

Unitholders should note that on 28 November 2019, the Trustee-Manager announced the receipt of a non-binding proposal, from Accordia Golf Co., Ltd ("Accordia"), in connection with a potential transaction which may or may not lead to a divestment of AGT's interests in all of its golf courses. It was stated in the non-binding proposal that the indicative consideration for the divestment of AGT's interests in all of its golf courses will be JPY 63,167 million plus the assumption of the debt of the holding company which holds all the golf courses (subject to various assumptions like further evaluation by Accordia and the financial and other performance of AGT after the issuance of the non-binding proposal).

On 20 December 2019, the Trustee-Manager announced that it has appointed Ernst & Young Corporate Finance Pte Ltd and Daiwa Capital Markets Singapore Limited as the joint financial advisors to assist with the evaluation of the proposal. On 13 January 2020, an Independent Committee was established. Further to our announcement on 7 April 2020, in light of the state of emergency in Japan and the circuit breaker in Singapore, the Trustee-Manager would like to update that the completion of the review is expected to be delayed. Further announcements will be made upon completion of the review or significant changes to the timeline.

Unitholders should also note that there is no certainty or assurance whatsoever that the receipt of the non-binding proposal or any discussions which may take place pursuant to the non-binding proposal (even if commenced) will result in any transaction.