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Financial Review Of AGT For 3rd Quarter FY17/18

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Profit & Loss

Balance Sheet

Review of performance for the 3rd quarter and nine months ended 31 December 2017.

3Q FY17/18 vs 3Q FY16/17

Operating income for 3Q FY17/18 was JPY 13,942 million, which was 4.6% lower than 3Q FY 16/17. In October 2017, typhoons consecutively struck Japan on weekends and some golf courses were forced to close operations in the best time to make sales. In addition, golf courses in western Japan were affected by heavier snowfall in December 2017 and number of players and operating days decreased compared to the 3rd quarter in previous year.

Operating expenses for 3Q FY17/18 was JPY 10,597 million, which was 2.8% lower than 3Q FY16/17. Most items of operating expenses, such as merchandise and material expenses, which were incurred in line with decrease in number of players in this quarter, however, some items increased such as maintenance cost and utility expenses.

Operating profit for 3Q FY17/18 was JPY 3,345 million, which was 10.0 % lower than 3Q FY16/17. This was contributed by lower revenue due to bad weather during October 2017 and decrease in membership revenue. Profit attributable to Unitholders was JPY 2,574 million, 12.7% lower than 3Q FY16/17.

Total distributable income attributable to Unitholders during the quarter was JPY 1,576 million, which was 15.2% lower than 3Q FY16/17. This is mainly due to the aforesaid performance and increase in expenditures for capital investments.

9 months FY17/18 vs 9 months FY16/17

Operating income for 9 months FY17/18 was JPY 41,895 million, which was 0.3% lower than 9 months FY16/17. We had maintained good operating performance in revenue and profit until 2nd quarter, however, total revenue for 9 months dropped to less than previous period due to typhoons on consecutive weekends in October 2017 and heavier snowfall in December 2017.

Operating expenses for 9 months FY17/18 was JPY 32,896 million, which was 0.7% lower than 9 months FY16/17. Some items in operating expenses increased such as utility expenses due to price hike in crude oil and commission paid to external service vendors for increasing customers, however, total operating expenses decreased as a result of our strenuous efforts to reduce costs such as getting rebates for bulk purchases.

Operating profit for 9 months FY17/18 was JPY 8,999 million, which was 1.2% stronger than 9 months FY16/17. Profit attributable to Unitholders was JPY6,972 million, 2.0% higher than 9 months FY16/17.

Total distributable income available during 9 months FY17/18 was JPY 3,048 million, which was 21.5% lower than 9 months FY16/17. The decrease of distributable income was due to one-off payment of borrowing transaction costs and temporary large repayment of membership deposits in previous quarter.

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

The Japanese economy is expected to continue its recovery with solid domestic and foreign demand. Capital expenditure will continue to increase due to the redevelopment in the city centre and investments in construction of new hotels and logistics facilities in addition to the increase in research and development investments in the manufacturing industry, individual consumption will be also steady due to the increase in employment income and the stock market rallies. In regards to foreign demand, it is expected that the trend of the increase in export will continue because of the recovery of capital expenditure worldwide.

As a result, in year 2017 and year 2018 the growth of Japanese real GDP is expected to be 1.8% and 1.2% respectively, due to the steady domestic and foreign demand. In these circumstances, the Japanese golf market has continued to be stable with the demand for weekdays play from senior players.(1)

The higher healthy life expectancy of seniors has also led to increasing demand as senior players can continue to play golf at an older age. On the other hand, younger players are not increasing in proportion to older players due to Japan's aging population. Such a situation is widely recognised in the golf industry.

AGT's sponsor recognised this trend years ago. AGT adopts profit optimisation strategy and promotes larger private group competition to achieve more stable revenue. Furthermore, AGT's golf courses have started to install new GPS navigation systems on the golf carts and introduced "U-40 Passport" which provides special additional points for under 40 passport holders, "L-Style" including ladies golf circles to encourage ladies players and junior programs known as "Accordia Kids" which supports younger generation. AGT has been making efforts to expand to a more varied player base to generate stable cash flow and distribution.

(1) February 2018 Japan Research Institute – Monthly report of prospectus for Japan's economy