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Financial Review of AGT For 1st Quarter FY18/19

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Profit & Loss

Balance Sheet

Review of performance for the 1st quarter ended 30 June 2018

1Q FY18/19 vs 1Q FY17/18

Operating income for 1Q FY18/19 was JPY 14,413 million, 1.1% lower than 1Q FY17/18. The decrease was primarily due to a decline in the number of visitors in May and June 2018. Revenue for April 2018 was favourable and steady. In May 2018, certain AGT golf courses did not perform up to peak season expectations due to unfavourable weather on weekends. In addition, an earthquake around Osaka area in June 2018 forced certain AGT golf courses to halt operations.

Operating expenses for 1Q FY18/19 was JPY 11,327 million, 0.4% lower than 1Q FY17/18, as AGT was able to lower the overall costs through bulk and centralised purchasing.

Operating profit for 1Q FY18/19 was JPY 3,086 million, which was 3.6% lower than 1Q FY17/18. Profit attributable to Unitholders was JPY 2,391 million, 2.4% lower than 1Q FY17/18.

Total distributable income available during the period was JPY 1,665 million, which was 7.2% lower than 1Q FY17/18. The decrease was mainly due to an increase in cash reserved for expected refinancing fee payment in the next 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

During the 1st quarter 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 being backed by infrastructure investments ahead of 2020 Summer Olympics and redevelopments in the metropolitan areas in the near future.

The market size of Japan's golf industry declined from JPY 874 billion to JPY 870 billion year-on year in 2017(1). However, Accordia Golf group, as one of the leading golf business operators in Japan, displays strong presence in the shrinking market leveraging on its economies of scale.

The number of golf players is likely to continue to decrease due to lower birth rate, aging population, and diverse lifestyles. AGT focuses on generating stable profits from senior golfers over age 50 who represent the majority of golfers and they can enjoy the sport during their lifetime. We focus especially on senior golfers' play on weekdays where utilisation rate is relatively lower, and also on promoting corporate golf events. Exclusive programmes such as "L-Style" (for lady golfers) and "Accordia Kids" (for juniors) are offered to attract more plays by especially the females and the juniors to revitalise the golf industry. In addition, AGT's golf buggies have been increasingly fitted with GPS navigation systems to promote an easier and more comfortable play experience.

Furthermore, taking advantage of our economies of scale, we achieved considerable cost reduction from the centralised procurement system to purchase food and supply items for the golf courses, as well as sharing of expensive golf course maintenance equipment among multiple golf courses. This allowed us to manage capital expenditure more effectively.

With these efforts, AGT maintains its competitive advantage over its competitors and targets to maintain stable profitability and dividends.

(1)White paper on leisure 2018